Cohort plc Annual Report 2016

FY2016 Annual Report · Cohort plc

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Annual Report and Accounts 2016

Cohort is the parent company of five
innovative, agile and responsive businesses
providing a wide range of services and
products for UK, Portugal and international
customers in defence and related markets.

EID designs and
manufactures advanced
communications
systems for the
defence and
security markets.

MASS is a specialist
defence and technology
business, focused
on electronic warfare,
information systems
and cyber security.

MCL is an expert in the
sourcing, design, integration
and support of communications
and surveillance technology
for the defence and
security markets.

SCS is a defence
consultancy, combining
technical expertise
with armed forces
experience and
domain knowledge.

SEA is an advanced
electronic systems
and software house
operating in the defence,
transport and offshore
energy markets.

www.eid.pt

www.mass.co.uk

www.marlboroughcomms.com

www.scs-ltd.co.uk

www.sea.co.uk

Read more about our business
and capabilities from page 04

Overview

Strategic report

Corporate governance

Financial statements

01 Financial and operational highlights

04 Our business and capabilities

26 Board of Directors

Independent auditor’s report

02 Chairman’s statement

06 Our business model and strategy

26 Executive Management 2015/16

39 Consolidated income statement

08 Key performance indicators

28 Corporate governance report

40 Consolidated statement of changes

10 Business review

22 Risk management

31 Directors’ report

33 Remuneration & Appointments

Committee report

36 Statement of Directors’ responsibilities

in equity

41 Company statement of changes

in equity

42 Consolidated and Company

statement of financial position

43 Consolidated and Company cash

flow statements

44 Notes to the financial statements

65 Accounting policies

72 Shareholder information, financial

calendar and advisers

IBC Five-year record

Financial and operational highlights
Adjusted operating profit (£m)*

£11.9m
+18%

6.5

7.3

8.2

10.1

11.9

Order intake (£m)

£94.8m
-17%

79.3

59.6

69.1

114.3

94.8

Net funds (£m)

£19.8m
+1%

14.1

16.4

16.3

19.7

19.8

• Organic revenue and adjusted operating profit growth of 5% and 13% respectively

• Adjusted earnings per share increased 33%

• Full year contributions from MCL and J+S (both acquired in 2014/15)

• Net funds maintained at the level of the strong position of last year

• New bank facility for £25m agreed in the year

• Order intake for the year was £94.8m (2015: £114.3m)

Excludes exceptional items, amortisation of other intangible assets and non-trading exchange differences,
including marking forward exchange contracts to market.

Visit our website at www.cohortplc.com
for up-to-the-minute news, announcements
and investor information

Cohort plc Annual Report and Accounts 2016

Chairman’s statement

Continued strong performance

Key financials
In the year ended 30 April 2016, Cohort achieved
revenue of £112.6m (2015: £99.9m), including
£32.0m (2015: £32.5m) from MASS Consultants
Limited (MASS), £18.1m (2015: £16.9m) from
Systems Consultants Services Limited (SCS),
£48.8m (2015: £40.4m) from SEA (Group)
Limited (SEA), and a full year contribution from
Marlborough Communications Limited (MCL)
of £13.7m (2015: £10.1m for ten months). The
SEA revenue included a full year contribution
from J+S Limited (J+S) of £12.8m (2015: £7.9m
for seven months). The improved revenue
reflects both the full year impact of MCL and
J+S, the latter reported within SEA, and also
increased revenue on SEA’s submarine projects.

The Group’s adjusted operating profit was £11.9m
(2015: £10.1m). This included contributions from
MASS of £6.0m (2015: £5.5m), SCS £1.2m (2015:
£1.3m), SEA £5.4m (2015: £4.0m) and a full year
contribution from MCL of £1.4m (2015: £1.3m
for ten months). Cohort Group overheads were
£2.1m (2015: £2.0m). MASS, which remains the
Group’s largest contributor to profit, improved its
performance as a result of changed mix despite a
slight fall in revenue. The improved performance
at SEA reflected its increased revenue, and also
an improved mix due to the higher activity in
support services. MCL also improved its
contribution, although its percentage margin was

lower with a greater proportion of revenue
derived from bought-in product. Despite
growing its revenue, SCS had a challenging
year with an increase in the proportion of
lower margin work following the end of
several profitable projects.

The Group operating profit of £5.2m
(2015: £5.9m) is stated after recognising
amortisation of intangible assets of £6.4m
(2015: £3.6m), exceptional items of £0.8m
in respect of the acquisition costs associated
with EID and net foreign exchange gains of
£0.5m (2015: £0.1m charge). Profit before tax
was £5.3m (2015: £5.9m) and profit after tax
was £5.4m (2015: £5.2m).
Adjusted earnings per share (EPS) were 27.18 pence
(2015: 20.45 pence). The adjusted EPS were
based upon profit after tax, excluding amortisation
of other intangible assets, net foreign exchange
gains and exceptional items. Basic EPS were
19.14 pence (2015: 14.04 pence). The significant
improvements in EPS included the benefit of
some one-off tax items. With these removed,
adjusted EPS would have been 24.98 pence,
22% above the comparative for 2014/15.

Order intake for the year at £94.8m, was, as
expected, lower than the strong performance
seen in 2015 at £114.3m and accounts for the
lower closing order book. The net funds at the
year end were £19.8m (2015: £19.7m).

Highlights
• The Board is recommending a final
dividend of 4.1 pence per ordinary
share (2015: 3.4 pence)

• Cohort achieved a record adjusted
operating profit for the year of
£11.9m (2015: £10.1m)

• The Group ended the year with net
funds of £19.8m (2015: £19.7m)

• MASS and SEA achieved

record profits

• Full year contributions from J+S

(reported as part of SEA) and MCL

Read more about our recent operational
activities, strategy and business review
from page 10

Cohort again improved its
performance in the year,
achieving record revenue,
adjusted operating profit
and closing cash. MASS, MCL
and SEA all recorded growth
in adjusted operating profit.
After some delay, the Group
completed the acquisition
of EID. I welcome EID to
the Group as Cohort’s fifth
operating business and look
forward to its positive
contribution in the coming
year and thereafter.

Nick Prest CBE

Dividends
The Board is recommending a final dividend of
4.1 pence per ordinary share (2015: 3.4 pence),
making a total dividend of 6.0 pence per ordinary
share (2015: 5.0 pence) for the year, a 20%
increase. This will be payable on 21 September
2016 to shareholders on the register at
26 August 2016, subject to approval at the
Annual General Meeting on 13 September 2016.

MASS
MASS’s adjusted operating profit of just under
£6.0m (2015: £5.5m) was ahead of last year, driven
by an improved mix. Its net margin increased
from 16.9% to 18.7%, with lower levels of activity
in education accounting for the slight drop in
revenue. Looking forward we expect MASS’s
operating margin to fall back to a slightly lower
level as it grows its cyber offering. Although the
cyber opportunities available to MASS are
substantial and growing, a larger part of MASS’s
activity in this area has bought-in content.

MASS’s order book reduced during the year
as it delivered on its longer term orders, a
number of which are due to be replenished
in the coming year. Its closing order book
of £41.7m (2015: £53.4m) provides a good
underpinning for 2016.

MCL
MCL improved its adjusted operating profit from
£1.3m for the ten months ended 30 April 2015 to
£1.4m for the year ended 30 April 2016 on higher
revenue of £13.7m (2015: £10.1m). The improved
performance was a result of the higher revenue
although, as expected, the net margin was lower
with a higher proportion of bought-in product
and less support work in the revenue mix.

MCL benefitted from a strong final quarter of
orders, sales and profit from its main customer,
the UK MOD, despite evidence that it was under
some budgetary pressure. This demonstrated the
importance of MCL’s niche offerings and typified
its historical business model of short cycle times,
especially in support and repeat work.

Its strong order book of £7.0m (2015: £2.8m)
and pipeline of prospects give us confidence
that it will make progress in the coming year.

SCS
In what continues to be a challenging domestic
defence market for technical consultancy, SCS
did grow its revenue, much of this a result of its
unique position in delivering high level training
to the Joint Warfare Centre. Training activity in
this area again increased following the end of
the UK’s operations in Afghanistan in late 2014.

The withdrawal from Afghanistan also resulted in
the cessation of an in-country support contract
and the resultant mix change has reduced SCS’s
net margin from 7.8% in 2015 to 6.6% this year.

Although SCS enters the coming year with a good
order book of £11.7m (2015: £9.8m) its short term
prospects are not as strong as we are seeing
elsewhere in the Group and we expect SCS’s
performance to remain flat.

SEA
SEA had another strong year with its adjusted
operating profit growing to £5.4m (2015: £4.0m)
which included a full year contribution from
J+S (2015: seven months).

SEA and J+S are now fully integrated and
the efficiencies realised by combining the
businesses have increased the net margin
from 9.9% to 11.1%. The recognition of a full
year of trading of J+S has contributed to the
stronger performance but the underlying SEA
business also increased its revenue by over 11%,
driven mostly by activity on the Common
External Communications System (CECS) for
the UK’s submarine fleet, particularly on the
Vanguard Class. This project will move into
its delivery phase in the coming year and as
a result will have lower engineering activity.

SEA secured over £36m (2015: £50m) of orders
in the year. The 2015 comparator was very strong,
and included a number of large CECS orders
which are being delivered now and into the future.
The SEA order book of £55.6m (2015: £68.0m)
underpins over half of SEA’s expected revenue
for 2016/17 and along with good prospects gives
us confidence that SEA will continue to grow.

Cash
The net funds of the Group increased by £0.1m.
The £11.9m of adjusted operating profit, after
an expected net working capital outflow, delivered
£8.5m of operating cash inflow. Although some
way behind last year’s very strong performance
(£20.5m inflow), this was considerably better
than we had expected and reflected a very strong
closing quarter, some of which will reverse in
the early part of 2016/17.

The operating cash inflow was utilised in paying
tax, dividends and capital investment, a total
outflow of £4.9m as well as a deposit for acquiring
EID, net purchases of own shares and foreign
exchange movements (£3.5m net outflow)
resulting in the positive, albeit small, net funds
movement of the Group.

The Group paid an initial €0.9m (£0.7m) for EID
and a further €9.9m (£8.2m) on 28 June 2016
to take a 57% share and control of the business. It
is expected that the acquisition of the additional
23% the Group has agreed to purchase from
the Portuguese Government will complete
by 31 October 2016 leaving the Portuguese
Government with a 20% stake in EID. This will
cost €4.4m (£3.6m) taking the Group to an
80% holding in EID.

The Group also expects to acquire the minority
interest (49.9%) of MCL during the coming year.
The consideration for this is currently estimated
at £5.5m.

The Group continued to purchase shares
through its Employee Benefit Trust, primarily
to satisfy employee share option awards with
a net investment in the year of £3.2m and this
process is expected to continue in 2016/17.

In November 2015 the Group completed a
new tri-bank facility with Barclays, Lloyds and
RBS. The facility is a revolving credit facility for
three years with an option to extend for up to
a further two years. The amount is £25m with
an option to extend by a further £10m to £35m.

Board, management and staff
First my thanks go to all staff within the
businesses. Their hard work, skill and ability
to deliver what the customer needs are what
ultimately continues to drive the performance
of our Group.

There have been no changes in the Board and
Senior Management of the Group in the past
year. Jeff Perrin, appointed in 2015, has been a
valuable addition to the Board as Non-executive
Director and Chairman of the Audit Committee.

Andy Thomis and his senior executive colleagues
have continued the dedicated and skilful work
which has helped the Group to progress in the
face of challenging trading conditions in parts of
the Defence market.

I take this opportunity to welcome the
management and staff of EID into the
Cohort Group. We look forward to working closely
with them on the future development of EID
and its relations with Cohort and its subsidiaries.

Outlook
The closing order book of £116.0m along with a
number of expected long term order renewals
provide a solid underpinning to the coming year.
Although the UK defence market remains tight,
the Cohort businesses have strong and relevant
capabilities, established positions on some key
long-term UK MOD programmes, and a good
pipeline of new opportunities. Export prospects
continue to strengthen, especially at SEA.
Outside defence, MASS continues to make
progress with its cyber capability. We expect the
order intake for the coming year to be stronger
with a number of key long term renewals due.
As already mentioned, the addition of EID to the
Group will be earnings enhancing and provides
the Group with a new domestic customer in
Portugal and particularly important access to
new export markets, both for EID’s products
and services and the rest of the Group.

It is too early to quantify the impact of the recent
referendum result in favour of the United Kingdom
leaving the European Union. In 2015/16 only
£1.0m (2015: £0.8m) of Cohort’s revenue came
from EU nations and institutions. The majority
of Cohort’s business in Europe is with NATO,
£4.2m in the year ended 30 April 2016 (2015:
£3.4m), and the UK’s exit from the EU is not
expected to affect this market. The acquisition
of EID provides Cohort with a long-term operating
platform within the EU. Any short-term impact
is likely to be driven by changes to UK government
priorities and possibly spending in the aftermath
of the referendum. We will inform the market
if we become aware of any material effects
arising from these changes.

The management emphasis is now on driving
further growth, supported by a continuing strong
funding position. The recently completed acquisition
of a controlling interest in EID provides a good
start to the year ahead and the Board considers
that Cohort’s order book and near-term prospects
provide a good base for future progress.

Nick Prest CBE
Chairman

Cohort plc Annual Report and Accounts 2016

OverviewOur business and capabilities

A cross-section of the Group’s
activity in 2015/16

Subsidiary

Operating division

Products
and systems

Secure networks

Cyber security

Electronic warfare operational support

Secure networks

Strategic systems

Marlborough Communications

Air systems

Capability development

Training support

Maritime defence

Research and technical support

Software solutions and products

Subsea engineering

Capability

Case study

Annual Report and Accounts 2016 Cohort plc

MCL protects the
hearing of British
Forces with the
Tactical Hearing
Protection System

MASS is a leading
certification body
for Cyber Essentials,
helping companies
achieve Government
cyber security standards

Application
software

Operational
support

Training

Studies and
analysis

Applied research

Specialist expertise

SEA delivered a new
Flight Deck Training
Simulator to train the
crew of the new HMS
Queen Elizabeth
class Aircraft Carriers

SCS provides the
Communication
and Information
System to the
EU’s counter-piracy
Operation Atalanta

SCS provides a
support service to
the UK’s Joint Forces
Command to deliver
exercises in combined
and joint environments
at an operational level

MASS has provided
strategic advice for a
UK Police Service
into managing and
responding to
advances in digital
forensic technology

SEA was the lead
industry partner
responsible for
delivering the Delivering
Dismounted Effect
research programme

SCS provides
Independent
Technical Evaluation
for air platforms
entering UK military
service, including
Airseeker and Protector

Cohort plc Annual Report and Accounts 2016

Strategic reportOur business model and strategy

Innovative, responsive and independent businesses
combined with the benefits of a listed group

Our business model
Autonomous, agile businesses combining niche
technology with highly skilled and flexible people:

Our strategy

Organic growth
Consistently grow profits and
cash generation organically
through our subsidiaries

Acquisitions
Increase the profitability of the
Group and access new markets
through selective acquisitions

Maintain confidence
Ensure good corporate governance
and sound risk management and
communicate what we are doing
to investors

Management expertise bringing
strategic and financial guidance

rket access

a
M

Size a

Focus on core
capabilities in defence
and security, underpinned
by long-term contracts
and strong pipeline
of opportunities

c
e
s

Agilit y

Adding value through:

Higher margin exports

Established position in key UK defence programmes

Flexible capabilities to meet customer needs

We measure our progress using
key performance indicators, which
can be found on page 08

Annual Report and Accounts 2016 Cohort plc

Delivered through

What we did in 2015/16

Our priorities for 2016/17

• A focus on trusted delivery to our customers.

• Encouraging innovation and responsiveness

with a low cost base.

• Identifying and pursuing growth opportunities.

• Developing high quality leadership teams

and a high performance culture.

• Adjusted operating profit of the Group increased
by 18% to £11.9m. When adjusted to remove
the full year effect of the acquisitions made
in 2014/15 the increase was 13%.

• Net funds increased to £19.8m.

• Completed first executive and leadership

development programme for Directors and
future leaders of the Group respectively.

• Continued organic growth through pursuing
identified opportunities in UK and export
defence and other market areas.

• Invest in current and future market growth
opportunities including cyber and new
naval systems.

• Continue Executive Development Programme

for Cohort and subsidiary Directors.

• Continue Group-wide Leadership

Development Programme, aimed at the
future leaders of the business.

• Proactive engagement with businesses

that can add value to the Group.

• Maintaining a strong acquisition team.

• Demonstrating a structure and culture
that is attractive to potential sellers.

• 57% of EID acquired (completed 27 June 2016),
the Group’s first overseas subsidiary and
fifth leg of the Cohort Group.

• Minority of MCL expected to be acquired

on or before 30 April 2017.

• A further 23% of EID expected to be acquired

• New £25m tri-bank facility put in place.

on or before 30 November 2016.

• Funding capacity in place for further
standalone and bolt-on acquisitions.

• A framework of financial control, strategy
review, performance management and
leadership development.

• Clear and consistent communication.

• Succession planning and training.

• SEA and J+S now fully integrated. Some

• SEA and J+S reporting systems to be

integrated to deliver improved efficiency.

system work still to be completed.

• Refreshed website to be published.

• New SCS IT system fully operational with

• Complete integration of reporting and

• An ability to act fast if problems arise.

no issues.

governance procedures for EID.

• Canaccord initiated analysis coverage providing

further investor relations news flow.

Strategic reportKey performance indicators

Performance indicator

Why is it measured?

2016

2015

Change in revenue
Changes in total Group revenue
compared to the prior year.

Revenue growth gives a quantified
indication of the rate at which the
Group’s business activity is expanding
over time.

13%

40%

Change in adjusted
operating profit
Change in Group operating profit
before amortisation of other intangible
assets, marking forward exchange
contracts to market and
exceptional items.

The adjusted profit trend provides an
indication of whether additional revenue
is being gained without profit margins
being compromised and whether any
acquisitions are value enhancing.

18%

23%

Order book visibility
Orders for next financial year expected
to be delivered as revenue, presented
as a percentage of consensus market
revenue forecasts for the year.

Order book visibility, based upon expected
revenue during the year to come, provides
a measure of confidence in the likelihood
of achievement of future forecasts.

55%

cover on forecast
2017 revenue of
£120m (excluding
EID) at 30 April 2016

65%

cover on forecast 2016
revenue of £111m at
30 April 2015

Change in adjusted
earnings per share
Annual change in earnings per share,
before amortisation of other
intangible assets, marking forward
exchange contracts to market and
exceptional items, all net of tax.

Operating cash conversion
Net cash generated from operations
before tax as compared to the profit
before tax, excluding amortisation
and other intangible assets.

Change in adjusted earnings per share is
an absolute measure of the Board’s
management of the Group’s return to
shareholders net of tax and interest.

33%

Operating cash conversion measures
the ability of the Group to convert profit
into cash.

73%

215%

Annual Report and Accounts 2016 Cohort plc

Strategic report

Comment

The increase in revenue was due in part
to a full year contribution from MCL
and J+S. The underlying Group revenue
increased by 5% on a like for like basis,
the single largest factor being an increase
in ECS deliveries

The increase in 2016 was a result of
improved profitability at SEA and MASS
and higher revenue at MCL.

The order book cover for the coming year
is lower at all of our businesses with the
exception of MCL. At MASS and SEA
long term contracts are due for renewal
in 2016/17 mitigating some of the order
book cover risk.

Strong growth in 2016 reflecting improved
profitability and a small tax credit (2015:
tax charge). Excluding one-off tax items
(£0.9m), the underlying adjusted earnings
per share is 24.98 pence, 22% higher
than 2015.

The Group does see year to year fluctuations
depending on working capital levels at
the end of its reporting periods, but in
general cash conversion has been strong.
The last three years’ operating cash inflow
of £31.6m compares with cumulative
adjusted operating profit for the same
period of £30.2m.

Read how risk identification, analysis
and management allow us to deliver
our strategic objectives from page 22

In focus

SCS supports the
EU Anti-piracy Mission

SCS provides technical support to the Operational Communication
and Information Services system for Operation Atalanta.

Business review

Another year of continued progress

Operating review
2015/16 has been another year of progress for Cohort delivering a record level of revenue,
adjusted operating profit and net funds. The closing order book of £116.0m, along with a
good pipeline of prospects, provide substantial underpinning for the coming financial year.

The Group’s adjusted operating profit of £11.9m (2015: £10.1m) on revenue of £112.6m (2015: £99.9m)
was a net return of 10.6% (2015: 10.1%).

Adjusted operating profit by subsidiary

MASS
MCL
SCS
SEA
Central costs

Adjusted operating profit

Operating margin

2016
£m

6.0
1.4
1.2
5.4
(2.1)

11.9

2015
£m

5.5
1.3
1.3
4.0
(2.0)

10.1

Change
%

9
8
(8)
35
(5)

2016
%

18.7
10.2
6.6
11.1
—

10.6

2015
%

16.9
13.1
7.8
9.9
—

10.1

Highlights
• Cohort has continued its progress,
delivering a record level of adjusted
operating profit

• Excluding the full year effect of

acquisitions, revenue and adjusted
operating profit increased by 5% and
13% respectively

• MASS and SEA achieved record profit

• SEA’s operating performance

continued to improve

• Full year contribution from MCL

of £1.4m

• Order book at 30 April 2016
underpins over £65m of
2016/17 revenue

• Strong net funds and banking

facility provide capacity to carry
out our strategy

IBC

See the inside back cover of this report
for a five -year performance summary

This has been another year of
continued progress for Cohort.
The Group made its first
overseas acquisition just after
the year end in acquiring EID.

Andrew Thomis, Chief Executive
Simon Walther, Finance Director

Revenue share
Defence & Security revenue (£m)

£103.0m
+15%

0
3
0
1

4
9
8

0
.
1
6

4
9
5

8
7
5

Transport revenue (£m)

£3.5m
-10%

9
4

3
4

8
2

9
53
3

Other commercial revenue (£m)

£3.1m
-31%

5
4

6
4

0
4

1
.
3

1
.
2

Revenue share 2016

Defence & Security 91%
Transport 3%
Offshore energy 3%
Other commercial 3%

The 2015/16 result includes a full year
contribution from J+S (reported as part of
SEA) and MCL compared with seven and
ten months respectively in 2014/15. Adjusting
for these annualised impacts, the underlying
organic revenue and adjusted operating profit
growth were 5% and 13% respectively.

MASS was again the strongest contributor to
the Group, growing its adjusted operating profit
by 9% on slightly lower revenue. MASS’s net
margin of 18.7% is higher than we would expect
due to favourable mix, particularly lower levels
of education deliveries where there is relatively
high level of bought-in content. Looking forward
we would expect MASS’s margin to return to
a slightly lower level, reflecting growth in its
cyber defence and other UK work where a
larger part of MASS’s activity in these areas
has bought-in content.

Following its acquisition last year, MCL improved
its adjusted operating profit to £1.4m (2015: £1.3m
for ten months) on increased revenue of £13.7m
(2015: £10.1m). The increase was primarily due
to deliveries of hearing protection systems for
the British Army, an order secured in August 2015.
The net margin was down from 13.1% to 10.2%
reflecting the increased proportion of revenue
derived from products compared to higher
margin support work.

In what has been a challenging year, SCS
produced an adjusted operating profit of £1.2m
(2015: £1.3m) on slightly higher revenue of £18.1m
(2015: £16.9m). This weaker performance was
a result of a change in mix, in particular arising
from the cessation of support activity in
Afghanistan in late 2014. SCS undertook
some cost mitigation to offset this downturn.
Looking forward, the market conditions for
SCS remain tight and our expectation is that
SCS will remain flat in terms of performance.

SEA’s business produced an increase of
35% adjusted operating profit on 21% higher
revenue. This was a result of a strong performance
in its defence business, with increased
submarine engineering activity and higher
support work for its navy customer.

Taking into account the full year effect of J+S
compared with the seven months in 2014/15,
SEA’s underlying revenue and adjusted operating
profit grew by 6% and 32% respectively with
J+S contributing strongly to the adjusted
operating profit as a result of operational
gearing and mix.

The small increase in central costs was as
expected and reflects the growth of the Group
over the past year. Looking forward we expect
to see a further increase as the Group absorbs
its new overseas subsidiary EID.

Operating strategy
Cohort currently operates as a group of five
medium-sized businesses, operating primarily
in defence and security markets, and with a
strong emphasis on technology, innovation
and specialist expertise:

• MASS is a leading international provider in the
fields of electronic warfare (EW) and secure
communications, including cyber security.
Its products include the THURBON™ EW
database and it provides EW operational
support services to a number of customers
in the UK and overseas. MASS has some
unique capabilities that have enabled it to
establish strong niche positions in these
important areas of defence and security,
as well as gaining an increasing reputation
as a leading provider of secure networks
to educational and other non-defence
markets. MASS was founded in 1983 and
is led by Managing Director Ashley Lane.

• MCL is a supplier of advanced electronic

warfare, surveillance technologies and hearing
protection systems to defence and security
customers, mostly in the UK. It sources
technologies from a global supplier network
as well as developing and supplying its own
solutions. MCL has a reputation for being
flexible and agile in creating effective,
mission deployable solutions for customers
in the most challenging time frames. MCL
was founded in 1980 and is led by its
Managing Director Darren Allery.

• SCS is a provider of independent expert
advisory services to defence and related
markets. It serves both government and
private sector customers in the UK and
internationally. Many of its people have
experience in the armed forces covering
a wide range of technical specialisations,
enabling the business to provide rapid
expert support in areas including information
systems, training, airworthiness, delivery
and management of complex systems and
support to operations in high threat areas.
SCS was founded in 1992 and is led by its
Managing Director Christian Cullinane.

