Thank you very much for joining us this morning. For anyone who doesn't know, I'm Andy Thomis. I'm the Chief Executive at Cohort PLC, and I'm here with Simon Walther, Cohort's Finance Director, to take you through our results for the six-month period ended 31 October this year. By way of background, Cohort is a group of seven businesses providing technology-based defence products and services to the U.K. and to its allies around the world. Our business model aims to maximize the autonomy and independence of our businesses, consistent with good financial and regulatory governance. And that means that decisions are taken quickly and close to the customer. It maximizes agility and innovation while supporting our businesses with the strong balance sheet and the market reach that we have as a group.
So today I'm going to start by giving you the highlights from the first six months of the year. Simon will then provide more detail, including a divisional breakdown. And then finally, I'll share my thoughts on the demand picture and on our future prospects. And of course, there'll be an opportunity for questions at the end. In essence, it's been a robust first half. Revenue is up. We have a strong order book and prospects that provide the basis to accelerate the full-year performance and beyond. And our full-year expectations remain unchanged. So let's take a look at the numbers. So revenues continue to increase to a record GBP 128.8 million for the first half, and our profit is in line with expectations. So following a record performance in the prior period, we experienced a small decline in adjusted operating profit, which now sits at GBP 9.7 million.
It was another good period for new orders, which are, of course, the best leading indicator of future growth. The order intake of £122.3 million in the first half has kept our order book close to April's record level at £604.5 million. As at early December, that covered some 96% of external revenue forecasts for the year and will be generating revenue for us well into the 2030s. Adjusted earnings per share for the six months ended 31 October decreased £0.1616. The effective tax rate was 15.5%. The operating cash outflow of £27.9 million was, as expected, reflected a build in working capital ahead of second half deliveries, as well as payments in respect of dividends, capital expenditure. That resulted in a net debt position as at 31 October of £32.5 million. The capital expenditure included £7 million on ELAC's new facility, which was completed on time.
We expect our net funds at the year-end to be in line with previous expectations. We've declared an interim dividend of GBP 0.058, once again representing an increase of 10% on last year's. And that reflects the board's confidence in the group's prospects. So Simon will now talk you through our financial review of the first half of the year. Simon, thanks very much.
Thank you, Andy, and good morning to you all. As Andy's already said, and I will reiterate, another growth in revenue for the group with contribution from our latest acquisition, EM Solutions, offsetting an expected drop in the revenue at MCL. The drop at MCL, along with a mix in sensors and effectors, accounts for the marginally lower trading performance of the group, again in line with expectation. As we indicated at the year-end, we expected the revenue from U.K. MOD to fall back from its high level and as a share of the group's overall revenue to fall below 50%. The growth in our overseas, domestic, and export markets will see the U.K. MOD activity probably remain below 50% going forward for the foreseeable future.
Our expectations for the second half are a much stronger performance, with 96% of our revenue now on order or delivered and producing a full-year net margin of around 12%. Starting with sensors and effectors, the change in mix in this division, despite high revenue, was the cause of the group's overall lower first half trading performance when compared with last year. We saw good order intake at Chess and a return to profitability. We expect this improvement to continue, and under new management, we are looking for Chess to drive more sustainable growth, especially on the back of demand for counter-drone systems and to achieve mid-teen net margins by 2027-2028. At ELAC, the first half saw the relocation of production to the newly completed purpose-built facility in Kiel.
Increased contribution from the Italian contract, which is still being prudently traded ahead of second half deliveries, has suppressed ELAC's trading margin in the first half. We are on course to deliver the first boat sale on this program in the first half of 2026 calendar year when we will review the project's contingency levels. SEA, following the sale of transport business at the end of June, delivered less revenue. Overall net margin for SEA reduced against prior year as lower margin work formed a greater proportion of mix in the first half, especially for delivery to an overseas customer, a project which we will complete in the early part of 26-27. The order cover for this division is 98%, and we expect a much stronger second half, delivering a net margin of around 10% for the full year.
The order book of more than two times annual revenue gives confidence for future growth. Turning then to communications and intelligence division, it's also reported increased revenue at GBP 62.5 million, up 13%. The maiden first-half contribution from EM Solutions, in line with our expectations, offset the fall in MCL's revenue from the exceptional level it achieved last year. Underlying improvements at both EID and MASS further drove the higher revenue for the division. The adjusted operating profit of GBP 10.4 million for the six months to 31st October 2025 was 23% higher, delivering an adjusted operating profit margin of 16.8%. A major factor in the improved net margin was the contribution of EM Solutions. EID's loss for the first half was less than last year's equivalent. The order book at EID continues to strengthen, and we expect significant orders in the second half from the Portuguese Navy.
