REG - Gooch & Housego PLC - Interim Results <Origin Href="QuoteRef">GHH.L</Origin>

Gooch & HousegoAnnouncement

06/06/2017 07:05

RNS Number : 1960H
Gooch & Housego PLC
06 June 2017

6 June 2017
GOOCH & HOUSEGO PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2017
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 2017.
Financial Highlights
Period ended 31 March
HY2017
HY2016
Change (%)
Revenue 
52.2m
38.4m
36.0%
Adjusted profit before tax1
6.2m
5.6m
11.8%
Adjusted basic earnings per share 1
18.7p
17.0p
10.0%
Net cash 
7.8m
12.3m
(36.9%)
Statutory profit before tax 
4.7m
3.5m
33.3%
Basic earnings per share 
14.1p
10.8p
30.6%
Interim dividend per share 
3.7p
3.3p
12.1%
1 Adjusted for amortisation of acquired intangible assets and non-recurring items.
Highlights
 Strong revenue growth driven by telecoms, precision inspection equipment and microelectronic manufacturing sectors
 Revenue growth of 36.0% compared with the same period last year. Excluding the impact of foreign exchange, an increase of 18.2% over last year
 Completed the acquisition of StingRay Optics in February 2017
 Continued investment in people and infrastructure to drive further growth and take advantage of the positive market conditions
 Targeted investment in R&D of 4.5 million, up 28.6% on the previous year
 Adjusted profit growth of 11.8% compared with same period last year
 Cash flow from operations of 7.9 million, compared with 2.9m last year
 Record order book of 66.6 million, as at 31 March 2017, an increase of 70.5% compared with the same period last year
 Interim dividend increased to 3.7p (2016:3.3p)
Mark Webster, Chief Executive Officer of Gooch & Housego PLC, commented on the results:
"G&H is well positioned to take advantage of the positive market conditions and has continued to invest in people and infrastructure in order to meet the demands of a strong order book. We remain on track to meet our full year expectations.
"G&H is committed to a strategy of diversification and moving up the value chain. This has been most evident in the A&D sector where our most recent acquisitions, combined with increased investment in R&D have gone some way towards our goal of achieving 'critical mass' in this sector.
"We will continue to invest in our performance improvement programme, which will underpin our future growth."
For further information please contact:
Gooch & Housego PLC 
Mark Webster / Andrew Boteler
01460 256 440
Buchanan 
Mark Court / Sophie Cowles
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 headquartered in Ilminster, Somerset, UK 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.
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
Market conditions continue to be positive, driven in large part by the telecommunications and industrial sectors, in particular high reliability fibre couplers for undersea cables, precision inspection equipment and critical components used in microelectronic manufacturing. First half revenue growth has been very good, albeit benefitting from a favourable foreign exchange environment and a relatively weak comparator period. The Company saw an acceleration in growth in the period, with the second quarter delivering 16.0% more revenue compared to quarter one. We are expecting a good second half trading performance driven by orders for our fibre business and the continued strength of the microelectronics sector.
Our order book stood at a record 66.6 million as at 31 March 2017, which represents an increase of 70.5% compared to the same time last year. Excluding the impact of foreign exchange and acquisitions this represents an increase of 17.2% over last year. Further investment has been necessary to enable us to take advantage of this strong order book, in particular at our Ilminster site, where we have upgraded equipment and trained new operators.
The increase in our interim dividend by 12.1% reflects our confidence in the business going forward and is underpinned by our strong balance sheet. 
REVENUE