• SEA specialises in providing systems

engineering and specialist design solutions
to government and industry. Its submarine
External Communications System is being
provided for all of the Royal Navy’s Astute
Class submarines, and will ultimately be
fitted to all of the RN’s submarines. It is
also a supplier of systems and in-service
support for the defence and offshore energy
markets in the UK and overseas with its
products including sonar systems, torpedo
launchers and a range of other naval equipment.
It provides a range of simulation-based
training solutions and middleware to provide
realistic training for complex environments.
SEA also provides software and systems
for the transport market. SEA was founded
in 1988 and is led by Managing Director
Steve Hill.

• The recently acquired business of EID in

Portugal is discussed below under acquisitions.

Cohort plc Annual Report and Accounts 2016

Strategic reportBusiness review continued

Operating review continued
Operating strategy continued
Cohort’s management approach is to allow its
subsidiary businesses a significant degree of
operational autonomy in order to develop their
potential fully, while providing light-touch but
rigorous financial and strategic controls at Group
level. Our experience is that our customers prefer
to work with businesses where decision-making
is streamlined and focused on solving their
immediate problems. This model provides us
with a degree of competitive advantage over
some larger rivals where the decision-making
process can be more extended. It is also
cost-effective as it avoids the need for additional
layers of management involved in coordination
activities and for a large headquarters team.
And it is attractive to high calibre employees
who find it more rewarding to be involved
in decisions affecting the business, even
at a relatively junior level, rather than being
constrained to a narrow or purely technical
role. This positions us well to supply systems
and services to our customers where these
attributes are highly valued.

Within our markets we have sought to use our
agility and innovation to identify niches where
future prospects are attractive and where we
have some sustainable competitive advantage.
These can be for products, services or high value
one-off projects to design bespoke equipment
or software. Examples include MASS’s electronic
warfare operational support offerings, SCS’s
training support work for the Joint Forces
Command, SEA’s External Communication
System (ECS) for submarines and MCL’s range
of hearing protection systems. We have also
been active in finding new customers for the
capabilities we have developed, both in export
markets, and for non-defence purposes. During
the recent year we have continued to widen the
customer base for our network security offering
and extended the application of our Roadflow
product to address moving offences, in particular
yellow boxes and illegal right turns.

Being part of the Cohort Group brings significant
advantages to our businesses compared with
operating independently. The Group’s strong

balance sheet gives customers the confidence
to award large or long-term contracts that we
are technically well-able to execute but which
might otherwise be perceived as risky. Examples
include MASS’s £50m in-service support contract
awarded in 2010, and around £70m of contracts
awarded to SEA so far for ECS across the UK’s
submarine platforms. The Group’s Directors
have long experience of operating in the defence
sector and have contacts and working relationships
with senior customers in the UK and internationally
which it would be hard for independent smaller
businesses to establish. Our current four
UK operating businesses, while remaining
operationally independent, have close working
relationships and are able to benefit from
each other’s technical capabilities, customer
relationships and market knowledge. We will
work in the coming year on ensuring that EID
fully participates in this collaborative approach.

These strategies have allowed us to grow our
profit organically at a time when UK defence
expenditure, our largest source of revenue,
has been tightly constrained. They have also
generated long term customer relationships
and good opportunities that give us confidence
that we can continue to prosper despite the
difficult and unpredictable market conditions.

Acquisitions
Alongside our organic growth strategy we
continue to see opportunities to accelerate
our growth by making targeted acquisitions.
We believe that there are good businesses in
the UK and overseas that would thrive under
Cohort ownership, whether as standalone
members of the Group or as “bolt-in”
acquisitions to our existing subsidiaries.

The most likely candidates for bolt-in acquisitions
are businesses with capabilities and/or customer
relationships that are closely linked to one of
our existing subsidiaries. We would expect to
integrate an acquired business of this nature
fully within the relevant subsidiary. This could
lead to both cost savings and benefits from
shared access to markets and technologies.
The J+S acquisition by SEA last year is a good
example of this.

For stand-alone acquisitions we are looking
for agile, innovative businesses that have
reached a stage of development where there
will be mutual benefit in joining Cohort. It is
likely that candidates will be operating in the
defence and security markets either in the UK
or internationally as that is where the Group can
add most value. Growth prospects, sustainable
competitive advantage and the ability to operate
as part of a publicly quoted UK group will all
be important. The acquisition of just over 50%
of MCL last year met this criterion.

We expect to acquire the remainder of MCL (just
under 50%) for an estimated further consideration
of £5.5m on or before 30 April 2017.

The Group has added a fifth member of Cohort
by acquiring 57% of EID. The total consideration
paid for this was just under €11m (£8.9m).
Subject to final approval of the Portuguese
Government, the Group expects to acquire a
further 23% of EID from the Government on
the same terms and price as the initial 57%
with the Portuguese Government retaining
a 20% stake in EID. This second transaction is
likely to complete on or before 31 October 2016
and will be accompanied by a shareholder
agreement, which will set out various
undertakings by both parties.

On the acquisition of the 57%, Cohort has also
taken effective control and will consolidate
100% of EID from that point, recognising the
minority interest in EID as appropriate.

EID is a hi-tech company with more than
30 years’ experience in the design, manufacture
and support of advanced, high performance
command, control and communications
equipment for the global defence and security
market. Customers for its naval communications
systems include the Royal Navy and other
NATO navies including those of Portugal,
the Netherlands, Spain and Belgium. It has
also supplied a number of other export customers;
in total its products equip over 120 warships
worldwide, and its army products have also
enjoyed wide domestic and export success.

Group revenue by market
Total revenue by market (£m)

Total revenue by business (£m)

£112.6m
+13%

9
3

0
3
0
1

5
3

5
9
8

0
3

5
4

0
2

1
.
3

32.5 32.0

48.8

40.4

16.9 18.1

13.7

10.1

16
15
Defence
& Security

16
15
Transport Offshore
energy

16
Other
commercial

15
MASS

MCL

SCS

SEA

Annual Report and Accounts 2016 Cohort plc

See a breakdown of Defence & Security
revenue on page 15

Defence & Security
Transport
Offshore energy
Other commercial

In focus

SEA provides expertise in
dismounted soldier operations

SEA continues to lead in the delivery of integrated
dismounted soldier systems research to UK MOD DSTL
through the Delivering Dismounted Effect programme.

Business review continued

Operating review continued
Acquisitions continued
EID operates through two market-facing divisions:

• Naval Communications: integrated

command, control and communications
systems for warships and submarines; and

• Tactical Communications: radio, field and
vehicle communication equipment and
networking equipment.

These divisions are supported by an internal
production and logistics unit. EID operates
from an engineering facility near Lisbon, and
has a regional office in Malaysia. It has a total
of 138 employees.

Divisional review
MASS

Revenue
Adjusted operating profit
Operating cash flow

2016
£m

32.0
6.0
4.9

2015
£m

32.5
5.5
8.2

MASS had another solid year under Ashley Lane’s
leadership, increasing its adjusted operating
profit by 9% although on slightly lower revenue.

MASS received a Queen’s Award for Enterprise
in April of this year, a deserved recognition of
both the quality of its technical work and its
strong record of business success.

A significant contributor to the increase in MASS’s
profitability was a change in mix with lower
education activity offset by work in Electronic
Warfare and Strategic Systems. MASS continued
to increase its cyber offering, securing some
initial work under a strategic framework contract
with various UK Government customers.

As already mentioned, the mix of work has
resulted in MASS’s net margin being higher
than last year. At 18.7% (2015: 16.9%) this is
above the level we expect to see in future
because of the growing level of activity in
areas where MASS’s bought-in content is
usually higher. MASS’s portfolio will continue
to include long term managed service offerings,
higher margin but unpredictable export business
and more predictable but relatively lower margin
secure network and cyber activity in education,
commercial, security and defence markets.

MASS’s support contract for the NATO Joint EW
Core Staff, originally secured during 2013/14,
was extended for a further year during 2015/16.
As well as being a valuable growing work stream
in its own right, this provides MASS with further
opportunities to access NATO customers with
its EWOS and THURBON™ offerings.

After a strong operating cash flow last year,
MASS’s operating cash flow this year was slightly
weaker with a build-up of working capital at
the end of the financial year linked to higher
activity. MASS, as part of its cyber strategy,
is currently investing in facility upgrades to
enable it to offer a more comprehensive cyber
service. This work will complete in the summer

Annual Report and Accounts 2016 Cohort plc

of 2016 and will enable MASS to continue to
grow its business in this area.

MASS operated through the year with four divisions
and will continue to do so for the coming
2016/17 financial year. The EWOS division
focuses on all of its export EW capability and
THURBON™, including SHEPHERD (the
provision of a system embodying THURBON™
to the UK MOD) as well as its EW managed
service offerings in the UK. The Cyber Security
division includes MASS’s offerings of solutions
and training to government security customers.
The Secure Networks division includes MASS’s
secure network design, delivery and support,
including Information assurance services to
commercial, defence and educational customers.
The Strategic Systems division covers certain
managed service and niche technical offerings
to the UK MOD.

MASS enters the current year with a strong
order book and pipeline of opportunities,
including exports, though the latter are always
unpredictable in terms of timing. The coming
year is also expected to see the renewal of a
number of MASS’s longer term projects.

MCL

Revenue
Adjusted operating profit
Operating cash flow

2016
£m

13.7
1.4
0.5

2015
£m

10.1
1.3
(2.1)

MCL’s full year contribution was above last
year’s ten month contribution. This was driven
in particular by delivery of the first sets of
Tactical Hearing Protection System for the
British Army, an order secured in the first half
of 2015/16.

The increased revenue derived from these
deliveries, where the value added by MCL
is low compared to its support activities, has
resulted in MCL’s net margin falling to 10.2%
from 13.1% last year.

MCL has continued to enjoy success in supporting
the UK Royal Navy both above and below
water with specialist electronic systems.

MCL is currently a business with a short order
to delivery timescale, resulting in a relatively
low order backlog at any time. In joining Cohort,
one of its objectives was to increase its visibility
and predictability of revenue. MCL has made
some progress towards this goal, finishing the
year with an order book of £7.0m (2015: £2.8m).
Historical experience and a strong pipeline of
opportunities suggest it will once again both
win and deliver much of its revenue in the
course of the financial year. MCL’s pipeline,
particularly in expanding its hearing protection
provision to the UK military and potentially
beyond, gives us confidence that it will
progress in the coming year.

The positive, albeit small, operating cash flow
was expected and reflects MCL’s peak of
activity at the end of the financial year.

Darren Allery, MCL’s Managing Director, has led
his team through the integration with Cohort
and we are looking forward to continuing to
work with the existing MCL team after our
expected acquisition of the remaining
management shareholders’ shares in the
course of 2016/17.

SCS

Revenue
Adjusted operating profit
Operating cash flow

2016
£m

18.1
1.2
(0.1)

2015
£m

16.9
1.3
2.5

SCS, under the leadership of Christian Cullinane,
had a challenging year and despite a 7% increase
in revenue, SCS’s trading profit fell by 8%.

The drop, despite some cost mitigation, was a
result of a change in mix, particularly following
cessation of support activities in Afghanistan
in late 2014.

More positively, SCS secured a further two years,
with a potential to go out to March 2020, of
its high level training offering to the UK’s Joint
Warfare Centre (JWC), a service SCS has supplied
for over 15 years. This capability forms the core
of SCS’s business and has enabled it to win
further customers in the UK and overseas.

In other areas of its business, SCS has had
a mixed performance. It was unsuccessful
in renewing its framework contract with NATO
in late 2015 although has continued to win
revenue from NATO, albeit at a slower and
lower rate.

In Air Systems, SCS continued to deliver its
Independent Technical Evaluation services
for a number of air platforms.

SCS’s net return at just under 7% is lower than
last year as a result of the change in mix.
SCS’s operating cash performance was, as
expected, down on last year as deferred supplier
payments fell into this year. SCS, like all of our
businesses, also saw increased activity at the
year end driving trade receivables higher.

SCS enters 2016/17 with an order book of £11.8m
(2015: £9.8m). It faces a challenging market
and with an anticipated fall off in Air Domain
activity in the coming year, we do not expect
SCS to grow in the year ahead.

SEA

Revenue
Adjusted operating profit
Operating cash flow

2016
£m

48.8
5.4
2.7

2015
£m

40.4
4.0
8.4

SEA, led by Managing Director Steve Hill,
has had another busy and successful year
with profit increasing by 35% on nearly 21%
higher revenue.

These significant increases include a contribution
from the effect of owning J+S for a full year.
When this is adjusted for, the underlying

increases in revenue and adjusted operating
profit remain a healthy 6% and
32% respectively.

The marked improvement in net margin,
increasing from 9.9% last year to 11.1% in 2015/16,
was driven by an increase in support and
production activity at Barnstaple, and the
benefit of operational gearing arising from
the higher activity levels.

Setting aside the full year impact of J+S, the
increase in the underlying revenue was due
primarily to more deliveries of the External
Communications System following the large
orders received in 2014/15. SEA’s current
ECS activity on the UK submarine fleet has
reached its peak in terms of engineering and
future periods will see the delivery of completed
ship systems at a steady but lower run rate.
However, with critical design milestones
achieved in 2015/16, we expect to see an
increasing contribution of both revenue and
profit from SEA’s naval systems export work.

SEA’s research business had a steady year
including successfully completing the Delivering
Dismounted Effect programme for its customer,
DSTL. Looking forward, we do not expect any
growth in the short term but the pipeline for
2017/18 and beyond looks good.

SEA’s transport activity was slightly down on
2014/15 but within this Roadflow sales grew
vigorously. Prospects in the UK market for
Roadflow, particularly the Red Light and
Motion variants, along with further export
opportunities give us confidence that the
Transport activity will grow in the coming

Revenue by market and business

years. The sale of Red Light Systems for level
crossings has been slower than we hoped, in
the main due to customer delays, and we
expect this to pick up going forward.

SEA’s Subsea Engineering Division, which
primarily services the North Sea Oil & Gas
market, had a very challenging year due to the
tightness of its market. The apparent growth
in revenue was mostly due to the recognition
of a full year’s trading compared to only seven
months in 2014/15. However, the business,
which is mainly involved in operational support,
remained profitable and any sustained
improvement in the oil price should enable
it to start growing again.

SEA had a better than expected operating
cash flow in the year with some large receipts
on the submarine programme received at the
year end. An unwind of supplier payments
and a resultant cash outflow occurred as
expected in the first half of the year but the
second half has been better, a major factor
in the Group’s strong cash performance.

SEA’s closing order book of £55.6m
(2015: £68.0m) provides a solid underpinning
to 2016/17 revenue, especially in its submarine
and other naval system work. Elsewhere, its
order cover, especially in Software Solutions
and Products and Subsea Engineering Division,
is typically low with a short order to delivery
timeframe. SEA’s Research & Technical Support
Division enters 2016/17 with lower order cover
compared to recent years. It has recently
completed its Delivering Dismounted Effect
programme and is waiting for the replacement

project, the Dismounted Engine Room (DER),
which will commence later in our financial year.
During this year the division will continue to
deliver ad hoc tasks to its MOD customer, partly
delivering some of the DER requirements
early. SEA has a number of longer term
contracts due for renewal in 2016/17.

As expected, the integration of J+S and SEA
which was completed last year, has delivered
around £0.5m of annual savings and the
combined business has been conducted
in 2015/16 through its four market facing
divisions spread across its four operating
facilities comprising:

• Maritime Division, including design,

development, production and support of
its naval communication systems, sonar,
torpedo launch and other naval systems.

• Research and Technical Support Division,
including its capabilities in the land and
research markets of defence.

• Software Solutions and Products Division,
including SEA’s transport work in the UK
and overseas as well as other civil and
non-maritime products, its training and
simulation capabilities and other
information systems.

• Subsea Engineering Division, developing

and delivering SEA’s activities in the offshore
energy market, primarily oil and gas.

These four business development and delivery
divisions have been supported by a single
production facility at its Barnstaple site.

Defence & Security
Transport
Offshore energy
Other commercial

MASS

MCL

SCS

SEA

Group

2016
£m

30.1
—
—
1.9

32.0

2015
£m

28.4
—
—
4.1

32.5

2016
£m

13.6
—
—
0.1

13.7

2015
£m

10.0
—
—
0.1

10.1

2016
£m

17.9
—
—
0.2

18.1

2015
£m

16.7
—
—
0.2

16.9

2016
£m

41.4
3.5
3.0
0.9

48.8

2015
£m

34.4
3.9
2.0
0.1

40.4

2016
£m

103.0
3.5
3.0
3.1

112.6

91
3
3
3

100

The Defence & Security revenue is further broken down as follows:

Direct to UK MOD
Indirect to UK MOD
where the Group
acts as a sub-
contractor or partner

Total to UK MOD

Export and other

MASS

MCL

SCS

SEA

Group

2016
£m

13.1

6.7

19.8

10.3

30.1

2015
£m

11.5

6.1

17.6

10.8

28.4

2016
£m

11.1

0.4

11.5

2.1

13.6

2015
£m

8.4

0.3

8.7

1.3

10.0

2016
£m

10.7

2.7

13.4

4.5

17.9

2015
£m

8.7

3.9

12.6

4.1

16.7

2016
£m

11.6

26.9

38.5

2.9

41.4

2015
£m

9.7

21.7

31.4

3.0

2016
£m

46.5

36.7

83.2

19.8

34.4

103.0

2015
£m

89.4
3.9
2.0
4.6

99.9

2015
£m

38.3

31.7

70.0

19.4

89.4

89
4
2
5

100

Cohort plc Annual Report and Accounts 2016

Strategic reportBusiness review continued

Operating review continued
Revenue breakdown by capability

2016

2015

Defence products

Training

The design, supply and support of such equipment and its associated
embedded software, as well as the integration of commercial “off the
shelf” equipment for specialist applications primarily by SEA and MCL.

This includes formal, on-the-job and scenario-based training services.
An example is SCS’s provision of exercise-based training for the UK’s
Joint Forces Command.

Specialist expertise

The provision of expert individuals as part of a customer’s team.
Three of our businesses are active in this area, most notably SCS
and MASS with a small level of activity at SEA.

£m

47.0

10.7

12.0

Application software The design and supply of specialist software systems such as MASS’s

8.7

work on Project SHEPHERD and SEA’s work for its transport and
defence customers.

Operational support The provision of direct support to active operations which takes place
at MASS through its Electronic Warfare Operational Support activities,
at SCS in defence and at SEA in defence and offshore energy.

Secure networks

The provision of advice and system implementation to protect against
cyber attack and other threats. Both MASS and SCS provide these
services for a range of clients.

Studies and analysis Other self-contained studies, consultancy and analytical work such

as SCS’s work on the Protector UAV.

Applied research

The management and execution of scientific investigation work aimed
at specific objectives, such as SEA’s leadership of the DDE research
programme for MOD.

11.3

7.9

8.9

6.1

£m

34.8

10.6

10.4

10.1

9.7

9.1

8.4

6.8

112.6

100

99.9

100

Notable changes between 2015 and 2016 were:

• A significant growth in defence products, in absolute and percentage terms. A major factor in this was increased level of work on ECS. Other

contributing factors included MCL’s hearing protection systems and SEA’s naval product and support business.

• A fall in secure networks as MASS’s activity in education was lower, following its failure to secure a place on the new delivery framework in 2015.

• A fall in applied research as the DDE project reached completion.

Our people
At the year end the Group had 648 permanent
employees as well as a number of people
on fixed-term or task-specific contracts.
Many of these are highly qualified engineers,
mathematicians and scientists but our
management and support people also
make important contributions.

We are not a business that focuses on
high-volume products requiring capital-intensive
machinery and tooling. Almost all of the work
that we win and execute across the Group is a
result of the technical excellence, managerial
skills and sheer hard work of our people. They
are our most important source of competitive
advantage, innovation and agility, and they
are vital to our future success. Developing
our people and keeping them engaged are
therefore high priorities for the Group.

One means by which we do this is Cohort’s
Business Excellence Awards, which are intended
to recognise outstanding contributions to
business success. In the 2016 financial year
the Gold Award went to the team at MCL who
successfully executed a project to design and
manufacture a system that was technically
new and highly challenging, both in terms of

Annual Report and Accounts 2016 Cohort plc

performance and the operating environment.
This was achieved within an extremely tight
timescale to meet a planned Royal Navy
operation; and the system MCL provided was
the key item – without it, the operation could
not go ahead. Other award winners included
a team introducing a new Tactical Hearing
Protection System into the British Army and
others working in critical areas of the UK’s
defence where recognition was received from
the customer at the highest level. The awards
also gave an opportunity to celebrate some
relatively unsung but important achievements
by the Group’s support staff.

The Group’s inaugural Leadership Development
Scheme was completed during the financial year.
The scheme is intended to hone the skills of
the next generation of our senior leaders and
is supported by the top management of both
the operating businesses and the headquarters
team. As well as developing individual skills and
encouraging people to achieve their full potential
we see this as being a way to encourage the
growth of informal networks across the Group,
improving our ability to share information and
work together more effectively.

It has been considered a valuable exercise and
a second Leadership Development Scheme
will commence in 2016/17. In addition, a scheme
to develop the soft skills of some of our able
technical people will be launched within the
coming year.

Cohort’s largest customers are the UK armed
forces, and the work we do helps them to carry
out their vital task more effectively. This is a
significant motivating factor for our people,
many of whom are current reservists or former
members of the armed forces themselves.
Cohort is proud to have been an early signatory
of the UK Armed Forces Corporate Covenant
and in the 2016 financial year MASS received
a Silver Award under the Defence Employer
Recognition Scheme, which is in addition to
previous Gold and Silver awards to SCS and
Cohort respectively. As already mentioned,
it is very pleasing to congratulate MASS on
receiving a Queen’s Award for Enterprise,
a deserved recognition of its excellent
capabilities and business achievements.

In focus

SCS provides a comprehensive
training support service to the
UK military

SCS designs, develops and delivers Command Post and
Computer Assisted Exercises in combined and joint environments
at an operational level for the UK’s Joint Forces Command.

Business review continued

Our people continued
Our people are frequently involved in fund-raising
for armed forces charities, activities which
we are pleased to support, in a modest way,
corporately. Either directly or through matching
employee efforts the Group donated just over
£36,000 in 2015/16 (2014/15: £27,000), the
vast majority to military charities including
SSAFA and ABF.

Operational Outlook
Order intake and order book

MASS
MCL
SCS
SEA

The decrease in the Group’s order intake was
a reflection of the very high intake in 2014/15
rather than any weakness in the current year.
This drop was particularly noticeable at MASS
and SEA. MASS secured a number of renewals
of key overseas support work last year, some
of which are due to be renewed again during
2016/17. At SEA, 2014/15 saw a very large order
to extend ECS to the whole UK submarine
fleet, known as Common ECS.

MASS’s order intake in 2015/16 included a
number of UK MOD renewals and extensions,
many for programmes on which MASS has
been the provider for many years. Some further
export EWOS opportunities were secured and
the pipeline for these remain strong but as
always the timing unpredictable. Of MASS’s
order book at 30 April 2016, over £22m is
deliverable in 2015/16, a slightly lower level
of underpinning than last year, although
a number of renewals, some in the export
market, are expected in the coming year.

MCL’s order intake of £18.0m was dominated
by a hearing protection system order for over
£11m secured last August and deliveries of
which began in January of this year. MCL’s
closing order book of £7.0m is virtually all
deliverable in 2016/17. MCL’s visibility of its
pipeline is short (typically three to six months)
and MCL’s business model, with low headcount
(and hence cost), enable it to respond rapidly
to opportunities and customer needs. MCL’s
pipeline for 2016/17 is strong. Although the
timing of individual prospects is uncertain,
there are some large opportunities which,
if secured, would provide MCL with a more
stable future revenue stream. Since joining
Cohort, MCL has begun to improve the
predictability of its revenue and we will look
to make further progress this year.

SCS’s order intake was significantly up on last
year and included an extension to its JWC high
level training provision for a further two years,
out to March 2018 and with an option to extend
to March 2020. SCS’s closing order book of

Annual Report and Accounts 2016 Cohort plc

All of the Group’s capabilities and customer
relationships ultimately derive from our people,
and such success as we have enjoyed is
ultimately a result of their efforts. We would like
to take this opportunity to express our thanks
to all employees of Cohort and its businesses.

Order intake

Order book

2016
£m

20.3
18.0
20.1
36.4

94.8

2015
£m

39.6
7.5
16.7
50.5

114.3

2016
£m

41.7
7.0
11.7
55.6

2015
£m

53.4
2.8
9.8
68.0

116.0

134.0

£11.7m includes £7.0m deliverable in 2016/17
with the balance in 2017/18. The SCS order
book provides slightly lower underpinning to
the coming year, although, as elsewhere in
the Group, a number of contracts are due for
renewal. The visibility of SCS’s pipeline remains
short (typically around six months) and so SCS
retains a flexible resource model to enable
it to respond quickly to changes in market
conditions. SCS’s pipeline of opportunities is
extensive but current conditions, especially for
the provision of technical consultancy to the
UK MOD remain challenging.

SEA’s order intake of over £36m was down on
the prior year with nearly half of the reduction
due to the lower level of ECS orders, £17m this
year versus over £25m last year.

Other notable changes were order wins last
year for delivery during this year and next year,
specifically projects for ancillary products and
services to the submarine programme in
the UK.

Outside defence, SEA’s level of Roadflow orders
was ahead of last year and looking forward we
expect further export opportunities and also
domestic growth from new variants.

The Oil & Gas market has been very challenging
and order intake was down on the prior year,
despite a single order for over £1m, the largest
order ever received by SEA’s Subsea Engineering
Division. We would expect conditions going
forward to remain tight although the oil price
has recovered some of its lost ground in the
last few months.

SEA’s closing order book of £55.6m will deliver
nearly £30m of revenue in 2016/17, lower
than last year, mainly due to the conclusion
of the DDE framework for the UK MOD which
we expect to be replaced later in the coming
financial year.

In the near term, the majority of Cohort’s business
will continue to derive from the UK MOD, either
directly or indirectly. The Government’s

Strategic Defence Review published last
November continued the focus on a number
of the Group’s key capabilities, in particular
submarines, Special Forces, cyber and secure
communications. It also brought a welcomed
increase in defence procurement spending
although not until 2017/18 at the earliest and
the coming year, 2016/17, remains a challenging
domestic defence market.