EID will return to profitability for the year, and our net margin target of mid-teens is likely to be achieved in the next three years. MASS saw good performance from its high margin EWOS operations, electronic warfare operational support, and we expect MASS to perform strongly in the second half. This division's order book increased to £203.6 million, and its revenue cover is now 87%. This is typically lower than sensors and effectors with the short-term nature of some of the work at MASS and most notably MCL. EID infill is linked to the domestic orders which are in progress. The net margin for this division is expected to be over 17% for the full year. This slide shows the factors behind the net funds movement in the period. The first half performance has been driven by two primary outflows.
Firstly, the expected CapEx spend on ELAC's new facility, which completed on time in September, and we will see the final outflows in the second half. Secondly, a return to historic trading patterns as the first half saw significant working capital outflows building for a marked increase in second half deliveries. As usual, the nature of our receipts and payments, a total of probably around £600 million for the year, some of which can be many millions of pounds in size, makes it hard to predict in the short term, but the group remains highly cash generative. Our expectations for the second half are a much stronger performance. As I've already said, with 96% of our revenue now on order or delivered and producing a full-year margin of around 12%, our expectations of closing net funds remain unchanged at £10 to £15 million for the year-end.
With that, I'll hand back to Andy.
Thank you, Simon. So looking towards the mid and longer term, we see a number of opportunities for the group, and I'd like to show you some of the key factors that are driving those opportunities. So we continue to see a strong demand picture in response to the deteriorating security environments and ongoing conflicts that we see across the world. None of us should welcome that, and the risks that we now see are real and a matter of concern. In regions where threats are more immediate, governments are under pressure to upgrade and modernize their defence capabilities at speed. And that is where mid-tier businesses like those within the Cohort group have got the agility and the expertise to provide innovative solutions to those defence challenges.
The main catalysts of demand for defence equipment continue to be the conflict in Ukraine, coupled with the rising tensions between China and its neighbors. Research from SIPRI shows the biggest defence spenders include China, at a remarkable $313.7 billion last year, and Russia with $149 billion. And those persistent geopolitical forces are driving long-term demand for defence capability upgrades. A further catalyst is the arrival of new technology, allowing artificial intelligence-enabled and autonomous systems to be integrated into defence forces. And a good example of that is the U.K.'s recently announced Atlantic Bastion program. These drivers are pushing increased defence spending in Europe, in North America, and parts of Asia-Pacific. As we've seen, the NATO countries have agreed to raise their defence-related spending to 5% of gross domestic product by 2035. And many European countries, particularly those in the north and east, are already increasing their defence spending significantly.
The U.K. remains committed to increasing its defence expenditure to 3.5% of GDP by 2035, with a further 1.5% of GDP on security-related investment. And the imminently expected and awaited defence investment plan in the U.K. is expected to outline where investment will be prioritized. Now, the need to increase defence spending to meet growing threats has been recognized well beyond the immediate vicinity of Russia and China. Modern conflicts demand systems that can adapt quickly and operate autonomously. And the Cohort group is well placed to meet that need and has responded with investment in R&D and future technologies. We continue to see the increased focus on protecting underwater infrastructure, providing opportunities for ELAC and SEA. The need to protect our forces from both cyber and kinetic threats, including missiles and drones, generating opportunities for MASS, for Chess, and SEA.
The growth in manned and unmanned submarine and surface ship programs worldwide, providing opportunities for SEA, for ELAC, for EM Solutions, and for EID. The need for secure digital communications for multinational forces, driving demand for systems like EID's TDCIS and MASS's JEF-Net. And the need for electronic warfare, drones, counter-drone, and communications for the U.K. and its allies at short notice, driving demand for MCL's products. And so the practical result of these geopolitical developments is a sustained higher level of demand for our equipment and services. To share some examples of that demand, EID is focused on providing communication and network systems for new Portuguese Navy vessels, as well as multiple communication systems opportunities for NATO and Asia-Pacific customers. EM Solutions is also pursuing opportunities with the Portuguese Navy, alongside fleet installation opportunities for New Zealand and Australia.
