Cohort plc : Presentation of FY25 results and Outlook, 18 July 2025

And good morning to everybody. As Andy said, I'm Andy Thomas. I'm chief executive at Cohort PLC and I'm here with Simon Walther, Cohort's finance director to take you through our final results for the financial year ended in April 2025. And I'm going to start off by giving you the highlights of the results we've announced. Simon will provide more detail, including a divisional breakdown. Then I will return with some comments about the demand picture and our future prospects.

I'm happy to say that overall we once again seen a very strong performance, record operating profit, record revenue and a record closing order book and that's the result of hard work and development of the business over a long time. And it's really pleasing to see that we're showing some real momentum. So the numbers are on the screen now. Revenue and profit were both up strongly. Revenue by 33%, adjusted operating profit by 30%. Adjusted earnings per share grew 27% ahead of external expectations and we significantly beat our expectations for net funds. It was another good period for new orders which are of course the best leading indicator for future growth. Order intake of 285 million significantly exceeded the revenue that we recognize. So the total order book had grown to over 616 million pounds at the year end. And if we aim off to take account of the one-off large order from the Royal Navy in 2024/25, order intake actually exceeded last year's. Now that order book covered 79% of our expected revenue for the year and it will be generating revenue for us well into the 2030s. Operating cash flow was very strong, significantly exceeding profit and helping us to maintain our positive net cash position despite expenditure on two acquisitions and a major new facility. So against that positive background, the board has declared a final dividend subject of course to a shareholder vote at the AGM of 11.05 pence, resulting in a total dividend for the year of 16.3 pence, once again representing an increase of 10% on last year's.

So if you can have the next slide, Annie S 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. We saw good revenue growth in both divisions this year, especially communications and intelligence. As we'd expected, EID made a positive contribution with its newly strengthened order book. MCL had a record year successfully integrating its acquisition of IT, managing an exceptional flow of urgent operational requirements with great skill and agility. Our most recent acquisition EM solutions provided a maiden contribution to the group in the final quarter. The integration has gone smoothly. We've established a new board for EM solutions with two experienced local non-executives to provide local support for the management. Mass remained the largest single contributor to the group's profit, though it saw some competition from MCL and SEA this year. Mass's performance in terms of profit was a little behind last year with customer-driven delays on some large existing contracts and a slightly less positive revenue mix. Keith Norton has taken over as managing director from Christostani who retired, and he's focusing on improving business development and restoring Mass to a growth path. In the sensors and division, ELAC and SEA both contributed strongly to revenue growth. ELAC made good progress on its large contract to supply submarine sonars to the Italian Navy. And we're now approaching the critical delivery phase on that contract. And at SEA, we saw record levels of revenue and profit despite some problem projects that had an impact on margins. SEA announced the sale of its transport business at the beginning of the current financial year and that's a strategic move to enable the management to focus on the core defense market. Chess had a more challenging year. It saw good growth in orders with strong demand for its portfolio of highly regarded products. But we saw a recurrence of operational and delivery challenges that had a significant impact on profitability. And Simon and I will be working closely with the business to overcome those this year. So that's the big picture. Let me hand over to Simon who will take you through the financial position in more detail.

Thank you very much indeed, Simon. So in this final section, I'm going to talk about the outlook and 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. I'll show you how our existing order book runs off over the coming years. And then I'll round off with a summary of this morning's presentation.

