REG - Gooch & Housego PLC - Results for the year ended 30 September 2022
06/12/2022 07:00
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RNS Number : 6754I Gooch & Housego PLC 06 December 2022
For immediate release 6 December 2022
Gooch & Housego PLC
("Gooch & Housego", "G&H", the "Company" or the "Group")
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2022
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer of photonic
components and systems, today announces its audited results for the year ended
30 September 2022.
Year ended 30 September 2022 2021
Revenue (£m) 124.8 124.1
Adjusted profit before tax (£m)* 8.1 12.6
Adjusted basic earnings per share (pence)* 27.2p 41.0p
Statutory (loss) / profit before tax (£m) (2.3) 4.7
Basic (loss) / earnings per share (pence) (8.0)p 13.6p
Total dividend per share (pence) 12.6p 12.2p
Net debt excluding IFRS16 (£m) 12.8 2.6
Net debt (£m) 19.1 9.2
· adjusted figures exclude the amortisation of acquired intangible assets,
impairment of goodwill and acquired intangible assets, non-underlying items
being restructuring costs, and CEO succession costs, together with the related
tax impact. A reconciliation of adjusted figures to reported figures is given
on page 18.
Key points
· Record order book of £147.7m, up 51% (35.3% excluding foreign
exchange) underpinned by strong end market demand.
· Overall revenue unchanged with growth in both Industrial and Life
Sciences offset by decline in Aerospace and Defence.
· Adjusted profit before tax declined to £8.1m. Investment made to
increase capacity but challenges with recruitment, operations and supply chain
constrained output.
· Non-underlying charge of £10.4m, including £6.7m impairment charge
against goodwill and other intangible assets, driven by increase in the
Group's cost of capital. Reported loss for the year of £2.3m.
· Despite implementing price increases during the year, input cost
inflation continues to impact the business with some lag in recovery.
· Net debt increased to £19.1m, reflecting inventory investment to
alleviate supply chain shortages.
· FY2023 outlook targeting revenue and adjusted PBT growth, though
at a lower level than previously assumed, through accelerated R&D
investment focused on key growth markets and the addition of further capacity
to service strong demand.
· Full year FY2022 dividend increased to 12.6p, reflecting strength in
order book and medium-term positive outlook for the business.
· New CEO appointed and a review of the Group's strategy has begun, with
outcomes expected to be communicated with the half year results.
Charlie Peppiatt, Chief Executive Officer, commented:
"While mindful of the uncertain macroeconomic and geopolitical landscape,
G&H is positioned for growth with a robust order pipeline across all our
end markets.
"I am confident we will generate growth in our financial and operational
performance in 2023 as we re-establish the foundations and direction to
progress to become a resilient and agile higher margin business over the
coming years."
For further information please contact:
Charlie Peppiatt, Chief Executive Officer Gooch & Housego PLC +44 (0) 1460 256440
Chris Jewell, Chief Financial Officer
Mark Court / George Cleary Buchanan +44 (0) 20 7466 5000
G&H@buchanan.uk.com (mailto:G&H@buchanan.uk.com)
Christopher Baird / David Anderson Investec Bank plc +44 (0) 20 7597 5970
Analyst Meeting and Webcast
A meeting for analysts will be held today at 9.30am at the offices of
Buchanan, 107 Cheapside, London EC2V 6DN. To register attendance, 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/6360da52c1db5d073071d3ee
(https://webcasting.buchanan.uk.com/broadcast/6360da52c1db5d073071d3ee)
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/) .
2023 Expected Financial Calendar
Annual General Meeting 22 February 2023
Interim Results announcement June 2023
Financial Year End 30 September 2023
Announcement of results for the year ended December 2023
30 September 2022
Chairman's Statement
Group Overview
I have been pleased with the strength in demand for the Group's products and
services across all three of our markets. That demand has pushed the Group's
order book to record levels and reflects the hard work of our engineering and
sales team in building close and mutually productive relationships with our
customers. Our customers trust us to support them in the development of their
most sophisticated, next generation products across all of the markets that we
serve. We are well positioned to benefit from the increasing use of our
photonic technologies to solve their most technically challenging needs.
Whilst the Group has experienced significant headwinds in the year to 30
September 2022 from supply chain issues and labour shortages, we have
continued to invest to establish firm foundations upon which to deliver future
growth in our productive capacity, both in-house and with our supply chain
partners.
Our ambitious programme to streamline our manufacturing facilities is now
starting to deliver. The significant investment we have made in our precision
optics centre of excellence in Ilminster means that we are now able to offer
our customers a broader range of capabilities and the ability to provide them
with more advanced, integrated design consistent with our strategic objective
of securing more sub-system and system business. At the same time the
establishment of a fibre optics hub at our Boston MA facility is reducing
overheads and allows us to secure longer term order book visibility for that
site. I am delighted with the performance of our Asian contract manufacturing
partner. They have assumed the manufacture of many of the acousto-optic
products formerly made in our Ilminster facility and in the final months of
the financial year have achieved an impressive ramp in product output as they
migrate from initial qualification build into full-scale volume production. We
intend to build upon this relationship by migrating further mature products in
the future.
The Environment and our Communities
We are proud of the contribution that photonic technologies and our products
are making in the migration to a more sustainable and healthier world. We are
also focused on our own impact on the environment. We track carbon emissions
as one of our key performance indicators and have achieved a very impressive
27.2% reduction in our emissions in the year, thanks to the investments we
have made in solar energy generation at all of our UK manufacturing sites and
our policy of progressively switching to purchasing energy from renewable
sources. We have a programme in place to achieve year-on-year reductions in
our energy usage and emissions in support of our target to be net zero on
Scope 1 and 2 emissions by 2035.
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 G&H monies the
amounts they raise.
The Board
After ten years with G&H, firstly as a non-executive director and then for
the last eight years as CEO, Mark Webster retired at the end of the financial
year. Mark led the Group's transformation and expansion into new market
opportunities, especially in the Life Sciences and A&D sectors, and more
recently navigated the business through challenging international economic
times including the COVID pandemic.
We were delighted to appoint Charlie Peppiatt as CEO to succeed Mark. Charlie
brings a wealth of experience from his career in global hi-tech businesses
supplying into the Medical, Industrial and A&D sectors, most recently at
TT Electronics plc and before that at Stadium Group plc and Laird plc. I
believe Charlie is uniquely qualified to lead the Group in exploiting the
significant opportunities arising from the continued growth of the photonics
sector.
