REG - Gooch & Housego PLC - Interim Results

Gooch & HousegoAnnouncement

04/06/2019 07:06

RNS Number : 0041B
Gooch & Housego PLC
04 June 2019
 


 




 


4 June 2019




GOOCH & HOUSEGO PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2019
Gooch & Housego PLC (AIM:GHH) ("Gooch & Housego", "G&H", the "Company" or the "Group"), the specialist manufacturer of optical components and systems, today announces its interim results for the six months ended 31 March 2019.
Key Financial Highlights




Period ended 31 March


H1 2019


H1 2018


Change




Revenue


£59.7m


£55.6m


7.4%




Adjusted profit before tax1


£5.4m


£7.0m


(22.8%)




Adjusted basic earnings per share 1


16.4p


21.5p


(23.7%)




Net (debt) / cash


(£14.5m)


£5.0m


(£19.5m)




Statutory profit before tax


£1.5m


£5.2m


(71.8%)




Statutory basic earnings per share


1.1p


18.6p


(94.1%)




Interim dividend per share


4.3p


4.2p


2.4%




1 Adjusted for amortisation of acquired intangible assets and non-recurring items.
Highlights
 
·    Revenue growth of 7.4% compared with the same period last year. This was despite a challenging industrial laser market, due to cyclical downturn and continued US/ China trade dispute. Excluding the impact of foreign exchange, an increase of 4.1% over H1 last year
·    We anticipate non- industrial laser business will perform in line with our expectations. Industrial laser orders have increased since our last update, but we are now assuming that industrial laser business will not return to 'normal' levels in FY 2019 and instead we only supply known / high certainty orders.
·    Given revised industrial laser outlook, Board's expectations for the Group's adjusted PBT for FY 2019 now reduced by circa £3.5- 4.0 million
·    Hi- reliability fibre couplers to benefit from investment made in H1 and to show step change in H2. Anticipating a threefold increase in demand over the next three years, compared to FY 2018.
·    Life science business has more than doubled in size compared to H1 last year, due to organic growth across all three main Life Science areas and successful acquisition of ITL
·    Record half year order book of £93.2 million, as at 31 March 2019, an increase of 10.0% compared with the same period last year. Excluding the impact of foreign exchange, an increase of 5.3%.
·    Interim dividend increased to 4.3p (2018:4.2p), reflective of the Board's longer term confidence in the business, whilst acknowledging challenging industrial laser trading conditions
 
Mark Webster, Chief Executive Officer of Gooch & Housego, commented:
"Trading in the last six months has reflected trends previously reported. G&H has long been aware of the risks associated with the cyclical nature of the microelectronics sector and more recently the continued impact of the US/ China trade dispute. Our industrial laser order book has increased since our last update, but we now forecast the industrial laser business will not return to 'normal' levels in FY 2019.
"Technical innovation in microelectronic, semiconductor and industrial manufacturing, coupled with our market leading position means we expect supply of critical components to industrial lasers to be an important source of growth for G&H for the foreseeable future.
"The non- industrial laser business is expected to perform in line with management's expectations. Our fibre optics business generally is performing strongly and in particular we are investing in further capacity to take advantage of the multi- year strong demand growth for hi- reliability fibre couplers.
"We remain confident in the potential of the industrial laser sector and our other markets to provide attractive long term growth.
"G&H remains committed to further diversification and moving up the value chain. We will continue to invest in R&D and where appropriate make acquisitions in order to meet these strategic objectives." 
 
For further information please contact:




Gooch & Housego PLC


Mark Webster / Andrew Boteler


01460 256 440




Buchanan


Mark Court / Sophie Wills


020 7466 5000




Investec Bank plc (Nomad & Broker)


Patrick Robb / David Anderson


020 7597 5970




 
 
 
 
