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

Right, everybody who's joining, welcome. We're just going to wait 30 seconds to make sure that everybody who has signed up gets the chance to join before starting. So just bear with us for a little longer. Okay. Right. I think we've got most people on now. So a very good morning. Congratulations to everybody who has made it onto the call given the technological problems experienced globally overnight, which may come up in the Q&A. We're very pleased to welcome back from Cohort's CEO, Andy Thomis; and Finance Director, Simon Walther. They have plenty to talk about excellent full year results just reported and a very positive outlook. In terms of the Zoom process, I hope you're all aware. Please do submit any questions you might have via the Q&A button, and we will deal with them at the end of the formal presentation. There is the slide deck that the boys are referring to is already on the Cohort website, and this whole webinar is being recorded and will be recirculated. So without further ado, I would like to pass over to Andy to start the presentation.

Okay. Well, good morning, everybody. Thank you for joining us. I'm Andy Thomis, Chief Executive at Cohort plc, and I'm here with Simon Walther, Cohort's Finance Director. We're going to take you through our results for the financial year which ended in April this year. So I'm going to start by giving you highlights of the results that we're announcing today. Simon is going to give more detail, including a divisional breakdown. I will come back with some comments about the demand picture and our future prospects. I'm happy to say that overall, we've once again seen a very strong performance, record operating profit, record revenue and a record closing order book. The numbers are on the slide. Revenue and profit both up very strongly, above market expectations. We hit what I think are 2 major milestones in our development as a group. For the first time, we had revenue greater than GBP 200 million and profit greater than GBP 20 million. More specifically, revenue was up 11% to GBP 202.5 million. Adjusted operating profit and adjusted EPS also grew strongly to just over GBP 21 million and 42.9p, respectively. And those are all new record numbers. Very importantly, it was a strong period for new orders once again. The order intake of GBP 392 million significantly exceeded the revenue that we recognized. So that by the year-end, the total order book had grown to nearly GBP 520 million. And that meant that 90% of the consensus forecast revenue for this year was already on order at the end of April. And our strong order winning run has continued since then. We've taken in over GBP 70 million of orders since the year-end, and the order book has now grown to over GBP 560 million, and that's given us over 95% cover for the year. And finally, our cash performance was also strong, bringing us to an end of year cash position much better than we had expected. So net funds of over GBP 23 million. And against that background, the Board is very pleased to recommend a final dividend of 10.1p, once again representing an increase of 10% in the dividend for the full year. If we can have the next slide, please, Andy. Simon will give a more detailed breakdown of the performance of our divisions, but this slide shows the main factors behind the group's performance improvement. Overall, the Sensors and Effectors division was the driver of revenue and profit growth. Communications and Intelligence, in fact, was slightly behind where it had been the prior year. In Sensors and Effectors, Chess and SEA generated the large improvement in operating performance. A generally positive demand environment was an important factor and that coupled to good products that have been developed to meet what the market needed. And the most notable example of that was the selection of SEA's Ancilia products to protect the Royal Navy surface ship -- ships that we announced in March. There was an especially strong turnaround in performance of Chess, which exceeded our expectations for revenue and profits in the year. And that was a demonstration of the success of the operating improvements that have been made by the Managing Director there with support from Simon and myself, and we continue to target further operating performance improvements. ELAC SONAR continued to trade its large Italian submarine contract cautiously, but again, it performed well. And in the year, the Italian submarine SONAR suite passed its critical design review, a very important milestone and has now moved forward into the production phase. In Communications and Intelligence, which performed slightly behind their prior year, the main swing factor was MCL, which returned to a more normal level of performance after an exceptional year in 2022-'23. MASS returned to growth and hit new records of revenue and profit despite being hampered by supplier delays on one important contract. EID had another disappointing year, making a small loss. But the good news was that towards the end of the year and at the beginning of this year, it succeeded in bringing in some important orders with a total value of over EUR 45 million, and that bodes well for a better year in 2024-'25. And finally, I should mention a small acquisition made by MCL. It's a company based in Knaresborough in Yorkshire called Interactive Technical Services (sic) [ Solutions ], ITS. It specializes in providing the support documents needed by defense customers when they buy new equipment. And that's a capability that's often contracted out by equipment suppliers. And MCL has been a frequent user of ITS' services. So we believe that the acquisition will enable ITS to expand its offering and MCL to offer a fuller service to its customers. The acquisition was completed in May, and it will make a modest but positive contribution to our trading in this financial year. Now as well as delivering successfully in 2023-'24, we've also improved our strategic position for the longer term. First, the demand drivers. Those have remained very strong. The world, unfortunately, is not showing signs of returning to stability. If history ever did stop, it's clearly restarted now with vengeance. And that backdrop has led us to invest in new technologies to enhance our growth prospects. And our research and development spend was very much up sharply this year. The larger and longer order book speaks for itself. Our book-to-bill ratio was over 1.9 last year, and that momentum has continued into 2024-25. And the result of that is that we can maintain our growth prospects for the current year with perhaps a little upside from that ITS acquisition, which is going to be modest in size, but it will be positive and it will be accretive. And thereafter, that positive strategic picture enables us to target further process in those later years. Now I'll say more about all of those points later in the presentation. But for now, let me hand over to Simon, who's going to take you through the results in more detail. So Simon, over to you.

