TIDMGHH
RNS Number : 6007O
Gooch & Housego PLC
02 June 2020
2 June 2020
GOOCH & HOUSEGO PLC
("G&H", the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHSED 31 MARCH 2020
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer
of optical components and systems, today announces its interim
results for the six months ended 31 March 2020.
Key Financials
Period ended 31 March H1 2020 H1 2019 Change
Revenue GBP57.5m GBP59.7m (3.8%)
--------- --------- ---------
Adjusted profit before
tax* GBP2.7m GBP5.4m (50.8%)
--------- --------- ---------
Adjusted basic earnings
per share* 8.2p 16.4p (8.2p)
--------- --------- ---------
Net debt excluding IFRS GBP18.5m GBP14.5m GBP4.0m
16
--------- --------- ---------
Net debt including IFRS GBP28.0m GBP14.5m GBP13.5m
16
--------- --------- ---------
Statutory profit before
tax GBP1.7m GBP1.5m 15.6%
--------- --------- ---------
Statutory basic earnings
per share 4.8p 1.1p 3.7p
--------- --------- ---------
Interim dividend per share nil 4.3p (4.3p)
--------- --------- ---------
(*) Adjusted for amortisation of acquired intangible assets and
non-recurring items.
Key points
-- Reflecting previously reported trends and the COVID-19
emergency, revenue declined by 3.8% compared with the same period
last year, or by 4.1% excluding the impact of foreign exchange.
-- COVID-19 reduced manufacturing capacity in H1 but a return to
full manufacturing capacity is expected by the end of Q4
FY2020.
-- Demand for fibre optics, hi-reliability fibre couplers and
our Aerospace & Defence and Life Science capabilities remains
robust. There is improved demand for medical diagnostics and
ventilator systems. Industrial laser demand is at below
'normalised' levels.
-- Order book of GBP91.7m as at 31 March 2020, a reduction of
1.7% compared with same time last year, or 4.9% excluding the
impact of foreign exchange.
-- Adjusted profit before tax of GBP2.7m as a result of reduced volumes and product mix.
-- Measured cost reduction actions implemented towards the end
of the period and good progress on streamlining of manufacturing
sites expected to deliver significant future margin
progression.
-- Group's total committed bank facility increased to $50m with
a further $20m uncommitted acquisition related facility.
-- The Board does not recommend an interim dividend (2019: 4.3p)
and will consider the level of any full year dividend in light of
the full year trading performance and market trading conditions at
that time.
-- Our outlook for the full year remains unchanged.
-- There is substantial growth potential for our photonics
technologies and enhanced system capabilities in all of our target
sectors. As such, the long term prospects of the Company remain
very strong.
Mark Webster, Chief Executive Officer of Gooch & Housego,
commented:
"Trading in the last six months has reflected previously
reported trends and the more recent impact of the COVID-19
emergency.
"In general Japan, South Korea and parts of China saw improved
demand, but there was some order book push out in the USA and
Europe. Western companies are now starting to reopen sites that
were closed.
"G&H is proud that in the US most of our product lines were
considered to be vital for essential services and national security
enabling sites to stay open under "stay at home" orders. All UK
sites remained open, but Torquay operated at reduced capacity in
order to meet social distancing guidelines. Work is being carried
out to enable a return to full capacity at the site by the end of
FY2020.
"Measured cost reductions were put in place in the latter part
of H1, enabling us to retain critical capabilities on a return to
more "normal" trading conditions. Good progress has been made on
the streamlining of our manufacturing base. Both of these
initiatives will deliver significant future margin progression.
"The COVID-19 emergency has validated our long term policy of
diversification and moving up the value chain. We will continue to
pursue this policy through internal investment and, where
appropriate, acquisitions."
Analyst meeting
A conference call for analysts will be held at 9.30am this
morning, 2 June 2020; analysts who require dial-in details, please
contact Buchanan at G&H@buchanan.uk.com
For further information please contact:
Mark Webster / Chris
Gooch & Housego PLC Jewell 01460 256 440
Mark Court / Charlotte
Buchanan Slater 020 7466 5000
Investec Bank plc (Nomad Chris Baird / Patrick
& Broker) Robb / David Anderson 020 7597 5970
Notes to editors
1. Gooch & Housego is a photonics technology business with
operations in the USA and Europe. A world leader in its field, the
company researches, designs, engineers and manufactures advanced
photonic systems, components and instrumentation for applications
in the Aerospace & Defence, Industrial, Life Sciences and
Scientific Research sectors. World leading design, development and
manufacturing expertise is offered across a broad range of
complementary technologies. It is headquartered in Ilminster,
Somerset, UK.
2. This announcement contains certain forward-looking statements
that are based on management's current expectations or beliefs as
well as assumptions about future events. These are subject to risk
factors associated with, amongst other things, the economic and
business circumstances occurring from time to time in the countries
and sectors in which G&H operates. It is believed that the
expectations reflected in these statements are reasonable but they
may be affected by a wide range of variables which could cause
actual results, and G&H's plans and objectives, to differ
materially from those currently anticipated or implied in the
forward-looking statements. Investors should not place undue
reliance on any such statements. Nothing in this announcement
should be construed as a profit forecast.
Operating and Financial Review
COVID-19 Emergency
Our primary concern during the emergency has been the health and
safety of our staff, customers and suppliers. Wherever possible our
employees are working from home and for those that need to work at
our manufacturing sites we have implemented a range of new health
and safety measures to ensure that we rigorously meet social
distancing and cleanliness requirements and other relevant
guidelines and regulations.
Our teams have been exceptionally responsive and agile in this
rapidly developing situation and we have worked hard to ensure we
continue to support our customers' products and programmes, many of
which are classified as essential products and services.