Notes to editors
 
1.     Gooch & Housego is a photonics technology business with operations in the USA and Europe. A world leader in its field, the company researches, designs, engineers and manufactures advanced photonic systems, components and instrumentation for applications in the Aerospace & Defence, Industrial, 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
In sharp contrast to 2018, trading conditions in the first six months of our 2019 financial year were challenging as adverse macro-economic factors including the US/China trade dispute and a downturn in the semiconductor equipment and microelectronics sectors created a difficult business environment. The effect was reduced demand for our critical components for industrial lasers used to manufacture semiconductor equipment and microelectronics. In contrast demand for fibre optic products and hi- reliability fibre couplers used in undersea networks exhibited strong growth. First half revenue growth was 7.4%; excluding the impact of foreign exchange, growth was 4.1%; and excluding the impact of foreign exchange and acquisitions revenue fell by 5.4%.
As previously stated, G&H has long been aware of the potential risks associated with the cyclical nature of the microelectronics sector and more recently the continued impact of the US/China trade dispute. Our industrial laser order book has improved since our last update, but we are now assuming that the industrial laser business will not return to more 'normal' levels in FY 2019 and we only supply orders that are known or where we have a high level of certainty.
We expect the non- industrial laser business will be in line with management expectations. Fibre optics is strong in general and we believe that hi- reliability fibre couplers in particular are about to experience a multi-year growth phase. As a result we are investing in further capacity to take advantage of our market leading position in this area. The benefits of the first phase of this growth should become apparent in the second half of the current financial year.
While there has been necessary investment in extra capacity in the fibre optics business, cost reduction measures will deliver an overall reduction in our cost base for FY 2019. These measures include structural changes which will deliver a leaner, more efficient organisation going forward. 
Our order book stood at £93.2 million as at 31 March 2019, a record for the half year period and which represents an increase of 10.0% compared with the same time last year. Trading conditions improved in the second quarter as microelectronic customer inventory levels began to improve and order activity picked up in the Aerospace & Defense and Telecommunications sectors. Order intake in the second quarter was 38% higher than in the first quarter, though down overall in H1 compared with an historically high comparative.
The increase in our interim dividend by 2.4% reflects a balance between our longer term confidence in the business going forward and our strong balance sheet, whilst acknowledging challenging trading conditions in our industrial laser market.




REVENUE


 


 


 


 


 




Six months ended 31 March


2019


 


2018




 


£'000


% of total


 


£'000


% of total




Industrial


29,603


50%


 


32,457


58%




Aerospace & Defence


18,447


31%


 


18,130


33%




Life Sciences


11,658


19%


 


5,021


9%




Group Revenue


59,708


100%


 


55,608


100%




  
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are industrial lasers, telecommunications, metrology, sensing and semiconductor manufacturing. Industrial lasers are used in a diverse range of precision material processing applications ranging from microelectronics to automotive.
Business in our industrial market was polarised between subsectors in the first six months of the year. Overall, sales of products into our industrial markets in the six months to 31 March 2019 were 8.8% lower compared with the equivalent period last year; excluding foreign exchange this represented a 10.9% decrease.
The industrial laser and semiconductor markets were 14.4% lower, albeit against historically high comparators, due to adverse cyclical macro-economic factors and the continuing US/China trade dispute.
In telecommunications, we believe there will be continued strong demand for fibre optic components used in under-sea telecommunications applications, ultimately from Silicon Valley based companies entering this market and looking to lay their own undersea networks.  Significant orders have been placed, ramp plans are well progressed and we expect a strong performance from this business in the second half of this year and into FY 2020 and FY 2021.
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.
The A&D market for G&H is characterised by high-value, long-term programmes involving the main US and European defence contractors.  Over the past three years, G&H has strengthened its position in this market with the acquisition of four businesses (Kent Periscopes, Alfalight, StingRay & Gould Fiber Optics) whose focus is either entirely or mainly A&D.  This reflects G&H's commitment to this market which continues to represent an attractive growth area as more applications seek photonics solutions in a sector with high regulatory and compliance hurdles and challenging expectations of its equipment. 
Our Aerospace & Defence revenue grew by 1.7% during the first six months of FY2019, compared to the equivalent period last year. Aerospace & Defence reduced organically by 1.6%, compared with the same period last year.  This was primarily driven by programme delays at our Boston site which will come on stream in H2 and should deliver a significantly improved H2 performance.
Products and Markets - Life Sciences / Biophotonics
G&H's three principal Life Sciences / Biophotonics revenue streams are derived from diagnostics (fibre-optic modules for optical coherence tomography ("OCT") applications, surgery / treatments (electro-optics and acousto-optics for lasers) and biomedical research (acousto-optics for microscopy applications). In each application area the Company is making steady progress in moving up the value chain and is currently selling sub-systems as well as components to several larger customers. All areas demonstrated good year on year organic growth.
Our Life Sciences / Biophotonics revenue grew by 132.2% in the six months to 31 March 2019, compared with the equivalent period last year.  This was driven by the acquisition of VITL Ltd ("ITL") in August 2018. On an organic basis, excluding acquisitions the Life Sciences / Biophotonics sector grew by 4.2%.  
 
