TIDMGHH

RNS Number : 5476Y

Gooch & Housego PLC

02 December 2014

 
 For immediate release   2 December 2014 
 

Gooch & Housego PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2014

Gooch & Housego PLC ("Gooch & Housego", or "G&H", or the "Company", or the "Group"), the specialist manufacturer of optical components and systems, today announces its preliminary results for the year ended 30 September 2014.

 
 Year ended 30 September             2014   2013    Change 
----------------------------------  -----  -----  -------- 
 Revenue (GBPm)                      70.1   63.3     10.7% 
----------------------------------  -----  -----  -------- 
 Adjusted profit before tax 
  (GBPm)*                            11.5    9.7     18.6% 
----------------------------------  -----  -----  -------- 
 Adjusted basic earnings per 
  share (pence)*                     35.6   32.0     11.3% 
----------------------------------  -----  -----  -------- 
 Total dividend per share (pence)     7.2    6.3     14.3% 
----------------------------------  -----  -----  -------- 
 Net cash (GBPm)                      8.7    5.7   GBP3.0m 
----------------------------------  -----  -----  -------- 
 Statutory profit before tax 
  (GBPm)                              7.9    8.3    (4.8%) 
----------------------------------  -----  -----  -------- 
 Basic earnings per share (pence)    22.5   27.7   (18.8%) 
----------------------------------  -----  -----  -------- 
 

*adjusted figures are stated after excluding the amortisation of acquired intangible assets, gain on bargain purchase and exceptional items being acquisition costs, restructuring costs and impairment of goodwill.

Operating & Strategic Highlights

   --      Profitable growth despite foreign exchange headwinds 
   --      Operational efficiencies & volume drive margin improvement from 15.3% to 16.4% 
   --      Commenced site rationalisation to reduce costs and duplication 
   --      Statutory profit includes one off costs associated with the site rationalisation 
   --      Implemented initiatives to drive operational excellence at all sites 
   --      Two acquisitions completed & successfully integrated 
   --      Systems Technology Group expanded to spearhead organic growth 
   --      Strong cash performance delivering record net cash at year end 
   --      Board succession plan successfully implemented 
   --      14.3% growth on full year dividend reflecting the strength of the balance sheet 

Gareth Jones, CEO commented

"This has been another year of development and progress for the Company. Our initiatives to streamline the business and reduce costs are laying the building blocks for future growth to bear fruit in the coming years. With a solid order book and an encouraging pipeline of new products and opportunities, Gooch & Housego is well positioned to deliver further progress in FY15 and beyond."

For further information please contact:

 
                             Gareth Jones / Mark 
 Gooch & Housego PLC          Webster / Andrew Boteler    01460 256 440 
 
                             Mark Court / Gabriella 
 Buchanan                     Clinkard                    020 7466 5000 
 
 Investec Bank plc (Nomad    Patrick Robb / David 
  & Broker)                   Anderson                    020 7597 5970 
 

Expected Financial Calendar

 
   Annual General Meeting                              26 February 2015 
 
    Final dividend for the year ended 30 September      5 March 2015 
    2014 to shareholders on the register at 
    close of business 18 December 2014. 
    Subject to approval by shareholders at 
    the Annual General Meeting                          June 2015 
 
    Interim Results announced                           30 September 2015 
 
    Financial Year End                                  December 2015 
 
    Preliminary announcement of results for 
    the year ended 
    30 September 2015 
 

Chairman's Statement

2014 was a year in which the strategy defined by the Board resulted in continuing success for your company. Growth was achieved in revenues and adjusted profit and, with a focus on cash generation, the company had a net cash balance of GBP8.7m at the year-end.

Important elements of the Board's strategy include: moving up the value chain by developing and supplying increasingly sophisticated products and systems in collaboration with our customers; increasing Gooch & Housego's diversification to ensure that any one market sector does not dominate; operating in an efficient manner with appropriate resources and using our cash generation, banking facilities and potentially the market to make suitable acquisitions to complement organic growth.

This defined strategy continued to be implemented in the year. The Systems Technology Group, which was established in 2013 to enable the group to develop more complex and valuable products and sub-systems won further contracts particularly in the Space sector and has grown both through acquisition and recruitment. Systems are being developed which in the medium term we expect to generate revenues and profit once the products reach the production stage.

The Board believed that the group had too many operating sites leading to inefficiencies. With the objective of improving the situation, one small site was closed during the year and by the calendar year end the Gooch & Housego site in Melbourne, Florida will have closed with its activities being moved partly to our Ilminster site in the UK with the remainder to Palo Alto in California. Additionally, we continue to move production of some volume products to our lower cost manufacturing partner in the Czech Republic where we are comfortable that our traditional product quality is maintained.

As we enter our new financial year, the global economy remains supressed. In the US a recovery is continuing although defence spending remains under pressure. Nevertheless, given the increasing trend for photonic technologies to be deployed for target designation, range finding, navigation and countermeasures, the technology of Gooch & Housego is likely to be less affected by reduced budgets. Our order book entering our new trading year was an encouraging 18% higher than at the previous year end.

During the year, major changes were announced regarding the senior management of the company. In May Terry Scribbins, Chief Operating Officer retired from the company. On behalf of the Board, I would like to thank him for his many years of excellent contribution. His replacement, Alex Warnock joined the company in November and brings with him a wealth of relevant experience. At the end of the calendar year, after almost nine years in the role, I will be stepping down as Chairman, to be replaced by Gareth Jones who will in turn retire from the CEO role. Mark Webster, who has been a non-executive director of the company for two years, will take over from Gareth as CEO. I would like to welcome them both in their new roles and thank Gareth for his many years of leading Gooch & Housego into the success it is today.

I would like to thank all employees for their support and efforts both this year and during my tenure as Chairman. Our success would not have been possible without their dedication. I have enjoyed my time with the company and believe, along with the Board, that with its technology, its employees and the new management team, the business is well placed to continue its growth into the future.

Dr Julian Blogh

Chairman

Chief Executive Officer's Statement

Overview of 2014

Gooch & Housego made good progress in delivering its long-term objectives of sustainable growth and adjusted margin improvement in 2014. By combining organic and acquisitive revenue growth with initiatives to streamline operations, enhance operational efficiency and drive continuous improvement, the Company was able to meet its expectations notwithstanding a lacklustre trading environment and significant foreign exchange headwinds. Despite two acquisitions and increased investment in R&D net cash increased during the year.

