REG - Gooch & Housego PLC - Interim Results

Gooch & HousegoAnnouncement

05/06/2018 07:05

RNS Number : 2419Q
Gooch & Housego PLC
05 June 2018
 


 







5 June 2018



GOOCH & HOUSEGO PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2018
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 2018.
Financial Highlights



Period ended 31 March


H1 2018


H1 2017


Change (%)




Revenue


£55.6m


£52.2m


6.6%




Adjusted profit before tax1


£7.0m


£6.2m


12.7%




Adjusted basic earnings per share 1


21.5p


18.7p


15.0%




Net cash


£5.0m


£7.8m


(35.1%)




Statutory profit before tax


£5.2m


£4.7m


11.6%




Statutory basic earnings per share


18.6p


14.1p


31.9%




Interim dividend per share


4.2p


3.7p


13.5%



1 Adjusted for amortisation of acquired intangible assets and non-recurring items.
Highlights
·    Strong revenue growth driven by microelectronic manufacturing and A&D sectors.
·    Revenue growth of 6.6% compared with the same period last year. Excluding the impact of foreign exchange, an increase of 14.0% over H1 last year.
·    Demand for high reliability fibre couplers lower than H1 last year, expected to come back in H2.
·   Continued investment in people, equipment and processes to drive further growth and take advantage of positive market conditions.
·    Adjusted profit growth of 12.7% compared with same period last year.
·   Record half year order book of £84.7 million, as at 31 March 2018, an increase of 27.1% compared with the same period last year. Excluding the impact of foreign exchange, an increase of 36.4%.
·    Interim dividend increased to 4.2p (2017:3.7p).
 
Mark Webster, Chief Executive Officer of Gooch & Housego, commented:
 "Overall market conditions remain good, we have a record half year order book and expectations for full year trading remain in line with management's expectations.
"The introduction of a new manufacturing organisation has enabled us to more readily upgrade capacity and performance, in particular at our Ilminster and Fremont, CA sites, in order to meet the unprecedented demand in the microelectronic sector.
"G&H remains committed to our strategy of diversification and moving up the value chain. We have an active policy of building a diverse and balanced business by establishing a 'critical mass' in life sciences and further strengthening our position in A&D, through investing in a mix of R&D and acquisitions. A&D now represents about a third of our business. We believe this means G&H is well positioned for future growth."
 
 
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
Gooch & Housego has continued to benefit from positive overall market conditions.  First half revenue growth was 6.6%; excluding the impact of foreign exchange, growth was 14.0%; and excluding the impact of foreign exchange and acquisitions growth was 7.7%. The Company saw an acceleration in growth in the period, and we are expecting a good second half trading performance driven by the continued strength of microelectronics, the A&D sector and an improved performance from our high reliability telecommunications business.
Our order book stood at £84.7 million as at 31 March 2018, a record for the half year period and which represents an increase of 27.1% compared to the same time last year.  Excluding the impact of foreign exchange this represents an increase of 36.4% over last year. Order intake in the first half of the year has been encouraging. The Company has booked £69.7 million in orders since 1 October 2017, compared to £59.5 million in the corresponding period last year.
Investment has taken place during H1 to enable us to take advantage of this strong order book, in particular at our Ilminster site, where we continue to upgrade equipment, hire and train new operators and improve our manufacturing processes.
The increase in our interim dividend by 13.5% reflects our confidence in the business going forward and is underpinned by a strong balance sheet.



REVENUE
























Six months ended 31 March


2018






2017








£'000


% of total






£'000


% of total




Industrial


30,508


55%






31,336


60%




Aerospace & Defence


18,130


33%






14,578


28%




Life Sciences


5,021


9%






4,751


9%




Scientific Research


1,949


3%






1,488


3%




Group Revenue


55,608


100%






52,153


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 2018 were 2.6% lower compared with the equivalent period last year; excluding foreign exchange this represented a 4.0% increase.
The industrial laser and semi-conductor markets continued to demonstrate strong growth (15%) due to the continued high demand for precision lasers used in microelectronic manufacturing. Demand for these products remains strong and with the incremental capacity added during H1 we expect to take greater advantage of the opportunities in this area during H2.
 