Dividend
Given the strength of the Group's order book and the long-term positive
outlook for the business, the Board is proposing a final dividend of 7.9 pence
per share for approval at the Company's Annual General Meeting on 22 February
2023, giving a total of 12.6 pence for the year. Payment of the dividend will
be made on 24 February 2023, to shareholders on the register as at 20 January
2023.
People
I would like to thank our employees for their commitment to the business. The
Group has undertaken significant change as a result of its manufacturing
facility streamlining projects only made possible by our employees' hard work
and dedication. At the same time, the constraints we have seen in the year
from the very competitive labour markets and further supply chain shortages
put extra pressures on our teams. I am also pleased we have been able to
welcome so many new recruits to the G&H team due to the strength of the
Group's order book and our work to increase our productive capacity. We are
proud to be able to provide high quality employment opportunities to people at
all stages in their career in the locations in which we operate.
Outlook
Looking ahead, the prospects for G&H are good. We are well positioned in
our growth markets. Our restructuring programmes have reduced the Group's cost
base. Whilst the business faced some significant challenges during the year
from supply chain issues and the very competitive labour markets in both the
UK and US, in the latter stage of the year we have succeeded in adding
significant additional capacity and that ongoing investment will bear fruit in
the coming years. In FY2023, we are targeting growth in revenues and adjusted
PBT, though at a lower level than previously assumed.
Our technology and products are world class, our customer positions are strong
and with the support of our skilled and talented employees I am confident we
will be able to deliver upon our financial growth targets.
Gary Bullard
Chairman
6 December 2022
Chief Executive Officer's Statement
Introduction
I am delighted to have joined G&H in September 2022 at such an important
time in the Group's development. In my first few weeks with the business I
have been able to visit all of our principal locations and have been struck by
the dedication, motivation and deep technical skills of our teams. It is clear
that G&H products are recognised by our customers for their superior
technical capability and quality which few other companies can match. However,
I am also conscious that our operational delivery to those customers over the
last year has not met the high standards we aspire to and I will be focused on
ensuring we quickly resolve the operational constraints that have impacted the
business during FY2022.
I intend to complete a review of the Group's strategy over the coming months
and will provide further details once that has been concluded. Already I can
see that the business is well positioned in a number of growth markets with
superior products and capabilities meaning we should be able to secure a
growing share of those attractive end markets. The Group's production
facilities are well invested with advanced hi-tech equipment and the business
has established productive relationships with its existing customers, as well
as positive engagements with many new customers, as we seek to collaboratively
develop the next generation of photonic products.
I am proud that G&H products are playing a part in building a better more
sustainable world. Many of our products contribute directly to the reduction
of energy consumption and the more efficient use of materials. In our own
facilities we are also making great strides in reducing our impact on the
environment. In FY2022 we achieved a 27.2% reduction in our emissions as we
work towards our goal of being net neutral on our Scope 1 and 2 emissions by
2035.
Business Performance
During the financial year 2022 G&H achieved revenue of £124.8m,
representing an increase of 0.6% over previous year (FY2021: £124.1m), or
excluding the impact of foreign exchange a reduction of 3.7%. Adjusted profit
before tax was £8.1m, a reduction of 35.4% over last year (FY2021: £12.6m).
At the same time, and in common with many other businesses in our sector, we
saw high levels of customer demand which increased the Group's order book to
£147.7m, an increase of 51% or 35.3% at constant currency.
This weaker trading performance was the result of significant headwinds in our
production facilities as they attempted to increase output from a new
footprint to our industrial and medical laser markets where demand was very
strong and which provided the opportunity to offset programme driven
reductions in our A&D facing businesses. In the first half of the year our
manufacturing facilities were materially impacted by COVID absences while the
very tight labour markets in both the UK and US meant that we were unable to
make the necessary increases to our in-house production teams. At the same
time, we experienced a number of supply chain shortages especially in the area
of electronic components.
However, in the second half of the year we were able to achieve better success
in adding to our production teams thanks to increased flexibility and
innovation in the ways in which we sought to attract new recruits to the
business.
Nevertheless, due to the constraints on output, the programme of investment in
both our operations and R&D functions, input cost inflation and the
conclusion in the prior year of a number of profitable A&D programmes
meant that the Group's overall margins declined. The continued competitive
nature of hiring, training and retaining the required level of staff in key
technical and production positions remains a challenge in the current labour
market and this is expected to continue into the first half of 2023. At the
same time our supply chain remains unpredictable and whilst we have generally
been successful in passing on the effects of input cost inflation to our
customers we remain very alert to the impact of the continuing current high
inflation environment that our businesses are operating in.
Our markets
Industrial demand continues to be strong, especially the semiconductor and
industrial laser markets, where underlying market growth was complemented by
very good uptake of new G&H products launched in those market areas.
Demand for our hi-reliability fibre couplers remained robust, with the use of
those products in the growing satellite communications market complementing
the long-standing undersea cable business.
Life Sciences performed resiliently and we saw significant growth in demand
for our products used in medical lasers with particularly strong growth for
devices that support aesthetic procedures in the Asian market. We are
currently adding productive capacity in our Cleveland facility to help address
this growing need. At the same time demand for our medical diagnostic products
was broadly stable compared with the prior year.
Volumes in our Aerospace & Defence ("A&D") markets declined
significantly as a result of a number of programmes being completed in late
FY2021 and early FY2022, most significantly for the supply of sighting systems
for armoured vehicles. Whilst the business has been successful in securing a
number of new programme wins, most notably the upgrade of the optical sensor
suite for UK's Challenger platform, those programmes have not yet migrated
into volume production. At the same time programme volumes supplied from our
Boston site declined, but this business finished the year with an order book
some 58% higher than the same time last year and is therefore substantially
covered for its coming year revenues.
The transfer of our acousto-optic products from our Ilminster facility to our
Asian contract manufacturing partner is now complete and despite some delay
this supplier achieved a significant ramp up in output in the final quarter of
the year. We are now qualifying that same partner for the manufacture of
hi-reliability fibre couplers and expect them to complete that to become a
third source for the manufacture of this growing product line in the coming
financial year. We are looking at further opportunities to outsource several
other established products in the future.
We have continued to invest in our technology roadmaps and are working closely
with many of our customers on their next generation products. New products
contributed £17.9m of revenue in FY2022 (FY2021: £18.1m).