Six months ended 31 March
2017

2016

'000
% of total 

'000
% of total
Industrial
31,336
60%

24,764
65%
Aerospace & Defence
14,578
28%

8,064
21%
Life Sciences
4,751
9%

3,941
10%
Scientific Research
1,488
3%

1,592
4%
Group Revenue
52,153
100%

38,361
100%
Group revenue for the half year was 52.2 million, an increase of 13.8 million, or 36.0% over the comparative period last year. On a constant currency basis, revenue was 18.2% higher. 
Order intake in the first half of the year has been encouraging. The Company has booked 59.5 million in orders since 1 October 2016, compared to 41.1 million in the corresponding period last year. Since March the order book has strengthened further.
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 good in the first six months of the year. Overall, sales of products into our industrial markets in the six months to 31 March 2017 were 26.5% higher compared with the equivalent period last year.
The industrial laser market was a principal driver of the revenue growth due to the continued high demand for precision lasers used in microelectronic manufacturing. This was a demand trend that emerged in the second half of last year. Demand for these products remains strong.
In telecommunications, the "step change" in demand for fibre optic components for under-sea telecommunications applications, reported throughout last year, has continued. We expect this demand to be maintained throughout this year and into next, as non-traditional, Silicon Valley based companies enter this market and look to lay their own undersea networks. Sales of lithium niobate wafers for modulation applications also continue to be high. The overall telecommunications market segment increased by 68% compared with the equivalent period last year.
Products and Markets - Aerospace & Defence
Product quality, reliability and performance are paramount in this sector and that plays 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 and space satellite communications.
The market for G&H is characterised by high-value, long-term programmes involving the main US and European defence contractors. Over the last ten months G&H has strengthened its position in this market with the acquisition of three businesses (Kent Periscopes, Alfalight & StingRay) whose focus is either entirely, or largely Aerospace & Defence. This reflects G&H's commitment to this market which continues to represent an attractive growth area as more applications seek optical solutions in this demanding area. 
Our Aerospace & Defence business grew by 80.8% during the first six months of FY2017, compared to the equivalent period last year. Excluding the impact of acquisitions, Aerospace & Defence grew organically by 15.0% compared to the same period last year.
Products and Markets - Life Sciences
G&H's three principal Life Sciences 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. 
Our Life Sciences business grew by 20.6% in the six months to 31 March 2017, compared with the equivalent period last year, driven mainly by increased demand within our OCT business. 
The principal commercial application of OCT systems is retinal imaging, and G&H continues to be the leading provider of fibre optic solutions (products and design services) to this industry. G&H considers OCT to be a growth technology and is investing both in the development of new products and in keeping its current products competitive.
Products and Markets - Scientific Research
The key application in Scientific Research is laser inertial confinement fusion ("laser fusion"), where lasers are used to create the conditions found in the core of a star, which are part of long term government funded projects, both in the USA and Europe. In addition to pure research in high energy and plasma physics, these vast laser systems are being used to investigate whether this technology could provide clean, carbon-free energy to reduce dependency on fossil fuels. G&H is continuing to supply crystals, precision optics and fibre components for new system construction and expects ongoing business to continue to service replacement and maintenance requirements.

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 considers investment in R&D, acquisitions and strategic partnerships.
R&D: In the first six months of the current financial year, G&H invested 4.5 million in targeted research & development. Our main target areas are fibre based lasers, fibre sensing, precision inspection equipment for microelectronic manufacturing, laser surgery, A&D sub systems, OCT medical diagnostics and space satellite communications. This represents 8.6% of revenue and is 28.6% higher than the same period last year (2016: 3.5m). G&H's continued commitment to investing in targeted R&D programmes is bearing fruit, with a record eighteen new products launched in the period ended 31 March 2017. 
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 all of our key sectors in order to ensure we maintain a balanced portfolio and over time achieve a critical mass in Life Sciences and A&D. Our recent acquisitions have greatly improved our position in A&D, which now represents 28.0% of our business (2016: 21.0%)
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 are all photonic design and sub-assembly businesses and have helped to increase the proportion of our business derived from non-component revenues from 15.2% in FY2016 to 20.8% in FY2017. G&H now has "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 Systems Technology Group 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 reported last year, the Company has committed to upgrading its Cleveland, Ohio facility. This facility, which houses G&H's world leading crystal growth capabilities, is a key contributor to current and future profitability and will benefit from the modernisation that has been taking place. The upgrade is substantially complete and we will have invested in the region of $5 million. The refurbished facility will help drive much needed operational efficiency, provide greater capacity, as well as a more compelling showcase for our capabilities for customers. 
Our continuous improvement programme is proceeding well. Operationally the move to a leanmanufacturing environment across all of our sites is set to deliver efficiency savings in 2017 and the drive for fewer moreproductive R&D projects combined with enhanced business development support has started todeliver an increased number of product opportunities.
Acquisitions
G&H will continue 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 is now focussing 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 February 2017 G&H acquired StingRay Optics LLC ("StingRay"), a New Hampshire, USAbased specialist designer and manufacturer of high performance optical and opto-mechanical subsystemsfor demanding defence and commercial applications.
StingRay was founded in 2004 and has established itself as a market leading designer, manufacturerand supplier of world class custom optical assemblies. The business has a proven capability in providingsystem level optical products for use in harsh environments to key US defence customers. StingRay'sproduct range covers laboratory, ground based, airborne, Unmanned Aerial Vehicles (UAVs) and spaceapplications.
The acquisition of StingRay is aligned with G&H's strategic objectives of moving up the value chain andfurther diversification into the Aerospace & Defence sector. Potential synergies include leveragingG&H's greater reach through our global sales teams and our expertise in manufacturing infraredprecision optics and specialist coatings.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES

Operating Profit
Net finance costs
Taxation
Earnings
per share
Half Year to 31 March
2017
000
2016
000
2017
000
2016
000
2017
000
2016
000
2017
pence
2016
pence
Reported
4,900
3,560
(197)
(33)
(1,261)
(913)
14.1
10.8
Amortisation of acquired intangible assets
797
733
-
-
(214)
(191)
2.4
2.2
Restructuring costs
351
1,106
-
-
(94)
(288)
1.0
3.4
Transaction fees
287
194
-
-
(77)
(50)
0.3
0.6
Interest on discounted deferred consideration
-
-
80
-
-
-
0.9
-
Adjusted
6,335
5,593
(117)
(33)
(1,646)
(1,442)
18.7
17.0
Adjusted profit before tax was 6.2 million, an increase of 11.8% on the prior year (H1 2016: 5.6 million). This strong profit performance has been delivered at the same time as investing in the increased capacity required to deliver the positive demand conditions we are currently experiencing. This investment is largely now in place for the second half of 2017.

Cash Flow and Financing
In the six months to 31 March 2017 G&H generated cash from operations of 7.9 million, compared with 2.9 million in the same period of 2016. In respect of the StingRay acquisition, the consideration payable by G&H will be up to $20 million, on a debt free, cash free basis with a normalised level of working capital remaining in the business. This comprised an initial consideration of $7.5 million in cash which was paid on completion from existing G&H debt facilities and $2.5 million in new G&H ordinary shares, which are 'locked up' for one year from February 2017. There is also a deferred contingent consideration of up to $10 million, payable in cash, based upon the performance of the business for a period of up to three years. 
Capital expenditure on property, plant and equipment was 3.6 million in the period (2016: 5.6 million). The main fixed asset additions were in relation to the modernisation of our Cleveland facility. This investment, together with our continued commitment to the principles of lean manufacturing are vital to improved manufacturing performance and providing increased capacity in the medium term.
The Company's net cash position remains robust at 7.8 million, down from 12.3 million at 30 September 2015, following the acquisition of StingRay.
Staff
The Company workforce increased from 755 at 30 September 2016 to 786 at the end of March 2017. This increase comes largely from the acquisition of StingRay, but also reflects our investment in increased capacity, offset by efficiency savings. 
Dividends
The Directors have declared an interim dividend of 3.7p per share (2016 : 3.3p per share), a 12.1% increase on the prior period, which is reflective of the Directors' confidence in the business going forward and is underpinned by our strong balance sheet. This will be payable on 17 July 2017 to shareholders on the register as at 23 June 2017.
Prospects and outlook
G&H remains committed to the twin pillars of our strategy, namely diversification and moving up the value chain. Our recent A&D acquisitions, combined with increased investment in R&D have gone some way towards achieving our goal of establishing 'critical mass' in this sector.
The Company is well-positioned to take advantage of positive market conditions and has continued to invest in people and infrastructure to meet the demands of a strong order book. We remain on track to meet our full year expectations.
G&H will continue to pursue its strategy and invest in our continuous improvement programme prioritising further operational excellence, enhanced business development in our key markets and a more focused R&D portfolio; all of which will underpin our future performance.
Gareth Jones Mark Webster Andrew Boteler 
Chairman Chief Executive Officer Chief Financial Officer 
6 June 2017    