As previously reported two of our US sites, Fremont and
Cleveland were closed in March in compliance with State "stay at
home" orders but are now operating at close to full capacity as
those restrictions have been progressively relaxed.
In the UK all of our five manufacturing sites have remained open
though the unique nature of our Torquay facility is such that it
will need to operate at a reduced capacity in order to adhere to
the Government's COVID-19 guidelines. Work is ongoing to enable a
return to full capacity by the end of FY2020.
The Group implemented a number of measures to control cash and
costs, including taking advantage of the UK Government's
Coronavirus Job Retention Scheme, as well as other tax deferment
arrangements. The Group has been focused on retaining its highly
skilled workforce and maintaining its infrastructure and
capabilities to enable future growth post the COVID-19
emergency.
Performance Overview
Trading conditions in the first six months of our 2020 financial
year were challenging due to the ongoing COVID-19 emergency and the
continuing cyclical downturn in the industrial laser market. The
emergency reduced demand initially from our Asian markets and then
towards the end of the reporting period from our European and North
American markets. The impact of the COVID-19 emergency was most
significantly felt in our Industrial market facing businesses. Our
Life Science and Aerospace & Defence businesses were
substantially unaffected given the nature of the products and
services supplied, as well as the physical characteristics of our
sites from which we supply those markets. However, overall half
year revenue declined by 3.9%, or 4.1% excluding the impact of
foreign exchange.
The demand picture in the industrial laser markets remains below
'normalised' levels, though our fibre optic module and
hi-reliability fibre coupler order book remains strong. We have
started to see recent recovery in the levels of orders from our
Asian customers as that market reopens following lockdown. However,
in Europe and North America customers remain slow to commit to
significant new orders, though we note that customer facilities are
now starting to reopen.
Demand for our Life Sciences and A&D businesses has remained
robust through the COVID-19 emergency and we believe both
businesses will perform in line with management expectations for
the remainder of the current financial year. Our Life Sciences
business delivered revenue growth of 5% in the first half compared
with the prior year. The recently acquired ITL business performed
strongly. In Aerospace & Defence, revenues progressed from the
previous year and important milestones were completed, paving the
way for improvement in profitability levels in that business in the
second half of the current financial year.
Cost reduction measures implemented in the second quarter of the
financial year will deliver an overall reduction in our cost base
for FY2020. We are also progressing with the previously announced
plan to streamline our acousto optic and precision optic
manufacturing which will start to deliver significant benefits in
FY2021. These measures will help deliver a lower and more flexible
cost base for the future.
The order book at 31 March 2020 stood at GBP91.7 m, close to the
order book of GBP93.2m in the prior year. In Q1 order intake
progressed well, up 11.5% compared with Q1 FY2019. This included
recovery in segments of the industrial laser market, such as
semi-conductors, but as the COVID-19 situation developed intake in
Q2 fell 14% below the levels achieved in the first quarter. Overall
the book to bill ratio for the first half was 0.93.
The Board remains confident in the long term growth potential of
the business, but the short term impact of the COVID-19 emergency
remains uncertain. As such, the Board does not recommend an interim
dividend and will consider the level of any final dividend in light
of full year trading performance and market trading conditions at
that time .
REVENUE
Six months ended 2020 2019
31 March
--------------- ---------------
GBP'000 % GBP'000 %
--------------------- -------- ----- -------- -----
Industrial 26,549 46% 29,603 50%
Aerospace & Defence 18,666 33% 18,447 31%
--------------------- -------- ----- -------- -----
Life Sciences 12,239 21% 11,658 19%
--------------------- -------- ----- -------- -----
Group Revenue 57,454 100% 59,708 100%
--------------------- -------- ----- -------- -----
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are
industrial lasers, telecommunications, metrology, sensing and
semiconductor manufacturing. Industrial lasers are used in a
diverse range of precision material processing applications ranging
from microelectronics to automotive.
Performance in our industrial market varied significantly
between subsectors in the first six months of the year. Overall,
sales of products into our industrial markets in the six months to
31 March 2020 were 10.3% lower compared with the equivalent period
last year.
Revenues from the industrial laser market were 17.9% lower, due
to the cyclical downturn in that market and compounded in the
second quarter by the impact of the COVID-19 emergency. Sales to
semiconductor companies grew by 3.9%, evidence of a return of
demand in that sub-sector.
In contrast in telecommunications, revenues grew by 7.6%,
despite the impact of customer and in house constraints on levels
of revenue as the impact of the COVID-19 emergency started to be
felt in the second quarter. Our order book for hi-reliability fibre
couplers for undersea cables remains at record levels for both
FY2020 and FY2021.
Products and Markets - Aerospace & Defence ("A&D")
Product quality, reliability and performance are paramount in
this sector, playing to G&H's strengths, along with our
commitment to provide value. We have solid, well established
positions in target designation and range finding, ring laser and
fibre optic gyroscope navigational systems, infrared and RF
countermeasures, periscopes and sighting systems, opto-mechanical
subsystems used in unmanned aerial vehicles ("UAVs") and space
satellite communications.
The A&D market for G&H is characterised by high-value,
long-term programmes involving the main US and European defence
contractors. This market represents an attractive growth area for
G&H as more applications seek photonics solutions in a sector
with high regulatory and compliance hurdles and challenging
expectations of its equipment.
Our Aerospace & Defence revenue grew by 1.2% during the
first six months of FY2020, compared with the equivalent period
last year. In our Boston site important programme development
milestones were completed which will allow the transition to higher
production volumes for that facility in the second half.
Furthermore we expect to be able to recognise revenue for
additional customer requested development activity completed in H1
FY2020.
