REG - Gooch & Housego PLC - Results for the year ended 30 September 2021
30/11/2021 07:00
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RNS Number : 9490T Gooch & Housego PLC 30 November 2021
For immediate release 30 November 2021
Gooch & Housego PLC
("Gooch & Housego", "G&H", the "Company" or the "Group")
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2021
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer of photonic
components and systems, today announces its audited results for the year ended
30 September 2021.
Year ended 30 September 2021 2020 Change
Revenue (£m) 124.1 122.1 1.6%
Adjusted profit before tax (£m)* 12.6 9.8 29.4%
Adjusted basic earnings per share (pence)* 41.0p 30.5p 34.4%
Statutory profit before tax (£m) 4.7 5.4 (13.2%)
Basic earnings per share (pence) 13.6p 15.1p (9.9%)
Total dividend per share (pence) 12.2p - N/A
Net debt excluding IFRS16 (£m) 2.6 6.5 (£3.9m)
Net debt (£m) 9.2 14.7 (£5.5m)
· adjusted figures exclude the amortisation of acquired intangible assets,
non-underlying items being restructuring costs, site closure costs, settlement
of lease litigation, interest thereon and interest on deferred consideration,
together with the related tax impact.
Strategic
· Trading reflected a strong and improving end markets and initial
benefits from our manufacturing streamlining programme, more than offsetting
currency headwinds and some supply chain issues.
· Industrial laser demand continues to be strong, driven by 5G
rollout, use of new more flexible materials in microelectronic manufacturing
and high worldwide demand for semiconductors.
· Medical lasers continue to grow as elective surgery recovers.
Medical diagnostics remain at previous high levels.
· Ambitious manufacturing streamlining programme is largely
complete, reducing manufacturing sites from 12 to 9. Previously announced
annual profit benefit of £1.75m is on track starting FY2022.
· Continued investment in R&D delivering strong returns with a
record new product revenue contribution.
· G&H remains committed to long term goals of further
diversification into A&D and life sciences and moving up the value chain.
We intend to pursue these policies vigorously through internal investment and
where appropriate, acquisitions.
Financial
· Revenue of £124.1m, up by 1.6% or 6.4% excluding foreign
exchange.
· New products contributed a record £18.1m of revenue in FY2021
(FY2020: £16.9m).
· Adjusted profit before tax of £12.6m, up 29.4%. Reported PBT
£4.7m, down 13.2%.
· Strong cash flow over the year leading to further debt reduction.
Net debt, excluding IFRS16, of £2.6m places G&H in a strong position to
pursue strategic goals.
· Return of progressive dividend policy with a proposed full year
dividend of 12.2p
· Year end order book of £97.8m, up 5.6%, or 8.6% excluding
foreign exchange. Industrial and medical lasers are demonstrating a sustained
recovery, while telecommunications and medical diagnostics continue to perform
at a high level.
Mark Webster, Chief Executive Officer, commented:
"Trading during the year reflected a sustained recovery in the industrial and
medical laser markets and a robust performance from telecommunications and
medical diagnostics. An increasingly productive R&D group delivered record
levels of new product revenue during the year.
"There was some drag on the Group's overall performance due to currency
headwinds, self-isolation requirements and supply chain issues in parts of the
business as we emerge from the pandemic. It was, however, a far better
business environment than last year and we expect further improvement in the
future.
"Our restructuring programme is enhancing the Group's margins and enabling us
to better respond to our customers' needs. We are committed to vigorously
pursuing our long term strategic goals and will continue to invest in R&D
and where appropriate, acquisitions.
"The Board remains confident that G&H is well positioned to deliver
further progress in FY2022 and substantial long-term growth."
For further information please contact:
Gooch & Housego PLC Mark Webster / Chris Jewell 01460 256440
Investec Bank plc (Nomad & Broker) Christopher Baird / David Anderson 020 7597 5970
Buchanan Mark Court / Sophie Wills 020 7466 5000
g@h@buchanan.uk.com
Webcast
A pre-recorded presentation of the full year results, by Mark Webster, Chief
Executive Officer, and Chris Jewell, Chief Financial Officer, will be
available from 7.05am today, 30 November 2021, at the following link:
https://webcasting.buchanan.uk.com/broadcast/6193ee6fbfda32066a17010f
(https://webcasting.buchanan.uk.com/broadcast/6193ee6fbfda32066a17010f)
Analyst Q&A meeting
A Q&A session for analysts will be held at 11:00am today, 30 November
2021. For further details please phone Buchanan on 020 7466 5000 or email
g&h@buchanan.uk.com (mailto:g&h@buchanan.uk.com) .
2022 Expected Financial Calendar
Annual General Meeting 23 February 2022
Interim Results announcement June 2022
Financial Year End 30 September 2022
Announcement of results for the year ended December 2022
30 September 2022
Chairman's Statement
Group Overview
I have been delighted with the trading performance of the Group in the year.
Nearly all of our markets have now returned to growth as economies emerge from
the pandemic confirming the long-term strong growth prospects of the Group.
Across all of the markets that we serve we are well positioned to benefit from
the increasing use of our photonic technologies and systems capabilities to
solve our customers' most technically challenging needs.
The consistent pursuit of our strategic objectives has been a key enabler of
the Group's performance in 2021. Our focus on markets with strong growth
drivers as well as our proven track record of supporting our customers with
the development of their most sophisticated products has underpinned the
Group's return to growth.
Our programme to streamline our manufacturing facilities is progressing well.
The significant investment in our Ilminster precision optics centre of
excellence is now substantially complete allowing that site to absorb
production activities from our Glenrothes, Scotland and St Asaph, Wales sites.
This project, together with the consolidation of our Baltimore, MD and Boston,
MA facilities is helping us deliver margin enhancement, but also means we are
able to offer a broader, more compelling range of products and capabilities.
Our customers are increasingly looking to us to provide them with more
advanced, integrated designs consistent with our strategic objectives.
The Environment and our Communities
The Board recognises how important the environment is to all of our
stakeholders. We firmly believe that photonic technologies are a key enabler
in the migration to a more sustainable world. But we are also focused on our
own impact on the environment. We now track carbon emissions as one of our key
performance indicators and have a programme in place to achieve year-on-year
reductions. As part of that programme we installed solar panels at our
Ilminster facility which, along with the existing solar panels fitted at our
Torquay facility, means that we are now generating approximately 600 Kwp of
electricity from solar sources. We will extend that capability in the current
financial year by installing solar panels at our Ashford facility.
We also recognise the importance of supporting the communities in which we
operate. As well as providing high quality, skilled jobs we encourage our
employees to support local charities often matching with Company monies the
amounts they raise.
The Board
Peter Bordui left the Board in February 2021 after nine years of service. We
are extremely grateful for the direction and insights he provided through what
was a period of great strategic and operational progress for G&H.
