REG - Gooch & Housego PLC - Interim Results
04/06/2024 07:00
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RNS Number : 9375Q Gooch & Housego PLC 04 June 2024
4 June 2024
GOOCH & HOUSEGO PLC
("G&H", the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2024
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 2024.
Key Financials
(Continuing operations)
Period ended 31 March H1 2024 H1 2023 ^
Revenue* £63.6m £64.5m
Adjusted profit before tax* £2.6m £4.7m
Adjusted basic earnings per share* 8.3p 15.1p
Net debt excluding IFRS 16 £22.2m £12.9m
Net debt including IFRS 16 £30.4m £19.2m
Statutory profit before tax £0.3m £3.6m
Statutory basic earnings per share (34.8p) 10.9p
Interim dividend per share 4.9p 4.8p
*Adjusted for amortisation of acquired intangible assets and non-recurring
items
^ Re-presented for discontinued operations
Key Highlights
§ Important building blocks put in place to support the delivery of the
Group's strategic plan.
§ Revenue from continuing operations declined 1.4% to £63.6m (H1 2023:
£64.5m) or 5.3% on an organic constant currency basis reflecting customer
destocking in our industrial and medical laser markets.
§ EM4 business divested representing an important milestone in reshaping the
Group's portfolio. Financials re-presented to treat its trading as
discontinued operations.
§ Adjusted operating profit from continuing operations of £3.8m (H1 2023:
£5.4m).
§ The integration of GS Optics and Artemis into the Group is proceeding to
plan. Commercial synergies are being realised.
§ Order book remains strong at £115.8m (Sept 2023: £115.3m) and continues
to grow, substantially de-risking H2 revenue.
§ Full year expectations are unchanged; execution risks to H2 remain but have
been reduced.
Charlie Peppiatt, Chief Executive Officer of Gooch & Housego, commented:
"Despite the reduced demand in our industrial and medical laser markets
persisting longer than expected, the medium term outlook remains positive
underpinned by a strong order book and healthy pipeline with the Group well
positioned to benefit from increased demand levels as a result of operational
and supply chain improvements.
"The market dynamics for G&H's technologies and capabilities remains
strong in all our target sectors supported by the focused progress the Group
has made to establish the foundations to accelerate the delivery of our
strategy."
Analyst meeting
A meeting for analysts will be held at 10.30 a.m. today at the offices of
Buchanan, 107 Cheapside, London EC2V 6DN. To register attendance, please
contact Buchanan at G&H@buchanan.uk.com (mailto:G&H@buchanan.uk.com) .
A live audio webcast of the meeting will be available via the following link:
https://stream.buchanan.uk.com/broadcast/663c7e38f309b09a38728804
(https://stream.buchanan.uk.com/broadcast/663c7e38f309b09a38728804)
Following the meeting, a recording of the webcast will be made available for
replay at the Group's website at https://gandh.com/investors/
(https://gandh.com/investors/) .
For further information please contact:
Charlie Peppiatt, Chief Executive Officer Gooch & Housego PLC +44 (0) 1460 256440
Chris Jewell, Chief Financial Officer
Mark Court / Sophie Wills / Abigail Gilchrist Buchanan +44 (0) 20 7466 5000
G&H@buchanan.uk.com (mailto:G&H@buchanan.uk.com)
Christopher Baird / David Anderson Investec Bank plc +44 (0) 20 7597 5970
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 and Defence, Industrial and
Telecom, and Life Sciences sectors. World leading design, development and
manufacturing expertise is offered across a broad range of complementary
technologies. It is headquartered in Ilminster, Somerset, UK.
2. This announcement contains certain forward-looking statements that are
based on management's current expectations or beliefs as well as assumptions
about future events. These are subject to risk factors associated with,
amongst other things, the economic and business circumstances occurring from
time to time in the countries and sectors in which G&H operates. It is
believed that the expectations reflected in these statements are reasonable
but they may be affected by a wide range of variables which could cause actual
results, and G&H's plans and objectives, to differ materially from those
currently anticipated or implied in the forward-looking statements. Investors
should not place undue reliance on any such statements. Nothing in this
announcement should be construed as a profit forecast.
Operating and Financial Review
Performance Overview
Revenue from the Group's continuing operations for the six-month period
totalled £63.6m (2023: £64.5m) representing a 1.4% decline over the strong
prior year comparator period, or 5.3% on an organic, constant currency basis.
The Group's trading in the first half of the financial year was impacted by
the previously reported significant destocking on the part of many of our
industrial and medical laser customers. We expect volumes to recover in the
early part of FY2025.
The Group completed the divestment of its EM4 business towards the end of the
reporting period. The EM4 business manufactured optoelectronic components and
laser modules primarily for the US A&D market. Its sale was an important
step on the Group's journey to delivering sustainable margin growth and to
consolidating our A&D activities into areas where we can offer
differentiated products to our customers.
Our six-month financial results and those for the comparative periods have
been presented as continuing operations, excluding the results of the divested
business. Continuing operations include the results of GS Optics and Artemis
Optical which were both acquired in the second half of the last financial
year. We have, therefore, also disclosed the organic revenue performance of
the Group where appropriate to enable like for like comparison to the prior
period.
In the first half of the financial year revenue in to our Industrial market
declined by 13.1%. As previously reported, this was driven by a reduction in
demand from our Industrial laser customers who are correcting their inventory
levels as well as from some of our semiconductor equipment customers. Volumes
declined in to the more established areas of the semiconductor infrastructure
market although there was growth in our revenue from the more advanced deep
and extreme ultra violet lithography equipment sub market. We expect
deliveries into these next generation semiconductor platforms to continue to
grow in the coming reporting periods. Revenue in the comparator period had
been partially supported by the Group's work to reduce its levels of past due
backlog, activity which had been substantially completed by the end of the
last financial year.
Partially offsetting the reductions in semiconductors and industrial lasers,
revenue in our telecoms markets and in particular the subsea data cable market
grew. We are seeing additional demand from one of our long standing customers
in this market space as they win new cable laying projects and we were pleased
to secure an important new customer in this market. Deliveries to this new
customer for a complex fibre optic module are expected to commence in the
second half of this financial year. These modules will be built in our Torquay
facility and in order to provide the production space needed for this new
product line we are continuing to outsource production of our hi-reliability
fused couplers to our Asian contract manufacturing partner.
In our Life Sciences market some of our larger medical laser customers are
also working to reduce their inventory holdings and consequently Group revenue
from these customers declined compared to the prior period. However, revenues
into the medical diagnostic market grew thanks to two significant diagnostic
instrument programmes progressing through regulatory approvals into volume
production. End demand for our customers' new instruments is reported to be
strong and we, therefore, expect these programmes to provide good revenue
streams for the Group through the medium term.
Our engineering team in Ashford is developing and assisting with the
accreditation of other customers' diagnostic instruments which we expect to
also migrate in to production in the medium term. At the same time the Group
has substantially completed the build out of additional R&D and production
space in the recently acquired GS Optics business in Rochester, NY, which will
form our Life Sciences centre of excellence for the North American market,
mirroring the capabilities that we currently offer from our G&H|ITL
facility in Ashford, Kent. This new facility has already secured ISO 13485
medical device manufacture accreditation. We expect this to allow us to secure
better access to the large North American medical diagnostic market.
In our Aerospace & Defence market we saw strong growth in demand for our
precision optic components that are used in ring laser gyros in both
commercial and military guidance systems. This is driven by increased military
spending in part owing to the Ukraine conflict underpinned by solid demand
from the commercial aerospace sector.
Our deliveries to the space and armoured vehicles market declined a little
compared with the prior year as a result of programme delivery requirements
but in the armoured vehicle market we are making good progress on development
activities on the Challenger 3 upgrade programme and have already delivered
prototypes of our advanced sighting systems to the customer and these were
used in the British Army's livefire testing of the upgrade vehicle earlier
this year. The Group is also supplying similar modules for another significant
European armoured vehicle programme.