Products and Markets - Life Sciences / Biophotonics
G&H's three principal Life Sciences / Biophotonics revenue
streams are derived from diagnostics applications (design,
development and manufacturing services provided to the Life Science
industry, and fibre-optic modules for optical coherence tomography
("OCT") applications), surgery / treatments (electro-optics and
acousto-optics for lasers) and biomedical research (acousto-optics
for microscopy applications). The recent acquisition of the ITL
business, in August 2018, with its system design capability rapidly
accelerates the Company in its strategic intent of moving up the
value chain.
Our Life Sciences / Biophotonics revenue grew by 5% in the six
months to 31 March 2020, compared with the equivalent period last
year. Our ITL business benefited from increased demand for medical
diagnostic kits and a unit which improves respiratory function and
oxygen supply as part of a ventilator system for patients in
critical care, including those with the COVID-19 virus.
Strategy
G&H's strategy is built around the twin pillars of
diversification and moving up the value chain. In order to ensure
its strategic goals are met, management actively looks to invest in
R&D, acquisitions and strategic partnerships.
R&D: In the first six months of the current financial year,
G&H invested GBP4.1 m in targeted research & development.
Our main target areas are a new generation of precision lasers and
laser systems, optical sensing for harsh environments, OCT medical
diagnostics, laser surgery, space satellite communications,
opto-mechanical systems for UAVs and armoured vehicles and laser
directed energy weapons. This investment represented 7.1% of
revenue and is 1.4% higher than the same period last year (2019:
GBP4.0m), demonstrating G&H's continued commitment to investing
in targeted R&D programmes. This commitment continues to bear
fruit, with GBP7.6m of revenue in the half year coming from new
products launched since the beginning of FY 2017. We will continue
to invest in novel cutting edge technologies in order to drive
future growth across all of our target sectors.
Diversification : G&H seeks to develop, through R&D and
acquisition, a presence in new markets that offer the potential for
significant growth as a result of their adoption of photonic
technology, whilst also reducing exposure to cyclicality in any
particular sector. We will continue to invest in our key sectors in
order to ensure we maintain a balanced portfolio and over time
achieve critical mass in Life Sciences and further strengthen our
position in A&D. The acquisition of the ITL business greatly
improved our position in Life Sciences / Biophotonics, which now
represents 21.3% of our business.
Moving up the Value Chain : G&H seeks to move up the value
chain to more complex sub-assemblies and systems through leveraging
its excellence in materials and components, and by providing
photonic design and engineering solutions for our customers. This
will enable G&H to transition from a components supplier to a
solutions provider. A significant proportion of our business in the
Aerospace & Defence market now comes from the sale of
sub-systems rather than discrete components. The proportion of our
business derived from sub-system or system revenues increased from
31.7% in H1 FY2019 to 42.1%, for H1 FY2020. G&H has a world
class capability in opto-mechanical design and this substantially
enhances our ability to offer "end to end" design and manufacturing
solutions to our customers.
As well as continuing to develop a leadership position in space
photonics, the global R&D team is actively engaged in
near-market developments in OCT, fibre lasers and fibre optic
sensing as the Company leverages its components expertise to move
up the value chain in these important areas.
Operations
As previously reported, the Company has launched a project to
streamline its Acousto Optic (AO) and Precision Optic (PO)
manufacturing.
An AO hub is being created at our Fremont, California site,
which will combine the AO capabilities of our Fremont and Ilminster
facilities. Fremont will assume responsibility as the global AO
design authority and lead the Group's AO technological roadmap.
In support of this approach we are in the process of outsourcing
a large proportion of our AO manufacturing with established
contract manufacturers who have facilities in South East Asia. They
will manufacture a significant portion of the Group's AO Q-switches
and other critical industrial laser components, which are currently
manufactured at Ilminster and Fremont. These plans will enable us
to consolidate design, engineering and R&D resources and to
continue to provide high quality, cost competitive products to the
industrial laser market.
Our PO business has strong future growth potential. In order to
fully exploit these opportunities it is important we aspire to lead
in terms of cost, quality and delivery performance. We are,
therefore, in the process of establishing a single UK PO hub at our
Ilminster facility fashioned from our two current PO sites at
Ilminster and Glenrothes. As previously announced, we are
transferring Glenrothes PO manufacturing resources and capabilities
into Ilminster and the Glenrothes site will be closed.
These transfer programmes are expected to be completed during
the second half of FY2021.The total investment is expected to be c.
GBP5m across FY2020 and FY2021 and the one off income statement
impact will be excluded from adjusted profit before tax. Savings
are expected to build over time, with the aim of achieving a
positive benefit in the second half of FY2021 and an annualised
benefit of c. GBP1.25m by FY2022.
During the period the long running legal dispute with the
landlord of the Company's Fremont facility has been concluded in
the Company's favour. The court in California awarded G&H $2m
in damages plus costs and interest arising from the landlord's
non-performance in respect of the lease. The recovery of this
amount is supported by a bond and was therefore judged sufficiently
certain to support the recognition of this receivable in the
Company's balance sheet at 31 March 2020. The elements of the award
that relate to costs and interest have been reflected in the income
statement as non-underlying credits in the period. The $2m damages
have been credited to the Right of Use asset in respect of the
Fremont lease.
Principal Risks and Uncertainties
The principal risks and uncertainties to which the Group is
exposed and our approach to managing those risks are unchanged from
those identified on page 27 of our 2019 Annual Report, except for
the addition of the impact of the COVID-19 emergency which is
discussed above together with the mitigating actions implemented to
respond to this new challenge to the business.
Since the emergence of the COVID-19 crisis additional cashflow
modelling of potential downside scenarios has been implemented in
order to provide early warning of any liquidity risk. As a result
of a strong focus on cash collections and prudent cost containment
measures the Group has seen its cash balances grow since the half
year reporting date. In addition extended funding facilities have
been secured as detailed later in this report. Long term cash flow
projections modelling the impact of an extended downturn, together
with the other principal risks identified by the Group, have been
prepared. These show that the Group would have sufficient funding
available to withstand a plausible downside scenario.