We were very pleased to be able to welcome Jim Haynes to the Board. Jim brings
to the Group extensive experience from his distinguished executive career in
the photonics industry where he held a range of senior leadership roles in
engineering and operations, most recently Executive Vice President,
Operations, at Oclaro/Lumentum.
Dividend
Given the strength of the business recovery in the year and the positive
outlook for the coming trading period, the Board is proposing a final dividend
of 7.7 pence per share for approval at the Company's Annual General Meeting on
23 February 2022, giving a total of 12.2 pence for the year. Payment of the
dividend will be made on 25 February 2022, to shareholders on the register as
at 21 January 2022.
People
Our people are our most important asset. Their skills and experience are key
to ensuring the long-term sustainability of our business. Our employees have
shown great commitment to the business not only by adapting over the last 18
months to the new working practices required by COVID-19 but also in
delivering the manufacturing facility streamlining projects. Their positive
attitude has impressed the Board and we offer our appreciation and thanks for
our employees' hard work and dedication through the year.
Outlook
Looking forward, the Board is very optimistic for G&H. We are well
positioned in our growth markets. Our restructuring programmes are enhancing
the Group's margins and making it better able to respond to our customers'
needs. Whilst the business is facing some near term challenges in recruiting
to support our growth, and there are some constraints in our supply chains, we
have no doubt we can build on the strong foundations of our technical
expertise, our longstanding customer relationships and the skills and
dedication of our people to deliver substantial future growth.
Gary Bullard
Chairman
30 November 2021
Chief Executive Officer's Statement
FY2021 Performance
During the financial year 2021 G&H achieved revenue of £124.1m,
representing an increase of 1.6% over previous year (FY2020: £122.1m), or
excluding the impact of foreign exchange an increase of 6.4%. Adjusted profit
before tax was £12.6m, an increase of 29.4% over last year (FY2020: £9.8m).
This reflected a strong and improving end market demand and initial benefits
from our manufacturing streamlining programme, more than offsetting currency
headwinds and some supply chain constraints. Overall, it was a far better
business environment than last year, and we expect further improvement in the
future.
Industrial laser demand continues to be strong, especially the semiconductor
market, where there are a range of exciting growth opportunities for G&H
technologies. Hi-reliability fibre couplers delivered a good performance, with
greater usage in space satellites complementing the undersea cable business.
We completed a number of significant deliveries to our aerospace and defence
customers. Life sciences performed well across the board. Medical diagnostics
remained at previous high levels, with a product designed to improve
respiratory function and oxygen uptake, as part of a ventilator system,
performing particularly well. Orders for our specialist medical laser products
have been strong as the market recovers from the low levels of elective
surgery during the pandemic.
Our ambitious manufacturing streamlining programme has continued throughout
FY2021, with further site consolidation and outsourcing of established
products. The previously announced profit benefit of this programme is on
track to be delivered in FY2022.
We have continued to invest in an active R&D portfolio and are working
closely with many of our customers on their next generation products. New
products contributed a record £18.1m of revenue in FY2021 (FY2020: £16.9m).
The Group delivered strong cash flow over the year and has further reduced its
level of borrowings. Net debt, excluding lease liabilities was £2.6m at the
year end, which places G&H in a strong position to pursue our strategic
goals.
G&H has a robust order book. As at 30 September 2021 it stood at £97.8m
(30 September 2020: £92.4m), 5.8% higher than the same period previous year
or 8.6% excluding foreign exchange. The strength of the order book provides
the Group with good momentum as it enters the new financial year. Industrial
and medical lasers are demonstrating a sustained recovery, while
telecommunications and medical diagnostics continue to perform at a high
level.
Strategic Goals
Our long-term strategic goals of diversification and moving up the value chain
have stood us in good stead during a challenging period. As the business
environment is now showing significant improvement, we intend to pursue them
with renewed vigour through internal investment and where appropriate,
acquisitions.
Aerospace and defence (A&D) and life sciences provide a counterbalance to
the exposure of the industrial laser business to the economic cycle. These
sectors both have high product quality and compliance barriers to entry and
tend to value systems over components. As they move towards greater use of
photonics, G&H is increasingly well placed to serve these customers with
our photonic technologies and enhanced systems capabilities.
Our aim is to provide a broadly equal split between the three sectors,
industrials, A&D and life sciences. In FY2021 A&D represented 33.1% of
our revenue and life sciences 22.1%. This represents considerable progress
over the last few years, in particular with life sciences, which has benefited
from organic growth in the traditional G&H areas of optical coherence
tomography (OCT) and medical lasers and the acquisition of ITL.
Systems, subsystems and modules represent 33.2% of revenue. We have
substantially improved our software, firmware, electronic and mechanical
engineering capability, in large part through the acquisition of ITL. Its
facility in Ashford, Kent has provided a platform for the creation of a
systems engineering hub.
Streamlining of G&H's Manufacturing Base
Our streamlining programme has progressed well during FY2021. At the beginning
of the financial year, we had 12 manufacturing sites and now have nine. We
moved our Baltimore, MD production to our Boston, MA site creating a single US
fibre facility. In the UK we have moved our Glenrothes, Scotland and St Asaph,
Wales manufacturing to Ilminster, Somerset, creating a UK precision optics
(PO) hub. Our world leading optical systems engineering team has been
relocated to an innovation hub in St Asaph and they remain focused on target
development projects. Outsourcing of our Ilminster AO production to a
South-East Asian contract manufacturer is well advanced and the final product
transfers are expected to be completed soon.
This has been achieved at a time when travel, especially to Asia, has been
challenging and the results are a tribute to the tenacity of the G&H teams
involved in delivering these projects. The previously announced FY2022 profit
benefit of £1.75m is on track to be delivered.
We will continue to assess future opportunities for consolidation of our
operations.
Research and Development (R&D)
Our global R&D team has reaped considerable benefit from concentrating our
resources on fewer, higher return projects that the Group has identified as
offering the best growth potential for our photonic technologies and system
capabilities. During FY2021 we introduced 48 new products and delivered record
new product revenue.
G&H continues to work closely with our industrial laser partners to
develop their next generation products. There is especially strong activity
with lasers that are used to manufacture semiconductors. Our industrial laser
development activity ranges from 'state of the art' extreme ultra-violet
('EUV') lithography lasers used for nanoelectronics, redesigned market leading
germanium AO modulators and specialist AO deflectors, through to providing
critical components for the next generation designs of established products.
G&H's 'laser engine' technology is gaining real traction in directional
sensing for wind turbines and security and defence applications. Our partner
company is now selling their directional sensing unit for wind turbines into
the large Chinese market.
Unmanned aerial vehicles (UAVs) represent significant growth potential for
G&H. We have expertise in the design, engineering and manufacturing of
bespoke complex optical arrays in the IR spectrum for UAV imaging and
communication systems. This area has been a source of multiple new products
and systems in FY2021. We are currently working on 'thermal overlay' of our
traditional optical sighting systems for armoured vehicles. This will be the
first new product to come out of our innovation hub in St Asaph.