The Group took deliberate steps to invest in higher levels of inventory as a
risk reduction exercise given the difficult supply chain environment we
continue to face and we expect these safety stock levels to be maintained
during the coming financial year. Consequently, the Group's net debt increased
to £12.8m, excluding lease liabilities, or £19.1m when lease liabilities are
added. Our leverage as measured for our banking covenant stands at just 0.7x,
which places G&H in a strong position to pursue our strategic goals.
Strategic Goals
The Group's medium-term strategic goal of diversifying into the A&D and
Life Science markets has demonstrated considerable success over the past few
years with around half of the Group's revenues now coming from those two
markets, counter-balancing our exposure to the more cyclical segments of
certain parts of the Industrial market. Those two markets also have specific
regulatory and compliance barriers to entry that make them attractive to
G&H.
We use our research and development resources to help us secure a greater
proportion of our business from sub-assemblies and systems. In order to do so,
we are increasingly focusing our engineering skills from across the Group to
demonstrate our ability to develop more complex designs. For example, by
combining the hardware and 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 investment in
state-of-the-art equipment to manufacture and coat precision optics means 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.
We have and will continue to substantially improve our software, firmware,
electronic and mechanical engineering capabilities. This was in large part
initiated through the acquisition of Integrated Technologies Limited ("ITL")
and its facility in Ashford, Kent has provided a platform for the creation of
a systems engineering hub.
Moving up the value chain through greater vertical integration by expanding
our modules, subsystems and full photonics solutions offering represents a
significant opportunity for the Group. We will continue to substantially
improve our software, firmware, electronic and mechanical engineering
capabilities through our innovation hubs.
Nevertheless, I intend to complete a review of the Group's strategy over the
coming months to ensure that the business is focussed in the right product
development areas and aligned to customer-led growth drivers. I also intend to
review investment levels to assess this is at the level required to develop
higher margin product lines in a timely manner to support the business' growth
aspirations.
Our Operations
The Group has continued to record low levels of lost time accidents and below
the average for our sector. Across all our sites we remain focused on ensuring
that G&H is a safe, engaging, diverse and inclusive place to work.
During the year, we have operated in very competitive labour markets working
hard to both retain and, where required, to add to our production teams. For
much of the year we found that our recruitment activities were only sufficient
to replace attrition but in the second half of the financial year we started
to achieve net increases in our production team strength. We have further
roles to fill to meet required output levels and have hired specialist
in-house recruiters to help us expedite this critical task.
During the year, John Andzulis joined the business as our new Chief Operating
Officer. John has a wealth of industry knowledge having held senior
operational leadership roles for Ametek, Novanta, Thermo Fisher Scientific and
Rochester Precision Optics. Under John's leadership our Operations team have
been focused on establishing the operational capabilities needed to improve
our on-time delivery performance, drive continuous improvement activities to
increase efficiency and achieve the growth in overall capacity required to
enable us to deliver our record order book and meet future growth
requirements.
We have invested to help ensure our Asian contract manufacturing partner
executes on the growing volumes we are transferring to them. We currently have
four team members permanently located at their facility assisting them with
new product qualification, scheduling the output of our products being
manufactured there and the quality of the product delivered on our behalf to
customers. We have also added to our team of supplier quality engineers who
are charged with executing upon a risk-based audit programme of our supply
chain which over time will help to reduce supply chain risks across our
portfolio.
Research and Development (R&D)
G&H continues to work closely within the photonics ecosystem and with a
number of key partners to develop their next generation products. During
FY2022 we introduced 54 new products and delivered £17.9m of revenue.
Some of our principal areas of new business opportunities are:
• Leading photonic components and modules for extreme ultra-violet
(EUV) lithography equipment in semiconductor fabrication and other advanced
microelectronics processing.
• Fibre-optic modules and sub-systems for lidar sensing in
wind energy.
• Fibre-optic and opto-mechanical sub-systems for next-generation
space to ground satellite communication.
• Biomedical imaging systems for cancer and cardiovascular
disease detection.
• Photonics system solutions for ophthalmology scanning
equipment.
• Optical components for gimbals in UAV military platforms.
• Multi-band periscopes and sighting systems for armoured
vehicles.
Corporate Responsibility
The Board is accountable to its shareholders and is committed to the highest
standards of corporate governance. To this end the Group has adopted the UK
Corporate Governance Code (2018). In order to ensure the Group is meeting the
most up to date standards, regular reviews of policy are held by the relevant
committees of the Board of Directors. During the year the Board undertook a
self-assessment to identify opportunities for improvement and incorporate a
greater focus on ESG.
G&H is committed to creating a safe, engaging, diverse and inclusive place
to work for the Group's employees and all stakeholders. We continue to
establish a culture that proactively works towards reducing harm and promotes
equality, diversity and inclusion across the Group. The Group remains focused
on 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 female candidates in all shortlist
applications and we are actively engaged with encouraging International Women
in Engineering. We are currently recruiting for a new non-executive director
from a female only short list.
G&H is committed to conducting our business in an environmentally
responsible and sustainable manner. With the appointment of our new
non-executive director we intend to establish an ESG subcommittee of the Board
responsible for monitoring the Group's achievement against its ESG targets. We
are investing in order to generate our electricity in a sustainable manner and
to reduce our overall energy usage. Each of our sites has an energy reduction
plan that it is working to. In the year we reduced our scope 1 and 2 carbon
emissions by 27.2% and major step forward in achieving our target of being net
neutral on this measure by 2035. The executive directors and senior
leadership team now have specific environmental management and carbon
reduction goals in their remuneration schemes.
Outlook
The demand fundamentals across all three of our primary markets in FY2022 was
strong and this has continued into the start of the new financial year.
In A&D we secured significant new programme wins and we can see that the
conflict in Ukraine has reinforced the continuing importance of armoured
systems in modern warfare. We are starting to receive opportunities from
programmes that will replenish equipment provided to Ukraine.
In Life Sciences our medical diagnostics business was broadly flat as volumes
on elective surgery treatments and cancer care products compensated for
declines in ventilator systems which had benefited from the pandemic. In the
medical laser market demand was strong for our components used in aesthetic
procedures responding to significantly growing demand, especially from Asia.
We saw a sustained recovery in the demand for specialist industrial lasers, as
new technologies to support the 5G infrastructure and Internet of Things
applications continue to expand, along with the greater use of new more
flexible materials in microelectronic manufacturing and strong worldwide
requirements for advanced semiconductors continue to drive growth.