Unaudited interim results for the 6 months ended 31 March 2017
Group Income Statement


Note
Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 
30 Sep 2016
(Audited)


'000
'000
'000
Revenue
5
52,153
38,361
86,051
Cost of revenue

(31,944)
(25,252)
(53,752)
Gross profit

20,209
13,109
32,299
Research and Development

(4,096)
(2,889)
(6,697)
Sales and Marketing

(4,706)
(2,976)
(6,469)
Administration 

(7,438)
(5,247)
(11,425)
Other income and expenses

931
1,563
2,476
Operating profit
5
4,900
3,560
10,184
Net finance costs

(197)
(33)
(88)
Profit before income tax expense

4,703
3,527
10,096
Income tax expense
6
(1,261)
(913)
(3,048)
Profit for the period

3,442
2,614
7,048
Earnings per share
7
14.1p
10.8p
29.1p
Reconciliation of operating profit to adjusted operating profit:


Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016
(Audited)


'000
'000
'000
Operating profit

4,900
3,560
10,184
Amortisation of acquired intangible assets

797
733
1,263
Gain on bargain purchase

-
-
(578)
Impairment of goodwill

-
-
771
Provision for regulatory compliance risk

-
-
500
Restructuring costs

351
1,106
1,652
Transaction fees

287
194
466
Adjusted operating profit

6,335
5,593
14,258

Group Statement of Comprehensive Income
Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016
(Audited)

'000
'000
'000
Profit for the period
3,442
2,614
7,048
Other comprehensive income



Currency translation difference
1,801
2,289
5,954
Other comprehensive income for the period
1,801
2,289
5,954
Total comprehensive income for the period
5,243
4,903
13,002


Unaudited interim results for the 6 months ended 31 March 2017
Group Balance Sheet

31 Mar 2017
(Unaudited)
31 Mar 2016
(Unaudited)
30 Sep 2016
(Audited)


'000
'000
'000
Non-current assets




Property, plant and equipment

34,935
29,645
32,384
Intangible assets

44,418
21,074
29,916
Deferred income tax assets

2,785
2,382
2,674


82,138
53,101
64,974
Current assets




Inventories

21,025
16,269
18,973
Income tax assets

-
800
394
Trade and other receivables

21,852
15,532
22,679
Cash and cash equivalents

25,686
17,810
23,167


68,563
50,411
65,213
Current liabilities




Trade and other payables

(20,547)
(11,675)
(19,624)
Borrowings

(3)
(10)
(4)
Income tax liabilities

(594)
(312)
(891)
Provision for other liabilities and charges

(803)
(380)
(940)


(21,947)
(12,377)
(21,459)





Net current assets

46,616
38,034
43,754





Non-current liabilities




Borrowings

(17,913)
(5,482)
(11,494)
Deferred income tax liabilities

(4,951)
(3,169)
(4,806)
Deferred consideration

(9,437)
-
(2,256)


(32,301)
(8,651)
(18,556)





Net assets

96,453
82,484
90,172





Shareholders' equity
Capital and reserves
attributable to equity shareholders




Called up share capital

4,895
4,852
4,852
Share premium account

15,530
15,530
15,530
Merger reserve

4,640
2,671
2,671
Cumulative translation reserve

8,785
3,319
6,984
Retained earnings

62,603
56,112
60,135
Equity Shareholders' Funds

96,453
82,484
90,172


Unaudited interim results for the 6 months ended 31 March 2017
Statement of Changes in Equity
Share
capital
account
000
Share
premium
account
000

Merger
reserve
000
Retained 
earnings
000
Total
equity
000
At 1 October 2015
4,818
15,530
2,671
55,348
78,367
Profit for the period
-
-
-
2,614
2,614
Other comprehensive income for the period
-
-
-
2,289
2,289
Total comprehensive income for the period
-
-
-
4,903
4,903
Dividends
-
-
-
(1,254)
(1,254)
Proceeds from shares issued
34
-
-
(34)
-
Fair value of employee services
-
-
-
319
319
Tax credit relating to share option schemes
-
-
-
149
149
At 31 March 2016 (unaudited)
4,852
15,530
2,671
59,431
82,484