Thank you, Andy, and good morning to you all. As Andy has already said and I reiterate, a record full year trading performance for the group. The higher revenue was driven by Sensors and Effectors. As expected, gross margins have recovered from last year, mostly as a result of the Sensors and Effectors also. As a result of the increase in the order book, we continue to invest in our people, continuing the trend we saw at the half year. We've now seen a rise in headcount from just over 1,100 people in last April to over 1,300 in this April, a 15% increase. In fact, over the last 3 years, we've increased our headcount by over 30%. Most of the increase in people has been indirect staff, specifically engineers. The cost of recruitment, training and general people investment has driven much of the overhead with a balance in business development, especially the DSEI Show last September and investment generally at Chess and SEA for the enlarged order book. At this point, I would guide that the tax rate applied to our adjusted earnings will rise in the coming year, '24-'25 to below 20%, and in the 2 years after that to just over 20%. The operating margin at 10.4% was in line with last year. Looking forward, we are targeting a steady rise over the next 3 to 5 years to a low to mid-teen percentage for the group as a whole. Move to next slide, Andy, please. Thank you. Sensors and Effectors saw a 24% increase in revenue, which drove a 38% improvement in trading profit. The revenue increase was mostly at SEA as it started to deliver its strong order book from last year. The improved operating margin is very much down to Chess, which as we stated last year, closed out problem legacy projects and delivered an operating margin of over 10%, whereas against last year, which was 2%. At ELAC, we completed the critical design stage of the Italian sonar contracts and are now into production of the first ship set. We continue to trade margin prudently on this project, and we expect to deliver the first ship set in '25-'26. Last year also benefited from the last payment from Wärtsilä under the indemnity scheme of GBP 0.5 million, which was not repeated this year. Excluding this item, the underlying operating performance of ELAC was up 25%, both in revenue and trading profit. SEA as expected delivered more revenue, but its mix was weaker with greater subcontractor effort, especially on a delivery for an overseas customer. The order cover for this division for '24-'25 is over 95% with good prospects of further orders from some of our key products, including counter drone systems. We expect this division to continue to grow in the coming year with net margin set to approach 12% as against just under 11% for this year. Turning to Communications and Intelligence. This division had a weaker year than the exceptionally strong performance of last year. The revenue drop was at MCL, which delivered exceptionally high levels of hearing protection and intercoms to the U.K. MOD last year and has returned to more historical normal levels this year. EID's loss for the full year was lower than last year due to continued delays to significant orders from its domestic customer in Portugal. As announced on Monday, some of these have now been secured. We do expect EID to have a much better '24-'25, but it still has some way to go before it achieves the historical levels of performance, including operating margins of over 20% and more importantly, on a sustainable basis. MASS delivered a stronger result than last year. The net -- the weaker net margin for this division was down to the drop in volume at MCL. Order cover for this division is now 95% following the recent order wins announced this week. Historically, this division's order cover is lower than Sensors and Effectors with the short-term nature of some of the work at MASS and especially MCL. So a 95% coverage at this time of the year is a strong position. We expect this division to deliver a stronger result in '24-'25 with an improved operating margin of around 16%. Moving to the next slide. Here, you can see, and we showed this last December is a picture of our new facility in Germany for ELAC. This is taken last December, as you can tell by the rather inclement weather. And this explains why there has actually been a delay to the production. The weather over the winter in Northern Germany is quite bad. And that resulted actually in our net funds being higher this year or partly resulted. But one of the things you'll notice is that very large hole. And if we move to the next slide, this was a picture taken of that same site as of Monday this week. You see the weather is much better. To the right there, that wall is actually surrounding what is now a 30-foot deep test pool. It's about 9 meters squared. And the rest of it, you can see the foundation is now being laid for the facility. We still -- we estimate the overall cost of this facility will be around GBP 19 million, with the majority of the expenditure coming in this year, '24-'25. And if we move to the next slide, we can see the net funds bridge for the group. I mean, overall, we had a very strong first half and the second half was better than I expected. As I already highlighted, the expected CapEx ramp-up on the new ELAC facility didn't happen as much as we thought due to the adverse weather. We also -- and that will fall into '24-'25, and I'll talk about the CapEx projections for the coming years. Sensors and Effectors also had a very strong operating cash flow with its strong order book and some customer advances. We do expect some of these to start to unwind in the coming year. And overall, the increased CapEx and some unwinding of the advanced position, we expect net funds for this year to drop back from around GBP 23 million to around GBP 15 million before recovering again in '25-'26. You can see there the CapEx projections for the next 3 years, GBP 17 million for this year, GBP 7 million for '25-'26, and back to GBP 5 million in '26-'27. If you take out the spend on the ELAC facility, which we estimate at GBP 12 million for this year and GBP 2 million, GBP 3 million the following year, you see that the underlying CapEx spend for the group is around about GBP 5 million per annum. The one thing I would always say is, as usual, the nature of our receipts and payments make any prediction of our closing cash quite difficult because we do have receipts that could be several million pounds individually. Overall, summing up, I would say it's been an encouraging start to '24-'25, strong expectations of growth being maintained with strong momentum. And with that, I'll hand back to Andy.

