REG - Gooch & Housego PLC - Interim Results
07/06/2022 07:00
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RNS Number : 9112N Gooch & Housego PLC 07 June 2022
7 June 2022
GOOCH & HOUSEGO PLC
("G&H", the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2022
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer of optical
components and systems, today announces its interim results for the six months
ended 31 March 2022.
Key Financials
Period ended 31 March H1 2022 H1 2021 Change
Revenue £54.1m £58.5m (7.4)%
Adjusted profit before tax* £3.6m £4.9m (26.6)%
Adjusted basic earnings per share* 11.8p 15.7p (3.9p)
Net debt excluding IFRS 16 £5.9m £4.7m £1.2m
Net debt including IFRS 16 £12.0m £12.1m £(0.1)m
Statutory profit before tax £1.2m £0.7m 82.2%
Statutory basic earnings per share 6.9p 2.1p 4.8p
Interim dividend per share 4.7 4.5p 0.2p
*Adjusted for amortisation of acquired intangible assets and non-recurring
items.
Key points
• Record order book at the half year end of £119.9m (31 March 2021:
£92.8m), an increase of 29.2% or 25.6% at constant currency. H1 order intake
was 1.42 times H1 revenue.
• Strong and sustained demand in our main target markets. High demand
for industrial lasers, in particular from semiconductors; G&H has
increased market share in a growing market. Medical lasers continue to benefit
from the return of elective surgery.
• A&D affected by customer driven delays and new programmes not yet
progressing to volume phase. Recent A&D order intake has been strong,
including £4 million upgrade of optical imaging system for the UK MOD's
Challenger upgrade programme.
• Revenue has been constrained by pandemic related factors. COVID
related staff absences impacted our US and UK sites and there were supply
chain shortages. Substantial investment has been made to increase capacity and
good progress has been made with recruitment of operators and securing our
supply chain.
• Adjusted profit before tax down due to lower volumes and investment in
R&D and manufacturing capacity.
• Group remains in a strong financial position. A new five year
revolving credit facility ($40m committed/ $30m uncommitted) was put in place
in March.
• Interim dividend of 4.7p per share (2021: 4.5p) reflecting positive
outlook.
• Clear route to mid-teens returns in the near term through organic
growth, internal investment and our well-established acquisition strategy.
Mark Webster, Chief Executive Officer of Gooch & Housego, commented:
"During the first half of the financial year there has been strong demand for
the Group's technologies and capabilities and our order book has achieved
another record level. However, in common with many industrial businesses,
revenue was constrained by COVID related staff absences and supply chain
disruption.
"We have made substantial investment to increase production capacity in areas
where there has been strong demand, primarily through the hiring and training
of new operators and building resilience within our supply chain. COVID cases
have fallen markedly since the second quarter and absences have returned to
normal levels. As a result we expect trading levels to accelerate in the
second half.
"The Company remains committed to our long term strategic goals of
diversification and moving up the value chain. We intend to vigorously pursue
these goals through internal investment and where appropriate acquisitions.
"Full year expectations are unchanged and the long-term outlook for our
technologies and capabilities in all our target sectors remains very strong."
Analyst meeting
A meeting for analysts will be held at 9.30am this morning, 7 June 2022 at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN. Analysts who require
further details, please contact Buchanan at G&H@buchanan.uk.com
(mailto:G&H@buchanan.uk.com) .
A live audio webcast of the meeting will be available via the following link:
https://webcasting.buchanan.uk.com/broadcast/627a1449945a3a3160c27d7b
(https://webcasting.buchanan.uk.com/broadcast/627a1449945a3a3160c27d7b)
Following the meeting, a recording of the webcast will be made available for
replay at the Group's website at https://gandh.com/investors/
(https://gandh.com/investors/) .
For further information please contact:
Gooch & Housego PLC Mark Webster / Chris Jewell 01460 256 440
Buchanan Mark Court / Sophie Wills 020 7466 5000
Investec Bank plc (Nomad & Broker) Chris Baird / David Anderson 020 7597 5970
Notes to editors
1 Gooch & Housego is a photonics technology business with operations
in the USA, Europe and China. A world leader in its field, the company
researches, designs, engineers and manufactures advanced photonic systems,
components and instrumentation for applications in the Aerospace and Defence,
Industrial and Telecom, Life Sciences and Scientific Research sectors. World
leading design, development and manufacturing expertise is offered across a
broad range of complementary technologies. It is headquartered in Ilminster,
Somerset, UK.
2. This announcement contains certain forward-looking statements that are
based on management's current expectations or beliefs as well as assumptions
about future events. These are subject to risk factors associated with,
amongst other things, the economic and business circumstances occurring from
time to time in the countries and sectors in which G&H operates. It is
believed that the expectations reflected in these statements are reasonable
but they may be affected by a wide range of variables which could cause actual
results, and G&H's plans and objectives, to differ materially from those
currently anticipated or implied in the forward-looking statements. Investors
should not place undue reliance on any such statements. Nothing in this
announcement should be construed as a profit forecast.
Operating and Financial Review
Performance Overview
Order intake for the six month period was 142% of revenue, compared with 109%
of revenue for the second half of FY 2021, reflecting the accelerating growth
in demand for our products and services. At 31 March 2022 our order book was
at a record level of £119.9m (31 March 2021: £92.8m), an increase of 29.2%,
or 25.6% at constant currency, compared with the same time last year.
