9 - cohort annual report

7/29/2019 9 - Cohort Annual Report

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Cohort plcAnnual Report and Accounts 2011


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Cohort plc is an AIM quoted independent hightechnology business operating in deence andrelated markets

Overview Who we are

Cohort is the parent company of three wellestablished, wholly owned subsidiariesproviding a wide range of services andproducts for UK and international customers.

MASS

SCS

SEA

In this report

Overview

IFC Who we are

01 Highl ights

02 Cohort at a glance

04 Chairmans statement

Business revi ew

06 Chief Executives review

10 Finance Director s review

16 Operations review : MASS

18 Operations review : SCS

20 Operations review : SEA

22 Principal r isks

26 Board of Directors and Executive Management

Corporate governance

29 Directors repor t

32 Corporate governance report

34 Remuneration & Appointment s Commit tee report

37 Statem ent o f Di rectors responsib i l i t ies

Financial statement s

39 Independent auditor s report

40 Consol idated income statement

40 Consol idated statement of comprehensive income

41 Consol idated statement of changes in equity

42 Company statement of changes in equity

43 Consol idated and Company statements

of nancial position

44 Consolidated and Company cash ow statements

45 Notes to the nancial statements

68 Accounting pol icies

IBC Advisers

IBC Shareholder information and nancial calendar

For more on Cohort visit:

www.cohortplc.com

To read more on SCS, visit our website atwww.scs-ltd.co.uk

To read more on SEA, visit our website atwww.sea.co.uk

To read more on MASS, visit our website atwww.mass.co.uk

MASS designs, manuf act ures and suppo rt select ronic syst ems and soft ware, and provide sspecialist services and training.

SCS specialises in providing advice and supportbased on sound te chnical know ledge coupledwit h exper ience of i t s pract ical appl icat ion.

SEA deliver s syst ems engineer ing, soft war e andelect ronic engineer ing serv ices and solut i ons,

including specialist design and manufacture.

Find out more about the markets we operatein on page 2.


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Cohort plcAnnual Report and Accounts 2011www.cohortplc.com

Overview

Business review


Financial statements

01

OverviewHighlights

Adjustedoperatingprot*up22%to5.0m(2010:4.1m).

Adjustedearningspershare*up39%at10.69pence

(2010:7.67pence).

Revenuedown17%at65.1m(2010:78.1m).

Proposednaldividendup14%at1.60pencepershare

(2010:1.40pence).

RecordprotatMASS. ReturntoprotabilityatSCSaftermajorrestructuring.

MajorrestructuringandnewManagingDirector

appointedatSEA.

*Excludesexceptionalitemsandamortisationofotherintangibleassets.

Financial and operational

111009

6.7

3.0

3.7

08

2.1

Net funds (m)

6.7m+121%

11100908

5.0

4.1

6.36.1

Adjusted operating proft* (m)

5.0m+22%

111009

103.2112.7

47.2

08

58.3

Order book at 30 April (m)

103.2m-8%

07

2.9

07

5.0

07

38.3


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Cohort plcAnnual Report and Accounts 2011 www.cohortplc.com

02

OverviewCohortataglance

Delivering value by pursuing innovationand growth within a ramework o corporategovernance and control

Cohortplcaimstoaddrealvaluetoitssubsidiariesthroughtheexperienceandcontactsofitsseniorteamwhileprovidingalight-touchbuteffectivegovernanceframework.Itsobjectiveis to deliver value to shareholders through its three operatingsubsidiaries:MASS,SCSandSEA.

How we operate

Deence

51.4m2010:64.7m

Revenue

79%2010:83%

Percent age of revenue

Space

7.8m2010:8.2m

Revenue

2010:10%12%

Percentage of revenue

Allofourbusinessesoperatetoalargeextentinthedefencemarket,includingsecurity.CustomersincludeUKMOD,NATO,EDAandarangeofothernationalcustomersinEuropeandtherestoftheworld.

SEAhasastrongcapabilityinsatellitesensorsandoperatingsystems,fromresearchanddevelopmentthroughtoproductdesign,deliveryandsupport.

Transport

SEAprovidesinformationsystemsolutionstobothrailandroadinfrastructurecustomersanddevelops,suppliesandsupportscameraenforcementsystems.

2.1m2010:3.3m

Revenue

2010:4%3%

Percent age of revenue

MOD ESA


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Overview

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03

Other

IncludeseducationinformationsystemsandsupportprovidedbyMASS,aswellasothertechnicalsolutionsandsupporttovariouscommercialcustomersbyallofourbusinesses.

3.8m2010:1.9m

Revenue

2010:3%6%

Percentage of revenue

Revenue analysis by market sectors

2011

Defence79%

Space12%

Transport3%

Other 6%

2010

Defence83%

Space10%

Transport4%

Other 3%

CohortwasfoundedontheprinciplethatSME-sizebusinessescanprosperbybeingpartofalargergroup,wheretheycanbenetfromnancialoversight,managementsupportandtheexchangeofinformationandpractices.

Cohortaimstoachievethiswhilepreservingthehigh-growthpotentialofinnovativeindependentbusinesses.

MASShasachievedanotherstrongyearofgrowth.

Priorities WinfurtherordersforTHURBON,

ourEWdatamanagementsystem

BuildonoursuccessintheUKeducationmarket

DevelopopportunitiesinCyber

Our strategy

MASS

SCShasprogressedwellaftermajorrestructuringandisnowbackonaprotablefooting.

Priorities Continuetowinlonger-termcontracts

Afocusedbusinessdevelopmentstrategyforhighvaluesustainableopportunities

Increasebusinessinnon-UKMODmarkets

SCS

SEAhasjustcompletedamajorrestructuringexerciseandappointedanewManagingDirector.Thenewnancialyearwillseeimprovedperformance.

PrioritiesPursue opportuniti es in t he t rainingandsimulationmarket

DevelopexportopportunitiesfortheCommonSimulationFrameworksystem

BuildonthesuccessoftheExternalCommunicationsSystemontheAstuteprogramme

SEA


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04

OverviewChairmansstatement

Cohorthashadanimprovedyearoverall,thoughfallingshortoftheBoardsexpectationsatthebeginningoftheyear.MASShadanotherstrongperformance,growingrevenueandprotabilitytorecordlevels.Followingmanagementactionstakeninearly2010,SCShasreturnedtoprotability.SEAcontinuedtoexperienceprogrammedifcultiesduringtheyearandfurthermanagementandprocesschangesweremadetoaddresstheseproblemsinthesecondhalfoftheyear.TheSEAtradingresultfortheyearended30April2011reectedacautiousstanceonprogramme

statusandperformance.Thepositiveimpactofthesechangeswillbeseeninthecurrentnancialyear.

Key fnancialsIntheyearended30April2011,Cohortpostedrevenueof65.1m(2010:78.1m).Thisincludedrevenueof18.4m(2010:26.4m)fromSystemsConsultantsServicesLimited(SCS),23.5m(2010:21.5m)fromMASSConsultantsLimited(MASS)and23.2m(2010:30.2m)fromSEA(Group)Limited(SEA).MASSgrewitsrevenuebynearly10%.Aspreviously

reported,SCSsrevenuewasdownon2010afterwithdrawingfromanumberofunprotablerevenuestreamsaswellasexperiencingatougherdomesticmarket,particularlyinmilitarymanpowersubstitution.SEAsrevenuewasdownon2010duetodelaysinprogrammescombinedwithweakerdemandinsomeofitsmarkets,especiallydefenceresearchandtransport.

TheGroupsadjustedoperatingprotwas5.0m(2010:4.1m).ThisincludedadjustedoperatingprotfromSCSof1.0m(2010:0.1m),fromMASSof4.2m

(2010:3.5m)andfromSEAof0.9m(2010:1.6m).CohortGroupoverheadswere1.1m(2010:1.1m).

Cohorts businesses have strongmarket positions and the Grouphas a healthy cash position

Theclosingorderbookof103.2mandpipelineofprospectsprovideagoodplatformforthecomingyear.

Nick Prest CBE

Chairman

In summary

TheBoardisrecommendinganaldividendof1.6penceperordinaryshare(2010:1.4pence).

MASStradedstronglyintheyearandpostedrecordguresforsales,protsandcashgeneration.

MASSsrecentlysecuredSHEPHERDorderunderlinesMASSscentralroleintheUKsElectronicWarfarecapability.

SCShasreturnedtoprotabilityandhassettledintoitsnewpremisesundertheleadershipofBillBird.

SEAcontinuedtoexperienceprogrammedifcultiesinthersthalfof2010/11andmanagementchangesinrespectoforganisationandprocesseshavecontinuedunderSteveHill.

SEAendedtheyearwithanorderbookof23.4m (2010:24.7m),whichunderpinsagoodproportionofthecomingyearsrevenue.


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05

Cohorthasstrongbusinesspositions

ontheUKAstuteSubmarineprogrammeandwiththeUKsDefenceElectronicWarfareCentre.

TheGroupoperatingprotof2.8m(2010:2.9m)wasaftercharging0.7m(2010:0.6m)inrespectofrestructuringcostsatSCSandSEA.

Protbeforetaxwas2.7m(2010:2.7m)andprotaftertaxwas2.8m(2010:2.3m).

Basicearningspersharewere6.79pence(2010:5.63pence).Adjustedearningspersharewere10.69pence(2010:7.67pence).Theadjustedearningspersharewerebaseduponprotaftertax,excludingamortisationofotherintangibleassetsandexceptional

items,bothnetoftax.

Orderintakefortheyearwas55.6m(2010:143.6m).Theprioryearincludedrenewalsofsomelong-termmanagedservicecontractsdeliverableoveradecade.

Thenetfundsattheyear-endwere6.7m(2010:3.0m)afterthepurchasebyMASSofAbacusEWforinitialcashconsiderationof0.9minMay2010.

DividendsTheBoardisrecommendinganal

dividendof1.6penceperordinaryshare(2010:1.4pence),makingthefullyeardividendinrespectoftheyearended30April20112.4penceperordinaryshare(2010:2.05pence),a17%increase.Thiswillbepayableon7September2011toshareholdersontheregisterat5August2011subjecttoapprovalattheAnnualGeneralMeetingon1September2011.

MASSMASStradedstronglyintheyearandpostedrecordguresforsales,protandcashgeneration.Thecompanymovedintoits

newpremisesinSeptember2010andiswellplacedtostrengthenfurtheritsgoodposition.AbacusEW,whichwasacquiredearlierintheyearforaninitialconsideration

of0.9m,hasbeensuccessfullyintegratedbyMASSandhasfullledourexpectationsinbothoperatingperformanceandstrategict.AbacusEWdeliveredastrongrstyearperformanceofover0.7madjustedoperatingproton1.6mofrevenue.MASSsorderbookof69.8mgivesitagoodstartingpointforthecomingyearandtherecentlysecuredSHEPHERDorderunderlinesMASSscentralroleintheUKsElectronicWarfarecapability,aswellasprovidingMASSwitharmbasefromwhichtopursuefurtherexportopportunities.

SCSFollowingadifcultyearin2009/10,SCShasreturnedtoprotability,albeitonalowerlevelofrevenue.SCShassettledintoitsnewpremisesandundertheleadershipofBillBird,whowasappointedasManagingDirectorinSeptember2010,hascontinuedtoprogresswell.