Thank you, Simon. So that covers the year just passed. Now I'm going to talk about the outlook. I'll start with the broad market position. Then I'll talk about some of the investments that we're making in new products and technology to maximize our opportunities. And I'll show you then how our existing order book runs off over the coming years and how it's developed over the past 12 months. So we'll start with the demand picture. The 2 main driving forces, the demand for defense equipment have not changed in the last year. The continuing conflict in Ukraine and the influence of growing Chinese assertiveness really from the Indian Ocean all the way to Australasia. And to add to those, since October last year, there's been the developing violent conflict in Gaza and the related instability in that region, particularly in the Red Sea. The conflict in Central Europe is primarily land-based. It has driven demand directly as the NATO countries seek to assist Ukraine to resist the Russian invasion. So 2023, for instance, saw a real increase of over 8% in defense spending across the European NATO allies and Canada, so the non-U.S. NATO countries. And it's also made NATO and other countries think again about the balance of their defense forces and equipment. And some aspects of that, for instance, increasing ammunition stockpiles don't have an impact on us. But some of the other lessons learned, the importance of electronic warfare, the need to counter drones of all kinds, the need for accurate and timely battlefield intelligence. All of those have had a positive impact on both our orders and our prospects. And then in Asia, growing Chinese assertiveness has not yet transformed into open conflict, but it has come perilously close in the South China Sea. Taiwan is also clearly at risk. The presence in North Korea in the region is not a stabilizing factor I would add as well. And Chinese investment in its Navy, which has been one of the main thrusts of investments in China has led to a response in the form of new maritime programs in the region and elsewhere. And the most visible and significant consequence of that was the AUKUS alliance between the U.K., the U.S. and Australia. And Taiwan and the Philippines have also launched new submarine programs. Elsewhere in the region, South Korea is investing heavily in defense, notably in its submarine building program. Japan quite strikingly remains committed to a doubling of its national security spend as a share of GDP by 2027. Its defense spending increased by 27% last year and a further 16% in the current year to 2024. And Japan has also joined the Anglo-Italian next-generation combat aircraft project, balancing its strong historical U.S. relationship with growing ties to Europe and particularly to the United Kingdom. The conflict in Gaza doesn't have the same direct impact as the other factors, but it's symptomatic of wider tensions in the region, primarily between Iran on the one hand and Saudi Arabia and its allies on the other. The attacks on ships in the Red Sea have accentuated the need for drone and missile defense systems, and more widely, it's likely to drive further defense spending in what is one of our more important regional markets. It's hard to see how all of these conflicts, intentions are going to play out in the long term. But it is clear that we're not in a situation that can be resolved with a few hand -- with a few compromises and a handshake. The world is now in a new period of instability and tension that I think is likely to persist in the foreseeable future, comparable perhaps to the Cold War, but maybe even more complex and unpredictable. Now clearly, that's not something that should fill us with happiness. We should all be concerned for the well-being of our families and for future generations. At Cohort, something that really motivates us is that we're able in circumstances like this to make a positive contribution because the equipment and services that we supply contribute to the security of our nations and our allies in what has become a dangerous world. So in practical terms, what is the impact of all of this for us? Well, looking at our domestic markets, the most important is the United Kingdom. 54% of our total revenue in '23-'24 went to the U.K. directly and indirectly. And in particular, we have a close relationship with the Royal Navy, with Chess and SEA, both significant suppliers of equipment and support. The Ancilia win has deepened that relationship further. But we also provide electronic warfare training and software for the British Army and the Royal Air Force, a wide range of communications and electronic warfare equipment from MCL and exercise support for the U.K.'s strategic command. I don't see the recent change of government as being likely to change the fundamentals of U.K. defense strategy. The new Defense Secretary, John Healey, is very able man. He's an experienced minister. He's appointed George Robertson, the former Defense Secretary and Secretary General of NATO, to lead the defense review. All of the indications are is that the new Starmer government is responsible. And I don't think any responsible government would take risks with defense at a time like present. Our domestic markets in Germany and Portugal are important, but smaller. And as I mentioned in Portugal, we've finally seen some good order intake for the Army, and we're also in discussions about another important program in this case for the