At 1 October 2016
4,852
15,530
2,671
67,119
90,172
Profit for the period
-
-
-
3,442
3,442
Other comprehensive income for the period
-
-
-
1,801
1,801
Total comprehensive income for the period
-
-
-
5,243
5,243
Dividends
-
-
-
(1,383)
(1,383)
Proceeds from shares issued
43
-
1,969
(7)
2,005
Fair value of employee services
-
-
-
329
329
Tax credit relating to share option schemes
-
-
-
87
87
At 31 March 2017 (unaudited)
4,895
15,530
4,640
71,388
96,453




















Unaudited interim results for the 6 months ended 31 March 2017
Group Cash Flow Statement 



Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016
(Audited)


'000
'000
'000
Cash flows from operating activities




Cash generated from operations

7,871
2,911
13,897
Income tax paid

(802)
(465)
(1,324)
Net cash generated from operating activities

7,069
2,446
12,573
Cash flows from investing activities




Acquisition of subsidiaries, net of cash acquired

(5,549)
-
(5,687)
Purchase of property, plant and equipment

(3,568)
(5,639)
(9,710)
Sale of property, plant and equipment

26
-
-
Purchase of intangible assets

(348)
(654)
(629)
Interest received

18
20
39
Interest paid

(109)
(50)
(111)
Net cash used in investing activities

(9,530)
(6,323)
(16,098)
Cash flows from financing activities




Drawdown of acquisition borrowing facility

6,045
-
5,426
Repayment of borrowings

-
(29)
(39)
Dividends paid to ordinary shareholders

(1,383)
(1,254)
(2,055)
Net cash generated from / (used in) financing activities

4,662
(1,283)
3,332
Net increase / (decrease) in cash

2,201
(5,160)
(193)
Cash at beginning of the period

23,167
22,556
22,556
Exchange gains on cash 

318
414
804
Cash at the end of the period

25,686
17,810
23,167

Notes to the Group Cash Flow Statement

Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to
30 Sep 2016
(Audited)


'000
'000
'000
Profit before income tax

4,703
3,527
10,096
Adjustments for:




- Amortisation of acquired intangible assets

797
733
1,263
- Amortisation of other intangible assets

98
110
355
- Gain on bargain purchase of Alfalight

-
-
(578)
- Impairment of goodwill

-
-
771
- Depreciation

1,750
1,428
3,042
- Share based payment obligations

329
319
638
- Finance income

(17)
(20)
(39)
- Finance costs

214
53
127
Total adjustments

3,171
2,623
5,579





Changes in working capital




- Inventories

(605)
220
223
- Trade and other receivables

1,578
(811)
(4,706)
- Trade and other payables

(976)
(2,648)
2,705
Total changes in working capital

(3)
(3,239)
(1,778)





Cash generated from operating activities

7,871
2,911
13,897
Reconciliation of net cash flow to movements in net cash


Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to
30 Sep 2016
(Audited)


'000
'000
'000
Increase / (decrease) in cash in the period

2,201
(5,160)
(193)
Borrowings

(6,045)
-
(5,426)
Repayment of borrowings

-
29
39
Changes in net cash resulting from cash flows

(3,844)
(5,131)
(5,580)
Finance leases acquired

-
-
(25)
Translation differences

(54)
121
(55)
Movement in net cash in the period / year

(3,898)
(5,010)
(5,660)





Net cash at start of period

11,668
17,328
17,328
Net cash at end of period

7,770
12,318
11,668


Analysis of net cash 

At 1
Oct 2016

Cash flow
Exchange movement
At 31 Mar 
2017

'000
'000
'000
'000
Cash at bank and in hand
23,167
2,201
318
25,686





Debt due after 1 year
(11,474)
(6,045)
(371)
(17,890)
Finance leases
(25)
-
(1)
(26)
Net cash
11,668
(3,844)
(54)
7,770


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 6 June 2017.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 2016 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 2016 are unaudited.
The Interim Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 6 June 2017. 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 2016, as described in those financial statements.
2.Application of IFRS
Adoption of new standards
During the current reporting period there were no new standards or amendments which had a material impact on the net assets of the Group.In addition, standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group. However, the Group is closely monitoring the IASB projects on Contract Revenue recognition and the Lease accounting overhaul as they could potentially have a material impact on the Group's results.
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 2016.
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 2016.
There have been no changes to the risk management policies since the year end.