We also remain active in exports, where we
have had a steady year in 2015/16. Our focus
has been on markets with growing demands
for defence equipment and resources to match.
Our non-defence activities reduced in 2015/16
as a result of lower education activity. Transport
was relatively flat and oil & gas grew because of
the full year effect of the J+S business acquired
in October 2014. The Group’s defence and
security activity is now 91% (2015: 89%). The
overall market background, together with the
pipeline of opportunities and our order book
for the coming year give us confidence that
we will continue to make progress in 2016/17.

Funding resource and policy
The Group retains a robust financial position
and continues to be cash generative enabling
it to continue to invest in internal R&D and
other value adding projects on a carefully
considered basis as well as maintaining its
progressive dividend policy.

The Group’s cash position and its recently
agreed banking facility provides it with the
resources to conduct its acquisition strategy.

In November 2015 the Group completed
a new tri-bank facility with Barclays, Lloyds
and RBS.

RBS remain the Group’s primary bank,
especially for clearing purposes and day
to day transactions.

The facility is a revolving credit facility for three
years with an option to extend for up to a further
two years. The amount is £25m with an option
to extend by a further £10m to £35m.

The facility itself provides the Group with a
flexible arrangement to draw down on for
acquisitions and trading activities and as at
30 April 2016 the facility was drawn as follows:

M&A loan
Overdraft
FX, bonding and other
trade instruments

Facility
£m

10–15
3

7–12

Drawn
£m

3.3
—

0.9

4.2

The above segmenting of the facility is an
estimate and there is scope to reallocate
elements of the undrawn facility as necessary.

The three banks participate equally in the
facility and it is the role of the Group Treasury
function to ensure that at any time the Group
has available to it sufficient facilities to enable
it to meet its requirements flexibly and efficiently.

The cost of the facility, including legal fees was
£0.5m and this was disclosed as part of the
exceptional cost related to the EID transaction,
a major driver of the need for it.

The Group takes a prudent approach to treasury
policy with its overriding objective being
protection of capital. In implementing this policy,
deposits are usually held with institutions with
credit ratings of at least Baa2. RBS’s ownership
structure with a majority shareholding by the
UK Government gives the Board confidence
of the creditworthiness of the bank. Deposits are
generally held on short (less than three months)
duration to maturity on commencement.
This matches the Group’s cash resources with
its internal 13 week cash forecasts, retaining
flexibility whilst trying to ensure an acceptable
return on its cash. Most of the Group’s cash
(that is not on short term deposit) is managed
through a set-off arrangement, enabling the
most efficient use of the Group’s cash from
day to day, under the supervision of the
Group’s finance function.

MCL’s cash balances are held with Barclays
and are currently outside the above facility
and offset arrangements.

The Group has retained its inherited bank
relationship with Clydesdale in order for customer
payments to be received where contractual
terms or relationships make bank changes
impractical. These accounts will be closed
once they are no longer receiving deposits.

During the year, the Group set up facilities in
Portugal in order to facilitate the acquisition
of EID. This was with Novo Bank which has
a credit rating of Caa1. This was considered
acceptable due to the short term that the funds
would be held in Portugal. In the event, these
funds have been held longer than was expected
due to the delay in completing the acquisition.

The Group regularly reviews the ratings of the
institutions with which it holds cash and always
considers this when placing a new deposit.

The Group’s return on net funds during the period
was 0.20% to 0.75% (2015: 0.20% to 1.35%).

In addition to its cash resources, the Group
has in issue 41.0m ordinary shares of 10 pence
each. Of these shares 0.7m are owned by the
Cohort plc Employee Benefit Trust (EBT), which
waives its rights to dividends. In addition
the Group has issued options over ordinary
shares through Key Employee Share Option
and SAYE schemes to the level of 1.8m at
30 April 2016.

The Group maintains a progressive dividend
policy with dividends having increased by
approximately 20% per annum over the last
six years and dividend cover in the current
year at 4.5 times (2015: 4.4 times) based
upon the adjusted earnings per share.

The Group’s cash generation in 2015/16 was better than expected but not as strong as the
previous year. In summary, the Group’s cash performance was as follows:

Adjusted operating profit
Depreciation and other non-cash operating movements
Working capital movement

Acquisition of EID (deposit only)
Acquisition of 50.001% of MCL
Acquisition of 100% of J+S
Disposal of SEA’s Space business
Tax, dividends, capital expenditure, interest, loans and investments

Increase in net funds

2016
£m

11.9
1.5
(4.4)

9.0
(0.7)
—
—
—
(8.2)

2015
£m

10.1
0.8
9.8

20.7
—
(5.7)
(11.7)
4.0
(3.9)

0.1

3.4

As signalled last year, we expected working
capital outflows in 2015/16 as some of the
strong, timing driven inflow in 2014/15 unwound
in the early part of the year. However, the Group’s
working capital performance has been stronger
than we expected particularly at SEA where
some large receipts were received in the final
months of the year in respect of the CECS
programme. Looking forward into 2016/17
we expect a significant decrease in net funds,
primarily as a result of the investment of
around £13m in acquiring EID and the
remaining shares in MCL.

The significantly higher cash outflow in tax,
dividends etc. was mainly due to the investment
in Cohort’s own shares by the EBT, a net £3.2m
outflow (2015: inflow of £0.7m). The use of
EBT shares to satisfy employee share options
during 2015/16 will probably require further
shares to be purchased by the EBT in the
coming year.

The Group’s customer base of Governments,
major prime contractors and international
agencies make its debtor risk low. The year
end debtor days in sales were 31 days
(2015: 24 days). This calculation is based
upon dividing the revenue by month, working
backwards from April, into the trade debtors
balance (excluding unbilled income and work
in progress) at the year end. This is a more
appropriate measure than calculating based
upon the annual revenue as it takes into
account the heavy weighting of the Group’s
revenue in the last quarter of each year. The
increase in debtor days is a reflection of the
high level of trading in the final quarter across
the Group, especially at MASS, MCL and SEA.

Tax
The Group’s tax credit for the year ended
30 April 2016 of £54,000 (2015: charge of
£707,000) was at an effective credit rate of 1.0%
(2015: charge rate of 11.9%) of profit before tax.
This includes a current year corporation tax
charge of £1,935,000 (2015: £1,485,000), a
prior year corporation tax credit of £368,000
(2015: credit of £204,000) and a deferred tax
credit of £1,621,000 (2015: £574,000).

Including the current year deferred tax, the
effective current tax rate for the year ended
30 April 2016 is 5.9% (2015: 16.3%). The current
tax rate (including deferred tax) on profit before
tax is lower than the standard rate (calculated
at 20.0%; 2015: 20.83%), primarily due to
recognition of Research & Development
(R&D) credits, a reduction in the future UK
corporation tax rate which has increased the
deferred tax credit (£0.3m), and recognition of
a statutory deduction on the exercise of share
options by employees (£0.3m). The Group
has switched its R&D tax credit scheme from
the old superdeduction method to the now
required R&D Expenditure Credit (RDEC), the
impact of this change being a lower tax
charge of £0.2m. The Group will continue to
recognise its R&D tax credit in the tax line, in
accordance with IAS 12.

The Group’s overall tax rate was below the
standard corporation tax rate of 20.0%
(2015: 20.83%). The reduction is due to the
reasons given above for the current year’s
rate and in addition, a prior year tax credit
in respect of the recognition of tax allowable
expenditure incurred in 2014/15 on the
acquisition and integration of J+S into SEA
which was previously not recognised. Looking
forward, the Group’s effective current tax rate
for both 2016/17 and 2017/18 is estimated
at 16% and 15% respectively, taking account
of the reduction in headline tax rates and
assuming the R&D tax credit regime remains
unchanged from its current level and scope.
The Group maintains a cautious approach to
previous R&D tax credit claims for tax periods
that are still open, currently 2013/14, 2014/15
and 2015/16.

Exceptional items
The exceptional costs in the year were all in
respect of the acquisition of EID. These costs
include £0.5m in respect of the Group’s new
bank facilities.

Cohort plc Annual Report and Accounts 2016

Strategic reportProvisions
The Group makes estimates of provisions
for existing commitments arising from past
events. In estimating these provisions, the
Group makes judgements as to the quantity
and likelihood of the liability arising. Certain
provisions require more judgement than others.
In particular warranty provisions and contract
loss provisions have to take account of future
outcomes arising from past deliveries of
products and services. In estimating these
provisions, the Group makes use of
management experience, precedents and
specific contract and customer issues.

Accounting policies
There were no significant changes in accounting
policies applying to the Group for the year
ended 30 April 2016.

Additional financial reporting disclosure
As in the past, the Group makes reference to
additional financial reporting over and above
that required by IFRS, specifically:

Adjusted operating profit
The adjusted operating profit is presented
to reflect the trading profit of the Group and
excludes amortisation of other intangible
assets, exchange differences on marking
forward exchange contracts to market and
on revaluing cash set aside for acquiring
EID and exceptional items. This enables
the Group to present its trading performance
in a consistent manner year on year. The adjusted
operating profit is stated after charging the
cost of share-based payments of £197,000
(2015: £198,000) which is allocated to each
business in proportion to its employee
participation in the Group’s share option
schemes. The segmental analysis (see note 1)
is disclosed for each business after deducting
the cost of share-based payments.

The exchange adjustment on marking forward
exchange contracts to market at the year end
is a requirement of IFRS and has no economic
impact upon the Group’s performance or
assets and liabilities.

Andrew Thomis
Chief Executive

Simon Walther
Finance Director

Business review continued

Adjusted earnings per share
The adjusted earnings per share of 27.18 pence (2015: 20.45 pence) is reported in addition to the
basic earnings per share and excludes the effect of amortisation of intangible assets, exchange
movement on marking forward exchange contracts to market, revaluing the cash set aside to
acquire EID and exceptional items, all net of tax.

The adjustments to the basic earnings per share in respect of the exchange movements and
other intangible asset amortisation of MCL only reflect that proportion of the adjustment that is
applicable to the equity holders of the parent, analysed as follows:

Exceptional items
Exchange gain on revaluing the cash held for the
acquisition of EID
Exchange adjustment in marking forward contracts to
market
Amortisation of other intangible assets:
J+S
MCL

Adjustment
to adjusted
operating
profit
£’000

Applicable
tax
adjustment
£’000

Adjustment
to adjusted
earnings per
share (net
of tax)
£’000

821

(537)

(7)

1,187
2,596

4,060

—

108

(302)
(602)

(795)

821

(429)

(6)

885
1,994*

3,265

* This adjustment is at 50% of the adjustment to adjusted operating profit, reflecting the share appropriate to the

Goodwill and other intangible assets
The Group has recognised goodwill and other
intangible assets in respect of the acquisition
of MASS (including Abacus EW), MCL and
SEA (including J+S). The other intangible
assets are in respect of contracts acquired,
intellectual property rights and specific
opportunities and in each case are amortised
over the expected life of the earnings
associated with the other intangible asset
acquired. The goodwill, which is not subject
to amortisation but to annual impairment
testing, arises from the intangible elements
of the acquired businesses for which either
the value or life is not readily derived. This
includes, but is not limited to, reputation,
contacts and market synergies with existing
Group members. The goodwill relating to the
acquisitions of MASS (including Abacus EW),
MCL and SEA (including J+S) has been tested
for impairment as at 30 April 2016. In all three
cases there was no impairment.

The Group performs significant research and
development work for third parties for which
tax credits are claimed. As this is performed
for third parties no intangible asset is recognised.
Where the Group performs its own research
and development an intangible asset is only
recognised where it meets the criteria of
IAS38 ‘Intangible Assets’.

equity holdings of the parent.

As reported in the Chairman’s statement, the
adjusted earnings per share includes some
one-off tax credits of £0.9m which when taken
into account reduces the adjusted earnings
per share by 2.20 pence to 24.98 pence,
22% higher than last year.

Financial estimates and judgements
In preparing the Annual Report and Accounts
of Cohort plc for 2016, a number of financial
estimates and judgements have been
made including:

Revenue recognition
on fixed‑price contracts
The judgement applied in recognising revenue
on a fixed-price contract is made by reference
to the cost incurred, including contingency
for risk and the demonstrable progress made
on delivering key stages (often referred to as
milestones) of the contract. The Group uses
best estimates in applying this judgement
and where uncertainty of progress on a
stage exists, revenue is not recognised
for that stage.

Cost contingency
on fixed‑price contracts
In addition to the judgement applied to revenue
recognition, the cost of delivering a contract to
a particular stage represents the actual costs
incurred and committed plus an estimate of
cost contingency for risk still present in the
contract at that stage. This cost contingency
takes account of the stage that the contract
has reached and any judgement and uncertainty
remaining to deliver the remainder of the contract.
It is usual for these cost contingencies to
reduce as the contract progresses and risk
and uncertainty reduces.

Annual Report and Accounts 2016 Cohort plc

In focus

MASS supports electronic
warfare countermeasure
development and testing

MASS provides world-class services to assist customers
in enhancing platform survivability and delivering
effective missions.

Risk management

Market risks

Risk area

Nature of risk

Mitigation and progress

Customers

The Group’s single most important customer remains the
UK MOD. £46.5m of revenue came directly from this source
in 2016 (2015: £38.3m), 41% (2015: 38%) of Group revenue.
In addition, £36.6m (2015: £31.8m) of Group revenue, 33%
(2015: 32%), was sourced ultimately from the UK MOD
but received via other contractors. With the Government
running a significant budget deficit and the current uncertainties
arising from Brexit there is a risk that further controls
on defence expenditure could be introduced, which could have
an impact on the Group’s ability to win new work or could
result in termination of its existing contracts. Any event that
affected the Group’s reputation with the UK MOD could put
this revenue at risk.

The increase in the proportion of its revenue to its ultimate
primary customer in 2016 compared with 2015 reflects
the full year impact of the acquisitions of MCL and J+S
made in 2014, both of which have the UK MOD as their
primary customer. It also reflects the marked increase in
activity on the Royal Navy’s submarine programmes.

£41.0m (2015: £30.0m), 36% (2015: 30%) of Group
revenue, representing 49% (2015: 43%) of revenue derived
from the UK MOD, was in relation to the Joint Combat
Aircraft, Astute and other submarine programmes,
nuclear deterrent programmes and operational naval
support, all of which have been confirmed as high priority
areas following the Government’s Strategic Defence
and Security Review.

Operational risks

Risk area

Nature of risk

Mitigation and progress

Suppliers

As is typical in the defence sector, the Group is reliant on
certain key suppliers for specific elements of its technical
and product offerings. This reliance is long term, with product
duration in this sector often being tens of years.

This risk is managed through close liaison with suppliers,
good project management and having contingency
plans to go to alternative suppliers or bring work
in-house.

The long-term life of many defence products requires
a regular review of product life and capability and the
Group supports the customer in this respect through
funded ongoing product support and re-life tasks.

This is typical in defence and is managed through bid/
no bid reviews at the appropriate level using experienced
personnel, including the Cohort Executive and Board.

These projects are managed by dedicated project
management teams, monthly reviews by the subsidiary
board and regular interaction with the customer and key
suppliers. Revenue and cost are recognised taking
account of risk and estimated cost at completion
(including any contingency).

This cost base is carefully monitored at budget time and
by rolling quarterly forecasts to identify any potential risk
of low utilisation and thus under-recovery of cost, or
over utilisation leading to the inability to meet
customer commitments.

The risk is mitigated, in the short term, by the use
of sub-contractor staff. In the long term, a programme
of skills assessment and training is in place to ensure
continued flexibility of the engineering resource.

Operations

(MASS and
SEA)

The subsidiary trading and business risks are similar in the
cases of MASS and SEA.

Bid risk – the businesses bid on contracts where the scope
of work may not be well or fully defined by the customer.

ii. Fixed-price contracts – these are often of a long-term
nature (greater than 12 months) and typically include
delivery of hardware and software.

iii. Due to the nature of their niche technical skills requirement,
both MASS and SEA have a fixed level of core software
and hardware engineering and technical expertise.

Annual Report and Accounts 2016 Cohort plc

Strategic report

Operational risks continued

Risk area

Nature of risk

Mitigation and progress

Operations

The primary cost risk is in respect of staff utilisation.

(SCS)

SCS revenue visibility is short with typical contract duration
of three to six months. This carries risk to forward utilisation.

Operations

(MCL)

Like SCS, MCL’s revenue visibility is short at typically
three to six months. This carries risk to staff utilisation
and predictability of revenue and profit.

The Group (through three of its subsidiaries) operates
a number of off-site managed service contracts. These
contracts are long term in nature (typically five years at
commencement) and are managed through dedicated site
project managers. The contracts are fixed-price in terms of
revenue with opportunities for additional tasks enhancing
volume and return.

The business maintains a comprehensive prospects
schedule. This risk is also an opportunity, with SCS often
securing and delivering work in a very short time frame.

This risk is managed by retaining a minimal core staff,
essential for business support, development and delivering
key skills to customers. The majority of deliverable service
is provided by non-core staff (associates) where cost is
only incurred when the associates are on task. The
forward utilisation of core staff is monitored on a weekly
basis looking forward up to three months. Utilisation
levels were maintained during the year.

MCL’s staff levels are low (2016: 25) and the people employed
are flexible and possess multiple skills enabling them to
take on design, integration and support tasks across the
full range of MCL’s product offering. MCL, in joining the
Cohort Group, has a strategy to improve its visibility by
securing longer term contracts, utilising the Group’s size
and financial stability.

The Group carefully manages the partnership with its
customer and supplier base in all these cases to ensure
the customer receives value for money and skilled Group
staff providing a dedicated, flexible and responsive approach.
The primary risk to these managed service contracts
is termination, which is mitigated by the partnering
approach adopted by the Group and our close
engagement with the customer to ensure customer
requirements remain paramount at all times.

Partners

The Group, especially in the defence sector, often secures
business through teaming and partnering with other suppliers
and this is often a requirement of securing work with the
UK MOD in order to ensure the end customer receives the best
solution. This creates a risk that the Group’s revenue or profit
will be affected by poor performance of a partner business.

The Group takes an active part in these arrangements
and, through regular (usually monthly) project review
meetings and other communication, ensures that the
team (including our partners) delivers as a whole to the
customer and to the needs of the individual team members.

Strategic risks

Risk area

Nature of risk

Mitigation and progress

Acquisitions

The buying (and selling) of businesses is a risk in respect
of value, distraction, integration and ongoing obligations
and undertakings.

The Group’s acquisition risk is mitigated as far as
practicable by the acquisition process being managed
at the Cohort Board level, making use of appropriate
external expertise and resources as and when required.

Cohort plc Annual Report and Accounts 2016

Risk management continued

Financial risks

Risk area

Nature of risk

Mitigation and progress

Treasury

Cash and bank deposits are held as follows:

Royal Bank of Scotland Plc
Barclays Bank plc
Clydesdale Bank
Novo Bank (Portugal)

Moody’s
credit rating
of bank as at
10 June 2016

A3
A2
Baa2
Caa1

2016
£’000

14,845
205
104
7,955

23,109

2015
£’000

16,850
2,606
245
—

19,701

In November 2015 the Group completed a new tri-bank facility
with Barclays, Lloyds and RBS. RBS remain the Group’s primary
bank, especially for clearing purposes and day-to-day transactions.
The facility is a revolving credit facility for three years with an option
to extend for up to a further two years. The amount is £25m with
an option to extend by a further £10m to £35m. The facility itself
provides the Group with a flexible arrangement to draw down on
for acquisitions and trading activities.

This facility is available to all of the Group’s entities (excluding MCL)
through an offset arrangement. The current facility expires in
November 2018, although the Group has an option to extend
it for a further two years.

Under the Facility Agreement, the Group is required to meet
certain banking covenants every quarter. There is a risk that
the Group does not meet some or all of the covenants and
that the facility is amended or cancelled as a consequence.

The Group has contracts with overseas customers and
suppliers requiring payment or receipt in currencies other than
£ sterling.

The Group’s exposure to credit risk at 30 April 2016 in respect of
financial derivatives (forward foreign exchange contracts) was
£0.8m of payable and £1.5m of receivable (2015: £2.0m of payable).

The financial derivatives at 30 April 2016 were all held with
RBS, Lloyds and Barclays (30 April 2015: Barclays only). These
are disclosed in detail in note 18 to the financial statements.

Currency risk

The Group takes a very prudent approach to the
management of its financial instruments, which are
described in note 15. The Group’s cash is usually held
with at least Baa2 rated institutions and on deposits
usually not exceeding three months. This ensures a very
low risk to capital and a reasonable balance of liquidity
against interest earned on cash deposits.

The Group regularly reviews the ratings and other relevant
factors in respect of the banks with which it deposits its
cash and on each and every occasion that a short-term
deposit is placed.

The credit rating of the banks used has remained at Baa2
or above, with the exception of Novo Bank. This account
was used to hold funds for the acquisition of EID which
was expected to complete before the year end but slipped
into the new financial year completing on 27 June 2016.

The Group has regular (at least quarterly) meetings with
its bank to discuss operational and other business issues.

The Group regularly monitors its covenant position and
considers the impact of proposed transactions vis-à-vis
the banking covenants to ensure that they are not breached.
It also has regular meetings with its banking providers to
ensure that any potential issues or risks are identified
and communicated early to ensure that any implications
for covenants can be addressed and avoid any adverse
changes or restrictions to the Group’s facilities.

The Group manages its exposure to currency risk by using
forward foreign currency exchange contracts. The level of
forward cover is determined contract by contract, taking into
account the net currency exposure to receipts and purchases.
Forward contracts are only put in place when customer
contracts are deemed highly probable. The Group does
not enter into speculative forward exchange contracts. The
Group’s primary exposure is to the US$ through MCL, which
purchases a number of products in the United States,
and SEA with sales in the United States. The Group’s
exposure to the fluctuation in currency in respect of its
reporting subsidiaries, which have a reporting currency
other than sterling as their base currency, is not hedged.

Annual Report and Accounts 2016 Cohort plc

Strategic report

Financial risks continued

Risk area

Nature of risk

Revenue

The Group has risk in respect of:

i. milestone and acceptance failure on projects; and

ii. unrecoverable trade debts.

Mitigation and progress

The Group takes a prudent approach to revenue and
credit risk, and any work done at risk is minimal,
authorised at the appropriate level and reviewed on a
monthly basis.

The recognition of revenue is discussed at length in
the Accounting Policies (page 69) and Critical Accounting
Judgements (page 70 to 71) and as such may from time
to time have a degree of risk.

The Group uses project control processes and regularly
reviews project progress to ensure recognition of revenue
takes account of external milestones and customer
acceptance as well as the internal costs incurred.

The 2016 bad debt charge was £nil (2015: £3,000) on Group
revenue of £112.6m (2015: £99.9m).

Financial assets exposed to credit risk at 30 April:

Trade receivables
Other receivables
Cash and bank deposits

2016
£m

18.3
9.7
23.1

2015
£m

10.7
8.8
19.7

The calibre of the Group’s customers and the control
processes in respect of revenue capture and invoicing
ensures minimal bad debts.

The Group also uses letters of credit and other methods
of payment guarantee, including customer advances,
especially in respect of overseas customers, to ensure
any export debt risk is minimised.

Significant debt receivable in foreign currency is hedged
using forward exchange contracts which are entered into
when contracts are deemed effective.

The risk to the major debtor of the Group, as a
government department, is considered very low.

Cohort plc Annual Report and Accounts 2016

Board of Directors

Nick Prest CBE
Chairman
Term of office
Nick became Chairman of Cohort on flotation
in March 2006.

Andrew Thomis
Chief Executive
Term of office
Andrew took over as Chief Executive of Cohort
in May 2009.

Background and experience
After graduating from Oxford in 1974 Nick joined the
UK MOD. In 1982 Nick moved to Alvis, the defence
contractor, undertaking a variety of roles before
becoming Chief Executive in 1989 and Chairman
and Chief Executive in 1996. Nick left Alvis following
its acquisition by BAE Systems in 2004, by which
time the company had become a leading international
business in military land systems.

Nick was also Chairman of Aveva Group plc from
2006 until 2012.

External appointments
In addition to being Chairman of Cohort, Nick is also
Chairman of Shephard Group, a privately owned
media company specialising in defence and aerospace.

Background and experience
Andrew graduated with an M.Eng degree in Electrical
and Electronic Engineering from Imperial College
London in 1987. He spent nine years in science,
technology and policy roles in the UK MOD. He left
in 1996 and, after a period working with public and
private sector clients at Capita plc’s management
consultancy arm, he joined Alvis plc in a role covering
strategy, M&A and business development. Following
the acquisition of Alvis by BAE Systems in 2004, he
worked with Nick Prest and Stanley Carter on the
creation of Cohort plc, acting as Finance Director
during the flotation and subsequently Corporate
Development Director. From 2007 to 2009 he was
Managing Director of MASS.

Simon Walther
Finance Director and Company Secretary
Term of office
Simon joined Cohort as Finance Director in
May 2006.

Background and experience
After graduating with a BSc in Toxicology and
Pharmacology from University College London, he
went on to qualify as a chartered accountant with
Touche Ross in 1992. Simon moved to the Peninsular
and Oriental Steam Navigation Company (P&O) in
1993 where he was appointed a Chief Accountant
for P&O European Ferries in 1995. He has nearly
20 years’ industry-relevant experience, with previous
senior finance roles at Alvis and BAE Systems.

Member of the Cohort plc Board of Directors

Member of the Remuneration & Appointments Committee

Member of the Audit Committee

Executive Management 2015/16

Annual Report and Accounts 2016 Cohort plc

tt
Stanley Carter
Non-executive Director
Term of office
Stanley has been with Cohort since its formation,
initially as its Chief Executive before holding the
office of Co-Chairman from 2009 until 2015.