In the first half of the financial year we have seen continued strong demand
from our industrial laser and semiconductor markets. Demand for hi-reliability
fibre couplers remains robust. In our Life Sciences markets demand for our
medical laser products used extensively in cosmetic surgery has returned
strongly, offsetting reductions in shipments for some of our medical
diagnostic products that returned to good, but more normalised levels of
demand post pandemic.
Our A&D revenues declined compared with the prior period. Whilst revenues
to our commercial aerospace customers are starting to recover, we saw a number
of customer-induced delays for our Boston site's programmes. Revenues in the
first half were also impacted by reductions in demand for our optical arrays
used on Unmanned Aerial Vehicle platforms as we completed deliveries on those
programmes, whilst future expected ground vehicle programmes have not yet
transitioned to the production delivery phase. Recent order intake for A&D
has been strong, including a £4 million contract to upgrade optical systems
on the UK MOD's Challenger tank upgrade programme.
In common with many businesses our output in the reported period was
constrained as a result of COVID related absences both within our own teams
and those of our suppliers. We have also been impacted to some degree by
supply chain shortages especially for electronic components from Asia. COVID
infection rates at our sites have fallen substantially since the end of the
second quarter of the financial year and absence rates have now returned to
normal levels.
Labour markets remain competitive in both US and UK and this has 'gated' the
rate at which we have been able to add staff to service our growing order
book. Real progress in the hiring and training of operators has been made in
the first half of the financial year. There has been wage and material
inflation across the period, but the Company is passing on those additional
costs in the form of price increases across most of its portfolio.
Revenue
Six months ended 31 March 2022 2021
£'000 £'000 % Change
Industrial 27,743 26,570 4.4%
Aerospace & Defence 13,127 18,440 (28.8)%
Life Sciences 13,264 13,450 (1.4)%
Group Revenue 54,134 58,460 (7.4)%
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are industrial lasers,
telecommunications, sensing and semiconductor manufacturing. Industrial lasers
are used in a diverse range of precision material processing applications
ranging from microelectronics and semiconductors to automotive manufacturing.
Overall, sales of products into our industrial markets in the six months to 31
March 2022 grew by 4.4%, or 4.7% when measured on a constant currency basis,
compared with the equivalent period last year. We saw strong growth in
industrial lasers, in particular for lasers used in the manufacture of
semiconductors. Our revenues to these markets would have been even higher if
we had been able to add productive capacity more quickly in our primary
Acousto-Optic site and at our contract manufacturer's facility. Both were
'gated' by the hiring and training of new staff and good progress has been
made in this regard across the first half of the financial year. We therefore
anticipate a stronger performance in the second half. We expect demand levels
especially from the semiconductor markets to remain strong.
High levels of COVID absences at our Czech sub contract partner used for the
manufacture of typically 40% of our Hi-Rel fused fibre couplers constrained
output in the first half of the financial year. Demand remains robust and a
higher proportion than in the past of these fused fibre couplers are destined
for space satellites which command a higher price and margin. We expect an
improved performance in the second half.
Products and Markets - Aerospace & Defence (A&D)
Product quality, reliability and performance are paramount in this sector,
playing to G&H's strengths, along with our commitment to provide value. We
have solid, well established positions in target designation and range
finding, ring laser and fibre optic gyroscope navigational systems, infrared
and RF countermeasures, periscopes and sighting systems, opto-mechanical
subsystems used in unmanned aerial vehicles (UAVs) and space satellite
communications. We are working with our partners on the development of new
directed energy weapon systems that are increasingly specified as part of the
defensive suites of both naval and land platforms.
The trend in funding priorities in both the US and Europe continue to favour
G&H products and capabilities. The need for all weather, precision
guidance and targeting generates the demand for the product capabilities that
G&H can offer. The current conflict in the Ukraine is also generating a
recognition of the continuing importance of armoured vehicles in the modern
military environment, and in that area G&H provides some of the most
advanced optical sighting systems as evidenced by our recent receipt of a £4m
order to support the UK MOD's programme to upgrade the Challenger MBT
platform.
Despite the market trends supporting the longer-term growth of G&H's
A&D business, revenue declined by 28.8% during the first six months of
FY2022, compared with the equivalent period last year (28.9% constant
currency). In the first half of FY2021 our Torquay business completed
deliveries of laser communication systems to NEC/JAXA for use in their LUCAS
(Laser Utilising Communication System) that demonstrated the viability of
laser systems for high speed and scaleable space communication. Whilst this
development revenue did not recur in the current half-year reporting period
our work on the project provides the technology core for several significant
tenders that we are currently submitting to customers for satellite based
communication systems.
Our Boston business delivered lower revenue than the prior period principally
as a result of customer induced programme delays. The impact of COVID
isolation on our customers' ability to accept product shipments from our
facility was significant and unavoidable given the need for their inspection
sign off prior to our shipment. Despite the disappointing revenue performance
of our Boston site in the period, its order book at the end of March 2022 was
almost 50% higher than the equivalent period last year.
Encouragingly we are seeing recovery in demand from our commercial aerospace
customers after the significant downturn during the pandemic. We are working
to increase our productive capacity especially in our Moorpark, California
facility this financial year. Our principal customers have indicated that they
will consume the extra capacity as soon as it is brought on line.
Overall we expect a stronger second half and A&D remains an area of
significant long term growth potential for G&H.
Products and Markets - Life Sciences
G&H's three principal Life Sciences revenue streams are derived from
diagnostics applications (the design, development and manufacturing of
diagnostic systems and fibre-optic modules based around our optical coherence
tomography (OCT) technology), surgery / treatments (electro-optics and
acousto-optics for medical lasers) and biomedical research (acousto-optics for
microscopy applications).