Strategy
G&H's strategy is built around the twin pillars of diversification and moving up the value chain. In order to ensure its strategic goals are met management actively looks to invest in R&D, acquisitions and strategic partnerships.
R&D: In the first six months of the current financial year, G&H invested £4.0 million in targeted research & development.  Our main target areas are a new 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 laser directed energy weapons. This represents 6.8% of revenue and is 2.2% lower than the same period last year (2018: £4.1m), albeit this is impacted by the strength of Sterling against the US Dollar.  G&H's continued commitment to investing in targeted R&D programmes is bearing fruit, with 24 new products launched in the period ended 31 March 2019.
Diversification:  G&H seeks to develop, through R&D and acquisition, a presence in new markets that offer the potential for significant growth as a result of their adoption of photonic technology, whilst also reducing exposure to cyclicality in any particular sector. We will continue to invest in our key sectors in order to ensure we maintain a balanced portfolio and over time achieve critical mass in Life Sciences and further strengthen our position in A&D. Our recent acquisitions have greatly improved our position in Life Sciences / Biophotonics, which now represents 19.5% of our business (2018: 9.0%).
Moving up the Value Chain: G&H seeks to move up the value chain to more complex sub-assemblies and systems through leveraging its excellence in materials and components, and by providing photonic design and engineering solutions for our customers. This will enable G&H to transition from a components supplier to a solutions provider.   A significant proportion of our business in the Aerospace & Defence market now comes from the sale of sub-systems rather than discrete components. Our recent acquisitions, particularly that of VITL Ltd ("ITL"), are design and sub-assembly businesses and have helped to increase the proportion of our business derived from sub- system or system revenues from 22.4% in H1 2018 to 31.7%, for H1 2019. G&H has a world class capability in opto-mechanical design and this substantially enhances our ability to offer "end to end" design and manufacturing solutions to our customers.
As well as continuing to develop a leadership position in space photonics, the global R&D team is actively engaged in near-market developments in OCT, fibre lasers and fibre optic sensing as the Company leverages its components expertise to move up the value chain in these important areas.
Operations
As previously reported, Gooch & Housego's manufacturing sites have been re-organised into three technical groups, namely Acousto Optic/Electro Optic, Precision Optics/ Systems and Fibre Optics. This is part of becoming a more scalable organisation able to accommodate anticipated growth rates.  There have already been benefits, as we upgrade capacity and performance at Fibre Optic and Acousto Optic sites.
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 27 of our 2018 Annual Report.  
Acquisitions
G&H continues to evaluate various 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 is now focusing on moving up the value chain in each of those markets. Whilst the business will continue to evaluate bolt-on businesses in our core component technologies, continued strong focus is being placed on acquisition opportunities that enhance the Company's ability to wrap electronics and software around core photonic products to yield system-level solutions. In August 2018 G&H acquired VITL Ltd ("ITL"). This acquisition expanded the Company's presence in the life sciences sector and further enables G&H's move into system based products. 
ITL is a UK based specialist in the design, development and manufacture of high quality medical and in vitro diagnostic (IVD) devices. ITL is a market leading supplier with an established group of long standing multi-national customers. It provides full product development, design, manufacturing and after sale service for the commercialisation of medical diagnostic, analytical, precision electro-mechanical and laboratory instruments.  ITL has continued to exceed our expectations.
In September 2018 G&H acquired the trade and assets of Gould Technology LLC, trading as Gould Fiber Optics ("GFO"). This acquisition strengthened G&H's position as the world leader in fused fibre optic technology and provides enhanced access to strategic US aerospace and defence customers. As anticipated action is required to improve GFO's manufacturing capability before we can take full advantage. GFO is performing below our expectations as programme delays have impacted order intake, this will be reflected in the earn out payments.
In November 2018, £2.1 million was paid in respect of the final tranche of the 2016 Kent Periscopes acquisition.  This represented 84% of the maximum potential.
In February 2019, $3.3 million was paid in respect of the final tranche of the 2017 StingRay acquisition.  This represented 83% of the maximum potential.
As part of its bi-annual review of the carrying value of goodwill, the Board has taken the decision to impair the goodwill relating to the Boston cash generating unit. This goodwill arose on the acquisition of EM4, now referred to as Gooch & Housego Boston, in January 2011 for consideration of $11.6 million and, prior to the impairment, the carrying value of the associated goodwill was £5.1m.  Over the last eight years this acquisition has played a vital role in Gooch & Housego's diversification strategy, by providing the systems and critical mass needed for the Company to become a credible player in the Aerospace & Defence market.  The duplication of Boston's technology in our Torquay facility has also been a key factor in allowing Gooch & Housego to address the European space market.  However, on a stand-alone basis, Boston has struggled to grow its engineering services business.  Whilst recent contract awards for this business are encouraging signs for the future,  nevertheless, the Board feels it is appropriate to make an impairment of £2.6m to the carrying value of Boston.
 
