TIDMGHH
RNS Number : 4128V
Gooch & Housego PLC
03 December 2019
For immediate release 3 December 2019
Gooch & Housego PLC
("Gooch & Housego", "G&H", the "Company" or the
"Group")
PRELIMINARY RESULTS FOR THE YEARED 30 SEPTEMBER 2019
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer
of optical components and systems, today announces its preliminary
results for the year ended 30 September 2019.
Year ended 30 September 2019 2018 Change
Revenue (GBPm) 129.1 124.9 3.4%
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Adjusted profit before tax
(GBPm)* 15.0 18.8 (19.9%)
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Adjusted basic earnings per
share (pence)* 46.8p 57.2p (18.2%)
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Statutory profit before tax
(GBPm) 6.0 10.1 (40.6%)
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Basic earnings per share (pence) 15.1p 29.3p (48.5%)
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Total dividend per share (pence) 11.5p 11.3p 1.8%
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Net debt (GBPm) 14.3 10.6 GBP3.7m
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*adjusted figures exclude the amortisation of acquired
intangible assets, impairment of goodwill, adjustments to accrued
contingent consideration, non underlying items being restructuring
costs, site closure costs, transaction costs, and interest on
deferred consideration, together with the related tax impact.
Operating & Strategic Highlights
-- Trading: as previously disclosed, challenging macro-economic
environment in our industrial laser sector, contrasted with record
levels of demand for fibre optics, hi-reliability fibre couplers
used in undersea cables and life science products
-- Industrial laser products: we believe that technical
innovation in end markets and new laser based manufacturing
techniques combined with our market leading position will
ultimately drive improved demand
-- Strategic investment: we invested in order to deliver a
multi-year growth phase of hi-reliability fibre couplers and new US
A&D contracts. Further investment made in R&D projects that
represent the highest potential for our photonics technologies
-- Life science business: more than doubled in size compared
with last year, driven by growth in our existing market areas,
strongly supported by the addition of ITL, which has performed
ahead of expectations since its acquisition in August 2018
-- Strategic goals: we made considerable progress with further
diversification and moving up the value chain, in large part due to
the continued growth in A&D and Life Science business
Financial Highlights
-- Revenue of GBP129.1 million, increased by 3.4%
-- Adjusted profit before tax of GBP15.0 million, down 19.9%.
This reflects both lower market demand for relatively higher margin
critical components for industrial lasers and the investment
required to deliver multi-year growth in hi-reliability fibre
couplers and new US A&D contracts
-- Adjusted earnings per share down 18.2%
-- Capital expenditure of GBP5.9m. Net debt of GBP14.3m (c.0.7 x adjusted EBITDA)
-- Dividend increased to 11.5p, reflecting the Board's long term confidence in the business
-- Order book of GBP94.4m, 1.8% lower than the same time last
year, reflecting strong demand for fibre optics, hi-reliability
fibre couplers and our A&D and Life Science capabilities, with
industrial laser demand yet to recover to more "normalised"
levels
Mark Webster, Chief Executive Officer, commented:
"Trading reflected a challenging macro-economic environment for
industrial lasers and in contrast record demand for fibre optics,
hi-reliability fibre couplers used in undersea cables and life
science products. We believe that ultimately technological
innovation in industrial laser end market applications and new
laser based manufacturing techniques will drive improved demand for
our industrial laser products.
"During the year we invested in manufacturing capacity for areas
of high growth such as hi-reliability fibre couplers and in R&D
projects that represent the highest return for our photonic
technologies.
"Considerable progress was made on our strategic goals of
further diversification and moving up the value chain, with life
sciences more than doubling compared with last year.
"Our order book reflects strong demand for fibre optics,
hi-reliability fibre couplers and our A&D and Life Science
capabilities, with industrial laser demand yet to recover to more
"normalised' levels. G&H's forecasts and plans are not
dependent on an industrial laser recovery. The Board is confident
the Company is well positioned to deliver progress in FY20 and
beyond."
For further information please contact:
Gooch & Housego PLC Mark Webster / Chris Jewell 01460 256440
Investec Bank plc (Nomad
& Broker) Chris Baird / Patrick Robb 020 7597 5970
/ David Anderson
Buchanan Mark Court / Charlotte Slater 020 7466 5000
Analyst meeting
A meeting for analysts will be held at 9.30am today, 3 December
2019, at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.
For further details please phone Buchanan on 020 7466 5000 or email
g&h@buchanan.uk.com.
Expected Financial Calendar
Annual General Meeting 19 February 2020
Payment date for final dividend for the 28 February 2020
year ended 30 September 2019 to shareholders
on the register at close of business 24
January 2019.
Subject to approval by shareholders at 7 April 2020
the Annual General Meeting
June 2020
Half year Trading Update
30 September 2020
Interim Results announcement
December 2020
Financial Year End
Preliminary announcement of results for
the year ended
30 September 2020
Chairman's Statement
2019 was a challenging year for the business with the industrial
laser market declining as a result of a cyclical downturn in that
market and the uncertainty that has resulted from trade disputes
between the world's two largest economies. Despite this the Group
has continued to make progress on its strategic objectives of
offering our customers more complex sub-assemblies and system
solutions whilst seeking new market applications for our products
and capabilities.
Offsetting the weakness in the industrial laser market the Group
succeeded in delivering good growth in its A&D and Life
Sciences businesses where our market leading products and
capabilities remained highly attractive.
We are seeing unprecedented levels of demand for our
hi-reliability fused fibre couplers thanks to major
telecommunications infrastructure projects and this will provide an
important underpin to the Group's revenue for FY20.
Since its acquisition in August 2018 our ITL business has
performed ahead of expectations and we are exploiting the synergies
this acquisition provides by demonstrating the Group's broader
product capability to our existing customer bases. Gould Fibre
Optics ("GFO"), acquired in September 2018, has performed below our
expectations at the time of acquisition, but as the earn-out
portion of the acquisition price was not paid, we believe the
company was acquired at an appropriate price. GFO is helping to
consolidate G&H's position as a world leader in the provision
of fused fibre technology to the US A&D sector.
The consolidation of our manufacturing facilities into three
technology differentiated manufacturing centres has been completed
and this has facilitated a more efficient, cross Group approach to
the prioritisation of investment in people, plant and processes. We
are now in the process of supporting this by bringing together our
commercial teams into a single Group-wide organisation that will
allow us to better respond to the broad and complex needs of our
customers.
The execution of these changes in the face of a challenging
environment in our industrial laser markets would not have been
possible without the hard work and dedication of our people across
all of our business areas. I am delighted with the contribution
made by our staff throughout the Group, particularly in the areas
of operational efficiency, supply chain improvement and health and
safety management. On behalf of the Board I would like to thank all
of our employees who have contributed to our business performance
in the financial year.
As previously announced, Andrew Boteler left the business in
June 2019 and was replaced as Chief Financial Officer by Chris
Jewell who was formerly at TT Electronics plc. I would like to
thank Andy for his very significant contribution to the Group and
welcome Chris to the Board. Alex Warnock our Chief Operating
Officer left the business in November 2019. Alex has put in place a
strong and experienced management team to lead the three
manufacturing centres and as a result we do not currently intend to
replace Alex and the three manufacturing centre heads will report
directly to the CEO. I wish Alex well for his future
endeavours.
As a Board we are committed to diversity and the need to improve
female representation at all levels. We have an active search
underway to add an experienced female Non-Executive Director to the
Board which we expect to conclude successfully in the New Year. We
are also seeking to improve the representation of women in senior
leadership positions throughout the Group.