Jeff Perrin
Independent Non-executive Director
Term of office
Jeff joined the Board of Cohort on 1 July 2015
and became Chairman of the Audit Committee
following the AGM on 22 September 2015.

Background and experience
Stanley jointly founded Cohort with Nick Prest in
2006 with SCS as the launch vehicle on flotation.
Prior to that he was Managing Director of SCS,
which he founded in 1992 on leaving the Regular
Army. During his military service as a Royal Artillery
officer he held a wide range of posts in the MOD,
including the central staff, procurement and at
government research establishments as well as
representing the UK on NATO technical committees.
He received an award for the invention of a missile
launcher from the UK MOD. He has degrees in
Technology and Behavioural Science from
Loughborough and the Open University respectively,
and an MSc in Information Systems from the
Royal Military College of Science.

Background and experience
A chartered certified accountant, Jeff has held a
number of senior financial positions including roles
within Unilever, Oriflame, and the defence businesses
of GEC and Radstone Technology Plc. In the latter
company, he was also Chief Executive for four years
until his departure a year after its acquisition by the
General Electric Company in 2006.

External appointments
Jeff is also Chairman of the private equity backed
defence company Chess Technologies Ltd, a position
he has held since 2008.

Sir Robert Walmsley KCB, FREng
Independent Non-executive Director
and Senior Independent Director
Term of office
Sir Robert joined the Board of Cohort on flotation
in March 2006. He is Chairman of the Remuneration
& Appointments Committee.

Background and experience
Sir Robert served in the Royal Navy from leaving
school until his final appointment as a Vice Admiral.
After retiring from the Navy, he was appointed as Chief
of Defence Procurement, occupying that position from
1996 until 2003. He served on the British Energy board
from 2003 until 2009 and until 2012 was a senior
adviser at Morgan Stanley International and Chairman
of the Major Projects Association. From 2004 until
2015, he served on the board of the General Dynamics
Corporation in the United States.

External appointments
Sir Robert is on the board of Ultra Electronic Holdings
plc and holds a number of other advisory roles in the
defence and energy sectors. Since 2013 he has been
the independent Chairman of the Department for
Work and Pensions’ Universal Credit programme and
since 2014 has been a Crown Representative within
the Crown Commercial Service.

Ashley Lane
Managing Director of MASS
Term of office
Ashley was appointed as Managing
Director of MASS in May 2009.

Darren Allery
Managing Director of MCL
Term of office
Darren became Managing Director of
MCL in March 2009.

Christian Cullinane
Managing Director of SCS
Term of office
Christian was appointed as Managing
Director of SCS in June 2015.

Stephen Hill
Managing Director of SEA
Term of office
Stephen was appointed as Managing
Director of SEA in March 2011.

Background and experience
Darren has over ten years’ senior
managerial experience in the international
defence sector. He began his career
in 1985 at MEL as an Electronics
Engineer. In 1990, he moved to MCL
as a Support Engineer, primarily
supporting electronic warfare equipment,
specialising in ELINT. His roles at
MCL have included Support Engineer,
Support Manager, EW Sales Manager
and Business Development Director.

Background and experience
After graduating from Surrey University
with a master’s degree (distinction) in
Electronic and Electrical Engineering,
Ashley joined Thorn EMI Electronics as
a Systems Engineer working on radar,
countermeasures and surveillance
systems. He also spent four years in
technology development and licensing,
building the successful 3G wireless
technology company UbiNetics.
He has held key technical roles
on programmes spanning defence,
security and telecommunications,
as well as managerial positions
including Business Manager,
Consultancy Division Head and, for
five years, Systems Development
and Technical Director for MASS.

Background and experience
A law graduate and Henley Business
School alumnus, Christian has over
15 years’ commercial experience holding
senior positions in consultancy and
telecommunications businesses.
Before joining SCS he was Commercial
Director at Airbus Defence and Space,
where he was involved in a major
telecommunications project in the
Kingdom of Saudi Arabia. From 2005
until 2012 he was Commercial and
Performance Director for QinetiQ’s
consultancy business. Christian has
also undertaken senior business
management roles with Deloitte
Consulting, BT Global Services and GPT
(Marconi). He has significant negotiation
and programme delivery experience in
the defence, security and civil markets,
both in the UK and overseas.

Background and experience
Stephen has over fifteen years’ senior
managerial experience, predominantly in
the international aerospace and defence
sector. He began his career in 1983 at
GEC Marconi as an Electronics Engineer,
eventually becoming Business Director
with responsibility for the land systems
electro-optics business at Basildon.
In 2000, he moved to Thales, where his
roles included Managing Director of the
Air Operations business at Wells, and
Vice President with responsibility for the
UK Air Systems Division. Prior to joining
the Cohort Group, he was Chief Executive
of CircleBath, a venture capital backed
private hospital in Bath. Stephen has a
first class honours degree in Electrical and
Electronic Engineering and a masters
in Engineering Project Management
and is a qualified Chartered Director.

Cohort plc Annual Report and Accounts 2016

ttCorporate governance

Introduction
As an AIM quoted company, Cohort plc is not
required to comply with the UK Corporate
Governance Code (the Code). Nevertheless,
the Board fully supports the principles set out
in the Code and seeks to comply wherever
this is appropriate for its size and complexity.
This Corporate Governance report provides
details of how the Group complies with the
2013 Quoted Companies Alliance Corporate
Governance Code for Small and Mid-Size Quoted
Companies (the QCA Code).

The Board
As at 30 April 2016, the Board of Directors
comprised the Chairman, Nick Prest CBE,
two Executive Directors, Andrew Thomis
and Simon Walther, and three Non-executive
Directors, Stanley Carter, Jeff Perrin and
Sir Robert Walmsley.

The Board has determined that Sir Robert
Walmsley and Jeff Perrin are independent; the
Board is therefore compliant with the QCA Code

in having two independent Non-executive
Directors. Sir Robert Walmsley has been
designated as the Senior Independent Director.

The Board meets most months and receives
a monthly Board pack comprising individual
reports from each of the Executive Directors
and the subsidiary Managing Directors, together
with any other material necessary for the
Board to discharge its duties. It is the Board’s
responsibility to formulate, review and approve
the Group’s strategy, budgets, major items of
expenditure, major contract bids, acquisitions
and disposals.

All Directors retire by rotation and are subject
to election by shareholders at least once every
three years. The Board does not make a formal
evaluation of its performance, a matter which
is under constant review by the Chairman.

Board committees
The Board has established two committees:
Audit and Remuneration & Appointments,
each having written terms of reference.

Corporate governance report

Governance structure
Corporate structure

The Board

Audit
Committee

Jeff Perrin
(Chairman)

Remuneration
& Appointments
Committee
Sir Robert Walmsley
(Chairman)

Stanley Carter

Sir Robert
Walmsley

Jeff Perrin

Nick Prest CBE

Board composition

Chairman (1)
Executive (2)
Non-executive (3)

The Board is committed to
maintaining appropriate
standards of corporate
governance and managing
the Group in a flexible and
effective manner.

Nick Prest CBE, Chairman

Attendance at Board and Committee meetings
Board and Committee meetings are scheduled in advance for each calendar year. Additional
meetings are arranged as necessary including meetings with subsidiary Managing Directors to
review strategic and financial plans. The scheduled Board and Committee meetings and
attendance during the year ended 30 April 2016 were as follows:

Board
(7 formal
meetings)

Audit
(3 meetings)

Remuneration &
Appointments
(2 meetings)

N Prest CBE (Chairman)
S Carter (Non-executive Director)
Sir Robert Walmsley (Non-executive Director)
J Perrin (Non-executive Director)
A Thomis (Chief Executive)
S Walther (Finance Director and Company Secretary)

—
—

Nick Prest attended all scheduled meetings whilst a member of the Audit Committee.

Auditor’s remuneration

Fees payable to the Company’s auditor for the audit of the
Company’s and consolidated accounts
Fees payable to the Company’s auditor for the audit of the
Company’s subsidiaries

Total audit fees

Interim review fee
Fee in respect of due diligence on the acquisition of EID S.A.
Fee in respect of due diligence on the acquisition of J+S Ltd
Fee in respect of assistance on disposal of SEA’s Space business
Other non-audit fees

Total non-audit fees

Total fees paid to the auditor and its associates

Charged to profit for the year

2016
£’000

2015
£’000

121

143

14
53
—
—
5

215

135

157

14
—
53
34
—

101

258

Audit Committee
The Audit Committee comprises the three
Non-executive Directors and is scheduled
to meet at least three times a year. It is the
Audit Committee’s role to provide formal
and transparent arrangements for considering
how to apply financial reporting under IFRS
and the Companies Act 2006 and the internal
control requirements of the QCA Code, whilst
maintaining an appropriate relationship with
the independent auditor of the Group.

Jeff Perrin is Chairman of the Audit Committee
having a relevant background. The current
terms of reference of the Audit Committee
were published in May 2014 and are due to
be reviewed in the coming year.

Committee consideration
of the financial statements
In making its recommendation that the financial
statements be approved by the Board, the
Audit Committee has taken account of the
following significant issues and judgement areas:

Areas of judgement
Revenue recognition
on fixed-price contracts
The judgement applied in recognising revenue
on a fixed-price contract is made by reference
to the cost incurred, including contingency
for risk and the demonstrable progress made
on delivering key stages (often referred to as
milestones) of the contract. The Group uses
best estimates in applying this judgement
and where uncertainty of progress on a stage
exists, revenue is not recognised for that stage.

Cost contingency on fixed-price contracts
In addition to the judgement applied to revenue
recognition, the cost of delivering a contract
to a particular stage represents the actual costs
incurred and committed, plus an estimate
of cost contingency for risk still present in the
contract at that stage. This cost contingency
takes account of the stage that the contract has
reached and any judgement and uncertainty
remaining to deliver the remainder of the
contract. It is usual for these cost contingencies
to reduce as the contract progresses and risk
and uncertainty reduces.

Goodwill and other intangible assets
The Group has recognised goodwill and other
intangible assets in respect of the acquisitions
of MASS (including Abacus EW), SEA (including
J+S) and MCL. The other intangible assets are
in respect of contracts acquired, intellectual
property rights and specific opportunities and
in each case are amortised over the expected
life of the earnings associated with the other
intangible asset acquired. The goodwill, which
is not subject to amortisation but to annual
impairment testing, arises from the intangible
elements of the acquired businesses for which
either the value or life is not readily derived.
This includes, but is not limited to, reputation,
customer relations, contacts and market synergies
with existing Group members. The goodwill
relating to the acquisitions of MASS (including
Abacus EW), SEA (including J+S) and MCL
has been tested for impairment as at 30 April
2016. In each case there was no impairment.
The impairment test for the goodwill in respect
of MCL is more sensitive, with no impairment
at the Group’s post-tax weighted average cost
of capital (WACC) of 10.2% (2015: 12.6%) but
materially impaired if the Group’s post-tax
WACC increases to over 20%. The Group’s
2016 post-tax WACC of 10.2% is lower than
the 2015 equivalent of 12.6%, which reflects
lower equity risk and volatility in the share
price of Cohort plc. The Group’s pre-tax WACC
is 14.1% (2015: 18.0%).

MCL’s goodwill is more sensitive to impairment
due to it currently having a high level of other
intangible fixed assets. These other intangible
fixed assets are being amortised at such a
rate that the sensitivity of MCL’s goodwill
to impairment will diminish over the next
three years.

As at 30 April 2016, the acquisition of EID S.A.
had not completed and it has not been
consolidated at that date. Note 31 sets out the
initial details of the acquisition of EID, 56.89%
of which was acquired on 27 June 2016.

Provisions
The Group makes estimates of provisions
for existing commitments arising from past
events. In estimating these provisions, the
Group makes judgements as to the quantity
and likelihood of the liability arising. Certain
provisions require more judgement than others.
In particular, warranty provisions and contract
loss provisions have to take account of future
outcomes arising from past deliveries of
products and services. In estimating these
provisions, the Group makes use of
management experience, precedents and
specific contract and customer issues.

Accounting policies
There were no significant changes in accounting
policies applying to the Group for the year
ended 30 April 2016.

Cohort plc Annual Report and Accounts 2016

Corporate governance

Corporate governance report continued

Independent auditor
The independent auditor liaises with the
Audit Committee regarding work to be
undertaken and complies with the Ethical
Standards for Auditors issued by the Auditing
Practices Board. Prior to commencing its audit
work, the independent auditor confirmed
in writing the nature of any non-audit work
carried out 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 independent auditor presented its audit
plan to the Audit Committee prior to the
Audit Committee meeting held in March 2016.
The plan was reviewed and approved at that
meeting with specific areas of focus by the
independent auditor discussed in detail for
the ensuing audit.

The independent auditor (KPMG LLP) was
appointed in March 2010. The current audit
engagement partner has been in place since
the audit for the year ended 30 April 2015.

The analysis of the auditor’s, KPMG LLP
(2015: KPMG LLP), remuneration is shown
in the table on page 29.

Fees payable to KPMG LLP and its associates
for non-audit services to the Company are
not required to be disclosed because the
consolidated financial statements are
required to disclose such fees on a
consolidated basis only.

Whistle-blowing
The Group has formal arrangements in place
to facilitate “whistle-blowing” by employees
through a contract with a third-party service
provider. If any call is made to this third
party, either the Chief Executive or the Senior
Independent Director is notified promptly
of the fact and the content of the call, so
that appropriate action can be taken.

Remuneration &
Appointments Committee
The Remuneration & Appointments Committee
comprises the Company Chairman and the
Non-executive Directors and is scheduled
to meet at least twice a year. The role of the
Remuneration & Appointments Committee
is to:

• establish a formal and transparent policy
on Executive remuneration and to set
remuneration packages for individual
Executive Directors (and such other senior
employees as the Board may determine);

• assess the performance of the individual

Executive Directors (and such other senior
employees as the Board may determine)
against these packages and determine the
related remuneration;

Annual Report and Accounts 2016 Cohort plc

• undertake the role, in conjunction with the
Chief Executive, of proposing individuals
to the Board for such appointments as the
Board may from time to time request; and

• undertake any other tasks appropriate to
the Committee requested by the Board.

Sir Robert Walmsley is Chairman of the
Remuneration & Appointments Committee.

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

Group management
• The Cohort Board will meet at least seven
times per calendar year, in addition to
business and strategic reviews which are
not recorded as formal Board meetings.

• The Group Executive Committee will

meet at least four times per calendar year,
comprising Cohort Executive Directors
and subsidiary Managing Directors.

Subsidiary management
• There are monthly executive management
meetings involving the senior management
of each subsidiary. Cohort Executive Directors
attend subsidiary executive management
meetings on a regular basis.

Shareholder relations
The 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, the Interim Report, the website
(www.cohortplc.com), social media, webcasts
and email news alerts to provide further
information to shareholders.

Internal control and risk management
The Board has overall responsibility for the
system of internal control and for reviewing
its effectiveness. Such systems are designed
to manage rather than eliminate risks and
can provide only reasonable and not absolute
assurance against material misstatement or
loss. Each year, on behalf of the Board, the
Audit Committee reviews the effectiveness
of these systems. This is achieved primarily
by considering the risks potentially affecting
the Group and from discussions with the
external auditor.

The Board is not aware of any significant
failings or weaknesses in the system of
internal control.

On the recommendation of the Audit Committee,
the Board has determined that an internal
audit function is not required due to the small
size of the Cohort administrative function and
the high level of Director review and authorisation
of transactions. The Board will keep this matter
under review as the Group develops.

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

The subsidiary balance sheets are reviewed
in detail on a quarterly basis by the Cohort
Finance Director.

Anti-bribery
The Group has an anti-bribery policy and
each of its businesses has implemented that
policy and adequate procedures described
by the Bribery Act 2010 (the “Act”) to prevent
bribery. Each business within the Group reports
annually to the Board on its compliance with
the policy and procedures. The Cohort Chief
Executive is the Board member responsible
for the Group’s compliance. As part of its
procedures, the Group has implemented
training in respect of compliance with the
Act for its employees.

The Group’s anti-bribery policy is reviewed
at least every two years or more often if
necessary. The policy was last reviewed
and updated in August 2015.

Modern slavery
The Group has an anti-slavery policy to address
the aspects of Modern Slavery as set out
in the Modern Slavery Act 2015 (the “MSA”).
In accordance with the requirements of the
MSA, each member of the Group has published
a statement on their respective websites setting
out the steps the Group has taken to ensure
that slavery and human trafficking are not
taking place in their businesses and supply
chains. A copy of the statement can be found
in the Corporate Governance section of the
Cohort website (www.cohortplc.com).

The Group’s anti-slavery policy was first adopted
in April 2016 and will be reviewed at least
every two years or more often as necessary.

Cyber risk
The Group has a Security Policy Framework
which covers physical and cyber security
of its assets, employees and information,
including third-party information as well
as business continuity and disaster recovery
procedures. Each business within the Group
reports annually to the Board on the applicability
of and its compliance with the Group’s
Security Policy Framework.

The Group’s Security Policy Framework is
constantly reviewed taking account of best
practice and requirements in government
and industry and was last updated in
April 2016.

Directors’ report

Introduction
The Directors present their report and the
audited financial statements (pages 39 to 71)
of Cohort plc for the year ended 30 April 2016.
Cohort plc is a company incorporated in
and operating from England. Its registered
address is 2 Waterside Drive, Arlington
Business Park, Theale, Reading RG7 4SW.
The Corporate Governance report set out
on pages 28 to 30 forms part of this report.

Principal activities
The principal activity of the Company is that
of a holding company. The principal activities
of the Group are described in our business
and capabilities report on pages 4 to 5.

The Chairman’s statement is included in the
overview section on pages 2 to 3.

Post-balance sheet events
On 27 June 2016, the Group acquired
56.89% of Empresa de Investigação e
Desenvolvimento de Electrónica, S.A.
(EID) for €10.8m (£8.2m). The acquisition
is further explained in note 31.

Dividends
The Directors recommend a final dividend
of 4.10 pence (2015: 3.40 pence) per 10 pence
ordinary share which, subject to shareholder
approval, is due to be paid on 21 September
2016 to ordinary shareholders on the register
on 26 August 2016. Together with the interim
dividend of 1.90 pence paid on 2 March 2016,
the full dividend for the year will be 6.00 pence
(2015: 5.00 pence), an increase of 20% over
last year.

Table 1: Information in respect of the Directors of the Company

Disclosure

Directors who served throughout the year

Directors retiring by rotation

Directors’ biographies

Directors’ interests

Directors’ share options

Report

Pages

Remuneration & Appointments
Committee report
Remuneration & Appointments
Committee report
Board of Directors and Executive
Management
Remuneration & Appointments
Committee report
Remuneration & Appointments
Committee report

33 to 35

26 to 27

33 to 35

Table 2: Substantial shareholdings and voting rights

S Carter
Schroder Investment Management
Hargreave Hale
N Prest CBE

Percentage of
voting rights
and issued
share capital
%

Number of
ordinary
shares

9,105,718
22.23
14.20
5,816,733
10.52 4,307,109
5.09 2,084,580

Nature of
holding

Direct
Direct
Direct
Direct

Research and development
During the year ended 30 April 2016
the Group expenditure on research and
development, both on behalf of customers
and the Group’s own private venture
expenditure, was £5.3m (2015: £6.8m).

Going concern
The Group’s financial statements have
been prepared on the going concern basis.
The reasons for this are set out on page 65
of the Accounting Policies.

Capital structure
Details of issued share capital, together with
details of the movements in the Company’s
issued share capital during the year are shown
in note 19. The Company has one class of
ordinary shares which carry no right to fixed
income. Each share carries the right to one
vote at general meetings of the Company.

There are no specific 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 Company’s shares that may result
in restrictions on the transfer of securities
or on voting rights.

Details of employee share schemes are set
out in note 20. The Trustee of the Cohort
Employee Benefit Trust (EBT) (see note 21)
abstains from voting on the Company’s
shares held on trust and these shares do not
receive any dividend.

At 30 April 2016, the EBT held 755,743
Cohort plc ordinary shares, 1.8% of the issued
share capital (2015: 500,041; 1.2%). This was
also the maximum number held at any time
in the year ended 30 April 2016. Shares in
Cohort plc are acquired and disposed of by
the EBT, for the purposes of satisfying employee
share option and restricted share schemes,
details of which are shown in note 21.

No person has any special rights of control
over the Company’s 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
QCA Code, 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 Corporate Governance
report on pages 28 to 30.

Under its Articles of Association, the Company
has authority to issue up to half of its issued
shares as new ordinary shares. This approximates
to 20.5m shares at 30 April 2016.

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 facility agreements;
property lease arrangements; and employee
share plans. None of these are considered to
be significant in terms of their likely impact
on the business of the Group as a whole.
Furthermore, the Directors are not aware of
any agreements between the Company and
its Directors or employees that provide for
compensation for loss of office or employment
that occurs because of a takeover bid, other
than those disclosed in the Remuneration
& Appointments Committee report on
pages 33 to 35.

Cohort plc Annual Report and Accounts 2016

Corporate governance
Directors’ report continued

International Financial
Reporting Standards (IFRS)
The Group and parent company’s reported
results for the year ended 30 April 2016 are
prepared in accordance with IFRS as adopted
by the EU.

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

Details of information in respect of the
Directors of the Company is referenced
in table 1 on page 31.

Fixed assets
There is no material difference between the
book value and current open market value of
the Group’s interests in land and buildings.

Employee consultation
The Group organises staff communications
locally through its subsidiary undertakings
as well as delivering an annual strategy
presentation to all the Group’s employees
at the main sites of employment. The media
used for organised communications includes
local intranets, in-house magazines, staff
bulletins, presentations and copies of press
releases. In addition, regular staff meetings
are held and notices are published containing
information about matters of interest within
the Group and its subsidiaries. A Group
intranet is currently under development and
will provide a further communication channel
to employees.

Disabled employees
The 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, wherever possible, be retained,
rehabilitated and, where necessary, retrained.

Donations
During the year ended 30 April 2016 the
Group made charitable donations of £36,255
(2015: £26,999), mainly in respect of military
and local charities. The Group made no political
donations during the year (2015: £Nil).

Substantial shareholdings
The Company has been notified as at
7 June 2016, in accordance with chapter 5
of the Disclosure and Transparency Rules,
of the voting rights of substantial shareholders
of the Company as shown in table 2 on
page 31.

Re-appointment of auditor
A resolution to re-appoint KPMG LLP
as auditor will be proposed at the Annual
General Meeting.

The Directors who were in office on the date
of approval of these financial statements have
confirmed, as far as they are aware, that there
is no relevant audit information of which the
auditor is unaware. Each of the Directors has
confirmed that they have taken all the steps
they ought to have taken as Directors in order
to make themselves aware of any relevant
audit information and to establish that it has
been communicated to the auditor.

Approved by the Board of Directors on
28 June 2016 and signed on its behalf by:

Simon Walther
Company Secretary

Annual Report and Accounts 2016 Cohort plc

Remuneration & Appointments Committee report

Introduction
The Remuneration & Appointments Committee
of the Board is, inter alia, responsible for
considering Directors’ remuneration packages
and making recommendations to the Board.

During the year, the Remuneration &
Appointments Committee led the process to
appoint an additional Non-executive Director.
Following a review of potential candidates
and an interview process, the Board appointed
Jeff Perrin as a Non-executive Director on
1 July 2015.

Remuneration policy
Remuneration packages are designed to be
competitive and to incentivise and reward
good performance.

Executive Directors receive salary, medical cover
and pension contribution as well as annual
cash bonuses, shares and share options.

Directors’ interests

Service contracts of the Executive
Directors who served in the year
Andrew Thomis and Simon Walther have service
agreements with the Company which can be
cancelled by either party giving six months’
notice at any time or 12 months’ notice in the
event of losing office as a consequence of a
change of control arising as a result of any
person or persons acquiring more than 50%
of the voting rights at a general meeting of
the Company.

Pensions
During the year ended 30 April 2016, the
Group made contributions to a stakeholder
pension scheme (a defined contribution scheme)
at a rate of 10% of any Executive Director’s
contribution plus 3% of the Executive Director’s
salary per annum to the same scheme.

At
30 April
2016
Number of
10p ordinary
shares

At
30 April
2015
Number of
10p ordinary
shares

S Carter
N Prest CBE
J Perrin
A Thomis
Sir Robert Walmsley
S Walther

9,105,718

9,105,718
2,084,580 2,084,580
—
86,219
25,035
79,151

4,000
100,000
30,000
88,039

Directors’ interests in the equity of Cohort plc
The Directors in office during the year under review and their interests in the equity of the
Company are shown in the table above. The changes in the Executive Directors’ equity
interests in the Company between 30 April 2015 and 30 April 2016 are analysed as follows:

At 30 April 2015
Shares awarded under Restricted Share Scheme
Cohort plc shares purchased
Automatic dividend reinvestment in shares (within an ISA and/or SIPP)
Shares sold as part of transfers to an ISA
and/or SIPP to settle transfer fees

At 30 April 2016

A Thomis

S Walther

86,219
10,512
2,376
919

79,151
8,518
—
396

(26)

100,000

88,039

The executive’s shareholdings at 30 April 2016 represent 180.42% of Andrew Thomis’ and 200.45%
of Simon Walther’s annual salaries respectively (at 30 April 2015 the respective levels were
117.17% and 132.75%) and are based upon the market price of Cohort plc shares at those
respective dates: £3.825 at 30 April 2016 and £2.65 at 30 April 2015.

Of the above shareholdings at 30 April 2016, 20,579 (2015: 20,556) of Andrew Thomis’ and
16,936 (2015: 17,196) of Simon Walther’s are held on trust by the Employee Benefit Trust as
part of the Restricted Share Scheme and do not receive a dividend. Jeff Perrin acquired
4,000 Cohort plc shares on 15 December 2015 at £3.90 per share. Sir Robert Walmsley
acquired 4,965 Cohort plc shares on 9 February 2016 at £3.32 per share. There was no
change in the interests of Stanley Carter and Nick Prest CBE. None of the Chairman’s or
Non-executive Directors’ shareholdings are held as part of the Restricted Share Scheme
(2015: Nil).

