TIDMGHH
RNS Number : 9112N
Gooch & Housego PLC
07 June 2022
7 June 2022
GOOCH & HOUSEGO PLC
("G&H", the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHSED 31 MARCH 2022
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer
of optical components and systems, today announces its interim
results for the six months ended 31 March 2022.
Key Financials
Period ended 31 March H1 2022 H1 2021 Change
Revenue GBP54.1m GBP58.5m (7.4)%
--------- --------- ----------
Adjusted profit before tax* GBP3.6m GBP4.9m (26.6)%
--------- --------- ----------
Adjusted basic earnings per
share* 11.8p 15.7p (3.9p)
--------- --------- ----------
Net debt excluding IFRS 16 GBP5.9m GBP4.7m GBP1.2m
--------- --------- ----------
Net debt including IFRS 16 GBP12.0m GBP12.1m GBP(0.1)m
--------- --------- ----------
Statutory profit before tax GBP1.2m GBP0.7m 82.2%
--------- --------- ----------
Statutory basic earnings per
share 6.9p 2.1p 4.8p
--------- --------- ----------
Interim dividend per share 4.7 4.5p 0.2p
--------- --------- ----------
*Adjusted for amortisation of acquired intangible assets and
non-recurring items.
Key points
-- Record order book at the half year end of GBP119.9m (31 March
2021: GBP92.8m), an increase of 29.2% or 25.6% at constant
currency. H1 order intake was 1.42 times H1 revenue.
-- Strong and sustained demand in our main target markets. High
demand for industrial lasers, in particular from semiconductors;
G&H has increased market share in a growing market. Medical
lasers continue to benefit from the return of elective surgery.
-- A&D affected by customer driven delays and new programmes
not yet progressing to volume phase. Recent A&D order intake
has been strong, including GBP4 million upgrade of optical imaging
system for the UK MOD's Challenger upgrade programme.
-- Revenue has been constrained by pandemic related factors.
COVID related staff absences impacted our US and UK sites and there
were supply chain shortages. Substantial investment has been made
to increase capacity and good progress has been made with
recruitment of operators and securing our supply chain.
-- Adjusted profit before tax down due to lower volumes and
investment in R&D and manufacturing capacity.
-- Group remains in a strong financial position. A new five year
revolving credit facility ($40m committed/ $30m uncommitted) was
put in place in March.
-- Interim dividend of 4.7p per share (2021: 4.5p) reflecting positive outlook.
-- Clear route to mid-teens returns in the near term through
organic growth, internal investment and our well-established
acquisition strategy.
Mark Webster , Chief Executive Officer of Gooch & Housego,
commented:
"During the first half of the financial year there has been
strong demand for the Group's technologies and capabilities and our
order book has achieved another record level. However, in common
with many industrial businesses, revenue was constrained by COVID
related staff absences and supply chain disruption.
"We have made substantial investment to increase production
capacity in areas where there has been strong demand, primarily
through the hiring and training of new operators and building
resilience within our supply chain. COVID cases have fallen
markedly since the second quarter and absences have returned to
normal levels. As a result we expect trading levels to accelerate
in the second half.
"The Company remains committed to our long term strategic goals
of diversification and moving up the value chain. We intend to
vigorously pursue these goals through internal investment and where
appropriate acquisitions.
"Full year expectations are unchanged and the long-term outlook
for our technologies and capabilities in all our target sectors
remains very strong."
Analyst meeting
A meeting for analysts will be held at 9.30am this morning, 7
June 2022 at the offices of Buchanan, 107 Cheapside, London EC2V
6DN. Analysts who require further details, please contact Buchanan
at G&H@buchanan.uk.com .
A live audio webcast of the meeting will be available via the
following link:
https://webcasting.buchanan.uk.com/broadcast/627a1449945a3a3160c27d7b
Following the meeting, a recording of the webcast will be made
available for replay at the Group's website at
https://gandh.com/investors/.
For further information please contact:
Gooch & Housego PLC Mark Webster / Chris Jewell 01460 256 440
Buchanan Mark Court / Sophie Wills 020 7466 5000
Investec Bank plc (Nomad
& Broker) Chris Baird / David Anderson 020 7597 5970
Notes to editors
1 Gooch & Housego is a photonics technology business with
operations in the USA, Europe and China. A world leader in its
field, the company researches, designs, engineers and manufactures
advanced photonic systems, components and instrumentation for
applications in the Aerospace and Defence, Industrial and Telecom,
Life Sciences and Scientific Research sectors. World leading
design, development and manufacturing expertise is offered across a
broad range of complementary technologies. It is headquartered in
Ilminster, Somerset, UK.
2 . This announcement contains certain forward-looking
statements that are based on management's current expectations or
beliefs as well as assumptions about future events. These are
subject to risk factors associated with, amongst other things, the
economic and business circumstances occurring from time to time in
the countries and sectors in which G&H operates. It is believed
that the expectations reflected in these statements are reasonable
but they may be affected by a wide range of variables which could
cause actual results, and G&H's plans and objectives, to differ
materially from those currently anticipated or implied in the
forward-looking statements. Investors should not place undue
reliance on any such statements. Nothing in this announcement
should be construed as a profit forecast.
Operating and Financial Review
Performance Overview
Order intake for the six month period was 142% of revenue,
compared with 109% of revenue for the second half of FY 2021,
reflecting the accelerating growth in demand for our products and
services. At 31 March 2022 our order book was at a record level of
GBP119.9m (31 March 2021: GBP92.8m), an increase of 29.2%, or 25.6%
at constant currency, compared with the same time last year.
In the first half of the financial year we have seen continued
strong demand from our industrial laser and semiconductor markets.
Demand for hi-reliability fibre couplers remains robust. In our
Life Sciences markets demand for our medical laser products used
extensively in cosmetic surgery has returned strongly, offsetting
reductions in shipments for some of our medical diagnostic products
that returned to good, but more normalised levels of demand post
pandemic.
Our A&D revenues declined compared with the prior period.