SCSconrmeditsstrongcapabilitiesindefencebyretainingitssimulationsupportcontracttotheUKMODsPermanentJointHeadquarterswhichitwonagainstcompetitioninMarch2011.Aftershedding

around2.0mofannualrunningcostlastyear,SCSfurtheraligneditscostbasewithitsrevenuestreamsduring2010/11removingafurther0.8mofannualoperatingcost.SCShasnowconsolidateditselfintermsofsizeandofferingandisinapositiontogrowagainandimproveitsmargin.

SEAAfteradisappointing2009/10SEAcontinuedtoexperienceprogrammedifcultiesinthersthalfof2010/11.Asaresult,managementchangesweremadeinlate2010,ledbyAndyThomisasactingManagingDirector

ofSEA.ThesechangeswereextensiveinrespectoforganisationandprocessesandthechangeshavecontinuedunderSteveHill,

whowasappointedManagingDirectorinMarch2011.WeexpectSEAsperformancetoimproveinthecomingyear,thoughsomefurtheralignmentofcoststorevenuemayberequired.SEAendedtheyearwithanorderbookof23.4m(2010:24.7m),whichunderpinsagoodproportionofthecomingyearsrevenue.

ManagementAspartoftheexecutiveteamsresponsetoperformanceproblems,AndyThomisactedasManagingDirectorofbothSCSandSEA,inadditiontohisroleasChiefExecutive,

forshortperiodsuntilsucceededbythenewappointees.OnbehalfoftheBoardIwelcomebothBillandStevetotheGroupandIwouldliketothankallouremployeesfortheirhardworkanddedicationduringatoughperiodforCohort.

OutlookTheclosingorderbookof103.2m(2010:112.7m)andpipelineofprospectsprovideagoodplatformforthecomingyear,despitecontinuinguncertaintyintheUKdefencemarket,andwewillmaintainthedriveforimprovedoperational

performance,particularlyatSEA.TheGroupwillcontinuetopushtheexpansionofitsbusinessoutsidetheUKaswellasitsnon-defencebusiness.

CohortsbusinesseshavestrongmarketpositionsandtheGrouphasahealthycashposition.ThereisagapbetweenthemarketcapitalisationofCohortandtheBoardsviewoftheaggregatevalueofCohortsunderlyingbusinessesandtheBoardspriorityistoclosethisgap.

Nick Prest CBEChairman

BAESystems


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06

Our businesses are leaner and betterequipped or the challenges ahead

BusinessreviewChiefExecutivesreview

OverallthishasbeenanimprovedyearforCohort.MASSagainperformedwell,producingrecordrevenue,operatingprotandcashwhilesuccessfullyintegratingAbacusEWfollowingitsacquisitioninMay2010.MASSscontinuingsuccesswasunderlinedbysecuringtheSHEPHERDcontracttodeliverkeyaspectsoftheinformationmanagementupgradefortheUKMODsElectronicWarfare(EW)Centre,keepingMASSattheheartoftheUKsEWoperationalsupport.ThissuccessunderpinsMASSsofferingtooverseascustomerskeentodeveloptheirownEWcapabilities.

AtSCS,followingtheproblemsreportedin2009/10Iampleasedtoreportanimprovementinprotability,despiteatoughmarketbackgroundintheUKdefencesector.SEAhadadisappointingyearfollowingonfromitsbelow-expectationperformancein2009/10.Actionwetookin2009/10toaddresstheprogrammeissuesidentiedatthetimedidnotresultinsufcientperformanceimprovement.Asaresult,moreextensiveactionwastakenduringtheyearwithmajorchangestomanagement,organisationandprocesses,initiallyundermydirectionandthenSteveHills,towhom

IhandedoverasSEAManagingDirectorinMarch2011.

Group overviewTheGroupsrevenuefortheyearascomparedto2009/10issummarisedonpages8and9.

ThetablesshowthefallinGrouprevenuefrom2010to2011of13.0m(17%).ThemostsignicantelementofthereductionwasinrevenuereceiveddirectlyfromtheUKMODatSCSandSEA.Militarymanpowersubstitutionandadvisoryserviceswere

bothaffectedatSCSandatSEA,therewasareductionintechnologysolutionswork,particularlyonresearchprogrammes.

In summary

MASSsecuredthecontracttodeliverkeyaspectsofthenewinformationmanagementsystemfortheUKsDefenceEWCentre.

MASSsuccessfullydeliveredontherstoftheschoolsforNorthLincolnshireundertheBuildingSchoolsfor

theFuture(BSF)programme.

SCSunderwentconsiderablerestructuringwhichachievedourinitialgoalofreturningSCStoastable,protablebusiness.

SCScontinuedtowinsomekeystrategicworkintheUKincludingtherenewalofthePermanentJointHeadquarterstrainingsimulation.

SEAhasbeenawardedfurtherresearchworkinprogrammesincludingFutureDismountedCloseCombataswellasmakingfurtherprogresswithitsCommonSimulationFrameworksystem.

SEAhasbeenselectedforanotherkeyNetworkRailsoftwareprogramme.

Thecombinationofastrongorderbookandgoodshort-termopportunities givemecondencethattheGroupcancontinuetoimproveitsperformance.

Andrew Thomis

ChiefExecutive


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Overview

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07

Cohortremainsfocusedondelivering

valueinitscoredefencemarkets,butalsocontinuestogrowsuccessfullyinadjacentmarkets.

ThisreectstheMODsintroductionofanexpenditurecontrolregimeasithassoughttoimplementtheGovernmentsStrategicDefenceandSecurityReview(SDSR).

MorepositivelytheGroupmaintainedthelevelofrevenuereceivedindirectlyfromtheMOD,includingsupporttotheUKsdeployedoperations.

TheGroupcontinuestopositionitselftoincreaseitsnon-UKMODdefencerevenue,particularlyitsexportdefencerevenue.

Trading subsidiariesMASSMASShadanotherrecordyear,growingrevenuebynearly10%to23.5mandadjustedoperatingprotbynearly20%to4.2m.ItoccupieditsnewoperatingpremisesnearStNeotsinSeptember2010andtheseprovideMASSwiththecapacitytocontinuetogrowintothefuture.

IamdelightedtoreportastrongmaidencontributionfromAbacusEWwhichgenerated0.7mofadjustedoperatingprotand0.6mcashon1.6m

ofrevenueafterintegrationwithMASSsEWOperationalSupportbusiness.

Asalreadymentioned,inJune2011MASSsecuredthecontracttodeliverkeyaspectsofthenewinformationmanagementsystemfortheUKsDefenceEWCentre.ThiswillbebaseduponMASSsowninternallydevelopedproduct,THURBON.ThisprovidesMASSwithastronglevertosecureexportopportunitiesbaseduponTHURBON,bothinsideandoutsideofNATO.

MASSsuccessfullydeliveredontherst

oftheschoolsforNorthLincolnshireundertheBuildingSchoolsfortheFuture(BSF)programme.ThecoalitionGovernmenthas

replacedBSFwithanewschemeenablingindividualschoolstocontractunderapprovedframeworkagreements,onwhichMASSisaccredited.ThisnewmarkethasadifferentcompetitivelandscapetotheBSFprogrammeandMASShassofarsecuredoneprojectunderthisarrangement.

SCSAsIreportedlastyear,SCSunderwentconsiderablerestructuringduring2009/10andthiswasfurtherrenedduringthecurrentyear.ThisachievedourinitialgoalofreturningSCStoastable,protable

business.Inthelast18monthsthebusinesshasshedaround2.8mofannualemploymentcost.SCSachievedanadjustedoperatingprotof1.0m(2010:0.1m)on18.4m(2010:26.4m)ofrevenue.Despitetheimprovement,theoperatingmarginofjustover5%remainstoolowandourobjectiveistomoveSCSsperformanceclosertothedouble-digitmarginsachievedinpastyears.WepreviouslysignalledafallinrevenueduetoSCSexitinglowprotabilitybusinessbutthiswascompoundedbyadrop-offinmilitarymanpowersubstitutionbytheUKMODaswellasareduction

insometrainingexercisework.

Despitethetoughmarket,SCScontinuedtowinsomekeystrategicworkintheUKincludingtherenewalofthePermanentJointHeadquarterstrainingsimulationforatleastthenexttwoyears.SCShasalsocontinuedtodevelopinrelatedmarketsoutsideUKdefence,securingaframeworkagreementforNATO,providingtraininginAfricaandsupporttothesecurityarrangementsfortheLondonOlympics.SCScontinuesactivelytoseekfurtheroverseasopportunitiesbutthetimingofthese

isalwaysuncertain.Despitethetightandsometimesunpredictablemarketconditions,IamcondentthatSCSscapabilitiesand

OverallthishasbeenanimprovedyearforCohort.

MOD MOD


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aroundprojectmanagementand2011/12isnowsettoseeanimprovement.

Despitethedifcultdefencemarket,SEAhascontinuedtosecuresomevaluableandimportantorders.Indefence,ithasbeenawardedfurtherresearchworkinprogrammesincludingFutureDismountedCloseCombataswellasmakingfurtherprogresswithitsCommonSimulationFrameworksystem.SEAhascontinuedtodelivertocustomerrequirementsontheExternalCommunicationsSystem(ECS)forthelatestAstuteClassSubmarine

andiswellpositionedtodeliverretrots

toexistingplatformsaswellasnewinstallationsontofuturebuildsofthissubmarineclassandelsewhere.

Intransport,SEAhasbeenselectedforanotherkeyNetworkRailsoftwareprogrammeandinspaceitcontinuestosecurepositionsonanumberofresearchandightprogrammes,althoughprotabledeliveryinthespacedivisionhasbeenoneoftheweakerelementsofSEAsperformance.

TheunderlyingSEAresult,whentheimpactofmarkingforwardexchangecontractsto

marketisremovedwas0.3m(2010:1.8m)

BusinessreviewChiefExecutivesreviewcontinued

2011

MASS SCS SEA Group

m m m m %

By market sector

Defence(includingsecurity)

DirecttoUKMOD 9.6 12.5 5.7 27.8

IndirecttoUKMOD,wheretheGroupactsasasub-contractororpartner 5.1 4.5 6.9 16.5

Total to UK MOD 14.7 17.0 12.6 44.3 68

Exportdefence 6.5 0.6 7.1 11

Total def ence 21.2 17.6 12.6 51.4 79

Transport 2.1 2.1

Space 7.8 7.8

Othercommercial 2.3 0.8 0.7 3.8

Total non-defence 2.3 0.8 10.6 13.7 21

23.5 18.4 23.2 65.1 100

By t ype of work

Technologysolutions 10.1 20.3 30.4 47

Advisoryservices 2.6 11.3 0.4 14.3 22

Managedservices 8.6 0.9 9.5 15

Manpowerprovision 7.1 0.1 7.2 11

Product 2.2 1.5 3.7 5

23.5 18.4 23.2 65.1 100

Trading subsidiariesSCS continuedbusinessmodelpositionitwellagainstitscompetitorsandtherearereasonablegroundstothinkthatitwillcontinuetogrowfromthermbaseestablishedthisyear.