The Group's order book for its continuing activities grew marginally through
the first half of the year with orders 3% higher than revenue to finish at
£115.8m at the end of March 2024 (September 2023 £115.3m continuing
operations). We secured orders from an important new customer in the subsea
data cable market for a complex fibre optic module and orders for follow on
deliveries from several of our medical diagnostic instrument customers. The
Group has substantially all of the order cover needed for the delivery of full
year market consensus revenues.
The Group's pipeline for future orders is healthy. We expect to secure
material new orders for our super polished components used in ring laser
gyros, additional new optical systems contract awards as well as our first
significant production order for our newly created Life Sciences centre of
excellence in our Rochester facility. More generally our customers in the
industrial laser and semiconductor market are advising us that they expect to
pass down to us increasing demand from around the end of this calendar year as
they finally work through their excess inventory holdings and satisfy growing
demand from their own end markets.
Revenue
Six months ended 31 March 2024 2023*
From continuing operations £'000 £'000 % Change
Industrial 31,674 36,435 (13.1)%
Aerospace & Defence 16,595 12,221 35.7%
Life Sciences 15,348 15,880 (3.3)%
Group Revenue 63,617 64,536 (1.4)%
* Re-presented for discontinued operation
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are industrial lasers,
telecommunications, sensing and semiconductor manufacturing. Industrial lasers
are used in a diverse range of precision material processing applications
ranging from microelectronics and semiconductors to automotive manufacturing.
Overall, sales of products by the Group's continuing operations into our
industrial markets in the six months ended 31 March 2024 declined by 13.1%, or
13.4% when measured on an organic, constant currency basis, compared with the
equivalent period last year. Destocking by our customers impacted the Group's
revenues in to all of its principal sub markets with our industrial laser
markets most significantly impacted although our revenues in to the
semiconductor market were also lower. Within the semiconductor market our
deliveries to the latest deep and extreme ultra violet photolithography
markets grew but this was more than offset by reductions in deliveries to the
more mature elements of this sub market.
Offsetting to some extent these reductions we did see growth in our shipments
to the telecoms market and in particular the subsea data market where our
largest long standing customers generated additional demand for us. We expect
a further step up in revenue from this sub market in the second half of the
financial year as their demand continues to grow and first sales are secured
from an important new subsea data customer for a very complex fibre optic
module assembly. Part of our revenue for hi reliability couplers supplied to
the subsea data market are now being sourced from our contract manufacturing
partner in Thailand. In the first half of this financial year a further six
production rigs were transferred to them to enable them to further ramp their
output allowing our Torquay facility to instead focus its productive capacity
on more complex fibre optic module assembly.
The reduced volume achieved in this segment drove a 36.8% drop in adjusted
operating profit compared with H1 2023, to £3.5m and the reported return on
sales percentage fell to 10.9% for this segment in the first half. (H1 2023:
15.0%).
Products and Markets - Aerospace & Defence (A&D)
Superior product quality, reliability and performance are paramount in this
sector, playing to G&H's strengths, along with our commitment to provide
value through our wide photonics technical capabilities. We have solid,
well-established positions in target designation and range finding, ring laser
gyroscope navigational systems, periscopes and sighting systems,
opto-mechanical subsystems used in unmanned aerial vehicles (UAVs) and space
satellite communications. We are working with our partners on the development
of new directed energy weapon systems that are increasingly specified as part
of the defensive suites of both naval and land platforms.
The trend in funding priorities in both the US and Europe continues to favour
G&H products and capabilities. The need for all weather precision guidance
and targeting generates the demand for the product capabilities that G&H
can offer. The conflict in Ukraine is generating higher levels of enquiries
for the Group's precision optics including our advanced thin film coating
capabilities which can protect optics against lasers used in an offensive
manner on the battlefield. We are making good progress on our contract to
deliver advanced periscope systems for the UK MOD's programme to upgrade the
Challenger MBT platform. First prototypes have been delivered to the prime
contractor and integrated into the overall vehicle which recently successfully
completed live firing trials. We are also working to complete first production
deliveries of a similar periscope system for an eastern European NATO country
for a new amphibious armoured vehicle programme. The combination of the thin
film coating capabilities from our newly acquired business, Artemis Optical,
with the optical substrates that our Ilminster facility provides is proving to
be very attractive to our customers and we are optimistic that recent
proposals submitted to defence customers will result in large orders for
multi-year deliveries.
Within this market we completed the divestment of our EM4 business in the
period. The business manufactured optoelectronic components and laser modules
primarily for the US A&D market. The business also manufactured and
supplied fused fibre couplers but this product line was excluded from the sale
and transferred to the Group's Torquay facility given this technology is
utilised in some of our products supplied in to the most advanced
photolithography machines. The EM4 business had struggled to demonstrate that
it could provide a differentiated product offering compared with its
competitors and shortly before its sale some of the contracts that it was
supplying were cancelled by an end customer. We therefore anticipated that the
business would not be able to contribute to the profitable growth of the Group
and we consider its sale to be an important step on the Group's journey to
deliver sustainable margin growth and to consolidate our A&D activities
into areas where we can offer differentiated products to our customers.
Excluding the discontinued EM4 business the Group's revenues in to the A&D
market grew by 35.8%, or 19.6% on an organic constant currency basis compared
with the first half of FY2023. Deliveries of our super polished optical
components used in ring laser gyroscopes grew significantly. Our end customer
is indicating continuing growth in demand for these components fuelled by
strong demand from military applications and underpinned by a solid commercial
aerospace market. Whilst it is not yet contributing material revenue for the
Group we are active in a number of directed energy systems programmes. These
systems are scheduled to be deployed by the US and Royal Navy in the coming
few years and we expect this market to develop significantly in the medium
term.
Additional volumes in this market helped to reduce the adjusted operating loss
of our continuing operations in to this segment to £1.6m (H1 2023: £(1.9)m)
and the loss on sales reduced from 15.5% in the first half of FY2023 to 9.4%
in H1 FY2024. We still have much to do to improve production yields and
generate acceptable returns in this part of the business but we are confident
that our inhouse continuous improvement programmes, better use of our supply
chain and the addition of more G&H content in to sub system and system
offerings can generate acceptable returns for the Group from the A&D
segment.
The recently acquired Artemis Optical business which primarily supplies the
A&D market is performing well under G&H ownership. Additional coating
capacity has been added to support it servicing growing interest from our
customers for its advanced thin film coating capabilities. The commercial
synergy between this business and our other precision optics business is
strong and is being exploited through a number of materials quotations
currently being submitted to customers for optical sighting systems for
military vehicles.
Products and Markets - Life Sciences
G&H's two principal Life Sciences revenue streams are derived from
diagnostics applications where we design, develop and manufacture a broad
range of diagnostic systems, and electro-optics and acousto-optics used in
medical lasers. The acquisition of GS Optics in FY2023 brought new polymer
optic manufacturing capabilities to the Group. This enables the Group to
target new revenue streams from the supply of disposable polymer lenses and
other components in to the Life Sciences market.
Revenues from our Life Sciences market were also impacted by our end customers
correcting their inventory holdings especially in the medical laser market and
in addition they reported some softening of end market demand compared with
the very strong demand seen in the first half of FY2023 driven by a surge post
COVID in the number of cosmetic and aesthetic procedures being undertaken. The
revenue decline we experienced in our medical laser market was partially
offset by good revenue growth in to our medical diagnostic customers. In this
market two important customer programmes completed their regulatory approval
stage and transitioned in to volume production. These systems assist in the
targeted delivery of treatments for cancers and liver transplantation, both
ensuring improved outcomes for patients delivered faster than before to the
benefit of both recipients and hospitals.
Revenue from our continuing operations in the Life Sciences market in total
declined by 3.4% or 5.9% on an organic, constant currency basis in the six
months to 31 March 2024, compared with the first half of FY2023. Despite the
decline in revenue operating profit returns in this segment improved to 14.7%
(H1 2023: 14.6%) thanks to favourable pricing on some of our newly introduced
product ranges. Adjusted operating profit in the segment was £2.2m (H1 2023:
£2.3m).
