Good morning. It's a pleasure to talk to you again, although sadly, once more in this socially distanced format. I'm Andy Thomis, Cohort plc Group Chief Executive. Simon Walther, the Group Finance Director, and I will be taking you through the half year results for 2021/22 this morning. I'll start by talking through the financial highlights. Simon will then talk through the performance of the individual businesses and will provide the financial detail. I will then set out our views on future prospects and the wider market outlook. Let's begin with the financial highlights. Some aspects of our operating performance were strong. Order intake at GBP 105 million was better than the same period last year, which was in itself a good performance.
That brings our order book up to GBP 285 million, a new record, and gives us order cover for the year of just under 90%. Revenue increased 10%, a result of ELAC SONAR joining the group. Cash flow was very strong at GBP 9.1 million, bringing us further into net funds. MASS, SEA, MCL, and ELAC SONAR all performed well, and EID performed better than we had expected. The overall profit performance was disappointing. At GBP 1.7 million, adjusted operating profit was considerably worse than in the H1 last year, despite a good contribution from ELAC SONAR. The primary reason for this was the performance of Chess, which was considerably below our expectations. We'll talk through the reasons for this and the impact on the year as a whole in more detail.
As you'll have seen from the statement, we expect it to have an impact on the full year performance. That said, we remain confident in the group's longer term prospects. That confidence rests on our strong order book, the positive market dynamics, an expectation of gradual relaxations in COVID-19 restrictions, and the actions we've taken to bring Chess' performance back on track. That is reflected in our decision to increase the interim dividend by a further 10% to GBP 3.85 pence. There is more detail to follow, but here are the main moving parts underneath those results. Let me start at the top left and go clockwise. The most striking feature in the period was the poor performance of Chess, which was considerably worse than both our expectations and last year's results. We'll come on to the reasons for this in the divisional overview.
As we signaled at the year-end, EID's performance was also weaker. That was to some extent baked in because of the slow order intake last year. In practice, good delivery resulted in a better result than we were expecting. EID has seen some further delays to orders, but it has also received a substantial contract to supply soldier systems for the Portuguese Army. There are some important opportunities coming up over the next year. At both MCL and SEA, we've seen a material improvement in revenue and profit compared to last year. At MCL, the domestic market has been vigorous, a result of the increased funding and new technology priorities announced by the U.K. government last year. At SEA, we've seen some of the substantial orders received last year being converted into revenue and profit. Both have a positive outlook for the full year.
MASS has continued to be the largest contributor to group revenue and profit, though a little behind the strong performance in the same period last year. COVID-19, again, had an impact on MASS' ability to deliver its training and other services to overseas customers in particular. Finally, ELAC SONAR, which made a first -half contribution for the first time. The next few years will be very busy for ELAC SONAR as it delivers a sonar suite for the new Italian submarines that will outperform competition from some of the world's best suppliers. The Italian Navy's confidence in ELAC SONAR is a demonstration of its pedigree and expertise in this specialist area built over almost a century. Alongside this major undertaking, ELAC SONAR has continued to deliver sonars and specialist hydroacoustic products for many other customers in Europe, Asia, and South America. Overall, the first half result has been disappointing.
Despite the relaxation of U.K. COVID-19 restrictions since the spring of last year, they've continued to make travel difficult, and that has been especially hard for an export-focused business like Chess. There have also been shortcomings in forecast accuracy and in delivery. We're working hard to correct these and make sure they don't happen again. Looking forward, Chess will have a much better second half, and we expect it to show a profit for the year. But the impact on the full year will still be significant, and we now expect a materially lower performance than last year's. Our other businesses have overall performed in line with our expectations, and the outlook for the rest of the group is unchanged. Despite the usual combination of risks and opportunities, we can have a good degree of confidence in our second half performance because so much of the revenue is on order.
GBP 70 million of second half revenue is already contracted, and of course, there will be more book-and-bill work to come. Taken together with the GBP 60 million we've delivered in the first half, that leaves us almost 90% covered for the full year. Beyond the current year, the picture does look brighter. I'll say more about the order book later in the presentation. For now, let me hand over to Simon to talk you through the financial performance in more detail.