Whilst revenues to our commercial aerospace customers are starting
to recover, we saw a number of customer-induced delays for our
Boston site's programmes. Revenues in the first half were also
impacted by reductions in demand for our optical arrays used on
Unmanned Aerial Vehicle platforms as we completed deliveries on
those programmes, whilst future expected ground vehicle programmes
have not yet transitioned to the production delivery phase. Recent
order intake for A&D has been strong, including a GBP4 million
contract to upgrade optical systems on the UK MOD's Challenger tank
upgrade programme.
In common with many businesses our output in the reported period
was constrained as a result of COVID related absences both within
our own teams and those of our suppliers. We have also been
impacted to some degree by supply chain shortages especially for
electronic components from Asia. COVID infection rates at our sites
have fallen substantially since the end of the second quarter of
the financial year and absence rates have now returned to normal
levels.
Labour markets remain competitive in both US and UK and this has
'gated' the rate at which we have been able to add staff to service
our growing order book. Real progress in the hiring and training of
operators has been made in the first half of the financial year.
There has been wage and material inflation across the period, but
the Company is passing on those additional costs in the form of
price increases across most of its portfolio.
Revenue
Six months ended 31 March 2022 2021
---------
GBP'000 GBP'000 % Change
--------------------------- ----------- --------- ---------
Industrial 27,743 26,570 4.4%
Aerospace & Defence 13,127 18,440 (28.8)%
--------------------------- ----------- --------- ------------
Life Sciences 13,264 13,450 (1.4)%
--------------------------- ----------- --------- ------------
Group Revenue 54,134 58,460 (7.4)%
--------------------------- ----------- --------- ------------
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are
industrial lasers, telecommunications, sensing and semiconductor
manufacturing. Industrial lasers are used in a diverse range of
precision material processing applications ranging from
microelectronics and semiconductors to automotive
manufacturing.
Overall, sales of products into our industrial markets in the
six months to 31 March 2022 grew by 4.4%, or 4.7% when measured on
a constant currency basis, compared with the equivalent period last
year. We saw strong growth in industrial lasers, in particular for
lasers used in the manufacture of semiconductors. Our revenues to
these markets would have been even higher if we had been able to
add productive capacity more quickly in our primary Acousto-Optic
site and at our contract manufacturer's facility. Both were 'gated'
by the hiring and training of new staff and good progress has been
made in this regard across the first half of the financial year. We
therefore anticipate a stronger performance in the second half. We
expect demand levels especially from the semiconductor markets to
remain strong.
High levels of COVID absences at our Czech sub contract partner
used for the manufacture of typically 40% of our Hi-Rel fused fibre
couplers constrained output in the first half of the financial
year. Demand remains robust and a higher proportion than in the
past of these fused fibre couplers are destined for space
satellites which command a higher price and margin. We expect an
improved performance in the second half.
Products and Markets - Aerospace & Defence (A&D)
Product quality, reliability and performance are paramount in
this sector, playing to G&H's strengths, along with our
commitment to provide value. We have solid, well established
positions in target designation and range finding, ring laser and
fibre optic gyroscope navigational systems, infrared and RF
countermeasures, periscopes and sighting systems, opto-mechanical
subsystems used in unmanned aerial vehicles (UAVs) and space
satellite communications. We are working with our partners on the
development of new directed energy weapon systems that are
increasingly specified as part of the defensive suites of both
naval and land platforms.
The trend in funding priorities in both the US and Europe
continue to favour G&H products and capabilities. The need for
all weather, precision guidance and targeting generates the demand
for the product capabilities that G&H can offer. The current
conflict in the Ukraine is also generating a recognition of the
continuing importance of armoured vehicles in the modern military
environment, and in that area G&H provides some of the most
advanced optical sighting systems as evidenced by our recent
receipt of a GBP4m order to support the UK MOD's programme to
upgrade the Challenger MBT platform.
Despite the market trends supporting the longer-term growth of
G&H's A&D business, revenue declined by 28.8% during the
first six months of FY2022, compared with the equivalent period
last year (28.9% constant currency). In the first half of FY2021
our Torquay business completed deliveries of laser communication
systems to NEC/JAXA for use in their LUCAS (Laser Utilising
Communication System) that demonstrated the viability of laser
systems for high speed and scaleable space communication. Whilst
this development revenue did not recur in the current half-year
reporting period our work on the project provides the technology
core for several significant tenders that we are currently
submitting to customers for satellite based communication
systems.
Our Boston business delivered lower revenue than the prior
period principally as a result of customer induced programme
delays. The impact of COVID isolation on our customers' ability to
accept product shipments from our facility was significant and
unavoidable given the need for their inspection sign off prior to
our shipment. Despite the disappointing revenue performance of our
Boston site in the period, its order book at the end of March 2022
was almost 50% higher than the equivalent period last year.
Encouragingly we are seeing recovery in demand from our
commercial aerospace customers after the significant downturn
during the pandemic. We are working to increase our productive
capacity especially in our Moorpark, California facility this
financial year. Our principal customers have indicated that they
will consume the extra capacity as soon as it is brought on
line.
Overall we expect a stronger second half and A&D remains an
area of significant long term growth potential for G&H.
Products and Markets - Life Sciences
G&H's three principal Life Sciences revenue streams are
derived from diagnostics applications (the design, development and
manufacturing of diagnostic systems and fibre-optic modules based
around our optical coherence tomography (OCT) technology), surgery
/ treatments (electro-optics and acousto-optics for medical lasers)
and biomedical research (acousto-optics for microscopy
applications).
Our Life Sciences / Biophotonics revenues were down 1.4%
(reported and constant currency) in the six months to 31 March
2022, compared with the very strong prior period comparator. We
have seen further recovery in demand for our components used in
laser surgery, especially elective cosmetic surgery, which fell
away during the pandemic. Offsetting this growth revenues from the
sale of our medical diagnostic equipment, which had benefitted in
particular from high demand for modules used in ventilator systems,
were down compared with H1 2021. Demand for these units have
returned to good, but more normal, pre-pandemic levels.