5.Segmental analysis

Aerospace & Defence
Life Sciences
Industrial
Scientific Research
Corporate
Total
For half year to 31 March 2017
'000
'000
'000
'000
'000
'000
Revenue






Total revenue
14,578
4,751
34,463
1,488
-
55,280
Inter and intra-division
-
-
(3,127)
-
-
(3,127)
External revenue
14,578
4,751
31,336
1,488
-
52,153
Divisional expenses
(13,178)
(4,216)
(25,121)
(1,415)
(677)
(44,607)
EBITDA
1,400
535
6,215
73
(677)
7,546
EBITDA %
9.6%
11.3%
19.8%
4.9%
-
14.5%
Depreciation and Amortisation
(334)
(192)
(942)
(57)
(324)
(1,849)
Operating profit before amortisation of acquired intangible assets 
1,066
343
5,273
16
(1,001)
5,697
Amortisation of acquired intangible assets 
-
-
-
-
(797)
(797)
Operating profit
1,066
343
5,273
16
(1,798)
4,900
Operating profit margin %
7.3%
7.2%
16.8%
1.1%
-
9.4%
Add back non-recurring items
-
-
-
-
638
638
Operating profit excluding non-recurring items
1,066
343
5,273
16
(1,160)
5,538
Adjusted profit margin %
7.3%
7.2%
16.8%
1.1%
-
10.6%








Aerospace & Defence
Life Sciences
Industrial
Scientific Research
Corporate
Total
For half year to 31 March 2016
'000
'000
'000
'000
'000
'000
Revenue






Total revenue
8,064
3,941
27,365
1,592
-
40,962
Inter and intra-division
-
-
(2,601)
-
-
(2,601)
External revenue
8,064
3,941
24,764
1,592
-
38,361
Divisional expenses
(7,364)
(3,271)
(20,059)
(1,375)
(462)
(32,531)
EBITDA
700
670
4,705
217
(462)
5,830
EBITDA %
8.7%
17.0%
19.0%
13.6%
-
15.2%
Depreciation and Amortisation
(248)
(178)
(985)
(66)
(60)
(1,537)
Operating profit before amortisation of acquired intangible assets
452
492
3,720
151
(522)
4,293
Amortisation of acquired intangible assets 
-
-
-
-
(733)
(733)
Operating profit
452
492
3,720
151
(1,255)
3,560
Operating profit margin %
5.6%
12.5%
15.0%
9.5%
-
9.3%
Add back non-recurring items
21
23
1,055
7
194
1,300
Operating profit excluding non-recurring items
473
515
4,775
158
(1,061)
4,860
Adjusted profit margin %
5.9%
13.1%
19.3%
9.9%
-
12.7%
EBITDA = 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 2017
(Unaudited)

Half year to 
31 Mar 2016
(Unaudited)

'000

'000
United Kingdom
8,714

8,351
America
21,393

15,189
Continental Europe
11,675

8,687
Asia-Pacific
10,371

6,134

52,153

38,361
6.Income tax expense
Analysis of tax charge in the period



Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016 (Audited)


'000
'000
'000
Current taxation




UK Corporation tax

569
448
1,760
Overseas tax

517
319
887
Adjustments in respect of prior year tax charge

-
-
(77)
Total current tax

1,086
767
2,570





Deferred tax




Origination and reversal of temporary differences

175
146
218
Adjustments in respect of prior year deferred tax

-
-
290
Impact of change in the UK tax rate

-
-
(30)
Total deferred tax

175
146
478





Income tax expense per income statement

1,261
913
3,048





The tax charge for the six months ended 31 March 2017 is based on the estimated effective rate of the tax for the Group for the full year to 30 September 2017. 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 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016
(Audited)