Thank you, Andy. As you can see, this slide shows the bridge between last year's first half year revenue and trading profit and this year's equivalents. In the case of revenue, a 10% increase is down to the acquisition of ELAC. Excluding ELAC, the underlying revenue shrunk by 9%, with most of this due to Chess. Turning to the trading profit, despite the initial first half contribution from ELAC, the trading profit was significantly down due to a very weak performance at Chess and, as expected, a weaker result at EID. The individual business performances are explained in the following slides. The higher Cohort central costs, up by GBP 0.4 million, is due to higher share option costs and aborted M&A activity. Turning to the cash bridge.
A strong first half cash performance for the group, mostly driven by working capital, with improvements, especially at EID and ELAC. EID's improvement was in part from unwinding working capital as activity was lower. A considerably weaker first half performance than last year's first half was due to lower volume and weaker margin mix. Against our expectations for the first half, Chess was also markedly down with order delays reducing revenue by GBP 2 million, customer-driven delays, GBP 4 million, and our own production and engineering delays, GBP 3 million. These not only impacted revenue and associated margin, but in some cases, we also saw cost increases from the delays, which further impacted the margin with gross margin at Chess down at 15% compared with 30% last year.
Of all of our businesses, Chess has seen the greatest impact from COVID on its ability to secure new business with restricted travel and trade shows, preventing Chess from engaging with most of its customers, most of whom are overseas and who often look to see active systems before placing orders. I will now hand back to Andy for some more detail on Chess.
Thank you, Simon. Actions were already in hand to enhance Chess' management capacity, and we've accelerated these as a result of the challenges we've seen this half. Chess has a new managing director, David Tuddenham, who was formerly Chess' operations director. Graham Beall, the founder of Chess, has stepped down as managing director and has moved to a new role in U.S. business development. Several experienced individuals have joined the leadership team, including a new head of projects, a technical director, and an operations director. Organizationally, Chess has changed the management arrangements for its software team, which develops its artificial intelligence and target tracking capabilities. Until recently, they were employed by Vision4ce, a separate subsidiary of Chess. They're now fully integrated into the Chess management structure, providing better prioritization for this important resource.
Following these changes, we're seeing good progress on resolving some of the project issues that Chess has faced. We've closed down several long-standing issues, and the new senior team members have made some excellent contributions to resolving customer concerns. With these changes in place, we're confident of a better performance in the second half, and we expect Chess to be profitable for the year as a whole. It won't be able to get back to the level of performance we expected at the beginning of the year. This period has been disappointing, but Chess remains a good business. It's highly competitive, has excellent technology, and operates in an attractive market. It needs to develop to the next stage of its evolution, keeping its innovation, agility, and customer intimacy while growing its ability to deliver complex systems to demanding customers.
We're confident that Chess can do this and that the actions we've taken have set it on the right course. Now back to you, Simon.
Thank you, Andy. EID, as expected, off the back of poor order intake last year, had a weaker performance. This was better than we expected with some deliveries slipping from 2021 into this year. EID has seen further delay to orders from its own domestic customer, Portugal, as well as some key export orders. We anticipate progress on these in 2022. The closing order book underpins over GBP 7 million of revenue due for delivery in the second half, and we expect EID to return to profit for the whole year with a return to a stronger historical performance in 2023, 2024. In both Chess and EID, we have seen the business shift to the right but not lost. A good first half performance from ELAC, its first contribution to the group's first half.
The Italian order, secured in late June of this year, was the largest single systems order ever secured by the group at EUR 49 million. We expect ELAC to deliver at least a similar performance in the second half as it achieved in the first half, with 100% of its revenue to be delivered in the coming six months now on order. MASS remains the group's strongest profit contributor. MASS had a weaker first half than last year with COVID restrictions preventing MASS being able to deliver much of its overseas EOS training and some other overseas support services. We anticipate the increase in EOS activity in the second half, much of it on order. We do expect MASS to improve its net margin to around 20% and to deliver a performance slightly ahead of last year.