The two acquisitions completed during the first quarter have been successfully integrated. They have made a positive contribution to revenue and profit and brought valuable additional products, capabilities and customers. Spanoptic Limited ("Spanoptic"), based in Glenrothes, Scotland, was acquired in October 2013. Spanoptic's advanced lens manufacturing and infrared optics capabilities have substantially broadenedGooch & Housego's precision optics product offering and opened up a number of new opportunities, particularly in the Aerospace & Defence sector. Constelex Technology Enablers Limited ("Constelex"), acquired in November 2013, is a small photonic systems business with expertise in fibre optic amplifiers for satellite communications. Constelex, which brought strong relationships with space agencies and satellite manufacturers, has been absorbed into Gooch & Housego's Torquay-based Systems Technology Group (STG).

Gooch & Housego's long term strategic themes of diversification and moving up the value chain have resulted in further progress towards a more balanced and vertically integrated business with reduced exposure to risk and cyclicality. Developing and maintaining close relationships with key customers has helped the Company to anticipate and respond to market trends. Such market intelligence has informed Gooch & Housego's near term new product development initiatives and guided the Company's longer term organic and acquisitive growth strategies. A targeted approach to acquisitions has been developed in the past year with the aim of accelerating delivery of the strategic objectives of the business.

While still at an early stage, initiatives commenced during 2014 to enhance operational efficiency and drive continuous improvement throughout the organisation are already delivering results in the form of reduced costs and improving margins. Rationalising operations and simplifying the management and organisational structure are key aspects of this process.

R&D expenditure increased as expected in 2014. Investments in the STG and a small number of significant new product development opportunities have accounted for the majority of this increase. The STG has met its ambitious growth targets in what was its first full year of operations.

The trend towards a more balanced spread of business across the Company's principal market sectors has continued.

In order to facilitate both organic and acquisitive investments, the business refinanced its banking facilities in November 2014. Further detail is given in the Financial & Operating Review.

Markets and applications - Industrial

Gooch & Housego has addressed an increasingly diverse range of industrial applications for photonics during 2014, including semiconductor manufacturing and test, microelectronics, remote sensing, metrology and telecommunications. The Industrial market has demonstrated significant growth in 2014, driven by both organic growth in our telecommunications and fibre laser business, and acquisitive growth that has come from Spanoptic. In addition, technology trends in the Company's traditional industrial laser market have enabled rationalisation of the product range and provided the opportunity to consolidate operations.

Shifts in technology represent both a threat and an opportunity. As the world leader in acousto-optics for industrial lasers, Gooch & Housego has been able to anticipate and prepare for the growing use of fibre lasers in materials processing applications. While sales of conventional water-cooled Q-switches declined during 2014 as expected, this trend was more than compensated for by a growing demand for acousto-optic modulators for fibre laser applications. Sales of this comparatively new product eclipsed those of the conventional Q-switch in 2014 in both volume and revenue terms. Although highly cost-sensitive, efforts to scale production volumes while controlling costs have enabled Gooch & Housego to retain its dominant position in this sector. With further initiatives in the pipeline the Company is well-positioned to maintain its market leading position.

At the opposite end of the scale, the semiconductor manufacturing and test market demands high levels of complexity and exceptional performance in modest volumes. New products launched during 2014 have been well received, and with the combination of acousto-optic and laser technology providing the key to enhancing miniaturisation and speed in this rapidly advancing field, the signs are that this sector will grow in importance in the coming years.

Lasers are increasingly being used in sensing applications, both free-space and in-fibre, and Gooch & Housego has strengthened its position in this growing market during the past year. Key new products include narrow line width laser sources and acousto-optic and fibre optic components. Gooch & Housego has been able to leverage its world-class photonic component technologies to meet customer pull for integrated sensor sub-systems, and in doing so has been successful in moving up the value chain in the sensor market.

The telecommunications sector in 2014 was mixed. Products for modulation systems performed extremely well while sales of high-reliability fibre optics for sub-sea applications were flat as a result of delays to long-haul cable infrastructure projects. With the first of these projects receiving the go ahead towards the end of the financial year it is anticipated that there will be more activity in this sector in 2015.

Markets and applications - Aerospace & Defence

During 2014 revenue from the Aerospace & Defence sector accounted for 27% of revenue, and in absolute terms was GBP1.5m higher than the previous year. Established customer relationships have been reinforced, and new ones forged, as a result of business development activities initiated in the past 12 months. Guidance and navigation, laser target designation and laser range finding continue to be the principal applications.

The Aerospace & Defence sector has always been exceptionally demanding in terms of product quality, reliability and performance, but in recent years it has also become intensely cost focused. In order to maintain competitiveness and keep pace with customer expectations, Gooch & Housego has invested considerable effort in the past year to reduce costs while continuing to improve quality and delivery performance. Areas of focus have included supply-chain, management, sub-contract partners and internal manufacturing equipment and processes. These initiatives are ongoing and are an essential aspect of doing business in this sector, which presents significant opportunities for future growth.

Markets and applications - Life Sciences

Whilst demand from the Life Sciences sector for sub-system products was solid during 2014, sales of some acousto-optic products in this sector were weaker than in previous years, resulting in an overall flat performance year on year. Principal applications were optical coherence tomography (OCT), ophthalmology, microscopy, laser surgery and aesthetic laser treatments. We continue to believe the increasingly widespread use of photonics in biomedical research, diagnostics and surgery represents a significant growth opportunity for Gooch & Housego. Companies in this market frequently prefer suppliers that are capable of providing more than just components, and during the past year Gooch & Housego has worked closely with several key customers to support the design and development of their next generation systems. Through the acquisition of Spanoptic Gooch & Housego gained a manufacturing partner in China capable of producing high-quality, competitively priced sub-systems and has been working with them to establish procedures and controls appropriate for this demanding but exciting market.

Markets and applications - Scientific Research

For Gooch & Housego, the Scientific Research market is dominated by a small number of "Big Science" projects in the fields of nuclear fusion research and synchrotron radiation sources. These large, long term projects are reliant on government funding and are frequently subject to delay when budgets are under pressure. Following delays in the previous year that extended into the early months of 2014, demand picked up later in the year but was not sufficient to prevent a small decline in overall revenues from this sector.

Growth

Good progress has been made in delivering growth via a combination of organic and acquisitive means. Initiatives to increase the rate of organic growth have included focussing on a smaller number of higher-value near-market opportunities, increasing investment in the STG and introducing new technology, capabilities and relationships via the acquisition of Constelex.

Several new product opportunities have necessitated working closely with customers to refine and qualify complex sub-system and instrumentation products for applications new to Gooch & Housego. With the potential to provide further diversification and balance in the business, these projects are on target for commercialisation in the coming year.

The acquisition of Constelex, the increase in headcount to eleven and the growth in the number of contracts and funded projects has made it necessary to provide dedicated facilities for the STG. Further investment in the Company's Torquay facility is planned, supported by GBP1.2 million of grant funding from the Regional Growth Fund, to make available dedicated R&D laboratories alongside additional space for expansion of fibre optic components and systems manufacturing in Torquay.