In November 2020, in collaboration with NEC Corporation and JAXA (Japan
Aerospace Exploration Agency), G&H fibre optic photonics and systems were
at the heart of the successful launch of a satellite laser communication
system. To our knowledge this is the first system of its type, and the aim is
to demonstrate that laser communications can be a viable solution for future
high speed and scalable space communications. This success has raised the
profile of the teams based in Torquay and Boston, MA that developed the system
and has led to further contracts in this area.
OCT is a non-invasive laser-based technology that delivers cross sectional
diagnostic images. G&H is the market leader in supplying the technology
for retinal scanning, which our customers deploy in opticians' offices. We are
working with our partners on developing the next generation systems. The same
technology is being applied to cancer and cardiovascular disease diagnosis.
Our most recent cardiovascular diagnostic collaboration is now undertaking
medical registration trials in the USA.
The acquisition of ITL brought a burgeoning medical diagnostics business and
enhanced system capability. In addition to developing the next generation of
existing products the R&D team at ITL are working on a range of novel
medical diagnostics systems and the Group has expanded to meet the demands of
our customers. We have three collaborations with Chinese medical diagnostics
companies through our facility in Shanghai. We believe this has the potential
to be a source of substantial growth as the Chinese Government is backing the
development of a 'home grown' medical diagnostics industry.
Corporate Responsibility
We are proud of the way the organisation has responded to the challenges of
the pandemic and have worked hard to ensure all our sites are fully COVID
compliant. The health and safety of our staff, customers and suppliers remains
our priority.
The Board is accountable to its shareholders and is committed to the highest
standards of corporate governance. To this end the Company has adopted the UK
Corporate Governance Code (2018). In order to ensure the Company is meeting
the most up to date standards, regular reviews of policy are held by the
relevant committees of the Board of Directors.
G&H is committed to providing equal employment opportunities for all and
aims to improve diversity at all levels of the organisation. Our recruitment
partners have been instructed to ensure that they include women in all
shortlist applications and we are actively engaged with encouraging women in
engineering.
G&H is committed to conducting our business in an environmentally
responsible and sustainable manner. We are consolidating our manufacturing
facilities, and introducing other initiatives aimed at reducing our
environmental footprint, such as the introduction of solar power at our three
UK sites. The Executive Directors have specific environmental management and
carbon reduction goals in their remuneration metrics.
Outlook
The business environment improved markedly over the pandemic-affected 2020. We
believe there will be further improvement in the next financial year and over
the longer term.
FY2021 saw strong demand for industrial and medical lasers, telecommunications
and medical diagnostics. The drivers of a sustained recovery in industrial
lasers remain in place, as new technologies such as 5G roll out, along with
greater use of new more flexible materials in microelectronic manufacturing
and strong worldwide demand for semiconductors. We expect this demand led
growth to continue in these sectors. Our year end order book is robust and
8.6% higher than the same time last year, excluding the impact of foreign
exchange.
A&D sub-sectors of space satellite communications, optical arrays for
gimbals on UAVs, and targeting and sighting systems all performed well in the
last financial year. G&H supplies laser based navigational products for
commercial and military aircraft. Our internal forecasts expect that the
commercial aspect of this business will start to return to growth in 2023.
In FY2021 there was some 'drag' on performance due to currency headwinds,
self-isolation and supply chain issues in parts of our business. It is
possible that we may still see these factors affect performance in the near
term. Mitigating actions have been taken by management in each of these areas.
G&H's plans to streamline our manufacturing operations have been largely
completed during FY2021 and we are on track to deliver the previously
announced FY2022 profit improvements. The benefits of having our US fibre
optic capability housed on a single site and our UK precision optics (PO)
production on one site should start to positively impact performance.
Ilminster has throughout its history been a mixed AO and PO site and the
efficiency and capacity improvements we envisage as the exclusively PO site
embraces its new role should enable an enhanced offering to its predominately
A&D customers.
New products are becoming an increasingly important part of our portfolio, as
we continue to deliver record new product sales from an increasingly
productive R&D group. We remain committed to invest in those areas
identified as having the greatest potential. There continues to be substantial
long term growth potential for our photonic technologies and system
capabilities in all our target sectors.
G&H remains committed to our long-term strategic goals of further
diversification and moving up the value chain. We intend to vigorously pursue
these goals through internal investment and where appropriate, acquisitions.
The Board remains confident that G&H is well positioned to deliver further
progress in FY2022 and substantial long-term growth.
Mark Webster
Chief Executive Officer
30 November 2021
Operations Review
Industrial
Revenue
£55.6m (2020: £54.8m)
Adjusted Operating Profit £7.1m (2020: £4.1m)
Operating Profit £4.5m
(2020: £3.2m)
Percentage of Revenue 44.8% (2020: 44.9%)
Market Drivers
· Post pandemic recovery in the industrial laser market.
· Roll out of 5G, new more flexible materials in microelectronic
manufacturing and greater worldwide demand for semiconductors.
· Next generation products such as EUV lithography lasers for
nanoelectronics and new design germanium modulators.
· Increasing investment in continental connectivity of data
centres.
· Greater use of our hi-reliability fibre optic technology in space
satellites.
· Increased investment in wind farms and border and infrastructure
asset protection, both using a version of our 'laser engine' sensing
technology.
Performance
Overall, sales of products into our industrial markets grew by 1.4% (7.2%
excluding foreign exchange) compared to the prior year. We saw strong and
sustained growth in our industrial laser and semiconductor revenues thanks to
the recovery of the global economy from the effects of the pandemic. Our Asian
markets led the recovery from the beginning of the calendar year but this was
then supported in the second half of the trading period by demand from our US
and European markets. The roll out of new technologies such as 5G, along with
greater use of new materials in microelectronic manufacturing, are fuelling
demand. We secured important new programme positions for our recently
developed germanium acousto-optic modulator product, which will lead to
recurring revenues for many years to come. This product is integrated in to
the heart of the most advanced and efficient laser systems currently being
developed by our OEM customers for use in semiconductor manufacturing. The
movement of our Ilminster AO Q-switch production to a South East Asian
manufacturer will enable us to more effectively compete in the increasingly
price sensitive China market.
Our sensing modules generally form part of large infrastructure projects and
there were some end customer programme delays that impacted on our revenues in
this subsector during the period. Nevertheless, the underlying trend remains
in our favour with photonics sensing products increasingly seen as the way to
protect and improve the efficiency of infrastructure assets. For example,
G&H products are used extensively to improve the performance of wind
turbines used for clean energy generation and the focus on switching to energy
created from renewable sources provides G&H with sustainable underpinning
demand for its products in this area.
Volumes for our hi-reliability fibre couplers used in undersea cable networks
remained at the raised level seen in FY2020. There is strong demand thanks to
a sustained market drive for the transmission of more and more data for both
business and personal consumption and the greater use of the same technology
in space satellites.