Our medical diagnostic design team based in our ITL business in
Ashford have secured important orders for the development of our
customers' next generation systems and these are expected to
migrate to production over the coming two/three years. We are
recruiting new software and mechanical design engineers to provide
further capacity for additional customer development projects.
Plans are also in place to invest in our ITL business in the US in
order to provide a US based design and manufacturing offering to
our customers in that market.
Strategy
At Gooch & Housego we create sustainable value by leveraging
our products and capabilities to diversify in to new markets. We
are focussed on moving up the value chain, generating a greater
portion of the Group's revenues from subassemblies and systems. We
are delivering this strategy by focusing on three strategic
priorities.
Focused R&D investment: In the first six months of the
current financial year, G&H invested GBP4.1m in targeted
R&D. This was a 4.7% increase on the same period last year
demonstrating G&H's continued commitment to investing in
targeted R&D programmes.
Our main investment areas are the next generation of precision
lasers and laser systems, optical sensing for harsh environments,
OCT medical diagnostics, laser surgery, space satellite
communications, opto-mechanical systems for UAVs and armoured
vehicles and direct energy systems. In the period the following
projects made notable progress: key components for state of the art
extreme ultra-violet lithography lasers used in the production of
nano-electronics, market leading Germanium Acousto-Optic modulators
for use in semiconductor manufacturing, thermal overlays of our
traditional optical sighting systems for armoured vehicles and
laser based satellite communications. Our R&D teams are working
with our customers on the application of our existing Optical
Coherence Tomography capabilities in to new cancer and cardio
vascular disease detection applications.
We will continue to invest in novel, cutting edge technologies
in order to drive future revenue growth across all of our target
sectors.
Operational Excellence : our ambitious site rationalisation
programme was completed in the reporting period. Final product line
transfers from our Baltimore facility to our Boston facility were
finalised and our production teams in Boston are now servicing
those products from within the existing Boston manufacturing
footprint. Likewise our Precision Optics centre of excellence in
Ilminster is now manufacturing product transferred from our St
Asaph production facility, liaising closely and effectively with
the optical systems design team that have been retained in a new
facility in St Asaph.
As previously reported the transfer of production of our
established acousto-optic products from Ilminster to our Asian
contract manufacturing partner is complete. Their initial ramp up
to volume manufacture of our products has been completed and we are
now supporting them to achieve yet greater volumes to help service
the very significant demand we are seeing for our acousto-optic
products. To that end we have located our own supply chain, quality
and engineering staff permanently in their production facility.
Following the successful transfer of many of our acousto-optic
products to our contract manufacturing partner we are also working
to establish them as a further supply source for our hi-rel fibre
couplers. In time they will become a third source for these
products supplementing our own in-house production as well as that
of our existing European supplier. The production transfer is
progressing well and our contract manufacturing partner is
currently completing the qualification of their production lines
against the very demanding criteria set by our customers. We expect
our partner to contribute to G&H supply of these products from
early FY2023.
We will continue to review our higher volume, established
products with a view to transferring them to our contract
manufacturing partner. Our UK and US sites will focus on newer,
innovative products that require higher local input from our
engineering team.
Revenue in the first half of the financial year has been
constrained by pandemic factors. COVID related absences have
impacted our production sites in the UK and US and key suppliers
during the period. A competitive labour market in the UK and US has
been a 'gating' factor on increasing capacity. COVID related
absences have declined since the middle of the second quarter.
During the first half good progress has been made hiring and
training new operators. We expect these measures to result in
increased output in the second half of the financial year and an
improved performance.
From the beginning of this financial year we have invested
additional resources in to our supply chain team including quality
engineers who undertake a programme of physical visits to our
suppliers' facilities to ensure they adhere to the product
specification and quality levels that we demand of them. They also
explore with our suppliers potential cost reduction opportunities.
Whilst our supply chain has in general experienced some disruption
from COVID absences and cost input inflation the relationships we
have established with them put us in a good position to meet the
our goal of maintaining continuity of supply in the current
challenging market conditions.
Value enhancing acquisitions
G&H continues to evaluate acquisition opportunities that
have the potential to accelerate delivery of the Company's
strategic objectives. Having established a presence in its target
markets, G&H remains focused on moving up the value chain in
each of those markets. We have a clearly defined set of criteria
against which we assess potential acquisition targets. Our focus
areas continue to be in the markets of Life Sciences and Aerospace
& Defence although we also consider acquisition targets in the
Industrial market space if they have particular technologies that
are attractive to us.
During the period we have had a number of discussions with the
management teams of target companies to better assess their
suitability to become part of the G&H Group and the synergistic
opportunities that would result. We remain optimistic that these
conversations will result in the addition of new businesses to the
Group in the near future. The Group has a strong balance sheet and
access to significant debt facilities meaning we are in a strong
position to execute on transactions quickly.
Diversification: The recent pandemic demonstrated the success of
G&H's strategy of balancing the business more evenly between
its three markets offering natural protection against cyclicality
in any particular sector. During the pandemic when our Industrial
and Commercial Aerospace markets declined, our presence in Life
Sciences and Defence markets helped to offset the overall impact on
Group revenues. In the current financial year we are seeing very
strong recovery in our Industrial and Medical Laser markets which
now offset a temporary programmatic reduction in our Defence
revenues as well as the return to more normal demand levels for our
medical diagnostic equipment. We will continue to look to
acquisitions to help us further diversify the business and support
the long-term sustainable growth of the business.
Moving up the Value Chain: We continue to use our research and
development resources to help us secure a greater proportion of our
business from sub-assemblies and systems further supporting our
transition from being a component supplier to a solutions provider.
For example by combining the firmware capabilities of our optical
systems design team in St Asaph with the electronics and software
skills of our Ashford engineering team we are able to offer next
generation multi-band sights incorporating laser range finding and
advanced image overlay for use in next generation optical systems
for military vehicles. Our continuing investments in state of the
art equipment to manufacture and coat precision optics mean that we
are able to offer our customers an expanded range of services and
in turn we are being invited to tender for more complex, innovative
optical assemblies by both existing and new customers.