The STG has been successful in securing European Space Agency, UK Space Agency and European Union funding in 2014. By the end of the year the STG was leading or participating in a total of six space photonics projects, including the projects that came with the acquisition of Constelex. The first satellite communications project won by the STG was successfully completed in 2014 with the delivery of a technology demonstrator. A follow-on contract to produce a flight-capable system has since been awarded. While these projects are part of a medium to long term strategy to develop a leadership position in space photonics, the STG is also actively engaged in near-market developments in OCT, fibre lasers and fibre optic sensing as the Companyleverages its components expertise to move up the value chain into systems.

Complementing Gooch & Housego's already strong position in planar optics, the acquisition of Spanoptic has added high precision spherical and aspheric lens manufacturing capabilities, as well as infrared optics and coatings. The latter are particularly relevant for Aerospace & Defence applications.

Operational Excellence

Gooch & Housego embarked on a number of initiatives to improve margins and reduce working capital in 2014. Whilst the full anticipated benefits are not expected to be seen until later in 2015 and beyond, these are aimed at applying a uniform standard of operational excellence across all of the Company's operating facilities. These initiatives are addressing site rationalisation, product consolidation, manufacturing, quality and process controls, supply-chain management and inventory reduction. Although very much work-in-progress, the benefits of these initiatives are already beginning to be reflected in improving margins.

Recent trends in the industrial laser market have resulted in a more streamlined product range, which has made it possible to consolidate manufacturing operations. In April 2014 the closure of the Company's acousto-opticmanufacturing site in Melbourne, Florida, was announced. Customers will continue to be fully supported from Gooch & Housego's other acousto-optic manufacturing operations in the UK and California. The business transfer process is well advanced and is on schedule to be completed by the end of the calendar year.

Board Succession

Succession planning to underpin the continued success of the business and support the smooth evolution of the board was a priority during 2014. At the end of May 2014 Terry Scribbins retired as Chief Operating Officer. I would like to reiterate my thanks to Terry for his enormous contribution to Gooch & Housego over the past decade. In August 2014, Mark Webster made the transition from a non-executive to an executive role and was appointed as Deputy Chief Executive Officer. He will succeed me as Chief Executive Officer in January 2015. I would like to welcome Mark to the executive team. In November 2014 Alex Warnock joined the board as Chief Operating Officer, and will be instrumental in delivering operational excellence across the organisation.

Outlook

Gooch & Housego has made good progress in executing its strategy during 2014, and in doing so has met expectations for growth and profitability. Strategic acquisitions have been used to accelerate organic growth and add new capabilities and customers, resulting in a more diversified and better balanced business that is well-positioned to deliver sustained growth. The initiatives to embed a culture of continuous improvement and deliver operational excellence that commenced in 2014 provide a sound basis for further margin improvement in 2015 and beyond under the direction of the new executive team and with a solid order book the Board are confident of the Group's prospects.

Gareth Jones

Performance Overview

The business has delivered profitable growth and improving margins whilst experiencing considerable foreign exchange headwinds. During the year the business has acquired and successfully integrated two companies, which have both contributed positively to adjusted profits in their first year of ownership under Gooch & Housego.

The Company has delivered an excellent cash performance in the year, increasing its net cash position from GBP5.7m at 30 September 2013 to GBP8.7m at 30 September 2014. During this period, Gooch & Housego has also invested GBP5.5m in acquisitions and GBP2.8m in property, plant and equipment and intangible assets.

 
 REVENUE 
-----------------------------------  -----  --------  ------- 
 
                                 2014              2013 
                           ---------------  ----------------- 
 Year ended 30 September    GBP'000      %   GBP'000      % 
-------------------------  --------  -----  --------  ----- 
 Industrial                  39,813    57%    34,345    54% 
-------------------------  --------  -----  --------  ----- 
 Aerospace & Defence         18,786    27%    17,273    27% 
-------------------------  --------  -----  --------  ----- 
 Life Sciences                7,318    10%     7,353    12% 
-------------------------  --------  -----  --------  ----- 
 Scientific Research          4,139     6%     4,281     7% 
-------------------------  --------  -----  --------  ----- 
 Group Revenue               70,056   100%    63,252   100% 
-------------------------  --------  -----  --------  ----- 
 

In the financial year under review, margins benefited from the greater operating leverage gained from increased volumes and efficiency gains made by the business this year. As a result, adjusted operating margins have increased to 17.1% (2013: 16.2%).

Group revenue for the year was a record GBP70.1m, an increase of GBP6.8m, or 11% over the previous year of GBP63.3m. On a consistent currency basis revenue was 16% higher than the previous year, with 10% of this growth coming from acquisitions.

In our Industrial segment, revenue grew by 15.9% from GBP34.3m last year to GBP39.8m this year. Similarly, revenue in our Aerospace & Defence business grew by 8.8%, from GBP17.3m to GBP18.8m. Sales into our Life Sciences market were flat, whilst our smallest segment of Scientific Research fell by 3.3%.

A more detailed analysis of revenues by market is shown in the Market Analysis section, earlier in this report.

 
 GROUP EARNINGS PERFORMANCE 
-----------------------------------  --------  --------  ---------- 
 
 All amounts in GBP'000         Adjusted             Reported 
                                               -------------------- 
 Year ended 30 September       2014      2013      2014      2013 
-------------------------  --------  --------  --------  -------- 
 Operating profit            11,974    10,268     8,395     8,951 
-------------------------  --------  --------  --------  -------- 
 Net finance costs            (514)     (608)     (514)     (608) 
-------------------------  --------  --------  --------  -------- 
 Profit before taxation      11,460     9,660     7,881     8,343 
-------------------------  --------  --------  --------  -------- 
 Taxation                   (2,951)   (2,490)   (2,482)   (2,151) 
-------------------------  --------  --------  --------  -------- 
 Profit for the year          8,509     7,170     5,399     6,192 
 Basic earnings per 
  share (p)                   35.6p     32.0p     22.5p     27.7p 
-------------------------  --------  --------  --------  -------- 
 

The Group adjusted profit before tax amounted to GBP11.5m (2013: GBP9.7m) and represented a return on revenue of 16.4% compared with 15.3% in the previous year. Statutory profit before tax was GBP7.9m compared with GBP8.3m last year, reflecting the one off costs associated with the closure of our New Jersey R&D facility, the closure of our Melbourne facility and the write off of goodwill associated with our 2011 EM4 acquisition. Against this, the company had a one off benefit associated with the gain on acquisition of Spanoptic.