Acquisitions
G&H continues to evaluate various acquisition opportunities
that have the potential to accelerate delivery of the Company's
strategic objectives. Having established a presence in its target
markets, G&H remains focused on moving up the value chain in
each of those markets. Whilst the business will continue to
evaluate bolt-on businesses in our core component technologies,
continued strong focus is being placed on acquisition opportunities
that enhance the Company's ability to wrap electronics and software
around core photonic products to yield system-level solutions.
Building upon the success of the Company's acquisition of the ITL
business in August 2018 the Group has been actively exploring other
businesses in the Life Sciences market albeit this activity has
been paused given the restrictions of the COVID-19 emergency on the
ability to conduct full due diligence of target companies.
Alternative Performance Measures
In the analysis of the Group's financial performance alternative
performance measures are presented to provide readers with
additional information. The interim report includes both statutory
and adjusted non-GAAP financial measures, the latter of which the
Directors believe better reflect the underlying performance of the
business. Items excluded from the adjusted results, together with
their prior period comparatives, are set out below.
In accordance with guidance issued in April 2020 by the European
Securities and Markets Authority the impact of the COVID-19
emergency on the financial results of the Group for the six month
period has not been excluded from the underlying results. Whilst it
is not possible to accurately quantify the impact on the Group's
financial results of reduced demand as a result of the COVID-19
emergency on our customers' businesses, the effect of our site
closures in March was to reduce reported revenues by circa GBP1.1m
and operating profit by circa GBP0.7m.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
Operating Net finance Taxation Profit after Earnings
profit costs tax per share
-------------------- ------------------ ------------------ ------------------ ----------------
Half Year to 31 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
March GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 pence pence
-------------------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Reported 1,861 2,976 (148) (1,494) (519) (1,211) 1,194 271 4.8 1.1
-------------------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Amortisation of
acquired
intangible assets 1,837 1,829 - - (379) (74) 1,458 1,755 5.8 7.0
Restructuring costs 207 639 - - (41) (135) 166 504 0.7 2.0
Site closure costs - (521) - - - 99 - (422) - (1.7)
Impairment of
goodwill - 2,576 - - - - - 2,576 - 10.3
Interest on
discounted
deferred
consideration - - 152 850 - - 152 850 0.6 3.5
Adjustment to
accrued
contingent
consideration - (1,445) - - - - - (1,445) - (5.8)
Interest and fees
awarded
on Fremont lease
litigation (467) - (778) - 316 - (929) - (3.7) -
Adjusted 3,438 6,054 (774) (644) (623) (1,321) 2,041 4,089 8.2 16.4
-------------------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Adjusted profit before tax was GBP2.7m, a reduction of 50.8% on
the prior year (H1 2019: GBP5.4 m). This reduction in profit
reflects lower volumes in our industrial laser market, the delay in
receipt of a customer contract amendment for requested design
changes on one of our significant A&D contracts and the impact
of COVID-19 related site closures towards the end of the reporting
period.
The implementation of IFRS 16 Leases in the reporting period
reduced adjusted profit before tax by GBP0.1m compared with prior
GAAP as depreciation and interest charges exceeded lease rental
payments.
IFRS 16
IFRS 16 - accounting for leases has been adopted in the period.
This new standard introduces the principle that all leased assets
should be reported on the balance sheet of the lessee, recognising
an asset for the right to use the leased item and a liability for
the present value of its future lease payments. This resulted in
the recognition of a right of use assets of GBP9.8m and a lease
liability of GBP9.6m on 1 October 2019. It has resulted in an
increase to the deprecation charge of GBP0.9m, an increase in
finance charges of GBP0.2m and a corresponding decrease in
operating lease rentals of GBP1.0m.
Cash Flow and Financing
In the six months to 31 March 2020, G&H generated cash from
operations of GBP7.9m, compared with GBP5.0m in the same period of
2019. Inventory has increased by GBP1.9m since the year end. This
increase was principally in our Torquay facility where inventory
levels were inflated due to the impact of the temporary partial
site closure in the final week of March 2020 whilst the facility
was reconfigured to comply with Government COVID-19 guidelines. As
expected, the year end trade receivables position has unwound and
is GBP9.1m lower as at 31 March 2020.
Capital expenditure on property, plant and equipment was GBP2.8m
in the period (2019: GBP2.8m). Significant investments were made in
new advanced coating and polishing capabilities for our Precision
Optics business. Expenditure on upgrading our ERP system of GBP0.3m
is included in intangible capital expenditure.
Cash balances stood at GBP14.0m at 31 March 2020, a reduction of
GBP3.5m from the end of the previous financial year.
Including the impact of IFRS 16 - Leases total net debt at the
end of March 2020 stood at GBP28.0m. Excluding the impact of the
new accounting standard net debt stood at GBP18.5m, up from
GBP14.3m at 30 September 2019, following the payment of the first
ITL earn out amount.
Shortly following the end of the half year reporting period the
Company extended its Revolving Credit Facility by $10m to $50m with
a further $20m uncommitted flexible acquisition facility.
Board Changes
As previously announced our Chief Operating Officer, Alex
Warnock, left the Group on the 8 November 2019. We wish him well
for his future endeavours. Alex has not been replaced and the three
manufacturing heads now report directly to the CEO.
We also reported with great sadness the passing of David
Bauernfeind, a Non-Executive Director and Audit Committee Chair, in
a tragic accident on 26 December 2019 whilst on holiday with his
family. David was hugely liked and we miss him sorely. Our thoughts
are with his family and loved ones.
We recently announced that Louise Evans has been appointed to
the Company's Board as a Non-Executive Director and Chair of the
Audit Committee, with effect from 11 May 2020 and are sure she will
m ake a valuable contribution to the continuing progress of the
Group .