Principal Risks and Uncertainties
The principal risks and uncertainties to which the Group is
exposed and our approach to managing those risks are unchanged from
those identified on page 47 of our 2021 Annual Report. Whilst the
risk to the business from the pandemic appears to be abating and
COVID related absences in our facilities reduce, we remain alert to
the impact of potential further disruption arising from new
variants of the virus.
The post pandemic recovery in many of our markets has resulted
in increased demand for skilled employees resulting in competitive
labour markets in both the UK and US. In order to retain and
attract employees we have increased levels of pay for some skill
groups beyond the general company-wide salary awards made to our
staff at the beginning of the calendar year.
Employment pressures have also impacted our suppliers who seek
to pass on wage inflation in their supply prices to G&H. In
some cases pandemic related absences have also meant they have been
unable to supply to us. We take measures to protect ourselves from
these risks by maintaining buffer stocks of key components where
necessary although these are not always sufficient protection in
the case of protracted delays. Our supply chain teams also seek to
put in place long-term agreements with our suppliers which help to
lock in pricing for longer and provide some near term protection
against inflationary pressures.
In the medium term our supply chain teams work with our
engineering team to identify and qualify alternative sources of
supply to mitigate the risk from sole source suppliers. In general,
we are able to pass on cost inflation to our customers in the form
of higher prices.
The situation in the Ukraine has not had a material impact on
the Group which had very limited exposure to customers and
suppliers in Russia and the Ukraine prior to the conflict. The
enhanced sanctions regime implemented by UK Government has had no
impact on G&H.
Alternative Performance Measures
In the analysis of the Group's financial performance alternative
performance measures are presented to provide readers with
additional information. The interim report includes both statutory
and adjusted non-GAAP financial measures, the latter of which the
Directors believe better reflect the underlying performance of the
business. Items excluded from the adjusted results, together with
their prior period comparatives, are set out below.
Reconciliation of adjusted performance measures
Operating Net finance Profit before Taxation Profit after Earnings
profit costs tax tax per share
--------------- --------------- ---------------- --------------- ---------------- --------------
Half Year to 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
31 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 pence pence
March
--------------- ------ ------- ------ ------- ------- ------- ------ ------- ------- ------- ------ ------
Reported 1,574 1,175 (353) (505) 1,221 670 504 (132) 1,725 538 6.9 2.1
--------------- ------ ------- ------ ------- ------- ------- ------ ------- ------- ------- ------ ------
Amortisation
of
acquired
intangible
assets 927 1,091 - - 927 1,091 (217) (214) 710 877 2.8 3.5
Restructuring
costs 1,445 3,134 - - 1,445 3,134 (252) (615) 1,193 2,519 4.8 10.1
Deferred tax
on
goodwill - - - - - - (675) - (675) - (2.7) -
Adjusted 3,946 5,400 (353) (505) 3,593 4,895 (640) (961) 2,953 3,934 11.8 15.7
--------------- ------ ------- ------ ------- ------- ------- ------ ------- ------- ------- ------ ------
Adjusted profit before tax was GBP3.6m, a decrease of 26.6% on
the prior year (H1 2021: GBP4.9m). This reduction in profit
reflects lower revenues as a result of the constraining effects on
the Group's output of COVID absences both in house and within our
supply chain and other pandemic effects.
Cash Flow and Financing
In the six months ended 31 March 2022, G&H generated cash
from operations of GBP3.2m, compared with GBP9.7m in the same
period of 2021. A strategic investment of GBP3.3m was made in
inventory to support the ramp up of output expected in the second
half of the year in response to record order book levels. There was
a net inflow of GBP0.1m from the movement on receivables and
payables.
Capital expenditure on property, plant and equipment was GBP3.0m
in the period (2021: GBP3.3m). Further investments have been made
at our Ilminster facility for advanced measuring systems to help
achieve the very tight tolerances required by our customers of the
precision optics supplied to them. We have also invested in our
Boston site to reconfigure the production areas to integrate the
production lines previously located at our Baltimore facility. In
the period we invested in a new Customer Relationship Management
system to assist our sales team in the efficient pursuit of new
orders.
On 31 March 2022 the Group entered in to a new $40m five year
term revolving credit facility with a further $30m flexible
acquisition facility available to support the Group's acquisition
strategy. At the end of March the balance drawn on the revolving
credit facility was $19.6m (September 2021: $14.8m).
At 31 March 2022 the Group's net debt totalled GBP12.0m (30
September 2021 - GBP9.2m) including lease liabilities of GBP6.1m
(30 September 2021 - GBP6.6m). Consistent with the Group's
borrowing agreements, which exclude the impact of IFRS 16, Leases,
our leverage ratio was 0.3 times at 31 March 2022 (31 March 2021:
0.3 times).
Environmental, Social and Governance
During the reporting period we have finalised the installation
of new solar photo-voltaic energy generation systems at both our
Ilminster and Ashford facilities. These two systems have the
capacity to generate approximately 450 kWp, adding to the
self-generated electricity that our Torquay site's solar panels
have provided for the last few years. We have also developed plans
for each of our sites to reduce the energy they consume supporting
this through additional capital expenditure where necessary. In the
first half of the year the Group's greenhouse gas emissions reduced
by 32.3% compared with the comparator period thanks to our site
consolidation programme and the sourcing of 100% of our purchased
electricity in the UK from renewables sources.
In order to strengthen the linkage between the Board and the
wider workforce Jim Haynes, one of our non-executive directors, was
appointed as the director with responsibility for workforce
engagement. Jim has held a number of sessions with employee
representative groups at our sites and feedback from those sessions
is addressed. It is pleasing to note that our employees recognised
and appreciated the support measures put in place by the Group
during the pandemic. It is also clear that many office-based staff
enjoy the greater flexibility given to them for home working which
the Group is keen to support where appropriate to their particular
role.