Navy. In our export markets, we're seeing strong demand from the European NATO countries for air defense systems, particularly for countering the drone threat. And that demand comes to us both directly and via partners like Rheinmetall and Bofors. And our capability in this area has brought us into some new markets in Central and Eastern Europe that we haven't accessed before. We are also in Northern Europe, providing battlefield reconnaissance systems as well as a more widely electronic warfare, software and training. And in the East, we see strong demand from Asia, from the Indian Ocean all the way to Australasia for naval systems in particular. Torpedo launchers and communication systems for surface ships are both in demand. We see good opportunities in this region for Ancilia as well and for sonar systems, too. As I mentioned, submarine programs are being launched worldwide, and that provides opportunities in countries as diverse as Canada, Poland and the Philippines. Overall, NATO and the Indo-Pacific are the regions that we supply most, though we're also active in South America and Canada. And overall, the demand picture for Cohort, we believe, is robust. If we can move on to the next slide. Against that encouraging background, we are increasing our spend on technology development to meet the evolving needs of our customers. This year, it was a 26% increase. Now many of the projects that we invest in are sensitive, but I did want to share some examples with you. Looking at the drone threat at first, Chess has developed artificial intelligence-based technology to attract small and elusive airborne targets like drones. Now that can be combined with high-power jamming to block the drone's command and communication signals or for a more permanent solution, something like the Bofors 40-millimeter cannon that's shown in the picture on the left can be used. And you can see Chess' equipment based on top of that turret. And Chess has also developed related technology to provide battlefield surveillance based on vehicles or on fixed surveillance posts. And that system can be elevated above tree level on a vehicle, on a mast, and then used to detect and track and also using a laser designator to designate targets for smart weapons very accurately at surprisingly long ranges. And then moving to the underwater world. ELAC's new digital sonars are an extraordinary or offer an extraordinary level of underwater performance. They've reached a new level of sensitivity, and that's been achieved by mounting literally thousands of small sensors into a panel like the one that you can see in that central picture there. They're also using some software, some of which is actually unique and a unique capability to ELAC, brought in beam forming, which allows targets to not only be detected of longer range than ever, but also to be able to accurately position them in terms of bearing and depth as well. Now I've talked about before, SEA's towed array sonar, which is suitable for small lightweight surface vessels. And if you are quick, you might have caught a picture of that, which was flashed up as the very first introductory slide. It's become apparent to us from recent exhibitions and conferences and discussions with customers. That world's navies are looking to grow very strongly, the number of uncrewed vessels that they deploy, both on the surface of the sea and under the water as well. And SEA's Krait towed array sonar is ideally suited to those applications as a lightweight, low-power but very sensitive sonar detector. And last but certainly not least, I must mention Ancilia, a SEA system for protecting naval surface vessels from the anti-ship missile threat. And you can see that on the right-hand side of the slide. Events in both the Black Sea and the Red Sea have shown us just how potent that threat is. We see a significant international market for Ancilia as a result. The product is actually the result of a collaboration between SEA and Chess. And that's a happy outcome because we have 2 businesses that are world experts, respectively, in the decoy launcher itself and the stabilized position on which is mounted under the same roof in Cohort. Now investments in those and in other projects positions us well to meet customer requirements, which are evolving for the reasons that I explained earlier. And finally, in terms of investments and no less importantly, we maintain our strategy of seeking and investing in value-adding acquisitions. Now we're very selective, and we won't acquire a business unless we know it will add value and growth in the long term. ITS is a small example of that, but it matches very much our profile. Now if we can move on to the next slide. I've talked in broad terms about markets and capabilities, but this slide shows the tangible results of the demand picture that I've described. And if you look at the chart on the right-hand side, that shows the order book runoff for the order book that we had at the end of the last financial year in April 2024. At nearly GBP 520 million, the year-end order book is the strongest that we've ever announced. It includes over GBP 180 million for delivery this year and over GBP 100 million for next year already. And of course, the Ancilia order at over GBP 135 million made a big contribution to that order book. But it's worth mentioning that even without that, we would have seen order intake of over GBP 0.25 billion in the year, and it would still have