Looking ahead our medical laser customers expect demand pull through to return
to more normal levels in 2025. Our design teams based in our medical equipment
solutions business in Ashford are fully engaged on the development of our
customers' next generation systems and these will typically migrate to
production over the coming two/three years. We have substantially completed
the build out of a new Life Sciences design and production centre in our new
Rochester facility which will gradually replicate the capabilities we have at
our Ashford site in this new North American centre of excellence. Our first
R&D contract for this new facility has been secured and we expect our
first significant production programme order to be received in the second half
of the current financial year.
The integration of our newly acquired GS Optics business which secures an
important share of its revenue from the Life Sciences market is proceeding
well. In common with other parts of our business it has experienced some
softness in demand from its consumer electronics customers. But with the
additional business development support the business now has from the rest of
the G&H Group we are implementing targeted campaigns to offer GS Optics'
polymer capabilities in to the Group's existing Life Sciences customers to
address their needs for disposable healthcare optics and other components,
providing a one-stop shop solution for their diagnostic device requirements.
These campaigns are expected to support the growth of the GS Optics business
in FY2025.
Strategy
Following the launch of the Group's new strategy exactly twelve months ago
focused on transforming G&H to become an 'innovative customer focused
technology company' delivered responsibly by making a 'better world with
photonics', the Group is pleased to report that positive progress has already
been made and foundational building blocks are in place to support the
delivery of sustainable margin growth in the medium term. The successful
execution of this strategy will ensure that G&H becomes and remains the
'first choice' for all our stakeholders whether that's our employees, our
customers, our shareholders, our eco-system partners or the communities in
which we operate. We will offer differentiated performance through four key
strategic priorities.
1.
1. PEOPLE - Establish High Performance Teams
This will be achieved by following G&H's corporate values that guide the
way we endeavour to do business, consisting of customer focus, integrity,
action, unity and precision to deliver fundamental and sustainable improvement
for our employees, for the profitability of the company and for the
sustainability of our planet.
Priorities
• Embed our Vision, Mission, Values and Behaviours through every step of
our employees' work experience.
• Invest in our HR team and new tools to enable them to better support
our employees.
• Apply more rigour and structure to our talent reviews and invest in
our development and succession planning.
• Review our benefits and incentive plans to ensure they remain market
competitive and appropriately motivate and reward our employees for the right
behaviours.
• Promote greater diversity amongst our team especially at management
levels.
• Drive further improvements in our safety performance targeting zero
harm in all of our facilities.
Progress
• A new Chief People Officer was appointed and joined the Group in
December 2023. Her impact has already been positive as she has brought a deep
knowledge of Human Resource and Talent development from her wide portfolio of
experience in other Hi-Tech businesses.
• The upskilling of the HR function through personal development and
where appropriate replacement of a number of our site HR business partners
continues to proceed in line with plan.
• A new Group-wide HR Information System has been selected that will
provide our HR leaders with a single source of information on each of our
employees and implementation is planned for the second half of the year.
• Revised incentive scheme developed for our sales force ensuring they
are appropriately motivated to grow the business and secure new customer and
programme positions.
• Annual site health and safety audits established.
• Zero reportable accidents (RIDDOR) in the first half of FY2024.
• Environmental management certification to ISO 14001 for all sites over
the next 3 years. Since launching the new strategy twelve months ago we now
have five of our ten worldwide sites encompassed by ISO14001, with Ashford
(UK) and Keene (US) recommended for certification in the first half of
CY2024.
• The successful integration of the two new acquisitions that joined
G&H in the second half of FY2023 continues ahead of plan. This smooth
transition into G&H has fostered a sense of unity and shared purpose among
our employees and encouraged a greater willingness to harness and capitalise
on the complementary expertise that GS Optics and Artemis bring to G&H.
• The newly established Sustainability Committee has successfully
launched with a focus, amongst other things, on driving the Group's equality,
diversity and inclusion agenda.
Future Priorities
• In FY2024 we intend to complete the successful implementation of our
new Group HR Information System.
• We will continue to develop a more focused approach to career planning
and succession providing our high potential employees with structured
development activities.
• We will continue to focus on ensuring our HR function is organised
with the right talent to enable the delivery of the key 'people' element of
our strategy aligned to a more customer focused structure.
• Renewed focus on how we attract, recruit, promote and retain a diverse
group of talented people who share our values.
• Our incentive plans for management will be updated to allocate a
greater reward for cash generation thereby supporting the Group's goal to
further improve the efficiency with which it deploys its capital.
• Proactive follow-up to the actions and improvement opportunities
raised in the last employee engagement survey to deliver further improvements
in employee engagement, performance and well-being.
• Our newly formed Sustainability Committee and Sub-Committee will
establish a series of supporting working groups to help drive the Group agenda
and accelerate our efforts in this area.
• We will continue our site health and safety inspections to achieve
further improvement in our safety at work metrics. We are targeting zero
workplace harm in our facilities.
2. SELF-HELP - Deliver an exceptional customer experience and superior operational execution
Priorities
• Leverage our Customer Relationship Management tools to improve the
effectiveness of our Business Winning activities.
• Reorganise our commercial teams to clearly separate our product line
management activities from our other selling activities.
• Support our product line and business development teams in selling
more complex solutions that incorporate more of the Group's components and
capabilities.
• Cross selling capabilities and products from newly integrated
acquisitions through our global sales team.
• Through strategic engagements with our customers ensure we are
developing joint product and technology roadmaps that inform our R&D
priorities.
• Disciplined focus on superior operational execution through
productivity, quality, inventory management, delivery and new product
introduction improvements
• Proactive outsourcing of carefully selected products earlier in life
cycle where technological sovereignty is not a differentiator.
• Use our Operations planning processes to improve our on-time delivery
performance and reduce our lead times.
• Anticipate our customers' quality needs and drive to exceed them.
Progress
• Our sales, business development and commercial teams have been
reorganised to allow a better focus on our medium-term product management
strategies and aligned more closely to the specialist end markets we serve in
Aerospace & Defence optics, Industrial photonics and Life Sciences lasers
and diagnostics.
• We are working closely with a number of our major customers on their
next generation product roadmaps with contract awards imminent.
• The Group's on time delivery performance further improved during the
first half of year following strong performance improvement in FY2023. Overdue
backlog associated with Operations continues to reduce, down to <£3m
from £5.7m at FY2023 year end and more than £11m at FY2024.
• We have strengthened our Supply Chain team reporting into the new VP
of Contract Manufacturing and Supply Chain focused on driving process
improvement and low-cost region manufacturing from our global supply chain.
• In addition to the supply of AO products, following the qualification
of our Asian contract manufacturing partner for FO products, we have started
to ramp-up production of fused fibre couplers as a third source for the supply
of those products to our customers.
• Over the period of our strategic plan, we intend to increase the
proportion of the Group's revenue that is manufactured by our contract
manufacturing partner to around 25%. We have now established a 4-year plan by
product line to meet this target.
• After completing the transfer of our North American medical diagnostic
manufacturing activity from its former site in Virginia into our newly
acquired GS Optics facility in Rochester we have achieved ISO 13485
certification for the manufacture of medical devices at this location and
completed the phase one build out of the expanded production area at the site.
• Several talented optical and mechanical engineers have been recruited
for the Life Sciences business unit Rochester successfully tapping into the
large pool of optics talent in the Rochester, New York state location.
• We have appointed a new EVP of Life Sciences who has significant
experience in global Healthcare, Medical Device and Diagnostics sectors to
lead the strategic business development and go to market strategies for our
Life Sciences business.
Future Priorities
• We will develop our Customer Relationship Management tool to allow us
to further integrate it with our core ERP systems. This will enable us to
reduce our time to prepare customer quotes and give our sales team a more
complete dashboard of our overall interactions with our customers.
• We will implement a series of structured customer engagements in which
we will share our product technology roadmaps and receive their feedback on
how those roadmaps may support their own next generation product development
activities.