Our Life Sciences / Biophotonics revenues were down 1.4% (reported and
constant currency) in the six months to 31 March 2022, compared with the very
strong prior period comparator. We have seen further recovery in demand for
our components used in laser surgery, especially elective cosmetic surgery,
which fell away during the pandemic. Offsetting this growth revenues from the
sale of our medical diagnostic equipment, which had benefitted in particular
from high demand for modules used in ventilator systems, were down compared
with H1 2021. Demand for these units have returned to good, but more normal,
pre-pandemic levels.
Our medical diagnostic design team based in our ITL business in Ashford have
secured important orders for the development of our customers' next generation
systems and these are expected to migrate to production over the coming
two/three years. We are recruiting new software and mechanical design
engineers to provide further capacity for additional customer development
projects. Plans are also in place to invest in our ITL business in the US in
order to provide a US based design and manufacturing offering to our customers
in that market.
Strategy
At Gooch & Housego we create sustainable value by leveraging our products
and capabilities to diversify in to new markets. We are focussed on moving up
the value chain, generating a greater portion of the Group's revenues from
subassemblies and systems. We are delivering this strategy by focusing on
three strategic priorities.
Focused R&D investment: In the first six months of the current financial
year, G&H invested £4.1m in targeted R&D. This was a 4.7% increase
on the same period last year demonstrating G&H's continued commitment to
investing in targeted R&D programmes.
Our main investment areas are the next generation of precision lasers and
laser systems, optical sensing for harsh environments, OCT medical
diagnostics, laser surgery, space satellite communications, opto-mechanical
systems for UAVs and armoured vehicles and direct energy systems. In the
period the following projects made notable progress: key components for state
of the art extreme ultra-violet lithography lasers used in the production of
nano-electronics, market leading Germanium Acousto-Optic modulators for use in
semiconductor manufacturing, thermal overlays of our traditional optical
sighting systems for armoured vehicles and laser based satellite
communications. Our R&D teams are working with our customers on the
application of our existing Optical Coherence Tomography capabilities in to
new cancer and cardio vascular disease detection applications.
We will continue to invest in novel, cutting edge technologies in order to
drive future revenue growth across all of our target sectors.
Operational Excellence: our ambitious site rationalisation programme was
completed in the reporting period. Final product line transfers from our
Baltimore facility to our Boston facility were finalised and our production
teams in Boston are now servicing those products from within the existing
Boston manufacturing footprint. Likewise our Precision Optics centre of
excellence in Ilminster is now manufacturing product transferred from our St
Asaph production facility, liaising closely and effectively with the optical
systems design team that have been retained in a new facility in St Asaph.
As previously reported the transfer of production of our established
acousto-optic products from Ilminster to our Asian contract manufacturing
partner is complete. Their initial ramp up to volume manufacture of our
products has been completed and we are now supporting them to achieve yet
greater volumes to help service the very significant demand we are seeing for
our acousto-optic products. To that end we have located our own supply chain,
quality and engineering staff permanently in their production facility.
Following the successful transfer of many of our acousto-optic products to our
contract manufacturing partner we are also working to establish them as a
further supply source for our hi-rel fibre couplers. In time they will become
a third source for these products supplementing our own in-house production as
well as that of our existing European supplier. The production transfer is
progressing well and our contract manufacturing partner is currently
completing the qualification of their production lines against the very
demanding criteria set by our customers. We expect our partner to contribute
to G&H supply of these products from early FY2023.
We will continue to review our higher volume, established products with a view
to transferring them to our contract manufacturing partner. Our UK and US
sites will focus on newer, innovative products that require higher local input
from our engineering team.
Revenue in the first half of the financial year has been constrained by
pandemic factors. COVID related absences have impacted our production sites in
the UK and US and key suppliers during the period. A competitive labour market
in the UK and US has been a 'gating' factor on increasing capacity. COVID
related absences have declined since the middle of the second quarter. During
the first half good progress has been made hiring and training new operators.
We expect these measures to result in increased output in the second half of
the financial year and an improved performance.
From the beginning of this financial year we have invested additional
resources in to our supply chain team including quality engineers who
undertake a programme of physical visits to our suppliers' facilities to
ensure they adhere to the product specification and quality levels that we
demand of them. They also explore with our suppliers potential cost reduction
opportunities. Whilst our supply chain has in general experienced some
disruption from COVID absences and cost input inflation the relationships we
have established with them put us in a good position to meet the our goal of
maintaining continuity of supply in the current challenging market conditions.
Value enhancing acquisitions
G&H continues to evaluate acquisition opportunities that have the
potential to accelerate delivery of the Company's strategic objectives. Having
established a presence in its target markets, G&H remains focused on
moving up the value chain in each of those markets. We have a clearly defined
set of criteria against which we assess potential acquisition targets. Our
focus areas continue to be in the markets of Life Sciences and Aerospace &
Defence although we also consider acquisition targets in the Industrial market
space if they have particular technologies that are attractive to us.
During the period we have had a number of discussions with the management
teams of target companies to better assess their suitability to become part of
the G&H Group and the synergistic opportunities that would result. We
remain optimistic that these conversations will result in the addition of new
businesses to the Group in the near future. The Group has a strong balance
sheet and access to significant debt facilities meaning we are in a strong
position to execute on transactions quickly.
Diversification: The recent pandemic demonstrated the success of G&H's
strategy of balancing the business more evenly between its three markets
offering natural protection against cyclicality in any particular sector.