been the best year for order intake that we've ever experienced and the best closing order book. Now as I mentioned earlier, since the year-end, our order book has continued to grow and it reached almost GBP 560 million at the end of June, giving us now 95% or over 95% revenue cover for the year. If you look at the color coding on those columns, you will see that the larger part of our order book now sits with the Sensors and Effectors division. SEA makes a very strong contribution to that number. ELAC and Chess also adds significantly to the total. In Communications and Intelligence, MCL tends to operate naturally on a short-term order book. So its contribution to the total is modest, although you'll have seen recently, we've announced really quite a substantial order that MCL has taken and mostly for delivery this financial year. Now MASS' order book is substantial, but it only increases significantly in years when its large long-term service contracts are renewed. EID has been in discussion about some substantial domestic programs for what has felt like forever and that was still ongoing at the year-end. But the good news is, since May, they've been awarded more than EUR 45 million of new orders and that significantly replenishes their order book. Now just for comparison purposes, the chart on the left shows the shape of the order book runoff last year. And what you can see is that it has maintained its shape in broad terms. All of the columns have increased in size. The change that really stands out, though, is for the longer-term revenue, which has grown from GBP 65 million last year to GBP 167 million this year, almost a 250% increase. And that is the impact of Ancilia and other long-term contracts providing a steady flow of revenue for over a decade ahead, in fact, out to 2037. And that's a solid foundation that we can build on for growth in the years ahead. Now if we move to the next slide, here you can see in tabular form, the order book runoff for the current year, together with a comparison against the same position last year. Now that increase in total order book from GBP 329 million to GBP 519 million, that's more than 57% increase, is a strong indicator of the potential for future revenue growth. And since then, as I've said, it's gone up to over GBP 560 million with 95% cover for the year. The 2 shaded columns show the revenue already on order for the year ahead at year-end compared to the same position in 2023. Now in Communications and Intelligence, we can see that the underpinning is a little higher than last year's. But as I mentioned, that strong order intake from both MCL and EID since the year-end has improved that position really quite significantly. But the big change is in Sensors and Effectors, where the underpinning for the year has risen from GBP 84 million last year to over GBP 120 million just from that division, an increase of over 40%. And that's a really big plank in our foundations for growth in the current year. So that brings me almost to the end of the presentation. If we can have the next slide, here's a summary of the main points that I wanted to make. It's been another record year in terms of performance. We're not resting on our laurels, but we're very pleased to be growing the size and strength of the group. Perhaps even more importantly than the year's performance, we've achieved a record order book and we see a really strong pipeline of further opportunities ahead. And as I mentioned, that's grown to over GBP 560 million at the end of June. We've got a strong balance sheet and an excellent relationship with our banks. That gives us the resource we need to invest in new technology, greater production capacity and when opportunities arise to make carefully targeted acquisitions. The markets that we're operating in are growing, and we expect to see those higher levels of spending maintained in the longer term. And that book-to-bill ratio we achieved of over 1.9 is a reliable quantitative market for future growth. We maintain our growth expectations for the year. And beyond that, we expect to see -- or in the year, we expect to see some improvement from the ITS acquisition. And then beyond the current year, we believe the combination of growing demand and our market position allows us to target further improvements in performance. And I hope what you've heard from us today explains why we've reached that view. As a result of our performance and our prospects, the Board has felt confident to increase the dividend by 10% once again, and we've grown the dividend every year since our IPO in 2006. And if we can flick on to the final slide. In closing, I wanted to take the opportunity to thank our management teams and our employees for their continued hard work and professionalism. Because thanks to them, this year has seen us take another step towards our exciting long-term future as a major independent U.K. defense technology group, offering world-class systems to domestic and export customers alike. Our strategy continues to be to generate growth both organically and through acquisitions, while paying a dividend that reflects our successful financial performance. And we believe this offers the best long-term returns for investors while creating high-value employment and enhancing security of the U.K. and its allies. That's all I wanted to say. Thank you very much for your attention. If you have questions, then Simon and I will do our best to answer them.