We are delighted to be offering additional apprenticeship roles
at our Precision Optics centre in Ilminster. These apprentices will
be working in our centre's production areas and will be trained to
set up and operate our state of the art precision optics cutting,
polishing and coating equipment. We look forward to them taking
their place in a few years' time within our production management
teams.
Dividends
Given the positive outlook for the Group, the Board has declared
an interim dividend of 4.7 p per share (2021: 4.5p). This dividend
will be payable to shareholders on the register as at 24 June 2022
on 29 July 2022.
Prospects and outlook
There is strong and sustained demand across the Company's target
markets and our order book stands at a record level. The order book
includes significant new programme wins for next generation
products in the field of acousto-optic modulators, electronic
optical sighting systems and medical lasers. The growth in the
order book has continued since the half year. We have invested in
substantial additional capacity, in particular at our site in
Fremont, CA which services the semiconductor market, Cleveland, OH
which services the medical laser market and Ilminster, Somerset
which services the A&D optics market. These are the areas where
growth in order book demand has been the most significant. Absence
levels in our facilities have returned to normal levels and output
levels are increasing as a result of the investment made in the
first half of the year.
We continue to invest in our highly productive R&D team. Our
engineering resources are focused on working with our customers on
their next generation development programmes. There are a number of
near term opportunities which include developing the next
generation of extreme ultra violet lasers for the manufacture of
nanoelectronics; using our laser based satellite communication
technology in new constellation satellite systems and exploiting
our optical coherence tomography capability in cardiovascular
disease detection. The establishment of our UK precision optics
centre of excellence in Ilminster is resulting in awards for new,
more complex optical assembly work providing us with more valuable
and longer-term revenue opportunities.
We have entered in to a new five-year debt facility. Our balance
sheet is robust, with low net debt and we are in a good position to
continue to invest in our target sectors. The Board's confidence in
the trading prospects of the Group are reflected in an increased
interim dividend for the year.
The Company remains committed to our long term strategic goals
of diversification and moving up the value chain. We intend to
vigorously pursue these goals through internal investment and where
appropriate, acquisitions.
Full year expectations are unchanged and the long-term outlook
for our technologies and capabilities in all our target sectors
remains very strong. We have a clear route to mid teens returns
through organic growth, internal investment and our
well-established acquisition strategy.
Mark Webster Chris Jewell
Chief Executive Officer Chief Financial Officer
7 June 2022
Group Income Statement
Unaudited interim results for the 6 months ended 31 March
2022
Half Year to 31 March Half Year to 31 March Full Year
2022 (Unaudited) 2021 (Unaudited) to 30 September
2021 (Audited)
Note Underlying Non-underlying Total Underlying Non-underlying Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4 54,134 - 54,134 58,460 - 58,460 124,074
Cost of revenue (36,791) - (36,791) (39,575) - (39,575) (82,753)
---------- -------------- -------- ---------- -------------- -------- ----------------
Gross profit 17,343 - 17,343 18,885 - 18,885 41,321
Research and
development (4,118) - (4,118) (3,933) - (3,933) (8,147)
Sales and
marketing (3,994) - (3,994) (3,962) - (3,962) (8,342)
Administration (5,554) (2,372) (7,926) (6,169) (4,225) (10,394) (20,235)
Other income
and expenses 269 - 269 579 - 579 804
---------- -------------- -------- ---------- -------------- -------- ----------------
Operating profit 4 3,946 (2,372) 1,574 5,400 (4,225) 1,175 5,401
Net finance
costs (353) - (353) (505) - (505) (721)
---------- -------------- -------- ---------- -------------- -------- ----------------
Profit before
income tax
expense 3,593 (2,372) 1,221 4,895 (4,225) 670 4,680
Income tax
expense 6 (640) 1,144 504 (961) 829 (132) (1,276)
---------- -------------- -------- ---------- -------------- -------- ----------------
Profit for
the year 2,953 (1,228) 1,725 3,934 (3,396) 538 3,404
---------- -------------- -------- ---------- -------------- -------- ----------------
Basic earnings
per share 7 11.8p (4.9p) 6.9p 15.7p (13.6p) 2.1p 13.6p
Diluted earnings
per share 7 11.7p (4.8p) 6.9p 15.6p (13.5p) 2.1p 13.5p
---------- -------------- -------- ---------- -------------- -------- ----------------
Group Statement of Comprehensive Income
Half Year Half Year Full Year
to to to
31 Mar 31 Mar 2021 30 Sep 2021
2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- --------------
Profit for the period 1,725 538 3,404
Other comprehensive (expense)
/ income
(Losses) / gains on cash flow
hedges (33) 59 (468)
Currency translation differences 1,104 (2,890) (1,621)
-------------- -------------- --------------
Other comprehensive income /
(expense) for the period 1,071 (2,831) (2,089)
Total comprehensive income /
(expense) for the period 2,796 (2,293) 1,315
-------------- -------------- --------------
Group Balance Sheet
Unaudited interim results for the 6 months ended 31 March
2022
31 Mar 2022 31 Mar 2021 30 Sep 2021
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Non-current assets
Property, plant and equipment 38,446 38,354 37,945
Right of use assets 4,908 6,064 5,230
Intangible assets 51,098 51,572 50,835
Deferred tax assets 1,861 1,466 1,883
-------------- -------------- ------------
96,313 97,456 95,893
Current assets
Inventories 31,816 28,226 28,150
Trade and other receivables 24,466 23,861 28,310
Cash and cash equivalents 8,951 15,286 8,352
65,233 67,373 64,812
Current liabilities
Trade and other payables (15,618) (17,704) (19,324)
Borrowings (66) (64) (65)
Lease liabilities (1,485) (1,647) (1,588)
Tax liabilities (1,229) (282) (481)
(18,398) (19,697) (21,458)
Net current assets 46,835 47,676 43,354
-------------- -------------- ------------
Non-current liabilities
Borrowings (14,813) (19,951) (10,903)
