Cohort plc Annual Results 2025/26

Okay. Well, good morning everybody, and thank you very much for those joining us in the room and for those joining us virtually as well. I'm Andy Thomis. I'm the chief executive at Cohort PLC and I'm here with Simon Walther who's our finance director. Cohort provides advanced defense technologies and services to the UK and allied nations worldwide. And Simon and I are here to present our latest financial results and to explain the innovation, geopolitics, market drivers that support our growth. Oh, and there we are. Cohort's businesses share a common purpose which is developing advanced technologies that contribute to our customers' national security and defense. Each of our businesses brings its own specialist expertise. Collectively, they deliver innovative solutions that help customers address increasingly complex operational challenges.

Operating through our communications and intelligence and sensors and effects divisions, we offer a broad range of capabilities. As you can see from this slide, we'll say more about demand patterns, but I'd highlight counter-drone, anti-submarine systems, and seabed warfare as areas that are clearly relevant to the needs of defense customers today.

There was a background to the results. And I thought it would be helpful to show you Cohort's total shareholder return since our IPO 20 years ago this year and it's benchmarked against both the AIM All-Share index and our peer group of UK-listed defense firms. Over the period as you can see Cohort has significantly outperformed the broader AIM market and delivered returns ahead of our peer group. Now while there has naturally been some share price volatility during the period, the overall trend is of sustained growth underpinned by strong operational performance, increasing order intake and since 2022 a favorable defense spending environment. The sharp acceleration 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 across the UK and allied nations. And what this shows is that we've been able to create value consistently for shareholders over a long period through the successful execution of our strategy.

And this slide shows in more detail how we've delivered that shareholder return. The chart on the left shows the progression in adjusted operating profit since 2006. And from a relatively modest base, we've steadily expanded the business through a combination of organic growth underpinned by investment in both technology and capacity and strategic acquisitions. Despite periods of economic uncertainty and changing geopolitical conditions, the overall trajectory has remained strongly upwards, culminating in the record performance that we've seen this year. 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 that we have in the group's long-term prospects. Together, these trends highlight the strength of Cohort strategy, the quality of our businesses, and the growing demand for the specialist defense and security capabilities that we provide.

This year's results represent the continuation of a long-established track record of profitable growth and increasing shareholder returns. And this slide shows the financial highlights of our 2025/26 financial year. And it was another outstanding year for Cohort delivering record revenue and record adjusted operating profit. That revenue has continued to increase, now over 306 million, and our operating profit has grown this year by 32% to more than 36 million pounds. Demand for our products and services remained robust throughout the year, and I'm pleased to report an order intake of 314.2 million, exceeding our revenue. And that brought us to a year-end order book of nearly 620 million pounds. And that provides excellent visibility of future revenues with contracted work extending out to 2037. As expected in the year as a whole, 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'll have more to say. Nevertheless, the group remains in positive net funds and continues to maintain a strong balance sheet. And we're pleased to recommend again a full year dividend increase of 10% to 17.9 pence. And that reflects the board's continued confidence in the group's prospects. And now I'd like to invite Simon to share some more details of our financial performance. Simon.

Thank you very much indeed, 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. So earlier this year, we appointed Chris Axel as the group's first chief operating officer. And Chris is here in the room with us. So if you have questions of an operational nature to ask later on, I shall throw them in his direction. Chris joins us from Leonardo UK 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 UK's major 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's headquarters team. And as chief operating officer, 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 for instance identifying acquisition targets. And 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 to solve common challenges and to leverage 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 lifecycle framework to provide a consistent approach to bidding, project execution and governance. And in addition, we're introducing integrated project teams at Chess, bringing together the key disciplines required for successful delivery under a single structure. And this approach is improving accountability, decision making, and program execution, helping to drive on-time delivery and customer satisfaction. And we're also, as Simon has mentioned, about to invest around 15 million pounds moving Chess from its current 13 buildings in Horsham to a single 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.

So in this next section I'd like to share with you 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 areas: internal investment in new products, technologies and facilities and external investment in acquisitions. So this line 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. Our CrateSense towed array sonar 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 that unique combination of features makes it particularly suitable for a wide range of naval customers and platform types. And demand is increasing especially for cost-effective anti-submarine capabilities based on uncrewed vessels as navies seek to expand maritime surveillance and deterrence. And staying with the underwater battle space, we're developing two complementary products, Enlight and Eraser, to protect underwater infrastructure. Enlight is a passive underwater surveillance system designed to provide persistent monitoring of undersea infrastructure. And working alongside Enlight, Eraser provides an active countermeasure designed to enable threats to be intercepted and neutralized. And then as a third example in satellite communications we're progressing development of combined optical and radio frequency terminals. Now this technology integrates traditional radio frequency communications with high-capacity lasers within a single antenna system and the approach has the potential to deliver greater bandwidth 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. So together, these technologies address the evolving needs of defense customers as they respond to growing risks and the changing nature of conflict.

The second area of strategic investment I wanted to highlight is acquisitions. Over the years since our IPO, we've executed seven major transactions. There is always risk associated with acquisitions, but our industry knowledge and our experienced team have enabled us to manage these with some success, as I think this slide demonstrates. I'll particularly highlight our very first acquisition, MASS, which last year generated operating profit of almost 11 million pounds, not far short of the 13.5 million pounds purchase price. And our most recent acquisition, EM Solutions, also showed a material improvement in performance after just one year. Now we haven't executed any new acquisitions in the 2025/26 financial year although we do continue to see a steady flow of opportunities and we review those carefully against our criteria. We're looking for 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 defense market and some kind of sustainable competitive advantage based on technology, incumbency or historic relationships. And over the last 20 years, our acquisition strategy has been a driving force in the growth of the group and we expect that to continue into the future.