Their work on the Japanese Maritime Defence Force trials is ongoing, and EM Solutions is also working with the Royal Navy here on SATCOM renewals, and as the focus on cyber security increases, MASS has seen an increase in training and electronic warfare exercises for the U.K. and coalition defence customers. MCL continues to work as a trusted partner to the U.K. Ministry of Defence and is progressing with order opportunities for electronic warfare and uncrewed systems. Chess is seeing an increase in demand for its ground-based drone defence systems. ELAC continues to support the Italian Navy program, as well as programs for NATO and Asia, and finally, we're seeing significant growth in opportunities for KraitSense and KraitArray, towed array sonar products at SEA, so all of these things are prospects rather than orders.
The value and the timing of converting these into contracts is uncertain, and the probability of winning them varies. I hope that that helps to paint a picture of the strong demand and the kind of opportunities that we see for the group. Now, as the group has developed, our international presence has widened, and we've seen several examples of that in the first half. That global expansion reflects our commitments to being closer to our customers and to developing defence technology solutions that will support their future needs. In our previous financial presentations, you'll have heard updates on ELAC's new facility in Kiel in Germany. We're pleased to confirm that following our GBP 21 million investment and lots of hard work from their team, that facility is now operational. We look forward to sharing more details during our official launch early next year.
The Italian Navy submarine program has been and continues to be an important focus for our ELAC team. Opening an office in La Spezia in Italy is a key step in strengthening our support for the Italian Navy, enabling closer collaboration, faster response times, and sustained value for this important customer. I was present at the launch event, and the enthusiasm from the Italian team for ELAC's contribution to their capability was unmistakable. SEA has also expanded its geographical footprint with the opening of a state-of-the-art manufacturing site in Ottawa in Canada. Our vision is that the new facility will be the main manufacturing site for SEA's torpedo launcher system for customers in Canada and worldwide. As well as delivering profitable revenue, these strategic investments support our business development activities in important international programmes and long-term growth.
Now, another excellent example of our global expansion is the memorandum of understanding that I signed with the major Korean shipbuilder Hanwha Ocean at the Defence and Security Exhibition in Thailand last month. Now, this agreement signals our ambition jointly to deliver defence technologies to address the needs and requirements of the Royal Thai Navy's second phase frigate acquisition program, and the MOU will provide opportunities for businesses across the Cohort group to come together and provide a package of defence technology solutions, potentially including sonar systems, torpedo launcher systems, and communications management, and that agreement marks a key milestone in our growing relationship with Hanwha Ocean and an important step in strengthening Cohort's international partnerships.
By combining the expertise and technology from across the Cohort group with Hanwha Ocean, we can deliver naval platforms that enhance operational effectiveness and, through unique modular and open architecture design, future-proof vessels to support long-term capability and security. We're excited to be exploring new opportunities alongside Hanwha Ocean and delivering the Cohort group's market-leading maritime capabilities to the Royal Thai Navy. Now, as you know, in January this year, we acquired the Australian satellite communications specialist EM Solutions, expanding our naval defence offering and reinforcing the group's presence in Australasia. Now, led by Joint Managing Directors Georgios Makris and John Logan, the business develops innovative naval satellite terminals that deliver high-speed communications worldwide, and EM Solutions is now fully integrated as the group's seventh business.
Following that successful integration, they've strengthened our performance in the first half, making the largest contribution to group profit of all of our businesses, as well as a $28.6 million Australian dollar order intake. We see much more opportunity ahead for the business in the coming months. Their team made an important contribution to Cohort's presence at the large DSEI exhibition in London earlier this year. That event was valuable for discussions with EM Solutions customers for long-term prospects in Europe and Australia and Japan. It also provided an excellent opportunity to discuss partnering with EID to provide and support satellite terminals in Portugal. Overall, it's been a very encouraging start for EM Solutions as part of the Cohort group. They'll continue to work with our other businesses to gather intelligence on opportunities and to promote their Cobra product family.
So I've explained the key factors driving demand for our defence technology products and services, and this slide shows how that demand is translating into orders for the group. The group's order intake in the period was £122.3 million, delivering a closing order book of £604.5 million, just below the year-end record of £616 million. And our on-contract revenue stretches out to the mid-2030s, with particularly good order intake from MASS and EM Solutions within communications and intelligence, and chess and SEA in sensors and effectors. And our full-year expectations for order intake remain unchanged. And we continue to see a positive outlook for organic growth in the medium term, underpinned, as I've said, by the healthy demand in our core defence markets. And that brings me almost to the end of the presentation and a summary of the main points that I wanted to make.