• We will continue to identify further products to outsource to our
Asian contract manufacturing partner. We intend to transfer products earlier
in their product life cycle to enable us to secure the margin accretion and
the additional capacity flexibility that can result from these transfers.
• We have identified further second source suppliers to mitigate the
risk associated with some of our sole source suppliers, especially those that
are assessed as being of higher risk. We will work to qualify this supplier
for selected products.
• We will focus on delivering the planned productivity and cost of poor
quality improvements over the period of the strategic plan.
• We will deliver further improvement of safety, quality, delivery,
inventory and productivity across our operations through Lean and other
continuous improvement tools.
3. TECHNOLOGY - Create value through our technology
Priorities
• Technology roadmaps that focus our investment on those areas
identified as offering the greatest returns.
• A smaller number of development projects but with same level of
overall Group investment thereby allowing an acceleration of time to market.
• On time and on budget delivery of our new product development
programmes.
• An increasing proportion of the Group's revenues derived from products
introduced in the last three years.
• A greater proportion of our engineers' time spent on new product
development activities.
• A greater interaction between our business development and engineering
teams to maximise our influence on our customers as well as ensuring our
technology roadmaps reflect our customers latest plans,
Progress
• Spend on R&D in H1 FY2024 totalled £3.6m (H1 FY2023: £3.5m).
• We have identified, resourced and established actions plans for the
vital few "Lucky Seven" research programmes which we will receive priority
given their potential to deliver materials accretion to the Group's revenues
and profitability.
• The Acousto-optic engineering and product line management team has
been strengthened and is focused on the commercialisation and ramp-up of
further optimised Germanium-based modulators for CO(2) lasers used in
semiconductor fabrication and micro-machining.
• Fibre optic: Design and development of new generation of fibre-optic
components for semiconductor fabrication, submarine hi-reliability network
coupler and medical diagnostics.
• Precision optic systems: Design of novel imaging sighting systems for
the UK's main battle tank and the application of unique advanced laser
protection filters into aerospace and defence applications.
• Precision optics: Design and transfer to production of coating
technology in the Deep Ultraviolet, opening up new business opportunities in
advanced semiconductor laser tools.
• Life Sciences: More point of care, user interface and apps
development, AI, machine learning, cyber security of patient data.
Future Priorities
• Focused investment in the vital few "Lucky Seven" development
projects.
• Using our newly acquired Artemis business to become a global hub and
centre of excellence to develop our advanced thin film coating offerings and
to capture a greater share of our customers' spend.
• Win additional armoured fighting vehicle advanced periscope, sighting
systems and fire control optical systems.
• Organically grow our high-value add optics business by leveraging the
acquired polymer technology with in-house and newly acquired expertise in
coatings, coupled with our capability to system integrate and offer
optomechanical assemblies.
• Develop and expand our AO regional design centre in Fremont US to
support strong pipeline for next generation product developments and
customer-led R&D.
• Develop our US Life Sciences R&D hub in our Rochester, NY
facility.
• Secure and launch US Medical Diagnostic R&D programmes.
4. INVESTMENT - Apply focused investment across the business
Priorities
• Ensure acquired businesses are successfully integrated into the Group
and that the expected commercial and operational synergies are achieved.
• Tight management and reduction of the Group's investment in its
working capital, through efficient operations planning and inventory
procurement policies.
• Ensure Group investment in new capital equipment is optimised and
appropriately prioritised into the areas of the business that offer the most
attractive potentials for returns and aligned to new strategic priorities.
• Regularly review the portfolio to ensure we have in all cases a
differentiated offering capable of delivering attractive returns.
• Assess and execute suitable accretive and strategic acquisitions to
deliver 'speed to value'.
• End of life or divest those elements of the portfolio that are not
differentiated or non-core.
• Invest in our supply chain partners with our capital equipment and our
on-site supply chain staff to help drive superior returns for the Group and
improved responsiveness for our customers.
Progress
• After completing the acquisitions of GS Optics and Artemis, the
integration of both business proceeds in line with plan. Additional commercial
synergies for Artemis have been identified and the establishment of our North
American Life Sciences hub is progressing well.
• We have completed the transfer of our US medical diagnostics business
that was located in Virginia in to GS Optics' Rochester campus and closed our
Shanghai satellite manufacturing site.
• We divested the EM4 business, located near Boston (MA), which
manufactures photonic components and laser modules primarily for the US
A&D market. The business also manufactured and supplied fused fibre
couplers, but this strategic product line was excluded from the sale and
transferred to the Group's Torquay facility.
• As our supply chain is able to increasingly improve on time delivery
performance we have been able to further reduce the levels of our safety stock
holding.
• Where our customers request us to carry safety stocks to protect their
programmes we ensure that they provide us with advanced funding to cover the
working capital investment. This is being successfully implemented.
• We have set ourselves targets for improvements in the Group's returns
on capital employed over the course of the strategic plan.
• We continue to monitor the market for potential acquisition targets.
We are supported in this activity by a network of advisors with whom we have
shared our acquisition criteria.
Future Priorities
• We will continue to identify and deliver commercial synergies from the
acquisitions of GS Optics and Artemis as part of the G&H Group.
• We continue to see the benefits from substituting previously third
party spend in both G&H and the two acquired businesses with internal
supply.
• Our customers remain positive about the combined offerings that
G&H is now able to provide with both Artemis and GS Optics as part of the
Group. We expect this to be converted into additional new business awards.
• We will continue to explore acquisition opportunities that may be a
match to our acquisition criteria and deliver speed to value creation for the
Group.
• Our capital equipment spend will be optimised and focused tightly on
those areas of the business that offer the greatest potential return.
• We are targeting further reduction in our inventory holdings.
Financial Review
The financial statements of the Group separately identify the performance of
the Group's continuing operations from those of the divested EM4 business
which has been treated as a discontinued operation. Prior year comparative
financial information has also been re-presented to reflect discontinued
operations.
Revenue for the Group's continuing operations declined by 5.3% on an organic,
constant currency basis. Despite this decline the Group's gross margins
progressed to 29.1% from 28.5% in the first half of FY2023. Our objective is
to improve the Group's gross margins by a further 500-700 basis points over
the plan period.
The Group was able to pass on the impact of inflation in its cost base to its
customers. Whilst wage inflation continued to run a little higher than
historical levels, our general pay awards for FY2024 were lower than we had
been required to make in FY2023. We are also seeing inflation from our
suppliers returning to normalised levels although we remain alert to the risk
of the inflationary effects of higher tariffs potentially being imposed on
certain territories by US and UK governments.
The Group's overhead increase reflects the inclusion of the GS Optics and
Artemis within the Group's reported numbers. Excluding this effect, overheads
grew by 5% reflecting wage inflation and the addition of some additional roles
required to support the delivery of the Group's strategic objectives. The
Group was careful to maintain its level of R&D expenditure which totalled
£3.6m (2023: £3.5m) in the period. Following the sale of the EM4 business in
March the Group has made some reductions to its Group shared functions to
ensure it is appropriately sized for its continuing operations.
Underlying operating profit was £3.8m (2023: £5.4m). Whilst declining market
demand impacted Group margins negatively in the reported period the delivery
of our strategic priorities are projected to improve the Group return on sales
to mid-teens over the plan period. Reported operating profit declined to
£1.6m (2023: £4.3m). Further details of the adjustments made between
underlying and reported profit measures are set out below.
The Group's interest charges increased to £1.2m (2023: £0.7m) as a result of
the additional debt in the second half of the last financial year to fund the
acquisitions of GS Optics and Artemis Optical. The charge also reflects the
higher interest rates in the market. The Group was able to reduce its net debt
a little in the first half of FY2024 and expects to make further progress in
the second half.
The Group's adjusted effective tax rate was 19.2% (2023: 19.5%). Adjusted
earnings per share was 8.3p (2023:15.1p)
The loss from discontinued operations in the period totalled £9.3m (2023:
£0.2m). This comprised a loss on disposal of the EM4 business of £8.9m, a
trading loss in the period £0.6m (2023: £(0.3)m) and a tax credit of £0.2m
(£0.2m). The EM4 business had experienced two contract cancellations in the
reporting period which impacted its trading levels.