During the pandemic when our Industrial and Commercial Aerospace markets
declined, our presence in Life Sciences and Defence markets helped to offset
the overall impact on Group revenues. In the current financial year we are
seeing very strong recovery in our Industrial and Medical Laser markets which
now offset a temporary programmatic reduction in our Defence revenues as well
as the return to more normal demand levels for our medical diagnostic
equipment. We will continue to look to acquisitions to help us further
diversify the business and support the long-term sustainable growth of the
business.
Moving up the Value Chain: We continue to use our research and development
resources to help us secure a greater proportion of our business from
sub-assemblies and systems further supporting our transition from being a
component supplier to a solutions provider. For example by combining the
firmware capabilities of our optical systems design team in St Asaph with the
electronics and software skills of our Ashford engineering team we are able to
offer next generation multi-band sights incorporating laser range finding and
advanced image overlay for use in next generation optical systems for military
vehicles. Our continuing investments in state of the art equipment to
manufacture and coat precision optics mean that we are able to offer our
customers an expanded range of services and in turn we are being invited to
tender for more complex, innovative optical assemblies by both existing and
new customers.
Principal Risks and Uncertainties
The principal risks and uncertainties to which the Group is exposed and our
approach to managing those risks are unchanged from those identified on page
47 of our 2021 Annual Report. Whilst the risk to the business from the
pandemic appears to be abating and COVID related absences in our facilities
reduce, we remain alert to the impact of potential further disruption arising
from new variants of the virus.
The post pandemic recovery in many of our markets has resulted in increased
demand for skilled employees resulting in competitive labour markets in both
the UK and US. In order to retain and attract employees we have increased
levels of pay for some skill groups beyond the general company-wide salary
awards made to our staff at the beginning of the calendar year.
Employment pressures have also impacted our suppliers who seek to pass on wage
inflation in their supply prices to G&H. In some cases pandemic related
absences have also meant they have been unable to supply to us. We take
measures to protect ourselves from these risks by maintaining buffer stocks of
key components where necessary although these are not always sufficient
protection in the case of protracted delays. Our supply chain teams also seek
to put in place long-term agreements with our suppliers which help to lock in
pricing for longer and provide some near term protection against inflationary
pressures.
In the medium term our supply chain teams work with our engineering team to
identify and qualify alternative sources of supply to mitigate the risk from
sole source suppliers. In general, we are able to pass on cost inflation to
our customers in the form of higher prices.
The situation in the Ukraine has not had a material impact on the Group which
had very limited exposure to customers and suppliers in Russia and the Ukraine
prior to the conflict. The enhanced sanctions regime implemented by UK
Government has had no impact on G&H.
Alternative Performance Measures
In the analysis of the Group's financial performance alternative performance
measures are presented to provide readers with additional information. The
interim report includes both statutory and adjusted non-GAAP financial
measures, the latter of which the Directors believe better reflect the
underlying performance of the business. Items excluded from the adjusted
results, together with their prior period comparatives, are set out below.
Reconciliation of adjusted performance measures
Operating profit Net finance costs Profit before tax Taxation Profit after tax Earnings per share
Half Year to 31 March 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 pence pence
Reported 1,574 1,175 (353) (505) 1,221 670 504 (132) 1,725 538 6.9 2.1
Amortisation of acquired intangible assets 927 1,091 - - 927 1,091 (217) (214) 710 877 2.8 3.5
Restructuring costs 1,445 3,134 - - 1,445 3,134 (252) (615) 1,193 2,519 4.8 10.1
Deferred tax on goodwill - - - - - - (675) - (675) - (2.7) -
Adjusted 3,946 5,400 (353) (505) 3,593 4,895 (640) (961) 2,953 3,934 11.8 15.7
Adjusted profit before tax was £3.6m, a decrease of 26.6% on the prior year
(H1 2021: £4.9m). This reduction in profit reflects lower revenues as a
result of the constraining effects on the Group's output of COVID absences
both in house and within our supply chain and other pandemic effects.
Cash Flow and Financing
In the six months ended 31 March 2022, G&H generated cash from operations
of £3.2m, compared with £9.7m in the same period of 2021. A strategic
investment of £3.3m was made in inventory to support the ramp up of output
expected in the second half of the year in response to record order book
levels. There was a net inflow of £0.1m from the movement on receivables and
payables.
Capital expenditure on property, plant and equipment was £3.0m in the period
(2021: £3.3m). Further investments have been made at our Ilminster facility
for advanced measuring systems to help achieve the very tight tolerances
required by our customers of the precision optics supplied to them. We have
also invested in our Boston site to reconfigure the production areas to
integrate the production lines previously located at our Baltimore facility.
In the period we invested in a new Customer Relationship Management system to
assist our sales team in the efficient pursuit of new orders.
On 31 March 2022 the Group entered in to a new $40m five year term revolving
credit facility with a further $30m flexible acquisition facility available to
support the Group's acquisition strategy. At the end of March the balance
drawn on the revolving credit facility was $19.6m (September 2021: $14.8m).
At 31 March 2022 the Group's net debt totalled £12.0m (30 September 2021 -
£9.2m) including lease liabilities of £6.1m (30 September 2021 - £6.6m).
Consistent with the Group's borrowing agreements, which exclude the impact of
IFRS 16, Leases, our leverage ratio was 0.3 times at 31 March 2022 (31 March
2021: 0.3 times).