Lease liabilities (4,575) (5,684) (5,039)
Provision for other liabilities
and charges (1,444) (1,705) (1,447)
Deferred tax liabilities (7,132) (6,376) (7,582)
(27,964) (33,716) (24,971)
Net assets 115,184 111,416 114,276
-------------- -------------- ------------
Shareholders' equity
Called up share capital 5,008 5,008 5,008
Share premium account 16,000 16,000 16,000
Merger reserve 7,262 7,262 7,262
Cumulative translation reserve 7,158 4,785 6,054
Hedging reserve (168) 392 (135)
Retained earnings 79,924 77,969 80,087
-------------- -------------- ------------
Equity Shareholders' Funds 115,184 111,416 114,276
-------------- -------------- ------------
Statement of Changes in Equity
Unaudited interim results for the 6 months ended 31 March
2022
Share Share Merger Retained Hedging Cumulative Total
capital premium reserve earnings reserve translation equity
account account reserve
-------- -------- -------- --------- -------- ------------ -------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 October 2020 5,008 16,000 7,262 77,075 333 7,675 113,353
Profit for the period - - - 538 - - 538
Other comprehensive
expense for the period - - - - 59 (2,890) (2,831)
-------- -------- -------- --------- -------- ------------ -------
Total comprehensive
income / (expense)
for the period - - - 538 59 (2,890) (2,293)
-------- -------- -------- --------- -------- ------------ -------
Share based payments - - - 356 - - 356
At 31 March 2021 (unaudited) 5,008 16,000 7,262 77,969 392 4,785 111,416
-------- -------- -------- --------- -------- ------------ -------
At 1 October 2021 5,008 16,000 7,262 80,087 (135) 6,054 114,276
Profit for the period - - - 1,725 - - 1,725
Other comprehensive
(expense) / income
for the period - - - - (33) 1,104 1,071
-------- -------- -------- --------- -------- ------------ -------
Total comprehensive
income / (expense)
for the period - - - 1,725 (33) 1,104 2,976
-------- -------- -------- --------- -------- ------------ -------
Dividends (1,928) (1,928)
Share based payments - - - 40 - - 40
At 31 March 2022 (unaudited) 5,008 16,000 7,262 79,924 (168) 7,158 115,184
-------- -------- -------- --------- -------- ------------ -------
Group Cash Flow Statement
Unaudited interim results for the 6 months ended 31 March
2022
Half Year Half Year Full Year
to 31 Mar to 31 Mar to 30 Sep
2022 (Unaudited) 2021 (Unaudited) 2021 (Audited)
GBP'000 GBP'000 GBP'000
------------------ ------------------ ----------------
Cash flows from operating activities
Cash generated from operations 3,216 9,720 16,822
Income tax refunded / (paid) 823 (476) (575)
------------------ ------------------ ----------------
Net cash generated from operating
activities 4,039 9,244 16,247
------------------ ------------------ ----------------
Cash flows from investing activities
Acquisition of subsidiaries, net
of cash acquired - (3,250) (3,250)
Purchase of property, plant and equipment (3,004) (3,340) (5,399)
Sale of property, plant and equipment 3 - 38
Purchase of intangible assets (966) (524) (844)
Interest received 2 1 1
Interest paid (295) (465) (505)
Net cash used in investing activities (4,260) (7,578) (9,959)
------------------ ------------------ ----------------
Cash flows from financing activities
Drawdown of borrowings 4,258 - -
Repayment of borrowings (758) (4,736) (14,093)
Repayment of lease liabilities (796) (899) (2,047)
Dividends paid to ordinary shareholders (1,928) - (1,127)
Net cash generated by / (used in)
financing activities 776 (5,635) (17,267)
------------------ ------------------ ----------------
Net increase/ (decrease) in cash 555 (3,969) (10,979)
Cash at beginning of the period 8,352 19,734 19,734
Exchange gains / (losses) gains on
cash 44 (479) (403)
------------------ ------------------ ----------------
Cash at the end of the period 8,951 15,286 8,352
------------------ ------------------ ----------------
Notes to the Group Cash Flow Statement
Half Year Half Year Full Year
to 31 Mar to 31 Mar to 30 Sep
2022 (Unaudited) 2021 (Unaudited) 2021 (Audited)
GBP'000 GBP'000 GBP'000
Profit before income tax 1,221 670 4,680
Adjustments for:
- Amortisation of acquired
intangible assets 927 1,091 2,081
- Amortisation of other intangible
assets 593 567 1,275
- Loss on disposal of property,
plant and equipment 12 - 95
- Depreciation 3,396 3,282 7,030
- Share based payments 40 356 735
- Amounts claimed under the
RDEC (113) (174) (280)
- Finance income (2) (1) (1)
- Finance costs 355 506 722
------------------ ------------------ ----------------
Total adjustments 5,208 5,627 11,657
Changes in working capital
- Inventories (3,294) 1,528 1,888
- Trade and other receivables 4,427 1,676 (2,655)
- Trade and other payables (4,346) 219 1,252
Total changes in working capital (3,213) 3,423 485
Cash generated from operating
activities 3,216 9,720 16,822
------------------ ------------------ ----------------
Reconciliation of net cash flow to movements in net debt
Half Year Half Year to Full Year
to to 30 Sep
2021
31 Mar 2022 31 Mar 2021 (Audited)
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Increase / (decrease) in cash
in the period 555 (3,969) (10,979)
Drawdown of borrowings (4,258) - -
Repayment of borrowings 1,678 5,635 16,140
Changes in net debt resulting
from cash flows (2,025) 1,666 5,161
New leases (12) (503) (510)
Non cash movements (261) (8) (393)
Translation differences (447) 1,522 1,236
-------------- -------------- ------------
Movement in net debt in the
period / year (2,745) 2,677 5,494
Net debt at start of period (9,243) (14,737) (14,737)
Net debt at end of period (11,988) (12,060) (9,243)
-------------- -------------- ------------
Analysis of net debt
At 1 Oct New leases Cash flow Exchange Non-cash At 31
2021 movement movement Mar
2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- ----------- ---------- ---------- ---------- ---------
Cash at bank and
in hand 8,352 - 555 44 - 8,951
Due within one year
Debt (65) - 32 - (33) (66)
Lease liabilities (1,588) (4) 920 (18) (795) (1,485)
Due after one year
Debt (10,903) - (3,532) (350) (28) (14,813)
Lease liabilities (5,039) (8) - (123) 595 (4,575)
Net debt (9,243) (12) (2,025) (447) (261) (11,988)
--------- ----------- ---------- ---------- ---------- ---------
Notes to the Interim Report
1. Basis of Preparation
The unaudited Interim Report has been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards ("IFRS"), as adopted by the European
Union.