So we are of course seeing a much stronger demand picture than we saw at the beginning of the decade. And unfortunately that's because the world is facing the most unstable and dangerous situation that we've seen since before 1989. And none of us should welcome that. And the risks that we now see are real and concerning. The UK's recently issued national security strategy says that for the first time since the Cold War, we're entering a period with the potential for direct confrontation with our adversaries. Now the two main driving forces in demand for defense equipment have been the same since 2022. On the one hand the continuing conflict in Ukraine and on the other the influence of growing Chinese defense investments and aggressiveness from the Indian Ocean right down to Australasia. The third factor, growing conflict in the Middle East has been on a knife edge, occasionally exploding into violence with the potential for global consequences. And the impact of those geopolitical factors on defense spending amongst the democratic nations has been magnified by the words and actions of the Trump administration in the US. Explicit demands for NATO nations to spend more have had their effect as we saw at the recent summit. But the unmistakable message that the US's allies can no longer rely on what were until recently we thought ironclad commitments have had even greater force. The sequence of reversals in US policy towards Ukraine, to take the most prominent example, has had a profound impact on Europe's sense of security and the results of that have been stark. According to the Stockholm International Peace Research Institute, worldwide defense spending grew by 9.4% last year. And if you look at non-US NATO, so that's Europe and Canada, that group of countries collectively grew defense spending by almost 20%, by 19.4% last year. And on the other side of the world, Japan facing the challenge of China grew its defense spending by 21% which was its largest annual increase since the early 1950s. Australia and Southeast Asia also grew their defense spending in real terms having already made increases in subsequent years over the recent past. And the UK, as you'll have seen, announced a commitment to spend 5% of national income on defense and security at the recent ASOS summit. Now, that increasing spend has manifested itself in demand for a range of different capabilities. And we've recently seen that in the UK's strategic defense review, which identified priorities in the UK for defense capability investment. And many of those priorities are relevant to Cohort. So for instance, the need for electronic warfare, drones, counter drone capability and communications in Ukraine is driving demand for our business MCL's products. The requirement for resilient land and air capabilities across NATO Europe emphasizes the importance of Chess's counter UAS systems and Mass's airborne missile counter measures. The need to protect critical infrastructure from both cyber and kinetic threats generates opportunities for Mass and for Chess. And the growth in manned and unmanned submarine and surface ship programs worldwide, not just in the UK, is relevant to SEA, to ELAC, to EM solutions and to EID. Finally, the need to provide secure digital communications for multinational forces drives demand for new systems like EID's NATO compliant TDCIS communication system for deployed headquarters and Mass's secure IT systems for higher level communications amongst multinational forces.

So if we could have the next slide. Thanks Andy. Moving to specifics. I mentioned that we continue to see good opportunities and I wanted to share a few of those with you. At ELAC earlier in the year, we received an order for the fourth of the four new Italian submarines and that brought the total contract value to over 100 million pounds. We're now starting discussions about two further possible boats at a slightly higher specification as well as upgrades to in-service vessels. If we look at EM solutions, we see a promising list of opportunities in Australia, Europe and East Asia and EM solutions will shortly begin deliveries covering almost the entirety of the Australian surface fleet and there is a lot more to come in the pipeline. At Mass, it has just won a two-year extension to its long-term contract to design and run large-scale military exercises for the UK's strategic command. And as global tensions have increased, the drumbeat of those exercises has increased and the need for more of them will undoubtedly arise. Mass also has a growing relationship with a multinational defense alliance as I've mentioned to provide secure digital communications. And Mass is starting a shakeup of its business development under its new managing director aimed at improving its organic growth prospects. At MCL, of course, we see several large potential prospects from urgent operational requirements, most of which I'm afraid are too sensitive to go into any detail about. And moving on to the sensors and division, Chess sees considerable short-term opportunities for its optical tracking systems for countering drones, and it's got a very successful partnership with Ryan Matal and is looking to build others. At ELAC earlier in the year we received an order for the sonar suite for the fourth of the four new Italian submarines. As I mentioned, that brought the total contract value to over 100 million pounds. And at SEA we see multiple opportunities for the crate sense and crate array products arising out of the need for large-scale underwater surveillance, particularly in the North Atlantic but not limited to that. And SEA has a strong partnership with Turma which is already bringing new opportunities for the important Anscilia missile protection system which SEA is delivering to the United Kingdom and the Royal Navy.