Strategic geopolitical tensions between East and West has accelerated the
selective re-shoring of strategically important capabilities such as
semiconductor production which in turn is fuelling the demand for the fit out
of new hi-tech semiconductor factories. We expect this demand driver to remain
in place through the medium-term providing G&H with further growth
opportunities as well as offering some offset should end consumer demand in
the more traditional industrial equipment market start to soften.
These factors all contributed to the Group's order book rising to a record
level of £147.7m at the end of the year, an increase of 35.3% on a constant
currency basis. Despite the strength of the order book which remains well
above historic levels across the business and provides excellent visibility
for 2023, we still face some significant operational headwinds in the near
term. The labour markets in both the UK and US remain highly competitive
leading to ongoing supply side challenges that continue to frustrate the
recruitment of the required talent, especially in certain technical positions.
Whilst price increases have been passed onto customers in FY2022 to address
the input cost increases, cost inflation continues to impact the business. Due
to the nature of the ongoing inflation dynamics there is some lag in recovery
and prices need to be under constant review to recover these costs.
While mindful of the uncertain macroeconomic and geopolitical landscape,
G&H remains well positioned for growth with a robust pipeline across all
our end markets. We anticipate higher production in 2023 and a refocus on
pricing to offset inflation as we convert our record order book. The business
will invest to ensure G&H can capitalise on the accelerating deployment of
photonics technologies into continuously expanding areas of the Industrial,
Life Sciences and A&D markets underpinning the future growth potential of
the Group. As a result, in FY2023 we are targeting growth in revenues and
adjusted PBT, though at a lower level than previously assumed.
I am confident we will generate growth in our financial and operational
performance in 2023 as we re-establish the foundations and direction to
progress to become a resilient and agile higher margin business over the
coming years.
Charlie Peppiatt
Chief Executive Officer
6 December 2022
Operations Review
Industrial
Revenue £64.6m (2021:
£55.6m)
Adjusted Operating Profit £8.4m (2021: £7.1m)
Operating Profit £7.3m (2021: £4.5m)
Percentage of Revenue 51.7% (2021: 44.8%)
Market Drivers
· National security considerations driving in-country investment in
semiconductor and other electronics manufacturing facilities.
· New more flexible materials in microelectronic manufacturing.
· Next generation products such as EUV lithography lasers for
nanoelectronics and new design germanium modulators.
· Increasing investment in continental connectivity of data centres
to satisfy growing internet use.
· 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 16.2% (10.5%
excluding foreign exchange) compared to the prior year. We saw further growth
in our Industrial laser and semiconductor revenues thanks to the continuing
investment in additional semiconductor facilities, partially driven by growing
concerns about dependence upon supply from some Asian sources. The roll out of
new technologies such as 5G, along with greater use of new materials in
microelectronic manufacturing, continue to provide underpinning demand. Demand
for our recently developed germanium acousto-optic modulator product is very
strong. Having completed all development activities on this product we are now
focused on ramping our build capacity. The outsourcing of 'runner' AO Q-switch
production to our South East Asian manufacturing partner has proven successful
with them significantly increasing their output in the final quarter of the
financial year. This is enabling us to more effectively compete in the
increasingly price sensitive Asian Q-switch market. We are now in the process
of outsourcing some fibre optic product to supplement the acousto-optic
product already transferred.
Revenue from our sensing markets declined marginally during the year as a
result of the status of the end customer programmes. 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 demand for its products in this area. We expect the
increased deployment of wind turbines in the US to generate clean energy to
act as the next significant growth driver for our sensing modules used in this
application. In early FY2023 we have received further significant orders for
our sensing modules used in infrastructure protection and this provides good
early visibility to support the expected revenue growth in this area in
FY2023.
Volumes for our hi-reliability fibre couplers used in undersea cable networks
remained at the raised level seen in FY2021. There is strong demand due 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. Our strong customer relationship with the principal fibre
laying companies mean that we are well placed to maintain or increase our
share of a growing market and the technology demonstration completed with
NEC/JAXA established our credibility as a supplier of modules for laser-based
space communication systems.
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 FY2022 G&H
introduced six new products in Industrials generating £7.9m of revenue. We
have transitioned into production on a multi-year contract with a laser system
company supplying 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
£30.6m (2021: £41.1m)
Adjusted Operating (loss) / profit £(2.7)m (2021: £3.1m)
Operating (loss) / profit £(3.4)m
(2021: £0.6m)
Percentage of Revenue 24.5%
(2021: 33.1%)
Market Drivers
· 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.
· Directed energy systems require optical and laser expertise where
G&H excel.
Performance
Our A&D revenues declined by 25.6% during FY2022, compared with the
equivalent period last year, and 29.0% on a constant currency basis. In the
prior year, we completed deliveries of optical sensor systems on several
significant vehicles programmes and our new contract wins have not yet
migrated to the volume production phase. However, our order book for our
A&D business is strong, increasing 41.4% on a constant currency basis
during FY2022. We have secured a significant position on the UK MoD's
Challenger upgrade programme as well as important new programme wins for our
Boston business.
We are also opening new customer positions for our gimballed optical arrays
from our Keene, NH business in both Europe and Asia. At the same time the
Ukraine conflict is driving an increase in quoting activity as European
nations look to replenish military vehicle stocks being supplied to the
Ukrainian armed forces.
After recording significant programme revenues in FY2021 on the NEC/JAXA
laser-based communication programme, work has continued with that customer but
at a lower level. The focus with that customer is now on high power optical
amplifiers. We are also working with another partner on amplifiers for laser
transmitters/receivers that would be integrated in to unmanned aerial vehicles
(UAVs) providing optical communications both with other UAVs and with the
ground. Whilst these projects are currently still at prototyping stage we are
positioning ourselves strongly with a number of customer primes in a market
space that is expected to develop significantly in the coming few years.
Our teams are also closely engaged on the development of Directed Energy
Systems with a number of prime contractor customers. G&H's expertise in
coating the large optics that are positioned at the heart of these systems
means that we are well positioned to secure recurring production revenues once
development activities are complete.
In the commercial aerospace market we have seen some recovery in volumes
following the lows of FY2020 and FY2021. We believe as we increase our
capacity at our Moorpark, CA facility we will be able to secure a larger share
of the available market.
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 growing
market for laser-based space communications.
· Periscopes and sighting systems for land based armoured fighting
vehicles.
· Opto-mechanical subsystems for unmanned aerial and ground
vehicles.
· Directed Energy systems for military platform and infrastructure
defence applications.