SEAThetradingperformanceofSEAinthersthalfofthisyearrevealedthatfurtherrestructuringwasrequired.ThiswasbeguninOctober2010andsofarithasreducedtheSEAcostbaseby1.3m.Moreimportantlyitchangedthemanagementstructure,

organisationandprocesses,particularly


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09

onrevenueof23.2m(2010:30.2m).Thisresultreectstheprogrammeissuesencounteredinthebusinessduringtheyearandonwhichmanagementhasnowtakenacautiousview.

OutlookActionhasbeentakenatSEAtoaddresstheprogrammeandorganisationalissues.ThesewilltakesometimetoworkthroughthesystembuttheresultsofthisshouldbeevidentinSEAstradingperformanceinthecomingyear.IampleasedattheturnaroundatSCSanditscontinuingpositive

performance,althoughitsvisibilityofforward

revenueinatightUKMODmarketremainslimitedanditmustproceedwithcaution.MASSremainsastrongbusinessandIexpectittoconsolidateitsrecentimpressivegrowthintheyearahead.Thecombinationofastrongorderbookandgoodshort-termopportunitiesgivesmecondencethatdespitethetightdomesticdefencemarket,theGroupcancontinuetoimproveitsperformance.

Andrew Thomis

ChiefExecutive

2010

MASS SCS SEA Group

m m m m %

By market sector

Defence(includingsecurity)

DirecttoUKMOD 10.2 20.3 9.8 40.3

IndirecttoUKMOD,wheretheGroupactsasasub-contractororpartner 4.6 4.4 7.8 16.8

Total to UK MOD 14.8 24.7 17.6 57.1 73

Exportdefence 6.1 1.5 7.6 10Total defence 20.9 26.2 17.6 64.7 83

Transport 3.3 3.3

Space 8.2 8.2

Othercommercial 0.6 0.2 1.1 1.9

Total non-defence 0.6 0.2 12.6 13.4 17

21.5 26.4 30.2 78.1 100

By t ype of work

Technologysolutions 7.1 27.4 34.5 44

Advisoryservices 1.6 14.9 0.5 17.0 22

Managedservices 9.0 0.8 9.8 13

Manpowerprovision 11.5 0.1 11.6 15Product 3.8 1.4 5.2 6

21.5 26.4 30.2 78.1 100

Cohortsproductsandservices

continuetoprovidearealedgetoourcustomerscapabilities.

MOD


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BusinessreviewFinanceDirectorsreview

Simon Walther

FinanceDirector

Thisreviewdetailsthesignicantnancialissuesarisingduringtheyearended30April2011.

Aspects o the income statementwarranting urther explanationAdjusted operating proftTheadjustedoperatingprotispresentedtoreectthetradingprotoftheGroupandexcludesamortisationofotherintangibleassetsandexceptionalitems.ThisenablestheGrouptopresentitstradingperformanceinaconsistentmanneryearonyear.

Theadjustedoperatingprotisstatedafterchargingthecostofshare-basedpaymentsof317,000(2010:259,000)whichisallocatedtoeachbusinessinproportiontoitsemployeeparticipationintheGroupsshareoptionschemes.Thesegmentalanalysis(seenote1)isdisclosedforeachbusinessafterdeductingthecostofshare-basedpayments.

TheadjustedoperatingprotofSEA(andtheGroup)isafteranetcreditof595,000(2010:chargeof231,000)inrespectofmarkingforwardforeignexchangecontractstomarketat30April2011.Theunderlying

adjustedoperatingprotofSEAexcludingthisexchangeadjustmentwas289,000fortheyearended30April2011(2010:1,791,000).

ThecurrentyearincludedfurthercostreductionatbothSCSandSEA,withSCSreducingitsannualoperatingcostsinthesecondhalfbyafurther0.8m,ontopofthe2.0mannualreductionachievedin2009/10.SEAalsoundertookrestructuringinthesecondhalfoftheyear,reducingitsannualoperatingcostby1.3m.MASSsoperatingcostsnowreectitsmovetoitsnewfreeholdpropertyinStNeots.

In summary

ThecurrentyearincludedfurthercostreductionatbothSCSandSEA.

SCSreduceditsannualoperatingcostsby0.8m,ontopofthe2.0mannualreductionachievedin2009/10.

SEAreduceditsannualoperatingcostby1.3m.

MASSsoperatingcostsnowreectitsmovetoitsnewfreeholdpropertyinStNeots.


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Exceptional items (see note 3)Thekeyitemschargedasexceptionalitemswereasfollows:

RestructuringcostatSCSof0.2m.Afurther19postswereremovedatSCS,mostlyindirectfee-earningstaff,reducingthecostbasebyapproximately0.8mperyear.

TherestructuringcostatSEAof0.5mwasinrespectof26postsandreectedtherestructuringofthebusinessfromitspreviousfourmarket-facing,fullyintegrated operating divisions delivering

divisionaltradingprot(afteroverheads)tocapability-focuseddivisionsresponsiblefordeliveringgrossmarginonprojectsandensuringresourcestodeliverthoseprojectsisavailable.Thisrestructuringrequiredareductioninmanagement,divisionaloverheadsanddirectcostsandequatestoapproximately1.3mofannualcostsaving.

TaxTheGroupstaxcreditfortheyearended30April2011of65,000(2010:chargeof

457,000)wasataneffectivecreditrateof2.4%(2010:chargeof16.6%)ofprotbeforetax.Thisincludesacurrentyearcorporationtaxchargeof459,000(2010:961,000),arateof17.0%(2010:35.0%)ofprotbeforetax,aprioryeartaxcreditof1,124,000(2010:chargeof135,000)andadeferredtaxchargeof600,000(2010:creditof639,000),consistingof14,000(2010:639,000credit)forthecurrentyearand586,000(2010:Nil)forprioryears.

Thereportedcurrenttaxrateislowerthanthestandardrate(calculatedat27.83%)duetorecognitionofResearch&Development(R&D)taxcredits.Theeffectivecurrenttaxrate,aftertakingaccountofappropriatedeferredtaxitemsinrespectofthecurrentyearis17.5%.

TheGroupsoveralltaxratewasbelowthestandardcorporationtaxrateof27.83%(2010:28.00%).ThemajorityofthereductionintheeffectiverateoftaxwasduetotherecognitionofR&DtaxcreditsatMASSandSEAfortheyearended30April2011anda

prioryearcurrenttaxcreditreectingthereleaseofataxprovisioninrespectofearlieryearsR&Dtaxcreditsfollowingclosureoftherespectivetaxyears.

TheGroupsbusinessesareonlyallowedtoclaimthelowerR&Dtaxcreditallowanceavailabletolargercompanies,currently30%.

Lookingforward,theGroupseffectivecurrenttaxratefor2011/12and2012/13isestimatedat18%and17%respectively,takingaccountofthereductioninheadlinetaxratesandassumingtheR&Dtaxcredit

regimeremainsunchangedfromitscurrentlevelandscope.

TheGroupmaintainsacautiousapproachtopreviousR&Dtaxcreditclaimsfortaxperiodsthatarestillopen.

Capital structure o the Group and undingTheGroupsaccesstocapitalcomprisesthefollowing:

Share capitalTheGrouphasinissue40.8mordinarysharesof10penceeach.Ofthesesharesjustunder0.4mareownedbytheCohortplcEmployeeBenetTrustandwaivetheirrightstodividends.

InadditiontheGrouphasissuedoptionsoverordinarysharesthroughKeyEmployeeShareOptionandSAYEschemestothelevelof3.0mat30April2011.

TheGroupscurrentsharepricedoesnotsupporttheuseofequityasanattractivemeansofraisingcapital,beingtoodilutiveoftheexistingshareholdings.

TheGroupmaintainsaprogressivedividendpolicywithdividendshavingincreasedbyaround17%to20%overthelastthreeyearsanddividendcoverbeingmaintainedinthecurrentyearatoverfourtimesbasedupontheadjustedearningspershare.

TreasuryAt30April2011theGrouphadfacilitieswithitsbankingprovider,RBS,asfollows:

Termat commencement

m offacility

Overdraftfacility 5.0 364daysforworkingcapitalrequirements

Structureddebt 7.5 364daysfacilityfor withthreeyearacquisitions termout

Cohortoffersnichecapabilitiesinto

complexcustomersolutions.


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BusinessreviewFinanceDirectorsreviewcontinued

Capital structure o the Group and undingcontinued

TreasurycontinuedOfthestructureddebtfacilityof7.5m,3.0mwasdrawntopartnancetheacquisitionofSEAandremainsdrawnat30April2011.The5.0moverdraftfacilitywasnotdrawnat30April2011(2010:Nildrawn).Inaddition,theGrouphas0.4mofmortgagedebtwithRBSwhichwasacquiredwithSEA.

TheGroupsfacilitiesaredueforrenewalinOctober2011andtheBoardexpectsthese

toberenewedonbroadlysimilarterms.

TheGroupsbankfacilitieswerechangedat1October2010when2.5mwasswitchedfromthestructuredacquisitionfacilitytotheoverdraftfacilitytoprovidetheGroupwithgreatercapacitytomanageitsworkingcapitalrequirements.Theoverdraftfacilityisrenewableeachyear.Thestructureddebtfacilityhasanoptiontoxforuptothreeyearsatanypoint.

TheGroupsforeignexchangeexposureismainlyatSEAandprimarilyrelates

toreceivablesfromtheEuropeanSpaceAgency;thisexposureishedgedusingforwardcontracts.

At30April2011,theGrouphadinplaceforwardforeignexchangecontractsasfollows:

Sell Buy

EurotoGBP 12.1m 10.3m

GBPtoUSD 0.5m US$0.9m

EurotoUSD 1.7m US$2.4m

TheseforwardcontractsareusedbytheGrouptomanageitsriskexposuretoforeigncurrencyontradingcontractswhereiteitherorbothreceivesandpayscurrencyfromcustomersandsuppliersrespectively.Theseforwardexchangecontractsareenteredintowhencustomercontractsareconsideredhighlyprobable.TheGroupdoesnotenterintospeculativeforeignexchangedealing.

Asmentionedabove,themarkingofforwardcontractstomarketatthespotrateon30April2011resultedinthe

recognitionofaderivativenancialassetof542,000(2010:liabilityof53,000)andacredittotheincomestatementof595,000(2010:chargeof231,000).Inbothyears,thechangeinthederivativenancialinstrumentwasrecognisedaspartoftheadjustedoperatingprotofSEA.Thisistheonlynancialasset(outsideofcash)thattheGrouppossesses.

TheGroupsbankcovenantswereallsatisedat30April2011.Baseduponitslatestinternalforecasts,theGroupdoesnotanticipateanybreaches.Thecovenantsareassessed

quarterlywithameasuredandreported12monthlookbackandanassessmentofthenext12months.

TheGrouptakesaprudentapproachtotreasurypolicywithitsoverridingobjectivebeingprotectionofcapital.Inimplementingthispolicy,depositsareheld with at least A rated institutions and

depositsaregenerallyheldonshort(lessthanthreemonths)durationtomaturityoncommencement.

ThismatchestheGroupscashresourceswithitsinternal13weekcashforecasts,retainingexibilitywhilsttryingtoensureanacceptablereturnonitscash.AlloftheGroupscashismanagedthroughaset-offarrangementenablingthemostefcientuseoftheGroupscashfromdaytoday,underthesupervisionoftheGroupsnancefunction.