 
In telecommunications, we believe there will be continued demand for fibre optic components used in under-sea telecommunications applications, from Silicon Valley based companies entering this market and looking to lay their own undersea networks. That said, the demand for high reliability fibre couplers has been lower since the start of the year due to delays in our customers' contracts. We expect this demand to recover in the second half of the year.
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 two years 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 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 24.4% during the first six months of FY2018, compared to the equivalent period last year. Excluding the impact of acquisitions, Aerospace & Defence grew organically by 5.8% 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 revenue grew by 5.7% in the six months to 31 March 2018, compared with the equivalent period last year and this was against a significant foreign exchange headwind.
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.
Our Scientific Research revenue grew by 31.0% in the six months to 31 March 2018, compared to the equivalent period last year, albeit against a weak comparative.




 
 
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 £4.1 million in targeted research & development.  Our main target areas are a new generation of precision lasers and laser systems, precision inspection equipment for microelectronic manufacturing, OCT medical diagnostics, laser surgery, space satellite communications, opto-mechanical systems for UAVs, optical systems for armoured vehicles, compatible with USA military standards and optical sensing for harsh environments. This represents 7.4% of revenue and is 8.9% lower than the same period last year (2017: £4.5m), 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 25 new products launched in the period ended 31 March 2018.
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 further strengthen our position in A&D. Our recent acquisitions have greatly improved our position in A&D, which now represents 33.0% of our business (2017: 28.0%).
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 20.8% in FY2017 to 22.4%, for the half year FY2018. 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 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 previously reported, Gooch & Housego's manufacturing sites have been re-organised into three technical groups, namely Acousto Optic/Electro Optic, Precision Optic and Fibre Optics. It is our aim to add a fourth manufacturing centre by the beginning of FY2019, namely Systems. 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 those sites manufacturing critical parts for the microelectronics sector.   
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 2017 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 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, USA based specialist designer and manufacturer of high performance optical and opto-mechanical subsystems for demanding defence and commercial applications. It has integrated well into the Group; StingRay's performance has continued to exceed our expectations and we paid the first instalment of the earn out during H1.
 



RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES



 







Operating profit


Net finance costs


Taxation


Profit after tax


Earnings per share




Half Year to 31 March


2018
£000


2017
£000


2018
£000


2017
£000


2018
£000


2017
£000


2018
£000


2017
£000


2018
pence


2017
pence




Reported


5,692


4,900


(444)


(197)


(668)


(1,261)


4,580


3,442


18.6


14.1




Amortisation of acquired intangible assets


954


797


-


-


(62)


(214)


892


583


3.6


2.4




Restructuring costs


502


351


-


-


(103)


(94)


399


257


1.6


1.0




Transaction fees


-


287


-


-


-


(77)


-


210


-


0.3




Interest on discounted deferred consideration


-


-


305


80


-


-


305


80


1.2


0.9




Impact of US tax rate change on deferred tax balances


-


-


-


-


(864)


-


(864)


-


(3.5)


-




Adjusted


7,148


6,335


(139)


(117)


(1,697)


(1,646)


5,312


4,572


21.5


18.7



 
Adjusted profit before tax was £7.0 million, an increase of 12.7% on the prior year (H1 2017: £6.2 million). This strong profit performance has been delivered at the same time as investing in the increased capacity required to deliver against a record half year order book.
The US Tax Reform Bill, HR1, which was substantively enacted on 22 December 2017, included legislation to reduce the main rate of US Federal tax from 35% to 21% from 1 January 2018. Accordingly, the closing net US deferred tax liability has been recognised on that basis leading to an exceptional tax credit of £864,000.