The adjusted effective rate of tax was 25.8% (2013: 25.8%). The effective rate of tax of 31.5% (2013: 25.8%) was higher due to the impairment of goodwill and write off of deferred tax assets due to the closure of the Melbourne site. The rate also reflects a combination of the varying tax rates applicable throughout the countries in which the Group operates, principally the UK and the USA. The effect of the reduction of the UK corporation tax rate was largely offset by a greater proportion of the Group's profit being taxed in the US.

The introduction of the patent box tax regime from April 2013 has not contributed to a lower tax rate in 2014 and will not in 2015 due to the Group historically filing patents in the USA rather than in the UK or Europe. Current policy is to file patents in the UK when possible. The effective rate of tax should benefit in the future from further reductions in the UK tax rate, although the increased percentage of profit generated in the USA, where tax rates are higher, will also have an impact.

Adjusted earnings per share (EPS) increased from 32.0p to 35.6p. Basic EPS was 22.5p compared with 27.7p last year.

 
 RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES 
 
 
                           Operating          Net finance          Taxation           Earnings 
                             Profit              costs                                per share 
--------------------  ------------------  ------------------  ------------------  ---------------- 
 Year ended 30            2014      2013      2014      2013      2014      2013     2014     2013 
  September             GBP000    GBP000    GBP000    GBP000    GBP000    GBP000    pence    pence 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Reported                8,395     8,951     (514)     (608)   (2,482)   (2,151)    22.5p    27.7p 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Amortisation 
  of acquired 
  intangible assets      1,525       875         -         -     (381)     (225)     4.8p     2.9p 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Gain on bargain 
  purchase             (1,039)         -         -         -         -         -   (4.3p)        - 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Impairment of 
  goodwill               1,538         -         -         -         -         -     6.4p        - 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Acquisition 
  costs                      -       164         -         -         -      (42)        -     0.5p 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Restructuring 
  costs                  1,555       278         -         -      (88)      (72)     6.2p     0.9p 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 Adjusted               11,974    10,268     (514)     (608)   (2,951)   (2,490)    35.6p    32.0p 
--------------------  --------  --------  --------  --------  --------  --------  -------  ------- 
 

NON GAAP MEASURES

The Company uses a number of non GAAP measures which are shown in the table above and in the segmental analysis. These measures are used to illustrate the impact of non-recurring and non-trading items on the Company's financial results. These are the impact of the amortisation of acquired intangible assets, gain on bargain purchase of Spanoptic, impairment of goodwill, acquisition costs and costs associated with restructuring activities. In addition, the Company uses the term EBITDA (Earnings before interest, taxation, depreciation and amortisation). This is a commonly used measure of operating performance and cash flow.

SEGMENTAL ANALYSIS

Industrial

Our Industrial business grew strongly during the year, with revenues of GBP39.8m, compared with GBP34.3m last year. Revenue from the Group's traditional Q-switch product fell during the year, as anticipated, and now represents 10.2% of total group revenue (2013: 12.2%). We believe this reflects the continuing shift towards the use of fibre lasers in materials processing applications. Once again this appears to be supported by the significant increase in sales of fibre laser components experienced by Gooch & Housego in 2014. Telecommunications revenues were up significantly in the year due to increased demand for our crystal products for modulation applications. The acquisition of Spanoptic Ltd also strengthened our offering in the Industrial space.

After adjusting for the Melbourne site restructuring costs and the revised corporate allocation basis, operating profit for the Industrial sector as a whole was 26.3% higher at GBP8.1m, compared with GBP6.4m last year. This reflects a combination of the Spanoptic acquisition and operational gearing resulting from additional volume flowing through our Palo Alto facility.

Aerospace & Defence (A&D)

A&D business revenue increased by 8.8% from GBP17.3m to GBP18.8m in 2014. The business continues to provide both components and systems to the Company's UK and US A&D customers and this year this was supplemented by the additional contribution from the Spanoptic acquisition. Despite continuing softness in engineering contracts as a result of US Government spending constraints, our engineering services business also performed better in 2014. Operating margins in this sector improved largely as a result of the additional volume.

Life Sciences

In 2014 the Life Science market was flat for Gooch & Housego. Whilst the business benefited from the additional contribution that the Spanoptic acquisition brought, sales of acousto optic products into this market were down. Operating margins in this sector were down, largely as a result of product mix. We continue to believe this market offers a significant growth opportunity.

Scientific Research

Our activities in the Scientific Research market are dominated by a small number of large, long-term programmes.

This market was weaker for Gooch & Housego in 2014 as a result of a slow-down in demand from the laser fusion programmes as a result of budgetary pressures. Once the construction of Laser Megajoule is complete we expect on-going business to be service replacement and maintenance requirements for these projects.

RESEARCH & DEVELOPMENT (R&D)

Gooch & Housego continues to invest in R&D in all areas of the business and regards this as fundamental to the continued growth of the company. There were fourteen product releases in 2014, together with four new patents granted.

Expenditure on R&D in the year to 30 September 2014 increased by 16.3% from GBP4.9m to GBP5.7m. A proportion of this increase was funded through UK and European grant funding. R&D expenditure represented 8.1% of revenue (2013: 7.8%). The Group capitalised GBP0.5m (2013: GBP0.03m) of development expenditure.

PERFORMANCE OF ACQUISITIONS AND SITE PERFORMANCE

The acquisitions of Spanoptic and Constelex continued our strategy, reinforcing Gooch & Housego's leadership in precision optics and high-end fibre optics for space applications, contributing to our diversification and strengthening our position in our core, and new target, markets.

The acquisition of Spanoptic has brought high precision spherical and aspherical optics, as well as infra-red optics and coatings to Gooch & Housego's existing stable of precision optic capabilities. This acquisition was completed in October 2013 and has contributed GBP6.6 million in revenue and GBP1.4 million in profit before allocation of central costs in the year to 30 September 2014. The acquisition also resulted in a gain on bargain purchase of GBP1.0 million.

The acquisition of Constelex, a small photonic systems business specialising in fibre amplifier technology for the space market, was completed in November 2013. As well as providing a great stimulus to the STG, the Constelex has contributed GBP36,000 in revenue and GBP16,000 in profit in the year to 30 September 2014.

As part of its bi-annual review of the carrying value of goodwill, the Board has taken the decision to impair the goodwill relating to the Boston cash generating unit. This goodwill arose on the acquisition of EM4, now referred to as Gooch & Housego Boston, in January 2011 for consideration of $11.6 million and, prior to the impairment, the carrying value of the associated goodwill was GBP5.8m. Over the last three years this acquisition has played a vital role in Gooch & Housego's diversification strategy, by providing the systems and critical mass needed for the Company to become a credible player in the Aerospace & Defence market. The duplication of Boston's technology in our Torquay facility has also been a key factor in allowing Gooch & Housego to address the European space market. However, on a stand-alone basis, Boston has struggled to grow its engineering services business during the well documented cuts in US government spending on defence. Recent trends in this market and a success in its products business, are encouraging signs for the future. These changes have yet to produce tangible results and as a result, the Board feels it is appropriate to make an impairment of GBP1.0m to the carrying value of Boston.