Depositratesduring2010/11havebeenlow,typicallybelow0.5%(2010:0.4%)comparedwiththeGroupsweightedinterestrateonitsborrowingsof3.10%(2010:3.17%).The

GrouphasretaineditsdebtduringtheperioddespitetheunfavourablecomparativeinterestratestoensureithashadfacilitiesavailabletosupportitsworkingcapitaldemandsandtoallowtheGrouptomakesmall,cash-onlyacquisitions,suchasitdidinthecaseofAbacusEWduringtheyear.

TheGrouphasaninterestswapover0.4mofitsmortgagedebt(acquiredwithSEA)xingtheinterestrateonthisloanat6.38%.

TheGroupsliquidityremainsgoodwithprotconversiontocashremainingwell

above100%(seeKPIsonpage15).TheGrouphashistoricallyhadlowlevelsofworkingcapitalwithmanyofitscontractsbeinglessthanoneyearindurationandthereliabilityofitscustomerbasemakingdebtrisklow.During2011,workingcapitallevelshavefallen,asdescribedopposite.TheGroupsrelianceonitsowncashandfacilityresourcesrequiresittotakeaproactiveapproachwithitsbank,withwhomitmaintainsaregularrelationship.


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Working capitalTheworkingcapitaloftheGroup,denedasinventoryplustradeandotherreceivableslesstradeandotherpayables,hasfallenfrom8.2mnetassetsto5.5mnetassets,adecreaseof2.7m(33%).Thedecreaseinworkingcapitalwaspartlyduetoafallinrevenue(17%down)butalsoreectedagoodimprovementinworkingcapitalatSCSfollowingitsimprovementinprocesses,andanincreaseinadvancepaymentsatSEAby1.5m.

Theyear-enddebtordaysinsaleshaveincreasedfrom50daysin2010to63daysin2011.Thiscalculationisbasedupondividingtherevenuebymonth,workingbackwardsfromAprilintothetradedebtorsbalance(excludingunbilledincomeandworkinprogress)attheyear-end,amoreappropriatemeasurethancalculatingbasedupontheannualrevenueasittakesintoaccounttheheavyweightingoftheGroupsrevenueinthelastquarterofeachyear.TheincreaseindebtordaysisdueinparttoaslowingofUKMODpaymentsattheendofApril2011duetotheextendedholidayperiod.

TheGrouphasaworkingcapitalfacilityof5.0mwithRBSwhichwasnotutilisedduringtheyear.TheGrouphadcashat30April2011ofjustunder10.2m(2010:6.6m).Advancereceiptsoncontractsattheyear-endwere3.2m(2010:1.7m).

TheGroupgenerated6.5mofcashfromoperatingactivities(operatingprotwas4.3mbeforeamortisationofintangible

assets)whichwasoffsetbyaninvestmentof1.8mintotalonxedassets,ownsharesandacquiredbusinessesand0.9mofdividendspaid.

Areas o judgementRevenue recognition onfxed-price contractsTheGroupsaccountingpolicyonrevenuerecognitionexplainsthisindetail(seepage73)asdoestheaccountingjudgementnote(seepage74).Thejudgementappliedinrecognisingrevenueonaxed-pricecontractismadebyreferencetothecost

incurred,includingcontingencyforriskandthedemonstrableprogressmadeondeliveringkeystages(oftenreferredtoasmilestones)ofthecontract.TheGroupusesbestestimatesinapplyingthisjudgementandwhereuncertaintyofprogressonastageexists,revenueisnotrecognisedforthatstage.

Cost contingency onfxed-price contractsInadditiontothejudgementappliedtorevenuerecognition,thecostofdeliveringacontracttoaparticularstagerepresents

theactualcostsincurredandcommittedplusanestimateofcostcontingencyforriskstillpresentinthecontractatthatstage.Thiscostcontingencytakesaccountofthestagethatthecontracthasreachedandanyjudgementanduncertaintyremainingtodelivertheremainderofthecontract.Itisusualforthesecostcontingenciestoreduceasthecontractprogressesandriskanduncertaintyreduces.

Ourcapabilitiesinbothspaceand

transportareexamplesofsuccessindiversiedmarkets.

10.69p2010:7.67p

Adj usted earnings per share

65.1m2010:78.1

Revenue


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14

Goodwill and other intangible assetsTheGrouphasrecognisedgoodwillandotherintangibleassetsinrespectoftheacquisitionofMASS(includingAbacusEW)andSEA.Theotherintangibleassetsareinrespectofcontractsacquired,intellectualpropertyrightsandspecicopportunitiesandineachcaseareamortisedovertheexpectedlifeoftheearningsassociatedwiththeotherintangibleassetacquired.

Thegoodwill,whichisnotsubjecttoamortisationbuttoannualimpairmenttesting,arisesfromtheintangibleelementsoftheacquiredbusinessesforwhicheitherthevalueorlifeisnotreadilyderived.Thisincludes,butisnotlimitedto,reputation,customerrelations,contactsandmarketsynergieswithexistingGroupmembers.ThegoodwillrelatingtotheacquisitionsofMASS(includingAbacusEW)andSEAhasbeentestedforimpairmentasat30April2011.MASS(includingAbacusEW)goodwillisnotimpaired,evenafterincreasingtheGroupsweightedaveragecostofcapital(WACC)from12.3%to15.5%.TheimpairmenttestforthegoodwillinrespectofSEAismoresensitivewithno

impairmentattheGroupsWACCof12.3%butimpairedby5.0miftheGroupsWACCincreasesto15.5%.ThefactorsaffectingtheGroupsWACCarediscussedfurtherintheGroupsaccountingpolicies(seepages(68to76).TheGroupsWACCat30April2011of12.3%ishigherthan2010of11.5%.ThisincreasereectstheincreaseintheGroupsequityrisk.

ProvisionsTheGroupmakesestimatesofprovisionsforexistingcommitmentsarisingfrompastevents.Inestimatingtheseprovisions,

theGroupmakesjudgementsastothe

quantityandlikelihoodoftheliabilityarising.Certainprovisionsrequiremorejudgementthanothers,inparticularwarrantyprovisionsandcontractlossprovisions,whichhavetotakeaccountoffutureoutcomesarisingfrompastdeliveriesofproductsandservices.

Inestimatingtheseprovisions,theGroupmakesuseofmanagementexperience,precedentsandspeciccontractandcustomerissues.

Accounting policiesTherewerenosignicantchangesinaccountingpoliciesapplyingtotheGroupfortheyearended30April2011.

TheindicatorsshownonthepageoppositehavebeenidentiedbytheDirectorsasgivingthebestoverallindicationoftheGroupslong-termsuccess.RevenuegrowthgivesaquantiedindicationoftherateatwhichtheGroupsbusinessactivityisexpanding.Theadjustedprottrendprovidesanindicationofwhetheradditionalrevenueisbeinggainedwithoutprotmarginsbeingcompromisedandwhether

anyacquisitionsarevalueenhancing.Orderbookvisibility,baseduponexpectedrevenueduringtheyeartocome,providesameasureofcondenceinthelikelihoodofachievementoffutureforecasts.ChangeinadjustedearningspershareisanabsolutemeasureoftheBoardsmanagementoftheGroupsreturntoshareholdersincludingtaxandinterest.OperatingcashconversionmeasurestheabilityoftheGrouptoconvertprotintocash.

TheGroupsKPIsdemonstrateclearlythereductioninrevenueatSCSandSEA

buttheimprovementintheGroups

BusinessreviewFinanceDirectorsreviewcontinued

6.7m2010:3.0m

Net funds

5.0m2010:4.1m

Adjusted operating proft

Cohortisatrustedpartnerinall

domainsoftheUKarmedforces.

adjustedoperatingprot,drivenbythecontinuedstrongperformanceatMASSandthesignicantrestructuringatSCSin2009/10,nowproducinganimprovedreturn.TheGroupenters2011/12withgoodcoverageofitsforecastrevenueonorder.

Asmentionedalready,theGrouphashadanotherstrongcashperformancein2010/11withtheoperatingcashconversionbetterthanin2009/10.

Thesignicantincreasesinrevenue,adjustedoperatingprotandadjustedearningspersharefor2007and2008wereasaresultoftheacquisitionsofMASSandSEArespectively.

Simon Walt her

FinanceDirector

MOD MOD


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15

Measur ing our progress

Wemeasureourprogressandperformancewiththeuseofvekeyperformanceindicators.

ThesekeyperformanceindicatorsshownbelowhavebeenidentiedbytheDirectorsasgivingthebestoverallindicationoftheGroupslong-termsuccess.

Key perormance indicators

11100908

Change in revenue

(17%)

11100908

Change in adjusted operating proft

23%

11100908

Order book visibilit y

58%

11100908

Change in adjusted earnings per share

39%

11100908

254%

155%166%

70%

Operating cash conversion

254%

07

-17%

2%

34%

66%

93%

07

23%

-34%

3%

226%

70%

07

58%58%

48%50%

45%

Description

Ordersfornextnancialyearexpectedtobedeliveredasrevenue,presented as

apercentageofconsensusmarketrevenueforecastsfortheyear.

39%

-37%-12%

51%

07

29%

Description

Annualchangein earnings per

share,beforeamortisationofotherintangibleassets,shareof

resultofjointventures andexceptionalitems.

Description

Netcashgeneratedfromoperations

beforetaxascomparedtotheprot

beforetax.

07

108%

Description

ChangeintotalGrouprevenuecomparedtotheprioryear.

Description

ChangeinGroupprotbeforetax,amortisationofotherintangibleassets,shareofresultof

j oint ventures

andexceptionalitems.


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16

BusinessreviewOperationsreview:MASS

MASS wins multi-million pound Electronic Warare contract

MASShasbeenawardedamulti-millionpoundcontractaspartoftheLogica-ledTeamExcaliburforcertainkeyaspectsoftheUKMODsProjectSHEPHERD.Projectdeliverywilltakeplacewithinathreeyearperiod.ThiscontractfollowstheannouncementmadeinOctober2010whenTeamExcaliburwasselectedasthepreferredbidderfortheUKMODsProjectSHEPHERD.

ProjectSHEPHERDwillprovideasignicantinformationmanagementupgradefortheUKsDefenceElectronicWarfareCentre.AttheheartofthissystemwillbeTHURBON,theMASSadvancedelectronicwarfare

datamanagementsystem.

MASSConsultantsLimited(MASS)hasconcludedanotherhighlysuccessfulyearwithtradingprotexceeding4mforthersttime.AllthreeofMASSsdivisions(ManagedServices,SystemsDevelopmentandElectronicWarfare(EW)OperationalSupport)performedwell.

TheacquisitionofAbacusEWconsultancyearlyintheyearhasbeenasuccess.ThecomplementarystrengthsofbothbusinesseshavebeenintegratedtoprovideourcustomerswithfullcoverageforEWtrainingandsupportacrossland,airand

seainboththeUKandexportmarkets.

DuringtheyearwerelocatedtoournewdevelopmentlaboratoriesandofcesinStNeotswithoutdisruptiontoourprojectsorcustomers.Thenewfacilityprovidessufcientspaceforthenextfewyearsandexibleoptionsforthefuture.

