Cohort plc - Results FY26 Webinar recording with Q&A

Good afternoon and thanks for joining us. I'm Andy Thomis. I'm the chief executive at Cohort PLC and I'm here with Simon Walther who's Cohort's finance director. Cohort for anyone who doesn't know provides advanced defense technologies and some services to the UK and its allied nations around the world. And Simon and I are here to present our latest financial results and to explain some of the technical innovation, the geopolitics, and the other market drivers that support that growth. So a word about our capabilities. Cohort's businesses all share a common purpose in developing advanced defense technologies to contribute to our customers' national security and defense, and each of our businesses brings its own specialist expertise. Collectively they deliver innovative solutions that help customers address what are increasingly complex operational challenges. And we operate through two divisions: communications and intelligence, and sensors and effectors. And across those two divisions we offer really quite a broad range of capabilities as you can see from this slide. Now I'll talk more about demand patterns later in the presentation but just looking at this list I would highlight the counter-drone capability, the anti-submarine systems, seabed warfare, others as well, but these are all areas that are clearly relevant to the current needs of defense customers.

We can move on to the next slide. As a background to the results I thought it would be helpful to show you Cohort's total shareholder return since our IPO which is 20 years ago this year. This is our 20th anniversary. And the chart shows it benchmarked against both the AIM All-Share index and our peer group of listed UK defense companies. And as you can see from the chart over the period Cohort has significantly outperformed the broader market and delivered returns well ahead of our peer group. And as you might expect, while there has naturally been some share price volatility over that extended period, the overall trend is sustained growth, underpinned by strong operational performance and increasing order intake. And since 2022 at least, a favorable defense spending environment. And that sharp acceleration that you can see from 2024 onwards reflects growing investor recognition of Cohort's market position and the opportunities arising from increased defense and security investment in the UK and across our other markets in its allied nations. And the conclusion from all of this is that we've been able to create value consistently for shareholders over a long period through the successful execution of our strategy.

If we could move to the next slide because this slide shows in a bit more detail how we've delivered that shareholder return. The chart on the left shows the progression in adjusted operating profits since 2006, our IPO, and from a relatively modest base. We've steadily expanded the business through a combination of organic growth, and that's underpinned by investment in both technology and capacity, and strategic acquisitions. And despite periods of economic uncertainty and changing geopolitical conditions, and I'd pick out the arrival of austerity with the coalition government in 2010 and the post-COVID hangover in 2022, overall the trajectory has remained strongly upward, culminating in, as I will explain in a moment, a record performance this year. And the chart on the right demonstrates our commitment to delivering value to shareholders through our progressive dividend policy. Since 2006, the dividend has increased every year, reflecting both the resilience of our business model and the confidence we have in the group's long-term prospects. And I'm reliably informed that as a company that has increased its dividend every year over a 20-year period, we are now officially a dividend hero. I'm not sure how that lands with you, but anyway, it sounds pretty good to me.

So can we move on to the next slide please because this shows the financial highlights of our 2526 year, the year finished in April 2026, and it was another outstanding year for Cohort. We delivered record revenue and record adjusted operating profit. The revenue has exceeded 300 million for the first time, now over 306 million, and the operating profit grew by 32% to more than 36 million. And of course with that we've enhanced our margin as well, moving it towards our longer-term aim of mid-teens. Demand for our products and services remained robust throughout the year. And I'm pleased to say that our order intake of 314.2 million exceeded our revenue and that brought us to a record year-end order book of nearly 620 million. And that provides excellent visibility of future revenues and contracted work which goes out to 2037. As expected, operating cash flow and net funds were lower than the exceptionally strong levels reported last year, primarily reflecting working capital movements and investments associated with the growth of the business, about which we will have more to say. Nevertheless, the group remains in a positive net funds position and continues to maintain a strong balance sheet. And we're very pleased to recommend a full year dividend of 17.9 pence, once again representing an increase of 10% on last year's. And that reflects the board's confidence in the group's continued success. So now I'd like to invite Simon to share some more details of our financial performance.