Whilst the macroeconomic environment remains uncertain we enter
the new financial year with a solid order book and the continued
investment we have made in new technologies, capabilities and
business processes means that the Group remains well positioned to
deliver progress in FY20 and beyond.
Gary Bullard
Chairman
3 December 2019
Chief Executive Officer's Statement
FY19 Performance
In the year ended 30 September 2019 G&H achieved revenue of
GBP129.1 million representing an increase of 3.4% over the previous
year or excluding foreign exchange, flat, excluding acquisitions
and foreign exchange, a decline of 8.0%. Adjusted profit before tax
was GBP15.0 million, a decline of 19.9%.
Trading during the year reflected a challenging macro-economic
environment in our industrial lasers sector, contrasting sharply
with significant opportunities across the rest of the business. The
cyclical downturn in demand for critical components used in
industrial lasers for microelectronic and semiconductor
manufacturing has been well documented. In the rest of our
business, demand for our fibre optic products, hi-reliability fibre
couplers used in undersea networks and our life science products
was at record levels.
G&H believes that technical innovation in industrial laser
end market applications, such as 5G and the introduction of new
laser based manufacturing techniques, combined with our market
leading position will ultimately drive improved demand for our
industrial laser products.
Our fibre optics business has performed strongly. In particular
hi-reliability fibre couplers are experiencing a multi-year growth
phase and we have invested accordingly to take advantage of our
market leading position in this area.
A&D has performed well and we secured a number of new US
A&D contracts in FY19.
Our Life Science business has now established itself as a
substantial sector within G&H. This has been driven by growth
in our existing life sciences market areas, strongly supported by
the addition of ITL, which has performed ahead of our expectations
since its acquisition in August 2018.
G&H has entered its new financial year with a good order
book which, at 30 September 2019 stood at GBP94.4 million (30
September 2018: GBP96.1 million), 1.8% lower than the same time
last year, or a reduction of 5.1% excluding the impact of foreign
exchange. The order book reflects strong demand for fibre optics,
hi-reliability fibre couplers and our A&D and life science
capabilities, while industrial laser demand is yet to recover to
more 'normalised' levels.
Strategically important investments were made in people, process
and capital equipment in order to ensure we are able to deliver on
the multi-year growth of hi-reliability fibre couplers and to put
in place the enhanced organisational structure required to deliver
our new US A&D contracts. Elsewhere we have 'right sized' our
organisational structure to ensure that we respond to the current
demand levels in the industrial laser sector in a manner that
retains core skills, but enables us to sensibly manage the
profitability of the affected manufacturing sites.
G&H was able to make further R&D investment in areas we
identified as having high growth potential for our photonic
technologies, such as the latest industrial laser systems, 'harsh
environment' sensing, unmanned aerial vehicles ("UAVs"), novel
A&D programmes, space satellite communications, laser surgery
and medical diagnostics. This year we were also able to combine our
medical photonics capabilities, such as optical coherence
tomography ("OCT") with ITL's system capabilities which resulted in
the presentation of more complete and compelling medical diagnostic
projects for our customers.
Strategic goals
We remain committed to our twin strategic goals of further
diversification and moving up the value chain. This enables us to
more fully exploit our photonic technologies and to continue to
bring greater balance to our business thereby further reducing
exposure to industrial lasers and the economic cycle.
A&D and Life Sciences provide a counter balance to our
industrial laser business. Our customers are typically tier one
A&D and multi-national medical diagnostic companies which often
prefer us to provide them with sub-system and system solutions,
therefore providing a strong impetus to move up the value chain.
This coupled with the regulatory and compliance hurdles inherent in
these sectors provides a high barrier to entry. The direction of
travel in both sectors is towards greater use of photonic
technologies, which means we are increasingly well placed to serve
these customers. Both of these sectors provide G&H with the
opportunity for robust growth going forward.
Our aim is to achieve a "critical mass'" in both the A&D and
life science sectors and in an "ideal world" there would be an
equal split between the three market sectors across G&H.
This was achieved in large part in A&D, which represented
34.2% of our business in FY19. Historically life sciences has
provided 10% or less of our revenue, though this year through a
combination of organic growth in our three main life science areas
and the performance and full year impact of ITL, it now represents
18.7% (FY18: 8.9%) of the Group's revenue.
Sub systems and systems now represent 35.7% of our revenue,
compared with 25.6% last year, the increase in large part due to
the increased contribution of our A&D and Life Sciences
sectors.
Acquisitions
In August and September 2018 we acquired ITL and Gould Fiber
Optics, respectively.
ITL is a UK-based specialist in the design, development and
manufacture of high quality medical devices. It has been a
significant factor in G&H more than doubling the size of its
life sciences business and moving up the value chain, as all of
ITL's sales come from system based products.
ITL has exceeded our expectations, has achieved 100% of its
first year earn out and has integrated well with the rest of
G&H. There are a number of early stage joint photonic and
system based projects which have been presented to prospective
customers and which we expect will make a significant contribution
to life science growth in years to come.
GFO is a US-based market leading supplier of key enabling fibre
optic components to tier one US A&D customers. We have invested
in the manufacturing site to bring it up to G&H standards and
good progress has been made by the new management team at the
Baltimore location.
GFO did not meet its earn out goals for this year, which meant
the earn-out portion of the acquisition price was not paid and as
such, we believe the price paid for the business was appropriate.
It is a high net margin business which provides G&H with a
strategic platform to access tier one US A&D companies with our
fibre based product portfolio. The write back of deferred
consideration and appropriate impairment of goodwill are considered
in the Performance Overview.
Research and Development ("R&D")
There has been continued benefit from concentrating our R&D
efforts on fewer higher return projects. During FY19 we introduced
48 new products, with 5 patents granted and we expect the full
value of these products to come to fruition over the next three
years. Revenue generated from new products this year was GBP13.5
million (FY18: GBP12.0 million).
Good progress has been made in the areas which have been
identified as offering the highest growth potential for our
photonic technologies.
Microelectronic manufacturing is entering a new phase of ultra
fast lasers, which allow for improved capabilities in existing
areas of use and new areas, such as Via Drilling techniques and
extreme UV lithography, which is utilised in the production of
nanoelectronics. The next generation of precision lasers and laser
systems are being developed with our laser manufacturer and laser
system partners.
We have capitalised on our expertise and knowledge gained on
space laser communications to provide solutions for applications
such as 'harsh environment' sensing which utilises our 'ruggedised'
photonic technologies. Two recent examples are projects in the
areas of LIDAR wind detection for wind farms and oil pipeline
security systems.
Unmanned aerial vehicles ("UAVs") have a variety of commercial
and military uses and this is an area where we see significant
potential for G&H. We design, engineer and manufacture bespoke
complex
optical arrays that form part of the imaging system contained in
the UAV's gimbal. They typically provide targeting, surveillance
and LIDAR capability.
We have a number of ongoing R&D defence programmes in the US
and Europe, which operate under US International Traffic in Arms
Regulations ("ITAR") and / or confidentiality agreements,
supporting future growth in what is now a substantial A&D
business.
Our space communication group has gone from strength to strength
with European and UK space agency funded work as well as
substantial commercial contracts to provide satellite communication
systems for near term satellite launches. We believe there is
significant potential to expand this technology into small
satellite platforms for constellations and near space UAVs.
Our optical coherence tomography ("OCT") technology dominates
the retinal scanning and imaging arena. The partnerships we have
with medical diagnostic companies in the areas of cardiovascular
disease and cancer detection are now delivering new product revenue
for the group.