Great. Excellent year and a very, very clear presentation. So a number of questions already passed through. Let's dive in. Simon, numbers one to start with for you. Could you say a little bit more about the payment of R&D? I understand the importance of the company investing it, but can you say a little bit about tax credits, particularly in the U.K. or Germany or typically how clients may be able to help cover the cost of development?

Right. On the R&D spend itself, the figure we quote is actually the -- our private venture R&D and plus the R&D credit we received in the U.K., of that figure of GBP 14.6 million, around 75% is funded by our customer. So that gives you an idea on that front. And just to highlight that most of it is U.K. In Portugal, R&D credits are also received, but they're recognized on a cash basis. And that's one of the reasons why the tax charge for this year was a bit lower than we expected. And Germany is about to introduce a R&D scheme, but it is not through tax. It will be actually through an effectively government subsidy. So if we get R&D credits going forward, and I do expect we will in Germany because a lot of what we do is leading-edge technology, they will effectively add to the operating performance of the German business. And in terms of the balance sheet side of it, our general approach, obviously, with the R&D that's funded by customers, that generally gets put to the contract. So effectively it's expensed through cost of sales. On our own PV R&D, our general approach is to expense it as we incur. There are 1 or 2 occasions where we will put it on the balance sheet. And a good example is the Ancilia system, which is, as you can see, is a very physical system. It's not just bits of paper. And I can assure you actually, it'll probably be used in the actual contract anyway. And I think the -- sadly, that demonstrator may end up in rather lots of bits when it goes through the various testing that the government will insist upon. I hope that answers the question.