The Group remains significantly within its debt facility
covenants and is forecasting to be cash generative in the second
half of the financial year. These cash flow projections show that
the Group has sufficient funding available to withstand plausible
downside scenarios, and therefore the financial statements have
been prepared on a going concern basis.
The Interim Report was approved by the Board of Directors and
the Audit Committee on 7 June 2022. The Interim Report does not
constitute statutory financial statements within the meaning of the
Companies Act 2006 and has not been audited.
Comparative figures in the Interim Report for the year ended 30
September 2021 have been taken from the Group's audited statutory
financial statements on which the Group's auditors,
PricewaterhouseCoopers LLP, expressed an unqualified opinion. The
comparative figures to 31 March 2021 are unaudited.
The Interim Report will be announced to all shareholders on the
London Stock Exchange and published on the Group's website on 7
June 2022. Copies will be available to members of the public upon
application to the Company Secretary at Dowlish Ford, Ilminster,
Somerset, TA19 0PF.
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2021,
as described in those financial statements.
2. Estimates
The preparation of interim financial statements requires
management to make estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgments made by management in
applying the Company's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 30 September
2021.
3. Financial risk management
The Company's activities expose it to a variety of financial
risks, market risk (including currency risk, cash flow interest
rate risk and price risk), credit risk and liquidity risk.
The interim condensed consolidated financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements and should be read in
conjunction with the Company's annual financial statements as at 30
September 2021. There have been no changes to the risk management
policies since the year end.
4. Segmental analysis
Aerospace Life Sciences Industrial Corporate Total
& Defence / Biophotonics
For half year to 31 March GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2022
Revenue
Total revenue 14,554 14,964 30,206 - 59,724
Inter and intra-division (1,427) (1,700) (2,463) - (5,590)
------------------------------ ---------- --------------- ---------- --------- --------
External revenue 13,127 13,264 27,743 - 54,134
Divisional expenses (14,603) (10,569) (22,937) 465 (47,644)
------------------------------ ---------- --------------- ---------- --------- --------
EBITDA(1) (1,476) 2,695 4,806 465 6,490
EBITDA % (11.2)% 20.3% 17.3% - 12.0%
Depreciation and amortisation (1,234) (784) (1,457) (514) (3,989)
------------------------------ ---------- --------------- ---------- --------- --------
Operating profit before
amortisation of acquired
intangible assets (2,710) 1,911 3,349 (49) 2,501
Amortisation of acquired
intangible assets - - - (927) (927)
------------------------------ ---------- --------------- ---------- --------- --------
Operating profit (2,710) 1,911 3,349 (976) 1,574
Operating profit margin
% (20.6)% 14.4% 12.1% - 2.9%
------------------------------ ---------- --------------- ---------- --------- --------
Add back non-recurring
items 469 188 788 927 2,372
Operating profit excluding
non-recurring items (2,241) 2,099 4,137 (49) 3,946
------------------------------ ---------- --------------- ---------- --------- --------
Adjusted operating profit
margin % (17.1)% 15.8% 14.9% - 7.3%
------------------------------ ---------- --------------- ---------- --------- --------
Aerospace Life Sciences Industrial Corporate Total
& Defence / Biophotonics
For half year to 31 March GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2021
Revenue
Total revenue 18,440 14,742 30,519 - 63,701
Inter and intra-division - (1,292) (3,949) - (5,241)
------------------------------ ---------- --------------- ---------- --------- --------
External revenue 18,440 13,450 26,570 - 58,460
Divisional expenses (18,466) (10,694) (23,618) 433 (52,345)
------------------------------ ---------- --------------- ---------- --------- --------
EBITDA(1) (26) 2,756 2,952 433 6,115
EBITDA % - 20.5% 11.1% - 10.5%
Depreciation and amortisation (1,284) (652) (1,199) (714) (3,849)
------------------------------ ---------- --------------- ---------- --------- --------
Operating profit before
amortisation of acquired
intangible assets (1,310) 2,104 1,753 (281) 2,266
Amortisation of acquired
intangible assets - - - (1,091) (1,091)
------------------------------ ---------- --------------- ---------- --------- --------
Operating profit (1,310) 2,104 1,753 (1,372) 1,175
Operating profit margin
% (7.1%) 15.6% 6.6% - 2.0%
------------------------------ ---------- --------------- ---------- --------- --------
Add back non-recurring
items 1,503 435 1,196 1,091 4,225
Operating profit excluding
non-recurring items 193 2,539 2,949 (281) 5,400
------------------------------ ---------- --------------- ---------- --------- --------
Adjusted operating profit
margin % 1.0% 18.9% 11.1% - 9.2%
------------------------------ ---------- --------------- ---------- --------- --------
(1)EBITDA = Earnings before interest, tax, depreciation and
amortisation.
All of the amounts recorded are in respect of continuing
operations.
4. Segmental analysis continued
Analysis of revenue by destination
Half year Half year
to to
31 Mar 2022 31 Mar 2021
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------- -------------
United Kingdom 13,267 15,008
North and South America 19,224 23,093
Continental Europe 11,910 9,159
Asia-Pacific 9,733 11,200
54,134 58,460
------------- -------------
5. Non-recurring items
Half Year Half Year Full Year
to to to
31 Mar 2022 31 Mar 2021 30 Sep 2021
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- --------------
Profit before tax 1,221 670 4,680
Amortisation of acquired intangible
assets 927 1,091 2,081
Restructuring costs 1,445 3,134 5,860
Adjusted profit before tax 3,593 4,895 12,621
-------------- -------------- --------------
The restructuring costs in the period ended 31 March 2022 relate
to non-recurring costs arising from our manufacturing streamlining
activities, further detail of which is given in the Operating and
Financial Review.