MASS's second half, however, is dependent upon the resumption of a reasonable level of EOS activity. MASS's long-term order book and its success at meeting customer needs over the long term were reinforced by an extension of its Joint Warfare Support contract for another two years out to July 2024. MCL had a much improved first half, driven by delivery of autonomous ground vehicles for the UK MOD. MCL has continued to work with the UK MOD on such systems, and its recent bidding activity is high. MCL's business is still over 95% with the UK MOD. MCL has a stronger order book going into the second half, and this, combined with its pipeline of opportunities, give us confidence that MCL should have a stronger H2 to the financial year and deliver a performance at least in line with 2020.
SEA had a stronger performance off the back of good order intake in 2021. The net margin was improved because of mix, with more overseas deliveries made of torpedo launch systems and towed sonar arrays. We expect stronger order intake and performance in the second half, with GBP 50 million of revenue already on order for delivery in the second half. SEA acquired the remaining 50% of its joint venture, JSK, in Canada to ensure it delivers the torpedo launch system to the Royal Canadian Navy's frigate program. These deliveries are just starting to ramp up and we expect orders to be placed over the coming years, taking such work out to 2030. Turning to financial highlights. The ELAC performance, as reported, includes GBP 0.6 million from Wärtsilä in respect of a mechanism for release of costs.
We expect a slightly lower amount from this in the second half. These payments will continue until December 2022. There was no impairment of the group's goodwill at 31st of October 2021. We expect to acquire the remaining shareholding, just over 18%, in Chess in the H2 of this year. At 31st of October 2021, the group was in net funds of GBP 6.1 million, comprising GBP 35 million of cash and GBP 25.9 million of debt. Group's facility has GBP 11 million unutilized at that date. Finally, we expect a full-year amortization charge in respect of other intangible assets of GBP 6.9 million, with lower charges of GBP 3.6 million and GBP 3.1 million in the next two financial years.
In the second half, we expect a working capital inflow, but weaker than the first half, and this will be offset by the payments of tax, dividends, and CapEx, as well as acquiring the Chess minority. We are prudently guiding towards zero net debt at 13th of April 2022 before moving back into net funds in 2022, 2023. Overall, with a record order book and good prospects, we expect a much stronger performance in the second half. I now hand you back to Andy.
Thank you, Simon. In the final section of the presentation, I will talk about the outlook for the group and the market prospects in the U.K. and beyond. The changes in U.K. defense strategy announced last year will have both short-term and long-term impacts. The short-term impacts have included a noticeable growth in opportunities for Marlborough Communications. The creation of the new Ranger Regiment is generating more demand for some of the high-end equipment used by Special Forces and supplied by MCL. The focus on autonomous technology and artificial intelligence have resulted in several good and unexpected wins for MCL working with overseas partners. In the longer term, we expect to see a continued focus on maritime defense technology. New programs are already emerging alongside the revitalization of older requirements. We expect that to generate opportunities for Chess as well as SEA, EID, MASS, and MCL.
Things have not moved so fast in Portugal with a new program to acquire naval vessels taking longer than we had hoped to launch. That said, we did receive an important contract to supply soldier systems to the Portuguese Army. The Portuguese general election, expected in January 2022, may create a further hiatus depending on the result. We continue to see good domestic opportunities for EID, both on its own and working with other group businesses. Germany is a relatively small domestic market for us, but the German Navy's large program to acquire new surface ships will undoubtedly create opportunities for ELAC. Overall, our main domestic programs are stable and long-term, and they matter to their customers. That is especially true in the U.K., our largest single market, but it's also true in Portugal and Germany.
Export markets remain strong, delivering about 36% of our revenue. That proportion has grown from around 20% 5 years ago. In the first half, export markets accounted for over half of our order intake, suggesting that this growth will continue. Spending in our most important markets continues to be driven by geopolitical tensions in Europe, Asia, and the Middle East. Those tensions feel particularly acute in Eastern Europe at the moment, but all of them matter. The group's businesses help our allies defend themselves and deter conflict in these unpredictable times. About as good an example of a contribution to wider society as one could hope to see. Finally, I have to add a word about COVID-19. Over the summer, we were able to bring more people back into the work environment and increase face-to-face contact with customers.