Let's talk about the investment that we're making in R&D spend which increased by 35% and is now over 20 million pounds in the last financial year. And here what we're doing is looking at market trends and looking at where we can develop new products to be able to meet the evolving needs of our customers which we see through new initiatives like the UK strategic defense review. Mass, for example, has invested in a product called Thurban SEMA which combines cyber and electronic warfare data management for battlefield support. And this is becoming increasingly important as we see the full panoply of electronic warfare and cyber techniques being deployed on the battlefield in Ukraine. At Chess, we're investing in an integrated radar and electro-optical fire control system to combat naval threats from both drones and from surface unmanned vessels which we've seen used to such devastating effect in Ukraine. And the tightly integrated radar and electro-optical capabilities that Chess is providing with this new radar from Rhymatal will enable full 24-hour capability in adverse weather conditions to accurately track and deal with these threats at longer range than ever. At MCL last year, we saw some great experimental work together with partners for the defense science and technology laboratory, that MOD organization, to demonstrate the bomb disposal capabilities of autonomous robots. And it turned out that Spot the Dog, as you can see in the photograph there, was very capable indeed at dealing with those kind of matters. Particularly in complex environments involving locked doors, steps, etc. It's much less dangerous than sending people to do those tasks. And finally, EID is investing in developments of its oceanex naval communications system bringing in advanced new capabilities, in particular cyber security which is becoming ever more important for long range naval communications.

Okay, if we can move on to the next slide, Nadi. And here we do see the results of our investment in the new facility that we've been building for ELAC just outside Keel and as well as providing improved accommodation for ELAC's engineers and scientists. That new facility is going to provide a flexible production space that will enhance the efficiency and flow of the company's very complex production, assembly and test operations. And that facility as you can see in July is nearing completion. That will be ready for ELAC to move in this autumn. And alongside that important investment, we're also working to increase production capacity both at Chess and at SEA. And finally, in terms of capital allocation, 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. And our most recent acquisitions of EM solutions and its do meet that profile.

So, if we can move on to the next slide, Andy. I've talked in broad terms about markets and capabilities. And this slide shows the tangible results of the demand picture that I've described. At over 616 million pounds, Cohort's year-end order book is the strongest that we've ever announced. And that includes nearly 230 million pounds for delivery this year and almost 150 million pounds for delivery next year. And that's a result of order intake in the year, well north of a quarter of a billion pounds, supplemented by the strong order book that we acquired with EM solutions. The Royal Navy order for Anscilia at over 135 million pounds made a big contribution to the previous year's order intake. But if we put that to one side, we did even better in 2024/25. And as I mentioned earlier, since the year end, the order book has continued to grow and we now have 85% revenue cover for the year. The larger part of our order book as you can see from the colors there sits largely with the sensors and division. SEA makes a very strong contribution to that number and ELAC and Chess also add significantly to the total. But looking at communications and intelligence, since last year we've seen almost a doubling of the order book and the acquisition of EM solutions was a major factor in that improvement but EID with its good order intake this year also made a big contribution. Now, for comparison purposes, the chart on the right shows the shape of the order book runoff as we saw it this time last year. And what you can see is that in broad terms, it's maintained its shape, but it's grown substantially. And in particular, the orders for execution and delivery in the current year and the immediate year following have grown really substantially. And if you'd like to move on to the next slide, Andy. Here we can see that in more detail the order book runoff for the current year together with a comparison against the same position last year. So the growth in total order book from 590 to 616 million and that's a 19% increase is a strong indicator overall of the potential for future growth. And since then, as I say, it's increased further, but the two shaded columns here show the revenue already on order for the year ahead compared to the same position in 2024. Order cover in both divisions has improved, but it's most marked in communications and intelligence this year. And that's the result of EM solutions acquisition and as I've said on in the improved order intake at EID and that improvement 229 million pounds this year compared to 184 million in 2024 is almost 25% and that positions us well for further growth. And subsequent to the year end that 229 million number has increased to 247 million.