It's been another strong interim results period for the Cohort Group, and in part, that reflects the growing demand picture that I've talked about, but importantly, it's also a result of the agility and innovation that our business model is designed to optimize and our experienced and entrepreneurial leaders. We have an active acquisition strategy, and we look for businesses that will complement our product portfolio and provide opportunities to enter new markets or to strengthen relationships with existing customers, and the contribution of EM Solutions in this latest results round is a good demonstration of how that strategy actually works in practice. Our financial strength and our public listing underpin customer confidence and enable future investment in acquisitions and in product development. We've sustained our strong order book, and looking forward, we have an exciting pipeline of further opportunities.
And finally, as a result of our performance and our prospects, the board has again felt confident to increase the dividend by 10%. Now, before closing, I want to take the opportunity to mention the great contribution to our success made by our management teams and employees. In the first half, we welcomed some new members to our leadership team. Andy Smith took over as Managing Director of Chess, following a successful career to date at Leonardo and Marshalls. And Michael Flowers, whom some of you might remember from his Chemring days, and Clint Thomas joined us as non-executive directors at EM Solutions. And we look forward to working with them to build on the success of the group. Within our subsidiaries, our reputation as a leading mid-tier defence technology group continues to attract new talent.
And it's the expertise, dynamism, practicality, and integrity of our people that will help secure future business success. We believe that our strategy for organic and acquisition-driven growth will offer our investors high-quality long-term returns. And we'll do that while creating employment, driving innovation, and enhancing the security of the U.K. and its allies. Thank you very much for your attention. Any questions would now be very welcome, and we'll do our best to answer.
Thanks very much. That was a presentation from Andy and Simon, which was recorded just prior to the year. And we're now going to move on to questions with Andy and Simon who are here with us today. And we have a number of questions that have been pre-submitted and also submitted live.
And just as a reminder, if you'd like to ask a question, please do so by typing it into the Q&A box, which is situated on the right-hand side of your screen. Andy and Simon, first question that we have today, order intake in H1 was lower than in the same period last year, despite the overall order book remaining strong. Does management see this as a temporary timing issue or a signal of changing demand?
The answer is very much the former. Orders in our business are quite lumpy, if I can put it that way. I mean, a significant proportion, very high proportion actually, of our revenue comes from orders of the order of £10 million, plus or minus, even though the large majority of our orders are actually much smaller than that.
So you can see from that that a relatively small number of orders of substantial size has quite a big impact. As I explained in the presentation earlier, I mean, the fact is we see a very strong set of opportunities. I would say the opportunities that we see are as strong as I've known them since being at Cohort. So no, I would say we're definitely not seeing a tailing off in demand. The drivers are still very much there, and those are resulting in a lot of opportunity.
Thanks, Andy. And what assumptions underpin the outlook for improved margins from this order book, particularly given lower margin projects in some divisions?
I'm going to invite Simon to comment on that.
Thank you, Andy.
What drives it is the fact that in the communications and intelligence division, we have two high-margin businesses in EM Solutions and MASS that we expect to continue to drive high margin. And at EID, the improved volume will improve operational leverage, and that will improve its net margin. MCL is a more erratic business, but overall for that division, we do expect the net margins to improve from the current sort of 17% upwards over the next few years, probably getting closer to sort of north of 18% towards 19%. Sensors and effectors is the one where the net margins have been lower. Again, the order book is there. It's over £400 million for that division.
And we expect that a combination of improved delivery at Chess, ELAC getting through the development on the Italian submarine program and moving into production, and SEA has had one project that's been particularly low margin that will clear from the business in the early part of 2026, 2027, plus and more of a focus on defence. I mean, SEA also sold its transport division in the first half, which was relatively high margin. But those three factors will look to improve the net margin at sensors and effectors to 10% overall for this financial year and moving onwards from there towards mid-teens, I think, in the next two to three years for the division.
Thanks, Simon. Next question is, net debt has increased compared with last year due to working capital and CapEx build. How does management prioritize investment versus debt reduction?
Again, Simon, I'll invite you to comment on that, although I'll happily add a word at the end if you like.
Okay. What we do is we put in place the suitable facilities to enable us to execute the strategies of the business, one of which is to acquire more businesses through M&A, obviously to invest in our businesses through R&D and CapEx to make sure that operationally they continue to improve, grow, and deliver. But really, it's more what we do as cash comes spare, we then look at whether we would pay down debt. But ultimately, the priority remains in the group to drive the top line and the bottom line to generate more cash to enable us to execute our strategies, at which point the debt positions will be adjusted accordingly.