Thank you, Simon. And before we move on to the strategic context, I wanted to highlight some operational initiatives that we've taken in the last year. If we can move on to the next slide, please. Earlier this year, we appointed Chris Axel as the group's first chief operating officer. And Chris has joined us from Leonardo where he held multiple technical and leadership roles including vice president surveillance and protection technologies, vice president sensors, and most recently senior vice president integrated sensing and protection where he was responsible for two of Leonardo's major UK facilities. He brings extensive experience and expertise in managing business operations within the defense sector and adds deep industry knowledge and values to the group headquarters team. And as COO, Chris will work alongside Simon and me to provide oversight and strengthen operational performance across the group. He'll also take over from me the day-to-day relationship with certain of our operating businesses and support me more widely across the range of my responsibilities including identifying potential acquisition targets. Next slide please. Chris's appointment has enabled us to take several initiatives with the aim of enhancing our operational performance. So we've launched under Chris's leadership a group forum for engineering, operations, and supply chain teams, creating opportunities to share best practice, solve common challenges, and build on the collective experience of our businesses. And we now plan to create a project management forum again under Chris's leadership, further strengthening program delivery across the group, and that will include the introduction of a group-wide project life cycle framework to provide a consistent approach to bidding, project execution, and governance. And in addition, and more specifically focused on Chess, we're introducing there integrated project teams, bringing together the key disciplines required for successful delivery under a single structure. And this approach is improving accountability, decision making, and program execution. And that's helping to drive on-time delivery and consequently customer satisfaction. We're also about to invest about 15 million pounds moving Chess from its current 13 buildings at a single site in Horsham to a new facility that will make a big contribution to its operational efficiency. And collectively, these initiatives are enabling us to enhance our operational capability right across the Cohort group. If we have the next slide, please.

So in the section coming up now I'd like to share some of the strategic highlights from the past 12 months and to talk about the outlook for future years. The three components of our strategy are to grow organically, to accelerate that growth through targeted acquisitions, and to maintain sound culturally rooted governance to underpin that growth. And in terms of capital allocation that translates into two key areas: internal investment in new products, technologies, and facilities, and external investment in acquisitions. And this slide focuses on the first of those two areas: how Cohort continues to invest in technical innovation that provides solutions to the defense challenges facing our customers. So taking these in turn, our Crate Sense towed array sonar solution is a key anti-submarine warfare capability designed for both crewed and uncrewed platforms. And the focus is on delivering a flexible, modular, and scalable system with a small footprint, lightweight, and low power requirements. And this unique combination of features makes it suitable for a wide range of naval customers and platform types. And demand is increasing for cost-effective anti-submarine capabilities based on uncrewed vessels as navies look to expand maritime surveillance and deterrence. Staying with the underwater battle space, we are developing the Enlightas products to protect underwater infrastructure. And Enlighter is a passive underwater surveillance system designed to provide persistent monitoring of undersea infrastructure like internet cables or gas and oil pipelines. And working alongside Enlighter, which I think you can just about see at the top of that graphic, is a sort of small torpedo that provides an active countermeasure capability enabling threats to be intercepted and neutralized. And the third example in satellite communications is the development of our combined optical and radio frequency terminal. And this technology integrates traditional radio frequency satellite communications with high-capacity lasers within a single antenna system. And it's an approach that has the potential to deliver faster communications, greater resilience, and operational flexibility supporting future defense satellite networks. The laser communication system, although it's limited to use in suitable atmospheric conditions, is effectively unjammable, which is a vital capability in time of conflict. And together, these technologies are good examples of what we're doing to address the evolving needs of defense customers as they respond to growing risks and to the changing nature of conflict. If we can move on to the next slide, please.

The second area of strategic investment I wanted to highlight is acquisitions. Over the years since our IPO, we've executed seven major transactions and indeed all seven of the businesses that are part of the group now are the result of acquisitions. And there's always a risk associated with acquisitions. But our industry knowledge and our experienced team have enabled us to manage these with some success, as the slide I think demonstrates. I particularly highlight our very first acquisition, MASS, which last year generated operating profit of almost 11 million pounds and that's not far short of the 13.5 million pound purchase price back in 2006. And our most recent acquisition, EM Solutions, also showed a notable and strong improvement in performance after just one year. Now, we haven't executed any new acquisitions in the 2526 financial year, although we do continue to see a steady flow of opportunities and we review these carefully against our criteria. What we are looking for is successful, profitable defense technology businesses of the right size and with a culture of innovation and agility. And beyond that, we're looking for exposure to growth opportunities within the overall market and some kind of sustainable competitive advantage whether that's based on technology or incumbency or historic relationships. And over the last 20 years this acquisition strategy has been a driving force in the growth of the group and we expect that to continue into the future. If we can have the next slide please.