Now that brings me almost to the end of our presentation and a summary of the main points that I wanted to make. So once again it's been a record year in terms of performance reflecting both the growing demand picture and also the agility and innovation that our business model is designed to optimize. And 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. The results we've presented today already show some of the potential that arises from the EM solutions acquisition and we expect the benefits of its strong order book and opportunity pipeline together with the market access it brings to be even more visible this year. We retain our strong balance sheet and an excellent relationship with our banks and that gives us the resource that we need to invest in new technology, greater production capacity and when opportunities arise carefully targeted acquisitions. And finally, we've once again achieved a record order book and we see an excellent pipeline of further opportunities ahead. Now the markets we are operating in are growing as I've explained and we expect to see those higher levels of spending maintained in the longer term. Achieving a book-to-bill ratio growth of one once again is the best quantitative marker for future growth and we maintain our revenue and profit growth expectations for the current year and expect our EPS actually to be a little better. Beyond that, 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 today goes some way towards explaining why we hold that view. And in bringing the talk to a conclusion, I want to take the opportunity to mention the great contribution to our success made by our management teams and employees particularly in the subsidiaries. We're very much a people business. It is their expertise, dynamism, practicality, and integrity that propel us forward. It's thanks to them that we've seen another step towards our exciting long-term future as a major independent UK 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. We believe this offers the best long-term returns for investors while creating high-value employment and enhancing the security of the UK and its allies. So, thank you very much for your attention. If you have some questions, we'd be delighted to try and answer them.

Yeah, I can say that through the partnership with Turma, we've been continuing to progress a number of opportunities for Ansilia. And our view of the market potential has not changed at all. We regard it as a product which offers really considerable potential for exports. Now what I would say there is that I don't expect those to start to be realized until we see the first Anscilia systems going into service with the Royal Navy. Now we're well down that path. We've gone through the critical design review for the product for the Royal Navy. But that's what we really want to focus on over the next year or so to bring that successfully into service so the Navy can demonstrate it as the capable system that we know it's going to be and that's going to be the catalyst to start seeing those really strong opportunities being turned into real orders.

Expect to see that happen. But the focus for the time being is on delivery for the Royal Navy.

Yeah, if I can just add briefly to that, we like to keep our supply chains as short as possible, and obviously some have to be international. But we are lucky that in all our operating areas there is good local industry that supports us in the supply chain.

I cannot off the top of my head give you a number. There are several though. Good examples are of course Ancilia, which is a very important one where Chess is a major supplier to SEA. We have a very clear policy of where we look for partners: it has to be the best partner, not the internal partner. The key point is that it is much better to get, I do not know, 50% of something than 100% of nothing. So it really has to be about the best partner to win the contract and deliver the best solution for the customer. But in the case of Ancilia, there was no doubt that Chess was the best partner. There is no one really in the UK who is better capable of delivering a moving platform to rotate and elevate something like SEA's decoy launcher very accurately and stabilized on a moving platform. So no problem there. There are plenty of other examples though. SEA and MCL have been working together. SEA and MASS have been working together. It has gradually grown that level of cooperation within the group. The way that we have approached it is really to improve the knowledge of our businesses about each other through regular meetings at high level and forums across the group, and to ensure that there is an atmosphere of trust through that knowledge, and that makes cooperation easier and simpler and more natural when it happens.

Well, bringing EM Solutions into the group has had one unwelcome consequence, which is that when we have our meetings of all the managing directors, we now have to get up quite a lot earlier. But they played an active part. It is always going to be harder to interact with and run a business which is 12,000 miles away as opposed to one in Surrey. One of the things that we have done is to bring in two very experienced non-executive directors onto the EM Solutions board, based in Australia, to be able to provide local support and mentoring for the senior management there. In fact, all of the MDs will be going out to Australia, all except one, in November for a group executive meeting which coincides with the very important Indo-Pacific exhibition in Sydney, at which we will all be exhibiting. So we are making sure that those meetings take place, and we are already getting cooperation between EM Solutions and SEA looking at the UK market, and EM Solutions and EID where EID is actually providing support for EM Solutions' products in the Portuguese market.