Following inconclusive discussions with potential commercial partners earlier this year, it was decided to mothball the Group's work on cancer diagnostics using hyperspectral imaging and to close its research facility in New Jersey. The cost of closing this facility was GBP0.8 million, of which GBP0.7 million related to non-cash costs (GBP0.6 million of goodwill impairment). It is expected that the closure of this facility will result in an annual cash saving of GBP0.3 million per annum. Gooch & Housego will continue to develop and manufacture hyperspectral imaging products from its Orlando facility.

On 16 April 2014, management announced the proposed closure of the Group's Melbourne, Florida facility in connection with the consolidation of acousto-optic development and manufacturing into two of the Group's existing sites. The closure of this facility is expected to be completed by the end of December 2014. The cost of closing this site is expected to be GBP1.8m, of which GBP1.4m has been recognised in the year to 30 September 2014.

BALANCE SHEET

The Group's shareholders' funds at the end of the year were GBP69.9m, an increase of GBP5.0m over the prior year. This increase comprised GBP0.2m due to the issue of share capital and GBP4.8m from retained earnings.

Additions to property, plant and equipment totalled GBP1.9m. The main fixed asset additions related to investment in plant and machinery and the expansion of our Torquay facilities and equipment to accommodate the Systems Technology Group.

Working capital was 22.0% of revenue in the current year compared to 24.7% in 2013. Inventories have increased by GBP1.3m from GBP13.4m in 2013 to GBP14.7m at this year-end, although if acquisitions are excluded the increase was GBP0.5m. Trade and other receivables have increased by GBP0.3m from GBP12.7m in 2013 to GBP13.0m at this year-end. However, again after stripping out the trade and other receivables attributable to acquisitions of GBP1.4m, the balance has actually decreased by GBP1.1m compared to 2013.

Cash balances at 30 September 2014 were GBP17.1m, compared with GBP14.6m at 30 September 2013. Net cash flows from operating activities generated GBP13.7m, compared with GBP9.2m last year. During the year the business moved from a net cash position of GBP5.7m as at 30 September 2013, to a net cash position of GBP8.7m.

MOVEMENT IN NET CASH

 
 All amounts in GBPm                 Gross   Gross     Net 
                                      Cash    Debt    Cash 
----------------------------------  ------  ------  ------ 
 At 1 October 2013                    14.6   (8.9)     5.7 
 Operating cash flows                 13.6       -    13.6 
 Acquisitions                        (5.5)   (0.3)   (5.8) 
 Debt repayment (net of drawdown)    (0.9)     0.9       - 
 Capital expenditure                 (2.7)       -   (2.7) 
 Working capital                       1.7       -     1.7 
 Proceeds from share issue             0.1       -     0.1 
 Interest, tax and dividends         (3.8)       -   (3.8) 
 Exchange movement                       -   (0.1)   (0.1) 
----------------------------------  ------  ------  ------ 
 At 30 September 2014                 17.1   (8.4)     8.7 
----------------------------------  ------  ------  ------ 
 

ORDER BOOK

As at 30 September 2014, the Group order book stood at GBP32.8m, compared to GBP27.8m at the end of the 2013 financial year, an 18% increase. On a like for like basis, excluding the impact of acquisitions, the order book was 7% higher. Book to bill ratios for the business as a whole were 1.43 times (six month rolling average) as at 30 September 2014, compared to 1.01 times for the same period last year.

STAFF

The Group workforce increased from 581 at 30 September 2013 to 664 at the end of September 2014, an increase of 83, of which 63 was due to acquisitions. This is a net position and therefore reflects both the reductions in staffing resulting from the work the business has done in integration and rationalisation of sites and processes and the additional investment that the business has made in engineering, business development and management.

POST BALANCE SHEET EVENTS

On 13 November 2014, the remaining EUR125,000 of deferred consideration in respect of the acquisition of Constelex Technology Enablers Limited was settled in the form of share capital.

On 14 November 2014, the Company refinanced its debt facilities with the Royal Bank of Scotland. The Group now has a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m available until 30 April 2019. Upon inception of the new facility, all existing RBS borrowings were repaid and $8m of the new revolving credit facility was drawn.

DIVIDENDS

The Directors propose a final dividend of 4.6p per share making a total dividend for the year of 7.2p (2013: 6.3p). The final dividend will be payable on 5 March 2015 to shareholders on the Company's share register as at close of business on 18 December 2014.

KEY PERFORMANCE INDICATORS (KPIs)

The Group objective is to deliver sustainable, long-term growth in revenue and profits. This is to be achieved through the execution of the Board's strategies of market diversification, the continued investment in R&D to support organic growth, the acquisition of strategically complementary businesses and the on-going drive to move up the value chain.

In striving to achieve these strategic objectives, the main financial performance measures monitored by the Board are:

 
 Total revenue growth          2014   2013   2012 
----------------------------  -----  -----  ----- 
 At actual exchange rates       11%     4%     0% 
----------------------------  -----  -----  ----- 
 At constant exchange rates     16%     3%   (1%) 
----------------------------  -----  -----  ----- 
 

The Board is focused on delivering revenue growth by investing both organically and through acquisitions. The Group business has delivered underlying growth, whilst experiencing variable demand patterns within its core markets.

 
 Target market revenue         2014   2013   2012 
----------------------------  -----  -----  ----- 
 Aerospace & Defence (GBPm)    18.8   17.3   15.4 
----------------------------  -----  -----  ----- 
 Life Sciences (GBPm)           7.3    7.4    5.7 
----------------------------  -----  -----  ----- 
 

The Group target markets of Aerospace & Defence and Life Sciences provide a route to sustainable growth, and a more diversified revenue base. These markets also provide significant opportunities for Gooch & Housego to migrate up the value-chain from materials and components to higher value sub-assemblies, modules and systems in response to the trend for our larger customers to outsource increasingly complex parts of their business. The business has made good progress in addressing its target markets of Aerospace & Defence and Life Sciences which, in aggregate, have increased by 5.7% in the 2014 financial year.

 
 Net cash analysis         2014   2013    2012 
------------------------  -----  -----  ------ 
 Net cash/(debt) (GBPm)     8.7    5.7   (0.3) 
------------------------  -----  -----  ------ 
 

In order to balance business risk with the investment needs of the Company, management closely monitor and manage net debt. This year the business increased its net cash position of from GBP5.7m to GBP8.7m, putting the business in a strong position both in terms of headroom for further investment and from the perspective of managing its business risk.

