Aim-traded UK defence group Cohort (CHRT:350p) has announced a reorganisation of its operations which will see defence consultancy division SCS integrated into other parts of the business. The unit generated revenues of £18.1m of group revenues of £112m last financial year, but margins were only 6.6 per cent, a reflection of a tightening of consultancy fees paid by its main customer, the UK Ministry of Defence. The impact of this has been to increase the proportion of lower-margin work carried out by SCS following the end of several profitable projects, particularly the cessation of activity in Afghanistan. The reorganisation of SCS will cost Cohort around £2m, but will generate annual cost savings of £1.6m, so it makes sense to do so.
Importantly, trading in Cohort’s other businesses remains buoyant. A nine-year extension worth £12m to its managed IT service contract at RAF Waddington highlights ongoing strong trading at Cambridgeshire-based subsidiary MASS, a specialist systems house with a focus on electronic warfare operational support, cyber defence and secure information systems. Analysts at Edison Investment Research expect £60m worth of contract renewals and new orders to convert across the group in the financial year to end April 2017, a credible prediction given that Cohort’s opening order book of £116m accounted for half of current year revenue estimates of £132m and has improved year-on-year since then. Expectations of a 20 per cent increase in Cohort’s full-year pre-tax profits to £14.3m, rising to £15.6m the following year, are well supported by the order backlog.