 
 
Cash Flow and Financing
In the six months to 31 March 2018 G&H generated cash from operations of £1.2 million, compared with £7.9 million in the same period of 2017 following a significant investment in working capital. In response to the capacity increases required at those sites manufacturing critical components for microelectronics applications and in preparation for the expected ramp in high reliability fibre couplers, the business has undertaken a strategic inventory build. Inventory has increased by £3.4 million since the year end. We would expect a large proportion of this to unwind before the year end.  Following investment in capacity, the business ramped up production towards the end of the period resulting in an increase in trade receivables of £2m.
 
In respect of the StingRay acquisition, the business achieved its first year earn-out targets resulting in a $6 million payment made to the founders in February 2018. The remaining deferred contingent consideration of up to $4 million, payable in cash, based upon the performance of the business in the first half, is likely to be paid in February 2019. 
Capital expenditure on property, plant and equipment was £2.7 million in the period (2016: £3.6 million). The main fixed asset additions were in relation to increasing capacity in our sites manufacturing critical components for microelectronics applications. Expenditure on upgrading our ERP system of £0.5m is included in intangible capital expenditure.
The Company's net cash position remains robust at £5.0 million, down from £14.9 million at 30 September 2017, following the payment of the StingRay earn out and the investment in working capital.
Staff
The Company workforce increased from 823 at 30 September 2017 to 870 at the end of March 2018. This increase comes largely from our investment in increased capacity, offset by efficiency savings.  
 
Dividends
The Directors have declared an interim dividend of 4.2p per share (2017 : 3.7p per share), a 13.5% 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 dividend will be payable on 27 July 2018 to shareholders on the register as at 22 June 2018.
Prospects and outlook
G&H remains committed to the twin pillars of our strategy, namely diversification and moving up the value chain. Increasingly 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.
The Company is well-positioned to take advantage of positive market conditions and has continued to invest in people, upgraded equipment and new processes to meet the demands of a strong order book. We remain on track to meet our full year expectations.
G&H has reorganised its manufacturing organisation in order to enable more efficient delivery of products to our customers and we will continue to invest in capacity to service high growth areas. We will prioritise enhanced business development activity in our three main business sectors and invest in highly focused R&D programmes. G&H believes these activities provide a solid basis for our future performance .
Mark Webster                                      Andrew Boteler                      
Chief Executive Officer                        Chief Financial Officer            
 
5 June 2018                                         




Unaudited interim results for the 6 months ended 31 March 2018
 



Group Income Statement






Note


Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to
30 Sep 2017

(Audited)












£'000


£'000


£'000




Revenue


5


55,608


52,153


112,016




Cost of revenue






(33,886)


(31,944)


(65,937)




Gross profit






21,722


20,209


46,079




Research and Development






(3,739)


(4,096)


(8,119)




Sales and Marketing






(4,551)


(4,706)


(9,459)




Administration






(8,507)


(7,438)


(16,937)




Other income and expenses






767


931


1,714




Operating profit


5


5,692


4,900


13,278




Net finance costs






(444)


(197)


(676)




Profit before income tax expense






5,248


4,703


12,602




Income tax expense


6


(668)


(1,261)


(3,710)




Profit for the period






4,580


3,442


8,892




Basic earnings per share
 


7


18.6p


14.1p


36.4p



 
Reconciliation of profit before tax to adjusted profit before tax:











Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to       30 Sep 2017

(Audited)












£'000


£'000


£'000




Profit before tax






5,248


4,703


12,602




Amortisation of acquired intangible assets






954


797


2,202




Release of accrued contingent consideration






-


-


(615)




Impairment of goodwill






-


-


615




Restructuring costs
 






502


351


536




Transaction fees






-


287


390




Interest on discounted deferred consideration






305


80


381




Adjusted profit before tax






7,009


6,218


16,111



 




 



Group Statement of Comprehensive Income


Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to       30 Sep 2017

(Audited)








£'000


£'000


£'000




Profit for the period


4,580


3,442


8,892




Other comprehensive income
















Currency translation differences
 


(1,496)