 
 Earnings per share (EPS)         2014   2013   2012 
------------------------------  ------  -----  ----- 
 Adjusted diluted EPS (pence)    35.2p   30.5   26.4 
------------------------------  ------  -----  ----- 
 

As a result of a strong trading performance, the business has been able to deliver growth in adjusted diluted EPS of 15.4%, from 30.5p to 35.2p in 2014.

Group Income Statement

For the year ended 30 September 2014 (unaudited)

 
                                                2014       2013 
                                     Note     GBP000     GBP000 
                                           ---------  --------- 
 Revenue                                2     70,056     63,252 
 Cost of revenue                            (41,706)   (37,635) 
                                           ---------  --------- 
 Gross profit                                 28,350     25,617 
 Research and Development                    (5,160)    (4,913) 
 Sales and Marketing                         (4,498)    (4,666) 
 Administration                             (10,026)    (8,814) 
 Other income and expenses                     (271)      1,727 
                                           ---------  --------- 
 Operating profit                       2      8,395      8,951 
 Finance income                                    8         15 
 Finance costs                                 (522)      (623) 
                                           ---------  --------- 
 Profit before income tax expense              7,881      8,343 
 Income tax expense                     3    (2,482)    (2,151) 
                                           ---------  --------- 
 Profit for the year                           5,399      6,192 
                                           ---------  --------- 
 
 Basic earnings per share               4      22.5p      27.7p 
 Diluted earnings per share             4      22.3p      26.4p 
                                           ---------  --------- 
 

Reconciliation of operating profit to adjusted operating profit:

 
                                              2014     2013 
                                            GBP000   GBP000 
                                          --------  ------- 
 Operating profit                            8,395    8,951 
 Amortisation of acquired intangible 
  assets                                     1,525      875 
 Acquisition costs                               -      164 
 Restructuring costs                         1,555      278 
 Gain on bargain purchase of Spanoptic     (1,039)        - 
  Limited 
 Impairment of goodwill                      1,538        - 
 Adjusted operating profit                  11,974   10,268 
                                          --------  ------- 
 

Group Balance Sheet

For the year ended 30 September 2014 (unaudited)

 
                                              2014       2013 
                                            GBP000     GBP000 
                                         ---------  --------- 
 Non-current assets 
 Property, plant and equipment              24,140     21,456 
 Intangible assets                          20,668     19,821 
 Deferred income tax assets                  3,114      3,830 
                                         ---------  --------- 
                                            47,922     45,107 
 Current assets 
 Inventories                                14,663     13,390 
 Income tax assets                             487        420 
 Trade and other receivables                13,005     12,706 
 Cash and cash equivalents                  17,094     14,558 
                                            45,249     41,074 
 Current liabilities 
 Trade and other payables                 (11,829)   (10,461) 
 Borrowings                                (8,048)    (5,726) 
 Income tax liabilities                      (244)      (307) 
 Provision for other liabilities 
  and charges                                (447)      (271) 
                                         ---------  --------- 
                                          (20,568)   (16,765) 
                                            24,014 
                                         ---------  --------- 
 Net current assets                         24,681     24,309 
 
 Non-current liabilities 
 Borrowings                                  (360)    (3,113) 
 Deferred income tax liabilities           (2,306)    (1,330) 
 Derivative financial instruments                -       (34) 
                                         ---------  --------- 
                                           (2,666)    (4,477) 
 
 Net assets                                 69,937     64,939 
                                         ---------  --------- 
 
 Shareholders' equity 
  Capital and reserves 
  attributable to equity shareholders 
 Called up share capital                     4,774      4,620 
 Share premium account                      15,420     15,213 
 Merger reserve                              2,671      2,671 
 Hedging reserve                              (21)       (79) 
 Cumulative translation reserve              (770)      (860) 
 Retained earnings                          47,863     43,374 
                                         ---------  --------- 
 Total equity                               69,937     64,939 
                                         ---------  --------- 
 

Group Statement of Changes in Shareholders' Equity

For the year ended 30 September 2014 (unaudited)

 
                                         Called      Share 
                                       up share    premium     Merger     Hedging     Retained      Total 
                                        capital    account    reserve     reserve     earnings     equity 
                               Note      GBP000     GBP000     GBP000      GBP000       GBP000     GBP000 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 At 1 October 2012                        4,382     14,311      2,671       (169)       37,371     58,566 
 Profit for the financial 
  year                                        -          -          -           -        6,192      6,192 
 Other comprehensive 
  income/(expense) 
  for the year                                -          -          -          90        (364)      (274) 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 Total comprehensive 
  income for the year                         -          -          -          90        5,828      5,918 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 Dividends                        5           -          -          -           -      (1,229)    (1,229) 
 Proceeds from shares 
  issued                                    238        902          -           -         (96)      1,044 
 Fair value of employee 
  services                                    -          -          -           -          341        341 
 Tax credit relating 
  to share option schemes                     -          -          -           -          299        299 
 Total contributions 
  by and distributions 
  to owners of the 
  parent recognised 
  directly in equity                        238        902          -           -        (685)        455 
 At 30 September 2013                     4,620     15,213      2,671        (79)       42,514     64,939 
 At 1 October 2013                        4,620     15,213      2,671        (79)       42,514     64,939 
 Profit for the financial 
  year                                        -          -          -           -        5,399      5,399 
 Other comprehensive 
  income for the year                         -          -          -          58           90        148 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 Total comprehensive 
  income for the year                         -          -          -          58        5,489      5,547 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 Dividends                        5           -          -          -           -      (1,569)    (1,569) 
 Proceeds from shares 
  issued                                    154        207          -           -        (149)        212 
 Fair value of employee 
  services                                    -          -          -           -          361        361 
 Tax credit relating 
  to share option schemes                     -          -          -           -          447        447 
 Total contributions 
  by and distributions 
  to owners of the 
  parent recognised 
  directly in equity                        154        207          -           -        (910)      (549) 
 At 30 September 2014                     4,774     15,420      2,671        (21)       47,093     69,937 
                                     ----------  ---------  ---------  ----------  -----------  --------- 
 
 

Group Statement of Comprehensive Income

For the year ended 30 September 2014 (unaudited)

 
                                                     2014     2013 
                                           Note    GBP000   GBP000 
                                                  -------  ------- 
 
 Profit for the year                                5,399    6,192 
 
 Other comprehensive income / (expense) 
  - items that may be reclassified 
  subsequently to profit or loss 
 Fair value adjustment of interest 
  rate swap net of tax                                 58       90 
 Currency translation differences                      90    (364) 
 Other comprehensive income / (expense) 
  for the year net of tax                             148    (274) 
 