Dividends
The short term impact of the COVID-19 emergency remains
uncertain. As such the Board does not recommend an interim dividend
(2019:4.3p) and will consider the level of any final dividend in
light of full year trading performance and prevailing market
conditions.
Prospects and outlook
Trading reflected previously reported trends and the impact of
the COVID-19 emergency. Our order book for fibre optics, hi-
reliability fibre couplers and our A&D and life science
capabilities remains robust. Though semiconductor orders displayed
some growth overall demand for critical components for industrial
lasers remained at below "normalised" levels. New precision laser
based manufacturing techniques and the widespread adoption of 5G
technology will drive growth in this sector.
Demand from the Far East has started to grow, though in US and
Europe there have been limited signs of growth in H1. We are though
starting to see some of our customers' manufacturing sites that
were shut reopen. Our six US manufacturing sites are now fully
open. In the UK all sites are open, but our Torquay site will not
be at full capacity until the end of FY2020. Our Shanghai facility
is fully open.
The short term impact of the COVID-19 emergency is uncertain,
but the Company has been responsive and agile in a rapidly
developing situation and we are working hard to ensure we continue
to support our customers' products and programmes, many of which
are classified as essential products and services. We have put in
place measured cost reductions and have continued to make progress
on the streamlining of our manufacturing sites, both of which will
deliver significant future margin progression.
The outlook for the current year remains unchanged.
There is substantial growth potential for our photonics
technologies and enhanced system capabilities in all of our target
sectors. As such, the long term prospects of the Company remain
very strong.
G&H's balance sheet and finances remain robust.
The Company remains committed to further diversification and
moving up the value chain. We will continue to invest in R&D
and where appropriate make acquisitions to meet these strategic
objectives.
Mark Webster Chris Jewell
Chief Executive Officer Chief Financial Officer
2 June 2020
Unaudited interim results for the 6 months ended 31 March
2020
Group Income Statement Half Year Half Year Full Year
to to to
31 Mar 2020 31 Mar 2019 30 Sep 2019
Note (Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- -------------
Revenue 5 57,454 59,708 129,133
Cost of revenue (40,929) (39,512) (84,231)
-------------- -------------- -------------
Gross profit 16,525 20,196 44,902
Research and Development (3,829) (3,552) (7,074)
Sales and Marketing (3,982) (4,554) (8,545)
Administration (7,510) (10,378) (21,526)
Other income and expenses 657 1,264 651
-------------- -------------- -------------
Operating profit 5 1,861 2,976 8,408
Net finance costs (148) (1,494) (2,456)
-------------- -------------- -------------
Profit before income tax
expense 1,713 1,482 5,952
Income tax expense 6 (519) (1,211) (2,191)
-------------- -------------- -------------
Profit for the period 1,194 271 3,761
Basic earnings per share 7 4.8p 1.1p 15.1p
-------------- -------------- -------------
Reconciliation of profit before tax to adjusted profit before
tax:
Half Year Half Year Full Year
to to to 30 Sep
2019
31 Mar 2020 31 Mar 2019 (Audited)
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Profit before tax 1,713 1,482 5,952
Amortisation of acquired
intangible assets 1,837 1,829 3,690
Restructuring costs 207 639 1,355
Interest on discounted deferred
consideration 152 850 1,218
Costs awarded on Fremont (467) - -
litigation
Interest awared on Fremont (778) - -
litigation
Adjustment to accrued contingent
consideration - (1,445) (3,075)
Impairment of goodwill - 2,576 6,258
Site closure costs - (521) (382)
Adjusted profit before tax 2,664 5,410 15,016
-------------- -------------- ------------
Group Statement of Comprehensive Half Year Half Year Full Year
Income to to to 30 Sep
2019
31 Mar 31 Mar 2019 (Audited)
2020
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Profit for the period 1,194 271 3,761
Other comprehensive (expense)
/ income
Currency translation differences (486) 11 2,549
-------------- -------------- ------------
Other comprehensive (expense)
/ income for the period (486) 11 2,549
Total comprehensive income for
the period 708 282 6,310
-------------- -------------- ------------
Unaudited interim results for the 6 months ended 31 March
2020
Group Balance Sheet 31 Mar 2020 31 Mar 2019 30 Sep 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Non-current assets
Property, plant and equipment 39,835 37,942 39,621
Right of use assets 7,967 - -
Intangible assets 57,037 62,146 58,598
Deferred tax assets 1,917 1,725 1,539
-------------- -------------- ------------
106,756 101,813 99,758
Current assets
Inventories 35,208 27,570 33,313
Trade and other receivables 26,802 29,205 33,190
Cash and cash equivalents 14,030 15,566 17,512
76,040 72,341 84,015
Current liabilities
Trade and other payables (16,277) (19,778) (22,668)
Borrowings (63) (76) (77)
Lease liabilities (1,844) - -
Tax liabilities (1,706) (491) (1,114)
Provision for other liabilities
and charges (1,628) (1,445) (1,243)
Deferred consideration (3,098) (6,059) (4,750)
-------------- -------------- ------------
(24,616) (27,849) (29,852)
Net current assets 51,424 44,492 54,163
-------------- -------------- ------------
Non-current liabilities
Borrowings (32,419) (30,009) (31,722)
Lease liabilities (7,690) - -
Deferred tax liabilities (6,238) (6,602) (6,409)
Deferred consideration - (2,806) (2,947)
(46,347) (39,417) (41,078)
Net assets 111,833 106,888 112,843
-------------- -------------- ------------
Shareholders' equity
Capital and reserves
attributable to equity
shareholders
Called up share capital 5,008 5,008 5,008
Share premium account 16,000 16,000 16,000
Merger reserve 7,262 7,262 7,262
Cumulative translation