So let's turn to the demand picture. And we continue to see strong demand in response to what is still a deteriorating security environment and the ongoing conflicts that we see across the world, and obviously none of us should welcome that. The risks that we now see in Europe are very real. They have the potential to affect us here directly in the United Kingdom. And in regions of Europe where the threats are most pressing, governments are under pressure to upgrade and modernize their defense capabilities at speed. And this is where mid-tier businesses like those within the Cohort group have the agility and expertise to provide innovative solutions to those defense challenges. And in 2025, global defense spending reached a new peak of $2.63 trillion US. And that growth reflects the increasingly uncertain geopolitical environment and a widespread reassessment of national security priorities by governments around the world. And this chart shows how defense expenditure has grown since 2021 across the world, but excluding Russia and China, which are not great markets for us. As is clear, the North American market, of which all but a tiny sliver is the United States, remains the largest defense spender. But the fastest growth has come in Europe and in Asia. In Europe, the driver is clearly the continuing intense and bloody conflict in Ukraine. And as well as driving increased defense spending, the conflict has highlighted the importance of particular technologies like sea, air, and land drones for a range of tasks including reconnaissance, strike, as well as logistics. It's also highlighted the importance of air and missile defense systems. The UK's recent defense investment plan includes a strong focus on maritime capability to protect the North Atlantic region from Russian submarine incursion and interference with underwater infrastructure, and uncrewed vessels will play a major part in those plans. In Asia, it's Chinese investment in its armed forces together with increasingly aggressive use of particularly its navy and air force that have catalyzed the strong growth in defense spending. And that's notably strong in Japan, also in Taiwan, Australia, and the ASEAN nations. And although China is increasing spending in all areas of defense, its threat to its neighbors is significantly maritime in focus both on and below the sea surface. And in addition to those two big drivers, the continued instability in the Middle East, including the conflict between the US, Israel, and Iran, and the consequent regional security concerns, is also driving increased demand for defense technology, in particular, communications and intelligence solutions. And those trends align closely with the capabilities that we have across the Cohort group in communications, intelligence, cyber, electronic warfare, sonar, maritime systems, and counter-drone technologies. And that provides a supportive backdrop for long-term growth.

This slide highlights the strength and diversity of Cohort's geographic exposure and very importantly the alignment of our business with regions where defense spending is expected to grow most strongly over the coming years. It shows us a comparison between 2425 revenue, 2526 revenue, and the revenue that is held in our order book, breaking it down by percentage regionally. And again, you'll see the most striking features are the growing proportion of our output going to Europe and to Asia Pacific, with the proportion going to the UK and Australia reducing. Now, those increases are in line with the international demand patterns I've described a moment ago. In Australia, we're delivering our existing order book quite rapidly, but we expect that to be supplemented by some large opportunities in the next few years, which will change the look of that chart to a certain extent. In the UK, well, it's too early to say exactly what the consequences of the defense investment plan will be, but it's possible there may be a less rapid fall off if the new prime minister follows through on promises that he's made to increase defense spending beyond that set out in the DIP. Looking at the order book revenue, what's particularly encouraging is that it is diverse, well balanced across regions, and closely aligned with those markets where defense spending is increasing most rapidly. The UK remains an important source of revenue. But the trend illustrates our ability to tap those markets where the spending is growing.

If we can move on to the next slide, this chart shows a similar comparison between 2425, 2526, and our order book. But this time broken down by end-user domain. And what you can see here is that maritime remains our largest domain and has grown as a proportion of group revenue over the last year. And that trend is even more evident when we look at the order book where maritime programs account for about 80% of contracted future revenues, and that reflects the long-term nature of maritime defense programs which provide strong visibility and support sustainable growth over many years, and in this case right out to 2037. And our land domain work is also long-term. So those proportions represent our technical strengths which are particularly good in maritime and land, but also the demand patterns that I've described in Europe and Asia. The cyber and information work that we do is important. But the small proportion in the order reflects as much the relatively short-term nature of contracts in that area as it does overall demand. Air and space work remains substantial. But the other category which was noticeable in 2425 has now almost disappeared following the sale of our transport business last year. Overall we expect that future revenue will include a healthy balance of long duration maritime and other contracts supplemented by shorter duration orders in areas where agility is at a premium. And that long-term base of order book revenue provides an excellent starting point on which we will build our future growth.