It is something that the board reviews and discusses regularly. At the time of the autumn budget last year, there were real concerns about the removal of business property relief from AIM shares. I think had that happened in its entirety, the calculus might have changed for us as to whether we stayed on AIM or went to the main market. But there are factors on both sides, and the fact is that AIM worked extremely well for us last year. We were able to access the capital we needed. Our placing was significantly oversubscribed. So from that point of view, having AIM as a place where we can raise capital works. Why would we want to change that? The other benefits of a stock market listing: firstly, it provides us with the ability to incentivize our senior management and provide share-based incentives on a whole workforce basis using some of the government's tax-advantaged schemes. Those are really good ways to engage our employees. As I have said, we are a people business; we are not a business that has huge machines tinning baked beans or something. Where we add value is really those great ideas that come from our scientists and technologists and that we turn into reality. So incentivizing them well is a really important part of recruiting and retaining the right people. Finally, the listing brings us a degree of credibility both with our customers, who are assured by the listing that we are a professional and reputable business, and of course with our banks, who have a clear knowledge of what it means to be a listed business and are very well experienced in establishing good relationships with listed businesses. So there is a lot of value to it. We will keep it under review. We are quite large in the AIM context now. But the benefits of the relatively light and sensible regulation in AIM compared to some of the regulatory requirements which are less well associated with successful businesses in the main market is a significant appealing factor to us. We are in a global small cap index which I think has made quite a difference to our liquidity on the AIM market as well. So there is certainly no burning platform from which we have to exit and go to the main market at the moment.

I am very happy to provide some color on this. Speaking personally for myself, and I think the same is true of my colleagues who also participated in the sale. I am in my 60s. I am enjoying life and very happy to carry on doing this exciting job for as long as I can. But I found myself in a situation where the entirety of my personal wealth was bound up in Cohort shares. I am very confident that the business will continue to drive its share price forward, and indeed that we will continue to improve our performance as I have outlined today. But just as I am sure most of the people on the call today like to have a diversified portfolio, it made absolute sense for me to do the same. Having done that, still the large majority of my personal wealth is tied in Cohort shares, and that is a clear sign of my confidence in the future of the business and our ability to drive it forward. So that is the background to the sale. Worth mentioning as far as the timing is concerned: the sales were executed altogether as a single package, and the reason for that was that we wanted to do it at the moment of maximum transparency, which is to say just after we have released our results and told the market, as I have told you this morning, about everything that is going on in the business. I think that is very important if we are doing direct transactions. In answer to the question about whether any new institutions were brought in as a result, I just do not know. It was managed by Investec, who sold in the market, and whether any of those particular shares went to new holders I do not know. What I do know is that we are seeing a lot of new holders quite regularly, and there is a lot of interest from non-holders in the business, and I am very pleased to see that.

Well, I am obviously not a government spokesman, but I do need to be a little bit diplomatic on some of these issues. I suppose one important point is that Australia's need for nuclear submarines is really independent of what the US wants to do. I do not think it is a secret in any way that the US sees capacity constraints on its own ability to build new Virginia-class submarines at the moment. I think that is why the US wants to look at the commitment it has made and whether it can still supply Virginia-class submarines or whether there might be some kind of alternative solution, because it is very much in the interests of the US and in the interests of the UK as well as the interests of Australia that Australia does get that capability. I would not like to speculate on how it is going to come out. I will be mildly undiplomatic and admit to a little bit of disappointment, really in line with some of my comments earlier, that the US would call into question commitments that have already been made, because that does not do its international reputation any good. What I would say in relation to the AUKUS submarines: the pillar one of AUKUS was initially to provide Virginia-class submarines to Australia, but the longer-term approach was to provide new Anglo-Australian designs of nuclear submarine to be built both in Adelaide and in Barrow-in-Furness to the same design. The need for the supply chain and to maintain the drumbeat of production of submarines, which is really important to be able to produce them efficiently, I think continues. And the provision of those submarines is not necessarily linked to whether the US can provide an early Virginia boat or not, but that is speculation on my behalf. I think we will have to wait and see what actually comes out of it.