We are currently in discussions with all of our banks at the moment, and we will be adding new banks to increase the facility, which was put in place almost 10 years ago now in its original form, and the group then, you know, today is heading towards £300 million. It was £100 million then. So it gives you an idea of the scale we're looking at for the new facility to enable us to enact our strategy.
Yeah, thanks. I mean, I'll just add to that that it's a natural part of a business like ours where we're operating some large contracts of multi-year duration that working capital is going to build at some point, and we have to take account of that when we're negotiating bank facilities, as Simon is doing at the moment.
I wouldn't look at, I mean, I wouldn't look at our balance sheet at the moment and say, well, that looks jolly efficient because you've got net debt of GBP 30 million or whatever. That isn't the way we view it. We view it as managing working capital and being able to follow the strategy, as Simon has said, and that's what we need the funds for. But we are not a believer in high leverage, and we'll aim to keep that down to a sensible multiple of EBIT.
Thanks, Andy. Next question. Order book is good. The geopolitical tensions are high, and the management team seems strong. Can you please give us a view on the share price?
Thank you. Well, thank you for your kind comments to whoever raised that question. Well, I think that question may have been posed a few days ago.
We have seen, or we did see, quite a substantial decline in the share price driven by technical factors. I think I can say now that we had, you know, because it's a matter of public record on the shareholder register, we had one particular shareholder who made a strategic decision that now was the time for them to depart. They didn't perhaps manage that in such an orderly way as they might have done. We did see a rather puzzling decline in the share price at a time when, you know, the business is still doing pretty well. You can quite easily track the point at which their disposal activity ceased because that was the point at which the share prices started to tick up again. If you're asking me about it as it is now, it's a bargain.
Thank you, Andy.
Interim dividend was increased by 10% to GBP 5.8 per share. How confident is the board in sustaining dividend growth if profits remain flat or decline?
That's a very hypothetical question because we're not expecting profits to remain flat or decline. I mean, we have, as you'll have seen, increased the dividend annually every year since we floated back in 2006. In most of those years, profit has increased as well. It's worth saying. Even when it didn't, we were very confident that it would in future. But that is something that we're going to consider in relation to our dividend policy and whether it makes sense. That's something that we may communicate further on later in the year. Simon, anything to add to that?
No, not particularly. I mean, you're absolutely right, Andy. We are looking at the policy and linking more the dividend to earnings.
But I remain reasonably confident that we can continue to increase the dividend as shown in our external analyst forecast.
Thanks, Simon. And what risks do you see from geopolitical tensions, international export controls, or compliance frameworks?
Well, there we go. I hope this isn't going to sound overly negative if I'm being asked about risks. Because I mean, overall, I'm very optimistic. Well, geopolitical tensions. There are risks arising from geopolitical tensions. It's very much more of an opportunity because at times of geopolitical tension, countries recognize that they face genuine threats, and they need to invest in defence and security equipment to deter potential hostilities, interventionism from elsewhere, and if necessary, to defend themselves against it. So that's a substantial demand driver. There are risks associated with it, of course, and hybrid warfare, cyber attacks, and so on.
And the defence industry is likely to be an attractor for those sort of things. We look very carefully at those risks, and we aim to ensure that we're as well defended as we possibly can be. In relation to international export controls, well, I don't really see that as a risk because we only export to our nation's allies. We're a multinational business with operations in four different countries. And those countries are themselves close allies, either in NATO or in the Five Eyes community. And we've never had a desire to export to anybody that they wouldn't want us to export to, let me simply put it that way. In relation to compliance frameworks, very important in our sector.
I mean, it is a really core part of our operational strategy that we comply with the legislative and regulatory requirements that surround our business, as you would expect them to surround any business involved in defence equipment in all of the countries in which we operate. And it could be a significant risk if we fail to do that, both reputationally and in terms of sanctions that could be meted out as a result. So that certainly is an important priority, as it is for all responsible businesses in our sector.
Thank you. With autonomous subsidiaries, how do you ensure consistency and synergy across the group?
Consistency, not so much, really. I mean, each of our businesses has their own culture, their own offerings, their own way of doing business.