Environmental, Social and Governance
During the reporting period we have finalised the installation of new solar
photo-voltaic energy generation systems at both our Ilminster and Ashford
facilities. These two systems have the capacity to generate approximately 450
kWp, adding to the self-generated electricity that our Torquay site's solar
panels have provided for the last few years. We have also developed plans for
each of our sites to reduce the energy they consume supporting this through
additional capital expenditure where necessary. In the first half of the year
the Group's greenhouse gas emissions reduced by 32.3% compared with the
comparator period thanks to our site consolidation programme and the sourcing
of 100% of our purchased electricity in the UK from renewables sources.
In order to strengthen the linkage between the Board and the wider workforce
Jim Haynes, one of our non-executive directors, was appointed as the director
with responsibility for workforce engagement. Jim has held a number of
sessions with employee representative groups at our sites and feedback from
those sessions is addressed. It is pleasing to note that our employees
recognised and appreciated the support measures put in place by the Group
during the pandemic. It is also clear that many office-based staff enjoy the
greater flexibility given to them for home working which the Group is keen to
support where appropriate to their particular role.
We are delighted to be offering additional apprenticeship roles at our
Precision Optics centre in Ilminster. These apprentices will be working in our
centre's production areas and will be trained to set up and operate our state
of the art precision optics cutting, polishing and coating equipment. We look
forward to them taking their place in a few years' time within our production
management teams.
Dividends
Given the positive outlook for the Group, the Board has declared an interim
dividend of 4.7 p per share (2021: 4.5p). This dividend will be payable to
shareholders on the register as at 24 June 2022 on 29 July 2022.
Prospects and outlook
There is strong and sustained demand across the Company's target markets and
our order book stands at a record level. The order book includes significant
new programme wins for next generation products in the field of acousto-optic
modulators, electronic optical sighting systems and medical lasers. The growth
in the order book has continued since the half year. We have invested in
substantial additional capacity, in particular at our site in Fremont, CA
which services the semiconductor market, Cleveland, OH which services the
medical laser market and Ilminster, Somerset which services the A&D optics
market. These are the areas where growth in order book demand has been the
most significant. Absence levels in our facilities have returned to normal
levels and output levels are increasing as a result of the investment made in
the first half of the year.
We continue to invest in our highly productive R&D team. Our engineering
resources are focused on working with our customers on their next generation
development programmes. There are a number of near term opportunities which
include developing the next generation of extreme ultra violet lasers for the
manufacture of nanoelectronics; using our laser based satellite communication
technology in new constellation satellite systems and exploiting our optical
coherence tomography capability in cardiovascular disease detection. The
establishment of our UK precision optics centre of excellence in Ilminster is
resulting in awards for new, more complex optical assembly work providing us
with more valuable and longer-term revenue opportunities.
We have entered in to a new five-year debt facility. Our balance sheet is
robust, with low net debt and we are in a good position to continue to invest
in our target sectors. The Board's confidence in the trading prospects of the
Group are reflected in an increased interim dividend for the year.
The Company remains committed to our long term strategic goals of
diversification and moving up the value chain. We intend to vigorously pursue
these goals through internal investment and where appropriate, acquisitions.
Full year expectations are unchanged and the long-term outlook for our
technologies and capabilities in all our target sectors remains very strong.
We have a clear route to mid teens returns through organic growth, internal
investment and our well-established acquisition strategy.
Mark Webster Chris Jewell
Chief Executive Officer Chief Financial Officer
7 June 2022
Group Income Statement
Unaudited interim results for the 6 months ended 31 March 2022
Half Year to 31 March 2022 (Unaudited) Half Year to 31 March 2021 (Unaudited) Full Year to 30 September 2021 (Audited)
Note Underlying Non-underlying Total Underlying Non-underlying Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 4 54,134 - 54,134 58,460 - 58,460 124,074
Cost of revenue (36,791) - (36,791) (39,575) - (39,575) (82,753)
Gross profit 17,343 - 17,343 18,885 - 18,885 41,321
Research and development (4,118) - (4,118) (3,933) - (3,933) (8,147)
Sales and marketing (3,994) - (3,994) (3,962) - (3,962) (8,342)
Administration (5,554) (2,372) (7,926) (6,169) (4,225) (10,394) (20,235)
Other income and expenses 269 - 269 579 - 579 804
Operating profit 4 3,946 (2,372) 1,574 5,400 (4,225) 1,175 5,401
Net finance costs (353) - (353) (505) - (505) (721)
Profit before income tax expense 3,593 (2,372) 1,221 4,895 (4,225) 670 4,680
Income tax expense 6 (640) 1,144 504 (961) 829 (132) (1,276)
Profit for the year 2,953 (1,228) 1,725 3,934 (3,396) 538 3,404
Basic earnings per share 7 11.8p (4.9p) 6.9p 15.7p (13.6p) 2.1p 13.6p
Diluted earnings per share 7 11.7p (4.8p) 6.9p 15.6p (13.5p) 2.1p 13.5p
Group Statement of Comprehensive Income
Half Year to Half Year to Full Year to
31 Mar 2022
31 Mar 2021
30 Sep 2021
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Profit for the period 1,725 538 3,404
Other comprehensive (expense) / income