Next slide please. So this line provides more detail on that very important order book. On the 30th of April 2026 the value of the order book stood at over 618 million. It has grown since of course, and as I mentioned that includes contracted revenue that will be recognized out to 2037. Of the total order book, approximately 264 million is scheduled for delivery this year, providing very strong revenue visibility, and importantly that's broadly balanced across our two operating segments with communications and intelligence contributing 128 million and sensors and effectors contributing 136 million. Looking further forward, a substantial proportion of the order book extends into later years, reflecting the long-term nature of many of the programs that we're working on, and that includes about 132 million scheduled for delivery beyond 2028-29. Overall, this runoff profile highlights both the quality and the longevity of our order book. It provides strong revenue visibility, supports confidence in our medium-term outlook, and gives us a solid platform from which to pursue further organic growth and new contract wins.

Thank you. And beyond that order book across both divisions, we see strong demand continuing which is being driven by the same geopolitical and defense spending trends that I've spoken about within communications and intelligence. We see significant opportunities for electronic warfare, secure communications, particularly in Europe, where lessons from the conflict in Ukraine are shaping procurement priorities. We're also pursuing major naval satellite communications opportunities in both the UK and Japan, while our electronic warfare and operational support capabilities are gaining increasing traction in export markets, including the Middle East.

The Portuguese Navy program provides an excellent example of how multiple cohort businesses can work together to deliver integrated solutions that combine communications networking and satcom technologies as well. Within sensors, we see a substantial pipeline of opportunities for counter-drone systems through established partnerships. Demand is also growing for technologies that can detect, monitor, and protect critical underwater infrastructure, reflecting increased concern around maritime security and seabed protection.

We continue to see strong opportunities for our sonar and sensor technologies as submarine and surface fleet modernization programs progress across a number of international markets. And programs like the Royal Thai Navy's new frigate demonstrate the benefits of collaboration across the group where we have four of our seven businesses independently working with Hanwha Ocean on that program, bringing together complementary technologies and expertise. And we also expect to benefit from investment associated with the UK's Atlantic Bastion initiative and wider NATO efforts to strengthen anti-submarine warfare and underwater infrastructure protection.

So overall the pipeline of opportunities is strong, reflecting the patterns of growing global expenditure and the market relevance of our products and technologies. Next slide please. So I'm almost coming to the end now. And as a final point, I wanted to summarize how we aim to generate value for our shareholders. First, as you've seen, we benefit from robust financial results, including strong cash generation and a healthy balance sheet. We remain focused on investing in areas that generate sustainable returns, prioritizing expenditure on research and development and on expanding capacity. Across the group, we maintain and invest in innovations that address mission-critical customer requirements and reflect the security challenges they face in today's world. And we're also well positioned through our access to growth markets and have demonstrated our agility and responsiveness to geographical market trends. Our acquisition strategy has been an important contributor to shareholder value creation. We have a proven track record of acquiring high-quality businesses and integrating them successfully, identifying opportunities to collaborate across the group where appropriate. And finally, we have a consistent dividend track record, having increased the dividend every year since IPO, and that reflects both the strength of the business and the board's confidence in the group's long-term prospects.

Move to the last slide, please. Before coming to a close, I wanted to take the opportunity to mention the great contribution to our success made by our management teams and employees across the group. And I'm grateful to all of them for the part that they've played in helping us to achieve these good results. It has been a successful first 20 years and we look towards the future with confidence and let me leave you with this extract from our preliminary statement. And also to say we'd be delighted to take any questions that you might have.