 Total comprehensive income for the 
  year attributable to the shareholders 
  of Gooch & Housego PLC                            5,547    5,918 
                                                  -------  ------- 
 
 
 

Group Cash Flow Statement

For the year ended 30 September 2014 (unaudited)

 
                                                      2014      2013 
                                            Note    GBP000    GBP000 
                                                  --------  -------- 
 Cash flows from operating activities 
 Cash generated from operations              6      15,298    10,130 
 Income tax paid                                   (1,625)     (882) 
                                                  --------  -------- 
 Net cash generated from operating 
  activities                                        13,673     9,248 
                                                  --------  -------- 
 
 Cash flows from investing activities 
 Acquisition of subsidiaries, net 
  of cash acquired                                 (5,532)      (22) 
 Purchase of property, plant and 
  equipment                                        (1,909)   (2,032) 
 Sale of property, plant and equipment                  26        67 
 Purchase of intangible assets                       (852)     (202) 
 Interest received                                       8        15 
                                                  --------  -------- 
 Net cash used in investing activities             (8,259)   (2,174) 
                                                  --------  -------- 
 
 Cash flows from financing activities 
 Drawdown of borrowings                              4,832         - 
 Repayment of borrowings                           (3,196)   (3,394) 
 Proceeds from issues of share 
  capital                                              105     1,044 
 Dividends paid to ordinary shareholders           (1,569)   (1,229) 
 Interest paid                                       (569)     (505) 
 Net cash used in financing activities               (397)   (4,084) 
                                                  --------  -------- 
 
 Net increase in cash, cash equivalents, 
  revolving credit facility and 
  bank overdraft                                     5,017     2,990 
 Cash, cash equivalents, revolving 
  credit facility and bank overdraft 
  at beginning of the year                          12,088     9,235 
 
   Exchange losses on cash and bank 
   overdrafts                                         (11)     (137) 
                                                  --------  -------- 
 Cash, cash equivalents, revolving 
  credit facility and bank overdraft 
  at the end of the year                            17,094    12,088 
                                                  --------  -------- 
 

Cash, cash equivalents, revolving credit facility and bank overdrafts at the end of the year comprise:

 
                                           2014      2013 
                                         GBP000    GBP000 
                                        -------  -------- 
 Cash and cash equivalents               17,094    14,558 
 Revolving credit facility and 
  overdraft                                   -   (2,470) 
                                        -------  -------- 
 Cash, cash equivalents, revolving 
  credit facility and bank overdraft 
  at the end of the year                 17,094    12,088 
                                        -------  -------- 
 

Notes to the preliminary report

   1.         Basis of preparation 

The unaudited Preliminary Report has been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and interpretations in issue at 30 September 2014.

The Preliminary Report does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006 and has not been audited.

Comparative figures in the Preliminary Report for the year ended 30 September 2013 have been taken from the Group's audited statutory financial statements on which the Group's auditors, PricewaterhouseCoopers LLP, expressed an unqualified opinion.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2013, as described in those financial statements. New standards or interpretations which came into effect for the current reporting period did not have a material impact on the net assets or results of the Group.

The Preliminary Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 2 December 2014. Copies will be available to members of the public upon application to the Company Secretary at Dowlish Ford, Ilminster, Somerset, TA19 0PF.

   2.             Segmental analysis 

The Company's segmental reporting reflects the information that management uses within the business. The business is divided into four market sectors, being Aerospace & Defence, Life Sciences, Industrial and Scientific Research, together with the Corporate cost centre.

The industrial business segment primarily comprises the industrial laser market for use in the semiconductor and microelectronic industries, but also includes other industrial applications such as metrology and telecommunications. Scientific Research covers academic and government funded research including major multi-national projects.

 
                              Aerospace                                Scientific 
                              & Defence   Life Sciences   Industrial     Research   Corporate      Total 
                                 GBP000          GBP000       GBP000       GBP000      GBP000     GBP000 
 For year ended 30 
  September 2014 
--------------------------  -----------  -------------- 
 Revenue 
 Total revenue                   18,786           7,318       44,248        4,139           -     74,491 
 Inter and intra-division             -               -      (4,435)            -           -    (4,435) 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 External revenue                18,786           7,318       39,813        4,139           -     70,056 
 Divisional expenses           (15,612)         (6,083)     (31,207)      (3,713)       (214)   (56,829) 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 EBITDA(1)                        3,174           1,235        8,606          426       (214)     13,227 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 EBITDA %                         16.9%           16.9%        21.6%        10.3%           -      18.9% 
 Depreciation and 
  amortisation                    (522)           (270)      (1,702)        (152)       (162)    (2,808) 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit 
  before amortisation 
  of acquired intangible 
  assets                          2,652             965        6,904          274       (376)     10,419 
 Amortisation of acquired 
  intangible assets                   -               -            -            -     (2,024)    (2,024) 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit                 2,652             965        6,904          274     (2,400)      8,395 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit 
  margin %                        14.1%           13.2%        17.3%         6.6%           -      12.0% 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Add back Melbourne 
  closure costs                      79              59        1,155           91           -      1,384 
 Operating profit 
  excluding Melbourne 
  closure costs                   2,731           1,024        8,059          365     (2,400)      9,779 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Adjusted profit margin 
  %                               14.5%           14.0%        20.2%         8.8%           -      14.0% 
--------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 

(1)EBITDA = Earnings before interest, tax, depreciation and amortisation

Management have added back the cost of the Melbourne site closure in the above analysis. This has been shown because the Directors consider the analysis to be more meaningful excluding the impact of this non-recurring expense.

   2.         Segmental analysis (continued) 
 
                                   Aerospace                                Scientific 
 As restated                       & Defence   Life Sciences   Industrial     Research   Corporate      Total 
                                      GBP000          GBP000       GBP000       GBP000      GBP000     GBP000 
 For year ended 30 September 
  2013 
-------------------------------  -----------  -------------- 
 Revenue 
 Total revenue                        17,273           7,353       38,179        4,281           -     67,086 
 Inter and intra-division                  -               -      (3,834)            -           -    (3,834) 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 External revenue                     17,273           7,353       34,345        4,281           -     63,252 
 Divisional expenses                (14,652)         (5,799)     (27,055)      (3,679)       (127)   (51,312) 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 EBITDA(1)                             2,621           1,554        7,290          602       (127)     11,940 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 EBITDA %                              15.2%           21.1%        21.2%        14.1%           -      18.9% 
 Depreciation and amortisation         (550)           (220)        (907)        (143)       (294)    (2,114) 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit before 
  amortisation of acquired 
  intangible assets                    2,071           1,334        6,383          459       (421)      9,826 
 Amortisation of acquired 
  intangible assets                        -               -            -            -       (875)      (875) 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit                      2,071           1,334        6,383          459     (1,296)      8,951 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 Operating profit margin 
  %                                    12.0%           18.1%        18.6%        10.7%           -      14.2% 
-------------------------------  -----------  --------------  -----------  -----------  ----------  --------- 
 

The above analysis has been restated to reflect the allocation of corporate expenses on a consistent basis with that adopted in respect of the year ended 30 September 2014.