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 continued investments made in
new surface polishing and coating equipment for our Precision Optics centres
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 FY2022 G&H introduced thirty-nine new products and generated £6.3m
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 £29.7m (2021:
£27.4m)
Adjusted Operating Profit £4.0m (2021: £4.2m)
Operating Profit £3.7m (2021: £3.5m)
Percentage of Revenue 23.8% (2021: 22.1%)
Market Drivers
· Strong growth in laser enabled aesthetic procedures especially
from Asia.
· 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
rather than later, more serious treatment of undetected conditions.
· 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 8.2% in the year to 30
September 2022, compared with the prior year. When measured at constant
currency this represents growth of 5.3%. Medical diagnostic demand remained
broadly flat compared to the levels seen in FY2021 with new customer
programmes compensating for a reduction in volumes of the product designed to
improve respiratory function as part of a ventilator system which had
benefited particularly from the pandemic.
Our ITL business which serves this medical diagnostic market secured important
new orders from customers seeking our expertise to productionise medical
diagnostic product concepts. In line with our established business model, we
expect a number of these programmes to migrate to recurring production
revenues once the initial work to develop producible product has been
completed. We have expanded the medical diagnostics R&D group to meet the
demand and we are exploiting the electronic and mechanical engineering
capability of the ITL team to support other development activities in
G&H's A&D business sector.
Through ITL's small sister company in the US we are seeking to secure
additional revenues from the large North American medical diagnostic market.
We have recently opened a new larger facility for that team which will mean we
can better serve incremental demand from ITL's North American customers who
frequently prefer product made in the USA.
Demand for our specialist medical laser products, was very strong in the year
both from our established US and European markets but also more significantly
from Asia. Medical lasers using our components are able to provide new
cosmetic procedures to patients, for example to significantly clear acne
scarring. Volumes increased by just over 10% in the year, excluding foreign
exchange and we project future strong growth in FY2023 in this area, supported
by additional capacity that we are bringing on line in our Cleveland, OH
facility.
Applications
· Optical coherence tomography (OCT) primarily used in retinal imaging for
the diagnosis of glaucoma and macular degeneration, but also now used in the
detection of 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.
· Medical diagnostic instruments: 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 FY2022 G&H introduced nine new
products and generated £3.7m 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 invest in new business development and engineering resources located
in our ITL North American facility to secure a greater share of the large
North American medical diagnostic market.
· 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
Despite strong levels of demand seen during the year across all three of our
market segments, the Group encountered significant constraints in putting in
place the capacity needed to deliver on this record order book, especially in
the first half of the financial year. COVID absences continued to impact our
facilities and there was further tightness in many areas of our supply chain
which meant that we were frequently unable to deliver to our customers on time
and in full. As a result, the Group was unable to offset from those areas of
the business seeing significantly increasing orders the declines it
experienced elsewhere from some programmes, especially in its A&D markets,
coming to an end. Consequently, whilst revenues increased on the prior year by
0.6%, on a constant currency basis they declined by 3.7%.
In the second half of the financial year the actions put in place to increase
capacity meant that revenue grew by 21.6% on a constant currency basis
providing a solid platform for further revenue growth in FY2023.
We saw further 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 revenues declined compared to
the prior year given the phasing of programme deliveries, especially our
deliveries of sighting systems on to armoured vehicles programmes. However,
the year saw the business secure some significant new programmes in this area
most notably in connection with the MoD's Challenger upgrade programme.
Our order book stood at £147.7m at the end of the financial year and intake
exceeded revenue by 20.5% in the second half of the year providing good
visibility for future revenue growth.
The decline in A&D volumes combined with our continuing investment meant
that the Group's adjusted profit before tax reduced to £8.1m (2021: £12.6m)
representing a margin of 6.5% (2021: 10.2%). 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 and amortisation and impairment charges associated with
acquired intangible assets excluded from this measure.
During the year we redefined the cash generating units (CGUs) to which the
Group's goodwill and other assets are allocated and their recoverable amounts
assessed by references to those CGUs' future forecast cashflows. This change
arose as a result of the transition of our Operations team from a technology
based model to a regionally based model. Many of the Group's support functions
also operate on a regional rather than capability based model. The CGUs
identified for the financial year were, therefore, our UK sites, our US sites
and our ITL sites given the different nature of our ITL business from the
remainder of the Group.
The non-underlying charges excluded from our adjusted profit before tax
totalled £10.4m. The most significant item related to an impairment charge of
£6.7m taken in respect of goodwill and acquired intangible asset balances
held within our UK Cash Generating Unit. This was driven by an increase in the
discount rate applied to future expected cashflows as a result of recent
increases in both the costs of borrowing and the assessment of market risk.
Had the discount rate applied remained the same as the prior year, no
impairment charge would have been recorded. Further details of alternative
performance measures are provided later in this review. After the impact of
adjusting items the Group's full year statutory loss before tax was £2.3m
compared with a profit of £4.7m in the prior year.
During the year we have taken steps to invest further amounts in our strategic
safety stocks in order to better protect our production programmes from the
pressures we are currently seeing in our global supply chains. Given the
increased trading volumes in the final quarter of the financial year our
receivable balance also increased compared to the prior year end and this has
supported strong cash collections in the first period of trading of the new
financial year. Whilst there was some offset from payables across the year,
the Group invested a further £10.0m in working capital in the financial year
(2021: reduction of £0.5m). Investment in our production facilities
continued with total capital investments of £8.6m made in the year (2021:
£6.2m). Our net debt excluding lease liabilities totalled £12.8m (2021:
£2.6m) representing leverage of just 0.7x meaning we remain well placed from
our debt facilities to fund our acquisition strategy. We expect the Group's
net debt levels to reduce across FY2023.
Revenue
REVENUE
2022 2021
Year ended 30 September £'000 % £'000 %
Industrial 64,553 51.7% 55,552 44.8%
A&D 30,553 24.5% 41,089 33.1%
Life Sciences/Biophotonics 29,696 23.8% 27,433 22.1%
Group Revenue 124,802 100.0% 124,074 100.0%
Revenue for the year totalled £124.8m. Revenues from our semiconductor and
Industrial laser markets delivered further strong growth. Demand for
hi-reliability fibre couplers also continued to grow. These were partly offset
by minor reductions in revenues to our sensing markets, although recent
programme wins mean we are well placed to grow our revenues in this market in
the coming financial year.
Our Life Sciences/Biophotonics business delivered year-on-year growth of 8.2%
(5.3% at constant currency). Our medical diagnostics business declined
slightly as COVID driven demand for our respirator product declined. This was
more than offset by strong demand for our products used in medical lasers
especially for cosmetic applications.