reserve 9,294 7,242 9,780
Retained earnings 74,269 71,376 74,793
-------------- -------------- ------------
Equity Shareholders' Funds 111,833 106,888 112,843
-------------- -------------- ------------
Unaudited interim results for the 6 months ended 31 March
2020
Statement of Changes in Share Share Cumulative
Equity capital premium Merger Retained translation Total
account account reserve earnings reserve equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------- --------- --------- ----------- ------------- ---------
At 1 October 2018 4,982 15,530 7,262 72,842 7,231 107,847
Profit for the period - - - 271 - 271
Other comprehensive expense
for the period - - - - 11 11
--------- --------- --------- ----------- ------------- ---------
Total comprehensive income
for the period - - - 271 11 282
--------- --------- --------- ----------- ------------- ---------
Dividends - - - (1,767) - (1,767)
Proceeds from shares issued 26 470 - (19) - 477
Fair value of employee
services - - - 338 - 338
Tax debit relating to
share option schemes - - - (289) - (289)
At 31 March 2019 (unaudited) 5,008 16,000 7,262 71,376 7,242 106,888
At 1 October 2019 5,008 16,000 7,262 74,793 9,780 112,843
Profit for the period - - - 1,194 - 1,194
Other comprehensive expense
for the period - - - - (486) (486)
--------- --------- --------- ----------- ------------- ---------
Total comprehensive income
/ (expense) for the period - - - 1,194 (486) 708
--------- --------- --------- ----------- ------------- ---------
Dividends - - - (1,803) - (1,803)
Fair value of employee
services - - - 85 - 85
At 31 March 2020 (unaudited) 5,008 16,000 7,262 74,269 9,294 111,833
--------- --------- --------- ----------- ------------- ---------
Unaudited interim results for the 6 months ended 31 March
2020
Group Cash Flow Statement Half Year Half Year Full Year
to to to 30 Sep
2019
31 Mar 31 Mar (Audited)
2020 2019
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Cash flows from operating activities
Cash generated from operations 7,885 5,029 12,967
Income tax paid (397) (628) (1,321)
-------------- -------------- ------------
Net cash generated from operating
activities 7,488 4,401 11,646
-------------- -------------- ------------
Cash flows from investing activities
Acquisition of subsidiaries,
net of cash acquired (4,750) (3,906) (3,940)
Purchase of property, plant
and equipment (2,794) (2,799) (5,792)
Sale of property, plant and
equipment - 1,480 1,480
Purchase of intangible assets (665) (791) (1,620)
Interest received 26 9 21
Interest paid (662) (518) (1,116)
-------------- -------------- ------------
Net cash used in investing
activities (8,845) (6,525) (10,967)
-------------- -------------- ------------
Cash flows from financing activities
Drawdown of revolving credit 779 - -
facility
Repayment of borrowings (31) (37) (74)
Repayment of lease liabilities (983) - -
Dividends paid to ordinary
shareholders (1,803) (1,733) (2,849)
Net cash used in financing
activities (2,038) (1,770) (2,923)
-------------- -------------- ------------
Net decrease in cash (3,395) (3,894) (2,244)
Cash at beginning of the period 17,512 19,433 19,433
Exchange (losses) / gains on
cash (87) 27 323
-------------- -------------- ------------
Cash at the end of the period 14,030 15,566 17,512
-------------- -------------- ------------
Notes to the Group Cash Half Year Half Year Full Year
Flow Statement to to to
31 Mar 2020 31 Mar 2019 30 Sep 2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Profit before income tax 1,713 1,482 5,952
Adjustments for:
- Amortisation of acquired
intangible assets 1,837 1,829 3,690
- Amortisation of other
intangible assets 185 54 672
- Profit on disposal of
the Orlando building - (902) (741)
* Impairment of goodwill - 2,576 6,258
- Adjustment to accrued
contingent consideration - (1,445) (3,075)
- Depreciation 3,270 2,224 4,548
- Share based payment obligations 85 338 191
- Amounts claimed under
the RDEC (195) (195) (350)
- Finance income (791) (5) (21)
- Finance costs 939 1,499 2,477
-------------- -------------- -------------
Total adjustments 5,330 5,973 13,649
Changes in working capital
- Inventories (2,130) (3,122) (6,646)
- Trade and other receivables 8,655 5,828 2,729
- Trade and other payables (5,683) (5,132) (2,717)
Total changes in working
capital 842 (2,426) (6,634)
Cash generated from operating
activities 7,885 5,029 12,967
-------------- -------------- -------------
Reconciliation of net cash flow to movements in net debt
Half Year Half Year Full Year
to to to
31 Mar 2020 31 Mar 2019 30 Sep
2019
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Decrease in cash in the
period (3,395) (3,894) (2,244)
Borrowings (779) - -
Repayment of borrowings 1,014 37 74
Changes in net debt resulting
from cash flows (3,160) (3,857) (2,170)
Adoption of IFRS16 (9,616) - -
Non cash movements (1,110) - -
Translation differences 186 (56) (1,511)
-------------- -------------- ------------
Movement in net debt in
the period / year (13,700) (3,913) (3,681)
Net debt at start of period (14,287) (10,606) (10,606)
Net debt at end of period (27,987) (14,519) (14,287)
-------------- -------------- ------------
Analysis of net debt
At 1 Adoption Cash Exchange Non-cash At 31
Oct 2019 of IFRS16 flow movement movement Mar
2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- -------- ---------- ---------- ----------
Cash at bank and
in hand 17,512 - (3,395) (87) - 14,030
Due within one year
Debt (62) - 31 - (32) (63)
Lease liabilities (15) (1,517) 983 34 (1,329) (1,844)
Due after one year
Debt (31,719) - (779) 185 (106) (32,419)
Lease liabilities (3) (8,099) - 54 357 (7,691)
Net debt (14,287) (9,616) (3,160) 186 (1,110) (27,987)
---------- ----------- -------- ---------- ---------- ----------
Notes to the Interim Report
1. Basis of Preparation
The unaudited Interim Report has been prepared under the
historical cost convention and in accordance with International
Financial Reporting Standards ("IFRS"), as adopted by the European
Union.