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 Directors believe the latter reflect the underlying performance
of the business. Items excluded from the adjusted results, together with their
prior period comparatives, are set out below.
Reconciliation of adjusted performance measures
Operating profit Net finance costs Profit before tax Taxation Profit after tax from continuing operations Earnings per share
Half Year to 31 March 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Pence pence
Reported 1,571 4,295 (1,247) (705) 324 3,590 (168) (672) 156 2,918 0.7p 11.6p
Amortisation of acquired intangible assets 1,074 685 - - 1,074 685 (224) (151) 850 534 3.3p 2.1p
Restructuring and other costs 649 438 - - 649 438 (59) (96) 590 342 2.2p 1.4p
Acquisition costs 116 - - - 116 - (54) - 62 - 0.3p -
Site closure costs 425 - - - 425 - (2) - 423 - 1.6p -
Interest on deferred consideration - - 57 - 57 - - - 57 - 0.2p -
Adjusted 3,835 5,418 (1,190) (705) 2,645 4,713 (507) (919) 2,138 3,794 8.3p 15.1p
Cash Flow and Financing
In the six months ended 31 March 2024, G&H generated net cash from
operations of £2.5m, compared with £6.1m in the same period of 2023. Working
capital levels increased by £3m from the end of FY2023. This was driven by
outflows associated with payables held on the Group balance sheet at the end
of the previous financial year. Inventory levels for the continuing business
reduced by £3.6m with £1.7m of the reduction as a result of the
reclassification of holdings of heavy water held at our Cleveland facility
from inventory to fixed assets. Elsewhere despite the increased activity
expected by the Group in the second half of the year, inventory levels are
being reduced as we adjust our safety stock holdings downward. There was an
inflow of £0.8m from the movement on receivables within our continuing
operations.
The net cash inflow from the sale of our EM4 subsidiary totalled £2.4m. This
comprises consideration received of £4.2m less transaction fees and other
costs incurred of £1.4m and cash included in the business at sale of £0.4m.
Working capital and net debt adjustments concluded early in the second half of
the financial year resulted in a repayment of £0.7m to the purchaser. The
net proceeds from the sale were used to reduce the Group's borrowings.
Capital expenditure on property, plant and equipment was £1.8m in the period
(2023: £3.4m). Investment levels were lower in the first half of FY2024 given
the significant investments that have been made in prior periods especially in
our precision optic facilities to add further capacity to our surface
finishing stations and to increase automation in areas of the production
process. The principal area of investment in H1 FY2024 was in our fibre
optic facility in Torquay where we are investing in our production facilities
to prepare them for new fibre optic module assembly work that has been secured
as well adding further hi-reliability fuse coupler capacity at our contract
manufacturing partners facility in Thailand to allow them to further increase
their output.
In addition to our investments in tangible assets £1.2m was added to the
Group's intangible fixed assets (2023: £0.7m). During the period we
transitioned our GS Optics business that was acquired in June 2023 on to the
Group's enterprise resource planning tool, and we expect to complete the
migration of our other newly acquired business, Artemis Optical, on to the
Group's systems in H2 FY2024. This means that both newly acquired businesses
will have been fully integrated into the Group's business management and
reporting systems within their first full year of ownership by the Group.
Good progress has been made in the period in establishing our new North
American Life Sciences centre of excellence in the Rochester facility which
houses our GS Optics business. As part of the acquisition the Group leased
additional unused space in which to develop this new centre of excellence. In
the first half of FY2024 most of the investment has been made by our landlord
and this means with limited investment from G&H we have been able to equip
the production space in the new facility suitable for the manufacture and
assembly of both small and larger medical diagnostic instruments. In the
second half of FY2024 we will make further, significant investments to equip
the adjacent R&D space including the lab space capable of prototype
instruments for our customers.
As at 31 March 2024 the Group had drawn $34.3m on its revolving credit
facility (September 2023: $23.8m). The Group has access to a total committed
facility of $50m with a further $20m available from an uncommitted accordion
facility. The Group has started to pay down the additional drawings that were
made in the second half of last financial year to funds the two acquisitions.
At 31 March 2024 the Group's net debt totalled £30.4m (30 September 2023 -
£31.7m) including lease liabilities of £8.2m (30 September 2023 - £10.8m).
Consistent with the Group's borrowing agreements, which exclude the impact of
IFRS 16, Leases, our leverage ratio was 1.3 times at 31 March 2024 (30
September 2023: 1.1 times).
Environmental, Social and Governance
In the first half of the year the Group achieved a like for like reduction of
15% in its greenhouse gas emissions compared with the first half of FY2023. We
are continuing the migration of our US sites to sourcing their purchased
electricity from renewable sources following the lead of the UK sites which
have now migrated in full.
We are continuing to invest to support our target of being net zero for scope
1 and 2 emissions by 2035. A voltage optimisation system in our Ilminster
facility became operational in the period and we have commissioned new
batteries in our Ashford site to store electricity generated from our solar
panels installed at the site.
We are delighted to have secured ISO 14001 - Environmental Management -
recommendation for our Ashford and Keene, New Hampshire sites in addition to
the Ilminster and Torquay facilities which achieved the accreditation in
FY2023. We have a plan in place to have all Group's facilities accredited by
the end of FY2027.
The Group manages its activities its activities in this area through the
Sustainability Committee of the Board. This Committee was established in
FY2023 with our non-executive director, Susan Searle, acting as its chair.
This Committee is supported in its work by a Sustainability subcommittee
staffed with representatives from across the Group. The Group's agenda in the
area of environmental management is now moving in to assessing our suppliers'
performance in managing their operations in a sustainable manner. We are
engaging with third party agencies to assist us in gathering data about our
suppliers' performance and this will be used as one of the factors used in our
selection of suppliers for new work.
Dividends
Given the Board's confidence in the outlook for the Group and our plans to
improve operating profit returns to mid-teens over the medium term an interim
dividend of 4.9p per share (2023: 4.8p) has been declared. This dividend will
be payable to shareholders on the register as at 21 June 2024 on 26 July 2024.
Prospects and outlook
Whilst reduced demand levels from our industrial and medical laser markets
have persisted longer than we had expected we are well positioned to benefit
from recovering demand levels which are now expected in the early part of
FY2025. Elsewhere we are seeing strong demand in the period, especially for
our medical diagnostic and fibre optic module products and for our components
used in ring laser gyros.
The divestment of the EM4 business was an important milestone on our journey
to focus our A&D business on those areas where we believe we can offer
differentiated products that can over time will deliver acceptable returns to
the Group. At the same time the integration of GS Optics and Artemis is
proceeding to plan and we are seeing commercial synergy opportunities arising
from working with our other businesses.
In the first half of the year the Group started to reduce its borrowings which
were increased in the second half of FY2023 to fund the acquisitions of GS
Optics and Artemis. We have reduced our inventory holdings and expect to make
further progress in this area in the second half of the year allowing us to
reduce our borrowings further.
Our order book remains at a healthy level and we have substantially all of the
orders needed to support the expected increase in revenues and profitability.
The Group is involved in complex development and production programmes some of
which are dependent upon inputs from both our customers and suppliers in order
to progress to their expected timescales. Nevertheless, our expectations for
FY2024 are unchanged.
The long-term outlook for our technologies and capabilities in all our target
sectors remains strong supported by the progress that we are already making in
delivering against our strategy.
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
88 of our 2023 Annual Report available on our website. We are aware that
geopolitical risks are increasing and whilst that trend can have the effect of
increasing demand for some of the Group's products we also have to manage the
impact that this risk can have on our supply chain. In order to help us
mitigate this risk we have invested in additional resources in our supply
chain teams in some cases located in low cost supply regions and they are
active in ensuring we have access to alternative supply sources where we have
identified continuity of supply from our existing suppliers as being high
risk.