I consider it a strength of our group that we don't attempt to impose a monoculture across all of the ways that our businesses operate. Now, we do aim to ensure that they aren't fighting against each other and that their strategies are not heading into convergence and competition. We do that through an annual strategy review process, which we're just embarking on, actually, in the next few months at the moment. If it does appear that we've got two or more of our businesses heading very much into the same area, then that's something that we will observe and head off at the pass. No, I think it's really part of our strategy that our businesses operate with a significant degree of autonomy.
In terms of synergy, we have monthly meetings, sorry, quarterly meetings of all of the managing directors, one coming up later this month, when all of them present what it is they're doing, what the opportunities are that they're seeing, where they have issues or problems. And that provides a perfect opportunity for them to identify areas where they can work together. Now, that's not something that we ever impose. It's got to be the choice of the businesses concerned that they partner with each other as opposed to partnering outside. And my view is that you should always choose the best partner, whether that is inside or outside the group. But it turns out that because they know each other well, because they're used to working with each other, it's often the case that it's a smooth process to do that.
And we have quite a few good examples across the group, perhaps the most prominent one being the design and production of the Ancilia missile defence system for the Royal Navy surface ships, which is led by our business SEA, but with our business Chess in a very important supporting role. So yes, we do support that.
Thank you, Andy. Next question is, is there a risk Cohort becomes too complicated for investors to understand compared with simpler defence peers?
I hope not. I don't think we're that difficult to understand. I think if you look at us as a group, we are developing and supplying a range of different defence equipment. Now, if you wanted to sort of look at it at an atomic level and consider every single different piece of equipment that we supply to every single customer, well, then it would be quite complicated.
But that's my job, not Simon's job. That's not the job of investors. I think if you look at it through the lens of what is happening to demand and how does that match what our offerings are, and also how effective is our model, the model that I described in the presentation, as compared to that, say, of our large integrated prime peers like BAE Systems or Thales or whoever, then that's the way to look at us. And I don't think it's overcomplicated at all.
And just as a reminder to people, if they'd like to ask a question, please do so by putting it into the Q&A box situated on the right-hand side of your screen. Next question is, which of your businesses is the strongest performer and which is the most challenging?
That's like asking a mother to choose between her children.
And it varies very much from time to time. That's one of the benefits of having a diverse group in that if we do get a falloff in performance in one area, it's often compensated for by another. But I think I'd direct you to a few different areas as to some of the most exciting businesses that we have. Our new business, EM Solutions, has become for the first time the largest contributor to group profit in the first half of the year, overtaking the previous incumbent in that role, MASS, which has been so for many years. And that's exciting for us. They've got plenty of good prospects as well.
I think SEA has got some really excellent products which are very well aligned with the way demand is evolving, like the KraitArray sonar for uncrewed vessels and the Ancilia missile protection system that I mentioned a moment ago. One of our most exciting businesses is Chess. Chess hasn't been the easiest of our portfolio over the last few years. But their product portfolio is extremely well aligned to demand at the moment for particularly counter-drone systems and systems that will track and localize drones with great accuracy, but also for battlefield surveillance and targeting and maritime surveillance and targeting more generally. So I mean, I could go on because they've all got some real excitement about them. I would expect to see some great order intake very soon from EID, for example. But yeah, I think we're in an exciting time.
So for pretty much all of our businesses, things are looking up.
Thank you, Andy. Sorry, I've just lost the next question that's there. Sorry. There we go. Global expansion is very impressive, but how difficult is it to embed a company that is on the other side of the world is the question.
Yeah. Well, that's a very good question. And one we gave quite a bit of thought to in the process of acquisition when we were looking at EM Solutions. And it is an awfully long way away. And Simon and I have spent more time than an ideal world we might sitting in metal tubes in the air as a result of that. But one particular approach that we thought was really important because there's a big time difference.
I mean, I was up very early this morning having a monthly meeting with the guys from Brisbane in that we have brought in two local non-executive directors. I say local, actually, one from Melbourne and the other's from Canberra, and our business is in Brisbane, but quite a lot more local than Reading. And they are very experienced guys. Michael Flowers is the former chief executive of Chemring PLC, and we knew him from his time in that role, as well as a former Australian Army officer. Clint Thomas is a very distinguished retired admiral who is also the managing director of Serco in Australia as well. So very experienced, both businessmen and very experienced and knowledgeable, and with very strong contacts in the defence, particularly the Navy organization.
They provide very strong support for Simon and myself and the Cohort headquarters working closely with our colleagues in Brisbane.
Thank you, Andy. Some investors avoid defence stocks. Does that limit your shareholder base or access to capital?