We have a range of medical diagnostic R&D collaborations
through ITL and have been able to combine our photonic capabilities
with ITL's system expertise which we believe will result in R&D
collaborations with multinational medical diagnostic companies in
the near future.
Performance improvement programme
Our three manufacturing centre approach remains key to
manufacturing efficiency, customer service and greater capacity.
Ten of our twelve manufacturing sites are now organised into three
manufacturing centres based on their areas of technical excellence,
namely Acousto Optic / Electro Optic, Fibre Optics and Precision
Optics / Systems. Each manufacturing centre has a leader whose role
is to ensure best practice is shared, there is process
harmonisation and optimal allocation of resource.
ITL's two manufacturing sites remain outside of the structure
for the period of their earn out.
There are three customer facing business units which mirror our
traditional market sectors of industrials, A&D and Life
Sciences / Biophotonics. Each unit is responsible for that sector's
strategy and longer term planning. They all come under our newly
appointed Chief Commercial Officer ("CCO"), Adrian Meldrum, who
will work closely with our manufacturing heads to ensure our
production resources match our strategy and longer term planning
goals.
This organisational approach is underpinned by improved business
systems. An ongoing process with a phased introduction of new
financial and business systems is being implemented over a period
of three years.
Markets and Applications
Industrial - 47.1% of FY19 Group revenue
Our industrial division declined by GBP12.0 million or 16.5%
compared with the previous year.
Industrial splits into four distinct areas: industrial lasers,
optical communications, 'harsh environment' sensing and scientific
research. The first two areas represent the majority of the
sector's business. The Industrial sector's year on year decline was
due to a cyclical downturn in the industrial laser market and a
very strong comparator year in FY18.
The cyclical downturn in FY19 for industrial lasers used in
microelectronic and semiconductor manufacturing has been well
documented by both G&H and external commentators. We believe
that the downturn has lasted longer than the last time we had an
equivalent event, our FY12, due to the overlay of the US / China
tariff dispute and other one-time factors such as the Japan / Korea
trade dispute.
G&H believes that technological innovation in end market
applications, such as 5G and the introduction of new laser based
manufacturing techniques, combined with our market leading position
in this area will ultimately drive improved demand for our
industrial laser business. We will continue to seek to reduce the
cost of producing critical components for industrial lasers to
ensure that we remain competitive. It is interesting to note that
following the FY12 industrial laser downturn G&H went through a
period of strong growth, more than doubling our business through to
FY18.
Optical communications is dominated by hi-reliability fibre
couplers for undersea cables. Hi-reliability fibre couplers are
undergoing a multi-year growth phase. This is driven by well
capitalised 'Silicon Valley' companies sponsoring the laying of
their own cable networks and a doubling in the number of fibre
couplers used per repeater (the repeaters boost the signal every
few kilometres of undersea cable). G&H has invested in people
and equipment in order to meet an order book which has seen the
demand nearly double in FY19, then triple as we move into FY20.
'Harsh environment' sensing has performed well and we have
picked up new orders for our laser engines used for directional
sensing in wind farms and security related to oil pipelines.
Scientific research covers high profile 'Big Science' projects
such as supplying critical components to the world's most powerful
laser system at the National Ignition Facility at Lawrence
Livermore National Laboratory ("LLNL") in Northern California and
to the European equivalent, Commissariat a l'energie atomique et
aux energies alternatives ("CEA") in Bordeaux, France. As the
primary supplier of critical laser components to these facilities
this represents a profitable and prestigious part of our
industrials business.
A&D - 34.2% of FY19 Group Revenue
A&D grew year on year by GBP3.4 million or 8.4%, on an
organic basis by 5.9%.
G&H is able to bring a wide range of photonic capabilities
together that very much represent the "direction of travel" in this
sector. These include target designation, range finding, ring laser
and fibre optic gyroscopic navigational systems, infra-red and RF
counter measures, periscopes and sighting systems for armoured
vehicles, opto-mechanical sub-systems for UAVs and long range
secure communications.
The acquisition of GFO provides enhanced access for our fibre
based business to tier one US A&D companies.
Delivering product quality, reliability and performance in
"harsh environments" is essential in the A&D arena and this
very much plays to G&H's strengths. Our customers encompass the
major US and European A&D companies.
During FY19 we were able to win a number of high profile US
A&D contracts and have put in place an enhanced organisational
structure in order to deliver these multi-year projects.
Space satellite communication is undergoing a technological
revolution. The use of fibre optic lasers to transmit information
means satellite communication systems are more efficient and
robust, as well as being significantly lighter and more secure.
This has changed the economics of the sector and has helped lead to
smaller satellites and encouraged the move towards the use of
satellite constellations and near space UAVs, as part of a
communications network. The investment we have made in this segment
is allowing us to contribute at the forefront of these developments
globally.
Life Sciences / Biophotonics - 18.7% of FY19 Group Revenue
Life Sciences / Biophotonics revenue grew year on year by
GBP12.9 million or 114.7%, on an organic basis by 22.4%.
FY19 was a watershed year for G&H life sciences.
Historically it has represented 10% or less of G&H's revenue,
but during FY19 was able to more than double in size through a
combination of organic and acquisitive growth and now represents
18.7% of Group revenue.
The principal photonic applications are in OCT, laser surgery
and microscopy and we had organic growth across all three main
areas. OCT is widely used in ophthalmology for 3D retinal scanning
and
G&H has a leading position in supplying critical components
and sub-systems to the main equipment suppliers. The use of the
same technology in cardiovascular and cancer disease detection has
now started to drive revenue from US based medical diagnostic
companies.
Laser surgery is a fast growing segment particularly in
ophthalmology, prostate and cosmetic surgery and has significant
potential to be exploited beyond these current areas of use.
Microscopy had a good year with an increase in use of laser
based microscopy.
ITL, acquired in August 2018, has exceeded our expectations with
its business based around the design, development and manufacture
of high quality medical diagnostic systems. These range from the
supply of antibiotic testing and cancer detection systems through
to DNA sequencing. Their electronic, software and mechanical
engineering capability greatly enhances our ability to integrate
our photonic technology as part of a sub-system or system. During
FY19 this has resulted in us being able to present a number of OCT
based systems to new and existing customers. We expect this to be a
significant business driver in future years.
There is potential for photonic technology to be used in
minimally invasive surgery, endoscopy and robotic surgery. This
sector remains an area where G&H will continue to invest in
R&D and to look for further strategic acquisitions with the aim
of at least bringing the revenue into line with the other
sectors.
Board changes
Chris Jewell joined the Group as Chief Financial Officer on 9
September 2019. He replaced Andy Boteler who after more than ten
years as CFO decided to step down as a public company executive.
Andy has been an important part of G&H's success over many
years and his knowledge of the business, energy and considerable
ability will be missed.
Alex Warnock, after five years as Chief Operating Officer
decided to step down from the role and the Board after the end of
the financial year. He left on 8 November 2019. Alex has been an
important part of G&H's success and his hard work, commitment
and considerable experience will be missed. Alex has put in place a
strong and experienced management team based around the three
manufacturing centres, which has been operating successfully in its
current structure for the last two years. The three manufacturing
heads will report directly into the CEO and there are no plans to
recruit a replacement COO.
Summary and Outlook
Trading during the year reflected a challenging macro-economic
environment in our industrial lasers sector, which contrasted with
record levels of demand for our fibre optics products,
hi-reliability fibre couplers used in undersea cables and life
science products.
G&H believes that technical innovation in industrial laser
end market applications, such as 5G and new laser based
manufacturing techniques, combined with our leading position will
ultimately drive improved demand for our industrial laser
products.