Since the emergence of the COVID-19 crisis additional cashflow
modelling of potential downside scenarios has been implemented in
order to provide early warning of any liquidity risk. As a result
of a strong focus on cash collections and prudent cost containment
measures the Group has seen its cash balances grow since the half
year reporting date. In addition extended funding facilities have
been secured as detailed later in this report. Long term cash flow
projections modelling the impact of an extended downturn, together
with the other principal risks identified by the Group, have been
prepared. These show that the Group would have sufficient funding
available to withstand a plausible downside scenario, and therefore
the financial statements have been prepared on a going concern
basis.
The Interim Report was approved by the Board of Directors and
the Audit Committee on 2 June 2020. The Interim Report does not
constitute statutory financial statements within the meaning of the
Companies Act 2006 and has not been audited.
Comparative figures in the Interim Report for the year ended 30
September 2019 have been taken from the Group's audited statutory
financial statements on which the Group's auditors,
PricewaterhouseCoopers LLP, expressed an unqualified opinion. The
comparative figures to 31 March 2019 are unaudited.
The Interim Report will be announced to all shareholders on the
London Stock Exchange and published on the Group's website on 2
June 2020. Copies will be available to members of the public upon
application to the Company Secretary at Dowlish Ford, Ilminster,
Somerset, TA19 0PF.
The accounting policies adopted are consistent with those of the
annual financial statements for the year ended 30 September 2019,
as described in those financial statements.
2. Application of IFRS - Adoption of new standards
In preparing the interim financial statements, the Group has
adopted IFRS16 ("Leases") for the first time. This standard
provides a single lease accounting model, requiring lessees to
recognise assets and liabilities for all leases unless the lease
term is 12 months or less, or the underlying asset has a low
value.
The effect of adopting IFRS16 at 1 October 2019 was to increase
right of use assets by GBP9.8m and lease liabilities by GBP9.6m.
The lease liability was higher than the range given in the 2019
Annual Report (GBP8.25m to GBP9.25m), because of developments
regarding certain lease renewals which occurred since the initial
estimate was made. The effect on profit before tax for the period
ended 31 March 2020 was a reduction of GBP0.2m, representing the
increase in depreciation and interest charges over the cash lease
cost.
The leases have been considered as a single transaction in which
the asset and liability are integrally linked at inception.
Therefore no temporary difference arose on adoption of IFRS16, and
no deferred tax was recognised. Where temporary differences have
subsequently arisen on the settlement on the liability and the
depreciation of the leased asset, deferred tax has been
recognised.
The inclusion of the lease liabilities increased net debt by
GBP9.5m as at 31 March 2020.
3. Estimates
The preparation of interim financial statements requires
management to make estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may
differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgments made by management in
applying the Company's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 30 September
2019.
4. Financial risk management
The Company's activities expose it to a variety of financial
risks, market risk (including currency risk, cash flow interest
rate risk and price risk), credit risk and liquidity risk.
The interim condensed consolidated financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements and should be read in
conjunction with the Company's annual financial statements as at 30
September 2019. There have been no changes to the risk management
policies since the year end.
5. Segmental analysis
Aerospace Life Sciences
& Defence / Biophotonics Industrial Corporate Total
For half year to 31 March GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2020
Revenue
Total revenue 18,666 12,794 29,264 - 60,724
Inter and intra-division - (555) (2,715) - (3,270)
------------------------------- ----------- ---------------- ----------- ---------- ---------
External revenue 18,666 12,239 26,549 - 57,454
Divisional expenses (17,453) (9,416) (24,331) 899 (50,301)
------------------------------- ----------- ---------------- ----------- ---------- ---------
EBITDA(1) 1,213 2,823 2,218 899 7,153
EBITDA % 6.5% 23.1% 8.4% - 12.4%
Depreciation and amortisation (992) (391) (1,704) (368) (3,455)
------------------------------- ----------- ---------------- ----------- ---------- ---------
Operating profit before
amortisation of acquired
intangible assets 221 2,432 514 531 3,698
Amortisation of acquired
intangible assets - - - (1,837) (1,837)
------------------------------- ----------- ---------------- ----------- ---------- ---------
Operating profit 221 2,432 514 (1,306) 1,861
Operating profit margin
% 1.2% 19.9% 1.9% - 3.2%
------------------------------- ----------- ---------------- ----------- ---------- ---------
Add back non-recurring
items 70 2 37 1,468 1,577
Operating profit excluding
non-recurring items 291 2,434 551 162 3,438
------------------------------- ----------- ---------------- ----------- ---------- ---------
Adjusted operating profit
margin % 1.6% 19.9% 2.1% - 6.0%
------------------------------- ----------- ---------------- ----------- ---------- ---------
Aerospace Life Sciences
& Defence / Biophotonics Industrial Corporate Total
For half year to 31 March GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2019
Revenue
Total revenue 18,451 12,044 33,107 - 63,602
Inter and intra-division (4) (386) (3,504) - (3,894)
------------------------------- ----------- ---------------- ----------- ---------- ---------
External revenue 18,447 11,658 29,603 - 59,708
Divisional expenses (17,245) (9,374) (26,416) 2,986 (50,049)
------------------------------- ----------- ---------------- ----------- ---------- ---------
EBITDA(1) 1,202 2,284 3,187 2,986 9,659
EBITDA % 6.5% 19.6% 10.8% - 16.2%
Depreciation and amortisation (460) (303) (1,248) (267) (2,278)
------------------------------- ----------- ---------------- ----------- ---------- ---------
Operating profit before
amortisation of acquired
intangible assets 742 1,981 1,939 2,719 7,381
Amortisation of acquired
intangible assets - - - (4,405) (4,405)
------------------------------- ----------- ---------------- ----------- ---------- ---------
Operating profit 742 1,981 1,939 (1,686) 2,976
Operating profit margin
% 4.0% 17.0% 6.6% - 5.0%
------------------------------- ----------- ---------------- ----------- ---------- ---------
Add back non-recurring
items 454 30 235 2,360 3,079
Operating profit excluding
non-recurring items 1,196 2,011 2,174 674 6,055
------------------------------- ----------- ---------------- ----------- ---------- ---------
Adjusted operating profit
margin % 6.5% 17.2% 7.3% - 10.1%
------------------------------- ----------- ---------------- ----------- ---------- ---------
(1)EBITDA = Earnings before interest, tax, depreciation and
amortisation .