Salesrevenueof23.5mwasanincreaseofnearly10%fromlastyear,whichiscreditablegiventheclimateofUKpublicsectorspendreduction.Tradingprotimprovedbynearly20%overthesame

period,althoughsomeofthisrelatestoone-offevents.Anincreasedproportionofsales(nearly28%)isnowcomingfromexportcontractseitherdirectlyorviadefenceprimecontractors.

TheManagedServicesdivisionoperatesacrossthedefence,securityandeducationalinformationtechnologymarkets.Indefence,wehaveretainedorrenewedallofourin-servicesupportcontractswhichprovideimportantcapabilitiesforUKdefence.Ineducation,weprovidetransformationalinformationtechnologysolutionstoschools

andcolleges.ThismarkethasundergonesignicantchangesincethenewGovernmentcameintoofce.DespitecancellationoftheBuildingSchoolsfortheFuture(BSF)

MOD


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17

Weenter2011/12withanorderbookof70mandcontinuetoseethepotentialforgrowthacrossallthreedivisions.

Ashley Lane ManagingDirector,MASS

programme,ourcollaborationtoequipschoolsinNorthLincolnshirewithtransformationaltechnologycontinueswell.Thereisastrongdesirefromcouncilstosavemoney,whichputspressureontoprojectslikethis,andweareplayingourparttohelpmaximisevalueformoney.Afterarigorousqualicationprocess,weweresuccessfullyappointedtotheprestigiousBectaICTframework,beingusedastheprocurementrouteforAcademyandFreeSchoolICTprocurement.Competitionremainsstronginthismarket,butwesignedourrstcontractviathenewframeworkinMay2011

withKensington&ChelseaCollegeinLondon.

InourSystemsDevelopmentdivision,pressureondefencespendingandcompetingprioritieshavehadanadverseimpactonsomeprogrammeswithdelaysandcancellations.Atthesametime,worldwideeventshavegivenrisetonewopportunities.Wehavefocusedonthisareaofthebusinessduringtheyeartoaccommodatethesechangesandtostrengthenfutureopportunities.Wehaveundertakenvaluableworkinnewwirelesstechnologies,securewirelesscommunicationsforunmannedplatforms,

deliveringavionicsandcommunicationsupportequipmentfortheAirTankerprogrammeandalsoinsupportoftheChinookMk6programme.WehaveinvestedinresearchandtechnologydevelopmentwiththelaunchofawirelessdatanodeandanElectronicWarfare(EW)missionsupporttool.Wecontinuedinvestmentinourworld-leadingEWdatamanagementsystemTHURBON.TheEWOperationalSupportdivisionhascontinuedtodeliveradvancedtrainingandsupporttoAsiaandtheMiddleEastduringtheyear.OurmarketleadinindependentEWoperationalsupport

andtraininghascontinuedwithsomeofthisexpertisebeingrecognisedasuniqueoutsideofGovernmentorganisations.Ourindependenceenablesustoprovide

impartialsupport,trainingandtools,buildingstrategicpartnerships,includingwithBAESystemsfortheTyphoonandSaabfortheGripencombataircraft.Ouruniqueexpertiseisincreasinglyimportantasadifferentiatorfortheirequipmentandplatformsales.Wehaveastrongsetofopportunities,witharoundthree-quartersoftheserelatingtoexportmarkets,althoughbytheirnature,thetimingofthesecanbehardtopredict.Wecontinuetodevelopnewtechniquesandtechnologyforthefuture,usingourexpertcapability,ascapacityconstraintspermit.

WeareproudoftheexcellentreputationthatMASSretainswithourcustomersandpartners.Wecontinuetoreceiveexcellentcustomerreferencesacrossallouractivities,reectingthehighcalibreofourpeopleandcapabilityalike.

Lookingforward,weareworkingwiththeUKMODtoupgradeitsEWinformationmanagementdatabaseandmakeotherimprovementstoitsDefenceEWCentre.ThisimportantprogrammereinforcesthestrongpedigreeofourTHURBONEWdata

managementsystemandpositionsitasaworld-leadingnext-generationsystemwithsubstantialexportpotential.Cyberattackanddefenceisbecomingincreasinglyvisible,acapabilityprovidedbyMASSforover15years.WearebuildingonoursecureITandinformationassurancepedigree,combinedwithourEWexpertise,todevelopthisopportunity.

Weenter2011/12withanorderbookof70mand,despiteadegreeofuncertaintyandtighteningofGovernmentspending,continuetoseethepotentialforcautious

growthacrossallthreedivisions.Combinedwithournewfacilities,excellentcustomerrelationshipsandstrongprospects,theoutlookforthecomingyearsisgood.

11100908

23.5

21.520.6

18.0

MASS revenue (m)

23.5m+9%

11100908

4.2

3.5

2.8

2.3

MASS adjusted operating proft (m)

4.2m+20%

MASShasconcludedanotherhighlysuccessfulyearwithtradingprotexceeding4mforthersttime.


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18

SCShashadagoodyeardespiteatighteningofitstraditionaldefencemarketsintheUK.Thistightening,alongwithSCSsexitfromlowprotabilitybusiness,accountedforthe30%dropinrevenue.Despitethis,thecostreductionsmadein2010andcontinuedinto2011,alongwithassociatedorganisationalchanges,increasedtheadjustedoperatingprottojustover1.0mfor2011,aneleven-foldincreaseon2010.TheimprovedbusinessorganisationwasaccompaniedbyafocusonprocessesandprojectmanagementenablingSCStoimproveandmaintainitscashperformance.

HavingtakenovertheroleofManagingDirectorfromAndyThomisinSeptember2010,Icontinuedtherationalisationandrestructuringactivityalreadyunderway.Theimperativesinthiswere:tooptimiseprotability;toinvestappropriatelyinbusinessdevelopment;andtoensurethatthecompanyhadaclearstrategythatwouldbefullysupportedbyitsstakeholdersandemployees.

ThemostrecentrestructuringactivitywascompletedinApril2011.Thisresulted

inafurthersmallreductioninthenumberofcoreemployees,to95,withoureightbusinessareasconsolidatedtofour.Capacitywasreducedinlowrevenuestreamsandsupportserviceswerealignedwiththenewstructure.Theoverallresultisamorecoherentmanagementteamfocusedonbusinessdevelopmentinits

BusinessreviewOperationsreview:SCS

SCS wins 5.8m training services contract

SCShasbeenawardedacontracttoprovidetrainingservicestotheMODsPermanentJointHeadquarters(PJHQ)atNorthwood.

SCSwillprovidetheservicesforaninitialtwoyearperiodcommencingApril2011,withtheoptionofanextensionforathirdyear.Thevaluewillbeupto5.8mifthisoptionisexercised.Thecontract,whichwaswonincompetition,continuesthearrangementsunderwhichSCShasbeenprovidingservicestoPJHQsince1998.

UnderthecontractSCSwillsupporttheprogrammeofmajorjointoperationalexercisesrunbyPJHQ,involvingtheMOD,CabinetOfceandotherGovernmentdepartments.ApermanentteamofSCSstaffwillbebasedatNorthwoodtosupportexercisedesignandtheunderpinningtechnology.

MOD


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19

keyareasofcapability.Cleardirectionandleadershiphave,inturn,fosteredsignicantimprovementsinmorale,whichismostwelcomeafteraperiodofuncertaintyandturbulence,inboththecompanyanditstraditionalmarkets.

92%(2010:94%)ofSCSsrevenuewasderivedfromtheUKMOD,eitherdirectlyorthroughotherprimecontractors.AgainstabackgroundofMODcashconstraintsresultinginamoreonerousprocurementprocessandtoughercompetition,SCSheldorimprovedits

marketshareinmostofitschosensectorsoftheUKMOD,withastrongbidsuccessrateofover60%.Anotableexceptionwasmilitarymanpowersubstitution,whereembargoesandrestrictionssignicantlyreducedtheopportunitiesavailabletoSCS,althoughevenherewewereabletodefendourpositioninsomeimportantareas.InMarch,SCSdemonstrateditskeycapabilitystrengthsbywinningthecompetitivere-tenderingofexercisesupporttotheMODsPermanentJointHeadquarters.Thisisworth4mtoSCS,overaperiodoftwoyearswithathird

yearunderoption.SCSalsosecuredasole-sourceframeworkcontractwiththeNATOConsultation,CommandandControlAgency.Thiswasagoodstarttoamodestdiversicationagenda,aimedatreducingdependency(butnotfocus)ontheUKMOD.Earlyindicationsarethatthisframeworkwillgenerateannualrevenuesinexcessof1m.

Thecompanyisnowonarmfootingforthefuture.Ithastherightbalancebetweencapacityandcosts,withamarket-focusedorganisationandmuchimprovedoperatingprocesses.

Thehomemarketsfordefenceandsecurityremainchallenging.SCSwillmaintainitsfocuswithitstraditionalcustomersbutisdevelopingitscapabilitystrengthsintoothersectorsandmarketsincludingCyberandInformationAssuranceandNATO,aswellastheMiddleEast,whereSCSstrainingcapabilitiesarein

demand.LiketheotherGroupcompanies,SCSwillgenerallyseektoaccessexportmarketsthroughmajorprimecontractors.

SCShas,afteraperiodofsomedifculty,returnedtoprotabilityandtheprospectsforgrowthinthecomingyeararegood;althoughtheshortorder-to-deliverycycletypicalofSCSsworkmeansthatrmrevenuevisibilityremainslimited.

11100908

18.5

26.4

29.2

26.1

SCS revenue (m)

18.5m-30%

11100908

1.0

0.1

1.5

2.3

SCS adjusted operating proft (m)

1.0m+1038%

Afteradifcultyearin2010/11,IampleasedtoreportSCShasreturnedtobetterlevelsofprotabilityinasmallerbutmorefocusedbusiness.

Bill Bird ManagingDirector,SCS

SCSwonanextensiontoitslong-runningtrainingsupportactivityattheMODsPermanentJointHeadquarters,valuedatupto5.8moverthreeyears.


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20

SEAhashadanexceedinglychallengingyearduetoavarietyofissueswhichincludedpoorcontractperformanceandexcessiveoverheadcost,combinedwithatighterdefencemarket.

Asaresultofthepoorperformanceinthersthalfofthenancialyear,adetailedstrategicreviewofthecompanywasinitiatedbyAndyThomis.ThisfocusedonidentifyingtheperformanceissueswithinSEA,conductinganauditofitscapabilitiesandreviewingthemarketsitserved.Thisexerciseidentiedanumberofareasin

whichthebusinessneededtoimproveandallofthesehavebeenbuiltintoaplanwhichwaslaunchedinMarch2011andwillrunforthemajorityofthenewnancialyear.Someofthemoresignicantareasforimprovement,whichitisbelievedwillstarttodeliverimmediatebenet,include:

St rategy and organisati on: Thereviewidentiedthatthebusinesswasmarketingtoodiverseacapabilitytotoowideamarket.Wehavethereforerefocusedthebusinessonsixcapabilityareas,alignedcloselytoitscorestrengths.Thishasprovidedamuch

morefocusedbusinesswithasimplerandmoreintegratedorganisation.