We made strategically important investments in people, process
and equipment to ensure we are able to deliver on the multi-year
growth phase of hi-reliability fibre couplers and put in place an
enhanced organisational structure to deliver our new US A&D
contracts.
Elsewhere G&H has 'right sized' the organisation to ensure
that we respond to the current demand levels of the industrial
laser sector in a manner that retains core skills, but enables us
to sensibly manage the profitability of the affected manufacturing
sites.
We will continue to seek to reduce the cost of producing
critical components for industrial lasers. When necessary, we will
continue to make considered and proportionate organisational
changes in order to ensure we are able to take optimal advantage of
the opportunities and challenges we have in the business.
G&H is committed to making further investment in R&D
target areas that we believe represent the highest growth potential
for our photonic technologies. These include the latest industrial
laser systems, "harsh environment" sensing, UAVs, novel A&D
programmes, space satellite communications, laser surgery and
medical diagnostic systems.
We will continue to actively pursue our strategic goals of
further diversification and moving up the value chain. The aim is
to achieve "critical mass" in the A&D and Life Science sectors,
which means in an "ideal world" each of the three sectors
representing one third of our business, through a mixture of
investment in R&D and acquisitions.
The order book as at 30 September 2019 reflects strong demand
for fibre optics, hi-reliability fibre couplers and our A&D and
life science capabilities, whilst industrial laser demand is yet to
recover to "normalised" levels. We believe that technical
innovation will ultimately drive future growth in the industrial
laser sector. Our forecasts and plans are not dependent on a
recovery in the industrial laser market.
The "direction of travel" in our main target sectors is very
much towards greater use of photonic technologies. This combined
with the technological platform and market presence that we have in
these target sectors means that the Board is confident that the
Company is well positioned to deliver progress in FY20 and
beyond.
Mark Webster
Chief Executive Officer
3 December 2019
Performance Overview
Trading performance in the year suffered from a cyclical
slowdown in our Industrial laser markets and underlying operating
profit fell 14.9% to GBP16.3m. Revenue and underlying profit before
tax were, however, in line with revised management expectations for
the year reflecting a level of stabilisation in the second half's
trading.
Group revenue for the year totalled GBP129.1 million. This
represents an increase of GBP4.3 million, or 3.4% over the previous
year. On an organic basis and measured at constant currency,
revenues declined by 8.0%.
The Group adjusted profit before tax amounted to GBP15.0 million
(2018: GBP18.8 million) and represented a margin of 11.6% (2018:
15.0%). Statutory profit before tax was GBP6.0 million compared
with GBP10.1 million last year.
During 2019 the Group continued to invest for the future with
R&D spend at 6% of revenue, which was in line with last year's
proportional spend when measured on an organic basis. G&H
invested GBP5.9m in property, plant and equipment including
investment to provide our manufacturing centres with new
capabilities that will help us address emerging customer demands.
The business finished the year with net debt of GBP14.3 million
compared with a net debt position of GBP10.6 million as at 30
September 2018. This represents approximately 0.7 x adjusted
EBITDA.
In the financial year under review, adjusted operating profits
decreased by GBP2.8 million to GBP16.3 million (2018: GBP19.1
million). At a percentage margin level, adjusted operating margins
were 12.6%, compared with 15.3% in 2018. This reduction reflects
the impact of lower sales of our relatively higher margin
industrial laser products and the investment made in capacity for
the multi-year growth of the hi-reliability fibre couplers, and
additional costs required to deliver new US A&D contracts.
REVENUE
---------------------------------------- ------ -------- --------
2019 2018
---------------- ------------------
Year ended 30 September GBP'000 % GBP'000 %
------------------------------ -------- ------ -------- ------
Industrial 60,854 47.1% 72,881 58.4%
------------------------------ -------- ------ -------- ------
A&D 44,203 34.2% 40,789 32.7%
------------------------------ -------- ------ -------- ------
Life Sciences / Biophotonics 24,076 18.7% 11,213 8.9%
------------------------------ -------- ------ -------- ------
Group Revenue 129,133 100% 124,883 100%
------------------------------ -------- ------ -------- ------
In our Industrial segment, revenue declined by 16.5%, in
absolute terms, from GBP72.9 million last year to GBP60.9 million
this year. On an organic and constant currency basis, the decline
totalled 17.4%.
Revenue in our A&D business increased by 8.4% in absolute
terms from GBP40.8 million to GBP44.2 million. Excluding the impact
of acquisitions and measuring at constant currency, revenues in
this segment grew 2.4%.
Life Sciences / Biophotonics revenue increased by 114.7% in
absolute terms from GBP11.2 million to GBP24.1 million. Excluding
the effect of foreign exchange and acquisitions, this segment grew
by 18.2%.
GROUP EARNINGS PERFORMANCE
----------------------------------- -------- -------- ----------
All amounts in GBP'000 Adjusted Reported
--------------------
Year ended 30 September 2019 2018 2019 2018
------------------------- -------- -------- -------- --------
Operating profit 16,254 19,100 8,408 10,796
------------------------- -------- -------- -------- --------
Net finance costs (1,238) (343) (2,456) (683)
------------------------- -------- -------- -------- --------
Profit before taxation 15,016 18,757 5,952 10,113
------------------------- -------- -------- -------- --------
Taxation (3,332) (4,677) (2,191) (2,893)
------------------------- -------- -------- -------- --------
Profit for the year 11,684 14,080 3,761 7,220
Basic earnings per
share (p) 46.8p 57.2p 15.1p 29.3p
------------------------- -------- -------- -------- --------
The adjusted effective rate of tax was 22.2% (2018: 24.9%). The
reduction in the rate was largely due to a combination of the full
year effect of US rate reductions implemented last year and the
utilisation of tax losses in the US. The effective rate of tax of
36.8% (2018: 28.6%) was higher than the adjusted effective rate
largely because of the effect of the goodwill impairment, which is
not deductible in arriving at the Group's tax charge. 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.
Adjusted net finance costs increased to GBP1.2m principally as a
result of additional borrowing at the end of FY18 to fund the ITL
and Gould Fiber Optics acquisitions.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
------------------------------------------------
Operating Net finance Taxation Earnings
profit costs per share
------------------------- ------------------ ------------------ ------------------ ----------------
Year ended 30 2019 2018 2019 2018 2019 2018 2019 2018
September GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 pence pence
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Reported 8,408 10,796 (2,456) (683) (2,191) (2,893) 15.1p 29.3p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Amortisation
of acquired
intangible assets 3,690 2,141 - - (676) (276) 12.1p 7.6p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Site closure (382) 1,569 - - 65 (359) (1.3p) 4.9p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Impairment of
goodwill 6,258 2,708 - - (921) - 21.4p 11.0p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
(Credit) / charge
in respect of
accrued contingent
consideration (3,075) 417 - - 662 - (9.7p) 1.7p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Restructuring
costs 1,355 864 - - (271) (169) 4.3p 2.8p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Transaction
fees - 605 - - - (116) - 2.0p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Interest on
deferred consideration - - 1,218 340 - - 4.9p 1.4p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Tax credit on
US deferred
tax due to rate
change - - - - - (864) - (3.5p)
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Adjusted 16,254 19,100 (1,238) (343) (3,332) (4,677) 46.8p 57.2p
------------------------- -------- -------- -------- -------- -------- -------- ------- -------
Adjusted earnings per share (EPS) reduced from 57.2p in FY18 to
46.8p in FY19. Reported basic EPS was 15.1p compared with 29.3p
last year.