(Losses) / gains on cash flow hedges (33) 59 (468)
Currency translation differences 1,104 (2,890) (1,621)
Other comprehensive income / (expense) for the period 1,071 (2,831) (2,089)
Total comprehensive income / (expense) for the period 2,796 (2,293) 1,315
Group Balance Sheet
Unaudited interim results for the 6 months ended 31 March 2022
31 Mar 2022 31 Mar 2021 30 Sep 2021
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 38,446 38,354 37,945
Right of use assets 4,908 6,064 5,230
Intangible assets 51,098 51,572 50,835
Deferred tax assets 1,861 1,466 1,883
96,313 97,456 95,893
Current assets
Inventories 31,816 28,226 28,150
Trade and other receivables 24,466 23,861 28,310
Cash and cash equivalents 8,951 15,286 8,352
65,233 67,373 64,812
Current liabilities
Trade and other payables (15,618) (17,704) (19,324)
Borrowings (66) (64) (65)
Lease liabilities (1,485) (1,647) (1,588)
Tax liabilities (1,229) (282) (481)
(18,398) (19,697) (21,458)
Net current assets 46,835 47,676 43,354
Non-current liabilities
Borrowings (14,813) (19,951) (10,903)
Lease liabilities (4,575) (5,684) (5,039)
Provision for other liabilities and charges (1,444) (1,705) (1,447)
Deferred tax liabilities (7,132) (6,376) (7,582)
(27,964) (33,716) (24,971)
Net assets 115,184 111,416 114,276
Shareholders' equity
Called up share capital 5,008 5,008 5,008
Share premium account 16,000 16,000 16,000
Merger reserve 7,262 7,262 7,262
Cumulative translation reserve 7,158 4,785 6,054
Hedging reserve (168) 392 (135)
Retained earnings 79,924 77,969 80,087
Equity Shareholders' Funds 115,184 111,416 114,276
Statement of Changes in Equity
Unaudited interim results for the 6 months ended 31 March 2022
Share capital account Share premium account Merger reserve Retained earnings Hedging reserve Cumulative translation reserve Total equity
£000 £000 £000 £000 £000 £000 £000
At 1 October 2020 5,008 16,000 7,262 77,075 333 7,675 113,353
Profit for the period - - - 538 - - 538
Other comprehensive expense for the period - - - - 59 (2,890) (2,831)
Total comprehensive income / (expense) for the period - - - 538 59 (2,890) (2,293)
Share based payments - - - 356 - - 356
At 31 March 2021 (unaudited) 5,008 16,000 7,262 77,969 392 4,785 111,416
At 1 October 2021 5,008 16,000 7,262 80,087 (135) 6,054 114,276
Profit for the period - - - 1,725 - - 1,725
Other comprehensive (expense) / income for the period - - - - (33) 1,104 1,071
Total comprehensive income / (expense) for the period - - - 1,725 (33) 1,104 2,976
Dividends (1,928) (1,928)
Share based payments - - - 40 - - 40
At 31 March 2022 (unaudited) 5,008 16,000 7,262 79,924 (168) 7,158 115,184
Group Cash Flow Statement
Unaudited interim results for the 6 months ended 31 March 2022
Half Year to 31 Mar 2022 (Unaudited) Half Year to 31 Mar 2021 (Unaudited) Full Year to 30 Sep 2021 (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 3,216 9,720 16,822
Income tax refunded / (paid) 823 (476) (575)
Net cash generated from operating activities 4,039 9,244 16,247
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (3,250) (3,250)
Purchase of property, plant and equipment (3,004) (3,340) (5,399)
Sale of property, plant and equipment 3 - 38
Purchase of intangible assets (966) (524) (844)
Interest received 2 1 1
Interest paid (295) (465) (505)
Net cash used in investing activities (4,260) (7,578) (9,959)
Cash flows from financing activities
Drawdown of borrowings 4,258 - -
Repayment of borrowings (758) (4,736) (14,093)
Repayment of lease liabilities (796) (899) (2,047)
Dividends paid to ordinary shareholders (1,928) - (1,127)
Net cash generated by / (used in) financing activities 776 (5,635) (17,267)
Net increase/ (decrease) in cash 555 (3,969) (10,979)
Cash at beginning of the period 8,352 19,734 19,734
Exchange gains / (losses) gains on cash 44 (479) (403)
Cash at the end of the period 8,951 15,286 8,352
Notes to the Group Cash Flow Statement
Half Year to 31 Mar 2022 (Unaudited) Half Year to 31 Mar 2021 (Unaudited) Full Year to 30 Sep 2021 (Audited)
£'000 £'000 £'000
Profit before income tax 1,221 670 4,680
Adjustments for:
- Amortisation of acquired intangible assets 927 1,091 2,081
- Amortisation of other intangible assets 593 567 1,275
- Loss on disposal of property, plant and equipment 12 - 95
- Depreciation 3,396 3,282 7,030
- Share based payments 40 356 735
- Amounts claimed under the RDEC (113) (174) (280)
- Finance income (2) (1) (1)
- Finance costs 355 506 722
Total adjustments 5,208 5,627 11,657
Changes in working capital
- Inventories (3,294) 1,528 1,888
- Trade and other receivables 4,427 1,676 (2,655)
- Trade and other payables (4,346) 219 1,252
Total changes in working capital (3,213) 3,423 485
Cash generated from operating activities 3,216 9,720 16,822
Reconciliation of net cash flow to movements in net debt
Half Year to Half Year to Full Year to 30 Sep 2021
31 Mar 2022
31 Mar 2021
(Audited)
(Unaudited)
(Unaudited)
£'000 £'000 £'000
Increase / (decrease) in cash in the period 555 (3,969) (10,979)
Drawdown of borrowings (4,258) - -
Repayment of borrowings 1,678 5,635 16,140
Changes in net debt resulting from cash flows (2,025) 1,666 5,161
New leases (12) (503) (510)
Non cash movements (261) (8) (393)
Translation differences (447) 1,522 1,236
Movement in net debt in the period / year (2,745) 2,677 5,494
Net debt at start of period (9,243) (14,737) (14,737)
Net debt at end of period (11,988) (12,060) (9,243)
Analysis of net debt
At 1 Oct 2021 New leases Cash flow Exchange movement Non-cash movement At 31 Mar
2022
£'000 £'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 8,352 - 555 44 - 8,951
Due within one year
Debt (65) - 32 - (33) (66)
Lease liabilities (1,588) (4) 920 (18) (795) (1,485)
Due after one year
Debt (10,903) - (3,532) (350) (28) (14,813)
Lease liabilities (5,039) (8) - (123) 595 (4,575)
Net debt (9,243) (12) (2,025) (447) (261) (11,988)
Notes to the Interim Report
1. Basis of Preparation
The unaudited Interim Report has been prepared under the historical cost
convention and in accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union.