Financial controls:Theneedforimprovementinanumberofthecompanysnancialprocessesandcontrolshasbeenidentiedandimplemented.Thisincludedtakinggreateraccountofthedeliverystagereachedbyacontract,ratherthanjustcostsincurred.Thiswillresultinaclearerfocusonprojectdeliveryandisconsistentwithindustrybestpractice.

BusinessreviewOperationsreview:SEA

SEAhassecureda5mcontracttodesignandbuildtheAtmosphericLidar(ATLID)CommandandDataManagementunit,partoftheATLIDinstrumenttobeownontheEarthCAREspacecraftin2013.

TheATLIDinstrumentmeasuresthereectedsignalsfromanultravioletlasertodeterminethechemicalconstituentsoftheatmosphere.SEAscustomeristheinstrumentprimecontractor,EADSAstriumSASinToulouse.TheEarthCAREsatelliteisfundedbytheEuropeanSpaceAgency(ESA)andisthethirdESAEarthExplorercoremission.

SEA wins 5m EarthCARE satellite system contractEADSAstrium


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Overview

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21

Project delivery:SignicantimprovementsarebeingmadetotheprojectmanagementandcontrolprocesseswithinSEA.Theseincludetheuseofsimplermetric-basedreporting,alongwithrobustmonthlyreviewsledbyme.Alloftheactivitiesarebeingsupportedbyadditionaltraining,developmentandmentoringofthecompanysprojectmanagementteam.

Overhead cost :Theorganisationalchangesthathavealreadybeenmade,alongwithafocusoncontrollingexpenditure,haveresultedinoverheadsforthenancialyear

being1.2mbelowbudget.Thisfocuswillcontinue,withtheaimofreducingoverheadsfurtherinthecomingyear,despite the additional training and

supportcosts.

Whilethestrategicreviewfocusedontheareasforimprovement,wealsogatheredinformationonthestrengthsofthebusiness.AconsistentmessagereceivedfromexistingandpotentialcustomerswasthatSEAhasanexcellentreputationforthequalityofwhatitdeliversandforthecapabilityofitspeople.

Ourtraining,simulationandinformationsystemscapabilityrepresentsasignicantopportunityforthefuture.InparticularweseethisasoneofthefewpotentialareasofgoodgrowthwithintheUKMODexpenditure.Wearewellplacedinthisdomain,providingbothsystemsthatsupporttrainingaswellashigh-delitysimulationsthatareusedforoperationalevaluation.AkeysuccesshasbeentheCommonSimulationFramework(CSF)whichwasdeliveredtotheUKMODattheendoflastyear.Thissystemenables

differentsimulationstointeractwith

eachotherinrealtime,enablingintegratedsimulatedexercisestobeconducted.Weareworkingwithourcustomertobuildontheinitialcapabilityandwealsoseeopportunitiesforthisintheexportmarket.

TheprojecttoprovideanexternalcommunicationssystemsfortheAstuteboat4isprogressingwellwithintegrationofthesystemcomponentsunderway.Discussionswithourcustomer,BAESystems,inrespectofthedeploymentofthissystemonfurtherplatforms,areprogressing.Wealsoseethepotentialtoprovidethissystem

morewidelywithintheUKandaretalkingtoanumberofoverseassuppliersaboutexportopportunities.

Withinthespacesector,wearecontinuingtoprogressthekeysatelliteprogrammeswewonduringthelastnancialyear,withseveralprogrammesmovingintotheirinitialbuildphase.Wehavealsocontinuedtowinimportantstrategicprogrammes,includingactivitiesthatwillplaceusrmlyinthesupplychainforpowergenerationonfuturemissions.

Thereorganisationhasenabledustobringtogetherallofourresearchactivitiesintoasinglegroupandtoensurewemakethemostofthiscriticalcapability.DuringthelastyearwehavecontinuedtobeanimportantpartnertotheUKMOD,providingcriticalresearchinboththelandandmaritimearenas.

Whilethechangesthathavebeenputinplacewilltakesometimetodelivertheirfullbenet,therefocusedbusinessisalreadyonamuchrmerfooting.This,combinedwithSEAsreputation

fortechnicalexcellence,positionsthebusinesswellforthefuture.

11100908

23.2

30.2

26.9

13.0*

SEA revenue (m)

23.2m-23%

11100908

0.9

1.6

3.1

2.2*

SEA adjusted operating proft (m)

0.9m-43%

SEAhashadadifcultyearbutafterconsiderablerestructuring,thebusinessisnowreadytomoveforward.

Stephen Hill ManagingDirector,SEA

SEAenters2011/12withanorderbookofover23m,givingitagoodbaseforachievingareturntoamuchbetterlevelofperformance.

*sixmonthsonly

*sixmonthsonly


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22

BusinessreviewPrincipalrisks

Issue Risk Mit igat ion

TheGrouphasanumberofkeycustomers,mostlyintheGovernmentsector.Thesecustomersareservedeitherdirectly,e.g.27.7mofrevenuein2011directlytotheUKMOD(2010:40.3m),42%(2010:52%)oftotalGrouprevenue,orindirectlyviaothercontractors.InthecaseoftheUKMOD,16.5m(2010:16.8m)ofGrouprevenue(25%;2010:22%)wasviaothercontractors.TheGroupcontinuestobereliantonitsultimateprimarycustomer,theUKMOD,intotal68%ofGrouprevenuein2011(2010:73%).

TheGroupisreducingthisreliancebyexpandingitsoverseasdefenceofferingaswellasothernon-defencesectors,includingspaceandtransport.

TheGroupensuresitengagesatalllevelsoftheUKMODandremainsresponsivetoitsprimarycustomersneeds.

Customers

Minimising riskand uncertaintyThebusinessrisksoftheGroupcanbesummarisedasfollows:

Type o risk

External (or market)

Internal (or fnancial or operational)

Asistypicalinthedefenceandspacesectors,theGroupisreliantoncertainkeysuppliersforitstechnicalandproductofferings.Inthedefencesectorinparticular,therelianceonsuppliersislongterm,withproductdurationinthissectoroftenbeingtensofyears.

Thisriskismanagedthroughcloseliaisonwithsuppliers,goodprojectmanagementandhavingcontingencyplanstogotoalternativesuppliersorbringworkin-house.

TheGrouphasnosignicantrelianceonanyoneindividualsupplier.Thelong-termlifeofmanydefenceproductsrequiresaregularreviewofproductlifeandcapabilityandtheGroupsupportsthecustomerinthisrespectthroughfundedongoingproductsupportandre-lifetasks.

Suppliers

TheGroup,especiallyinthedefencesector,oftensecuresbusinessthroughteamingandpartneringwithothersuppliersandthisisoftenarequirementofsecuringworkwiththeUKMODinordertoensuretheendcustomerreceivesthebestsolution.

TheGrouptakesanactivepartinthesearrangementsand,throughregular(usuallymonthly)projectreviewmeetingsandothercorrespondence,ensuresthattheteam(includingourpartners)deliversasawholetothecustomerandtotheneedsoftheindividualteammembers.

Inaddition,theGroupsExecutiveManagementteammaintainsregularandco-ordinatedrelationshipswithpartnersandensuretheGroupsapproachisconsistent

andavoidsunnecessaryoverlaporomissions.

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TheGrouphasriskinrespectof:

i. milestoneandacceptancefailureonprojects;andii. unrecoverabletradedebts.

TherecognitionofrevenueisdiscussedatlengthintheAccountingPolicies(page73)andCriticalAccountingJudgements(page74)andassuchmayfromtimetotimehaveadegreeofrisk.

The2011baddebtchargewas43,000(2010:104,000)onGrouprevenueof65.1m(2010:78.1m).

Financialassetsexposedtocreditriskat30April:

2011 2010

m m

Tradereceivables 13.2 15.4

Otherreceivables 7.1 7.4

Cashandbankdeposits 10.2 6.6

Ofthetradereceivables,3.5mwaswiththeUKMODat30April2011(2010:4.2m).

TheGrouptakesaprudentapproachtorevenueandcreditrisk,andanyworkdoneatriskisminimal,authorised at the appropriate level and reviewed

onamonthlybasis.

TheGroupusesprojectcontrolprocessesandregularlyreviewstheprojectprogresstoensurerecognitionofrevenuetakesaccountofexternalmilestonesandcustomeracceptanceaswellastheinternalcostsincurred.

ThecalibreoftheGroupscustomersandthecontrolprocessesinrespectofrevenuecaptureandinvoicingensuresminimalbaddebts.

TheGroupalsouseslettersofcreditandothermethodsofpaymentguarantee,includingcustomeradvances,especiallyinrespectofoverseascustomers,toensureanyexportdebtriskisminimised.

Signicantdebtreceivableinforeigncurrencyishedgedusingforwardexchangecontractswhichareenteredintowhencontractsaredeemedeffective.

TherisktothemajordebtoroftheGroup,asaGovernmentdepartment,isverylow.

Revenue

CashandbankdepositsareallwiththeGroups

bank,RBS.Inaddition,grossindebtednesstothebankwas3.4mat30April2011(2010:3.6m).

TheGroupsfacilitieswithRBSarerenewedannually.

Duringtheyear,theGroupreneweditsworkingcapitalfacilitywithRBSfor5.0m(previously2.5m).ThisfacilityisavailabletoalloftheGroupsentitiesthroughanoffsetarrangement.ThecurrentfacilityexpiresinOctober2011whenitisexpectedtoberenewed.

TheGroupdidnotutilisethisworkingcapitalfacilityduringtheyearended30April2011having

anaveragecashbalanceof6.7m,cashbalancesrangingfromalowof3.2mtoahighof10.2m.

TheGrouptakesaveryprudentapproachtothe

managementofitsnancialinstrumentswhicharedescribedinnote18.TheGroupscashisheldwithat least A rated insti tut ions and on deposit s not

exceedingthreemonths.Thisensuresaverylowrisktocapitalandareasonablebalanceofliquidityagainstinterestearnedoncashdeposits.

TheGroupsbankratingrequirementhasbeenreducedfromAAtoAinthelightofthedowngradingoftheGroupsbankrating.Thisisnotconsideredarisk.

TheGrouphasregular(atleastquarterly)meetingswithitsbanktodiscussoperationalandotherbusinessissuesandkeepsthebankinformedofprogress.

TheGroupsatisedallofitsbankcovenantsfortheyearended30April2011.

Treasury


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BusinessreviewPrincipalriskscontinued


TheGrouphascontractswithoverseascustomersandsuppliersrequiringpaymentorreceiptincurrenciesotherthansterling.

TheGroupsexposuretocreditriskat30April2011inrespectofnancialderivatives(forwardforeignexchangecontracts)was10.3mofreceivableand2.0mofpayable(2010:11.4mofreceivableonly).Thenancialderivativesat30April2011wereallheldwithRBS.Thesearedisclosedindetailinnote21tothenancialstatements.

TheGroupmanagesitsexposuretocurrencyriskbyusingforwardforeigncurrencyexchangecontracts.Thelevelofforwardcoverisdeterminedcontractbycontracttakingintoaccountthenetcurrencyexposuretoreceiptsandpurchases.Forwardcontractsareonlyputinplacewhencustomercontractsaredeemedhighlyprobable.TheGroupdoesnotenterintospeculativeforwardexchangecontracts.