Performance incentives
The Cohort Executive Directors’ incentive
scheme was agreed by the Board on
19 June 2013 following a recommendation
from the Remuneration & Appointments
Committee. This scheme has applied to the
year ended 30 April 2016 and will also apply
for the year ended 30 April 2017 with some
changes, as noted below.

The incentive scheme comprises two elements:

1. In-year performance
The bonus payable to the Cohort Executive
Directors in respect of each and every year
will be based upon performance compared
to budget for adjusted operating profit and
operating cash flow and will be payable up
to a maximum of 15% of salary.

2. Long-term performance
The Cohort Executive Directors will be eligible
to receive the following based upon achieving
annualised profit growth targets:

i. up to 20% of salary as a cash bonus;

ii. up to 20% of salary as Restricted Shares.

For the year ended 30 April 2015 and earlier
this is calculated as the number of shares
under the Restricted Share Scheme at the
closing market price on the trading day
prior to the award. From 1 May 2015 onwards
this is calculated as the number of shares
under the Restricted Share Scheme at the
average share price for the respective year.

From 1 May 2016, a further 10% of salary
over and above the 20% shown in i. and ii.
is payable either as cash or Restricted shares
under the long-term performance scheme; and

iii. a discretionary award of up to 20% of

salary as share options (calculated as the
number of shares under option at the
market price on the day of grant).

These rewards are payable for the year ended
30 April 2017 on a linear basis from zero to 20%
(plus up to a further 10% as cash or Restricted
Shares, at the Executive’s choice) of salary as
the compound annual growth rate in adjusted
profit before interest and tax per share over
a rolling four year period starting 1 May 2013
goes from zero to 10%.

Full beneficial ownership of Restricted Shares
(including voting and dividend rights) will
accrue to the recipients in stages over a
three-year period from the date of award.
Recipients may only sell Restricted Shares
with the approval of the Chairman of the
Remuneration & Appointments Committee
while they remain in employment with the
Company. Income tax and National Insurance
payable in relation to Restricted Shares is
borne by the Company.

Cohort plc Annual Report and Accounts 2016

Corporate governance

Remuneration & Appointments Committee report continued

Performance incentives continued
2. Long-term performance continued
The Committee considers that this long-term incentive plan aligns the objectives of the Executive Directors with the shareholders.
The Committee retains discretionary powers in respect of awarding future annual cash bonuses in excess of 45% to the Executive Directors
where circumstances warrant it.

At the Remuneration & Appointments Committee held on 1 June 2016, the following awards were made to the Executive Directors:

i. A cash bonus of £119,637 was payable to the Executive Directors for the year ended 30 April 2016 (2015: £123,550).

ii. Restricted Shares under the Restricted Share Scheme were approved as follows:

In respect of the year ended
30 April 2016

In respect of the year ended
30 April 2015

Actual
number
of shares

12,007
9,515

21,522

Estimated
value
of shares
£

42,400
33,600

76,000

Actual
number
of shares

Actual value
of shares
£

14,365
11,639

26,004

39,000
31,600

70,600

Chairman and Non-executive Directors
Both Nick Prest CBE and Sir Robert Walmsley
were appointed in February 2006. Stanley
Carter was appointed Non-executive Director
of Cohort plc on 22 September 2015 following
his decision to step down as Co-Chairman on
the same date. Jeff Perrin was appointed
Non-executive Director on 1 July 2015. These
appointments can be terminated upon three
months’ notice being given by either party.

Nick Prest CBE and Stanley Carter are due to
retire by rotation and, being eligible, offer
themselves for re-election at the forthcoming
Annual General Meeting on 13 September 2016.

A Thomis
S Walther

The total estimated value received by the
Executive Directors in respect of the Restricted
Share Scheme, including income tax and
employee NIC was £143,396 in respect of
the year ended 30 April 2016 (2015: £133,481).
The Restricted Shares in respect of the year
ended 30 April 2015 were approved at the
Remuneration & Appointments Committee
meeting of 3 June 2015 and were awarded
on 20 August 2015. The Restricted Shares
in respect of the year ended 30 April 2016
are expected to be awarded in August 2016
following the end of the close period.
The actual number of shares is based on
the average mid-market share price for the
year ended 30 April 2016 (353.13 pence).
The total estimated value is based on this
average share price and the prevailing tax
rates. For the year ended 30 April 2015,
the share price used to calculate the award
of Restricted Shares was the closing price
on the business day preceding the date
of the award.

iii. Ordinary shares under option granted

during the year ended 30 April 2016 and
outstanding at 30 April 2016 were as
shown in table 1 (opposite).

The mid-market price of Cohort plc 10 pence
ordinary shares at 30 April 2016 was 382.5 pence
(2015: 265.0 pence); the lowest and highest
market prices in the year were 260.0 pence
and 427.5 pence respectively.

No bonuses are payable or share options
awardable to the Non-executive Directors.
Cash bonus schemes for other senior
management of the subsidiary companies
have been established for the year ended
30 April 2016, with a similar framework to
that of the Cohort Executive Directors, with
varying levels of percentage of salary, none
exceeding 45% subject to the discretion of
the Committee.

The Group has the right to recover from
the Cohort Executive Directors and senior
management of the subsidiary companies
any cash bonus paid or shares received in
respect of a reporting period where a material
adverse restatement is made.

Annual Report and Accounts 2016 Cohort plc

Directors’ remuneration
Details of Directors’ remuneration are set out in table 2 below.

Salaries for Andrew Thomis and Simon Walther have been increased to £230,000 and £180,000 per annum respectively for the year ended
30 April 2016. The fees payable to the Chairman and Non-executive Directors (see table 2) for the year ended 30 April 2016, are unchanged
from last year. Jeff Perrin’s annual fees are £45,000, commencing from 1 July 2015.

Table 1: Directors’ share options

At 1 May 2015
or date of
appointment
Number

Granted
Number

Exercised
Number

Lapsed/
forfeited
Number

At 30 April
2016
Number

Date from
which option
can be
exercised

Exercise
period
Years

Date of
grant

A Thomis
Cohort plc 2006 share option scheme (approved)
– Option price of £1.975 per share
Cohort plc 2006 share option scheme (unapproved)
– Option price of £0.835 per share
– Option price of £0.915 per share
– Option price of £1.165 per share
– Option price of £1.675 per share
– Option price of £1.975 per share
– Option price of £3.725 per share
Save as you earn (SAYE) scheme
– Option price of £1.545 per share
– Option price of £2.075 per share
– Option price of £3.38 per share

15,189

66,995
76,546
75,000
24,250
4,153
—

2,330
2,602
—

267,065

S Walther
Cohort plc 2006 share option scheme (approved)
– Option price of £1.975 per share
Cohort plc 2006 share option scheme (unapproved)
– Option price of £0.835 per share
– Option price of £0.915 per share
– Option price of £1.165 per share
– Option price of £1.675 per share
– Option price of £1.975 per share
– Option price of £3.725 per share
Save as you earn (SAYE) scheme
– Option price of £1.545 per share
– Option price of £2.075 per share
– Option price of £3.38 per share

15,189

55,172
30,252
65,000
21,750
406
—

5,825
867
—

194,461

—

—
—
—
—
—
10,470

—
—
2,300

12,770

—

—
—
—
—
—
8,483

—
—
468

8,951

66,995
76,546
75,000
—
—
—

—
—
—

218,541

—

—
—
—
—
—
—

—
—
—

—

—
—
—
—
—
—

—
—
—

—

—
—
—
—
—
—

—
—
—

—

15,189

11 Aug 2014 12 Aug 2017

— 23 Jul 2010 24 Jul 2013
27 Jul 2014
—
26 Jul 2011
2 Aug 2012
3 Aug 2015
—
9 Aug 2013 10 Aug 2016
24,250
11 Aug 2014 12 Aug 2017
4,153
10,470 20 Aug 2015 21 Aug 2018

13 Aug 2013
11 Aug 2014
14 Aug 2015

1 Sep 2016
1 Sep 2017
1 Sep 2018

2,330
2,602
2,300

61,294

15,189

11 Aug 2014 12 Aug 2017

55,172
30,252
65,000
21,750
406

23 Jul 2010 24 Jul 2013
27 Jul 2014
26 Jul 2011
2 Aug 2012
3 Aug 2015
9 Aug 2013 10 Aug 2016
11 Aug 2014 12 Aug 2017
8,483 20 Aug 2015 21 Aug 2018

5,825
867
468

13 Aug 2013
11 Aug 2014
14 Aug 2015

1 Sep 2016
1 Sep 2017
1 Sep 2018

203,412

7
7
7
7
7
7

Andrew Thomis exercised 218,541 share options held under the Cohort plc 2006 share option scheme (unapproved) on 11 April 2016 when the
market price of Cohort plc ordinary shares was 375.0 pence per share.

There are no performance conditions applying to any of the share option schemes above. The price paid for all share options in the above
schemes was nil pence.

Table 2: Directors’ remuneration

Executive Directors
A Thomis
S Walther

Non-executive Directors
N Prest
S Carter
J Perrin
Sir Robert Walmsley

Total

Salary
2016
£

Restricted
Share awards
2016
£

Bonus
2016
£

Benefits
in kind
2016
£

Emoluments
2016
£

Pension
contributions
2016
£

Total
2016
£

Total
2015
£

212,000
168,000

66,745
52,892

80,000
63,396

648
648

359,393
284,936

8,495
6,560

367,888
291,496

345,261
279,652

90,000
45,000
37,500
45,000

—
—
—
—

90,000
45,000
37,500
45,000

—
—
—
—

90,000
45,000
37,500
45,000

90,000
45,000
—
45,000

597,500

119,637

143,396

1,296

861,829

15,055

876,884

804,913

The Restricted Share awards include tax and employee NIC.

Cohort plc Annual Report and Accounts 2016

Corporate governance

Statement of Directors’ responsibilities
in respect of the Annual Report and financial statements

The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the parent company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the parent company and which enable them
to ensure that its financial statements comply
with the Companies Act 2006. They have
general responsibility for taking such steps
as are reasonably open to them to safeguard
the assets of the Group and to prevent and
detect fraud and other irregularities.

The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.

By order of the Board on 28 June 2016.

Andrew Thomis
Chief Executive

Simon Walther
Finance Director

The Directors are responsible for preparing
the Annual Report, the Strategic report,
the Directors’ report and the financial
statements in accordance with applicable
law and regulations.

Company law requires the Directors to prepare
Group and parent company financial statements
for each financial year. As required by the
AIM rules of the London Stock Exchange they
are required to prepare the Group financial
statements in accordance with IFRSs as
adopted by the EU and applicable law and
have elected to prepare the parent company
financial statements on the same basis.

Under company law the Directors must not
approve the financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and parent
company and of their profit or loss for that
period. In preparing each of the Group and
parent company financial statements, the
Directors are required to:

• select suitable accounting policies and

then apply them consistently;

• make judgements and estimates that are

reasonable and prudent;

• state whether they have been prepared
in accordance with IFRSs as adopted
by the EU; and

• prepare the financial statements on the

going concern basis unless it is inappropriate
to presume that the Group and the parent
company will continue in business.

Annual Report and Accounts 2016 Cohort plc

Financial statements

38 Independent auditor’s report

39 Consolidated income statement

40 Consolidated statement of changes in equity

41 Company statement of changes in equity

42 Consolidated and Company statement of

financial position

43 Consolidated and Company cash flow statements

44 Notes to the financial statements

65 Accounting policies

72 Shareholder information, financial calendar and advisers

IBC Five-year record

Independent auditor’s report
to the members of Cohort plc

We have audited the financial statements of Cohort plc for the year ended 30 April 2016 set out on pages 39 to 71. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’ responsibilities set out on page 36, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on,
the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements
In our opinion:

• the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 April 2016

and of the Group’s profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied

in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic report and the Directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from

branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Andrew Campbell-Orde (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Arlington Business Park
Theale
Reading
RG7 4SD
28 June 2016

Annual Report and Accounts 2016 Cohort plc

Consolidated income statement
for the year ended 30 April 2016

Revenue
Cost of sales

Gross profit
Administrative expenses

Operating profit

Comprising:
Adjusted operating profit
Amortisation of other intangible assets (included in administrative expenses)
Credit/(charge) on marking forward exchange contracts to market value at the year end (included in cost of sales)
Foreign exchange gain on marking cash held for purchase of EID to market value at the year end
(included in administrative expenses)
Exceptional items
Cost of acquisition of EID (included in administrative expenses)
Cost of acquisition of MCL (included in administrative expenses)
Cost of acquisition of J+S (included in administrative expenses)
Profit on disposal of SEA’s Space business (included in administrative expenses)

Finance income
Finance costs

Profit before tax
Income tax credit/(charge)

Profit for the year

Attributable to:
Equity shareholders of the parent
Non-controlling interests

Earnings per share

Basic

Diluted

Notes

1
9
18

31
29
30

4
5

2016
£’000

112,577
(79,061)

33,516
(28,270)

2015
£’000

99,938
(69,988)

29,950
(24,085)

5,246

5,865

11,902
(6,379)
7

10,085
(3,602)
(38)

537

(821)
—
—
—

—

—
(197)
(427)
44

5,246

5,865

68
(4)

5,310
54

5,364

7,775
(2,411)

5,364

Pence

19.14

18.78

87
(5)

5,947
(707)

5,240

5,628
(388)

5,240

Pence

14.04

13.74

All profit for the year is derived from continuing operations.

The comprehensive income for each year attributable to equity shareholders of the parent and the non-controlling interests is the same as the
profit for the year attributable to the equity shareholders of the parent and the non-controlling interests.

The accompanying notes form part of the financial statements.

Cohort plc Annual Report and Accounts 2016

Financial statements

Share
capital
£’000

4,096
—

Share
premium
account
£’000

29,656
—

Own
shares
£’000

(2,274)
—

Share
option
reserve
£’000

526
—

Retained
earnings
£’000

30,194
5,628

Total
£’000

62,198
5,628

Non-
controlling
interests
£’000

—
(388)

Total
equity
£’000

62,198
5,240

Consolidated statement of changes in equity
for the year ended 30 April 2016

Attributable to the equity shareholders of the parent

Group

At 1 May 2014
Profit for the year
Transactions with owners of Group
and non-controlling interests,
recognised directly in equity
Equity dividends
New shares issued
Vesting of Restricted Shares
Own shares sold
Net loss on selling own shares
Share-based payments
Transfer of share option
reserve on vesting of options
Option for acquiring
non-controlling interest in MCL
Introduction of non-controlling
interest on acquisition of MCL

At 30 April 2015
Profit for the year
Transactions with owners of Group
and non-controlling interests,
recognised directly in equity
Equity dividends
Vesting of Restricted Shares
Own shares purchased
Own shares sold
Net loss on selling own shares
Share-based payments
Deferred tax adjustment in
respect of share based payments
Transfer of share option reserve
on vesting of options
Change in option for acquiring
non-controlling interest in MCL

—
—
—
—
—
—

—

—
1
—
—
—
—

—

—
—
—
822
617
—

—

4,096
—

29,657
—

(835)
—

—
—
—
—
—
—

—

—
—
—
—
—
—

—

—
—
(4,162)
914
1,348
—

—

Other
reserves
£’000

—
—

—
—
—
—
—
—

—

(12,500)

—

(1,765)
—
44
—
(617)
—

321

—

(12,500)
—

33,805
7,775

—
—
—
—
—
—

—

(2,158)
76
—
—
(1,348)
—

—

244

—
—
—
—
—
198

(321)

—

403
—

—
—
—
—
—
197

711

(244)

(1,765)
1
44
822
—
198

—

(12,500)

—

54,626
7,775

(2,158)
76
(4,162)
914
—
197

711

—

—
—
—
—
—
—

—

8,609

8,221
(2,411)

—
—
—
—
—
—

—

(1,765)
1
44
822
—
198

—

(12,500)

8,609

62,847
5,364

(2,158)
76
(4,162)
914
—
197

711

—

7,000

—

7,000

—

7,000

At 30 April 2016

4,096

29,657

(2,735)

1,067

(5,500)

38,394

64,979

5,810

70,789

The accompanying notes form part of the financial statements.

Annual Report and Accounts 2016 Cohort plc

Company statement of changes in equity
for the year ended 30 April 2016

Company

At 1 May 2014
Profit for the year
Transactions with owners of Company,
recognised directly in equity
Equity dividends
New shares issued
Vesting of Restricted Shares
Own shares sold
Net loss on selling own shares
Share-based payments
Transfer of share option reserve on vesting of options
Option for acquiring non-controlling interest in subsidiary, MCL

Total contributions by and distributions
to owners of the Company

At 30 April 2015
Profit for the year
Transactions with owners of Company,
recognised directly in equity
Equity dividends
Vesting of Restricted Shares
Own shares purchased
Own shares sold
Net loss on selling own shares
Share-based payments
Deferred tax adjustment in respect of share based payments
Transfer of share option reserve on vesting of options
Change in option for acquiring non-controlling interest
in subsidiary, MCL

Total contributions by and distributions
to owners of the Company

Share
capital
£’000

4,096
—

Share
premium
account
£’000

29,656
—

—
—
—
—
—
—
—
—

—

—
1
—
—
—
—
—
—

4,096
—

29,657
—

—
—
—
—
—
—
—
—

—

—
—
—
—
—
—
—
—

—

At 30 April 2016

4,096

29,657

The reserves of the Group and the Company are described in note 22.

The accompanying notes form part of the financial statements.

Own
shares
£’000

(2,274)
—

—
—
—
822
617
—
—
—

1,439

(835)
—

—
—
(4,162)
914
1,348
—
—
—

Share
option
reserve
£’000

526
—

—
—
—
—
—
198
(321)
—

(123)

403
—

—
—
—
—
—
197
711
(244)

Other
reserves
£’000

—
—

Retained
earnings
£’000

7,831
2,953

Total
£’000

39,835
2,953

(1,765)
1
44
822
—
198
(283)
(12,500)

(1,765)
—
44
—
(617)
—
38
—

—
—
—
—
—
—
—
(12,500)

(12,500)

(12,500)
—

(2,300)

(13,483)

8,484
6,788

29,305
6,788

—
—
—
—
—
—
—
—

(2,158)
76
—
—
(1,348)
—
—
50

(2,158)
76
(4,162)
914
—
197
711
(194)

—

7,000

—

7,000

(1,900)

(2,735)

664

1,067

7,000

(5,500)

3,408

11,892

9,172

38,477

Cohort plc Annual Report and Accounts 2016

Financial statements

Consolidated and Company statement of financial position
as at 30 April 2016

Group

Company

Notes

2016
£’000

2015
£’000

2016
£’000

2015
£’000

Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax asset

Current assets
Inventories
Trade and other receivables
Cash and cash equivalents

Total assets

Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Derivative financial instruments
Bank borrowings
Provisions
Other creditors

Non-current liabilities
Deferred tax liability
Bank borrowings
Other creditors

Total liabilities

Net assets

Equity
Share capital
Share premium account
Own shares
Share option reserve
Other reserves: option for acquiring non-controlling interest in MCL
Retained earnings

Total equity attributable to the equity shareholders of the parent
Non-controlling interests

Total equity

The accompanying notes form part of the financial statements.

9
9
10
11
17

12
13

18
15
16
29

17
15
29

21
20
29

36,961
12,492
10,227
—
818

36,961
18,871
10,338
—
104

—
—
15
61,643
147

60,498

66,274

61,805

2,036
28,000
23,109

1,078
19,415
19,701

53,145

40,194

—
789
—

789

—
—
7
51,376
32

51,415

—
219
—

219

113,643

106,468

62,594

51,634

(2,796)
—
—
(7,033)
—
—

(9,829)

—
—
(12,500)

(12,500)

(30,223)
(570)
(31)
(3,297)
(499)
(5,500)

(25,380)
(786)
(38)
(4)
(558)
—

(2,061)
—
—
(16,556)
—
(5,500)

(40,120)

(26,766)

(24,117)

(2,727)
(7)
—

(2,734)

(42,854)

(4,345)
(10)
(12,500)

(16,855)

(43,621)

—
—
—

—

(24,117)

(22,329)

70,789

62,847

38,477

29,305

4,096
29,657
(2,735)
1,067
(5,500)
38,394

64,979
5,810

70,789

4,096
29,657
(835)
403
(12,500)
33,805

54,626
8,221

62,847

4,096
29,657
(2,735)
1,067
(5,500)
11,892

38,477
—

38,477

4,096
29,657
(835)
403
(12,500)
8,484

29,305
—

29,305

The financial statements on pages 39 to 71 were approved by the Board of Directors and authorised for issue on 28 June 2016 and are signed
on its behalf by:

Andrew Thomis Simon Walther
Chief Executive

Finance Director

Company number
05684823

Annual Report and Accounts 2016 Cohort plc

Consolidated and Company cash flow statements
for the year ended 30 April 2016

Net cash from operating activities

Cash flow from investing activities
Interest received
Purchases of property, plant and equipment
Deposit paid on acquisition of EID
Investment in Thunderwaves S.A. (holding company in Portugal for EID)
Acquisition of MCL, net of cash acquired
Capital contribution to SCS
Acquisition of J+S, net of cash acquired
Disposal of SEA’s Space business

Net cash used in investing activities

Cash flow from financing activities
Dividends paid
Issue of new shares
Purchase of own shares
Sale of own shares
Drawdown of borrowings
Repayment of borrowings

Net cash used in financing activities

Net increase/(decrease) in cash and cash equivalents

Represented by:
Cash and cash equivalents and short-term borrowings brought forward
Cash flow
Exchange

Notes

23a

10
31

29
11
30

7
19
21
21
15
15

Group

Company

2016
£’000

6,718

68
(980)
(744)
—
—
—
—
—

2015
£’000

18,798

87
(1,063)
—
—
(5,698)
—
(11,688)
4,000

(1,656)

(14,362)

(2,158)
—
(4,162)
914
3,302
(3)

(2,107)

2,955

19,701
2,955
453

(1,765)
1
—
822
—
(131)

(1,073)

3,363

16,338
3,363
—

2016
£’000

5,535

62
(15)
—
(8,699)
—
(1,000)
—
—

(9,652)

(2,158)
—
(4,162)
914
3,302
—

(2,104)

(6,221)

(7,033)
(6,221)
(9)

Cash and cash equivalents and short-term borrowings carried forward

23b

23,109

19,701

(13,263)

The accompanying notes form part of the financial statements.

2015
£’000

1,983

82
(2)
—
—
(5,698)
—
—
—

(5,618)

(1,765)
1
—
822
—
—

(942)

(4,577)

(2,456)
(4,577)
—

(7,033)

Cohort plc Annual Report and Accounts 2016

Financial statements

Notes to the financial statements
for the year ended 30 April 2016

1. Segmental analysis
For management and reporting purposes, the Group, during the year ended 30 April 2016, operated through its four trading subsidiaries: MASS,
MCL, SCS and SEA. These subsidiaries are the basis on which the Company reports its primary business segment information in accordance
with IFRS 8.

The principal activities of the subsidiaries are described in the Overview (pages 4 to 5) and in the Strategic report (pages 4 to 24).

Business segment information about these subsidiaries is presented below:

MASS
£’000

MCL
£’000

SCS
£’000

SEA
£’000

Eliminations
£’000

Group
£’000

2016

Revenue
External revenue
Inter-segment revenue

Segment adjusted operating profit
Unallocated corporate expenses

Adjusted operating profit

Credit/(charge) on marking forward exchange contracts to market value
at the year end
Foreign exchange gain on marking cash held for purchase of EID
to market value at the year end
Costs of acquisition of EID
Amortisation of other intangible assets

Operating profit/(loss)
Finance income (net of cost)

Profit/(loss) before tax
Income tax credit

Profit after tax

31,998
92

32,090

5,956
—

5,956

—

—
—
—

5,956
—

5,956

13,709
—

13,709

1,404
—

1,404

—
—
(5,192)

(3,751)
6

(3,745)

18,097
51

18,148

1,250
—

1,250

—

—
—
—

1,250
—

1,250

48,773
—

48,773

5,442
—

5,442

(30)

—
—
(1,187)

4,225
(4)

4,221

—
(143)

(143)

—
—

—

—
—
—

—
—

—

All are UK operations and all are continuing. Inter-segment sales are charged at arm’s length rates.

Unallocated corporate expenses are the costs of the Cohort plc head office including the remuneration of the Cohort plc Board.

Other information

Capital additions
Depreciation

Balance sheet

Assets
Segment assets
Goodwill and other intangible assets
Deferred tax asset
Cash

Consolidated total assets

Liabilities
Segment liabilities
Current tax liabilities
Deferred tax liability
Bank borrowings

MASS
£’000

—
84

MASS
£’000

MCL
£’000

117
70

MCL
£’000

SCS
£’000

49
179

SCS
£’000

SEA
£’000

799
751

Central
£’000

15
6

SEA
£’000

Eliminations
£’000

10,007
12,500

2,755
10,660

3,563
—

23,357
26,293

581
—

22,507

13,415

3,563

49,650

(6,056)

(2,657)

(3,223)

(17,715)

(6,602)

Consolidated total liabilities

(6,056)

(2,657)

(3,223)

(17,715)

The above figures include 100% of MCL. The non-controlling interest (49.999%) is reported separately in the income statement and reserves.