Applications
· Industrial lasers for materials processing applications. G&H
supplies Q-switches and other acousto-optic, electro-optic and fibre optic
products.
· Semiconductor for lithography and test and measurement
applications.
· Metrology for laser-based, high-precision, non-contact
measurement systems.
· Optical communications specifically for high reliability and high
performance applications.
· Remote sensing for applications including asset protection,
perimeter security, strain, temperature and pressure sensing.
· Scientific research the largest proportion being nuclear fusion
research and energy - laser technology is being used to recreate the
conditions found in the core of the sun.
Growth Strategy
· To work in collaboration with our customers to invest in R&D
and process engineering in order to develop products that meet their most
demanding needs.
· To bring to the market new products and to ensure that we remain
at the cutting edge of technology in this important area. During FY2021
G&H introduced six new products in industrials generating £5.1m of
revenue. We also completed important milestones on a multi-year contract with
a laser system company to develop the next generation of Extreme UV
lithography lasers for production of atomic level nanoelectronics.
· To focus on niche markets that play to the strengths of G&H,
principally those that demand high levels of quality and reliability,
typically requiring technically challenging design and engineering input
incorporating a range of our products. Those markets may require survivability
in harsh environments.
· To expand into and develop new geographical markets offering high
growth opportunities, through leveraging and expanding the Group's global
sales organisation. During the year we added to our Asian sales team so as to
be able to exploit the growing market demand we see in that region.
· To continue to focus our energies and investment on making the
transition from a components supplier to a manufacturer of subassemblies,
instruments and systems, where appropriate.
· To maintain the strong relationships we have with our customers'
development teams to ensure we are their preferred choice for supporting them
in developing their next generation products.
A&D
Revenue
£41.1m (2020: £41.4m)
Adjusted Operating Profit £3.1m (2020: £2.8m)
Operating Profit £0.6m
(2020: £1.5m)
Percentage of Revenue 33.1% (2020: 33.9%)
Market Drivers
· A&D markets require high product quality, reliability and
high performance in harsh environments, which plays to G&H's strengths.
· A&D is transitioning to photonic components and systems
across a broad range of sub-sectors to secure size, weight, power and
reliability benefits.
· IR optical arrays deliver targeting, range finding, navigation
and surveillance capabilities for the growing UAV market.
· Similar capability combined with photonic sensor suites are now
being used across a range of remotely controlled A&D systems for land, sea
and air.
· Space satellite systems developed by G&H have the ability to
be deployed across a range of standard satellite, constellation satellite and
near space UAV systems.
· Optical systems used in armoured vehicles are being developed
with additional digital capability.
· Direct energy capability will utilise optical and laser
expertise.
· Emerging inertial navigation platforms.
Performance
Our A&D revenues declined by 0.7% during FY2021, compared with the
equivalent period last year, but grew 4.3% excluding foreign exchange. In the
UK we completed deliveries of optical sensor systems on several significant
vehicles programmes working closely with the overall vehicle manufacturers.
Future UK and European vehicle sustainment programmes which include the
upgrade of the vehicles' optical sensor suite provide G&H with the
prospect of significant future programme business in this area. We believe the
investment we have made in prototyping vehicle based multi-wave band sensor
systems positions G&H well to be selected on these programmes.
The launch of a G&H enabled satellite laser-based communication system was
completed in November 2020. To the best of our knowledge this is the first of
its type and this 'proof of principle' should provide the basis for further
business in standard and constellation satellites and near space UAVs.
In the US our deliveries of gimballed optical systems for a multi-year
unmanned air vehicle contract came to an end and although new programme
positions were agreed for secure communication systems using photonics
technologies, these will only move in to volume production in the coming
financial years.
In the US we secured further business for our IR optical arrays used in the
gimbals on UAVs for targeting, range finding and surveillance. They will come
on stream with volume production in the near term.
Our Boston, MA facility transitioned two significant programmes from
development to the volume production phase and we expect orders for further
productions volumes to be secured in the coming financial year.
G&H has a market leading position in supplying laser based navigational
systems for military and commercial aircraft. Our internal forecasts do not
expect the commercial aspect of this business to return to growth until
FY2023. This business improved across FY2021 and we are maintaining this
important capability at our Moorpark, CA facility.
Applications
· Target designation and range finding used on both land-based and
airborne systems.
· Guidance and navigation components for ring laser gyroscope and
fibre optic gyroscope inertial navigation systems.
· Countermeasures for ground-based systems and airborne platforms.
· Space photonics G&H is leveraging its heritage of ultra-high
reliability components for space applications in order to address the next
generation requirement for fibre optics on satellites.
· Periscopes and sighting systems for land based armoured fighting
vehicles.
· Opto-mechanical subsystems for unmanned aerial vehicles.
Growth Strategy
· To continue to invest to move up the value chain from being a
components supplier to a subsystems provider. Our customers are changing their
business models and are looking for further outsourcing opportunities to
companies such as G&H that are capable of providing broader solutions.
· Further upgrading of our manufacturing processes and engineering
in order to meet the needs of our customers. The investments made in new
surface polishing machines for our newly formed UK Precision Optics centre of
excellence in Ilminster are evidence of our intent to secure further market
share in this sector.
· To introduce a greater number of new products, including products
which look to fill a market need, in a managed and cost effective way, as well
as take on projects with a high technical content initiated by our customers.
During FY2021 G&H introduced 33 new products and generated £9.4m of
revenue from new products that addressed the A&D market including space
satellite laser based communication systems, new sighting systems and IR lens
assemblies for UAVs.
Life Sciences/Biophotonics
Revenue
£27.4m (2020: £25.9m)
Adjusted Operating Profit £4.2m (2020: £4.7m)
Operating Profit £3.5m
(2020: £4.4m)
Percentage of Revenue 22.1% (2020: 21.2%)
Market Drivers
· Strong post pandemic recovery in laser enabled aesthetic
procedures to tackle the pent-up demand caused by the COVID-19 response.
· A larger, more affluent worldwide middle class influenced by
social media and eager to access cosmetic and aesthetic procedures.
· A strong, government driven programme within China to develop an
indigenous life sciences sector, reducing its dependency upon Western
equipment and technologies.
· A growing aging population demanding a shift towards early
diagnosis supports demand for our capabilities.
· More point of care and personalised medicine drives demand for
volume diagnostic products.
· New applications for optical coherence technologies.
Performance
Our life sciences/biophotonics revenue grew by 5.9% in the year to 30
September 2021, compared with the prior year. When measured at constant
currency this represents growth of 8.1%. Medical diagnostic demand remained at
the high levels seen in the second half of FY2020. The continued strong
performance of a product designed to improve respiratory function as part of a
ventilator system has been a key factor.