I think it's fair to say it certainly hasn't done. We last did a fundraising in November 2024 in advance of the acquisition of EM Solutions. It was just about three times oversubscribed, and that was for some GBP 40 million. I think it's fair to say that investors have had a bit of a rethink about defence since 2022 and Vladimir Putin's invasion of Ukraine, recognizing just how vital defence is to the U.K. and its allies and what a good investment that is, both from a financial point of view and indeed from a social point of view. No, that hasn't affected us.
Simon, do you want to say a word about provision of debt? That's had a similar impact.
Well, quite incredible. In fact, just for this call, I've just come off a meeting with another new bank. As I said, we are in facility renewal discussions at the moment. We have three existing banks. We will add a fourth bank. We already said yes, they'll take part for Australia. But we are looking at adding two, possibly more banks. And there are a lot of banks. There are banks now who are looking at the defence industry who five years ago were not. It's quite remarkable the change in the banking market with its attitude to defence. Yeah.
Thank you. Next question is an interesting article in The Times yesterday about Westland Military Helicopter Factory being weeks from closure. Are you finding government defence contracts hard to predict and manage also?
It was an interesting article, actually. It was the CEO of Leonardo getting a bit aggressive with the U.K. government about the contract for the new helicopter. Are we finding government defence contracts hard to predict and manage? Well, the timing of government contracts and when there's competition, which there sometimes is, whether or not we're going to win it are often difficult to predict. But overall, we generally manage to aim off enough and have got enough experience of operating in this sector that we can make reasonable judgments about them, I would say. I can understand. I mean, I don't share the approach that Leonardo is taking over this one, I have to say.
But I mean, I can understand the frustration because what we saw early last year in the U.K. was a Strategic Defence Review, which I think was an extremely high-quality document, very articulate and very well argued. And we simply haven't seen the implementation of that yet, either in practical terms in terms of actual contracts being awarded or in terms of the follow-on document, which was supposed to say exactly how this new investment in defence is going to take place. And we don't at this stage know when that's going to happen. I mean, there was a strong indication that it was going to happen by the end of last year, but that in the end did not occur. So I can understand why people might be frustrated in the U.K.
We're a very international business, and now less than half of our output goes to the U.K. I'm very optimistic that those promises that were made in the Strategic Defence Review will be acted upon. We're just seeing a little bit of temporary dysfunction here.
Thanks, Andy. Next question is, how large is the execution risk for your larger contracts over the next 18 months?
Where we have large contracts that are complicated to deliver, we take a cautious approach to recognizing revenue and margin. The strongest example of that is ELAC Sonar's contract to supply the complete sonar system for four new Italian submarines that are being built in La Spezia by Fincantieri. It's a very complicated contract. It's a complex supply chain, which adds risk. And it's also technically extremely demanding. I think possibly the most technically demanding contract that we've ever executed as a group.
And it is very substantial, over EUR 100 million now with the various additions that have been made since the contract was originally awarded. But ultimately, that is our bread and butter. That is what we do for a living. It's managing and developing and delivering technology, complex technology in many cases, to customers that actually deals with some very significant issues that are out there. So we do our very best using the knowledge that we've got, the experience that we've got, and taking into account the potential risks to make sure that we don't overtrade. And that's one of the reasons that ELAC has seen a relatively low margin in the first half. Quite a high proportion of its revenue was derived from that Italian contract, which is to say we're trading at low margin.
As and when we see us getting past important risk stages in that program, then we will consider releasing some of that provision. Simon, do you want to add a word about the approach that we're taking on that or to higher risk contracts generally?
No, I think what you said, Andy, is spot on. The one thing I'd add on the Italian program is that we've actually, because of the risk, we actually put in an advisory committee to sit open about the actual project committee as it's run with some extremely eminent and knowledgeable people on that to assist the Germans to deliver it. But no, the approach we take across the group with all of our projects is the same. It's just the bigger projects obviously have potentially bigger swings in them.
Whether it's a €100 million or a million, the approach is taken is the same. They all have an element of risk. It's just obviously the risk in the bigger ones is bigger, naturally. Not always. Some of our big contracts, actually, particularly the service ones, don't have a great deal of deliverable risk. They have other types of risk, but not delivery risk.
Yeah. No, I mean, Simon makes a good point about the project advisory committee. That involves the former head of BAE submarine business and the former chief technologist of Thales's underwater business are providing review and advice on that project. So we've got some very expert people involved.