All of the amounts recorded are in respect of continuing operations.

Analysis of net assets/(liabilities) by location:

 
                     2014          2014         2014     2013          2013         2013 
                   Assets   Liabilities   Net Assets   Assets   Liabilities   Net Assets 
                   GBP000        GBP000       GBP000   GBP000        GBP000       GBP000 
                  -------  ------------  -----------  -------  ------------  ----------- 
 United Kingdom    38,387      (12,388)       25,999   38,258      (11,418)       26,840 
 USA               54,282      (10,345)       43,937   47,751       (9,776)       37,975 
 Continental 
  Europe              486         (497)         (11)      162          (42)          120 
 Asia Pacific          16           (4)           12       10           (6)            4 
                  -------  ------------  -----------  -------  ------------  ----------- 
                   93,171      (23,234)       69,937   86,181      (21,242)       64,939 
                  -------  ------------  -----------  -------  ------------  ----------- 
 

Analysis of revenue by destination:

 
                            2014      2013 
                          GBP000    GBP000 
                        --------  -------- 
 United Kingdom           14,412     9,481 
 USA                      29,657    30,213 
 Continental Europe       14,425    13,821 
 Asia Pacific and 
  Other                   11,562     9,737 
 Total revenue            70,056    63,252 
                        --------  -------- 
 
   3.             Income tax expense 

Analysis of tax charge in the year

 
                                              2014      2013 
                                            GBP000    GBP000 
 Current taxation 
 UK Corporation tax                          1,446     1,263 
 Overseas tax                                  630       238 
 Adjustments in respect of prior 
  year tax charge                            (165)     (304) 
                                          --------  -------- 
 Total current tax                           1,911     1,197 
                                          --------  -------- 
 
 Deferred tax 
 Origination and reversal of temporary 
  differences                                   49       677 
 Adjustments in respect of prior 
  year deferred tax                            504       234 
 Impact of UK tax rate change to 
  20% (2013: 20%)                               18        43 
                                          --------  -------- 
 Total deferred tax                            571       954 
 
 Income tax expense per income 
  statement                                  2,482     2,151 
                                          --------  -------- 
 
   4.             Earnings per share 

The calculation of earnings per 20p Ordinary Share is based on the profit for the year using as a divisor the weighted average number of Ordinary Shares in issue during the year. The weighted average number of shares for the year ended 30 September is given below:

 
                                                   2014         2013 
 Number of shares used for basic earnings 
  per share                                  23,984,536   22,376,650 
 Dilutive shares                                213,581    1,097,927 
 Number of shares used for dilutive 
  earnings per share                         24,198,117   23,474,577 
                                            -----------  ----------- 
 

A reconciliation of the earnings used in the earnings per share calculation is set out below:

 
                                                2014                  2013 
                                                    pence                 pence 
                                         GBP000    per share   GBP000    per share 
                                       --------  -----------  -------  ----------- 
 Basic earnings per share                 5,399     22.5p       6,192     27.7p 
 Amortisation of acquired intangible 
  assets (net of tax)                     1,144      4.8p         650      2.9p 
 Goodwill impairment                      1,538      6.4p           -       - 
 Gain on bargain purchase               (1,039)     (4.3p)          -       - 
 Acquisition costs (net of 
  tax)                                        -       -           122      0.5p 
 Restructuring costs (net of 
  tax)                                    1,467      6.2p         206      0.9p 
                                       --------  -----------  -------  ----------- 
 Total adjustments net of income 
  tax expense                             3,110     13.1p         978      4.3p 
                                       --------  -----------  -------  ----------- 
 Adjusted basic earnings per 
  share                                   8,509     35.6p       7,170     32.0p 
                                       --------  -----------  -------  ----------- 
 
 Basic diluted earnings per 
  share                                   5,399     22.3p       6,192     26.4p 
                                       --------  -----------  -------  ----------- 
 Adjusted diluted earnings 
  per share                               8,509     35.2p       7,170     30.5p 
                                       --------  -----------  -------  ----------- 
 

Basic and diluted earnings per share before amortisation and other adjustments has been shown because, in the opinion of the Directors, it provides a useful measure of the trading performance of the Group.

   5.             Dividends 
 
                                             2014      2013 
                                           GBP000    GBP000 
                                         --------  -------- 
 Final 2013 dividend paid in 2014: 
  4.0p per share (Final 2012 dividend 
  paid in 2013: 3.2p per share)               950       712 
 2014 Interim dividend paid: 2.6p 
  per share (2013: 2.3p)                      619       517 
                                         --------  -------- 
                                            1,569     1,229 
                                         --------  -------- 
 

The Directors propose a final dividend of 4.6p per share making the total dividend paid and proposed in respect of the 2014 financial year 7.2p (2013: 6.3p).

   6.             Cash generated from operating activities 
 
 
                                                 2014      2013 
                                               GBP000    GBP000 
                                             --------  -------- 
 Profit before income tax                       7,881     8,343 
 Adjustments for: 
 - Amortisation of acquired intangible 
  assets                                        1,525       875 
 - Amortisation of other intangible 
  assets                                          164       168 
 - Gain on bargain purchase of Spanoptic      (1,039)         - 
  Limited 
 - Impairment of goodwill                       1,538         - 
 - Depreciation                                 2,644     1,949 
 - Loss on disposal of property, 
  plant and equipment                              21        91 
 - Share based payment obligations                361       341 
 - Finance income                                 (8)      (15) 
 - Finance costs                                  522       623 
                                             --------  -------- 
 Total                                          5,728     4,032 
 Changes in working capital 
 - Inventories                                  (538)     (970) 
 - Trade and other receivables                  2,097     (882) 
 - Trade and other payables                       130     (393) 
 Total                                          1,689   (2,245) 
 
 Cash generated from operating activities      15,298    10,130 
                                             --------  -------- 
 
   7.             Post Balance Sheet Events 

On 13 November 2014, the remaining EUR125,000 of deferred consideration in respect of the acquisition of Constelex Technology Enablers Limited was settled in the form of share capital.

On 14 November 2014, the Company refinanced its debt facilities with the Royal Bank of Scotland. The Group now has a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m available until 30 April 2019. Upon inception of the new facility, all existing RBS borrowings were repaid and $8m of the new revolving credit facility was drawn.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR UGGBUPUPCPUG

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