All of the amounts recorded are in respect of continuing
operations.
5. Segmental analysis continued
Analysis of revenue by destination
Half year Half year
to to
31 Mar 2020 31 Mar 2019
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------- -------------
United Kingdom 16,335 15,121
North & South America 21,085 21,595
Continental Europe 12,092 12,412
Asia-Pacific 7,942 10,580
57,454 59,708
------------- -------------
6. Tax expense
Analysis of tax charge in the period
Half Year Half Year Full Year
to to to 30 Sep
2019 (Audited)
31 Mar 2020 31 Mar
2019
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
--------------
Current taxation
UK Corporation tax 154 917 1,756
Overseas tax 896 262 653
Total current tax 1,050 1,179 2,409
Deferred tax
Origination and reversal of temporary
differences (531) 32 (218)
Total deferred tax (531) 32 (218)
Tax expense per income statement 519 1,211 2,191
The tax charge for the six months ended 31 March 2020 is based
on the estimated effective rate of the tax for the Group for the
full year to 30 September 2020. The estimated rate is applied to
the profit before tax.
The adjusted effective tax rate is 23.4% (H1 2019: 24.4%).
7. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on
the profit for the period using as a divisor the weighted average
number of Ordinary Shares in issue during the period. The weighted
average number of shares is given below.
Half Year Half Year Full Year
to to to 30 Sep
2019
31 Mar 2020 31 Mar (Audited)
2019
(Unaudited) (Unaudited)
No. No. No.
-------------- -------------- ------------
Number of shares used for basic
earnings per share 25,039,260 24,926,574 24,936,438
Dilutive shares 97,615 208,823 141,696
Number of shares used for dilutive
earnings per share 25,136,875 25,135,397 25,078,134
-------------- -------------- ------------
A reconciliation of the earnings used in the earnings per share
calculation is set out below:
Half Year Half Year Full Year
to to to
31 Mar 2020 31 Mar 2019 30 Sep 2019
(Unaudited)
(Unaudited) (Audited)
p per p per p per
GBP'000 share GBP'000 share GBP'000 share
-------- ------- -------- ------- -------- -------
Basic earnings per share 1,194 4.8p 271 1.1p 3,761 15.1p
Adjustments net of income
tax expense:
Amortisation of acquired
intangible assets 1,458 5.8p 1,755 7.0p 3,014 12.1p
Goodwill impairment - - 2,576 10.3p 5,337 21.4p
Adjustment to accrued contingent
consideration - - (1,445) (5.8p) (2,413) (9.7p)
Site closure costs - - (422) (1.7p) (317) (1.3p)
Restructuring costs 166 0.7p 504 2.0p 1,084 4.3p
Interest on discounted deferred
consideration 152 0.6p 850 3.5p 1,218 4.9p
Interest and costs awarded
on Fremont litigation (929) (3.7p) - - - -
Total adjustments net of
income tax expense 847 3.4p 3,818 15.3p 7,923 31.7p
Adjusted basic earnings per
share 2,041 8.2p 4,089 16.4p 11,684 46.8p
-------- ------- -------- ------- -------- -------
Basic diluted earnings per
share 1,194 4.7p 271 1.1p 3,761 15.0p
Adjusted diluted earnings
per share 2,041 8.1p 4,089 16.3p 11,684 46.7p
------ ----- ------ ------ ------- ------
Adjusted earnings per share before amortisation of acquired
intangible assets and adjustments has been shown because, in the
opinion of the Directors, it more accurately reflects the trading
performance of the Group.
8. Dividend
The Directors have not declared an interim dividend for the half
year ended 31 March 2020.
Half Year Half Year Full Year
to to to 30 Sep
2019
31 Mar 2020 31 Mar (Audited)
2019
(Unaudited) (Unaudited)
GBP'000 GBP'000 GBP'000
-------------- -------------- ------------
Final 2019 dividend paid: 7.2p 1,803 - -
per share
Final 2018 dividend paid: 7.1p
per share - 1,733 1,772
2019 Interim dividend paid :
4.3p per share - - 1,077
-------------- -------------- ------------
1,803 1,733 2,849
-------------- -------------- ------------
9. Borrowings
The group's banking facilities with NatWest Bank were renewed in
April 2020 and now comprise a committed revolving credit facility
of $50m and an uncommitted flexible acquisition facility of $20m
both available until 30 April 2023.
The revolving credit facility attracts an interest rate of
between 1.4% and 1.9% above LIBOR dependent upon the Company's
leverage ratio.
10. Called up share capital
31 Mar 2020 30 Sep 2019 31 Mar 2020 30 Sep 2019
No. No. GBP'000 GBP'000
------------
Allotted, issued and fully
paid
Ordinary share of 20p
each 25,040,919 25,039,072 5,008 5,008
------------- ------------- ------------ ------------
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
IR DFLFBBQLLBBZ
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