In A&D significant optical system deliveries on several armoured vehicle
programmes completed in the previous financial year whilst significant
deliveries on our newly won programmes do not commence until the coming
financial years. At the same time our work with NEC/JAXA on laser-based space
communication technologies completed in 2021 and whilst we are now active in
quoting in to new programmes that will build upon the technology that has now
been proven as a result of that work revenues were not recurring in FY2022.
Operating Profit
Adjusted operating profit was £8.8m compared with £13.3m in the prior year.
Gross margins declined by £2.3m. As noted above, the principal drivers of the
reduction were the completion of deliveries in the prior year on a number of
armoured vehicles programmes and the consequent decline in revenues in in
A&D in FY2022. The teams responsible for delivering these programmes which
require significant engineering and contract management resource are retained
in the business and have been instrumental in securing significant new
contract wins in FY2022 that will deliver revenue in the coming trading
periods.
In FY2021 we also completed our final work on the JAXA/NEC space
communications programme. Whilst laser-based space communications is an
important future growth market for G&H and we are involved in prospecting
for future programmes with our retained engineering teams, revenues in this
area declined in the period.
At the same time the investments we are making in our Precision Optics centre
of excellence in Ilminster are continuing. This comprises further state of the
art equipment enabling the site to secure more complex optical assembly work
from our customers. The integration of product lines from the Glenrothes and
St Asaph sites in to our Ilminster facility and the consequent extension of
lead times offered to customers mean that the fruits of this investment have
not yet been seen in incremental revenue. However, the output of the Ilminster
site is now increasing and we are confident that incremental business will
follow as our offered lead times reduce.
The continuing investment in the business was also evident in our spend on
research and development activities. This increased by £1m, or £0.7m on a
constant currency basis. The majority of this increase was in our US A&D
business where we see good further growth opportunities. The investment helped
in securing a 58% increase in the order book of our Boston business. The
Group's further investment in its productive capacity resulted in an increase
in its total headcount from 869 at September 2021 to 901 at September 2022.
The Group's statutory operating loss was £1.6m (2021: profit £5.4m) after a
charge for items excluded from adjusted operating profit of £10.4m (2021:
£7.9m) including £1.2m (2021: £5.9m) in respect of the Group's
manufacturing footprint consolidation programme, costs related to the CEO
succession of
£0.6m, and £8.6m in respect of the amortisation and impairment of intangible
assets arising on business acquisitions (2021: £2.1m).
The Group recorded an impairment charge of £6.7m on the carrying value of its
goodwill and other acquired intangible assets held in respect of its UK CGU.
This was as a consequence of an increase in the Group's weighted average cost
of capital which has been driven higher by increased costs of borrowing in the
market.
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 (Losses) / Earnings per share Operating cash flow
Year ended 30 September 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
£000 £000 £000 £000 £000 £000 £000 £000 pence pence £000 £000
Reported (1,557) 5,401 (717) (721) (2,274) 4,680 264 (1,276) (8.0p) 13.6p 6,084 16,822
Amortisation of acquired intangible assets 1,903 2,081 - - 1,903 2,081 (412) (460) 6.0p 6.5p - -
Impairment of goodwill and intangible assets 6,726 - - - 6,726 - (288) - 25.7p - - -
Restructuring and site closure 1,179 5,860 - - 1,179 5,860 (235) (1,151) 3.8p 18.8p 526 5,102
CEO succession 613 - - - 613 - (87) - 2.0p - - -
Deferred tax on goodwill - - - - - - (695) - (2.8p) - - -
Tax charge arising from restatement of UK Deferred tax at 25% - - - - - - 127 519 0.5p 2.1p - -
Adjusted 8,864 13,342 (717) (721) 8,147 12,621 (1,326) (2,368) 27.2p 41.0p 6,610 21,924
Net Finance Costs
The net underlying interest expense was £0.7m (2021: £0.7m) reflecting
similar levels of average borrowing between the two years.
Tax
The tax credit for the year was £0.3m (2021: charge £1.3m) with an
underlying tax charge of £1.3m (2021: £2.4m) after excluding a credit on
non-underlying items of £1.6m. This resulted in an underlying effective tax
rate of 16.3% (2021: 18.8%). The reduction in the rate was largely due to the
release of certain provisions held in respect of uncertain items in the prior
year. 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 reduced by 33.7% to 27.2p (2021: 41.0p),
reflecting reduced trading volumes in the year. Basic earnings per share
reduced to a loss of (8.0p) (2021: 13.6p). This reduction was due to the
impairment charge recorded against some of the Group's goodwill balances as
well as the reduced trading volumes.
Cash Generation
Cash flow generated from operating activities was £6.1m, down from £16.8m in
the prior year. During the year the Group invested £10.0m in additional
working capital. This included a further £5.6m of inventory to help protect
the Group's production programmes from the current supply chain tightness and
a further £4.4m in the net receivables/payable position reflecting the higher
levels of trading in the final quarter of FY2022 compared to the same time
last year. Cashflows for tangible and intangible fixed asset additions
totalled £8.6m (2021: £6.2m). The Group continued to invest in production
equipment as well as an upgrade to its ERP systems and a new Customer
Relationship Management system to help with a more coordinated approach to our
engagement with customers across our global sales team. The payment of
dividends in the year totalled £3.1m. The investment in working capital
levels together with the further additions to the Group's business systems and
production equipment meant drawings against the Group's debt facility
increased by $6.4m to $21.3m. The Group closed the year with net debt of
£19.1m (2021: £9.2m), or £12.8m (2021: £2.6m) when lease liabilities are
excluded.
Balance Sheet
The Group's total equity at the end of the year was £118.5m, an increase of
£4.3m over the prior year. This comprised a decrease of £5.1m from retained
earnings, a £0.7m increase to reserves in relation to share schemes and a net
increase of £8.6m arising from foreign exchange and hedging movements.
During the year, additions to property, plant and equipment amounted to £6.7m
(2021: £5.4m) and to intangible assets £1.9m (2021: £0.8m).
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, which are set out in the Annual
Report. 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 2022, Gooch & Housego PLC had sufficient
distributable reserves to pay dividends for the foreseeable future.
Given the strength of the Group's order book and the positive outlook for the
forthcoming trading period the Board is proposing a final dividend of 7.9
pence per share (2021: 7.7p), giving a total of 12.6 pence per share (FY2021:
12.2p) for the year when combined with the 4.7 pence per share paid as an
interim dividend in July 2022 (FY2021: 4.5p).