Annual Report and Accounts 2016 Cohort plc

112,577
—

112,577

14,052
(2,150)

11,902

537
(821)
(6,379)

5,246
64

5,310
54

5,364

Group
£’000

980
1,090

Group
£’000

40,263
49,453
818
23,109

113,643

(36,253)
(570)
(2,727)
(3,304)

(42,854)

99,938
—

99,938

12,102
(2,017)

10,085

(38)
44
(197)
(427)
(3,602)

5,865
82

5,947
(707)

5,240

Group
£’000

1,063
957

Group
£’000

30,831
55,832
104
19,701

106,468

(38,490)
(786)
(4,345)

(43,621)

1. Segmental analysis continued

2015

Revenue
External revenue
Inter-segment revenue

Segment adjusted operating profit
Unallocated corporate expenses

Adjusted operating profit

Charge on marking forward exchange contracts to market value
at the year end
Reduction in loss on disposal of SEA’s Space business
Costs of acquisition of MCL
Costs of acquisition of J+S
Amortisation of other intangible assets

Operating profit/(loss)
Finance income (net of cost)

Profit/(loss) before tax
Income tax charge

Profit after tax

MASS
£’000

MCL
£’000

SCS
£’000

SEA
£’000

Eliminations
£’000

Group
£’000

32,528
25

32,553

5,492
—

5,492

—
—
—
—
—

5,492
—

5,492

10,143
—

10,143

1,327
—

1,327

(38)
—
—
—
(2,224)

(935)
5

(930)

16,892
56

16,948

1,319
—

1,319

—
—
—
—
—

1,319
—

1,319

40,375
—

40,375

3,964
—

3,964

—
44
—
(427)
(1,378)

2,203
(3)

2,200

—
(81)

(81)

—
—

—

—
—
(197)
—
—

(197)
—

(197)

All are UK operations and all are continuing. Inter-segment sales are charged at arm’s length rates.

Unallocated corporate expenses are the costs of the Cohort plc head office including the remuneration of the Cohort plc Board.

Other information

Capital additions
Depreciation

Balance sheet

Assets
Segment assets
Goodwill and other intangible assets
Deferred tax asset
Cash

Consolidated total assets

Liabilities
Segment liabilities
Current tax liabilities
Deferred tax liability

MASS
£’000

—
225

MASS
£’000

MCL
£’000

30
64

MCL
£’000

SCS
£’000

271
120

SCS
£’000

SEA
£’000

760
542

Central
£’000

2
6

SEA
£’000

Eliminations
£’000

10,202
12,500

3,899
15,852

3,172
—

15,261
27,480

(1,703)
—

22,702

19,751

3,172

42,741

(6,757)

(2,835)

(4,983)

(11,541)

(12,374)

Consolidated total liabilities

(6,757)

(2,835)

(4,983)

(11,541)

50.001% of MCL was acquired on 9 July 2014 and 100% of its figures are reported above from that date. The non-controlling interest (49.999%)
is reported separately in the income statement and reserves.

100% of J+S was acquired on 1 October 2014. Its figures are included in SEA’s reported figures from that date and have been restated to reflect
a change in the goodwill on acquisition (see note 30).

For the purposes of monitoring segment performance and allocating resource between segments, the Group’s Chief Executive monitors
the tangible, intangible and financial assets attributable to each segment.

All assets and liabilities are allocated to reportable segments with the exception of central cash and bank borrowings, current tax and deferred
tax assets and liabilities.

Goodwill and other intangible assets are allocated to reportable segments as analysed in note 9.

Cohort plc Annual Report and Accounts 2016

Financial statements

1. Segmental analysis continued
Geographical segments
The Group’s subsidiaries are all located in the UK. The following table provides an analysis of the Group’s revenue by geographical location of
the customer:

UK
Other EC countries
Asia Pacific
North and South America

All Group assets, tangible and intangible, are located in the UK.

Market segments
The following table provides an analysis of the Group’s revenue by market sector:

Defence (including security)
Transport
Offshore energy
Other commercial

2016
£’000

92,978
5,569
11,398
2,632

112,577

2016
£’000

102,995
3,532
3,022
3,028

112,577

2015
£’000

81,863
3,975
12,274
1,826

99,938

2015
£’000

89,569
3,859
1,967
4,543

99,938

Further information on revenue by capability can be found in the Strategic report (page 16).

Major customers
Revenue from major customers included in the Group’s business segments for the year ended 30 April 2016 is as follows:

MASS
MCL
SCS
SEA

2016

2015

UK MOD
£’000

Customer A
£’000

Customer B
£’000

Customer C
£’000

UK MOD
£’000

Customer A
£’000

Customer B
£’000

Customer C
£’000

13,095
11,052
10,711
11,624

6,451
—
—
20,496

46,482

26,947

—
300
2,983
—

3,283

3,217
—
—
—

3,217

11,500
8,420
8,713
9,675

38,308

5,296
—
—
16,902

22,198

2,857
—
—
—

2,857

2,810
—
—
—

2,810

Customers B and C in 2016 are not the same as customers B and C in 2015.

2. Employee benefit expense (including Directors)

Wages and salaries
Social security costs
Defined contribution pension plan costs
Share-based payments

Average number of employees (including Directors)

Other operational (including production)
Managed services

Total operational

Administration and support

2016
£’000

31,131
3,360
2,294
197

36,982

2015
£’000

27,307
2,883
2,022
198

32,410

2016
Number

2015
Number

392
90

482

189

671

383
86

469

178

647

The above disclosures include Directors. Directors’ emoluments and share option details are disclosed separately in the Remuneration
& Appointments Committee report on pages 33 to 35.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

3. Profit for the year
The profit for the year has been arrived at after charging:

Net foreign exchange (gains)/losses
Research and development costs
Depreciation of property, plant and equipment
Amortisation of other intangible assets
Cost of inventories recognised as expenses
Staff costs (excluding share-based payments)
Share-based payments

Notes

10
9

2
20

2016
£’000

(544)
5,330
1,090
6,379
49,056
36,785
197

2015
£’000

38
6,800
957
3,602
36,311
32,212
198

All of the above charges are in respect of continuing operations.

The fees payable to the auditor for audit and non-audit services are disclosed in the Corporate Governance report on pages 29 to 30.

4. Finance income

Interest on bank deposits

All finance income is in respect of continuing operations.

5. Finance costs

Loans and finance leases

All finance costs are in respect of continuing operations.

6. Income tax (credit)/charge

Corporation tax: in respect of this year
Corporation tax: in respect of prior years

Deferred tax: in respect of this year
Deferred tax: in respect of prior years

2016
£’000

2015
£’000

2016
£’000

2015
£’000

2016
£’000

1,935
(368)

1,567

(1,621)
—

(1,621)

(54)

2015
£’000

1,485
(204)

1,281

(518)
(56)

(574)

707

The corporation tax is calculated at 20.0% (2015: 20.83%) of the estimated assessable profit for the year, as disclosed below.

The current tax in respect of the year ended 30 April 2016 includes £nil credit (2015: £28,000 charge) in respect of exceptional items. The deferred
tax includes a credit of £1,505,000 in respect of amortisation of other intangible assets (2015: £721,000), and a charge of £1,000 (2015: £8,000)
in respect of marking forward exchange contracts to market at the year end and a charge of £108,000 (2015: £nil) in marking cash held (in Euros)
for the purchase of EID to market at the year end. The deferred tax is further explained in note 17.

Cohort plc Annual Report and Accounts 2016

Financial statements

6. Income tax (credit)/charge continued
The tax charge for the year is reconciled to the profit per the Consolidated income statement for the year ended 30 April 2016 as follows:

Profit before tax on continuing operations

Tax at the UK corporation tax rate of 20.0% (2015: 20.83%)
Tax effect of expenses that are not deductible in determining taxable profit
Tax effect of R&D tax credits
Tax effect of exceptional items that are not recognised in determining taxable profit
Tax effect of change in tax rate from 20% to 18% in 2016 (2015: no change in tax rate)
Tax effect of recognising unutilised trading losses at SEA
Tax effect of statutory deduction for share options exercised
Tax effect of deferred tax movement on share options to be exercised
Tax effect of prior year R&D tax credits
Tax effect of other prior year adjustments

Tax charge for the year

2016
£’000

5,310

1,062
197
(400)
164
(287)
(41)
(395)
14
—
(368)

(54)

2015
£’000

5,947

1,239
129
(336)
130
—
(78)
(204)
87
(170)
(90)

707

The UK corporation tax for the year ended 30 April 2016 is calculated at 20.0% for 12 months.

The UK corporation tax rate for the year ended 30 April 2015 is calculated at 20.83%, based upon eleven months at 21.0% and one month at 20.0%.

7. Dividends

Amounts recognised as distributions to equity holders in the period:
Final dividend in respect of the year ended 30 April 2015 at 3.40 pence per ordinary share (2014: 2.80 pence per ordinary share)
Interim dividend in respect of the year ended 30 April 2016 at 1.90 pence per ordinary share (2015: 1.60 pence per ordinary share)

Proposed final dividend for the year ended 30 April 2016 at 4.10 pence per ordinary share (2015: 3.40 pence per ordinary share)

2016
£’000

1,387
771

2,158

1,648

2015
£’000

1,121
644

1,765

1,369

The proposed final dividend is subject to approval by shareholders at the AGM to be held on 13 September 2016 and has not been included
as a liability in these financial statements. If approved, this dividend will be paid on 21 September 2016 to shareholders on the register as at
26 August 2016.

The Cohort Employee Benefit Trust, which holds ordinary shares in Cohort plc representing 1.85% (2015: 1.22%) of the Company’s called
up share capital, has agreed to waive all dividends due to it in accordance with an arrangement dated 20 November 2009.

8. Earnings per share
The earnings per share are calculated as follows:

Basic earnings (net profit attributable to equity holders of Cohort plc)
Share options

Diluted earnings

2016

2015

Weighted
average
number
of shares
Number

40,622,496
767,501

41,389,997

Earnings
£’000

7,775
—

7,775

Earnings
per share
Pence

Weighted
average
number
of shares
Number

19.14
—

40,071,658
894,739

18.78

40,966,397

Earnings
£’000

5,628
—

5,628

Earnings
per share
Pence

14.04
—

13.74

The basic earnings per share are calculated by dividing the profit attributable to equity holders of the parent company (Cohort plc) by the weighted
average number of ordinary shares in issue during the year. The diluted earnings per share are calculated by dividing the profit attributable to
equity holders of the parent company by the weighted average number of shares in issue during the year as adjusted for the effects of potentially
dilutive share options.

The weighted average number of shares for each of the years ended 30 April 2016 and 30 April 2015 is after deducting the own shares, which
are held by the Cohort Employee Benefit Trust.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

8. Earnings per share continued
In addition, the adjusted earnings per share of the Group are calculated in a similar manner to the basic earnings per share with the adjustments
to the basic earnings as shown below:

2016

2015

Weighted
average
number
of shares
Number

Notes

Earnings
£’000

Earnings
per share
Pence

Weighted
average
number
of shares
Number

40,622,496

7,775

19.14

40,071,658

Earnings
£’000

5,628

Earnings
per share
Pence

14.04

—

—
—
—
—

—

(6)

—
821
—
—

(429)

2,879

—

—
—
—
—

—

—
—
—
—

—

40,622,496

11,040

27.18

40,071,658

767,501

—

894,739

(72)
—
197
427

—

1,992

8,195

—

—
—
—
—

—

20.45

—

41,389,997

11,040

26.67

40,966,397

8,195

20.00

Basic earnings
(Credit)/charge on marking forward exchange contracts
to market value at the year end (net of income tax charge
of £1,000 (2015: charge of £8,000))
Profit on disposal of SEA’s Space business
(including tax credit of £28,000)
Acquisition costs of EID
Acquisition costs of MCL
Acquisition costs of J+S
Foreign exchange gain on marking cash held (in Euros)
for the acquisition of EID to market value at the year end
(net of tax charge of £108,000)
Amortisation of other intangible assets
(net of income tax credit of £1,505,000 (2015: £721,000))

Adjusted earnings

Share options

Diluted adjusted earnings

The adjusted earnings are in respect of continuing operations.

The adjustment to earnings for calculating the adjusted earnings per share excludes the non-controlling interest in respect of the charge in
marking forward exchange contracts to market (2016: £nil; 2015: £23,000 of £46,000) and the amortisation of other intangible assets in respect
of MCL was £2,696,000 of £5,192,000 (2015: £1,112,000 of £2,224,000), all adjustments net of the appropriate tax adjustment in each case.

9. Goodwill and other intangible assets

Cost
At 1 May 2014

At 1 May 2015 as previously reported
Adjustment on acquisition of J+S

At 1 May 2015 as reported now

At 30 April 2016

Amortisation
At 1 May 2014
Charge for the year ended 30 April 2015

At 1 May 2015
Charge for the year ended 30 April 2016

At 30 April 2016

Net book value
At 30 April 2016

At 30 April 2015

Goodwill

Other intangible assets

SEA
£’000

MASS
£’000

MCL
£’000

Group
£’000

SEA
£’000

MASS
£’000

MCL
£’000

Group
£’000

18,895

23,943
120

24,063

2,000
—

2,000

12,500

12,500
—

12,500

—
—

—

2,398
—

2,398

—
—

—

31,395

38,841
120

38,961

2,000
—

2,000

1,160

7,955
—

7,955

1,160
1,378

2,538
1,187

3,725

4,340

4,340
—

4,340

4,340
—

4,340

—

15,678
—

15,678

—
2,224

2,224
5,192

7,416

5,500

27,973
—

27,973

5,500
3,602

9,102
6,379

15,481

22,063

12,500

2,398

36,961

4,230

5,417

—

8,262

13,454

12,492

18,871

Goodwill arises on the acquisition of subsidiaries. These subsidiaries are the cash-generating units to which goodwill has been allocated.

The amortisation charge is disclosed as “Amortisation of other intangible assets” in the income statement.

50.001% of MCL was acquired on 9 July 2014. MCL has been accounted for as a 100% subsidiary with the non-controlling interest disclosed
separately.

100% of J+S was acquired on 1 October 2014. The goodwill has been adjusted in the period to take account of changes expected in a
contractual outcome (and a reduction in work in progress). This adjustment has been made as if it occurred on acquisition and the balances for
year ended 30 April 2015 have been restated accordingly (see note 30).

Cohort plc Annual Report and Accounts 2016

Financial statements

9. Goodwill and other intangible assets continued
The Group tests goodwill biannually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the subsidiaries (cash-generating units) are determined from value in use calculations.

The value in use calculations take the cash flows of each cash-generating unit and apply the Group’s weighted average cost of capital (WACC)
to this to determine if there is any impairment of the cash-generating units’ goodwill.

In assessing any impairment of goodwill, each value in use calculation makes a number of estimates, which use the same basis as used
in previous years, as follows:

Cash flow

Growth rate

Basis of estimate

As in previous years, the cash flows for the years ended 30 April 2017, 2018 and 2019 are based upon the cash-generating
units’ budgets and forecasts for those years. These cash flows are based upon the revenue, margin and overhead cost
forecasts for each business taking account of the run-off of order book, renewal of existing business and winning of
new business. Historically, these cash flow forecasts have been a reasonable forecast of actual performance over the
period of measurement. Costs reflect inflation rates, currently assumed at 2% (2015: 2%). With regard to the revenue,
margin and overhead cost forecasts the key assumptions underlying these inputs are that current projects contracted
will continue as per agreement, that government defence spending will remain largely consistent in the future and that
each cash-generating unit will continue to be as successful in competing for new contracts as it has been historically.
Currently a reasonable proportion of revenue for 2017, 2018 and 2019 is already under contract and, as such, the main
assumptions related to revenue volumes are in periods after 2019 where there is greater uncertainty and risk.

The cash flows for each cash-generating unit from years 4 to 20 inclusive are based upon the forecast cash flow for the
year ended 30 April 2019 to which a growth rate of 1.5% is applied each year (2015: 1.5%). This rate reflects a prudent view
of recent UK growth rates and is below the historically higher UK inflation rate of 2.25%. The growth rate is similar for all
of the cash-generating units as a significant proportion of their business is with the same customer, the UK MOD. As a
significant proportion of the business is with the UK Government, a more prudent growth rate has been used to reflect
lower expected growth rates of UK Government expenditure.

WACC comprises a number of elements as follows:

Value of equity

Calculated as the issued share capital of the Group (Cohort plc) multiplied by the closing share price at 30 April 2016
of £3.825 (2015: £2.65).

Risk free interest rate

Is based upon ten year UK Government gilt rate of 1.60% (2015: 1.88%).

Beta factor

Derived from analyst estimates provided by the Group’s NOMAD (Investec) and reflects a range of outcomes from
0.40 to 0.50 (2015: 0.62 to 0.63).

Equity risk premium Is the equity risk premium of the Group of 9.20% (2015: 8.33%) to which is added a further range of risk premium
of 4% to 8% to reflect customer market risk and the low liquidity and risk of AIM stocks.

Cost of debt

The Group has no net debt. The Group loan at 30 April 2016 has an interest cost of 1.475% per annum (2015: zero).

The Group’s pre-tax WACC applied to each cash-generating unit’s cash flows was 14.1% (2015: 18.0%). The Group WACC has been deemed
appropriate to use for each cash-generating unit as all funding is cross guaranteed and therefore the same cost of funding is incurred by each
cash-generating unit.

On the basis of these tests, no impairment of goodwill has arisen in the year ended 30 April 2016 in respect of any of MASS, MCL or SEA.
The goodwill of MCL is more sensitive with no impairment at the Group’s WACC of 14.1% but is impaired by £2.4m if the Group’s pre-tax
WACC increases to 34.3%. The Group’s pre-tax WACC increases to 34.3% when the premium applied to the equity risk to reflect the Group’s
AIM listing is increased from 8% to 28%. The likelihood of this increase in the WACC is considered low.

The other intangible assets arose on the acquisition of the subsidiaries. Both the MCL and J+S intangible assets are in respect of contracts
acquired and to be secured. The J+S other intangible asset is disclosed as part of SEA.

The MASS other intangible asset, which is now fully amortised, was in respect of contracts acquired and to be secured in respect of MASS’s
acquisition of Abacus EW.

The SEA other intangible asset, which is now fully amortised, was in respect of contracts acquired on the acquisition of SEA.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 201610. Property, plant and equipment

Group

Cost
At 1 May 2014
On acquisition
Additions
Disposals

At 1 May 2015
Additions
Disposals

At 30 April 2016

Depreciation
At 1 May 2014
Charge in the year
Eliminated on disposal

At 1 May 2015
Charge in the year
Eliminated on disposal

At 30 April 2016

Net book value
At 30 April 2016

At 30 April 2015

Land and
buildings
£’000

Fixtures and
equipment
£’000

Total
£’000

13,207
1,748
1,063
(111)

15,907
980
(80)

4,567
787
938
(77)

6,215
824
(80)

6,959

16,807

3,734
742
(59)

4,417
815
(79)

5,153

4,705
957
(93)

5,569
1,090
(79)

6,580

1,806

1,798

10,227

10,338

8,640
961
125
(34)

9,692
156
—

9,848

971
215
(34)

1,152
275
—

1,427

8,421

8,540

The Company’s property, plant and equipment was £15,000 at 30 April 2016 (2015: £7,000).

The net book value of fixed assets held under finance leases at 30 April 2016 was £11,211 (2015: £13,000).

The depreciation charge is disclosed within “administrative expenses” in the Consolidated income statement.

The valuation (in accordance with International Valuation Standards) of the Group’s land and buildings at 30 April 2016 supports the above net
book value.

The Group’s land and buildings as disclosed above are the cost of purchase plus refurbishment and the valuation on acquisition. As such the
Group has no revaluation reserve at this time.

11. Investment in subsidiaries and joint ventures

Subsidiary undertakings
Joint ventures

Group

Company

2016
£’000

2015
£’000

—
—

—

—
—

—

2016
£’000

61,643
—

61,643

2015
£’000

51,376
—

51,376

Cohort plc Annual Report and Accounts 2016

Financial statements

11. Investment in subsidiaries and joint ventures continued
A list of all the investments in joint ventures and subsidiaries is as follows:

Name of company

Country of
registration

Type of
shares

Proportion of
shareholding
and voting
rights held

Nature of business

Directly owned
Systems Consultants Services Limited (SCS)
MASS Limited
SEA (Group) Ltd. (SEA)

England
England
England

Marlborough Communications (Holdings) Limited
Digital Millennium Map LLP (DMM)
Thunderwaves S.A.

England
England
Portugal

Ordinary
Ordinary
Ordinary

Technical consultancy
100%
100%
Holding company of MASS Consultants Limited
100% Holding company of Systems Engineering & Assessment Ltd
and Beckington Castle Ltd
50.001% Holding company of Marlborough Communications Limited
2D digital mapping – in administration
The proposed holding company of EID

25%
100%

Held through a subsidiary
MASS Consultants Limited (MASS)

England

Ordinary

Systems Engineering & Assessment Ltd

England

Ordinary

J+S Limited

England

Ordinary

Marlborough Communications Limited (MCL)

England

Ordinary

Beckington Castle Ltd

England

Ordinary

Abacus E W Consultancy Ltd

England

Ordinary

100%

Electronic warfare, managed services, secure
communications and IT support services
100% Deliverer of systems engineering, software and electronic
engineering services and solutions to the defence and
transport markets and is also the holding company of
J+S Limited
Subsidiary of System Engineering & Assessment Ltd
and provides products and services to the defence and
offshore energy markets
Designs, sources and supports advanced
electronic and surveillance technology
Property company holding freehold of
Beckington Castle and SEA’s Bristol office
Dormant

100%

50.001%

During the year, the Group incorporated Thunderwaves S.A., a Portuguese registered company and 100% subsidiary of Cohort plc. This was set
up to act as the acquiring and subsequent holding company of EID. On incorporation, it was capitalised by Cohort plc introducing £8.7m of cash.

DMM, which is retained as an investment of the Group, is not accounted for under the equity method of accounting as the Group ceased to
have an active participation from 1 November 2006. The Group has received and continues to receive a return on its original investment in
DMM. This income of £2,560 (2015: £31,875) is disclosed in “administrative expenses” within the Consolidated income statement.

All shares held in subsidiaries and joint ventures are the same class and carry equal weighting to any shares held by other shareholders.

Company
The Company’s investments in subsidiaries are as follows:

At 1 May 2014
Acquired
Share-based payments
Vested in year

At 1 May 2015
Acquired
Capital contribution
Share-based payments
Vested in year
Deferred tax on share-based payments charged directly to equity

At 30 April 2016

12. Inventories

Finished goods

MASS
£’000

14,523
—
75
(105)

14,493
—
—
77
(96)
331

14,805

MCL
£’000

—
8,847
5
—

8,852
—
—
9
—
—

8,861

SCS
£’000

1,684
—
28
(74)

1,638
—
1,000
20
(38)
63

SEA
£’000

Thunderwaves
£’000

26,441
—
56
(104)

26,393
—
—
64
(60)
198

—
—
—
—

—
8,699
—
—
—
—

Total
£’000

42,648
8,847
164
(283)

51,376
8,699
1,000
170
(194)
592

2,683

26,595

8,699

61,643

2016
£’000

2,036

2015
£’000

1,078

The inventory at 30 April 2016 is after a stock provision of £782,000 (2015: £500,000).

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 201613. Trade and other receivables

Trade receivables
Allowance for doubtful debts

Amounts recoverable on contracts
Prepayments and accrued income
Deposit paid in respect of acquisition of EID (see note 31)
Amounts due from subsidiary undertakings

Group

Company

2016
£’000

18,269
—

18,269
3,929
5,058
744
—

28,000

2015
£’000

10,659
(6)

10,653
2,927
5,948
—
—

19,528

2016
£’000

2015
£’000

—
—

—
—
88
—
701

789

—
—

—
—
219
—
—

219

The average credit period taken on sales of goods is 31 days (2015: 24 days). Of the trade receivables balance, £3.4m was considered overdue at
30 April 2016 (2015: £2.8m). The increase in the debtor days is due to the strong trading of the Group in the final quarter of the current financial
year. Overdue is defined as trade receivables still outstanding beyond invoice terms (typically 30 days). The allowance for doubtful debt is determined
by management’s best estimate, by reference to the particular receivables over which doubt may exist. None of the other receivables were past due.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values. The largest trade receivable to
which the Group is exposed at 30 April 2016 is the UK MOD, with a balance outstanding of £6.3m (2015: £1.9m). Other customers who represent
more than 5% of the total balance of trade receivables include:

Customer A
Customer B

2016
£m

5.7
1.3

2015
£m

1.6
0.7

Trade receivables include less than £0.5m (2015: £0.1m) denominated in foreign currency.

The majority of the Group’s customers are UK or overseas government organisations and larger prime contractors in the defence and transport sectors.

The Group assesses all new customers for creditworthiness before extending credit. In the case of overseas customers, the Group utilises
various payment protection mechanisms including but not limited to export credit guarantees, letters of credit and advance payments.

Trade receivables disclosed above include amounts which are past due at the reporting date but against which the Group has not recognised
an allowance for doubtful debts because the credit quality of the customer is not considered to have changed and the amount due is considered
fully recoverable.

Ageing of past due but not impaired receivables

30–60 days
60–90 days
>90 days

Movement in the allowance for doubtful debts

Balance at 1 May
Impairment losses recognised
Amounts written off as uncollectable in year

Balance at 30 April

14. Trade and other payables

Advance receipts
Trade payables and accruals
Other payables
Social security and other taxes
Accruals and deferred income
Amounts due to subsidiary undertakings

2016
£’000

1,801
1,163
429

3,393

2016
£’000

6
—
(6)

—

Group

Company

2016
£’000

—
8,096
—
4,378
17,749
—

2015
£’000

—
11,228
—
2,740
11,412
—

30,223

25,380

2016
£’000

—
437
—
566
1,058
—

2,061

2015
£’000

1,623
333
843

2,799

2015
£’000

3
3
—

2015
£’000

—
60
—
97
761
1,878

2,796

Cohort plc Annual Report and Accounts 2016

Financial statements

14. Trade and other payables continued
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing contract costs. Advance receipts reflect
invoicing ahead of work done in accordance with contracted terms. The average credit period taken for trade purchases is 43 days (2015: 68 days).
The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms (see Risk
Management, pages 22 to 24). The lower average credit period in 2015/16 reflects the high level of purchases in the final quarter of 2014/15
which were paid during the year ended 30 April 2016.

Trade payables and accruals, other payables and taxes are all due for settlement within 12 months of the year end, the majority within three months.

Social security and other taxes include employment taxes and VAT.

The Directors consider that the carrying amount of trade payables approximates to their fair values.