In the financial year our ITL business secured important new programme
positions with customers seeking our expertise to productionise medical
diagnostic product concepts. In line with our established business model, we
expect to secure recurring production revenues from these programmes once the
initial work to develop producible product has been completed. We have
expanded the medical diagnostics R&D group to meet the demand. The
enhanced software, firmware, electronic and mechanical engineering capability
enables further systems business within and outside G&H's life science
business sector.
OCT systems and components delivered growth during the period. Demand for our
specialist medical laser products, which was adversely affected by the
pandemic induced reduction in elective procedures during FY 2020, has started
to demonstrate a marked improvement in performance. Medical lasers using our
components are able to provide new cosmetic procedures to patients, for
example to significantly clear acne scarring. Overall these two sub-sectors
were up 27% in the year, excluding foreign exchange.
Applications
· Optical coherence tomography (OCT) primarily used in retinal
imaging for the diagnosis of glaucoma and macular degeneration, but now
including cardiovascular disease and cancer diagnostics.
· Laser surgery used in a wide range of applications including
prostate surgery, scar correction, cataract surgery, freckle, mole and tattoo
removal as well as wrinkle reduction and teeth whitening.
· Microscopy: Modern, laser-based techniques are revolutionising
the field of microscopy.
· Systems: G&H has a range of capabilities including full
product development, design, manufacturing, certification and after sale
service for the commercialisation of high-quality medical diagnostic, in vitro
diagnostic (IVD) devices, precision analytical, electro-mechanical and
laboratory instruments.
Growth Strategy
· To continue to invest in R&D projects in close collaboration
with our customers, to develop the existing portfolio of products and to
ensure that they remain competitive. During FY2021 G&H introduced nine new
products and generated £3.6m of revenue from products that address its life
sciences/biophotonics market, especially in the medical instrumentation
market.
· Where appropriate to sell the full range of our life
sciences/biophotonics products to a wider range of customers.
· To utilise our systems capability to present our breadth of
technologies as part of subsystems or systems.
· To make strategic acquisitions that are synergistic and
complementary to our existing life sciences/biophotonics business, to help us
build "critical mass" in this sector. G&H continues to seek acquisition
opportunities and has the financial resources to execute on that strategy as
it develops.
Financial Review
Overview of the Year
Having demonstrated its resilience during the pandemic the Group's trading
recovered well in FY2021. Group revenue for the year totalled £124.1m. This
represents growth of 1.6% over the previous year, or 6.4% excluding foreign
exchange.
We have seen sustained growth from our Industrial markets and revenues from
our life sciences products and services remained at the high levels seen in
the previous financial year. In our A&D sector deliveries to a number of
important defence programmes grew, more than offsetting reduced demand from
our commercial aerospace customers.
Our order book stood at £97.8m at the end of the financial year and intake
exceeded revenue by 9% in the second half of the year providing good
visibility for future revenue growth.
The Group's adjusted profit before tax increased to £12.6m (2020: £9.8m)
representing a margin of 10.2% (2020: 8.0%). After the impact of adjusting
items, including restructuring costs and amortisation charges for acquired
intangible assets the Group's full year statutory profit before tax was £4.7m
compared with £5.4m in the prior year. Adjusted profit before tax is a key
alternative performance measure by which the Board evaluates the Group's
performance as it better represents the underlying trading of the Group with
restructuring costs, acquisition and disposal items excluded from this
measure. Further details of alternative performance measures are provided
later in this review.
We were pleased with the Group cash performance in the year with working
capital levels reducing by £0.5m despite the increase in volumes of 6.4%
compared to the prior year. At the same time investment in our production
facilities continued with total capital investments of £6.2m made in the
year. Our net debt excluding lease liabilities fell from £6.5m at the end of
the prior year to £2.6m representing leverage of just 0.1x meaning we are
well placed to execute on our acquisition strategy.
Revenue
REVENUE
2021 2020
Year ended 30 September £'000 % £'000 %
Industrial 55,552 44.8% 54,811 44.9%
A&D 41,089 33.1% 41,390 33.9%
Life Sciences/Biophotonics 27,433 22.1% 25,894 21.2%
Group Revenue 124,074 100.0% 122,095 100%
Revenue for the year totalled £124.1m. Revenues from our semiconductor and
industrial laser markets recovered strongly from the end of the first
financial quarter. Demand for hi-reliability fibre couplers also grew albeit
more slowly from the higher prior year comparative. These were partly offset
by reductions in revenues to sensing markets where customer programme
slowdowns impacted revenues.
In A&D significant optical system deliveries for armoured vehicles were
completed on a number of customer programmes more than offsetting low levels
of demand from our commercial aerospace customers.
Our life sciences/biophotonics business delivered year-on-year growth of 5.9%
(8.1% at constant currency). Our medical diagnostics business grew further
despite strong prior year comparators and there was a pleasing return of
demand for our component used in skin medical laser treatments which had been
impacted by the pandemic slowdown in the previous year.
Operating Profit
The Group's statutory operating profit was £5.4m (2020: £6.3m) after a
charge for items excluded from adjusted operating profit of £7.9m (2020:
£4.4m) including £5.9m (2020: £2.6m) in respect of the Group's
manufacturing footprint consolidation programme and £2.1m in respect of the
amortisation of intangible assets arising on business combinations (2020:
£2.7m) Adjusted operating profit was £13.3m (2020: £11.2m) with the
increase the result of improving volumes and the initial financial benefits of
the Group's restructuring programme. A reconciliation between adjusted profit
and statutory profit is shown below.
Alternative Performance Measures
Alternative performance measures are presented in these financial statements
as management believe they provide investors with a means of evaluating the
performance of the Group on a consistent basis. These alternative performance
measures exclude the impact of non-underlying items on the Group's financial
results. The Group's alternative performance measures and their reconciliation
to IFRS measures are shown in the table below.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
Operating profit Net finance costs Profit before tax Taxation Earnings per share Operating cash flow
Year ended 30 September 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
£000 £000 £000 £000 £000 £000 £000 £000 pence pence £000 £000
Reported 5,401 6,334 (721) (942) 4,680 5,392 (1,276) (1,610) 13.6p 15.1p 16,822 21,561
Amortisation of acquired intangible assets 2,081 2,676 - - 2,081 2,676 (460) (397) 6.5p 9.1p - -
Restructuring and site closure 5,860 2,609 - - 5,860 2,609 (1,151) (392) 18.8p 8.9p 5,102 1,360
Settlement of lease dispute - (410) - (818) - (1,228) - 271 - (3.8p) - (410)
Interest on deferred consideration - - - 303 - 303 - - - 1.2p - -
Tax charge arising from restatement of UK Deferred tax at 25% - - - - - - 519 - 2.1p - - -
Adjusted 13,342 11,209 (721) (1,457) 12,621 9,752 (2,368) (2,128) 41.0p 30.5p 21,924 22,511
Net Finance Costs
The net underlying interest expense of £0.7m (2020: £1.5m) reduced by
£0.8m. The reduction was the result of repayments made during the year by the
Group against its credit facilities, detailed further below.