Thank you, Andy. Next question is, how do you compete with larger defence companies like BAE, QinetiQ, etc.? And who do you see as your main competitors?
BAE is at times a competitor, or actually more frequently, it's a customer. It's in fact one of our largest customers in relation to submarines, for example. BAE is our main customer. And that is often the case, actually, that we both, in many cases, in fact, the same business is a competitor, a customer, and indeed a supplier. That would certainly be the case in relation to Leonardo, for example. But that's just the nature of the defence world. How do we compete with them? Plainly, we're not going to be competing with BAE to produce the next British nuclear submarine. I mean, they have a capability that we couldn't conceivably match there.
But equally, we are very well aligned with the capability, very strong in terms of providing systems like torpedo launchers, intelligence gathering systems, communication systems, sensors of various kinds, the sort of stuff that we supply. And the kind of engineers and the kind of technical professionals that we have and the culture of the businesses and the procedures that we operate with, and also the cost structure of the business as a whole, where unlike BAE, we don't have a large sort of coordination layer sitting between the operational leaders of the business and Simon and myself in the headquarters. All of those give us an execution advantage and, I would say, a cost advantage. So that's why we're able to access these programs very effectively.
Thank you. What percentage of revenue is from NATO countries, and where is future growth likely to come from?
Simon, do you want to comment on the revenue breakdown?
I can't precisely answer the percentage that comes from NATO countries, but I can tell you that currently around 40% is coming from U.K. and EU and around about 7% from Portugal and Germany, which are obviously NATO. So that's 47%. I can tell you there are other elements of the export. I would have thought NATO is probably for us of the order of around about 60%, maybe a bit more. Maybe two-thirds of the group's revenue is NATO. Remember, that would include Canada as well.
Yeah. In terms of future growth, I think the two big drivers, of course, are Ukraine on the one hand and Chinese investment in its armed forces and its aggressive behaviour with them on the other. They're coming in those two areas.
One European NATO, the other Indo-Pacific. And in the Indo-Pacific, we operate in Australia, and we also see, interestingly, an increase in demand from Japan, where defence spending is growing rapidly. We see an increase in cooperative relationships, actually, in South Korea. And you'll have seen from the earlier presentation that we're developing our relationship with Hanwha. And in Europe, obviously, U.K. is a home market, as are Germany and Portugal, but also we see strong demand coming from the Nordic countries and the Baltics, Poland, and potentially Germany as well. So yeah, those are the drivers of demand. I should add that apart from those, we've also seen quite a surprisingly high level of demand from South America. I was puzzled about that until a few days ago, and perhaps I realized they were seeing something I didn't.
But yeah, I mean, actually, not Venezuela, to be fair, or indeed Colombia, but more our sort of allied countries in Chile and Brazil have been significant customers.
Thank you, Andy. In light of the current defence company valuation environment, how is Cohort considering its acquisition strategy? Would you be considering acquisitions in continental Europe to further expand positive spending growth?
Certainly. I don't consider us especially geographically restricted. We would consider acquiring good companies in Europe, in the U.K., or indeed in Australasia, or in Canada, for that matter. I mean, there are some quite significant barriers to acquiring businesses in the U.S., but if we found the right one, then we'd consider doing that as well.
It's more about finding businesses that have got access to growth opportunities and also some kind of sustainable competitive advantage so that we're not just competing with a bunch of peers on who's prepared to accept the lowest margin. And in terms of valuation, well, valuations have generally gone up. But there's not a sort of mystery in that. It's generally because when you're in a period of high demand, businesses are better quality. And we're seeing businesses with longer order books and with better sets of opportunities at the moment. I should caveat all of that by saying, on the one hand, acquisitions remain an important part of our growth strategy, but on the other hand, we're not sort of tied into doing a certain number per year. We do tend to be very choosy and careful about our acquisition targets.
That's superb.
Well, that is just what we have time for at the moment. So Simon, Andy, thanks very much for your time. Andy, maybe I could hand back to you for any closing remarks.
Yeah, I'd just like to say thank you very much to everybody for joining us. It's been a pleasure to talk to you and to answer your interesting questions as ever. And just to leave you with the thought that defence is an exciting and important area to be in at the moment. And it's certainly been an exciting and interesting time for us. And Cohort shares are a good way to gain exposure to that important and exciting market at the moment. And with that, wish you a very good afternoon.
Thank you to Andy and Simon today, and thank you all for joining us. And that concludes the Cohort investor presentation.
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