No.
No.
No.
Number of shares used for basic earnings per share
24,374,577
24,213,432
24,248,471
Dilutive shares
376,517
393,973
436,112
Number of shares used for dilutive earnings per share
24,751,094
24,607,405
24,684,583
A reconciliation of the earnings used in the earnings per share calculation is set out below:



Half Year to
31 Mar 2017 (Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to
30 Sep 2016
(Audited)

'000
p per
share
'000
p per
share
'000
p per
share
Basic earnings per share
3,442
14.1p
2,614
10.8p
7,048
29.1p
Adjustments net of income tax expense:






Amortisation of acquired intangible assets
583
2.4p
542
2.2p
930
3.8p
Goodwill impairment
-
-
-
-
771
3.2p
Gain on bargain purchase of Alfalight
-
-
-
-
(578)
(2.4p)
Provision for regulatory risk compliance
-
-
-
-
500
2.1p
Restructuring costs
257
1.0p
818
3.4p
1,261
5.2p
Transaction fees
210
0.9p
144
0.6p
373
1.5p
Interest on discounted deferred consideration
80
0.3p
-
-
-
-
Total adjustments net of income tax expense
1,130
4.6p
1,504
6.2p
3,257
13.4p







Adjusted basic earnings per share
4,572
18.7
4,118
17.0p
10,305
42.5p
Basic diluted earnings per share
3,442
13.8
2,614
10.6p
7,048
28.6p
Adjusted diluted earnings per share
4,572
18.5
4,118
16.7p
10,305
41.7p
Adjusted earnings per share before amortisation 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 3.7 pence per share for the half year ended 31 March 2017.This dividend has not been accounted for within the period to 31 March 2017 as it is yet to be paid.

Half Year to
31 Mar 2017
(Unaudited)
Half Year to
31 Mar 2016
(Unaudited)
Full Year to 30 Sep 2016
(Audited)

'000
'000
'000
Final 2016 dividend paid: 5.7p per share
1,383
-
-
Final 2015 dividend paid : 5.2p per share
-
1,254
1,254
2016 Interim dividend paid : 3.3p per share
-
-
801

1,383
1,254
2,055
9.Borrowings
The group's banking facilities with the Royal Bank of Scotland comprise a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m both available until 30 April 2019.
The revolving credit facility attracts an interest rate of between 0.9% and 1.8% above LIBOR dependent upon the Company's leverage ratio.
10. Called up share capital

2017
No.
2016
No.
2017
'000
2016
'000
Allotted, issued and fully paid
Ordinary share of 20p each
24,476,471
24,260,024
4,895
4,852
11. Acquisition of StingRay Optics LLC
On 21 February 2017, the Group completed the acquisition of the entire unit capital of StingRay Optics LLC, a Keene, New Hampshire, based specialist designer and manufacturer of high performance optical and opto-mechanical subsystems for demanding defence and commercial applications. The acquisition strengthened the Group's position in the aerospace and defence sector.
The consideration for the acquisition will be up to $20m comprising initial consideration of $7.5m paid in cash and $2.5m paid in new G&H ordinary shares. There is also deferred contingent consideration of up to $10m, payable in cash, based on the performance of the business for a period of up to three years post acquisition. 
The fair value of the assets acquired is summarised as follows:


Provisional fair value


'000
Property, plant and equipment

98
Intangible assets

7,986
Cash

231
Trade and other receivables

655
Inventory

1,058
Trade and other payables

(1,274)
Current and deferred tax assets

156
Net assets acquired

8,910
Consideration paid:


Cash and shares paid on completion

7,996
Deferred consideration

7,013
Goodwill

6,099
The fair value of the intangible assets represents the estimated fair value of StingRay's order book, its customer relationships and its brand. These have been valued using a discounted cash flow model. The deferred consideration has been discounted using the company's weighted average cost of capital. 
The goodwill arising on acquisition reflects items not separately recognised, including the expertise of StingRay's employees and their contacts in target markets.
Post-acquisition, the acquired business contributed 1.1 million of revenue and 0.3 million of profit after tax excluding central costs to the consolidated income statement.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR LLFVRRLIEIID