 
 




RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES




 




 


Operating profit


Net finance costs


Taxation


Profit after tax


Earnings per share




Half Year to 31 March


2019
£000


2018
£000


2019
£000


2018
£000


2019
£000


2018
£000


2019
£000


2018
£000


2019
pence


2018
pence




Reported


2,976


5,692


(1,494)


(444)


(1,211)


(668)


271


4,580


1.1


18.6




Amortisation of acquired intangible assets


1,829


954


-


-


(74)


(62)


1,755


892


7.0


3.6




Restructuring costs


639


502


-


-


(135)


(103)


504


399


2.0


1.6




Site closure costs


(521)


-


-


-


99


-


(422)


-


(1.7)


-




Impairment of goodwill


2,576


 


-


-


-


-


2,576


-


10.3


-




Interest on discounted deferred consideration


-


-


850


305


-


-


850


305


3.5


1.2




Adjustment to accrued contingent consideration


(1,445)


 


-


-


-


-


(1,445)


-


(5.8)


-




Impact of US tax rate change on deferred tax balances


-


-


-


-


-


(864)


-


(864)


-


(3.5)




Adjusted


6,054


7,148


(644)


(139)


(1,321)


(1,697)


4,089


5,312


16.4


21.5




 
Adjusted profit before tax was £5.4 million, a reduction of 22.8% on the prior year (H1 2018: £7.0 million). This reduction in profit reflects a combination of lower volumes in our micro-electronics market, delays in placing a number of A&D contracts and investment in the capacity expansion to address the surge in demand for undersea telecommunications products. 
 
Cash Flow and Financing
In the six months to 31 March 2019, G&H generated cash from operations of £5.0 million, compared with £1.2 million in the same period of 2018. Inventory has increased by £3.1 million since the year end with the business investing in selected finished goods inventory to both reduce customer lead times and to prepare for the undersea telecommunications demand surge. As expected the year end receivables position has largely unwound and is £5.8 million lower as at 31 March 2019.
 
Capital expenditure on property, plant and equipment was £2.8 million in the period (2018: £2.7 million). The main fixed asset additions were in relation to increasing capacity in our sites. Expenditure on upgrading our ERP system of £0.4m is included in intangible capital expenditure.
The Company's net debt position remains comfortable at £14.5 million, up from £10.6 million at 30 September 2018, following the payment of the StingRay & Kent Periscopes earn outs and the investment in working capital.
Staff
The Company workforce reduced from 1,007 at 30 September 2018 to 990 at the end of March 2019.
 
Board Changes
As previously announced our Chief Financial Officer, Andrew Boteler, will leave G&H in June 2019. His successor, Chris Jewell, is expected to join in September 2019, and we look forward to welcoming Chris to G&H. In the interim period between Andy leaving and Chris' start date our Group Financial Controller Gareth Crowe will lead the finance function.
 
Alex Warnock, our Chief Operating Officer, has decided to step down from the Board, and will leave the Group after the end of the current financial year. He has put in place a strong and experienced management team based around three manufacturing centres, which has been successfully operating in its current structure for the best part of two years. We currently do not intend to replace Alex and the three manufacturing heads will report directly to the CEO.
 
Both Andy and Alex have been an important part of G&H's success, and their hard work, commitment and experience will be missed.  We wish them both well for their future endeavours.
 
Dividends
The Directors have declared an interim dividend of 4.3p per share (2018 : 4.2p per share), a 2.4% increase on the prior period, which is reflective of the Directors' confidence in the business going forward, is underpinned by our strong balance sheet, whilst acknowledging challenging industrial laser trading conditions. This dividend will be payable on 26 July 2019 to shareholders on the register as at 21 June 2019.
Prospects and outlook 
Trading in the last six months has reflected trends we have previously reported. The business has seen a downturn in demand for critical components used in industrial lasers for microelectronic manufacturing, particularly from China. In contrast demand for fibre optic products and hi- reliability fibre couplers used in undersea networks is strong.
 