Tax
The tax charge for the year was £1.3m (2020: £1.6m) with an underlying tax
charge of £2.4m (2020: £2.1m) after excluding a credit on non-underlying
items of £1.1m. This resulted in an underlying effective tax rate of 18.8%
(2020: 21.8%). The reduction in the rate was largely due to adjustments in
respect of prior year balances arising from enhanced capital allowances. The
rate reflects a combination of the varying tax rates applicable throughout the
countries in which the Group operates, principally the UK and the USA.
Earnings Per Share
Basic adjusted earnings per share increased by 34.4% to 41.0p (2020: 30.5p),
reflecting the increased profitability in the year. Basic earnings per share
reduced 9.9% to 13.6p (2020: 15.1p). This reduction was due to the
non-recurring items incurred in the year in relation to the Group's site
rationalisation programme.
Cash Generation
Cash flow generated from operating activities was £16.8m, down from £21.6m
in the prior year. This reduction was due to the non-underlying costs
incurred in relation to the site rationalisation programme in the year
amounting to £5.1m. Adjusted cashflow generated from operating activities,
which excluded these non-underlying costs, was £21.9m (2020: £22.5m). This
was the result of improved profitability, supported by disciplined working
capital management. In total working capital reduced by £0.5m in the year
despite the 6.4% increase in business volumes compared to the prior year.
Cashflows for tangible and intangible fixed asset additions totalled £6.2m
(2020: £6.4m). The final earn out payment for the Group's acquisition of the
ITL business was made in the period. The payment of £3.25m represented that
business achieving at its maximum level. The payment of an interim dividend in
the year totalled £1.1m. The Group's strong cash generation allowed the
repayment of $19.2m (£14.1m) of borrowings and the Group closed the year with
net debt of £9.2m (2020: £14.7m) or £2.6m (2020: £6.5m) when lease
liabilities are excluded.
Balance Sheet
The Group's total equity at the end of the year was £114.3m, an increase of
£0.9m over the prior year. This comprised an increase of £2.3m from retained
earnings, a £0.7m increase to reserves in relation to share schemes and a net
reduction of £2.1m arising from foreign exchange and hedging movements.
During the year, additions to property, plant and equipment amounted to £5.4m
(2020: £5.4m) and to intangible assets £0.8m (2020: £1.3m).
Dividend Policy
The Board has a progressive dividend policy. In determining the level of
dividend the Board considers not only the adjusted earnings cover, but also
looks to the future expected underlying growth of the business and its capital
and other investment requirements. The Group's balance sheet position and its
expected future cash generation are also considered. The Board also takes in
to consideration the Group's principal risks. The Group's ability to pay a
dividend is impacted by the distributable reserves available in the parent
Company, which operates as a holding company, primarily deriving its net
income from dividends paid by its subsidiary companies. At 30 September 2021,
Gooch & Housego PLC had sufficient distributable reserves to pay dividends
for the foreseeable future.
Given the strength of the business recovery in the year and the positive
outlook for the coming trading period the Board is proposing a final dividend
of 7.7 pence per share, giving a total of 12.2 pence per share for the year
when combined with the 4.5 pence per share paid as an interim dividend in July
2021.
Funding and Liquidity
The Group's operations are funded through a combination of retained profits,
equity and borrowings. Borrowings are raised at Group-level from the Group's
banking partner and lent to the subsidiaries. At 30 September 2021 the Group
had available undrawn committed and uncommitted facilities of $55.2m. The
Group's borrowings are in the form of a US$ denominated Revolving Credit
Facility (RCF). The RCF matures in April 2023.
The Group's leverage is expressed in terms of its net debt/adjusted EBITDA
ratio. Under the Group's credit facility the figure for net debt used in this
ratio excludes IFRS 16 lease liabilities and other IFRS 16 impacts. The
Group's main financial covenants in its bank facilities states that net debt
must be below 2.5 times adjusted EBITDA, and adjusted EBITDA is required to
cover interest charges, excluding interest on pension schemes, by at least 4.5
times. At 30 September 2021 net debt/adjusted EBITDA was 0.1 times (30
September 2020: 0.4 times). Interest cover at 30 September 2021 was 34.2 times
(30 September 2020: 10.8 times).
The Group maintains sufficient available committed borrowings to meet any
forecast funding requirements.
Financial Risk Management
The Group's main financial risks relate to funding and liquidity, interest
rate fluctuations and currency exposures. The Group uses financial instruments
to manage financial risks arising from underlying business activities.
Foreign Currency
The Group's policy is to reduce or eliminate, whenever practical foreign
currency transaction risk. The Group hedges expected foreign currency cash
flows wherever possible.
The following are the average and closing rates of the foreign currencies that
have the most impact on the translation of the Group's Income Statement and
Balance Sheet into GBP.
2021 2020
Income Statement Average rate
USD/GBP 1.37 1.28
Euro/GBP 1.15 1.14
Balance Sheet Closing rate
USD/GBP 1.35 1.29
Euro/GBP 1.16 1.10
Group Income Statement
For the year ended 30 September 2021
30 September 2021 30 September 2020
Note Underlying Non-underlying Total Underlying Non-underlying Total
(Note 4) (Note 4)
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 2 124,074 - 124,074 122,095 - 122,095
Cost of revenue (82,753) - (82,753) (82,845) - (82,845)
Gross profit 41,321 - 41,321 39,250 - 39,250
Research and development (8,147) - (8,147) (7,924) - (7,924)
Sales and Marketing (8,342) - (8,342) (7,440) - (7,440)
Administration (12,294) (7,941) (20,235) (13,759) (4,875) (18,634)
Other income 804 - 804 1,082 - 1,082
Operating profit 2 13,342 (7,941) 5,401 11,209 (4,875) 6,334
Finance income 1 - 1 16 818 834
Finance costs (722) - (722) (1,473) (303) (1,776)
Profit before income 12,621 (7,941) 4,680 9,752 (4,360) 5,392
tax expense
Income tax expense (2,368) 1,092 (1,276) (2,128) 518 (1,610)
Profit for the year 10,253 (6,849) 3,404 7,624 (3,842) 3,782
Basic earnings per share 41.0p (27.4p) 13.6p 30.5p (15.4p) 15.1p
Diluted earnings per share 40.5p (27.0p) 13.5p 30.2p (15.2p) 15.0p
Group Statement of Comprehensive Income
For the year ended 30 September 2021
2021 2020
£000 £000
Profit for the year 3,404 3,782
Other comprehensive (expense)/income - items that may be reclassified
subsequently to profit or loss
(Losses)/gains on cash flow hedges (468) 333
Currency translation differences (1,621) (2,105)
Other comprehensive expense for the year net of tax (2,089) (1,772)
Total comprehensive income for the year attributable to the shareholders of 1,315 2,010
Gooch & Housego PLC
Group Balance Sheet
For the year ended 30 September 2021
2021 2020
£000 £000
Non-current assets
Property, plant and equipment 37,945 38,741