Now, we continue to see a strong demand picture in response to the deteriorating security environment and ongoing conflicts that we see around the world, and none of us should welcome that. The risks that we now see coming from that are real, and I'm sorry to say that they have the potential to affect us here in the United Kingdom. And in regions where threats are perceived as being the 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. In 2025, global defense spending reached $2.63 trillion US and that growth reflects an increasingly uncertain geopolitical environment and a widespread reassessment of national security priorities by governments around the world. The chart shows the way that defense expenditure has grown since 2021. It excludes Russia and China. And as is clear from that chart, you can see that the United States remains the largest single defense spender, but also that 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 sea, air, and land drones for a range of tasks, including reconnaissance, strike, and 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 incursions and interference with underwater infrastructure and uncrewed vessels will play a major part in those plans. In Asia, Chinese investment in its armed forces together with its increasingly aggressive use of its navy and air force have catalyzed strong growth in defense spending, notably in Japan, Taiwan, Australia, and the ASEAN nations. And although China is increasing spend in all areas of its defense, its threat to its neighbors is significantly maritime in nature, both on and below the sea surface. The continued instability in the Middle East, including the conflict between US, Israel, and Iran, and the consequent regional security concerns, is also driving increased demand for defense technology, in particular for communications and intelligence solutions. Now these trends align closely with the capabilities that we have in the Cohort group in communications, intelligence, cyber, electronic warfare, sonar, maritime systems, and counter-drone technologies. And that provides us with a really supportive backdrop for long-term growth.

Now this slide highlights the strength and diversity of Cohort's geographic exposure and importantly the alignment of our business with regions where defense spending is expected to grow most strongly over the coming years as I've shown you in the previous chart. So what this shows is a comparison between 2024/25 revenue, 2025/26 revenue and the revenue that is held in our order book, breaking it down by percentage regionally. And the most striking features that you can see are the growing proportion of our output going to Europe and Asia Pacific with the proportion going to the UK and Australia reducing. Now the increases are in line with the international demand patterns that I've described. But in Australia, we're delivering our existing order book really quite rapidly, but we expect that to be supplemented by some large opportunities in the next few years. In the UK, it's too early to say exactly what the consequences of the recent defense investment plan are going to be, but there may be a less rapid falloff in the proportion of our work going to the UK if the new prime minister follows through on promises to increase defense spending further. Looking at the order book revenue, the third column, what's particularly encouraging is that it's 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 spending's growing most rapidly.

Now this chart shows a similar comparison between 2024/25, 2025/26 and order book revenue but this time broken down by end-user domain. And you can see from here that maritime remains our largest domain and has grown as a proportion of group revenue over the last year. And the trend is even more evident in the order book where maritime programs account for almost 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, in this case out to 2037. And our land domain work is also very strong and long-term. Now those proportions represent our technical strengths but they also are a function of the demand patterns that I've described in Europe and Asia. Our cyber and information work is important but the small proportion that's there in the order book represents the relatively short-term nature of contracts in that area. Air and space work remains substantial. But the other category which you can see as a thin layer on top of 2024/25 and 2025/26 has 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 revenue is an excellent building block on which we can build our future growth.

Now this slide which many of you will be familiar with gives more detail and a breakdown of that important order book. On the 30th of April, the value of the order book stood at over 618 million. And as I mentioned, that includes contracted revenue that will be recognized out to 2037. And of the total order book, approximately 264 million is scheduled for delivery this year, providing us with very good revenue visibility. And importantly, that's balanced quite well across our two reporting segments with communications and intelligence contributing 128 million and sensors and effects contributing 136 million. And 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 work on. And that includes around 132 million that's scheduled for delivery beyond the 2028/29 financial year. And overall that 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.

And now above and beyond the order book and across both divisions, demand remains strong and is being driven by those same geopolitical and defense spending trends that I've spoken about. Within communications and intelligence, we continue to see significant opportunities for electronic warfare and secure communications, particularly in Europe, where lessons from the conflict in Ukraine continue to shape procurement priorities. And 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 combining communications networking and satcom technologies. Within sensors and effects, 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. Programs such as the Royal Thai Navy's new frigate demonstrate the benefits of collaboration across the group, 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 capabilities. So overall that pipeline of opportunities is strong reflecting the patterns of growing global expenditure and the market relevance of our products and technologies.

So as we come to the end of the presentation I wanted as a final point to summarize how we aim to generate value for our shareholders. First, the business benefits from robust financials underpinned by 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 expanding our 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. As I hope I've shown you this morning, we're also well positioned through 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've got 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 our IPO 20 years ago. And that reflects both the strength of the business and the board's confidence in the group's long-term prospects. Before closing, I want to take the opportunity to mention the great contribution to our success made by our management teams and employees right across the group. I'm very grateful to all of them for the part that they've played in helping us achieve these good results. It has been a successful first 20 years and we look forward to the future with confidence. And let me leave you with this extract from our preliminary statement. And we'd be delighted to take any questions that you might have.