Not least, we were able to resume visits to our businesses outside the U.K. One particular high point was the successful DSEI exhibition at the ExCeL Center in London in September. It has looked and felt as though we were returning to a pre-COVID world. That was very welcome to us, as I'm sure it was to you. Developments in the past few weeks have sadly lessened that sense of recovery with the introduction of new restrictions to counter the Omicron variant. Travel and social distancing restrictions do bring challenges and have contributed to the disappointing results at Chess in this period. They affect our ability to win and deliver business. They've also affected global supply chains, increasing prices and lead times for certain components, especially electronics. It's disappointing to have to contemplate renewed restrictions, but we've managed these challenges before, and I have no doubt we will again.
This slide will be familiar to veterans of our results presentations. It shows in the first column the order book as at the accounting date, broken down by our five operating businesses. The other columns show how this will convert into revenue in the second half and in subsequent years. As you can see, that second-half number at GBP 74 million is substantially greater than the revenue delivered so far, and it gives you an idea of where we will get to, even if there are no further orders this year, which of course there already have been. Beyond that, we see strong long-term order books, especially for MASS, ELAC, SEA and Chess. We see plenty of good opportunities to add to the order book in the second half right across the group.
MCL is currently the group business with the shortest-term order book, but we could see a substantial improvement in the second half if certain opportunities progress as we hope they will. I talked earlier about our longer-term prospects, and the order book is the best leading indicator of these. I wanted to show you how our order book has developed over the last five years, taking the half-year point in each case. The full-year numbers would show a very similar story. As you can see, the trend is strongly upward over the period. The chart also shows the split between orders for immediate delivery in the second half of the relevant year and longer-term orders for delivery in the year after, the next year and in later years.
The chart shows that not only is the order book increasing in the short term, the second half of the year after, but that it's increasing even faster for the longer term. That's not surprising, as international markets for maritime systems are growing fast, and ships and submarines are long-term programs. The result is a group that can grow in the medium and long term, and that has increasing long-term stability and certainty about where its revenue is coming from. That brings us to the end of the presentation. I hope you found it helpful. To summarize some of the key points. Despite some positive aspects, overall, the first half performance has been disappointing. That has been driven by poor performance at Chess. We have explained the reasons for this. COVID restrictions have contributed as well as some customer behaviors and Chess' delivery performance.
We're working hard to make improvements, but the other group businesses have delivered as expected, and we don't see any sign of systemic weakness in our markets or our performance. Over the period, we've begun to see some serious impact from the COVID restrictions in terms of delays to customer deliverables. Undoubtedly, COVID has also affected our ability to win new business, though this is hard to quantify. Restrictions are intensifying again, but we're confident in our ability to manage these challenges. Despite COVID, order intake has been strong and the order book has grown. The second half is extremely well covered this year. Even without further orders, we can see that it will be considerably stronger than the first half and that longer-term order cover is better than ever.
Against this background, the board has confidence in the group's future growth prospects, and this is reflected in our decision to increase the interim dividend by a further 10%. In summary, we continue to see a positive outlook for organic growth in the medium term. Thank you for your attention. We'd be happy to take any questions from the conference call.
If you'd like to ask a question over the phone, please signal by pressing star one on your telephone keypad. Again, that is star one to enter the queue for questions. Again, as a reminder, if you'd like to queue for a question over the conference call, please signal by pressing star one on your telephone keypad. It appears there are no questions over the conference call. I'd like to hand over to Lucy for webcast questions.
If you have any webcast questions, please could you post those now?
I think if we could go back to the questions from the conference call, if that'd be okay now.
Great. We'll now take a question from Andrew Chambers of Edison Investment Research. Please go ahead. Your line is open.
Andrew, at the moment.
Hello?
Yes. Please go ahead, Andrew.
Hi, can you hear me now?
Yeah.
Sorry, I'm having some technical issues with my microphone. I just wanted to focus on Chess for a second. In terms of the business development, I mean, obviously they're having trouble in terms of the delivery of some of the existing activity and the delays in acceptance, et cetera. Are there any major opportunities that they're pursuing, and are any of these at risk as a result of management resources being diverted to improving controls and contract execution, et cetera?