The Group has been impacted in the first half of FY2024 by lower demand levels
from some of our important customers in the medical and industrial laser
markets. Our sales teams maintain close relationships with our customers in
order to support us in predicting the timing of market improvement. Whilst our
customers report expected increases in demand in FY2025 we remain vigilant in
this area. We ensure there is frequent and detailed communication between our
sales and operations teams to ensure our operational areas are appropriately
resourced and that we are able to anticipate the timing and location of the
recovery so as to be able to secure a greater share of the market by offering
competitive lead times.
We are alert to the emergence of new competitors in our markets, especially
from lower cost regions. This is a constant phenomenon and risks lowering the
price points for the Group's products. We seek to mitigate this risk by
continuing to develop advanced product solutions for our customers that can
address their most complex needs. We regularly review the Group's technology
roadmaps to ensure we are investing our engineering and development efforts in
to the areas that are likely to offer the best returns. The Board regularly
reviews progress on our technology development projects.
The competition for appropriately skilled resources remains strong. Whilst we
have resolved the serious resourcing problems that impacted the Group in the
periods following the pandemic we still have to work hard to attract and
retain employees in some of our functional areas. Whilst general employment
cost growth has adjusted back down to more normalised levels the competition
for good employees can put upward pressure on our wage bill.
Group Income Statement
Unaudited interim results for the 6 months ended 31 March 2024
Half Year to 31 March 2024 (Unaudited) Half Year to 31 March 2023 (Unaudited)* Full Year to 30 September 2023
(Audited)*
Note Underlying Non-underlying Total Underlying Non-underlying Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 4 63,617 - 63,617 64,536 - 64,536 135,041
Cost of revenue (45,115) - (45,115) (46,118) - (46,118) (94,746)
Gross profit 18,502 - 18,502 18,418 - 18,418 40,295
Research and development (3,554) - (3,554) (3,500) - (3,500) (7,372)
Sales and marketing (4,572) - (4,572) (4,294) - (4,294) (8,942)
Administration (6,815) (2,264) (9,079) (5,522) (1,123) (6,645) (17,002)
Other income and expenses 274 - 274 316 - 316 835
Operating profit / (loss) 4 3,835 (2,264) 1,571 5,418 (1,123) 4,295 7,814
Net finance costs (1,190) (57) (1,247) (705) - (705) (1,812)
Profit / (loss) before income tax expense 2,645 (2,321) 324 4,713 (1,123) 3,590 6,002
Income tax expense 6 (507) 339 (168) (919) 247 (672) (1,145)
Profit / (loss) for the period from continuing operations 2,138 (1,982) 156 3,794 (876) 2,918 4,857
Loss for the period from discontinued operations 11 - (9,262) (9,262) - (191) (191) (809)
Profit / (loss) for the period 2,138 (11,244) (9,106) 3,794 (1,067) 2,727 4,048
Earnings / (loss) per share
From continuing operations
Basic earnings per share 7 8.3p (7.6p) 0.7p 15.1p (3.5p) 11.6p 19.4p
Diluted earnings per share 7 8.2p (7.5p) 0.7p 15.0p (3.4p) 11.6p 19.2p
From continuing and discontinued operations
Basic earnings per share 8.3p (43.1p) (34.8p) 15.1p (4.2p) 10.9p 16.1p
Diluted earnings per share 8.2p (43.0p) (34.8p) 15.0p (4.2p) 10.8p 16.0p
*The results for the period and year ended 31 March 2023 and 30 September 2023
respectively have been re-presented to show the effect of discontinued
operations.
Group Statement of Comprehensive Income
Group Statement of Comprehensive Income Half Year to Half Year to Full Year to
31 Mar 2024
31 Mar 2023
30 Sep 2023
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
(Loss) / profit for the period (9,106) 2,727 4,048
Other comprehensive income / (expense)
Gains on cash flow hedges 104 1,279 1,287
Currency translation differences (2,064) (6,152) (5,801)
Other comprehensive expense for the period (1,960) (4,873) (4,514)
Total comprehensive (expense) / income for the period (11,066) (2,146) (466)
Group Balance Sheet
Unaudited interim results for the 6 months ended 31 March 2024
Group Balance Sheet 31 Mar 2024 31 Mar 2023 30 Sep 2023
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 37,799 40,608 41,818
Right of use assets 8,956 5,283 9,932
Intangible assets 54,297 44,248 59,729
Deferred tax assets 1,770 1,640 2,178
102,822 91,779 113,657
Current assets
Inventories 32,022 39,961 37,582
Trade and other receivables 31,661 31,128 34,075
Cash and cash equivalents 4,816 6,141 7,294
68,499 77,230 78,951
Current liabilities
Trade and other payables (16,933) (19,513) (21,156)
Borrowings (10) (43) (10)
Lease liabilities (913) (1,247) (1,443)
Tax liabilities (866) (1,102) (581)
(18,722) (21,905) (23,190)
Net current assets 49,777 55,325 55,761
Non-current liabilities
Borrowings (26,971) (18,970) (28,157)
Lease liabilities (7,282) (5,089) (9,394)
Provision for other liabilities and charges (1,398) (804) (1,582)
Deferred consideration (927) - (870)
Deferred tax liabilities (9,043) (7,632) (9,682)
(45,621) (32,495) (49,685)
Net assets 106,978 114,609 119,733
Shareholders' equity
Called up share capital 5,159 5,008 5,159
Share premium account 16,051 16,000 16,051
Merger reserve 11,561 7,262 11,561
Cumulative translation reserve 7,963 9,676 10,027
Hedging reserve 119 7 15
Retained earnings 66,125 76,656 76,920
Equity Shareholders' Funds 106,978 114,609 119,733
Statement of Changes in Equity
Unaudited interim results for the 6 months ended 31 March 2024
Statement of Changes in Equity Share capital account Share premium account Merger reserve Retained earnings Hedging reserve Cumulative translation reserve Total equity
£000 £000 £000 £000 £000 £000 £000
At 1 October 2022 5,008 16,000 7,262 75,715 (1,272) 15,828 118,541
Profit for the period - - - 2,727 - - 2,727
Other comprehensive income / (expense) for the period - - - - 1,279 (6,152) (4,873)
Total comprehensive income / (expense) for the period - - - 2,727 1,279 (6,152) (2,146)
Dividends - - - (1,978) - - (1,978)
Share based payments - - - 192 - - 192
At 31 March 2023 (unaudited) 5,008 16,000 7,262 76,656 7 9,676 114,609
At 1 October 2023 5,159 16,051 11,561 76,920 15 10,027 119,733
Loss for the period - - - (9,106) - - (9,106)
Other comprehensive income / (expense) for the period - - - - 104 (2,064) (1,960)
Total comprehensive (expense) / income for the period - - - (9,106) 104 (2,064) (11,066)
Dividends - - - (2,114) - - (2,114)
Share based payments - - - 425 - - 425
At 31 March 2024 (unaudited) 5,159 16,051 11,561 66,125 119 7,963 106,978
Group Cash Flow Statement
Unaudited interim results for the 6 months ended 31 March 2024
Group Cash Flow Statement Half Year to 31 Mar 2024 (Unaudited) Half Year to 31 Mar 2023 (Unaudited) Full Year to 30 Sep 2023 (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations 2,220 5,996 16,164
Income tax refunded 315 78 2
Net cash generated from operating activities 2,535 6,074 16,166
Cash flows from investing activities
Disposal of subsidiary, net of cash disposed 2,380 - -
Acquisition of subsidiaries, net of cash acquired - - (11,697)
Purchase of property, plant and equipment (1,789) (3,439) (6,257)
Sale of property, plant and equipment 12 - 516
Purchase of intangible assets (1,217) (728) (1,062)
Interest received 28 4 11
Net cash used in investing activities (586) (4,163) (18,489)
Cash flows from financing activities
Drawdown of borrowings 2,789 2,748 19,154
Repayment of borrowings (2,988) (687) (8,378)
Repayment of lease liabilities (904) (796) (1,624)
Interest paid (1,220) (775) (1,784)
Dividends paid to ordinary shareholders (2,114) (1,978) (3,180)
Net cash (used in) / generated by financing activities (4,437) (1,488) 4,188
Net (decrease) / increase in cash (2,488) 423 1,865