NON GAAP MEASURES
The Company uses a number of non GAAP measures which are shown
in the table above and in the segmental analysis. These measures
are used to illustrate the impact of non-underlying items on the
Company's financial results. These are the impact of the
amortisation of acquired intangible assets, costs associated with
restructuring activities, impairment of goodwill, adjustments to
contingent consideration, costs associated with the acquisition and
disposal of subsidiary companies, and the interest charge on
deferred consideration.
Adjusted Earnings Before Interest, Tax, Depreciation and
Amortisation ("EBITDA") is EBITDA excluding site closure costs and
restructuring costs identified as non-recurring.
NON UNDERLYING ITEMS
Restructuring costs of GBP1.4 million (FY2018: GBP0.9 million)
related to expenses arising from the re-organisation of the
manufacturing centres, and the Group's commercial and business
development teams into a single integrated function.
Site closure costs relate to the profit generated on the sale of
the Company's Orlando facility, partially offset by the costs
associated with the closure of the Madison office.
As noted above the performance of the Gould Fiber Optic business
has not been sufficient to trigger the payment of the contingent
consideration provided for in the Purchase Agreement and accrued
within the September 2018 balance sheet. As a result the amount of
GBP2.6m was credited to the income statement during the year.
Furthermore the excess of contingent consideration compared with
that paid in respect of the StingRay acquisition of GBP0.5m was
released in the period.
As part of its annual review of the carrying value of goodwill,
the Board has taken the decision to impair the goodwill of the
Gould Fiber Optic business. The business was acquired in September
2018 for a consideration of $16.4m including a contingent element
of $3.4m and, prior to the impairment, the carrying value of the
associated goodwill was GBP9.2m. Whilst the acquisition has helped
provide the Group with further access to the US A&D market the
business has not generated the profitable growth required to
support the payment of the contingent consideration. The lower than
expected performance means that an impairment charge of GBP3.6m has
been recognised in relation to the carrying value of that site's
goodwill. Further detail is given in note 17 to the financial
statements.
As reported at the half year, the Board took the decision to
recognise an impairment of GBP2.6m in respect of the goodwill
relating to the Boston site.
Transaction fees of GBP0.6m in FY18 related to the acquisitions
of ITL and Gould Fiber Optics.
The interest charge on discounted deferred consideration of
GBP1.2m (2018: GBP0.3m) relates to the unwind of the discount on
deferred consideration liabilities.
RESEARCH & DEVELOPMENT (R&D)
G&H continues to invest in R&D and regards this as
fundamental to the continued growth of the Company. There were 48
product releases in 2019, together with five new patents
granted.
Excluding the impact of acquisitions and divestments,
expenditure on R&D in FY19 was maintained at 6% of revenue,
only marginally lower than the equivalent figures in the previous
financial year (6.4%). The Group capitalised GBP0.7m of development
expenditure (2018: GBP0.5 million).
OPERATIONS
The Group has completed the establishment of its three
Manufacturing Centres which combine the Group's operational
expertise into the three technology areas of Acousto Optic/Electro
Optic, Fibre-Optic and Precision Optics/Systems. There are three
customer facing business units which mirror our traditional market
sectors of industrial, A&D and Life Science/ Biophotonics. Each
unit is responsible for that sector's strategy and longer term
planning. They all come under our newly appointed CCO who will work
closely with our manufacturing heads to ensure our production
resources match our strategy and longer term planning goals.
We have made further investment in our business systems to
better support our operations. We have continued the roll out of
our Syspro ERP/MRP system which now forms the core of our sales and
operations planning processes enabling us to ensure our in house
and supply chain resources are better aligned with our market
forecasts.
Following the closure and sale of the Orlando, Florida, light
measurement business in the previous year the Group completed the
sale of the site for proceeds of GBP1.5m in FY19. The resultant
gain on disposal of the site of GBP0.8m has been treated as
non-underlying income.
As reported in previous years, the Company has been successful
in its legal dispute with the landlord of its Fremont facility, as
a result of which a Californian court awarded G&H in the region
of $2 million in damages plus costs, arising from the landlord's
non-performance in respect of the lease. The landlord commenced an
appeal against this ruling which is yet to be heard and whilst
legal opinion remains confident that the original ruling will be
upheld, no recognition of the damages award has been made in this
set of financial statements. Any net benefit will be treated as a
non-underlying item in a future accounting period.
ACQUISITIONS
G&H continues to evaluate acquisition opportunities that
have the potential to accelerate delivery of the Company's
strategic objectives. G&H is focussed on moving up the value
chain in each of the markets it serves. Whilst the business will
continue to evaluate bolt on businesses in our core component
technologies, we are focussed on identifying value enhancing
acquisitions that can extend our technical capabilities and help us
achieve further penetration into the markets that we serve.
In its first full year of ownership the ITL business has
exceeded our expectations contributing GBP12.8m of revenue and
GBP3.2m of operating profit to the Group result. During the period
it has secured some important new design wins with new
customers.
The acquisition of Gould Technology LLC, trading as Gould Fiber
Optics, in the previous financial year has allowed G&H to
strengthen its position as the world leader in fused fibre optic
technology and brought G&H access to strategic US A&D
customers. During the year Gould contributed GBP4.4m of revenue and
GBP0.7m of operating profit to the Group results. However, this was
a level lower than that required to generate payment of the
contingent consideration of $3.4m provided for on acquisition of
the business and this was, therefore, released as a non-underlying
credit to the income statement in the year. The impact of the
avoided earn-out payments on the carrying value of goodwill is
considered in note 17 to the financial statements.
As a result of strong trading in 2018, earn out payments were
made in the year in respect of the StingRay business (GBP2.6m) and
the Kent Periscopes business (GBP1.7m). These payments were the
final amounts due in respect of those two acquisitions.
BALANCE SHEET
The Group's total equity at the end of the year was GBP112.8
million, an increase of GBP3.8 million over the prior year. This
increase comprised GBP0.9m from retained earnings, GBP0.5m from
issues of share capital and a net increase of GBP2.4m from foreign
exchange and other movements.
Additions to property, plant and equipment totalled GBP5.9m. The
additions included investment to provide our facilities with new
capabilities to satisfy our customers' developing needs.
Working capital was 33.9% of revenue in the current year
compared with 28.6% in 2018, due to higher inventory levels as a
result of inventory built in anticipation of the return of market
demand in the industrial lasers market which has been delayed, and
inventory built as a result of the strong multi-year growth of
hi-reliability fibre couplers. Whilst it was consistent with the
prior year, a heavy weighting of shipments towards the end of the
financial year kept accounts receivable high.
Inventory at year end was GBP33.3 million, an increase of GBP7.4
million over the prior year. Excluding the impact of foreign
exchange inventory increased by GBP6.6 million, or 25.5%, in the
year. This movement is expected to partially unwind as trading
levels grow in the coming year.
Trade receivables at year end were GBP31.1 million, a reduction
of GBP1.1 million compared with the prior year. The reduction was
due to the lower trading level albeit the weighting of shipments in
Q4 remained heavy. There has been good cash collection post year
end, albeit we are seeing some overseas customers extending their
payment terms.
Cash balances at 30 September 2019 were GBP17.5 million,
compared with GBP19.4 million in the prior year. Net cash flows
from operating activities totalled GBP11.6 million, compared with
GBP9.2 million last year, reflecting a cash generated from
operations to adjusted operating profit rate of 80% (2018: 63%) as
a result of a lower investment in working capital year-on-year.