1,801


(1,410)




Other comprehensive (expense) / income for the period
 


(1,496)


1,801


(1,410)




Total comprehensive income for the period


3,084


5,243


7,482







Unaudited interim results for the 6 months ended 31 March 2018
 



Group Balance Sheet






31 Mar 2018

(Unaudited)


31 Mar 2017

(Unaudited)


30 Sep 2017

(Audited)












£'000


£'000


£'000




Non-current assets




















Property, plant and equipment






34,445


34,935


33,890




Intangible assets






38,926


44,418


40,250




Deferred income tax assets






1,502


2,785


2,703












74,873


82,138


76,843




Current assets




















Inventories






23,968


21,025


21,078




Income tax assets






638


-


267




Trade and other receivables






26,691


21,852


24,723




Cash and cash equivalents






16,053


25,686


26,425












67,350


68,563


72,493




Current liabilities




















Trade and other payables






(21,747)


(20,547)


(23,758)




Borrowings






(6)


(3)


(6)




Income tax liabilities






-


(594)


(579)




Provision for other liabilities and charges






(884)


(803)


(888)




Deferred consideration






(4,256)


-


(4,286)












(26,893)


(21,947)


(29,517)


























Net current assets






40,457


46,616


42,976


























Non-current liabilities




















Borrowings






(11,002)


(17,913)


(11,492)




Deferred income tax liabilities






(4,438)


(4,951)


(5,938)




Deferred consideration






-


(9,437)


(4,253)












(15,440)


(32,301)


(21,683)


























Net assets






99,890


96,453


98,136


























Shareholders' equity
Capital and reserves

attributable to equity shareholders




















Called up share capital






4,950


4,895


4,903




Share premium account






15,530


15,530


15,530




Merger reserve






4,640


4,640


4,640




Cumulative translation reserve






4,078


8,785


5,574




Retained earnings






70,692


62,603


67,489




Equity Shareholders' Funds






99,890


96,453


98,136



 




Unaudited interim results for the 6 months ended 31 March 2018
 



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 2016


4,852


15,530


2,671


60,135


6,984


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


-


-


-


3,442


1,801


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


62,603


8,785


96,453


































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 debit relating to share option schemes


-


-


-


(60)


-


(60)




At 31 March 2018 (unaudited)


4,950


15,530


4,640


70,692


4,078


99,890
































 
































 
































 

















 




Unaudited interim results for the 6 months ended 31 March 2018
 



Group Cash Flow Statement










Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to 30 Sep 2017

(Audited)












£'000


£'000


£'000




Cash flows from operating activities




















Cash generated from operations






1,151


7,871


19,526




Income tax paid






(1,646)


(802)


(1,957)




Net cash (used by) / generated from operating activities






(495)


7,069


17,569




Cash flows from investing activities




















Acquisition of subsidiaries, net of cash acquired






(4,414)


(5,549)


(5,658)




Purchase of property, plant and equipment






(2,739)


(3,568)


(5,799)




Sale of property, plant and equipment






-


26


29




Purchase of intangible assets






(922)


(348)


(604)




Interest received






7


18


27




Interest paid






(111)


(109)


(326)




Net cash used in investing activities






(8,179)


(9,530)


(12,331)




Cash flows from financing activities




















Drawdown of acquisition borrowing facility






-


6,045


5,918




Repayment of borrowings






(3)


-


(5,523)




Dividends paid to ordinary shareholders






(1,608)


(1,383)


(2,289)




Net cash (used in) / generated from financing activities






(1,611)


4,662


(1,894)




Net (decrease) / increase in cash






(10,285)


2,201


3,344




Cash at beginning of the period






26,425


23,167


23,167




Exchange (losses) / gains on cash






(87)


318


(86)




Cash at the end of the period






16,053


25,686


26,425



 




 
 
 



Notes to the Group Cash Flow Statement






Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to
30 Sep 2017

(Audited)