As previously stated, G&H has long been aware of the potential risks associated with the cyclical nature of the microelectronics sector and more recently the continued impact of the US/ China trade dispute. Our industrial laser order book has improved since our last update, but we are now assuming the industrial laser market will not return to more 'normal' levels in FY 2019 and instead we only supply known or high certainty orders. This has resulted in a reduction in the Board's expectations for the Group's adjusted PBT for FY2019 of circa £3.5 - £4.0 million. 
That said, significant technological innovation in 5G, folding phones and the greater use of industrial lasers in manufacturing, coupled with our market leading position means supply of critical components to industrial lasers will be an important source of growth for G&H into the foreseeable future.
During FY 2019 we have prepared for significant capacity growth in fibre optics generally and hi- reliability fibre couplers specifically, as they undergo a multi-year growth phase.
We remain confident in the potential of the industrial laser sector and our other target markets to provide attractive long term growth.
G&H remains committed to the twin pillars of our strategy, namely diversification and moving up the value chain. As demonstrated by the acquisition of ITL, our acquisition strategy is targeting opportunities that enhance the Company's ability to wrap electronics and software around core photonic products to yield system-level solutions and to deliver  'critical mass' in Life Sciences and further strengthen our position in A&D.
 
 
Mark Webster                                       Andrew Boteler                       
Chief Executive Officer             Chief Financial Officer             
 
4 June 2019                                         
 
Unaudited interim results for the 6 months ended 31 March 2019
 




Group Income Statement






Note


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to
30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Revenue


5


59,708


55,608


124,883




Cost of revenue


 


(39,512)


(33,886)


(74,811)




Gross profit


 


20,196


21,722


50,072




Research and Development


 


(3,552)


(3,739)


(8,229)




Sales and Marketing


 


(4,554)


(4,551)


(9,237)




Administration


 


(10,378)


(8,507)


(22,317)




Other income and expenses


 


1,264


767


507




Operating profit


5


2,976


5,692


10,796




Net finance costs


 


(1,494)


(444)


(683)




Profit before income tax expense


 


1,482


5,248


10,113




Income tax expense


6


(1,211)


(668)


(2,893)




Profit for the period


 


271


4,580


7,220




Basic earnings per share


7


1.1p


18.6p


29.3p




 
Reconciliation of profit before tax to adjusted profit before tax:




 


 


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to       30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Profit before tax


 


1,482


5,248


10,113




Amortisation of acquired intangible assets


 


1,829


954


2,141




Adjustment to accrued contingent consideration


 


(1,445)


-


417




Impairment of goodwill


 


2,576


-


2,708




Site closure costs


 


(521)


 


1,569




Restructuring costs
 


 


639


502


864




Transaction fees


 


-


-


605




Interest on discounted deferred consideration


 


850


305


340




Adjusted profit before tax


 


5,410


7,009


18,757




 
 
 




Group Statement of Comprehensive Income


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to       30 Sep 2018

(Audited)




 


£'000


£'000


£'000




Profit for the period


271


4,580


7,220




Other comprehensive income


 


 


 




Currency translation differences
 


11


(1,496)


1,657




Other comprehensive income / (expense) for the period
 


11


(1,496)


1,657




Total comprehensive income for the period


282


3,084


8,877




 
Unaudited interim results for the 6 months ended 31 March 2019
 




Group Balance Sheet


 


31 Mar 2019

(Unaudited)


31 Mar 2018

(Unaudited)


30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Non-current assets


 


 


 


 




Property, plant and equipment


 


37,942


34,445


38,320




Intangible assets


 


62,146


38,926


65,734




Deferred income tax assets


 


1,725


1,502


1,944




 


 


101,813


74,873


105,998




Current assets


 


 


 


 




Inventories


 


27,570


23,968


24,445




Income tax assets


 


-


638


-




Trade and other receivables


 


29,205


26,691


35,028




Cash and cash equivalents


 


15,566


16,053


19,433




 


 


72,341


67,350


78,906




Current liabilities


 


 


 


 




Trade and other payables


 


(19,778)


(21,747)


(25,262)




Borrowings


 


(76)


(6)


(75)




Income tax liabilities


 


(491)


-


(309)




Provision for other liabilities and charges


 


(1,445)


(884)


(988)




Deferred consideration


 


(6,059)


(4,256)


(5,774)




 


 


(27,849)


(26,893)


(32,408)




 


 


 


 


 




Net current assets


 


44,492


40,457


46,498




 


 


 


 


 




Non-current liabilities


 


 


 


 




Borrowings


 


(30,009)


(11,002)


(29,964)




Deferred income tax liabilities


 


(6,602)


(4,438)


(6,322)




Deferred consideration


 


(2,806)


-


(8,363)




 


 


(39,417)


(15,440)


(44,649)




 


 


 


 


 




Net assets


 


106,888


99,890


107,847




 


 


 


 


 




Shareholders' equity
Capital and reserves

attributable to equity shareholders


 


 


 


 




Called up share capital


 


5,008


4,950


4,982




Share premium account


 


16,000


15,530


15,530




Merger reserve


 


7,262


4,640


7,262




Cumulative translation reserve


 