During the year net debt increased by GBP3.7 million, of which
GBP1.8 million was as a result of exchange rate movement on the
Group's US$ denominated borrowings.
MOVEMENT IN NET DEBT
All amounts in GBPm Gross Gross Net
Cash Debt Debt
--------------------------------------- ------ ------- -------
At 1 October 2018 19.4 (30.0) (10.6)
Operating cash flows 19.6 - 19.6
Debt repayment - 0.1 0.1
Acquisitions (deferred consideration) (3.9) - (3.9)
Net capital expenditure (5.9) - (5.9)
Working capital (6.6) - (6.6)
Interest, tax and dividends (5.4) - (5.4)
Exchange movement 0.3 (1.9) (1.6)
--------------------------------------- ------ ------- -------
At 30 September 2019 17.5 (31.8) (14.3)
--------------------------------------- ------ ------- -------
PRIOR YEAR RESTATEMENT
In support of the establishment of the Group's three
manufacturing centres, and to enable a better comparison of
operational performance across the Group, the methodology for the
inclusion of overhead costs into inventory values was standardised
in the year. The effect of this standardisation was to increase
inventory values.
In the financial statements for the year the effect of this
standardisation has been applied retrospectively to the prior year
comparators which have been restated. This adjustment has been made
so as not to distort FY19 profitability and is detailed further in
note 2 to the financial statements. The effect in FY19 was not
material.
ORDER BOOK
As at 30 September 2019, the Group order book stood at GBP94.4
million, compared with GBP96.1 million at the end of the 2018
financial year. Excluding foreign exchange the order book was 5%
lower. The book to bill ratio for the business as a whole was 0.98
(six month rolling average) as at 30 September 2019 (2018: 0.95).
This partly reflects the strong shipments in Q4.
STAFF
The Group workforce reduced from 1,007 at 30 September 2018 to
984 at the end of September 2019. The reduction reflects the action
the business has taken to adjust to the lower levels of market
demand in its industrial lasers markets whilst ramping up for
increasing levels of demand in particular for its hi-reliability
fused fibre coupler products.
DIVIDS
The Directors propose a final dividend of 7.2p per share making
a total dividend per share for the year of 11.5p (2018: 11.3p), an
increase of 1.8%. The final dividend, if approved, will be payable
on 28 February 2020 to shareholders on the Company's share register
as at the close of business on 24 January 2020.
KEY PERFORMANCE INDICATORS (KPIs)
The Group's objective is to deliver sustainable, long-term
growth in revenue and profits through the execution of the Board's
strategy.
In striving to achieve these strategic objectives, the main
financial performance measures monitored by the Board are:
Total revenue growth 2019 2018 2017
At actual exchange rates 3% 12% 30%
----- ----- -----
At constant exchange rates - 16% 19%
----- ----- -----
The Board is focused on driving revenue growth by investing both
organically and through acquisitions. The Group's revenue at
constant exchange rate was flat year on year with the downturn in
our key industrial sector offsetting the performance elsewhere in
the business, including from last year's acquisitions.
Target market revenue 2019 2018 2017
A&D (GBPm) 44.2 40.8 34.9
----- ----- -----
Life Sciences (GBPm) 24.1 11.2 9.6
----- ----- -----
The Group's target markets of A&D and Life Sciences provide
a route to sustainable growth, and a more diversified revenue base.
These markets also provide significant opportunities for G&H to
migrate up the value chain from materials and components to higher
value sub-assemblies, modules and systems in response to the trend
for our larger customers to outsource increasingly complex parts of
their business. The increase in A&D revenue includes the full
year effect of last year's acquisition, Gould Fiber Optics in 2018
while the Life Sciences revenue growth includes the full year
effect of the ITL acquisition in 2018. Measured on an organic
constant currency basis A&D revenues increased by 2.4% and Life
Sciences by 18.2%
Net (debt) / cash analysis 2019 2018 2017
Net (debt) / cash (GBPm) (14.3) (10.6) 14.9
------- ------- -----
In order to balance business risk with the investment needs of
the Company, management closely monitors and manages net
(debt)/cash. This year, as a result of earn out payments made for
the acquisition of the StingRay and Kent Periscopes businesses and
the investment in capital equipment and working capital, net debt
increased from GBP10.6m to GBP14.3m. This represents a Net Debt :
Adjusted EBITDA ratio of c. 0.7x.
Earnings per share (EPS) 2019 2018 2017
Adjusted diluted EPS (pence) 46.7p 56.5p 48.5p
------ ------ ------
As a result of the difficult trading environment in the
industrial laser sector, adjusted diluted EPS fell 17.3%, from
56.5p to 46.7p.
Group Income Statement
For the year ended 30 September 2019 (unaudited)
2019 2018
Note GBP000 GBP000
--------- ---------
Revenue 2 129,133 124,883
Cost of revenue (84,231) (74,811)
--------- ---------
Gross profit 44,902 50,072
Research and Development (7,074) (8,229)
Sales and Marketing (8,545) (9,237)
Administration (21,526) (22,317)
Other income and expenses 651 507
--------- ---------
Operating profit 8,408 10,796
Finance income 21 16
Finance costs (2,477) (699)
--------- ---------
Profit before income tax expense 5,952 10,113
Income tax expense 3 (2,191) (2,893)
--------- ---------
Profit for the year 3,761 7,220
--------- ---------
Basic earnings per share 4 15.1p 29.3p
Diluted earnings per share 4 15.0p 29.0p
--------- ---------
Reconciliation of profit before tax to adjusted profit before
tax:
2019 2018
GBP000 GBP000
-------- -------
Profit before tax 5,952 10,113
Amortisation of acquired intangible
assets 3,690 2,141
Adjustment to accrued contingent
consideration (3,075) 417
Impairment of goodwill 6,258 2,708
Site closure costs (382) 1,569
Restructuring costs 1,355 864
Transaction fees - 605
Interest on discounted deferred
consideration 1,218 340
-------- -------
Adjusted profit before tax 15,016 18,757
-------- -------
Group Statement of Comprehensive Income
For the year ended 30 September 2019 (unaudited)
2019 2018
GBP000 GBP000
------- -------
Profit for the year 3,761 7,220
Other comprehensive income - items
that may be reclassified subsequently
to profit or loss
Currency translation differences 2,549 1,657
Other comprehensive income for the
year net of tax 2,549 1,657
Total comprehensive income for the
year attributable to the shareholders
of Gooch & Housego PLC 6,310 8,877
------- -------
Group Balance Sheet