£'000


£'000


£'000




Profit before income tax






5,248


4,703


12,602




Adjustments for:




















- Amortisation of acquired intangible assets






954


797


2,202




- Amortisation of other intangible assets






67


98


199




- Impairment of goodwill






-


-


615




- Release of accrued contingent consideration






-


-


(615)




- Depreciation






1,933


1,750


3,664




- Share based payment obligations






338


329


587




- Amounts claimed under the RDEC






(195)


-


(370)




- Finance income






(7)


(17)


(27)




- Finance costs






451


214


703




Total adjustments






3,541


3,171


6,958


























Changes in working capital




















- Inventories






(3,376)


(605)


(1,442)




- Trade and other receivables






(2,272)


1,578


(1,465)




- Trade and other payables






(1,990)


(976)


2,873




Total changes in working capital






(7,638)


(3)


(34)


























Cash generated from operating activities






1,151


7,871


19,526



 
 
Reconciliation of net cash flow to movements in net cash











Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to
30 Sep 2017

(Audited)












£'000


£'000


£'000




Decrease / (increase) in cash in the period






(10,285)


2,201


3,344




Borrowings






-


(6,045)


(5,918)




Repayment of borrowings






2


-


5,523




Changes in net cash resulting from cash flows






(10,283)


(3,844)


2,949




Translation differences






401


(54)


310




Movement in net cash in the period / year






(9,882)


(3,898)


3,259


























Net cash at start of period






14,927


11,668


11,668




Net cash at end of period






5,045


7,770


14,927







Analysis of net cash







At 1
 Oct 2017




Cash flow


Exchange movement


At 31 Mar
2018








£'000


£'000


£'000


£'000




Cash at bank and in hand


26,425


(10,285)


(87)


16,053


























Debt due after 1 year


(11,480)


-


488


(10,992)




Finance leases


(18)


2


-


(16)




Net cash


14,927


(10,283)


401


5,045



 




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 5 June 2018.  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 2017 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 2017 are unaudited.
 
The Interim Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 5 June 2018. 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 2017, 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.   As disclosed in our 2017 Annual Report, management do not currently expect IFRS15, which will apply to the Group in future accounting periods, to have a material impact on the financial statements, but will continue to monitor this as the adoption date gets closer.
 
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 2017.
 
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 2017.
 
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 2018


£'000


£'000


£'000


£'000


£'000


£'000




Revenue




























Total revenue


18,130


5,021


34,227


1,949


-


59,327




Inter and intra-division


-


-


(3,719)


-


-


(3,719)




External revenue


18,130


5,021


30,508


1,949


-


55,608




Divisional expenses


(15,701)


(4,513)


(25,098)


(1,635)


(15)


(46,962)




EBITDA¹


2,429


508


5,410


314


(15)


8,646




EBITDA %


13.4%


10.1%


17.7%


16.1%


-


15.5%




Depreciation and Amortisation


(367)


(201)


(1,036)


(105)


(291)


(2,000)




Operating profit before amortisation of acquired intangible assets


2,062


307


4,374


209


(306)


6,646




Amortisation of acquired intangible assets


-


-


-


-


(954)


(954)




Operating profit


2,062


307


4,374


209


(1,260)


5,692




Operating profit margin %


11.4%


6.1%


14.3%


10.8%


-


10.2%




Add back non-recurring items


-


-


-


-


1,456


1,456




Operating profit excluding non-recurring items


2,062


307


4,374


209


196


7,148




Adjusted operating profit margin %


11.4%


6.1%


14.3%


10.7%


-


12.9%






































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)




EBITDA¹


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


-


-


-


-


1,435


1,435




Operating profit excluding non-recurring items


1,066


343


5,273


16


(363)


6,335




Adjusted operating profit margin %


7.3%


7.2%


16.8%


1.1%


-


12.1%



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 2018
(Unaudited)






Half year to
31 Mar 2017
(Unaudited)