Cash at beginning of the period 7,294 5,999 5,999
Exchange gains / (losses) on cash 10 (281) (570)
Cash at the end of the period 4,816 6,141 7,294
Notes to the Group Cash Flow Statement
Notes to the Group Cash Flow Statement Half Year to 31 Mar 2024 (Unaudited) Half Year to 31 Mar 2023 (Unaudited) Full Year to 30 Sep 2023 (Audited)
£'000 £'000 £'000
Profit before income tax from continuing operations 324 3,590 6,002
Loss before income tax from discontinued operations (9,465) (328) (982)
Adjustments for:
- Amortisation of acquired intangible assets 1,074 833 1,672
- Amortisation of other intangible assets 905 753 1,692
- Loss on disposal of subsidiary 8,261 - -
- Loss on disposal of property, plant and equipment - - 234
- Depreciation 4,052 3,814 7,652
- Share based payments 425 192 337
- Amounts claimed under the RDEC (100) (100) (200)
- Finance income (28) (4) (11)
- Finance costs 1,275 716 1,841
- Non cash interest charge included in finance costs (57) - (57)
Total adjustments 15,807 6,204 13,160
Changes in working capital
- Inventories 380 (4,957) (1,291)
- Trade and other receivables 849 3,344 1,005
- Trade and other payables (5,675) (1,857) (1,730)
Total changes in working capital (4,446) (3,470) (2,016)
Cash generated from operating activities 2,220 5,996 16,164
Reconciliation of net cash flow to movements in net debt
Half Year to Half Year to Full Year to 30 Sep 2023
31 Mar 2024
31 Mar 2023
(Audited)
(Unaudited)
(Unaudited)
£'000 £'000 £'000
(Decrease) / increase in cash in the period (2,488) 423 1,865
Drawdown of borrowings (2,789) (2,748) (19,154)
Repayment of borrowings 4,158 1,623 10,298
Changes in net debt resulting from cash flows (1,119) (702) (6,991)
New leases (218) (13) (3,305)
Translation differences 1,286 2,225 1,443
Non cash movements including leases disposed 1,401 (1,652) (392)
Acquired debt due after 1 year - - (54)
Acquired leases - - (3,345)
Movement in net debt in the period / year 1,350 (142) (12,644)
Net debt at start of period (31,710) (19,066) (19,066)
Net debt at end of period (30,360) (19,208) (31,710)
Analysis of net debt
At 1 Oct 2023 New leases Cash flow Exchange movement Disposal of subsidiary Non-cash movement At 31 Mar
2024
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 7,294 - (2,047) 10 (441) - 4,816
Debt due within one year (10) - 2,988 - - (2,988) (10)
Debt due after one year (28,157) - (2,789) 1,035 - 2,940 (26,971)
Lease liabilities (10,837) (218) 1,170 241 1,713 (264) (8,195)
Net debt (31,710) (218) (678) 1,286 1,272 (312) (30,360)
Notes to the Interim Report
1. Basis of Preparation
The unaudited Interim Report has been prepared under the historical cost
convention as modified by financial assets and financial liabilities at fair
value and in accordance with UK adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
The Interim Report was approved by the Board of Directors on 4 June 2024. 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 2023
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 2023 are unaudited.
The Interim Report will be announced to all shareholders on the London Stock
Exchange and published on the Group's website on 4 June 2024. Copies will be
available to members of the public upon application to the Company Secretary
at Dowlish Ford, Ilminster, Somerset, TA19 0PF.
There were no changes to accounting policies described in the annual financial
statements for the year ended 30 September 2023 that had a material effect on
the financial statements.
Cash flow projections show that the Group has sufficient funding available to
withstand plausible downside scenarios, and therefore the financial statements
have been prepared on a going concern basis.
2. Estimates
The preparation of interim financial statements requires management to make
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgments made by management in applying the Company's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the consolidated financial statements for the year ended 30
September 2023.
3. Financial risk management
The Company's activities expose it to a variety of financial risks, market
risk (including currency risk, cash flow interest rate risk and price risk),
credit risk and liquidity risk.
The interim condensed consolidated financial statements do not include all
financial risk management information and disclosures required in the annual
financial statements and should be read in conjunction with the Company's
annual financial statements as at 30 September 2023. There have been no
changes to the risk management policies since the year end.
4. Segmental analysis - continuing operations
Aerospace & Defence Life Sciences / Biophotonics Industrial Corporate Total
For half year to 31 March 2024 £'000 £'000 £'000 £'000 £'000
Revenue
Total revenue 18,041 16,212 33,002 - 67,255
Inter and intra-division (1,446) (864) (1,328) - (3,638)
External revenue 16,595 15,348 31,674 - 63,617
Divisional expenses (16,932) (12,506) (27,058) 481 (56,015)
EBITDA¹ (337) 2,842 4,616 481 7,602
EBITDA % (2.0%) 18.5% 14.6% - 11.9%
Depreciation and amortisation (1,423) (889) (1,778) (867) (4,957)
Operating (loss) / profit before amortisation of acquired intangible assets (1,760) 1,953 2,838 (386) 2,645
Amortisation of acquired intangible assets - - - (1,074) (1,074)
Operating (loss) / profit (1,760) 1,953 2,838 (1,460) 1,571
Operating (loss) / profit margin % (10.6%) 12.7% 9.0% - 2.5%
Add back non-recurring items 205 296 617 1,146 2,264
Operating (loss) / profit excluding non-recurring items (1,555) 2,249 3,455 (314) 3,835
Adjusted operating (loss) / profit (9.4%) 14.7% 10.9% - 6.0%
margin %
Aerospace & Defence Life Sciences / Biophotonics Industrial Corporate Total
For half year to 31 March 2023 £'000 £'000 £'000 £'000 £'000
Revenue
Total revenue 12,979 16,993 38,239 - 68,211
Inter and intra-division (758) (1,113) (1,804) - (3,675)
External revenue 12,221 15,880 36,435 - 64,536
Divisional expenses (12,971) (13,045) (29,434) 608 (54,842)
EBITDA¹ (750) 2,835 7,001 608 9,694
EBITDA % (6.1%) 17.9% 19.2% - 15.0%
Depreciation and amortisation (1,227) (597) (1,807) (935) (4,566)
Operating (loss) / profit before amortisation of acquired intangible assets (1,977) 2,238 5,194 (327) 5,128
Amortisation of acquired intangible assets - - - (833) (833)
Operating (loss) / profit (1,977) 2,238 5,194 (1,160) 4,295
Operating (loss) / profit margin % (16.2%) 14.1% 14.3% - 6.7%
Add back non-recurring items 86 78 275 684 1,123
Operating (loss) / profit excluding non-recurring items (1,891) 2,316 5,469 (476) 5,418
Adjusted operating (loss)/profit (15.5%) 14.6% 15.0% - 8.4%
margin %
¹EBITDA = Earnings before interest, tax, depreciation and amortisation.
All of the amounts recorded are in respect of continuing operations. The
numbers for the half year to 31 March 2023 have been re-presented to show the
effect of discontinued operations.
4. Segmental analysis continued
Analysis of revenue from continuing operations by destination
Half year to Half year to
31 Mar 2024 31 Mar 2023
(Unaudited) (Unaudited)
£'000 £'000
United Kingdom 17,219 11,995
North and South America 22,614 20,581
Continental Europe 13,921 16,242
Asia-Pacific 9,863 15,718
63,617 64,536
5. Non-underlying items
Half Year to Half Year to Full Year to
31 Mar 2024
31 Mar 2023
30 Sep 2023
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Profit before tax from continuing operations 324 3,590 6,002
Amortisation of and impairment of acquired intangible assets 1,074 685 1,456
Restructuring and other costs 649 438 787
Acquisition costs 116 - 1,156
Site closure costs 425 - 879
Interest on deferred consideration 57 - 57
Adjusted profit before tax 2,645 4,713 10,337
The restructuring costs in the period ended 31 March 2024 relate to
non-recurring costs arising from our manufacturing streamlining activities.