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 2022 the Group
had available undrawn committed and uncommitted facilities of $48.7m. The
Group's borrowings are in the form of a US$ denominated Revolving Credit
Facility (RCF). The RCF matures in March 2027.
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 2022 net debt/adjusted EBITDA was 0.7 times (30
September 2021: 0.1). Interest cover at 30 September 2022 was 24.6 times (30
September 2021: 34.2 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 principal currency exposure is the USD. 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.
2022 2021
Income Statement Average rate
USD/GBP 1.28 1.37
Euro/GBP 1.18 1.15
Balance Sheet Closing rate
USD/GBP 1.12 1.35
Euro/GBP 1.14 1.16
The Group's revenue is more sensitive to exchange rate movements than its
profit. A one cent change in the average Dollar exchange rate would have a
£0.7m effect on revenue but less than £0.1m effect on profit. The Group's
results are not significantly affected by movements in the Euro exchange rate.
Group Income Statement
For the year ended 30 September 2022
30 September 2022 30 September 2021
Note Underlying Non-underlying Total Underlying Non-underlying Total
(Note 4) (Note 4)
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 2 124,802 - 124,802 124,074 - 124,074
Cost of revenue (85,741) - (85,741) (82,753) - (82,753)
Gross profit 39,061 - 39,061 41,321 - 41,321
Research and development (9,181) - (9,181) (8,147) - (8,147)
Sales and marketing expenses (8,697) - (8,697) (8,342) - (8,342)
Administration expenses (12,879) (3,695) (16,574) (12,294) (7,941) (20,235)
Impairment of goodwill and acquired intangible assets - (6,726) (6,726) - - -
Other income 560 - 560 804 - 804
Operating profit 2 8,864 (10,421) (1,557) 13,342 (7,941) 5,401
Finance income - - - 1 - 1
Finance costs (717) - (717) (722) - (722)
Profit before income 8,147 (10,421) (2,274) 12,621 (7,941) 4,680
tax expense
Income tax expense 3 (1,326) 1,590 264 (2,368) 1,092 (1,276)
Profit / (loss) for the year 6,821 (8,831) (2,010) 10,253 (6,849) 3,404
Basic earnings per share 27.2p (35.2p) (8.0p) 41.0p (27.4p) 13.6p
Diluted earnings per share 27.0p (35.0p) (8.0p) 40.5p (27.0p) 13.5p
Group Statement of Comprehensive Income
For the year ended 30 September 2022
2022 2021
Note £000 £000
(Loss) / profit for the year (2,010) 3,404
Other comprehensive (expense)/income - items that may be reclassified
subsequently to profit or loss
Losses on cash flow hedges (1,137) (468)
Currency translation differences 9,774 (1,621)
Other comprehensive income / (expense) for the year net of tax 8,637 (2,089)
Total comprehensive income for the year attributable to the shareholders of 6,627 1,315
Gooch & Housego PLC
Group Balance Sheet
For the year ended 30 September 2022
2022 2021
£000 £000
Non-current assets
Property, plant and equipment 42,447 37,945
Right of use assets 5,063 5,230
Intangible assets 47,939 50,835
Deferred income tax assets 1,969 1,883
97,418 95,893
Current assets
Inventories 37,073 28,150
Trade and other receivables 35,598 28,310
Cash and cash equivalents 5,999 8,352
78,670 64,812
Current liabilities
Trade and other payables (22,765) (19,324)
Borrowings (64) (65)
Lease liabilities (1,732) (1,588)
Income tax liabilities (578) (481)
(25,139) (21,458)
Net current assets 53,531 43,354
Non-current liabilities
Borrowings (18,730) (10,903)
Lease liabilities (4,539) (5,039)
Provisions for other liabilities and charges (848) (1,447)
Deferred income tax liabilities (8,291) (7,582)
(32,408) (24,971)
Net assets 118,541 114,276
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 15,828 6,054
Hedging reserve (1,272) (135)
Retained earnings 75,715 80,087
Total equity 118,541 114,276
Group Statement of Changes in Shareholders' Equity
For the year ended 30 September 2022
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 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 - - - (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
At 1 October 2021 5,008 16,000 7,262 80,087 (135) 6,054 114,276
Loss for the financial year - - - (2,010) - - (2,010)
Other comprehensive (expense) / income for the year - - - - (1,137) 9,774 8,637
Total comprehensive (expense) / income for the year - - - (2,010) (1,137) 9,774 6,627
Dividends - - - (3,105) - - (3,105)
Share-based payments - - - 743 - - 743
Total contributions by and distributions to owners of the parent recognised - - - (2,362) - - (2,362)
directly in equity
At 30 September 2022 5,008 16,000 7,262 75,715 (1,272) 15,828 118,541
Group Cash Flow Statement
For the year ended 30 September 2022
2022 2021
£000 £000
Cash flows from operating activities
Cash generated from operations 6,084 16,822
Income tax repaid / (paid) 456 (575)
Net cash generated from operating activities 6,540 16,247
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired - (3,250)
Purchase of property, plant and equipment (6,669) (5,399)
Sale of property, plant and equipment - 38
Purchase of intangible assets (1,899) (844)
Interest received - 1
Interest paid (717) (505)
Net cash used in investing activities (9,285) (9,959)
Cash flows from financing activities
Drawdown of borrowings 6,300 -
Repayment of borrowings (1,312) (14,093)
Principal elements of lease payments (1,584) (2,047)
Dividends paid to ordinary shareholders (3,105) (1,127)
Net cash generated from / (used by) financing activities 299 (17,267)
Net decrease in cash (2,446) (10,979)
Cash at beginning of the year 8,352 19,734
93 (403)
Exchange gains / (losses) on cash
Cash at the end of the year 5,999 8,352
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
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 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. 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. Further details can be found on pages 10 to 15.