£'000






£'000




United Kingdom


8,656






8,714




America


20,468






21,393




Continental Europe


13,051






11,675




Asia-Pacific


13,433






10,371








55,608






52,153



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













Half Year to
31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to 30 Sep 2017 (Audited)












£'000


£'000


£'000




Current taxation




















UK Corporation tax






544


569


1,318




Overseas tax






868


517


2,165




Adjustments in respect of prior year tax charge






-


-


(1,315)




Total current tax






1,412


1,086


2,168


























Deferred tax




















Origination and reversal of temporary differences






120


175


227




Adjustments in respect of prior year deferred tax






-


-


1,315




Impact of change in the US tax rate






(864)


-


-




Total deferred tax






(744)


175


1,542


























Income tax expense per income statement






668


1,261


3,710

























 
The tax charge for the six months ended 31 March 2018 is based on the estimated effective rate of the tax for the Group for the full year to 30 September 2018. 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 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to 30 Sep 2017

(Audited)








No.


No.


No.




Number of shares used for basic earnings per share


24,660,697


24,374,577


24,457,701




Dilutive shares


252,099


376,517


412,901




Number of shares used for dilutive earnings per share


24,912,796


24,751,094


24,870,602



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











Half Year to

31 Mar 2018 (Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to

30 Sep 2017

(Audited)








£'000


p per

share


£'000


p per

share


£'000


p per

share




Basic earnings per share


4,580


18.6p


3,442


14.1p


8,892


36.4p




Adjustments net of income tax expense:




























Amortisation of acquired intangible assets


892


3.6p


583


2.4p


2,034


8.3p




Goodwill impairment


-


-


-


-


615


2.5p




Release of accrued contingent consideration


-


-


-


-


(615)


(2.5p)




Restructuring costs


399


1.6p


257


1.0p


431


1.8p




Transaction fees


-


-


210


0.9p


314


1.3p




Interest on discounted deferred consideration


305


1.2p


80


0.3p


381


1.6p




Tax credit due to US tax rate change


(864)


(3.5p)


-


-


-


-




Total adjustments net of income tax expense


732


2.9p


1,130


4.6p


3,160


13.0p


































Adjusted basic earnings per share


5,312


21.5p


4,572


18.7p


12,052


49.4p



 



Basic diluted earnings per share


4,580


18.4p


3,442


13.8p


8,892


35.8p












Adjusted diluted earnings per share


5,312


21.3p


4,572


18.5p


12,052


48.5p











 
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 4.2 pence per share for the half year ended 31 March 2018.  This dividend has not been accounted for within the period to 31 March 2018 as it is yet to be paid.
 







Half Year to

31 Mar 2018

(Unaudited)


Half Year to

31 Mar 2017

(Unaudited)


Full Year to 30 Sep 2017

(Audited)








£'000


£'000


£'000




Final 2017 dividend paid: 6.5p per share


1,608


-


-




Final 2016 dividend paid : 5.2p per share


-


1,383


1,383




2017 Interim dividend paid : 3.7p per share


-


-


906








1,608


1,383


2,289



 
9.      Intangible assets
 
Management have not identified any triggering events for impairment at the half year and therefore the goodwill impairment reviews have not been formally updated. As disclosed in our 2017 Annual Report, the headroom on the impairment calculations in respect of the goodwill on our Boston and Moorpark sites is limited, but remains supported based on our latest forecasts for these businesses. Should these forecasts be missed in the second half of 2018, an impairment charge may arise.
 
10.     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 business will look to renegotiate these facilities in the coming months.
The revolving credit facility attracts an interest rate of between 0.9% and 1.8% above LIBOR dependent upon the Company's leverage ratio.
 
 
11.     Called up share capital
 







2018
No.


2017
No.


2018
£'000


2017
£'000




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


 
24,741,964


 
24,476,471


 
4,950


 
4,895



 
 
 
 




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END
 
 
IR LLFSSRVISIIT