Currency risk

Thebuying(andselling)ofbusinessesisarisk

inrespectofvalue,distraction,integrationandongoingobligationsandundertakings.

TheGroupsacquisitionriskismitigatedasfar

aspracticablebytheacquisitionprocessbeingmanagedattheCohortBoardlevel,makinguseofappropriateexternalexpertiseandresourcesasandwhenrequired.

Acquisitions

TheGrouphasexposuretointerestratesinrespectofloansanddeposits.

Theloanriskisinrespectofthefollowing:

i. revolvingcreditfacility(RCF);and

ii. mortgages.

Thedepositriskisinrespectofcashheldincurrentaccountsandondeposit.

At30April2011,theGrouphadinplaceoneinterestrateswapagainstamortgagesecuredonitsfreeholdpropertyinBeckington,xingtheinterestrateat6.88%.

TheGroupconsidersinterestrateriskloanbyloanand,whereappropriate,theGroupentersinterestrateswapstoxitsinterestrateexposure.

TheRCFloaninterestisnothedged.TheRCFloanisrolledonperiodsofonetosixmonthswiththe

interestforthatperiodxedatthatpointbyreferencetomarketrates.

Depositinterestisdeterminedbyreferencetothemarket.

Interest rate risk


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TheGroupsoperationalriskisprimarilythroughitsthreesubsidiaries.ThesubsidiarytradingandbusinessrisksaresimilarinthecasesofMASSandSEA.

MASS and SEA pr imary r isks are:

i. Bidriskthebusinessesbidoncontractswherethescopeofworkmaynotbewellorfullydenedbythecustomer.

ii. Fixed-pricecontractstheseareoftenofalong-termnature(greaterthan12months)andtypicallyincludedeliveryofhardwareandsoftware.

iii. Duetothenatureoftheirnichetechnicalskillsrequirement,bothMASSandSEAhaveaxedlevelofcoresoftwareengineeringandtechnicalexpertise.

SCS

Theprimarycostriskisinrespectofstaffutilisation.SCSrevenuevisibilityisshortwithtypicalcontractdurationofthreetosixmonths.Thiscarriesrisktoforwardutilisation.

Thebusinessmaintainsacomprehensiveprospectsschedule.Thisriskisalsoanopportunity,withSCSoftensecuringanddeliveringworkinaveryshorttimeframe.

SCShasasmallnumberofxed-pricecontracts.

TheGroup(throughallthreesubsidiaries)operatesanumberofoff-sitemanagedservicecontracts.Thesecontractsarelong-terminnature(typicallyveyearsatcommencement)andaremanagedthroughdedicatedsiteprojectmanagers.Thecontractsarexed-priceintermsofrevenue

withopportunitiesforadditionaltasksenhancingvolumeandreturn.

Thisistypicalindefenceandspaceandismanagedthroughbid/nobidreviewsattheappropriatelevelusingexperiencedpersonnel,includingtheCohortExecutiveandBoard.

Theseprojectsaremanagedbydedicatedprojectmanagement,monthlyreviewbythesubsidiaryboardandregularinteractionwiththecustomerandkeysuppliers.Revenueandcostisrecognisedtakingaccountofriskandestimatedcostatcompletion,takingintoaccountanycontractualcontingency.

Thiscostbaseiscarefullymonitoredatbudgettimeandbyrollingquarterlyforecaststoidentifyanypotentialriskoflowutilisationandthusunderrecoveryofcost.

Theriskismitigated,intheshort-term,bytheuse

ofasmallnumberofsub-contractorstaff.Inthelongterm,aprogrammeofskillsassessmentandtrainingisinplacetoensurecontinuedexibilityoftheengineeringresource.

Thisriskismanagedbyretainingaminimalcorestaff,essentialforbusinesssupport,developmentanddeliveringkeyskillstocustomers.Themajorityofdeliverableserviceisprovidedbynon-corestaff(associates)wherecostisonlyincurredwhentheassociatesareontask.Theforwardutilisationofcorestaffismonitoredonaweeklybasislookingforwarduptotwomonths.

Theseprojectsaremanagedbydedicatedprojectmanagement,monthlyreviewbythesubsidiaryboardandregularinteractionwiththecustomerandkeysuppliers.Revenueandcostisrecognisedtakingaccountofriskandestimatedcostatcompletion,includinganycontractualcontingency.

TheGroupcarefullymanagesthepartnershipwithitscustomerandsupplierbaseinallthesecasestoensurethecustomerreceivesvalueformoneyandskilledGroupstaffprovidingadedicated,exibleandresponsiveapproach.Theprimaryrisktothesemanagedservicecontractsisterminationwhichis

mitigatedbythepartneringapproachadoptedbytheGroupandourcloseengagementwiththecustomertoensurecustomerrequirementsremainparamountatalltimes.

Operations


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Nick Prest CBE*+

ChairmanNickPrestbecameChairmanofCohortonotationinMarch2006.AftergraduatingfromOxfordin1974NickjoinedtheMOD.In1982NickmovedtoAlvis,thedefencecontractor,undertakingavarietyofrolesbeforebecomingchiefexecutivein1989andchairmanandchiefexecutivein1996.NickleftAlvisfollowingitsacquisitionbyBAESystemsin2004,bywhichtimethecompanyhadbecomealeadinginternationalbusinessinmilitarylandsystems.InadditiontobeingChairmanofCohort,NickisalsochairmanofAvevaGroupplc,aFTSE250softwarecompany,andofShephardGroup,aprivatelyownedmediacompanyspecialisingindefenceandaerospace.

Stanley Carter*+

Co-ChairmanStanleyCarterbecameCo-ChairmanofCohortin2009havingpreviouslybeenitsChiefExecutive,apostwhichhehadheldsinceCohortsformationin2006.PriortothathewasManagingDirectorofSCS,whichhefoundedin1992onleavingtheRegularArmy,whichwasacquiredbyCohortatthetimeofitsotation.DuringhismilitaryserviceasaRoyalArtilleryofcerheheldawiderangeofoperationalpostsandstaffofcerappointmentsintheMOD,includingthecentralstaff,procurement,Governmentresearchestablishmentsandhadsignicantinteractionwithindustry.HealsorepresentedtheUKonNATOtechnicalcommittees.HehasdegreesinTechnologyandBehaviouralSciencefromLoughboroughandtheOpenUniversityrespectively,andanMScinInformationSystemsfromtheRoyalMilitaryCollegeofScience.

Andrew Thomis*

Chie ExecutiveAndrewThomisgraduatedfromImperialCollege,Londonin1987.HespentnineyearsintheMODasafast-streamcivilservant,carryingoutrolesincludingtechnologyresearch,scienticpolicyadviceandaspellasaprivatesecretarytothedefenceprocurementminister.Heleftin1996and,followingaperiodwithCapitaplcsmanagementconsultancyarm,hejoinedAlvisinarolecoveringstrategy,M&Aandbusinessdevelopment.AndrewleftAlvisin2005,followingthetakeoverbyBAESystems,andworkedwithNickPrestandStanleyCarteronthecreationofCohortplc,actingasFinanceDirectorduringtheotationandsubsequentlyCorporateDevelopmentDirector.

FollowingtwoyearsasManagingDirectorofMASSConsultantsLimitedhereturnedtoCohortasChiefExecutiveinMay2009.

Simon Walther*

Finance Director and Company SecretaryAftergraduatingwithaBScfromLondon,SimonWaltherwentontoqualifyasacharteredaccountantwithToucheRossin1992.SimonmovedtothePeninsularandOrientalSteamNavigationCompany(P&O)in1993wherehewasappointedachiefaccountantforP&OEuropeanFerriesin1995.In1997hewasappointedGroupFinancialControlleratAlvis.HejoinedCohortasFinanceDirectorinMay2006,havingconsiderableindustryrelevantexperiencewithAlvisandBAESystems.

*MemberoftheCohortplcBoard

+MemberofRemuneration&AppointmentsandAuditCommittees

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Bill BirdManaging Director o SCSFollowinganaircrewcareerintheRoyalAirForce,whenhewasawardedanMBEforhisworkintheIntelligencecommunity,Billspent10yearsingeneralmanagement.HewastheGeneralManagerofRockwellsUKDefencebusinessandspentthreeyearsasManagingDirectorofBoeingsUKsubsidiary,BDUK,whichhesetupin1996.BilljoinedKPMGin2000andlefttodevelopHedrasdefenceandaerospacepracticeinOctober2003.WhilstatHedra,heledtheacquisitionofCSCsSystemsEngineeringServices.Duringhisconsultingcareer,BillhashadextensiveexperienceofMODprocurementandsupportanddirectedtheDefenceLogisticsOrganisationsProcurementReformprogramme.

BillwasappointedasManagingDirectorofSCSinSeptember2010.

Stephen HillManaging Director o SEAStephenhasovertenyearsseniormanagerialexperience,predominatelyintheinternationalaerospaceanddefencesector.Hebeganhiscareerin1983atGECMarconiasanelectronicsengineer,eventuallybecomingBusinessDirectorwithresponsibilityforthelandsystemselectro-opticsbusinessatBasildon.In2000,hemovedtoThales,wherehisrolesincludedManagingDirectoroftheAirOperationsbusinessatWells,andVicePresidentwithresponsibilityfortheUKAirSystemsDivision.MostrecentlyhewasChiefExecutiveofCircleBath,anewventurecapitalbackedprivatehospitalinBath.StephenhasarstclasshonoursdegreeinElectricalandElectronicEngineeringandaMastersinEngineeringProjectManagement.StephenwasappointedasManagingDirectorofSEAinMarch2011.

Sir Robert Walmsley KCB*+

Independent Non-executive DirectorSirRobertWalmsleyservedintheRoyalNavywherehisnalappointmentwasasControlleroftheNavyandmemberoftheNavyBoardasaViceAdmiral.Hewasknightedin1995.AfterretiringfromtheNavy,hewasappointedasChiefofDefenceProcurement,occupyingthatpositionfrom1996until2003.HeservedontheBritishEnergyBoardfrom2003until2009.HecontinuesontheboardoftheGeneralDynamicsCorporationandUltraElectronicHoldingsaswellasbeingasenioradviseratMorganStanleyInternationalandChairmanoftheMajorProjectsAssociation.

Ashley LaneManaging Director o MASSAshleyLanegraduatedfromSurreyUniversitywithaMastersDegree(Distinction)inElectronicandElectricalEngineeringin1991.OngraduationhejoinedThornEMIElectronicsasaSystemsEngineerworkingoncountermeasuresandelectronicsurveillancesystems.Hespentfouryearsintechnologydevelopmentandlicensing,buildingthesuccessfulwirelesstechnologycompanyUbiNetics.Ashleyhasheldkeytechnicalrolesonanumberofelectronics,ITandreal-timesystemprojects.HehasheldpositionsasBusinessManager,ConsultancyDivisionHead,ProgrammeManagerand,forveyears,SystemsDevelopmentandTechnicalDirectorforMASS.AshleywasappointedasManagingDirectorofMASSinMay2009.