Aerospace and Defence Life Sciences/Biophotonics Industrial Corporate Total
£000 £000 £000 £000 £000
For year ended 30 September 2022
Revenue
Total revenue 32,992 33,190 69,316 - 135,498
Inter and intra-division (2,439) (3,494) (4,763) - (10,696)
External revenue 30,553 29,696 64,553 - 124,802
Divisional expenses (31,220) (24,640) (53,437) 107 (109,190)
EBITDA¹ (667) 5,056 11,116 107 15,612
EBITDA % (2.2%) 17.0% 17.2% - 12.5%
Depreciation and amortisation (2,745) (1,378) (3,803) (614) (8,540)
Operating (loss) / profit before amortisation of acquired intangible assets (3,412) 3,678 7,313 (507) 7,072
Amortisation and impairment of acquired intangible assets - - - (8,629) (8,629)
Operating (loss) / profit (3,412) 3,678 7,313 (9,136) (1,557)
Operating (loss) / profit margin % (11.2%) 12.4% 11.3% - (1.2%)
Add back non-underlying items and amortisation of acquired intangibles 746 273 1,093 8,309 10,421
Adjusted operating (loss) / profit (2,666) 3,951 8,406 (827) 8,864
Adjusted (loss) / profit margin % (8.7%) 13.3% 13.0% - 7.1%
Finance costs (113) (56) (130) (418) (717)
(Loss) / profit before income tax expense (3,525) 3,622 7,183 (9,554) (2,274)
2. Segmental analysis (continued)
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
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
Management have added back the amortisation and impairment of acquired
intangibles and goodwill, restructuring costs, site closure costs and CEO
succession costs 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:
2022 2022 2022 2021 2021 2021
Assets Liabilities Net Assets Assets Liabilities Net Assets
£000 £000 £000 £000 £000 £000
United Kingdom 72,870 (33,909) 38,961 85,163 (28,240) 56,923
USA 101,574 (23,472) 78,102 73,858 (18,006) 55,852
Continental Europe 488 (52) 436 660 (64) 596
Asia Pacific 1,156 (114) 1,042 1,024 (119) 905
176,088 (57,547) 118,541 160,705 (46,429) 114,276
For the year to 30 September 2022 non-current asset additions were £5.5m
(2021: £4.3m) for the UK and for the USA £3.3m (2021: £2.5m). There were no
additions to non-current assets in respect of Europe (2021: £nil) or the Asia
Pacific region (2021: £nil). The value of non-current assets in the USA was
£56.4m (2021: £48.1m) and in the United Kingdom £41.5m (2021: £47.8m).
There were no non-current assets in Europe or the Asia-Pacific region.
Analysis of revenue by destination:
2022 2021
£000 £000
United Kingdom 27,848 31,339
North America 47,267 45,915
Continental Europe 26,749 23,383
Asia Pacific and Other 22,938 23,437
Total revenue 124,802 124,074
3. Income tax expense
Analysis of tax (credit) / charge in the year
2022 2021
£000
£000
Current taxation
UK Corporation tax 399 722
Overseas tax (3) 292
Adjustments in respect of prior years (678) (807)
Total current tax (282) 207
Deferred tax
Origination and reversal of temporary differences (422) 1
Adjustments in respect of prior years 313 549
Change to UK tax rate 127 519
Total deferred tax 18 1,069
Income tax (income) / expense per income statement (264) 1,276
4. Non-underlying items
2022 2021
£000
£000
Included within administration expenses
Amortisation of acquired intangible assets 1,903 2,081
Impairment of goodwill and acquired intangible assets 6,726 -
Restructuring costs 1,179 5,860
Other 613 -
10,421 7,941
Included within taxation
Tax effect of the non-underlying items above (1,022) (1,611)
Restatement of UK deferred tax balances at 25% 127 519
Release of deferred tax on goodwill (695) -
(1,590) (1,092)
Restructuring costs incurred in the year ended 30 September 2022 relate to the
ongoing streamlining of our manufacturing operations and outsourcing
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.
Restructuring costs incurred in the year ended 30 September 2021 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.
Other non-underlying items relate to costs associated with the chief executive
officer succession and principally included payment in lieu of notice and
accelerated IFRS 2 costs.
The UK corporation tax rate will increase to 25% with effect from 1 April
2023. Deferred tax balances expected to reverse after that date were restated
at 25% in the year ended 30 September 2021, giving rise to an income statement
charge of £0.5m. During the year ended 30 September 2022, a further charge
of £0.1m was incurred in relation to the tax rate differential between
current and deferred tax on timing differences arising in the year.
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:
2022 2021
Number of shares used for basic earnings per share 25,040,919 25,040,919
Number of dilutive shares 211,603 239,603
Number of shares used for dilutive earnings per share 25,252,522 25,280,522
A reconciliation of the earnings used in the earnings per share calculation is
set out below:
2022 2021
£000 pence £000 pence
per share per share
Basic (losses) / earnings per share (2,010) (8.0p) 3,404 13.6p
Amortisation of acquired intangible assets (net of tax) 1,491 6.0p 1,621 6.5p
Impairment of goodwill and intangible assets (net of tax) 6,438 25.7p
Restructuring costs (net of tax) 944 3.8p 4,709 18.8p
Other non-underlying items (net of tax) 526 2.0p - -
Release of deferred tax on goodwill (695) (2.8p) - -
UK deferred tax rate change 127 0.5p 519 2.1p
Total adjustments net of income tax expense 8,831 35.2p 6,849 27.4p
Adjusted basic earnings per share 6,821 27.2p 10,253 41.0p
Basic diluted (losses) / earnings per share (2,010) (8.0p) 3,404 13.5p
Adjusted diluted earnings per share 6,821 27.0p 10,253 40.5p
Basic and diluted (losses) / 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
2022 2021
£000
£000
Final 2021 dividend: 7.7p per share (Final 2020 dividend paid in 2021: nil) 1,928 -
2022 Interim dividend of 4.7p per share (2021: 4.5p per share) 1,177 1,127
3,105 1,127
The Directors have proposed a final dividend of 7.9p per share making the
total dividend paid and proposed in respect of the 2022 financial year 12.6p.
(2021: 12.2 p per share).
7. Cash generated from operating activities
Reconciliation of cash generated from operations
2022 2021
£000 £000
(Loss) / profit before income tax (2,274) 4,680
Adjustments for:
- Amortisation of acquired intangible assets 1,903 2,081
- Amortisation of other intangible assets 1,438 1,275
- Impairment of intangible assets 6,726
- Loss on disposal of property, plant and equipment 71 95
- Write back of lease creditor on early termination of lease (96) -
- Depreciation 7,102 7,030
- Share based payment charge 743 735
- Amounts claimed under the RDEC (200) (280)
- Finance income - (1)
- Finance costs 717 722
Total 18,404 11,657
Changes in working capital
- Inventories (5,557) 1,888
- Trade and other receivables (5,707) (2,655)
- Trade and other payables 1,218 1,252
Total (10,046) 485
Cash generated from operating activities 6,084 16,822
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