For the year ended 30 September 2019 (unaudited)
Restated(1) Restated(1)
2019 2018 2017
GBP000 GBP000 GBP'000
--------- ------------ ------------
Non-current assets
Property, plant and equipment 39,621 38,320 33,890
Intangible assets 58,598 65,734 40,250
Deferred income tax assets 1,539 1,944 2,703
--------- ------------ ------------
99,758 105,998 76,843
Current assets
Inventories 33,313 25,910 22,543
Income tax assets - - 267
Trade and other receivables 33,190 35,028 24,723
Cash and cash equivalents 17,512 19,433 26,425
84,015 80,371 73,958
Current liabilities
Trade and other payables (22,668) (25,262) (23,758)
Borrowings (77) (75) (6)
Income tax liabilities (1,114) (603) (873)
Provision for other liabilities
and charges (1,243) (988) (888)
Deferred consideration (4,750) (5,774) (4,286)
--------- ------------ ------------
(29,852) (32,702) (29,811)
Net current assets 54,163 47,669 44,147
Non-current liabilities
Borrowings (31,722) (29,964) (11,492)
Deferred income tax liabilities (6,409) (6,322) (5,938)
Deferred consideration (2,947) (8,363) (4,253)
(41,078) (44,649) (21,683)
Net assets 112,843 109,018 99,307
--------- ------------ ------------
Shareholders' equity
Capital and reserves
attributable to equity
shareholders
Called up share capital 5,008 4,982 4,903
Share premium account 16,000 15,530 15,530
Merger reserve 7,262 7,262 4,640
Cumulative translation
reserve 9,780 7,231 5,574
Retained earnings 74,793 74,013 68,660
--------- ------------ ------------
Total equity 112,843 109,018 99,307
--------- ------------ ------------
(1) See note 1 for details
Group Statement of Changes in Shareholders' Equity
For the year ended
30 September 2019
(unaudited)
Note Called Share Cumulative
up share premium Merger Retained translation Total
capital account reserve earnings reserve equity
GBP000 GBP000 GBP000 GBP000 GBP'000 GBP000
----------- ---------- ---------- ----------- -------------- ---------
At 1 October 2017 4,903 15,530 4,640 67,489 5,574 98,136
Restatement 1 - - - 1,171 - 1,171
----------- ---------- ---------- ----------- -------------- ---------
As restated 4,903 15,530 4,640 68,660 5,574 99,307
----------- ---------- ---------- ----------- -------------- ---------
Profit for the
financial
year - - - 7,220 - 7,220
Other comprehensive
income for the year - - - - 1,657 1,657
----------- ---------- ---------- ----------- -------------- ---------
Total comprehensive
income for the year - - - 7,220 1,657 8,877
----------- ---------- ---------- ----------- -------------- ---------
Dividends 5 - - - (2,647) - (2,647)
Shares issued 79 - 2,622 (45) - 2,656
Fair value of
employee
services - - - 675 - 675
Tax credit relating
to share option
schemes - - - 150 - 150
Total contributions
by and distributions
to owners of the
parent recognised
directly in equity 79 - 2,622 (1,867) - 834
At 30 September 2018 4,982 15,530 7,262 74,013 7,231 109,018
At 1 October 2018 4,982 15,530 7,262 74,013 7,231 109,018
Profit for the
financial
year - - - 3,761 - 3,761
Other comprehensive
income for the year - - - - 2,549 2,549
----------- ---------- ---------- ----------- -------------- ---------
Total comprehensive
income for the year - - - 3,761 2,549 6,310
----------- ---------- ---------- ----------- -------------- ---------
Dividends 5 - - - (2,849) - (2,849)
Shares issued 26 470 - (19) - 477
Fair value of
employee
services - - - 191 - 191
Tax debit relating
to share option
schemes - - - (304) - (304)
Total contributions
by and distributions
to owners of the
parent recognised
directly in equity 26 470 - (2,981) - (2,485)
At 30 September 2019 5,008 16,000 7,262 74,793 9,780 112,843
----------- ---------- ---------- ----------- -------------- ---------
Group Cash Flow Statement
For the year ended 30 September 2019 (unaudited)
2019 2018
Note GBP000 GBP000
--------- ---------
Cash flows from operating activities 6
Cash generated from operations 12,967 11,949
Income tax paid (1,321) (2,779)
--------- ---------
Net cash generated from operating
activities 11,646 9,170
--------- ---------
Cash flows from investing activities
Acquisition of subsidiaries, net
of cash acquired (3,940) (24,029)
Disposal of trade and assets - 384
Purchase of property, plant and
equipment (5,792) (5,849)
Sale of property, plant and equipment 1,480 -
Purchase of intangible assets (1,620) (1,377)
Interest received 21 9
Interest paid (1,116) (304)
--------- ---------
Net cash used in investing activities (10,967) (31,166)
--------- ---------
Cash flows from financing activities
Drawdown of borrowings - 17,272
Repayment of borrowings (74) (16)
Dividends paid to ordinary shareholders (2,849) (2,647)
Net cash (used by) / generated
from financing activities (2,923) 14,609
--------- ---------
Net decrease in cash (2,244) (7,387)
Cash at beginning of the year 19,433 26,425
Exchange gains on cash 323 395
--------- ---------
Cash at the end of the year 17,512 19,433
--------- ---------
Notes to the preliminary report
1. Basis of preparation
The unaudited Preliminary Report has been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union and interpretations in issue at 30 September 2019.
The Preliminary Report does not constitute statutory financial
statements within the meaning of section 434 of the Companies Act
2006 and has not been audited.
Comparative figures in the Preliminary Report for the year ended
30 September 2018 have been taken from the Group's audited
statutory financial statements on which the Group's auditors,
PricewaterhouseCoopers LLP, expressed an unqualified opinion. Those
financial statements have been restated as described below.
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2018,
as described in those financial statements, except where newly
applicable accounting standards apply. New standards or
interpretations which came into effect for the current reporting
period, including IFRS 15 "Revenue from contracts with customers"
and IFRS 9 "Financial Instruments", did not have a material impact
on the net assets or results of the Group.
During the year, in order to support the better operation of the
Group's newly formed manufacturing centres, work was completed to
standardise the Group's methodology with respect to the costs of
the business that are absorbed into our inventory values. The
effect of this change has been reflected in a restatement of prior
year comparative figures so as not to distort FY19 profitability.
The effect was to increase inventory by GBP1.5m, tax liabilities by
GBP0.3m and retained earnings by GBP1.2m at both 30 September 2017
and 30 September 2018.
An analyst presentation will be held at 9.30am today at
Buchanan, 107 Cheapside, London, EC2V 6DN.