Right of use assets 5,230 6,742
Intangible assets 50,835 54,624
Deferred income tax assets 1,883 1,432
95,893 101,539
Current assets
Inventories 28,150 30,580
Trade and other receivables 28,310 26,298
Cash and cash equivalents 8,352 19,734
64,812 76,612
Current liabilities
Trade and other payables (19,324) (17,971)
Borrowings (65) (64)
Lease liabilities (1,588) (1,832)
Income tax liabilities (481) (1,120)
Deferred consideration - (3,250)
(21,458) (24,237)
Net current assets 43,354 52,375
Non-current liabilities
Borrowings (10,903) (26,211)
Lease liabilities (5,039) (6,364)
Provision for other liabilities and charges (1,447) (1,692)
Deferred income tax liabilities (7,582) (6,294)
(24,971) (40,561)
Net assets 114,276 113,353
Shareholders' equity
Capital and reserves
attributable to equity shareholders
Called up share capital 5,008 5,008
Share premium account 16,000 16,000
Merger reserve 7,262 7,262
Cumulative translation reserve 6,054 7,675
Hedging reserve (135) 333
Retained earnings 80,087 77,075
Total equity 114,276 113,353
Group Statement of Changes in Shareholders' Equity
For the year ended 30 September 2021
Note Called up share Share Merger Retained earnings Hedging Cumulative translation reserve £'000 Total
capital
premium
reserve
£000
account
£000 Reserve equity
£000
£000
£000 £000
At 1 October 2019 5,008 16,000 7,262 74,793 - 9,780 112,843
Profit for the financial year - - - 3,782 - - 3,782
Other comprehensive income / (expense) for the year - - - - 333 (2,105) (1,772)
Total comprehensive income / (expense) for the year - - - 3,782 333 (2,105) 2,010
Dividends 6 - - - (1,803) - - (1,803)
Share based payments - - - 303 - - 303
Total contributions by and distributions to owners of the parent recognised - - - (1,500) - - (1,500)
directly in equity
At 30 September 2020 5,008 16,000 7,262 77,075 333 7,675 113,353
At 1 October 2020 5,008 16,000 7,262 77,075 333 7,675 113,353
Profit for the financial year - - - 3,404 - - 3,404
Other comprehensive expense for the year - - - - (468) (1,621) (2,089)
Total comprehensive income / (expense) for the year - - - 3,404 (468) (1,621) 1,315
Dividends 6 - - - (1,127) - - (1,127)
Share based payments - - - 735 - - 735
Total contributions by and distributions to owners of the parent recognised - - - (392) - - (392)
directly in equity
At 30 September 2021 5,008 16,000 7,262 80,087 (135) 6,054 114,276
Group Cash Flow Statement
For the year ended 30 September 2021
2021 2020
Note £000 £000
Cash flows from operating activities
Cash generated from operations 7 16,822 21,561
Income tax paid (575) (1,119)
Net cash generated from operating activities 16,247 20,442
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired (3,250) (4,750)
Purchase of property, plant and equipment (5,399) (5,495)
Sale of property, plant and equipment 38 353
Purchase of intangible assets (844) (1,291)
Interest received 1 846
Interest paid (505) (1,399)
Legal dispute settlement - 1,580
Net cash used in investing activities (9,959) (10,156)
Cash flows from financing activities
Drawdown of borrowings - 8,346
Repayment of borrowings (14,093) (12,610)
Principal elements of lease payments (2,047) (1,583)
Dividends paid to ordinary shareholders (1,127) (1,803)
Net cash used by financing activities (17,267) (7,650)
Net (decrease)/increase in cash (10,979) 2,636
Cash at beginning of the year 19,734 17,512
(403) (414)
Exchange losses on cash
Cash at the end of the year 8,352 19,734
Notes to the preliminary report
1. Basis of preparation
The Preliminary Report has been prepared under the historical cost convention
and in accordance with International Accounting Standards.
The Preliminary Report does not constitute statutory financial statements
within the meaning of section 434 of the Companies Act 2006.
Comparative figures in the Preliminary Report for the year ended 30 September
2020 have been taken from the Group's audited statutory financial statements
on which the Group's auditors, PricewaterhouseCoopers LLP, expressed an
unqualified opinion.
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 30 September 2020, as described in
those financial statements.
2. Segmental analysis
The Company's segmental reporting reflects the information that management
uses within the business. The business is divided into three market
sectors, being Aerospace & Defence, Life Sciences / Biophotonics and
Industrial, together with the Corporate cost centre.
The industrial business segment primarily comprises the industrial laser
market for use in the semiconductor and microelectronic industries, but also
includes other industrial applications such as metrology, telecommunications
and scientific research.
Aerospace and Defence Life Sciences/Biophotonics Industrial Corporate Total
£000 £000 £000 £000 £000
For year ended 30 September 2021
Revenue
Total revenue 43,619 30,546 59,598 - 133,763
Inter and intra-division (2,530) (3,113) (4,046) - (9,689)
External revenue 41,089 27,433 55,552 - 124,074
Divisional expenses (37,656) (22,367) (48,180) (84) (108,287)
EBITDA¹ 3,433 5,066 7,372 (84) 15,787
EBITDA % 8.4% 18.5% 13.3% - 12.7%
Depreciation and amortisation (2,877) (1,561) (2,856) (1,011) (8,305)
Operating profit before amortisation of acquired intangible assets 556 3,505 4,516 (1,095) 7,482
Amortisation of acquired intangible assets - - - (2,081) (2,081)
Operating profit 556 3,505 4,516 (3,176) 5,401
Operating profit margin % 1.4% 12.8% 8.1% - 4.4%
Add back non-underlying items and amortisation of acquired intangibles 2,581 738 2,541 2,081 7,941
Adjusted operating profit 3,137 4,243 7,057 (1,095) 13,342
Adjusted profit margin % 7.6% 15.5% 12.7% - 10.8%
Finance costs (144) (36) (152) (389) (721)
Profit before income tax expense 412 3,469 4,364 (3,565) 4,680
2. Segmental analysis (continued)
Aerospace & Defence Life Sciences / Bio-photonics Industrial Corporate Total
£000 £000 £000 £000 £000
For year ended 30 September 2020
Revenue
Total revenue 41,390 27,578 60,280 - 129,248
Inter and intra-division - (1,684) (5,469) - (7,153)
External revenue 41,390 25,894 54,811 - 122,095
Divisional expenses (37,295) (20,543) (48,004) 642 (105,200)
EBITDA¹ 4,095 5,351 6,807 642 16,895
EBITDA % 9.9% 20.7% 12.4% - 13.8%
Depreciation and amortisation (2,554) (964) (3,636) (731) (7,885)
Operating profit before amortisation of acquired intangible assets 1,541 4,387 3,171 (89) 9,010
Amortisation of acquired intangible assets - - - (2,676) (2,676)
Operating profit 1,541 4,387 3,171 (2,765) 6,334
Operating profit margin % 3.7% 16.9% 5.8% - 5.2%
Add back non-underlying items and amortisation of acquired intangibles 1,258 263 935 2,419 4,875
Adjusted operating profit 2,799 4,650 4,106 (346) 11,209
Adjusted profit margin % 6.8% 18.0% 7.5% - 9.2%
Finance costs (128) (32) (189) (593) (942)
Profit before income tax expense 1,413 4,355 2,982 (3,358) 5,392
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
Management have added back the amortisation of acquired intangibles,
restructuring costs, site closure costs and amounts received in respect of
litigation associated with a property lease in the above analysis. This has
been shown because the Directors consider the analysis to be more meaningful
excluding the impact of these non-underlying expenses.