The Group remains significantly within its debt facility covenants and is
forecasting to be cash generative in the second half of the financial year.
These cash flow projections show that the Group has sufficient funding
available to withstand plausible downside scenarios, and therefore the
financial statements have been prepared on a going concern basis.
The Interim Report was approved by the Board of Directors and the Audit
Committee on 7 June 2022. The Interim Report does not constitute statutory
financial statements within the meaning of the Companies Act 2006 and has not
been audited.
Comparative figures in the Interim Report for the year ended 30 September 2021
have been taken from the Group's audited statutory financial statements on
which the Group's auditors, PricewaterhouseCoopers LLP, expressed an
unqualified opinion. The comparative figures to 31 March 2021 are unaudited.
The Interim Report will be announced to all shareholders on the London Stock
Exchange and published on the Group's website on 7 June 2022. Copies will be
available to members of the public upon application to the Company Secretary
at Dowlish Ford, Ilminster, Somerset, TA19 0PF.
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 30 September 2021, as described in
those financial statements.
2. Estimates
The preparation of interim financial statements requires management to make
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgments made by management in applying the Company's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements for the year ended 30
September 2021.
3. Financial risk management
The Company's activities expose it to a variety of financial risks, market
risk (including currency risk, cash flow interest rate risk and price risk),
credit risk and liquidity risk.
The interim condensed consolidated financial statements do not include all
financial risk management information and disclosures required in the annual
financial statements and should be read in conjunction with the Company's
annual financial statements as at 30 September 2021. There have been no
changes to the risk management policies since the year end.
4. Segmental analysis
Aerospace & Defence Life Sciences / Biophotonics Industrial Corporate Total
For half year to 31 March 2022 £'000 £'000 £'000 £'000 £'000
Revenue
Total revenue 14,554 14,964 30,206 - 59,724
Inter and intra-division (1,427) (1,700) (2,463) - (5,590)
External revenue 13,127 13,264 27,743 - 54,134
Divisional expenses (14,603) (10,569) (22,937) 465 (47,644)
EBITDA¹ (1,476) 2,695 4,806 465 6,490
EBITDA % (11.2)% 20.3% 17.3% - 12.0%
Depreciation and amortisation (1,234) (784) (1,457) (514) (3,989)
Operating profit before amortisation of acquired intangible assets (2,710) 1,911 3,349 (49) 2,501
Amortisation of acquired intangible assets - - - (927) (927)
Operating profit (2,710) 1,911 3,349 (976) 1,574
Operating profit margin % (20.6)% 14.4% 12.1% - 2.9%
Add back non-recurring items 469 188 788 927 2,372
Operating profit excluding non-recurring items (2,241) 2,099 4,137 (49) 3,946
Adjusted operating profit margin % (17.1)% 15.8% 14.9% - 7.3%
Aerospace & Defence Life Sciences / Biophotonics Industrial Corporate Total
For half year to 31 March 2021 £'000 £'000 £'000 £'000 £'000
Revenue
Total revenue 18,440 14,742 30,519 - 63,701
Inter and intra-division - (1,292) (3,949) - (5,241)
External revenue 18,440 13,450 26,570 - 58,460
Divisional expenses (18,466) (10,694) (23,618) 433 (52,345)
EBITDA¹ (26) 2,756 2,952 433 6,115
EBITDA % - 20.5% 11.1% - 10.5%
Depreciation and amortisation (1,284) (652) (1,199) (714) (3,849)
Operating profit before amortisation of acquired intangible assets (1,310) 2,104 1,753 (281) 2,266
Amortisation of acquired intangible assets - - - (1,091) (1,091)
Operating profit (1,310) 2,104 1,753 (1,372) 1,175
Operating profit margin % (7.1%) 15.6% 6.6% - 2.0%
Add back non-recurring items 1,503 435 1,196 1,091 4,225
Operating profit excluding non-recurring items 193 2,539 2,949 (281) 5,400
Adjusted operating profit margin % 1.0% 18.9% 11.1% - 9.2%
¹EBITDA = Earnings before interest, tax, depreciation and amortisation.
All of the amounts recorded are in respect of continuing operations.