Yeah, I'll say a word about that. So the short answer is yes. We have a great deal of confidence in Chess's future revenue. I mean, this year it's got the highest level of order cover of any of our businesses at over 90%. And it has a very strong tailwind of future demand and a very solid order book going forward. Chess has not performed as we would want it to perform this year. Its performance, I mean it's been profitable but really it's very low level. That is not because of the profitability at the gross margin level; its products are really very good. It's been a combination of some supply chain tightness that we've experienced and also some issues, and we highlighted this at the half year point, some issues in operations and production delivery. Now that's one of the reasons that Chris Axel has joined us as chief operating officer. I know Chris is in the audience today rather than on the panel, but I'm sure he'd want to chip in at this point if he could. But Chris is very experienced in managing operational delivery in defense very successfully. And we also appointed last year Andy Smith as the new managing director of Chess. Andy and Chris both worked at Leonardo for a long period of time, although Andy joined us in fact from Marshalls, but he's also very experienced in delivery. So we're confident that with their expertise and the action that they're already taking that I outlined, we'll be able to enhance Chess's delivery. In terms of the new investment, well of course at the moment we're leasing a facility and that lease is coming to an end. So the development of the new facility will immediately give us a return on saving the rent that we'd otherwise have had to pay. But much more than that, it will enable much more efficient production as we're able to line up production facilities really from beginning to end in a single space. We'll be able to organize test at the right points in that, and we'll have the ability by having more space simply to add more supply chains and multiply up capacity as is needed. And we do expect capacity to need to grow because we see a lot of demand for Chess products. I hope that answers the question.

Yes, I mean, not a great deal. I mean, that's really, I'm not sure what we're thinking about here. I think if we're thinking about the submarine upgrade program, that is some years in the future before Elac Sonar is likely to do that. They will be providing underwater communications equipment for the new vessels that the Portuguese Navy is acquiring. And these, as far as we're concerned, are very straightforward sales. These are well-established products. We've got a very efficient production line for them. So I would expect those to happen in a very straightforward manner. But these are relatively modest size.

Okay. Well, it's two of our subsidiaries are most aligned with the UK generally and those are Mass and SEA, or I should add an MCL as well, but MCL in a slightly different way. And I think of the UK businesses, it's SEA which is most aligned with the defense investment plan and particularly the maritime aspects of it that I highlighted a moment ago. They've already been involved in Atlantic Bastion, which is one of the small number of projects which did actually make some progress even in the absence of the defense investment plan. So I'm optimistic that they will play a part in that. And when we look at the plan, the very ambitious plan to move towards a hybrid navy, that is to say more unmanned vessels supported by a small number of mother ships, then what we see there is that the proportion of expenditure that goes on the kind of systems that we provide, particularly SEA provides, but beyond that things like communications, sensors for intelligence gathering, sensors for environmental awareness, and weapon systems as well. All of those things, a much higher proportion of the overall value of the platform will be spent on those things. And so we see that as a positive for us as well.

Yes, that's an interesting one. Well, all of the ones just mentioned are showing really strong growth. I think within them there are particular countries that I'd highlight. Japan is a market that we're not doing an enormous amount in at the moment but is becoming increasingly open to European providers. So we've been providing satellite communications terminals into Japan. But some of the signals are that Japan is likely to become a more important market. So I'd pick out the fact that for the first time they're actually exporting frigates, serious major surface combatants, to Australia through the Mogami class, which indicates a new interaction with Five Eyes countries. They joined, they're part of GCAP, the very important future combat aircraft program. And all of these things indicate that Japan is recognizing that it needs to form alliances beyond its traditional alliance with the US and so will become a more open market. For the last few years, there's been a DSEI exhibition in Japan. Not as big as the one that's held in London every two years, but nevertheless very substantial and itself an indicator of an opening up, and we will be attending that next year. In Europe, I think particularly at the moment, it's those countries that see themselves as being most exposed to the Russian threat. So the Nordics, the Baltics, Germany, and Poland particularly are increasing their investment. Germany's the standout. In the next few years, it'll be the largest defense spender in Europe. By 2030, it'll be spending more than the UK and France put together. Very important market for us, but those others are as well. And I couldn't shouldn't go past without mentioning Canada, which has traditionally not been a large defense spender, but now is both increasing its defense spend as it sees, well, starting to see a threat from the south as well as the north. And perhaps not surprisingly in those circumstances, looking to widen its defense industry relationships as well. And we've actually set up a manufacturing facility in Canada as we've got a significant combination of orders and prospects there relating to their purchase of 12 new major combat vessels.

We basically the system and it's provided by Chess. The value per system varies depending upon the actual specification, but you're looking at a per unit value of somewhere around the region of 220 to 260,000 per year. That's the value to us. Yeah, and we don't know the final selling price, but that's going to be between 5 and 10%.