All of the amounts recorded are in respect of continuing operations.
2. Segmental analysis (continued)
Analysis of net assets by location:
2021 2021 2021 2020 2020 2020
Assets Liabilities Net Assets Assets Liabilities Net Assets
£000 £000 £000 £000 £000 £000
United Kingdom 85,163 (28,240) 56,923 89,807 (41,676) 48,131
USA 73,858 (18,006) 55,852 86,824 (22,999) 63,825
Continental Europe 660 (64) 596 738 (52) 686
Asia Pacific 1,024 (119) 905 782 (71) 711
160,705 (46,429) 114,276 178,151 (64,798) 113,353
For the year to 30 September 2021 non-current asset additions were £4.3m
(2020: £5.1m) for the UK and for the USA £2.5m (2020: £3.1m). There were no
additions to non-current assets in respect of Europe (2020: £nil) or the Asia
Pacific region (2020: £nil). The value of non-current assets in the USA was
£48.1m (2020: £44.7m) and in the United Kingdom £47.8m (2020: £39.3m).
There were no non-current assets in Europe or the Asia-Pacific region.
2021 2020
£000 £000
United Kingdom 31,339 33,994
North America 45,915 45,554
Continental Europe 23,383 24,101
Asia Pacific and Other 23,437 18,446
Total revenue 124,074 122,095
3. Income tax expense
Analysis of tax charge in the year
2021 2020
£000
£000
Current taxation
UK Corporation tax 722 1,089
Overseas tax 292 631
Adjustments in respect of prior years (807) (199)
Total current tax 207 1,521
Deferred tax
Origination and reversal of temporary differences 1 (255)
Adjustments in respect of prior years 549 199
Change to UK tax rate 519 145
Total deferred tax 1,069 89
Income tax expense per income statement 1,276 1,610
4. Non-underlying items
2021 2020
£000
£000
Included within administration expenses
Amortisation of acquired intangible assets 2,081 2,676
Restructuring costs 5,860 2,609
Property litigation settlement - (410)
7,941 4,875
Included within net finance costs
Interest awarded in property litigation settlement - (818)
Unwind of discount on deferred consideration - 303
- (515)
Included within taxation
Tax effect of the non-underlying items above (1,611) (518)
Restatement of UK deferred tax balances at 25% 518 -
(1,092) (518)
The restructuring costs incurred in the year related to the streamlining of
our manufacturing operations and consequent closure of our Baltimore,
Glenrothes and St Asaph facilities. We are also outsourcing the production of
our commodity AO products to a contract manufacturer in Thailand. The costs
incurred in the period largely comprised staff costs, severance costs, travel
costs and asset write downs at the sites being closed.
The UK deferred tax balances on timing differences expected to reverse after 1
April 2023 have been restated at 25%. This gave rise to a non-underlying
income statement charge of £0.5m.
Restructuring costs incurred in the year ended 30 September 2020 related to
expenses arising from the project to establish the Ilminster facility as our
UK Precision Optics Centre of Excellence and the resultant closure of our
Glenrothes facility. The costs recorded in the period principally comprised
redundancy costs and the write downs of both property, plant and equipment and
inventories of products which will be discontinued at the completion of the
project.
In March 2020 litigation with the landlord of our Fremont facility was finally
concluded. G&H was awarded a total of $3.6m (£2.8m) comprising damages,
reimbursement of our costs and interest arising from the landlord's
non-performance in respect of the lease and this amount was received in June
2020. The reimbursement of costs and interest received of £1.2m were treated
as a non-underlying credit in the income statement whilst the damages element
of the award were credited against the right of use asset held on the balance
sheet.
5. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on the profit for
the year using as a divisor the weighted average number of Ordinary Shares in
issue during the year. The weighted average number of shares for the year
ended 30 September is given below:
2021 2020
Number of shares used for basic earnings per share 25,040,919 25,039,519
Dilutive shares 239,603 174,664
Number of shares used for dilutive earnings per share 25,280,522 25,214,183
A reconciliation of the earnings used in the earnings per share calculation is
set out below:
2021 2020
£000 pence £000 pence
per share per share
Basic earnings per share 3,404 13.6p 3,782 15.1p
Amortisation of acquired intangible assets (net of tax) 1,621 6.5p 2,279 9.1p
Restructuring costs (net of tax) 4,709 18.8p 2,218 8.9p
Interest on deferred consideration - - 303 1.2p
Property litigation settlement (net of tax) - - (958) (3.8p)
Restatement of UK deferred tax 519 2.1p - -
Total adjustments net of income tax expense 6,849 27.4p 3,842 15.4p
Adjusted basic earnings per share 10,253 41.0p 7,624 30.5p
Basic diluted earnings per share 3,404 13.5p 3,782 15.0p
Adjusted diluted earnings per share 10,253 40.5p 7,624 30.2p
Basic and diluted earnings per share before amortisation and other adjustments
has been shown because, in the opinion of the Directors, it provides a useful
measure of the trading performance of the Group.
6. Dividends
2021 2020
£000
£000
Final 2020 dividend: nil (Final 2019 dividend paid in 2020: 7.2p per share) - 1,803
2021 Interim dividend of 4.5p (2020: nil) 1,127 -
1,127 1,803
The Directors have proposed a final dividend of 7.7p per share making the
total dividend paid and proposed in respect of the 2021 financial year nil.
(2020: nil).
7. Cash generated from operating activities
Reconciliation of cash generated from operations
2021 2020
£000 £000
Profit before income tax 4,680 5,392
Adjustments for:
- Amortisation of acquired intangible assets 2,081 2,676
- Amortisation of other intangible assets 1,275 984
- Loss/(profit) on disposal of property, plant and equipment 95 (27)
- Depreciation 7,030 6,901
- Share based payment charge 735 303
- Amounts claimed under the RDEC (280) (315)
- Finance income (1) (834)
- Finance costs 722 1,776
Total 11,657 11,464
Changes in working capital
- Inventories 1,888 2,042
- Trade and other receivables (2,655) 6,812
- Trade and other payables 1,252 (4,149)
Total 485 4,705
Cash generated from operating activities 16,822 21,561
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