7,242


4,078


7,231




Retained earnings


 


71,376


70,692


72,842




Equity Shareholders' Funds


 


106,888


99,890


107,847




 
 
Unaudited interim results for the 6 months ended 31 March 2019
 




Statement of Changes in Equity


Share

capital

account

£000


Share

premium

account

£000




Merger

reserve

£000


 
Retained
earnings

£000


Cumulative translation reserve
£000


 
Total
equity
£000
 




At 1 October 2017


4,903


15,530


4,640


67,489


5,574


98,136




Profit for the period


-


-


-


4,580


-


4,580




Other comprehensive expense for the period


-


-


-


-


(1,496)


(1,496)




Total comprehensive income / (expense) for the period


-


-


-


4,580


(1,496)


3,084




Dividends


-


-


-


(1,608)


-


(1,608)




Proceeds from shares issued


47


-


-


(47)


-


-




Fair value of employee services


-


-


-


338


-


338




Tax credit relating to share option schemes


-


-


-


(60)


-


(60)




At 31 March 2018 (unaudited)


4,950


15,530


4,640


70,692


4,078


99,890




 


 


 


 


 


 


 




At 1 October 2018


4,982


15,530


7,262


72,842


7,231


107,847




Profit for the period


-


-


-


271


-


271




Other comprehensive expense for the period


-


-


-


-


11


11




Total comprehensive income for the period


-


-


-


271


11


282




Dividends


-


-


-


(1,767)


-


(1,767)




Proceeds from shares issued


26


470


-


(19)


-


477




Fair value of employee services


-


-


-


338


-


338




Tax debit relating to share option schemes


-


-


-


(289)


-


(289)




At 31 March 2019 (unaudited)


5,008


16,000


7,262


71,376


7,242


106,888




 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 



 
 
 
 
 
 
 
 
 
 
 
 



 
 
Unaudited interim results for the 6 months ended 31 March 2019
 




Group Cash Flow Statement






 


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to 30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Cash flows from operating activities


 


 


 


 




Cash generated from operations


 


5,029


1,151


11,949




Income tax paid


 


(628)


(1,646)


(2,779)




Net cash generated from / (used by) operating activities


 


4,401


(495)


9,170




Cash flows from investing activities


 


 


 


 




Acquisition of subsidiaries, net of cash acquired


 


(3,906)


(4,414)


(24,029)




Disposal of trade and assets


 


-


-


384




Purchase of property, plant and equipment


 


(2,799)


(2,739)


(5,849)




Sale of property, plant and equipment


 


1,480


-


-




Purchase of intangible assets


 


(791)


(922)


(1,377)




Interest received


 


9


7


9




Interest paid


 


(518)


(111)


(304)




Net cash used in investing activities


 


(6,525)


(8,179)


(31,166)




Cash flows from financing activities


 


 


 


 




Drawdown of acquisition borrowing facility


 


-


-


17,272




Repayment of borrowings


 


(37)


(3)


(16)




Dividends paid to ordinary shareholders


 


(1,733)


(1,608)


(2,647)




Net cash (used in) / generated from financing activities


 


(1,770)


(1,611)


14,609




Net decrease in cash


 


(3,894)


(10,285)


(7,387)




Cash at beginning of the period


 


19,433


26,425


26,425




Exchange gains / (losses) on cash


 


27


(87)


395




Cash at the end of the period


 


15,566


16,053


19,433




 
 
 
 
 




Notes to the Group Cash Flow Statement


 


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to
30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Profit before income tax


 


1,482


5,248


10,113




Adjustments for:


 


 


 


 




- Amortisation of acquired intangible assets


 


1,829


954


2,141




- Amortisation of other intangible assets


 


54


67


683




- Profit on disposal of the Orlando building


 


(902)


-


-




- Proceeds from sale of trade and assets


 


-


-


(384)




- Impairment of goodwill


 


2,576


-


2,708




- Adjustment to accrued contingent consideration


 


(1,445)


-


417




- Depreciation


 


2,224


1,933


4,009




- Share based payment obligations


 


338


338


675




- Amounts claimed under the RDEC


 


(195)


(195)


(370)




- Finance income


 


(5)


(7)


(16)




- Finance costs


 


1,499


451


699




Total adjustments


 


5,973


3,541


10,562




 


 


 


 


 




Changes in working capital


 


 


 


 




- Inventories


 


(3,122)


(3,376)


(1,295)




- Trade and other receivables


 


5,828


(2,272)


(7,847)




- Trade and other payables


 


(5,132)


(1,990)


416




Total changes in working capital


 


(2,426)