Short answer. No. Two-letter answer. Yeah. We used to go there, but there isn't that much there for us is the short answer. And if you've ever had to undergo the bus journey from Farnborough North to the show, you'll know why we don't go if we don't have to.

Yes. All of our managing directors meet quarterly, as far as possible face to face, although that's become slightly more difficult with some of them 12,000 miles away. But at those meetings, every MD provides a presentation to the others about what they're doing, what their opportunities are, what their challenges are, and that naturally lends itself to conversations about how they can work with each other. And we've seen that happening in a number of areas. Our very substantial Ancilia program where we're delivering missile defense for surface ships to the Royal Navy is a close cooperation between SEA, who's the lead, and Chess. And you know, if we didn't own either company, we would be quite happily saying those would be the ideal partners to deliver this kind of capability because of the particular expertise that each has. We see geography-based cooperation as being very important. So people may have seen we recently had a substantial order for satellite communication systems from Portugal for our Australian business, and of course our business based there in Lisbon will be able to support those, hold spares, provide maintenance, and so on, and that's an absolutely natural relationship to have, and we see that going on elsewhere as well. So what we don't do is force businesses to cooperate together. If there are better partners outside the group, then we say that those should be the ones you should find, on the basis that 50% of something is better than 100% of nothing. And also that forced cooperation leaves wounds that can take quite a long time to heal.

Indeed.

Yeah. Something like that.

Yeah.

Well, we are making some efforts to look at it that way. And there certainly are some areas that might be interesting, and there might be some candidates in them. I mean, as you can imagine, the experience of very intense conflict in Ukraine has done an awful lot to evolve technology and also evolve tactics and the use of technology, and that's generating some very interesting insights. But one has to be very careful with all of that. I mean, at the moment you're seeing almost a sort of mini boom in terms of valuations of counter-drone companies, not particularly operating in the area where we do, which is sort of mid-range use of mid-caliber weapons against drones. I mean, there's a very clear leader in the market and that's the business that we're associated with. But in terms of short-range radio frequency attack of drones, all sorts of strange ideas. There was one I saw in Eurosatory a few weeks ago which had drones actually flying out with nets and dropping them on other drones in order to catch them, which struck me as quite elaborate, although one can understand why one might want to avoid bits of debris falling on the center of cities and things. So there's an awful lot of players in that market with a lot of quite similar technology. The same would be true of first-person view drones and autonomous attack drones where a lot of people are developing very similar software to do that kind of thing. So we're not really interested in being also-ran in an area where many people are developing the same kind of technology. We'd much rather find a niche, and EM Solutions would be a good example of that, where there's some growth opportunity, where the niche is small enough that it doesn't attract the attention of the Lockheed Martins of the world, and where we're able to show a bit of technical leadership compared to those competitors that are in there. So that's the kind of thing that we're really looking for.

Well, I think I might ask Simon to comment on this, but let me just first say that we've got a lot in the order book going out to 2037, but actually the majority of what we'll be generating in 2037 has yet to be won. So we expect to see future growth looking at the markets and the opportunities that we have in front of us at the moment, and I think it'd be a bit reckless of us to predict with decimal point accuracy what our cash flow is likely to be like in 2037. What I would say is that the board does regularly review capital allocation, particularly in the context of dividends and in the context of investment internally. We tend to do it on the basis of individual investments, and of course with acquisitions that's the way we do it. We can't decide at the beginning of the year we're going to spend this much on acquisitions. It's very much about opportunity. But Simon, is there more you can say about that?

Well, I think if one took everything that the US president said at face value, one would fear for one's sanity. I think NATO is a very solid alliance. We have to plan for a reduced US presence in Europe and a reduced US commitment to NATO because those signals have been very clearly sent, and one doesn't have to have a crystal ball to see that the US looks west rather than east when it sees the greatest challenge to its economic prosperity and security. So Europe has to respond to that, and Europe is doing. At the moment it's responding very strongly in terms of defense spending. I think it's going to have to respond to it in terms of institutional arrangements as well. I think we're going to need a stronger European wing of NATO. But NATO is the most persistent, longest, most successful military alliance in history, and I think it's withstood many a challenge and will withstand this one.

Thank you all.