4. Segmental analysis continued
Analysis of revenue by destination
Half year to Half year to
31 Mar 2022 31 Mar 2021
(Unaudited) (Unaudited)
£'000 £'000
United Kingdom 13,267 15,008
North and South America 19,224 23,093
Continental Europe 11,910 9,159
Asia-Pacific 9,733 11,200
54,134 58,460
5. Non-recurring items
Half Year to Half Year to Full Year to
31 Mar 2022
31 Mar 2021
30 Sep 2021
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Profit before tax 1,221 670 4,680
Amortisation of acquired intangible assets 927 1,091 2,081
Restructuring costs 1,445 3,134 5,860
Adjusted profit before tax 3,593 4,895 12,621
The restructuring costs in the period ended 31 March 2022 relate to
non-recurring costs arising from our manufacturing streamlining activities,
further detail of which is given in the Operating and Financial Review.
6. Tax expense
Analysis of tax charge in the period
Half Year to Half Year to Full Year to 30 Sep 2021 (Audited)
31 Mar 2021
31 Mar 2022
(Unaudited)
(Unaudited)
£'000 £'000 £'000
Current taxation
UK Corporation tax 356 (105) 722
Overseas tax (100) (79) 292
Adjustments in respect of prior year tax charge (250) - (807)
Total current tax 6 (184) 207
Deferred tax
Origination and reversal of temporary differences (118) 316 1
Adjustments in respect of prior years (392) - 549
Change to UK tax rate - - 519
Total deferred tax (510) 316 1,069
Tax expense per income statement 504 132 1,276
The tax charge for the six months ended 31 March 2022 is based on the
estimated effective rate of the tax for the Group for the full year to 30
September 2022. The estimated rate is applied to the profit before tax.
The adjusted effective tax rate is 17.8% (H1 2021: 19.6%).
7. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on the profit for
the period using as a divisor the weighted average number of Ordinary Shares
in issue during the period. The weighted average number of shares is given
below.
Half Year to Half Year to Full Year to 30 Sep 2021
31 Mar 2021
31 Mar 2021
(Audited)
(Unaudited)
(Unaudited)
No. No. No.
Number of shares used for basic earnings per share 25,040,919 25,040,919 25,040,919
Dilutive shares 127,937 195,624 239,603
Number of shares used for dilutive earnings per share 25,168,856 25,236,543 25,280,522
A reconciliation of the earnings used in the earnings per share calculation is
set out below:
Half Year to Half Year to Full Year to
31 Mar 2022 (Unaudited)
31 Mar 2021
30 Sep 2021
(Unaudited)
(Audited)
£'000 p per £'000 p per £'000 p per
share
share
share
Basic earnings per share 1,725 6.9p 538 2.1p 3,404 13.6p
Adjustments net of income tax expense:
Amortisation of acquired intangible assets 710 2.8p 877 3.5p 1,621 6.5p
Restructuring costs 1,193 4.8p 2,519 10.1p 4,709 18.8p
Adjustment to deferred tax on goodwill (675) (2.7p) - - - -
Restatement of UK deferred tax - - - - 519 2.1p
Total adjustments net of income tax expense 1,228 4.9p 3,396 13.6p 6,849 27.4p
Adjusted basic earnings per share 2,953 11.8p 3,934 15.7p 10,253 41.0p
Basic diluted earnings per share 1,725 6.9p 538 2.1p 3,404 13.5p
Adjusted diluted earnings per share 2,953 11.7p 3,934 15.6p 10,253 40.5p
Adjusted earnings per share before amortisation of acquired intangible assets
and adjustments has been shown because, in the opinion of the Directors, it
more accurately reflects the trading performance of the Group.
8. Dividend
The Directors have declared an interim dividend of 4.7p per share for the half
year ended 31 March 2022 (2021: 4.5p).
Half Year to Half Year to Full Year to
31 Mar 2021
31 Mar 2021
30 Sep 2021
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Final 2021 dividend paid in 2022: 7.7p per share 1,928 - 1,127
1,928 - 1,127
9. Borrowings
31 March 2022 31 March 2021 £000 30 September 2021
£000
£'000
Current:
Bank borrowings 66 64 65
Leases 1,485 1,647 1,588
1,551 1,711 1,653
Non-current:
Bank borrowings 14,813 19,951 10,903
Leases 4,575 5,684 5,039
19,388 25,635 15,942
Total borrowings 20,939 27,346 17,595
G&H's primary lending bank is NatWest Bank. The Group's facilities
comprise a $40m (£30.4m) dollar revolving credit facility and a $30m
(£22.8m) flexible acquisition facility. At 31 March 2022, the balance drawn
on the revolving credit facility was $19.6m (£14.9m) (September 2021: $14.8m
(£11.0m)) and on the flexible acquisition facility nil (September 2021: nil).
The facilities above are committed until 31 March 2027 and attract an interest
rate of between 1.6% and 2.1% above rates specified by the bank dependent upon
the Company's leverage ratio, payable on rollover dates.
The Group's banking facilities are secured on certain of its assets including
land and buildings, property plant and equipment and inventory.
Maturity profile of bank borrowings
31 March 31 March 30 September 2021
£'000
2022 2021
£000
£000
Within one year 66 64 65
Between one and five years 14,813 19,951 10,903
14,879 20,015 10,968
Maturity profile of lease liabilities
31 March 31 March 30 September 2021
£'000
2022 2021
£000
£000
Within one year 1,697 1,921 1,819
Between two and five years 3,605 4,616 4,081
After five years 1,505 1,729 1,544
6,807 8,266 7,444
10. Called up share capital
31 Mar 2022 30 Sep 2021 31 Mar 2022 30 Sep 2021
No. No. £'000 £'000
Allotted, issued and fully paid
Ordinary share of 20p each 25,040,919 25,040,919 5,008 5,008
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