It does indeed. And we might move on to an Ancilia question on the back of that. Yes, a fantastic order. And Andy, you've already alluded to a lot of overseas interest from potential customers. Can you give a vague indication of how the pace of that interest might progress or is it too soon?

Well, we are -- I mean, it's not just that we've seen potential. We are in dialogue with both customers and partners with whom we can jointly approach the market on Ancilia. As I explained, I think the new threats which ships are facing because of some of the new technologies that have been developed in China and Russia, missiles that approach their targets, where the question is not how many miles per minute they fly, but how many miles per second that they fly. The old ways of maneuvering the ship to minimize its -- the frontal area and firing off decoys from -- in fixed directions is no longer going to be affected against that kind of threat. So they're going to need a system like the one that we've developed, capable of firing those large heavy decoys very quickly in the most optimal direction and the right kind of decoy to defeat whatever it is the threat is. So we see that as systems generating a lot of interest on the export market. And where I can't sort of talk to you about specific customers, I can tell you that we're already in discussion with customers and we would hope that, that will bear fruit in due course.

Sounds encouraging. Perhaps back to you, Simon. A significant increase in headcount up to 1,300. The question is how have you managed that in what is a perceived tight market for specialist engineers, particularly in the U.K.?

Well, it's both. The growth has come particularly at SEA, Chess and actually ELAC in Germany. The reason we focus particularly on our employee engagement and attraction. We've used a number of schemes. Obviously, remuneration is one of those, but we haven't sort of -- we're not sort of paying above market rates, particularly to get people in. I think what we offer is a more rounded opportunity for people who join us. And as Andy has touched on before, we basically, where our businesses are small and agile, many of our direct staff, our engineers are actually involved in customer interactions directly. They have variety of work. They're -- obviously, at times they're going to be working on projects that are funded by customers. At other times, they can be doing a bit of blue sky thinking and more R&D development. We particularly focused across all of our businesses on graduate schemes and school leavers. MASS, I think, do a hell of a lot of work with their local schools where they go during term times and sort of show them how IT works and literally sort of breaking apart computes and rebuilding them. And they particularly -- I think they've taken -- they took on a Cohort, I think, for the dozen 18-year-olds recently into the business. And SEA, again, I think, Andy, you probably know the number, how many people subscribe to their graduate scheme.

Yes.

The overseas subscription is quite remarkable.

Yes, we had them. It was over -- our 6 places were oversubscribed at SEA by a factor of 100 in this year's graduate engineering round. And as Simon has said, the reason is that we offer interesting jobs. And in SEA's case, a pleasant location in North Devon as well. So a good one for the surfers.

Particularly today, I would think. So an awful lot of sense of growing your own in such markets as well.

Now we have a question, probably more for you, Andy, The overall balance of the group looking longer term, can you see more of the emphasis of Cohort shifting to Asia Pacific, given what's happening with AUKUS? Or are the NATO concern is closer to home with no sign of resolution in the Ukraine yet going to keep the current balance in regions broadly intact?

Well, the short answer is both are growing, and it's hard for me to say which is going to grow faster. It rather depends on events. The -- I mean if there were to be, for example, the Chinese invasion of Taiwan, I'm not expecting that in the immediate future. But if there were to be, that would drive an exceptional growth in demand from that region and one that we are well placed to participate in fulfilling. At the moment, as I explained, the U.K. makes up just over half of our total revenue output. And I expect almost whatever happens, that to continue to be a very substantial factor. It's often the case in defense that one satisfies one's domestic customer first and then provides a strong boost in the export markets. But overall, there's no doubt, there is very strong demand arising from both NATO Europe and indeed Asia from the Indian Ocean all the way down to Australia.

Great. Very clear. We had a follow-up, Simon, on the staffing question, which is, have you been losing staff in any worrying numbers during the year given the interest in the sector? And can you say a little bit more about how you balance remuneration compared to the rest of the market? Or is it the attractions of the Cohort Group, its positioning that brings people on board?

No, good point. I mean, yes, we lose people. But as you can see, the net increase shows that we're bringing in more people than we're losing. The -- I think the turnover varies from business to business and from time to time and in particular roles. But overall, I mean, in ELAC, for example, I think the turnover in staff has been less than 1%, which is a remarkably low number. The point about the remuneration is we pay what is appropriate and it varies from our business to business and also the regions. I mean, obviously, wages in an area like Barnstable are not going to be as significantly higher as they probably are in St. Neots, which is quite near to Cambridge, or what we've seen sort of -- we've got one of Chess' businesses is in Wokingham in the Thames Valley, where you will see higher wages. So we lead -- and that's one of the advantages of our model is that the way our businesses operate with a great deal of independence, we leave much of that then to determine. It's not for me and Andy sitting West of Redding beside what the appropriate wages are going to be in Lisbon. We set a sort of overall budget, and we try and keep within that in terms of an overall pay increase each year within the budgeting cycle. But again, occasionally, our businesses have to deal with what's going on in the market and that's their call. That's what the managing directors of each business are paid to do really.