6. Tax expense
Analysis of tax charge in the period
Half Year to Half Year to Full Year to 30 Sep 2023 (Audited)
31 Mar 2023
31 Mar 2024
(Unaudited)
(Unaudited)
£'000 £'000 £'000
Current taxation
UK Corporation tax 93 139 844
Overseas tax (28) 404 703
Adjustments in respect of prior year tax charge - - (1,130)
Total current tax 65 543 417
Deferred tax
Origination and reversal of temporary differences (272) (8) (349)
Adjustments in respect of prior years 173 - 874
Change to UK tax rate - - 31
Total deferred tax (99) (8) 556
Tax (credit) / expense per income statement (34) 535 973
Tax (credit) / charge on loss from discontinued operations (203) (137) (173)
Tax charge on disposal of discontinued operations - - -
The tax charge for the six months ended 31 March 2024 is based on the
estimated effective rate of the tax for the Group for the full year to 30
September 2024. The estimated rate is applied to the profit before tax.
The adjusted effective tax rate on profit from continuing activities is 19.2%
(H1 2023: 19.5%).
7. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on the profit for
the period using as a divisor the weighted average number of Ordinary Shares
in issue during the period. The weighted average number of shares is given
below.
Half Year to Half Year to Full Year to 30 Sep 2023
31 Mar 2024
31 Mar 2023
(Audited)
(Unaudited)
(Unaudited)
No. No. No.
Number of shares used for basic earnings per share 25,786,397 25,040,919 25,085,805
Dilutive shares 330,799 199,101 272,361
Number of shares used for dilutive earnings per share 26,117,196 25,240,020 25,358,166
A reconciliation of the earnings used in the earnings per share calculation is
set out below:
Half Year to Half Year to Full Year to
31 Mar 2024 (Unaudited)
31 Mar 2023
30 Sep 2023
(Unaudited)
(Audited)
£'000 p per £'000 p per £'000 p per
share
share
share
Basic earnings per share from continuing operations 174 0.7p 2,918 11.6p 4,857 19.4p
Adjustments net of income tax expense:
Amortisation of acquired intangible assets (net of tax) 850 3.3p 534 2.1p 1,175 4.7p
Acquisition costs 62 0.3p - - 1,071 4.3p
Site closure costs - - - - 728 2.9p
Restructuring costs (net of tax) 995 3.8p 342 1.4p 600 2.4p
Unwind of discount on deferred consideration 57 0.2p - - 59 0.2p
Total adjustments net of income tax expense 1,964 7.6p 876 3.5p 3,633 14.5p
Adjusted basic earnings per share 2,138 8.3p 3,794 15.1p 8,490 33.9p
Basic diluted earnings per share 174 0.7p 2,918 11.6p 4,857 19.2p
Adjusted diluted earnings per share 2,138 8.2p 3,794 15.0p 8,490 33.5p
Basic and diluted loss per share from discontinuing operations (9,152) (35.5p) (190) (0.8p) (810) (3.2p)
Adjusted earnings per share before amortisation of acquired intangible assets
and adjustments has been shown because, in the opinion of the Directors, it
more accurately reflects the trading performance of the Group.
8. Dividend
The Directors have declared an interim dividend of 4.9p per share for the half
year ended 31 March 2024 (2023: 4.8p).
Half Year to Half Year to Full Year to
31 Mar 2024
31 Mar 2023
30 Sep 2023
(Unaudited)
(Unaudited)
(Audited)
£'000 £'000 £'000
Final 2023 dividend: 8.2p per share (Final 2022 dividend paid in 2023: 7.7p) 2,114 1,978 1,978
2023 Interim dividend of 4.8p per share (2022: 4.7p per share) - - 1,202
2,114 1,978 3,180
9. Borrowings
31 March 2024 31 March 2023 £000 30 September 2023
£000
£'000
Current:
Bank borrowings 10 43 10
Leases 913 1,247 1,443
923 1,290 1,453
Non-current:
Bank borrowings 26,971 18,970 28,157
Leases 7,282 5,089 9,394
34,253 24,059 37,551
Total borrowings 35,176 25,349 39,004
G&H's primary lending bank is NatWest Bank. The Group's facilities
comprise a $50m (£39.6m) dollar revolving credit facility and a $20m
(£15.8m) flexible acquisition facility. At 31 March 2024, the balance drawn
on the revolving credit facility was $34.3m (£27.1m) (September 2023: $34.6m
(£27.4m)) and on the flexible acquisition facility nil (September 2023: nil).
The facilities above are committed until 31 March 2027 and attract an interest
rate of between 1.6% and 2.1% above rates specified by the bank dependent upon
the Company's leverage ratio, payable on rollover dates.
The Group's banking facilities are secured on certain of its assets including
land and buildings, property plant and equipment and inventory.
Maturity profile of bank borrowings
31 March 31 March 30 September 2023
£'000
2024 2023
£000
£000
Within one year 10 43 10
Between one and five years 26,971 18,970 28,103
26,981 19,013 28,113
Maturity profile of lease liabilities
31 March 31 March 30 September 2023
£'000
2024 2023
£000
£000
Within one year 1,934 1,469 2,009
Between two and five years 5,489 3,924 8,481
After five years 3,380 1,773 3,528
10,803 7,166 14,018
10. Called up share capital
31 Mar 2024 30 Sep 2023 31 Mar 2024 30 Sep 2023
No. No. £'000 £'000
Allotted, issued and fully paid
Ordinary share of 20p each 25,040,919 25,040,919 5,008 5,008
11. Disposal of subsidiary
On 18 March 2024, Gooch & Housego PLC disposed of the entire share capital
of its subsidiary EM4 LLC to EMFOUR Acquisition Co. LLC, a subsidiary of a
US-based global technology company for total consideration of up to $12.0m
(£9.4m).
The total consideration payable of up to $12.0m comprised an initial cash
consideration of $5.25m (£4.1m) and deferred consideration of up to $6.75m
(£5.3m). The deferred consideration is based on the performance of the EM4
business in the period ending 30 September 2025.
The Directors have shown the performance of the Boston business as a
discontinued operation in the income statement, and the comparative figures
have been restated accordingly.
Details of the disposal consideration and the net assets disposed of are as
follows:
£000
Purchase consideration
Cash paid 4,154
Transaction fees (674)
Working capital and debt adjustment (709)
Employee liabilities settled direct from proceeds (659)
Other disposal costs (216)
Deferred consideration -
Net disposal proceeds 1,896
Management have assessed the fair value of the deferred consideration to be
nil.
Other disposal costs include certain staff costs and professional fees.
The details of the assets disposed of are as follows:
Book value
£000
Right of use assets 1,588
Plant and equipment 1,348
Inventories 3,445
Trade and other receivables 2,537
Cash 441
Intangible assets - customer relationships 1,262
Trade and other payables (842)
Lease liabilities (1,639)
Add: goodwill 2,635
Net assets disposed of 10,775
Loss on disposal (8,879)
The income statement of the discontinued operation was as follows:
31 March 31 March 30 September 2023
£'000
2024 2023
£000
£000
Revenue 4,343 6,752 13,435
Cost of revenue (3,644) (4,556) (9,708)
Gross profit 699 2,196 3,727
Operating expenses (1,287) (2,517) (4,691)
Operating profit (588) (321) (964)
Interest payable - (7) (18)
Profit before tax (588) (328) (982)
Taxation 202 137 173
Profit after tax (386) (191) (809)
The cash flows attributable to the discontinued operation were as follows:
31 March 31 March 30 September 2023
£'000
2024 2023
£000
£000
Net cash generated from operating activities 50 918 1,444
Cash used in investing activities (194) (325) (467)
Cash used in financing activities (198) (242) (463)
(Decrease) / increase in cash (342) 351 514
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