Total payable includes £0.2m (2015: £1.9m) denominated in foreign currency.

15. Bank borrowings

Bank overdrafts
Bank loans
Finance leases

These borrowings are repayable as follows:

On demand or within one year
In the second year
In the third to fifth years inclusive

Less: amounts due for settlement within 12 months (shown under current liabilities)

Amount due for settlement after 12 months

The weighted average interest rates paid were as follows:

Bank overdrafts
Bank loans
Finance leases

Group

Company

2016
£’000

—
3,293
11

3,304

2015
£’000

—
—
14

2016
£’000

13,263
3,293
—

16,556

Group

Company

2016
£’000

3,297
4
3

3,304
(3,297)

2015
£’000

4
4
6

14
(4)

2016
£’000

16,556
—
—

16,556
(16,556)

—

2016
%

2.25
1.475
4.6

2015
£’000

7,033
—
—

7,033

2015
£’000

7,033
—
—

7,033
(7,033)

—

2015
%

2.25
—
4.60

On 17 November 2015 the Group entered into a new banking facility. The £25.0m facility is provided equally by Barclays, Lloyds and RBS banks.
The facility is provided for three years with options to extend for a further two years and is secured over all of the Group’s assets excluding MCL, which
is not part of the facility arrangement and retains its own facilities with Barclays. The facility is available to the Group (excluding MCL) in respect
of acquisition financing, overdraft and other ancillary facilities including bonding, letters of credit and foreign exchange forward contracts.

At 30 April 2016 the facility has been drawn on as follows:

Revolving credit facility loan
Overdraft
Foreign exchange
Bonding

Of which
drawn is
£m

3.3
—
0.1
0.8

4.2

At 30 April 2016, the Group had available £20.8m of undrawn bank facility. The Directors consider the carrying amount of bank borrowings
approximate to their fair value.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

15. Bank borrowings continued
The Group’s cash at 30 April 2016 of £23.1m is held with the following banks:

Royal Bank of Scotland Plc
Barclays Bank plc
Clydesdale Bank
Novo Bank

Moody’s
credit rating
of bank
as at
10 June 2016

A3
A2
Baa2
Caa1

2016
£’000

14,845
205
104
7,955

23,109

2015
£’000

16,850
2,606
245
—

19,701

The cash held with Novo Bank (€10.1m) is for the acquisition of EID. Most of this cash was utilised on completion of the acquisition of EID
on 27 June 2016.

16. Provisions

Group

At 1 May 2014
On acquisition
(Credited)/charged to the income statement
Utilised

At 1 May 2015
(Credited)/charged to the income statement
Utilised

At 30 April 2016

Provisions due in less than one year
Provisions due in greater than one year

At 30 April 2016

Provisions due in less than one year
Provisions due in greater than one year

At 30 April 2015

Other
contract
related
provisions
£’000

Warranty
£’000

282
—
(59)
(35)

188
(33)
(12)

143

143
—

143

188
—

188

509
123
98
(360)

370
28
(42)

356

356
—

356

370
—

370

MCL
earn out
£’000

—
983
—
(983)

—
—
—

—

—
—

—

—
—

—

Total
£’000

791
1,106
39
(1,378)

558
(5)
(54)

499

499
—

499

558
—

558

The MCL earn out provision of £983,000 was paid to the vendors of MCL on 30 March 2015.

The warranty provisions are management’s best estimates of the Group’s liability under warranties granted on software and other products
supplied and are based upon past experience. The timing of such expenditure is uncertain, although warranties generally have a time limit of
no more than 12 months, unless a longer warranty period is purchased by the customer. Warranty provisions are reviewed at the half year and
year-end in respect of actual spend and the remaining obligations to be fulfilled.

Other contract related provisions are management’s best estimate of the Group’s exposure to contract related costs and undertakings which
are in addition to contract accruals and include contract loss provisions. The timing of these is uncertain but expected to be resolved within
12 months of the balance sheet date. These arise where a service or product has been previously delivered to the customer and the Group
receives a claim or an adverse indication in respect of the work done. Where the amount required is uncertain or the Group disputes the
amount of the claim, provision is made for the best estimate of the amount that will be required to settle the issue.

Other contract related provisions also include contract loss provisions in respect of contracts where the estimated cost at completion exceeds
the total expected revenue of the contract. A contract loss provision is recognised as a provision in full immediately as it arises. The contract
loss provisions are held in respect of contracts which are expected to complete in the next 12 months.

Other contract related provisions also include property dilapidation provisions and other trade related issues which may not be related to a
trading contract. These balances are immaterial.

Cohort plc Annual Report and Accounts 2016

Financial statements
17. Deferred tax

At 1 May 2014
On acquisition
(Charge)/credit to the income statement
in respect of prior year tax
(Charge)/credit to the income statement
in respect of the current tax year

At 1 May 2015
(Charge)/credit to the income statement
in respect of the current tax year
Effect of change of UK corporation tax rate

Recognised in the income statement

Recognised in equity

At 30 April 2016

Accelerated
tax
depreciation
£’000

(194)
—

(48)

(229)

96
22

118

—

Other
intangible
assets
£’000

—
(4,495)

—

721

(399)
—

—

(3,774)

(389)

1,275
230

1,505

—

9
38

—

(111)

(2,269)

(342)

Other
short-term
timing
differences
£’000

Revaluation
of building
£’000

Tax losses
£’000

Share options
£’000

Derivatives
£’000

16
—

(34)
(1)

(35)

—

119
—

(45)

(74)

—

—
—

—

166
—

—

(87)

(14)
(3)

(17)

711

773

(28)
—

(8)

2
1

—

(5)

Group
£’000

(320)
(4,495)

518

(4,241)

1,334
287

1,621

711

(1,909)

Certain deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so. The following is the analysis
of the deferred tax balances (after offset) for financial reporting purposes:

Deferred tax assets
Deferred tax liabilities

2016
£’000

818
(2,727)

(1,909)

2015
£’000

104
(4,345)

(4,241)

Deferred tax liabilities in respect of other intangible assets were recognised on the acquisition of MCL (£3,136,000) and J+S (£1,359,000) and will
be credited to the income statement as the respective other intangible asset is amortised.

A deferred tax liability in respect of the revaluation of a freehold building arose on the acquisition of SEA and is the potential tax liability payable
on the revaluation gain in respect of the building with reference to its historical cost.

The Company’s deferred tax balance at 30 April 2016 was an asset of £147,000 (2015: £32,000) being £14,000 (2015: £13,000) in respect
of other short-term timing differences, accelerated tax depreciation of £4,000 (2015: £4,000) and share options of £129,000 (2015: £15,000).

The corporation tax rate in the UK for the year ended 30 April 2016 was 20.0% (2015: 20.83%) which has been applied by Cohort in calculating
its income tax (see note 6). Reductions in the UK corporation tax rate from 20.0% to 19.0% (effective 1 April 2017) and to 18% (effective 1 April 2020)
were enacted in October 2015. A further reduction in the UK corporation tax rate to 17% from 1 April 2020 was announced in the Budget on
16 March 2016. This rate reduction had not been enacted by 30 April 2016 and therefore the deferred tax measurement does not reflect this
rate change as at 30 April 2016.

The equity movement in deferred tax on share options is to reflect the future tax associated with the total future share options exercisable and
not capped at the share based payment level as previously reported.

18. Derivative financial instruments
The Group has derivative financial instruments as follows:

Assets
Foreign currency forward contracts

Liabilities
Foreign currency forward contracts

2016
£’000

2015
£’000

—

(31)

—

(38)

The changes in marking the outstanding foreign currency forward contracts to fair value (which are based upon quoted market valuations) are
credited or charged to the Consolidated income statement as “credit/(charge) on marking forward exchange contracts to market value at the
year end”. They are in respect of trading contracts undertaken by the Group and are in respect of MCL and SEA and are disclosed within their
respective operating profits in the segmental analysis (see note 1; 2015: MCL). The credit (2015: charge) to the Consolidated income statement
for the year ended 30 April 2016 was as follows:

Foreign currency forward contracts

Annual Report and Accounts 2016 Cohort plc

2016
£’000

2015
£’000

(38)

Notes to the financial statements continuedfor the year ended 30 April 2016
18. Derivative financial instruments continued
Currency derivatives
The Group utilises forward currency contracts to hedge significant future transactions and cash flows. The Group is party to a number of foreign
currency forward contracts in the management of its foreign exchange rate exposure.

The changes in total outstanding committed foreign currency forward contracts of the Group were as follows:

2016

At forward exchange rates
At 1 May 2015
Contracts matured in period
New contracts in period

At 30 April 2016

Fair value adjustment

At 30 April 2016 at spot rate

Sell
£’000

Buy
NOK’000

Sell
£’000

Buy
€’000

Buy
£’000

Sell
US$’000

Sell
£’000

Buy
US$’000

—
23
(54)

(31)

—

(31)

—
278
(659)

(381)

(99)
4,421
(4,322)

—

(136)
6,236
(6,100)

—

—
(36)
1,615

1,579

(30)

1,549

—
(51)
2,314

2,263

(2,787)
2,462
(767)

(1,092)

(1,780)
1,552
(519)

(747)

(1)

(748)

The total fair value adjustment is £31,000 (2015: £38,000) and the change in the forward exchange fair values for the year ended 30 April 2016
is £7,000 (30 April 2015: £38,000), which is included in the operating profit of the Group as a credit (2015: charge).

2015

At forward exchange rates
At 1 May 2014
Contracts matured in period
New contracts in period

At 30 April 2015

Fair value adjustment

At 30 April 2015 at spot rate

Liquidity risk
The maturity of the outstanding contracts was as follows:

At 30 April 2016

Within one year
One to two years
Greater than two years

At 30 April 2016 at forward rate

At 30 April 2015

Within one year
One to two years
Greater than two years

At 30 April 2015 at forward rate

Sell
£’000

Buy
€’000

Buy
£’000

Sell
€’000

Sell
£’000

Buy
US$’000

—
—
(136)

(136)

—
—
(99)

(99)

—

(99)

Sell
£’000

Buy
NOK’000

(31)
—
—

(31)

(381)
—
—

(381)

4,001
(4,001)
—

—

Buy
£’000

811
138
630

1,579

Sell
£’000

(99)
—
—

(99)

4,700
(4,700)
—

—

Sell
US$’000

1,116
196
951

2,263

Buy
€’000

(136)
—
—

(136)

136
(136)
(1,780)

(1,780)

(38)

(1,818)

Buy
£’000

(747)
—
—

(747)

Buy
£’000

(1,552)
(228)
—

(1,780)

226
(226)
(2,787)

(2,787)

Sell
US$’000

(1,092)
—
—

(1,092)

Sell
US$’000

(2,462)
(325)
—

(2,787)

The following significant exchange rates applied at 30 April:

Exchange rates at 30 April

2016

2015

NOK

US$

Euro

US$

Euro

0.0852

0.6845

0.7843

0.6523

0.7289

Sensitivity analysis
A 10% strengthening of £ sterling against the above currencies at 30 April 2016 would decrease the reported operating profit by £102,000
(2015: increase in reported operating profit of £174,000) in respect of marking these forward contracts to market.

Cohort plc Annual Report and Accounts 2016

Financial statements

19. Share capital

Allotted, called up and fully paid 10 pence ordinary shares

Movement in allotted, called up and fully paid 10 pence ordinary shares:

At 1 May 2014
Share options exercised

At 30 April 2015
Share options exercised

At 30 April 2016

2016
Number

2015
Number

40,959,101 40,959,101

Number

40,958,616
485

40,959,101
—

40,959,101

The Company has one class of ordinary shares which carry no right to fixed income.

During the year ended 30 April 2016, no ordinary shares (2015: 485) in Cohort plc were issued to satisfy share options.

20. Share options
The Group grants share options under the Cohort plc 2006 share option scheme to senior management and key employees. In addition,
the Group operates a save as you earn (SAYE) scheme which is available to all employees.

The details of the share option schemes are contained in the Remuneration & Appointments Committee report on pages 33 to 35.

The following options were outstanding at 30 April 2016:

Scheme and grant date

Exercise
price
£

Vesting
date

Expiry
date

Vested

Not
vested

Total

Vested

Not
vested

Total

30 April 2016

30 April 2015

Cohort plc 2006 share option scheme
8 Mar 2006
19 Feb 2007
11 Jul 2008
5 Aug 2009
23 Jul 2010
27 Oct 2010
26 Jul 2011
24 Jan 2012
2 Aug 2012
9 Aug 2013
11 Aug 2014
31 Oct 2014
20 Aug 2015
22 Sep 2015

1.230
1.770
1.890
1.715
0.835
0.770
0.915
1.100
1.165
1.675
1.975
2.425
3.725
3.750

8 Mar 2009
20 Feb 2010
12 Jul 2011
6 Aug 2012
24 Jul 2013
28 Oct 2013
27 Jul 2014
25 Jan 2015
3 Aug 2015
10 Aug 2016
12 Aug 2017
01 Nov 2017
21 Aug 2018
23 Sep 2018

Save As You Earn (SAYE) scheme
27 July 2010
08 Aug 2011
15 Aug 2012
13 Aug 2013
11 Aug 2014
14 Aug 2015

0.970
0.885
1.190
1.545
2.075
3.380

8 Mar 2016
19 Feb 2017
11 Jul 2018
5 Aug 2019
23 Jul 2020
27 Oct 2020
26 Jul 2021
24 Jan 2022
2 Aug 2022
9 Aug 2023
11 Aug 2024
31 Oct 2024
20 Aug 2025
22 Sep 2025

—
32,909
7,929
—
105,471
—
98,252
9,050
248,458
258,150
—
229,852
—
—
28,000
— 290,482
4,000
—

—
—
32,909
—
7,929
—
—
—
105,471
—
—
—
98,252
—
—
9,050
— 248,458
258,150
229,852
28,000
290,482
4,000

13,904
86,241
7,929
14,277
262,466
12,935
326,326
17,000
—
—
—
—
—
—

—
—
—
—
—
—
—
—
450,666
278,017
253,852
28,000
—
—

13,904
86,241
7,929
14,277
262,466
12,935
326,326
17,000
450,666
278,017
253,852
28,000
—
—

502,069

810,484

1,312,553

741,078

1,010,535

1,751,613

—
—
—
—
—
—

—
48,098
30,252
85,193
134,041
147,098

— 444,682

444,682

—
—
—
—
—
—

—

101,931
49,492
64,896
92,183
144,448
—

452,950

502,069

1,255,166

1,757,235

741,078

1,463,485 2,204,563

The SAYE options have maturity periods of three or five years from date of grant.

The Group plan provides for a grant price equal to the closing market price of the Group shares on the trading day prior to the date of grant.
The vesting period is generally three years, five years in the case of some SAYE options. If options under the Cohort plc 2006 share option
scheme remain unexercised after a period of ten years from the date of grant, the options expire. Furthermore, options are forfeited if the
employee leaves the Group before the options vest.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

20. Share options continued
The movement in share options during the year is as follows:

Outstanding at 1 May
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year

Outstanding at 30 April

Exercisable at 30 April

2016

2015

Weighted
average
exercise
price
£

1.35
3.61
1.88
1.08
—

Options

2,735,018
456,439
(109,667)
(854,327)
(22,900)

2.04 2,204,563

1.10

741,078

Weighted
average
exercise
price
£

1.12
2.04
1.53
0.96
1.23

1.35

1.04

Options

2,204,563
444,134
(42,186)
(849,276)
—

1,757,235

502,069

The weighted average share price at the date of exercise for share options exercised during the year was £1.08 (2015: £0.96). The options
outstanding at 30 April 2016 had a weighted average exercise price of £2.04 (2015: £1.35) and a weighted average remaining contractual
life of six years (2015: six years).

The exercised options in the year were satisfied by transferring 849,276 shares from the Cohort Employee Benefit Trust (see note 21).

In the year ended 30 April 2016, options were granted as follows: 149,652 on 14 August 2015 under for the SAYE scheme and 290,482
on 20 August 2015 and 4,000 on 22 September 2015 under the Cohort plc 2006 share option scheme. The exercise prices of the options
granted on those dates were £3.38, £3.725 and £3.75 respectively.

Share options granted during the current and previous years were valued using the Quoted Companies Alliance Model, a Black Scholes-based
binomial model. The inputs to this model for the current and previous years were as follows:

Weighted average share price
Weighted average exercise price
Expected volatility
Risk free rate
Leaver rate (per annum)
Dividend yield

2016

£3.53
£2.04
25%
0.91%–1.84%
10.0%
1.04%

2015

£2.27
£1.35
30%
0.96%–3.13%
10.0%
0.62%–1.96%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The leaver rate
used in the model is based on management’s best estimate.

The Group recognised a cost of £197,000 (2015: £198,000) relating to share-based payment transactions which are all equity settled, an
equivalent amount being transferred to the share option reserve.

The cost of share-based payments is included in “administrative costs” within the Consolidated income statement.

21. Own shares

Balance at 1 May 2014
Acquired in the year
Sold in the year
Loss on shares sold in the year

Balance at 30 April 2015
Acquired in the year
Sold in the year
Loss on shares sold in the year

Balance at 30 April 2016

£’000

2,274
—
(822)
(617)

835
4,162
(914)
(1,348)

2,735

The own shares reserve represents the cost of shares in Cohort plc purchased in the market and held by the Cohort Employee Benefit Trust
to satisfy options under the Group’s share option (see note 20) and restricted share schemes (see Remuneration & Appointments Committee
report on pages 33 to 35).

The number of ordinary shares in Cohort plc held by the Employee Benefit Trust at 30 April 2016 was 755,743 (2015: 500,041).

Cohort plc Annual Report and Accounts 2016

Financial statements21. Own shares continued
Shares were acquired in the year by the Employee Benefit Trust as follows:

Date

9 September 2015
29 September 2015
30 September 2015
2 October 2015
16 October 2015
23 October 2015
30 October 2015
6 November 2015
24 November 2015
22 December 2015
23 December 2015
8 January 2016
15 January 2016
21 January 2016
3 February 2016
4 February 2016
8 February 2016
15 February 2016
19 February 2016
2 March 2016
7 March 2016
21 March 2016
24 March 2016
15 April 2016

Number of
shares
acquired

Cost per
share
£’000

Total
cost
£’000

16,546
10,000
10,000
10,000
100,000
17,500
37,500
12,500
5,000
19,000
13,500
25,000
31,500
143,500
56,750
8,250
5,000
100,000
14,735
10,265
150,000
9,300
78,172
253,528

1,137,546

3.81
3.75
3.75
3.70
3.86
3.90
3.90
3.90
3.90
3.90
3.90
3.83
3.82
3.79
3.45
3.45
3.34
3.31
3.36
3.35
3.33
3.30
3.62
3.75

63
38
38
37
387
68
147
49
20
74
53
96
121
545
196
29
17
332
50
34
500
30
284
954

4,162

Ordinary shares in Cohort plc were transferred by the Employee Benefit Trust for the purposes of satisfying the exercise of share options as follows:

Exercise price per share
Pence

77.0
83.5
91.5
97.0
110.0
116.5
119.0
123.0
154.5
167.5
177.0
197.5
207.5

Number of
shares sold

Proceeds
£’000

(Loss)/gain
on sale
of shares
£’000

12,935
156,995
228,074
101,931
7,950
202,208
32,123
13,904
4,530
19,867
53,332
13,500
1,927

849,276

10
131
209
99
9
236
38
17
7
33
94
27
4

914

(12)
(257)
(460)
(135)
(18)
(267)
(36)
(30)
(9)
—
(71)
4
(3)

(1,294)

In addition, 32,568 (2015: 55,352) ordinary shares in Cohort plc were transferred at nil value realising a loss on sale of shares of £54,368 for
the purpose of satisfying shares awarded to the Executive Directors (see Remuneration & Appointments Committee report on pages 33 to 35)
and senior management under the Group’s Restricted Share Scheme. The total loss on satisfying share options and restricted shares by the
Employee Benefit Trust was £1,348,000 (2015: £617,000).

63,213 (2015: 62,163) shares remain held in the Employee Benefit Trust and remain to be issued under the Restricted Share Scheme on which
an estimated loss of £228,768 (2015: £103,750) will be recognised as they are issued.

The market valuation of the ordinary shares in Cohort plc held by the Employee Benefit Trust at 30 April 2016 was £2,890,717 (2015: £1,325,109).

The cost of operating the Employee Benefit Trust during the year ended 30 April 2016 was £89,867 (2015: £29,596) and this cost is included
within the “administrative expenses” of the Consolidated income statement.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

22. Reserves
The Group (consolidated) and Company statements of changes in equity are disclosed as primary statements on pages 40 and 41.
Below is a description of the nature and purpose of the individual reserves:

• Share capital represents the nominal value of shares issued, including those issued to the Cohort Employee Benefit Trust (see note 19).

• Share premium includes the amounts over the nominal value in respect of share issues. In addition, costs in respect of share issues are

debited to this account.

• Own shares held by the Group represent shares in Cohort plc. All the shares are held by the Cohort Employee Benefit Trust (see note 21).

• Share option reserve represents the cumulative share-based payment charged to reserves less the transfer to retained earnings on vesting

of options.

• Other reserve. This represents the potential acquisition cost to the Group for acquiring the non-controlled interest (49.999%) of MCL.

This reserve is expected to be utilised no later than 30 April 2017.

• Retained earnings include the realised gains and losses made by the Group and the Company.

23. Cash flow
a. Net cash from operating activities

Profit for the year
Adjustments for:
Income tax (credit)/expense
Depreciation of property, plant and equipment
Amortisation of other intangible assets and goodwill
Net finance income
Derivative financial instruments
Share-based payment
Decrease in provisions

Operating cash flows before movements in working capital

(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables

Cash generated by operations

Income taxes paid
Interest paid

Net cash inflow from operating activities

b. Cash and cash equivalents at 30 April 2016

Cash and bank
Short-term deposits

Total cash and cash equivalents

Bank overdraft
Bank loan
Finance lease

Total debt

Net funds

Group

Company

2016
£’000

5,364

(54)
1,090
6,379
(64)
(7)
197
(59)

2015
£’000

5,240

707
957
3,602
(82)
38
198
(356)

12,846

10,304

(958)
(8,585)
5,203

450
1,861
7,890

(4,340)

10,201

8,506

20,505

(1,784)
(4)

6,718

(1,702)
(5)

18,798

2016
£’000

6,788

2015
£’000

2,953

(97)
6
—
(62)
—
26
—

6,661

—
(486)
(640)

(1,126)

5,535

—
—

(70)
6
—
(80)
—
35
—

2,844

—
165
(1,016)

(851)

1,993

(8)
(2)

5,535

1,983

Group

Company

2016
£’000

23,109
—

23,109

—
(3,293)
(11)

(3,304)

19,805

2015
£’000

19,701
—

19,701

—
—
(14)

(14)

19,687

2016
£’000

2015
£’000

—
—

—

(13,263)
(3,293)
—

(16,556)

—
—

—

(7,033)
—
—

(7,033)

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with a maturity at commencement of three months
or less. The carrying amounts of these assets approximate to their fair value.

Cohort plc Annual Report and Accounts 2016

Financial statements

24. Operating lease arrangements

Group

Minimum lease payments under operating leases recognised as an expense in the year:
– land and buildings
– other

2016
£’000

2015
£’000

786
194

980

886
215

1,101

At 30 April 2016 the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which
fall due as follows:

Land and buildings:
– leases which expire within one year
– leases which expire in the second to fifth year inclusive
– leases which expire after five years

Other:
– leases which expire within one year
– leases which expire in the second to fifth year inclusive
– leases which expire after five years

2016
£’000

—
672
3,968

4,640

8
280
—

288

2015
£’000

207
888
3,618

4,713

30
263
—

293

4,928

5,006

Significant leasing arrangements held by the Group are in respect of its operating facilities in Aberdeen, Barnstaple, Lincoln and Theale.

In respect of all the Group’s operating leases (including the Company’s), there is no contingent rent payable, no escalation clauses
and no restrictions for further leasing or restrictions on the Group’s ability to access debt or pay dividends.

None of the significant operating leases entered into by the Group has any renewal or purchase options.

Company

Minimum lease payments under operating leases recognised as an expense in the year:
– land and buildings

2016
£’000

2015
£’000

At 30 April 2016 the Company had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall
due as follows:

Land and buildings:
– leases which expire within one year

25. Commitments
There was £83,000 of capital commitments at 30 April 2016 (2015: £Nil).

2016
£’000

2015
£’000

—

26. Pension commitments
The Group makes contributions to defined contribution stakeholder pension schemes. The contributions for the year of £2,294,000
(2015: £2,022,000) were charged to the income statement. Contributions outstanding at 30 April 2016 were £213,980 (2015: £140,316).

27. Contingent liabilities
At 30 April 2016 the Group had in place bank guarantees of £nil (2015: £175,000) in respect of leased properties and £962,000 (2015: £1,593,000)
in respect of trading contracts. The Group is not aware of any conditions which would realise these contingent liabilities.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016

28. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
However, the key transactions with the Company are disclosed as follows:

2016

2015

Capital
contribution
to subsidiary
(see note 11)
£’000

Management
fees received
from
subsidiaries
£’000

Rent
paid to
subsidiaries
£’000

1,000

—

1,700

1,517

Dividends
received
from
subsidiaries
£’000

5,500

3,500

Group relief
received
from
subsidiaries
£’000

There were no transactions between the Group and its joint venture, Digital Millennium Map LLP (DMM), with the exception of receipt of investment
income (see note 11). The relationship with DMM is 25% joint venture owned by Cohort plc. From 1 November 2006 this has been accounted for
as an investment, the Group no longer having an active participation in this entity. The Group is expected to have no significant transactions
with DMM.

During the year ended 30 April 2016, the Directors of Cohort plc received dividends from the Company as follows:

S Carter
N Prest CBE
A Thomis
Sir Robert Walmsley
S Walther

2016
£

482,603
110,483
4,773
1,327
4,651

2015
£

425,612
91,722
2,881
1,102
2,723

603,837

524,040

Further details of the remuneration of the Directors are set out in the Remuneration & Appointments Committee report (pages 33 to 35).