(7,638)


(8,726)




 


 


 


 


 




Cash generated from operating activities


 


5,029


1,151


11,949




 
 
Reconciliation of net cash flow to movements in net (debt) / cash




 


 


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to
30 Sep 2018

(Audited)




 


 


£'000


£'000


£'000




Decrease in cash in the period


 


(3,894)


(10,285)


(7,387)




Borrowings


 


-


-


(17,272)




Repayment of borrowings


 


37


2


16




Changes in net (debt) / cash resulting from cash flows


 


(3,857)


(10,283)


(24,643)




Finance leases and borrowings acquired


 


-


-


(355)




Translation differences


 


(56)


401


(535)




Movement in net (debt) / cash in the period / year


 


(3,913)


(9,882)


(25,533)




 


 


 


 


 




Net (debt) / cash at start of period


 


(10,606)


14,927


14,927




Net (debt) / cash at end of period


 


(14,519)


5,045


(10,606)




 
Analysis of net debt




 


At 1
 Oct 2018




Cash flow


Exchange movement


At 31 Mar
2019




 


£'000


£'000


£'000


£'000




Cash at bank and in hand


19,433


(3,894)


27


15,566




 


 


 


 


 




Debt due within 1 year


(60)


-


-


(60)




Debt due after 1 year


(29,947)


32


(83)


(29,998)




Finance leases


(32)


5


-


(27)




Net debt


(10,606)


(3,857)


(56)


(14,519)




 
 
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 Interim Report was approved by the Board of Directors and the Audit Committee on 4 June 2019.  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 2018 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 2018 are unaudited.
 
The Interim Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 4 June 2019. 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 2018, as described in those financial statements.
2.      Application of IFRS
 
Adoption of new standards
 
In preparing the interim financial statements, the Group has adopted IFRS15 "Revenue from contracts with customers".  This standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service.  The implementation of IFRS15 has not led to any material change in the recognition of the Group's revenue.
 
3.      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 2018.
 
4.      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 2018.
 
There have been no changes to the risk management policies since the year end.
 
 
 
5.      Segmental analysis




 


Aerospace & Defence


Life Sciences / Biophotonics


Industrial


Corporate


Total




For half year to 31 March 2019


£'000


£'000


£'000


£'000


£'000




Revenue


 


 


 


 


 




Total revenue


18,451


12,044


33,107


-


63,602




Inter and intra-division


(4)


(386)


(3,504)


-


(3,894)




External revenue


18,447


11,658


29,603


-


59,708




Divisional expenses


(17,245)


(9,374)


(26,416)


2,986


(50,049)




EBITDA¹


1,202


2,284


3,187


2,986


9,659




EBITDA %


6.5%


19.6%


10.8%


-


16.2%




Depreciation and amortisation


(460)


(303)


(1,248)


(267)


(2,278)




Operating profit before amortisation of acquired intangible assets


742


1,981


1,939


2,719


7,381




Amortisation of acquired intangible assets and goodwill impairment


-


-


-


(4,405)


(4,405)




Operating profit


742


1,981


1,939


(1,686)


2,976




Operating profit margin %


4.0%


17.0%


6.6%


 


5.0%




Add back non-recurring items


454


30


235


2,360


3,079




Operating profit excluding non-recurring items


1,196


2,011


2,174


674


6,055




Adjusted operating profit margin %


6.5%


17.2%


7.3%


-


10.1%




 


 


 


 


 


 




 


Aerospace & Defence


Life Sciences / Biophotonics


Industrial


Corporate


Total




For half year to 31 March 2018


£'000


£'000


£'000


£'000


£'000




Revenue


 


 


 


 


 




Total revenue


18,130


5,021


36,176


-


59,327




Inter and intra-division


-


-


(3,719)


-


(3,719)




External revenue


18,130


5,021


32,457


-


55,608




Divisional expenses


(15,701)


(4,513)


(26,733)


(15)


(46,962)




EBITDA¹


2,429


508


5,724


(15)


8,646




EBITDA %


13.4%


10.1%


17.6%


-


15.5%




Depreciation and amortisation


(367)


(201)


(1,141)


(291)


(2,000)




Operating profit before amortisation of acquired intangible assets


2,062


307


4,583


(306)


6,646




Amortisation of acquired intangible assets


-


-


-


(954)


(954)




Operating profit


2,062


307


4,583


(1,260)


5,692




Operating profit margin %


11.4%


6.1%


14.1%


-


10.2%




Add back non-recurring items


-


-


-


1,456


1,456




Operating profit excluding non-recurring items


2,062


307


4,583


196


7,148




Adjusted operating profit margin %


11.4%


6.1%


14.1%


-


12.9%




¹EBITDA = Earnings before interest, tax, depreciation and amortisation.
All of the amounts recorded are in respect of continuing operations.