Thanks, Andy. Business developments at Chess has historically been pretty successful. That's one of the things they've been really good at, is getting very close to their customers and being able to provide solutions that are more attractive than those of competitors, and that was exemplified in the very large order intake that they received last year. I mean, it's been much lower in this first half, and as we said, some of the issues at Chess have been caused by order delays. That's certainly not due to systemic problems in Chess business development. In fact, there are a number of quite substantial opportunities that we're optimistic about over the next six months to a year.
We expect Chess to be doing rather better in terms of business development in the period ahead. It is inevitably quite lumpy for a business like Chess, which you know sort of pursues large orders from time to time, and sometimes a few of them land simultaneously, as happened last year. One of the big challenges that we've got and that we're very optimistic about fixing is maintaining that really strong business development capability, innovation, customer closeness, agility while we develop Chess' ability to manage its resources well, ability to deliver well and reliably. Those are the challenges that we face. As we said in the presentation, we're already a good way down that route. Does that answer your question, Andy?
Yeah, thank you for that. More generally on order intake across the group, I think you mentioned strong pipeline of opportunities. Is there a lot of renewals expected in H2, or are you seeing a good raft of new opportunities to actually drive further growth?
Mostly new opportunities. I'm struggling to think of any big renewals we're expecting in the second half. Simon, can you help me out on that?
What, in Chess specifically or in any of the groups?
No, no, across the group.
Um-
No, sorry. Across the group.
No, I'm not aware of any large renewals due, Andy, in the second half. There will be one or two, but nothing significant. I mean, generally it'll be at MASS or SEA where you'd see that, and there's nothing particularly coming up.
Yeah. We had one big renewal in the first half, which was the extension to the Joint Warfare contract at MASS. I don't think any in the second half.
Can I just maybe ask Simon on the cash flow? Obviously the GBP 2.8 million current valuation on the minority will go out by the year end.
Mm-hmm.
In terms of the neutral year-end position, is most of that sort of consuming working capital as you go through via deliveries?
Yes. Yes, very much. ELAC, for example, Andy, had a very positive flow in the first half with the Italian order coming in and some advances which will unwind. Although that depends on the timing of further advances. The one that I can't tell at the moment which way it'll end up is probably MCL, because MCL does have a habit of winning some work towards the end of the MOD's financial year, which MOD likes to get the money spent, but we may not be able to deliver. That can have quite a cash upside in the sort of back end of the year, which then obviously unwinds as we deliver things in the subsequent months. But overall, I'm reasonably. I think that's a prudent position, the zero net debt at the year-end.
Okay, thank you.
I'd now like to hand back to Lucy for our webcast question.
We have a webcast question from Rory Smith at Investec. Please, can you talk about any opportunities that you see at ELAC further to the Italian submarine sonar contract?
Yes, in broad terms, is the answer. I'm not sure I wanna give very detailed specifics. The most obvious one is the follow-on contract from this, because there's gonna be more submarines coming down the path. We also see a mixture of opportunities for major submarine sonar suites in Europe and in Asia. There are certainly already possibilities of providing further, you know, significant offerings as far as submarine sonars are concerned. We see a number of surface ship sonar opportunities as well, particularly in Southeast Asia, but not limited to Southeast Asia, where there's a major anti-submarine problem, as you might imagine.
We see a steady stream of opportunities and indeed orders for ELAC's smaller self-contained specialist hydroacoustic products such as secure underwater communications, pinger localisation sonars for submarine rescue, seabed mapping sonars. We have those coming through the business all the time alongside the Italian order. Yeah, there's a good mixture of both large and small opportunities for ELAC.
Thank you, Andy. Are there any further questions from the webcast? Okay, I will now hand back to Andy for closing remarks.
Thank you very much, Lucy. So I hope you found the presentation helpful. I think in closing, I'd just like to say although it's been a bit of a mixed bag in the first half, we do expect to see a much stronger second half. The combination of positive market dynamics and the very strong order book, which as you'll have seen from the slide showing how it's evolved, has grown tremendously over the last five years, give us a lot of confidence that we will return to growth in the medium term. That confidence manifests itself in our decision to increase the interim dividend by a further 10%.
Thank you very much indeed, and we look forward to speaking to you again in the coming days and months.
Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.