The aggregate remuneration (excluding share option costs) of the key management of the Group was as follows:

Salary (including any allowances, benefits and employer’s NI)
Employer’s pension contribution
Long-term benefits

2016
£

2015
£

1,423,466
86,727
—

1,261,236
91,023
—

1,510,193

1,352,259

The key management of the Group is the Board of Cohort plc plus each subsidiary’s managing director.

29. Acquisition of Marlborough Communications Limited (MCL)
Cohort plc acquired 50.001% of Marlborough Communications (Holdings) Limited, which in turn holds 100% of Marlborough Communications
Limited (MCL), on 9 July 2014.

The Sale and Purchase Agreement in respect of the acquisition of MCL includes a put option (from the vendors to Cohort plc) for the purchase
of the remaining shares (49.999%) in Marlborough Communications (Holdings) Limited, the non-controlling interest.

This put option is exercisable by 31 December 2016 and is capped at £12.5m. If the performance of MCL in the period to 30 September 2016
is such that the amount payable for the non-controlling interest’s shares exceeds the cap, the put option lapses and the Group has the right
to negotiate the amount payable at that time or not to acquire the non-controlling interest.

The non-controlling interest is entitled to participate in any dividends payable by MCL in the period to 30 September 2016.

In accordance with IFRS 3, the Group has ascribed a value to the option to acquire the non-controlling interest of MCL. This value is £5.5m
(2015: £12.5m) and the option is shown as a current liability (2015: non-current liability) as it is expected to be paid by 30 April 2017 and as
the non-controlling interest has a right to dividends, in the other reserves reported as “option for acquiring non-controlling interest in MCL”.

The option to acquire the non-controlling interest of MCL is based upon the calculation defined in the Sale and Purchase Agreement.
The calculation is a multiple of MCL’s earnings before interest and tax over a two year period ending on 30 September and includes
an adjustment for the closing order book as at 30 September 2016.

Cohort plc Annual Report and Accounts 2016

Financial statements

30. Acquisition of J+S Limited (J+S)
The Group’s subsidiary Systems Engineering & Assessment Ltd acquired 100% of J+S Limited (J+S) on 1 October 2014 for a cash consideration
of £11.7m. No further consideration is payable in respect of this acquisition.

During the twelve months ended 30 September 2015, the goodwill was revised as follows:

On acquisition (as previously reported)
Revision of amounts recoverable on contracts
Accruals

Goodwill
£’000

5,048
113
7

5,168

This adjustment to goodwill, amounts recoverable on contracts and accruals has been applied to the balance sheet at 30 April 2015.

31. Post-balance sheet event: Acquisition of Empresa de Investigação e Desenvolvimento de Electrónica, S.A. (EID)
On 27 June 2016 the Group reported the acquisition of 56.89% of EID, a company registered in Portugal, for a total consideration of €10.8m (£8.2m).

As this occurred after 30 April 2016, EID has not been included in the Group’s reported results and net assets for the year ended 30 April 2016. EID
will be consolidated from the acquisition date of 27 June 2016 and as the Group exercises effective control through the EID Board it will
recognise 100% of EID’s results and net assets from that date.

As announced, the Group expects to acquire another 23.11% of EID on or before 30 November 2016 on the same terms as the initial 56.89%
from the Portuguese Government. The Group expects the Portuguese Government to continue to hold 20.0% for the foreseeable future.

As at 30 April 2016 the Group had recognised acquisition costs in respect of EID of £821,000. It also includes costs in respect of setting up the
Group’s new bank facility of £485,000.

On 5 August 2015 the Group signed the Sale and Purchase agreement with the vendors of EID and at the same time paid a deposit of €0.95m
(£0.7m) representing 5% of the total consideration. As the transaction had not completed at 30 April 2016, this deposit balance has been
included in trade and other receivables.

Annual Report and Accounts 2016 Cohort plc

Notes to the financial statements continuedfor the year ended 30 April 2016Accounting policies

Basis of accounting
Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance
with International Financial Reporting Standards as adopted by the EU (Adopted IFRSs). On publishing the parent company financial statements
here, together with the Group financial statements, the Company is taking advantage of the exemption in Section 408 of the Companies Act 2006
not to present its individual income statement and related notes that form part of these approved financial statements.

As highlighted in note 15 to the financial statements, the Company meets its day-to-day working capital requirements through a facility which
is due for renewal in November 2018. Both the current domestic economic conditions and continuing UK Government budget pressures,
including defence, create uncertainty, particularly over the level of demand for the Group’s products.

The Company’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Company
should be able to operate within the level of its current facility.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.

Further information regarding the Company’s business activities, together with the factors likely to affect its future development, performance
and position, is set out in the Strategic report on pages 4 to 24. The financial position of the Company, its cash flows, liquidity position and
borrowing facilities are also described in the Strategic report on pages 4 to 24.

In addition, the Strategic report includes the Company’s objectives, policies and processes for managing its capital; its financial risk
management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings made up to
30 April 2016. Subsidiaries acquired during the year are consolidated from the date of acquisition, using the purchase method (see business
combinations below).

The Group’s subsidiary, MCL, has an accounting year end date of 30 September although it prepares figures for consolidation for the year
ended 30 April. The different accounting date for MCL is a requirement of the agreement to purchase the remainder of the business, at which
point it will change to 30 April, as per the rest of the Group.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those
used by the Group. The Group’s subsidiaries have prepared their statutory financial statements in accordance with IFRS, as adopted by the EU,
as from 1 May 2015.

Adoption of new and revised standards
Various new and revised standards and interpretations have been adopted by the Group in the year ended 30 April 2016 which have had no
significant impact on the amounts reported in these financial statements by the Group.

Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective
interest rate method and are disclosed within accruals to the extent they are not settled in the period, unless the loan terms provide for the
interest to be added to the principal, in which case the interest is added to the carrying amount of the instrument to which it pertains.

Borrowing costs
All borrowing costs are recognised in the income statement in the period in which they are incurred unless, where appropriate, interest costs are
capitalised into assets, fixed and current.

Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured as the aggregate of the fair
values, at the completion date, of assets acquired, liabilities incurred or assumed and equity instruments issued by the Group in exchange for
control of the acquired subsidiary. The costs of acquisition are charged to the Consolidated income statement as an exceptional item in
accordance with IFRS 3 (Revised).

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination
over the Group’s interest in the net fair value of the identifiable intangible assets, assets, liabilities and contingent liabilities recognised. If, after
reassessment, which is a point in time greater than 12 months after the completion date, the Group’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities exceeds or is below the cost of the business combination, the excess or shortfall is recognised
immediately in the income statement as an exceptional item.

Adjustments to the provisional value of assets and liabilities acquired in a business combination when the final values have become known
within 12 months are adjusted as if the accounting had been completed at the acquisition date and the comparative information for prior
periods is restated accordingly.

Any change in consideration, where previously estimated, is immediately recognised as an exceptional item in the income statement.

Where less than 100% of a subsidiary is acquired but the Group has effective control, that subsidiary is accounted for as if 100% were acquired
with the non-controlling interest recognised appropriately.

Cohort plc Annual Report and Accounts 2016

Financial statementsAccounting policies continued

Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and on-demand deposits, and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Deposits are included within cash and cash
equivalents where the maturity from commencement of the deposit is three months or less.

Derivative financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign
exchange forward contracts and interest rate swap contracts to hedge these exposures. The Group does not use derivative financial instruments
for speculative purposes.

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly
in equity and the ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecast
transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses
on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that
do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period
in which the hedged item affects net income.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement
as they arise and are disclosed separately in deriving the Group’s adjusted operating profit.

Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Exceptional items
Items which are both material and non-recurring are presented as exceptional items within the relevant income statement category. The separate
reporting of exceptional items helps provide a better indication of the Group’s underlying business performance. Events which may give rise
to the classification of items as exceptional, if of a significantly material value, include gains or losses on the disposal of a business, restructuring
of a business, transaction costs, litigation and similar settlements, asset impairments and onerous contracts.

Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes party to the contractual
provisions of the instrument.

Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Specifically in the case of the put option to acquire the non-controlling interest of MCL, as the option is a put and the non-controlling interests
have a right to participate in any equity distributions (including dividends), the original option value and any subsequent changes to the value
of that option are included in equity and not in the income statement.

Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which
it operates (its functional currency), which is currently sterling for the whole Group. For the purpose of the consolidated financial statements,
the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company
and the presentational currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign
currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date.

Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are included in the income
statement for the year.

In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts. The Group’s accounting policies
in respect of such derivative financial instruments are described above.

These forward foreign exchange contracts are revalued to fair value at each balance sheet date with any movement included in the
Consolidated income statement as part of the cost of sales and disclosed separately in deriving the Group’s adjusted operating profit.

Annual Report and Accounts 2016 Cohort plc

Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable
intangible assets, assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised
as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset
is reviewed for impairment biannually. Any impairment is recognised immediately in the income statement as an exceptional item and is not
subsequently reversed.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s subsidiaries as appropriate. Subsidiaries (cash-generating
units) to which goodwill has been allocated are tested for impairment biannually, or more frequently when there is an indication that the unit
may be impaired. If the recoverable amount of the subsidiary is less than the carrying amount of the subsidiary, the impairment loss is allocated
first to reduce the carrying amount of any goodwill allocated to the subsidiary and then to the other assets of the subsidiary pro rata on the
basis of the carrying amount of each asset in the subsidiary. An impairment loss recognised for goodwill is not reversed in a subsequent period.
The impairment of goodwill is a critical judgement and estimate and is discussed in detail below.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.

Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment (if any).

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or subsidiary) is estimated to be less than its carrying amount, the carrying amount of the asset (subsidiary)
is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (subsidiary) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment
loss been recognised for the asset (subsidiary) in prior years. A reversal of an impairment loss is recognised as income immediately.

Intangible assets
Intangible assets are recognised in respect of contracts, intellectual property rights and other measurable intangibles arising on business combinations.
The value of these intangible assets is determined by the estimated value to the Group going forward and the intangible assets are written off
on a straight-line basis over the estimated useful life. As discussed on page 71, the valuation of intangible assets is an area of critical judgement
and estimate by the Directors.

Inventories
Inventories are stated at the lower of cost and net realisable value. Cost of finished goods and work in progress includes overheads appropriate
to the stage of manufacture. Net realisable value is based upon estimated selling price less further cost expected to be incurred to completion
and disposal. Provision is made for obsolete and slow-moving items.

Joint ventures
The Group accounts for joint ventures where it has a participating interest using the equity method of accounting and discloses the net
investment in non-current assets.

Where the investment in a joint venture is negative, the negative investment, to the extent it is a liability of the Group, is offset against any trade
and other receivables held by the Group in respect of that joint venture.

The Group accounts for joint ventures in which it no longer has a participating interest by recognising any investment and assets or liabilities
due to or from the Group.

Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.

The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance
lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Cohort plc Annual Report and Accounts 2016

Financial statementsAccounting policies continued

Pension contributions
Payments are made to the Company’s stakeholder pension schemes, all of which are defined contribution schemes. Amounts are charged
to the income statement as incurred.

Property, plant and equipment
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance
sheet at their fair value at the date of acquisition, plus any subsequent cost, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.

Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated
useful lives, using the straight-line method, on the following bases:

Buildings

2%–4%

Fixtures, fittings and equipment

20%–50%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the
term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in the income statement as an exceptional item.

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) which arises as a result of a past event and it is probable
that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to
settle the obligation at the balance sheet date and are discounted to present value where the effect is material. In respect of specific types of
provisions the policy is as follows:

Warranty
Provisions for the expected cost of warranty obligations under local sale of goods legislation and specifically contracted warranty undertakings
are recognised at the date of sale of the relevant product or service. The provision is the Directors’ best estimate of the expenditure required
to settle the Group’s obligation.

Other contract related provisions including contract loss provisions
These include the following:

The Group undertakes a number of contracts where contractual and/or third-party obligations arise as a result of delivering the contract. This
provision includes amounts for losses on contracts which are recognised in full immediately when it is probable that total contract costs will
exceed total contract revenue. In some cases, after a product has been delivered and revenue has been recognised, the Group receives claims
(including warranty issues) from customers in respect of work done. Where the amount required to settle the claim is uncertain or the Group
disputes the amount of the claim, provision is made for the best estimate of the amount that will be required to settle the claim.

Where the expected cost at completion of a current contract exceeds the sum of the contracted revenue and any probable revenue, then the
amount of that excess (the estimated contract loss) is immediately provided for in full. Such contract loss provisions are reviewed on a regular
basis to determine whether the provision is still adequate or excessive. Contract loss provisions and subsequent adjustments to them are
charged as cost of sales in the income statement.

Where such an obligation relates to a discontinued operation then the charge will be disclosed as an exceptional item.

Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the Group’s own development activity is recognised only if all of the following conditions
are met:

• an asset is created that can be identified (such as software, product and new processes) and is technically and commercially feasible;

• it is probable that the asset created will generate future economic benefits and the Group has available to itself sufficient resources

to complete the development and to subsequently sell and/or use the asset created; and

• the development cost of the asset can be measured reliably.

Internally generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally generated intangible
asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.

Annual Report and Accounts 2016 Cohort plc

Revenue recognition
Revenue is recognised at the fair value of the consideration received or receivable for the provision of goods and services, excluding discounts,
VAT and other sales related taxes.

Sales of goods are recognised when goods are delivered and title has passed.

The Group applies either IAS 11 ‘Construction Contracts’ or IAS 18 ‘Revenue’ to account for revenue depending on the nature of the arrangement
with the customer. The Group’s arrangements fall into four main categories:

1. Time hire
Revenue is recognised in accordance with IAS 18 when the services are provided, i.e. when the employees undertake the work.

2. Managed services
In managed services, revenue is generally a fixed price for the provision of specific ongoing defined services (not the construction of an asset)
over an agreed period. These services include the provision of technical engineering support, maintaining help desks and consultancy. Where
the services comprise an indeterminate number of acts over a specified period of time, revenue is recognised on a straight-line basis over the
period that the services are provided. Where the services comprise one or more significant acts, revenue is recognised as each act is completed.

3. Product
Goods are delivered to customers and, on their acceptance by the customer, revenue is recognised. At that point, the Group does not have any
continuing involvement or control over the goods and all significant risks and rewards have been transferred to the customer.

4. System design, build, test and delivery
These contracts are typically for building complex custom designed assets which are usually components for use in larger customer owned
assets. These contracts are accounted for under IAS 11. The Group’s contracts of this nature are generally fixed price and without “standalone”
values for each element as the contracts are negotiated and ultimately delivered/accepted as a single package.

In these contracts the revenue is recognised using the “percentage of completion” method in IAS 11.

In almost all cases the percentage of completion is based on input measures (i.e. costs incurred as a proportion of estimated total costs). In some
cases, an output measure based on surveys of work performed may be used where these are available and measure reliably the work performed.

Costs are expensed as incurred in respect of all contracts unless they relate to goods yet to be delivered, services related to a significant act that
has yet to be completed or future activities on a contract accounted for under IAS 11, in which case they are recorded as an asset (either inventory or
amounts recoverable on contract).

In some cases, Group contracts can be divided into multiple elements with standalone values using either the principle in IAS 18.13 or the
following criteria based on IAS 11.7–10:

• separate proposal for each element;

• each element was subject to separate negotiations; and

• costs and revenues for each element can be identified.

Where separate elements are identified, each is treated as one of the four revenue types described above.

Bid costs
Costs incurred before the award of a contract is probable are expensed as incurred. Where material bid costs arise after the award of a contract
has become probable but before the contract is in place, then such identified bid costs are included in contract costs.

Share-based payments
The Group has applied the requirements of IFRS 2 ‘Share-based Payments’. In accordance with the transitional provisions, IFRS 2 has been
applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 May 2006.

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value
(excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of equity-settled
share-based payments is expensed on a straight-line basis over the vesting period based on the Group’s estimate of shares that will eventually
vest and adjusted for the non-market based vesting conditions.

Fair value is measured by use of the Quoted Companies Alliance binomial model (a Black Scholes model). The expected life used in the models
has been adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations.

The cost of share-based payments is charged to the income statement with a corresponding credit applied to the share option reserve.
The appropriate element of the reserve is transferred to the retained profit of the Group when the share options to which the reserve relates vest.

Cohort plc Annual Report and Accounts 2016

Financial statementsAccounting policies continued

Taxation
The tax expense represents the sum of the tax currently payable and the deferred tax expense or credit.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because
it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interest in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will
not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred
tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a
net basis.

Trade and other receivables
Trade receivables are initially measured at fair value. Appropriate allowances for estimated irrecoverable amounts are recognised in the income
statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the
asset’s carrying amount and the estimated recoverable amount.

Long-term contracts are assessed on a contract-by-contract basis and reflected in the income statement by recording revenue and related costs
as contract activity progresses. Revenue is ascertained in a manner appropriate to the stage of completion of the contract, and credit taken
for profit earned to date when the outcome of the contract can be assessed with reasonable certainty. The amount by which revenue exceeds
payments on account is classified as “amounts recoverable on contracts” and included within trade and other receivables; to the extent that
payments on account exceed relevant revenue, the excess is included as an advance receipt within trade and other payables. The amount of
long-term contracts, at cost net of amounts transferred to cost of sales, costs incurred plus recognised profits, less provision for foreseeable
losses and payments on account not matched with revenue, is included within trade and other receivables as “amounts recoverable on contracts”.

Trade payables
Trade payables are initially measured at fair value.

Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described above, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised.

The Directors have identified the following critical judgements and estimates in applying the Group’s accounting policies that have the most
significant impact on the amounts recognised in the financial statements.

Annual Report and Accounts 2016 Cohort plc

Critical accounting judgements and key sources of estimation uncertainty continued
1. Critical accounting judgements
Revenue recognition
The revenue recognition policy of the Group is described in detail on page 69. There are areas where the Directors have to make judgements
as to the level of revenue to be recognised in the financial statements, in particular “stage of completion”:

• In accordance with IAS 11, revenue is recognised using the “percentage of completion” method for system design, build, test and delivery

contracts. In almost all cases the percentage of completion is based on input measures (i.e. costs incurred as a proportion of estimated total
costs). In a few cases, an output measure based on surveys of work performed may be used where these are available and measure reliably
the work performed.

• These contracts generally are not capable of segmentation and the percentage of completion method is applied to the contract as a whole.

• In advance of completion of key stages (or deliverables) of contracts, there is additional uncertainty in the estimated total contract costs and

accordingly this additional uncertainty is reflected in increased estimates of the total contract costs, i.e. a contingency is added.

• Once those key stages have been completed and the risks have expired, the relevant remaining contingencies are removed from the forecast

total contract costs. It is a critical judgement of the Directors as to both the level of contingency recognised and its retention or not.

Acquisition of other intangible assets
Intangible assets other than goodwill that are obtained through acquisition are capitalised on the balance sheet. These other intangible assets
are valued on acquisition using a discounted cash flow methodology which depends on future assumptions about the revenue from contracts,
prices and costs and on the Group’s cost of capital. These assumptions reflect management’s best estimates but depend on inherent uncertainties
which may not be within the control of management.

2. Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

Impairment of goodwill
The Group has significant goodwill balances, the life of which it considers to be indefinite. It assesses biannually the recoverability of the balance,
or more frequently in the event of an occurrence indicating impairment. The assessment involves comparing the carrying amount of the asset
with its recoverable amount, which is the greater of its value in use and net realisable value by reference to external measures.

Value in use is determined using discounted cash flow techniques that involve the estimation of future cash flows over a long period and an
appropriate discount rate.

Future cash flows are estimated based on historical experience, internal estimates and data from external sources. Such estimates are subject
to change as a result of changes in economic and competitive conditions. Higher estimates of future cash flows will increase the value in use
of goodwill, but lower estimates of cash flows will reduce the value in use and increase the risk of impairment.

Discount rates (weighted average cost of capital) are applied to the cash flows to arrive at the value in use. An increase in the discount rate will
reduce the value in use of the goodwill, and will therefore increase the risk of the value in use falling below the carrying value and resulting in an
impairment provision being required. A reduction in the discount rate decreases the likelihood of impairment.

Future changes in interest rates, the premium that markets place on equity investments relative to risk free rates and the specific assessment
of the capital markets as to the Group’s risk relative to other companies can affect our discount rate. Increases in interest rates or the risk premiums
applied by capital markets would result in an increase in the Group’s discount rate and vice versa. These factors are largely outside the Group’s
control or ability to predict and can therefore have a significant impact on the estimated fair value of goodwill and hence its impairment.

The assessment of goodwill impairment is disclosed in note 9.

Other
Where a reasonably possible change in a key assumption could give rise to a change in the amount reported, this is disclosed within the
relevant note to the accounts.

Standards and interpretations issued as at 28 June 2016 not applied to these financial statements
A number of other standard amendments and International Financial Reporting Interpretations Committee (IFRIC Interpretations) have been
issued and are yet to be applied by the Group. The most significant of these are:

1. IFRS 15 ‘Revenue from Contracts with Customers’. This standard is effective from 1 January 2018 and will be required to be first applied to the

Group’s financial reporting for the year ending 30 April 2019. Earlier adoption is being considered by the Group.

2. IFRS 16 ‘Leases’. This standard was issued on 13 January 2016 and is effective from 1 January 2019 and will first apply to the Group’s financial

reporting for year ending 30 April 2020. The impact of this standard on the Group is under review.

Cohort plc Annual Report and Accounts 2016

Financial statementsShareholder information, financial calendar and advisers

Advisers
Nominated adviser and broker
Investec
2 Gresham Street
London EC2V 7QP

Auditor
KPMG LLP
Chartered Accountants
Arlington Business Park
Theale
Reading RG7 4SD

Tax advisers
Deloitte LLP
Abbots House
Abbey Street
Reading RG1 3BD

Legal advisers
Shoosmiths LLP
Apex Plaza
Forbury Road
Reading RG1 1SH

Registrars
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Public and investor relations
MHP Communications
6 Agar Street
London WC2N 4HN

Bankers
Barclays
Level 27, 1 Churchill Place
London E14 5HP

Lloyds Bank
The Atrium
Davidson House
Forbury Square
Reading RG1 3EU

RBS
Abbey Gardens
4 Abbey Street
Reading RG1 3BA

Financial calendar
Annual General Meeting
13 September 2016

Final dividend payable
September 2016

Expected announcements of results
for the year ending 30 April 2017
Preliminary half-year announcement
December 2016

Preliminary full-year announcement
June 2017

Registered office
Cohort plc
2 Waterside Drive
Arlington Business Park
Theale
Reading RG7 4SW

Registered company number
of Cohort plc
05684823

Cohort plc is a company registered
in England and Wales.

Shareholders’ enquiries
If you have an enquiry about the Company’s
business, or about something affecting you
as a shareholder (other than queries which
are dealt with by the registrars), you should
contact the Company Secretary by letter to
the Company’s registered office or by email
to info@cohortplc.com.

Share register
Capita Asset Services maintains the register
of members of the Company.

If you have any questions about your
personal holding of the Company’s shares,
please contact:

Capita Asset Services
Shareholder Solutions
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Telephone: 0871 664 0300 (calls cost 12 pence
per minute plus your phone company’s access
charge). (From outside the UK: +44 20 8639
3399, calls will be charged at the applicable
international rate). Lines are open 9.00am to
5.30pm, Monday to Friday, excluding public
holidays in England and Wales.

Email: shareholderenquiries@capita.co.uk

If you change your name or address or if
details on the envelope enclosing this report,
including your postcode, are incorrect or
incomplete, please notify the registrars
in writing.

Daily share price listings
• The Financial Times – AIM, Aerospace

and Defence

• The Times – Engineering

• Daily Telegraph – AIM section

• London Evening Standard – AIM section

Annual Report and Accounts 2016 Cohort plc

Five-year record

Headline results (£’000)
Revenue
Adjusted operating profit

Adjusted earnings per share (pence)
Basic
Diluted

Statutory earnings per share (pence)
Basic
Diluted

Net operating cash flow (£’000)
Net funds (£’000)

Order intake (£m)
Order book (£m)

2016

2015

2014

2013

2012

112,577
11,902

99,938
10,085

71,555
8,171

70,866
7,336

75,408
6,513

27.18
26.67

20.45
20.00

19.15
18.66

19.14
18.78

6,718
19,805

94.8
116.0

14.04
13.74

18,798
19,687

114.3
134.0 1

14.75
14.37

2,576
16,338

69.1
81.7 2

17.94
17.68

20.76
20.46

4,090
16,426

59.6
95.7

15.52
15.50

11.30
11.28

8,424
14,140

79.3
107.1

1 The order book at 30 April 2015 is after including the acquired order books of MCL (£5.4m) on 9 July 2014 and J+S (£32.6m) on 1 October 2014.

2 Order book at 30 April 2014 excludes SEA’s Space business order book of £10.6m (2013 included £10.4m in respect of SEA’s Space business).

Photography credits

Front cover Public sector image licensed under the Open Government Licence version 3 – image ref 45156250

IFC

EID provided, downloaded from http://homesuithome.blogspot.co.uk/2005/12/o-bom-de-2005.html

Page 2

N Prest image (by Edward Tyler/DP)

Page 6/7

Image created by J Ball (MASS)

Page 9

Public sector image licensed under the Open Government Licence version 3 – image ref 45155975

Page 10

A Thomis/S Walther image (by Edward Tyler/DP)

Page 13

Image created by SEA

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Public sector image licensed under the Open Government Licence version 3 – image ref 45156167

Page 26/27 Cohort Board & sub MD images (by Edward Tyler/DP)

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N Prest image-02 (by Edward Tyler/DP)

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Public sector image licensed under the Open Government Licence version 3 – image ref 45159769

This document contains public sector information licensed under the Open Government licence V2.0.

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Cohort plc
2 Waterside Drive
Arlington Business Park
Theale
Reading RG7 4SW