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29 Directorsreport32 Corporategovernancereport34 Remuneration&AppointmentsCommitteereport37 StatementofDirectorsresponsibilities

Corporategovernance


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The Directors present their report and the audited nancial statements (pages 29 to 76) of Cohort plc for the year ended 30 April 2011.Cohort plc is a company incorporated in and operating from England. Its registered address is Arlington House, 1025 Arlington Business Park,Theale, Reading RG7 4SA. The Corporate governance report set out on pages 32 to 33 forms part of this report.

Principal activitiesThe principal activity of the Company is that of a holding company. The principal activities of the Group are described in theWho we are section on the inside front cover and the Overview on pages 2 to 5.

Business reviewThe Company is required by the Companies Act 2006 to include a business review in this report. The information that fulls therequirements of the business review can be found in the following sections, which are incorporated in this report by reference:

Pages

Chairmans statement 4 to 5Chief Executives review 6 to 9

Finance Directors review 10 to 15

Operations reviews 16 to 21

Information about the use of nancial instruments by the Company and its subsidiaries is given in note 21 to the nancial statementsand in pages 10 to 15 of the Finance Directors review.

There are no signicant events since the balance sheet date.

DividendsThe Directors recommend a nal dividend of 1.60 pence (2010: 1.40 pence) per 10 pence ordinary share to be paid on 7 September 2011to ordinary shareholders on the register on 5 August 2011 which, together with the interim dividend of 0.80 pence paid on 2 March 2011,makes a total of 2.40 pence for the year (2010: 2.05 pence).

Research and developmentDuring the year ended 30 April 2011 the Group expenditure on research and development, both on behalf of customers and theGroups own private venture expenditure was 10.2m (2010: 8.5m).

Going concernThe Groups nancial statements have been prepared on the going concern basis. The reasons for this are set out on page 68 of theAccounting Policies.

Capital structureDetails of issued share capital, together with details of the movements in the Companys issued share capital during the year are shownin note 22. The Company has one class of ordinary shares which carry no right to xed income. Each share carries the right to one voteat general meetings of the Company.

There are no specic restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions

of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Companysshares that may result in restrictions on the transfer of securities or on voting rights.

Details of employee share schemes are set out in note 23. Shares held by the Cohort plc Employee Benet Trust abstain from votingand do not receive any dividend.

No person has any special rights of control over the Companys share capital and all issued shares are fully paid.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the CombinedCode, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request, and theCorporate governance report on pages 32 to 33.

Under its Articles of Association, the Company has authority to issue up to a third of its issued shares as new ordinary shares.This approximates to 13.6m shares at 30 April 2011.

There are also a number of other agreements that take effect, alter or terminate upon a change of control of the Company, such as:commercial contracts; bank loan agreements; property lease arrangements; and employee share plans. None of these are consideredto be signicant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of anyagreements between the Company and its Directors or employees that provide for compensation for loss of ofce or employment that occursbecause of a takeover bid, other than those disclosed in the Remuneration & Appointments Committee report on page 34 to 36.

Corporate governanceDirectors report


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Corporate governanceDirectors report continued

International Financial Reporting Standards (IFRS)The Group and parent company reported results for the year ended 30 April 2011 in accordance with IFRS.

DirectorsThe Group maintains appropriate insurance cover in respect of legal actions against the Directors, as well as against material lossor claims against the Group, and reviews the adequacy of the cover regularly.

Details of the following information in respect of the Directors of the Company is provided as follows:

Disclosure Report Pages

Directors who served throughout the year Remuneration & Appointments Committee report 34 to 36Directors retiring by rotation Remuneration & Appointments Committee report 34 to 36Directors biographies Board of Directors and Executive Management 26 to 27Directors interests Remuneration & Appointments Committee report 34 to 36

Directors share options Remuneration & Appointments Committee report 34 to 36

Supplier payment policyIn respect of all of its suppliers, the Groups policy is:

to agree the terms of payment when contracting with suppliers;

to ensure suppliers are made aware of the terms of payment; and

to abide by the terms of payment.

All suppliers are treated alike in terms of payment with no preference to any one supplier and the Group does not follow any particularcode of practice or standard in its payment policy.

At 30 April 2011, the trade creditors of the Group represented 53 days (2010: 26 days) of purchases.

Fixed assetsThere is no material difference between the book value and current open market value of the Groups interests in land and buildings.

Employee consultationThe Group organises staff communications locally through its subsidiary undertakings. The media used for organised communicationsincludes local intranets, in-house magazines, staff bulletins, presentations and copies of press releases. In addition, regular staff meetingsare held and notices are published containing information about matters of interest within the Group and its subsidiaries.

Disabled employeesThe policy of the Group is to offer the same opportunity to disabled people as to all others in respect of recruitment and career advancement,provided their disability does not prevent them from carrying out their required duties. Employees who become disabled will, whereverpossible, be retained, rehabilitated and, where necessary, retrained.

DonationsDuring the year ended 30 April 2011 the Group made charitable donations of 9,341 (2010: 6,347), mainly in respect of militaryand local charities. The Group made no political donations during the year (2010: Nil).


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Substantial shareholdingsThe Company has been notied as at 23 June 2011, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the followingvoting rights as a shareholder of the Company:

Percentage of

voting rights

and issued Number of Nature of

share capital % ordinary shares holding

A E S Carter 26.15 10,665,718 DirectSchroder Investment Management 9.48 3,867,648 DirectHargreave Hale 5.45 2,223,000 DirectN M Prest 5.11 2,084,580 DirectH Dale-Staples 5.06 2,063,089 Direct

Acquisition o the Companys own sharesDuring the year the Companys Employee Benet Trust (The Cohort plc Employee Benet Trust) acquired 361,446 shares in theCompany as described in note 24 to the nancial statements.

A resolution to reappoint KPMG Audit Plc as auditor will be proposed at the Annual General Meeting (AGM). The Directors who werein ofce on the date of approval of these nancial statements have conrmed, as far as they are aware, that there is no relevantaudit information of which the auditor is unaware. Each of the Directors have conrmed that they have taken all the steps they oughtto have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has beencommunicated to the auditor.

Approved by the Board of Directors on 27 June 2011 and signed on its behalf by:

Simon Walt herCompany Secretary


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Corporate governanceCorporate governance report

IntroductionAs Cohort plc is listed on AIM it is neither required to comply with the Combined Code on Corporate Governance that was issued in2008 by the Financial Reporting Council (the Code) nor issue a statement of compliance with it. Nevertheless, the Board fully supportsthe principles set out in the Code and seeks to comply wherever this is appropriate, having regard to the size of the Company and theresources available to it. Details are provided below of how the Company applies the Code.

The BoardThe Board of Directors comprises the Chairman, two Executive Directors and two Non-executive Directors, Stanley Carter (Co-Chairman)and Sir Robert Walmsley. Nick Prest and Stanley Carter are not considered independent.

The Board has determined Sir Robert Walmsley to be independent and he is designated the Senior Independent Director.

The Board meets most months and receives a monthly Board pack comprising individual reports from each of the Executive Directorsand the subsidiary Managing Directors together with any other material deemed necessary for the Board to discharge its duties. It is the

Boards responsibility to formulate, review and approve the Groups strategy, budgets, major items of expenditure and acquisitions.All Directors retire by rotation and are subject to election by shareholders at intervals of once every three years.

Board committeesThe Board has established two committees: Audit and Remuneration & Appointments, each having written terms of delegated responsibilities.

Audit CommitteeThe Audit Committee comprises the Company Chairman and the Non-executive Directors and is scheduled to meet at least twicea year. It is the Audit Committees role to provide formal and transparent arrangements for considering how to apply the nancialreporting and internal control requirements of the Code, whilst maintaining an appropriate relationship with the independent auditorof the Group. In order to comply with the requirement of the Code that at least one member has relevant nancial experience,the Chairman of the Board sits on the Audit Committee.

The independent auditor liaises with the Audit Committee regarding work to be undertaken and complies with the Ethical Standardsfor Auditors issued by the Auditing Practice Board. Each year, prior to commencing its audit work, the independent auditor conrms

in writing the nature of any non-audit work on behalf of the Group and the safeguards in place to ensure its independence and objectivity;any in-year proposals for non-audit work are subject to prior approval by the Audit Committee.

The Company has formal arrangements in place to facilitate whistle-blowing by employees through a contract with a third-partyservice provider. If any call is made to this third party, either the Chief Executive or the Chairman of the Audit Committee is notiedpromptly of the fact and the content of the call, so that appropriate action can be taken.

Remuneration & Appointments CommitteeThe Remuneration & Appointments Committee comprises the Company Chairman and the Non-executive Directors and is scheduledto meet at least once a year. It is the Remuneration & Appointments Committees role to establish a formal and transparent policyon Executive remuneration and to set remuneration packages for individual Directors.

Sir Robert Walmsley is Chairman of both the Audit and Remuneration & Appointments Committees.

The attendance of the Directors at Board and Committee meetings for the year ended 30 April 2011 was as follows:

Remuneration &

Board Audit Appointments(10 meetings) (4 meetings) (3 meetings)

N Prest (Chairman) 10 4 3S Carter (Co-Chairman) 10 4 3Sir Robert Walmsley (Non-executive Director) 9 4 3A Thomis (Chief Executive) 10 S Walther (Finance Director and Company Secretary) 10

The Board has not established a Nominations committee. This is not considered necessary due to the small size of the Cohort Board.The role of the Nominations committee is undertaken by the Remuneration & Appointments Committee and the Chief Executive.


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Management o the Group and its subsidiary undertakingsThe management of the Group and subsidiary undertakings is as follows:

Group managementCohort plc Board meeting at least eight times per year.

Group Executive committee meeting at least four times per year, comprising Cohort plc Executive Directors and subsidiaryManaging Directors.

Subsidiary managementMonthly executive management meetings involving the senior management of each subsidiary. Cohort Executive Directors attendsubsidiary executive management meetings on a regular basis.

Shareholder relationsThe Company meets with its institutional shareholders and analysts as appropriate and uses the AGM to encourage communication with

private shareholders. In addition, the Company uses the Annual Report and Accounts, Interim Report and website (www.cohortplc.com)to provide further information to shareholders.

Internal control and risk managementThe Board is responsible for the system of internal control and for reviewing its effectiveness. Such systems are designed to manage ratherthan eliminate risks and can provide only reasonable and not absolute assurance against material misstatement or loss. Each year, onbehalf of the Board, the Audit Committee will review the effectiveness of these systems. This is achieved primarily by considering therisks potentially affecting the Group and from discussions with the external auditor.

The Group does not currently have an internal audit function due to the small size of the administrative function and the high levelof Director review and authorisation of transactions.

A comprehensive budgeting process is completed once a year, reviewed and approved by the Board. In addition the Group conductsquarterly re-forecasts. The Groups results, as compared against budget and the latest quarterly forecast, are reported to the Boardon a monthly basis and discussed in detail at each meeting of the Board.

As reported on last year, the Board (through the Chairman of the Audit Committee) undertook a review of the oversight and controlof the Group and its subsidiaries. The signicant recommendations of this report, which was independently reviewed, have now beenimplemented including the key recommendations of:

closer oversight of the subsidiaries by the Cohort Executive; and

review and implementation of business processes at SCS.

In the case of the latter recommendation, further assurance was obtained at the interim review last December when the Groups auditor,KPMG, carried out a review of SCSs business processes which conrmed the progress made.


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Corporat

9 - cohort annual report

Documents