 
5.      Segmental analysis continued
 
Analysis of revenue by destination
 




 


Half year to
31 Mar 2019
(Unaudited)


 


Half year to
31 Mar 2018
(Unaudited)




 


£'000


 


£'000




United Kingdom


15,121


 


8,656




America


21,595


 


20,468




Continental Europe


12,412


 


13,051




Asia-Pacific


10,580


 


13,433




 


59,708


 


55,608




 
 
 
6.      Income tax expense
 
Analysis of tax charge in the period




 




 


Half Year to
31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to 30 Sep 2018 (Audited)




 


 


£'000


£'000


£'000




Current taxation


 


 


 


 




UK Corporation tax


 


917


544


1,895




Overseas tax


 


262


868


1,381




Total current tax


 


1,179


1,412


3,276




 


 


 


 


 




Deferred tax


 


 


 


 




Origination and reversal of temporary differences


 


32


120


481




Impact of change in the US tax rate


 


-


(864)


(864)




Total deferred tax


 


32


(744)


(383)




 


 


 


 


 




Income tax expense per income statement


 


1,211


668


2,893




 


 


 


 


 




 
The tax charge for the six months ended 31 March 2019 is based on the estimated effective rate of the tax for the Group for the full year to 30 September 2019. The estimated rate is applied to the profit before tax. 
 
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 to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to 30 Sep 2018

(Audited)




 


No.


No.


No.




Number of shares used for basic earnings per share


24,926,574


24,660,697


24,629,591




Dilutive shares


208,823


252,099


265,817




Number of shares used for dilutive earnings per share


25,135,397


24,912,796


24,895,408




 
 
A reconciliation of the earnings used in the earnings per share calculation is set out below:
 








 


Half Year to

31 Mar 2019 (Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to

30 Sep 2018

(Audited)




 


£'000


p per

share


£'000


p per

share


£'000


p per

share




Basic earnings per share


271


1.1p


4,580


18.6p


7,220


29.3p




Adjustments net of income tax expense:


 


 


 


 


 


 




Amortisation of acquired intangible assets


1,755


7.0p


892


3.6p


1,865


7.6p




Goodwill impairment


2,576


10.3p


-


-


2,708


11.0p




Adjustment to accrued contingent consideration


(1,445)


(5.8p)


-


-


417


1.7p




Site closure costs


(422)


(1.7p)


 


 


1,210


4.9p




Restructuring costs


504


2.0p


399


1.6p


695


2.8p




Transaction fees


-


-


-


-


489


2.0p




Interest on discounted deferred consideration


850


3.5p


305


1.2p


340


1.4p




Tax credit due to US tax rate change


-


-


(864)


(3.5p)


(864)


(3.5p)




Total adjustments net of income tax expense


3,818


15.3p


732


2.9p


6,860


27.9p




 


 


 


 


 


 


 




Adjusted basic earnings per share


4,089


16.4p


5,312


21.5p


14,080


57.2p




 




Basic diluted earnings per share


271


1.1p


4,580


18.4p


7,220


29.0p


 


 




Adjusted diluted earnings per share


4,089


16.3p


5,312


21.3p


14,080


56.5p


 


 




 
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 4.3 pence per share for the half year ended 31 March 2019.  This dividend has not been accounted for within the period to 31 March 2019 as it is yet to be paid.
 




 


Half Year to

31 Mar 2019

(Unaudited)


Half Year to

31 Mar 2018

(Unaudited)


Full Year to 30 Sep 2018

(Audited)




 


£'000


£'000


£'000




Final 2018 dividend paid: 7.1p per share


1,733


-


-




Final 2017 dividend paid: 6.5p per share


-


1,608


1,608




2018 Interim dividend paid : 4.2p per share


-


-


1,039




 


1,733


1,608


2,647




 
9.      Borrowings
 
The group's banking facilities with NatWest Bank comprise a committed revolving credit facility of $40m and an uncommitted flexible acquisition facility of $20m both available until 31 August 2021.
The revolving credit facility attracts an interest rate of between 1.2% and 1.7% above LIBOR dependent upon the Company's leverage ratio.
 
 
10.     Called up share capital
 




 


2019
No.


2018
No.


2019
£'000


2018
£'000




Allotted, issued and fully paid
Ordinary share of 20p each


 
25,036,397


 
24,907,831


 
5,008


 
4,950




 
 
 
 




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END
 
 
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