6. Tax expense
Analysis of tax charge in the period
Half Year Half Year Full Year
to to to 30 Sep
2021 (Audited)
31 Mar 2022 31 Mar
2021
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
--------------
Current taxation
UK Corporation tax 356 (105) 722
Overseas tax (100) (79) 292
Adjustments in respect of prior
year tax charge (250) - (807)
Total current tax 6 (184) 207
Deferred tax
Origination and reversal of temporary
differences (118) 316 1
Adjustments in respect of prior
years (392) - 549
Change to UK tax rate - - 519
Total deferred tax (510) 316 1,069
Tax expense per income statement 504 132 1,276
The tax charge for the six months ended 31 March 2022 is based
on the estimated effective rate of the tax for the Group for the
full year to 30 September 2022. The estimated rate is applied to
the profit before tax.
The adjusted effective tax rate is 17.8% (H1 2021: 19.6%).
7. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on
the profit for the period using as a divisor the weighted average
number of Ordinary Shares in issue during the period. The weighted
average number of shares is given below.
Half Year Half Year Full Year
to to to 30 Sep
2021
31 Mar 2021 31 Mar 2021 (Audited)
(Unaudited) (Unaudited)
No. No. No.
-------------- -------------- ------------
Number of shares used for basic
earnings per share 25,040,919 25,040,919 25,040,919
Dilutive shares 127,937 195,624 239,603
Number of shares used for dilutive
earnings per share 25,168,856 25,236,543 25,280,522
-------------- -------------- ------------
A reconciliation of the earnings used in the earnings per share
calculation is set out below:
Half Year to Half Year to Full Year to
31 Mar 2022 31 Mar 2021 30 Sep 2021
(Unaudited)
(Unaudited) (Audited)
p per p per p per
GBP'000 share GBP'000 share GBP'000 share
-------- ------- -------- ------- -------- -------
Basic earnings per share 1,725 6.9p 538 2.1p 3,404 13.6p
Adjustments net of income
tax expense:
Amortisation of acquired intangible
assets 710 2.8p 877 3.5p 1,621 6.5p
Restructuring costs 1,193 4.8p 2,519 10.1p 4,709 18.8p
Adjustment to deferred tax
on goodwill (675) (2.7p) - - - -
Restatement of UK deferred
tax - - - - 519 2.1p
Total adjustments net of
income tax expense 1,228 4.9p 3,396 13.6p 6,849 27.4p
Adjusted basic earnings per
share 2,953 11.8p 3,934 15.7p 10,253 41.0p
-------- ------- -------- ------- -------- -------
Basic diluted earnings per
share 1,725 6.9p 538 2.1p 3,404 13.5p
-------- ------- -------- ------- -------- -------
Adjusted diluted earnings
per share 2,953 11.7p 3,934 15.6p 10,253 40.5p
-------- ------- -------- ------- -------- -------
Adjusted earnings per share before amortisation of acquired
intangible assets and adjustments has been shown because, in the
opinion of the Directors, it more accurately reflects the trading
performance of the Group.
8. Dividend
The Directors have declared an interim dividend of 4.7p per
share for the half year ended 31 March 2022 (2021: 4.5p).
Half Year Half Year Full Year
to to to
31 Mar 2021 31 Mar 2021 30 Sep 2021
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- --------------
Final 2021 dividend paid in 2022:
7.7p per share 1,928 - 1,127
1,928 - 1,127
-------------- -------------- --------------
9. Borrowings
31 March 31 March 30 September
2022 2021 2021
GBP000 GBP000 GBP'000
--------- --------- -------------
Current:
Bank borrowings 66 64 65
Leases 1,485 1,647 1,588
--------- --------- -------------
1,551 1,711 1,653
--------- --------- -------------
Non-current:
Bank borrowings 14,813 19,951 10,903
Leases 4,575 5,684 5,039
19,388 25,635 15,942
--------- --------- -------------
Total borrowings 20,939 27,346 17,595
--------- --------- -------------
G&H's primary lending bank is NatWest Bank. The Group's
facilities comprise a $40m (GBP30.4m) dollar revolving credit
facility and a $30m (GBP22.8m) flexible acquisition facility. At 31
March 2022, the balance drawn on the revolving credit facility was
$19.6m (GBP14.9m) (September 2021: $14.8m (GBP11.0m)) and on the
flexible acquisition facility nil (September 2021: nil).
The facilities above are committed until 31 March 2027 and
attract an interest rate of between 1.6% and 2.1% above rates
specified by the bank dependent upon the Company's leverage ratio,
payable on rollover dates.
The Group's banking facilities are secured on certain of its
assets including land and buildings, property plant and equipment
and inventory.
Maturity profile of bank borrowings
31 March 31 March 30 September
2022 2021 2021
GBP000 GBP000 GBP'000
---------
Within one year 66 64 65
Between one and five years 14,813 19,951 10,903
14,879 20,015 10,968
--------- --------- -------------
Maturity profile of lease liabilities
31 March 31 March 30 September
2022 2021 2021
GBP000 GBP000 GBP'000
---------
Within one year 1,697 1,921 1,819
Between two and five years 3,605 4,616 4,081
After five years 1,505 1,729 1,544
--------- --------- -------------
6,807 8,266 7,444
--------- --------- -------------
10. Called up share capital
31 Mar 2022 30 Sep 2021 31 Mar 2022 30 Sep 2021
No. No. GBP'000 GBP'000
------------
Allotted, issued and fully
paid
Ordinary share of 20p
each 25,040,919 25,040,919 5,008 5,008
------------- ------------- ------------ ------------
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END
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