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 Life Sciences
& Defence / Bio-photonics Industrial Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000
For year ended 30
September 2019
-------------------------- ----------- -----------------
Revenue
Total revenue 44,222 25,130 67,931 - 137,283
Inter and intra-division (19) (1,054) (7,077) - (8,150)
-------------------------- ----------- ----------------- ----------- ---------- ----------
External revenue 44,203 24,076 60,854 - 129,133
Divisional expenses (40,505) (18,538) (49,905) 3,391 (105,557)
-------------------------- ----------- ----------------- ----------- ---------- ----------
EBITDA(1) 3,698 5,538 10,949 3,391 23,576
-------------------------- ----------- ----------------- ----------- ---------- ----------
EBITDA % 8.4% 23.0% 18.0% - 18.3%
Depreciation and
amortisation (1,076) (649) (2,517) (978) (5,220)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit
before amortisation
of acquired intangible
assets and goodwill
impairment 2,622 4,889 8,432 2,413 18,356
Amortisation of acquired
intangible assets
and goodwill impairment - - - (9,948) (9,948)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit 2,622 4,889 8,432 (7,535) 8,408
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit
margin % 5.9% 20.3% 13.9% - 6.5%
-------------------------- ----------- ----------------- ----------- ---------- ----------
Add back non-underlying
items, amortisation
of acquired intangibles
and goodwill impairment 902 194 540 6,210 7,846
Adjusted operating
profit 3,524 5,083 8,972 (1,325) 16,254
-------------------------- ----------- ----------------- ----------- ---------- ----------
Adjusted profit margin
% 8.0% 21.1% 14.7% - 12.6%
-------------------------- ----------- ----------------- ----------- ---------- ----------
Finance costs - - - (2,456) (2,456)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Profit before income
tax expense 2,622 4,889 8,432 (9,991) 5,952
-------------------------- ----------- ----------------- ----------- ---------- ----------
Aerospace Life Sciences
& Defence / Bio-photonics Industrial Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000
For year ended 30
September 2018
-------------------------- ----------- -----------------
Revenue
Total revenue 41,023 11,440 80,363 - 132,826
Inter and intra-division (234) (227) (7,482) - (7,943)
-------------------------- ----------- ----------------- ----------- ---------- ----------
External revenue 40,789 11,213 72,881 - 124,883
Divisional expenses (34,454) (9,189) (59,146) (1,757) (104,546)
-------------------------- ----------- ----------------- ----------- ---------- ----------
EBITDA(1) 6,335 2,024 13,735 (1,757) 20,337
-------------------------- ----------- ----------------- ----------- ---------- ----------
EBITDA % 15.5% 18.1% 18.8% - 16.3%
Depreciation and
amortisation (758) (399) (2,450) (1,085) (4,692)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit
before amortisation
of acquired intangible
assets and goodwill
impairment 5,577 1,625 11,285 (2,842) 15,645
Amortisation of acquired
intangible assets
and goodwill impairment - - - (4,849) (4,849)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit 5,577 1,625 11,285 (7,691) 10,796
-------------------------- ----------- ----------------- ----------- ---------- ----------
Operating profit
margin % 13.7% 14.5% 15.5% - 8.6%
-------------------------- ----------- ----------------- ----------- ---------- ----------
Add back non-recurring
items, amortisation
of acquired intangibles
and goodwill impairment 116 17 1,030 7,141 8,304
Adjusted operating
profit 5,693 1,642 12,315 (550) 19,100
-------------------------- ----------- ----------------- ----------- ---------- ----------
Adjusted profit margin
% 14.0% 14.6% 16.9% - 15.3%
-------------------------- ----------- ----------------- ----------- ---------- ----------
Finance costs - - - (683) (683)
-------------------------- ----------- ----------------- ----------- ---------- ----------
Profit before income
tax expense 5,577 1,625 11,285 (8,374) 10,113
-------------------------- ----------- ----------------- ----------- ---------- ----------
(1)EBITDA = Earnings before interest, tax, depreciation and
amortisation
Management have added back the amortisation of intangibles,
impairment of goodwill, restructuring costs, site closure costs,
charge / release in respect of contingent consideration and
transaction fees in the above analysis. This has been shown because
the Directors consider the analysis to be more meaningful excluding
the impact of these non-recurring expenses.
All of the amounts recorded are in respect of continuing
operations.
2. Segmental analysis (continued)
Analysis of net assets by location:
2019 2019 2019 2018 2018 2018
Assets Liabilities Net Assets Assets Liabilities Net Assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- ------------ ----------- -------- ------------ -----------
United Kingdom 98,624 (57,859) 40,765 93,636 (57,207) 36,429
USA 84,196 (12,933) 71,263 91,522 (20,041) 71,481
Continental
Europe 260 (37) 223 495 (42) 453
Asia Pacific 693 (101) 592 716 (61) 655
-------- ------------ ----------- -------- ------------ -----------
183,773 (70,930) 112,843 186,369 (77,351) 109,018
-------- ------------ ----------- -------- ------------ -----------
For the year to 30 September 2019 non-current asset additions
were GBP5.8m (2018: GBP3.8m) for the UK and for the USA GBP1.7m
(2018: GBP3.6m). There were no additions to non-current assets in
respect of Europe (2018: GBPnil) or the Asia Pacific region (2018:
GBPnil). The value of non-current assets in the USA was GBP58.3m
(2018: GBP62.4m), the United Kingdom GBP41.4m (2018: GBP45.7m) and
Europe GBPnil (2018: GBPnil). There were no non-current assets in
the Asia-Pacific region.
Analysis of revenue by destination:
2019 2018
GBP000 GBP000
-------- --------
United Kingdom 32,054 21,081
North America 50,097 44,899
Continental Europe 25,816 29,788
Asia Pacific and
Other 21,166 29,115
Total revenue 129,133 124,883
-------- --------
3. Income tax expense
Analysis of tax charge in the year
2019 2018
GBP000 GBP000
Current taxation
UK Corporation tax 1,756 1,895
Overseas tax 653 1,381
Adjustments in respect of prior - -
year tax charge
-------- --------
Total current tax 2,409 3,276
-------- --------
Deferred tax
Origination and reversal of temporary
differences (218) 481
Impact of change in the US tax
rate - (864)
-------- --------
Total deferred tax (218) (383)
Income tax expense per income
statement 2,191 2,893
-------- --------
4. 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:
2019 2018
Number of shares used for basic earnings
per share 24,936,438 24,629,591
Dilutive shares 141,696 265,817
Number of shares used for dilutive
earnings per share 25,078,134 24,895,408
----------- -----------
A reconciliation of the earnings used in the earnings per share
calculation is set out below:
2019 2018
pence pence
GBP000 per share GBP000 per share
-------- ----------- ------- -----------
Basic earnings per share 3,761 15.1p 7,220 29.3p
Amortisation of acquired intangible
assets (net of tax) 3,014 12.1p 1,865 7.6p
Goodwill impairment (net of
tax) 5,337 21.4p 2,708 11.0p
(Release) / charge re accrued
contingent consideration (net
of tax) (2,413) (9.7p) 417 1.7p
Site closure costs (net of
tax) (317) (1.3p) 1,210 4.9p
Restructuring costs (net of
tax) 1,084 4.3p 695 2.8p
Transaction fees (net of tax) - - 489 2.0p
Interest on deferred consideration 1,218 4.9p 340 1.4p
One off credit due to US tax
rate change - - (864) (3.5p)
-------- ----------- ------- -----------
Total adjustments net of income
tax expense 7,923 31.7p 6,860 27.9p
-------- ----------- ------- -----------
Adjusted basic earnings per
share 11,684 46.8p 14,080 57.2p
-------- ----------- ------- -----------
Basic diluted earnings per
share 3,761 15.0p 7,220 29.0p
-------- ----------- ------- -----------
Adjusted diluted earnings
per share 11,684 46.7p 14,080 56.5p
-------- ----------- ------- -----------
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.
5. Dividends
2019 2018
GBP000 GBP000
-------- --------
Final 2018 dividend paid in 2019:
7.1p per share (Final 2017 dividend
paid in 2018: 6.5p per share) 1,772 1,608
2019 Interim dividend paid: 4.3p
per share (2018: 4.2p) 1,077 1,039
-------- --------
2,849 2,647
-------- --------
The Directors propose a final dividend of 7.2p per share making
the total dividend paid and proposed in respect of the 2019
financial year 11.5p (2018: 11.3p).
6. Cash generated from operating activities
Reconciliation of cash generated
from operations
2019 2018
GBP000 GBP000
-------- --------
Profit before income tax 5,952 10,113
Adjustments for:
- Amortisation of acquired intangible
assets 3,690 2,141
- Amortisation of other intangible
assets 672 683
- Profit / loss on disposal (741) (384)
- Impairment of goodwill 6,258 2,708
- Adjustment to accrued contingent
consideration (3,075) 417
- Depreciation 4,548 4,009
- Share based payment charge 191 675
- Amounts claimed under the RDEC (350) (370)
- Finance income (21) (16)
- Finance costs 2,477 699
-------- --------
Total 13,649 10,562
Changes in working capital
- Inventories (6,646) (1,295)
- Trade and other receivables 2,729 (7,847)
- Trade and other payables (2,717) 416
Total (6,634) (8,726)
Cash generated from operating activities 12,967 11,949
-------- --------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UGGUCPUPBGBP
(END) Dow Jones Newswires
December 03, 2019 02:00 ET (07:00 GMT)
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