TIDMGHH
RNS Number : 3565Q
Gooch & Housego PLC
29 November 2016
For immediate release 29 November 2016
Gooch & Housego PLC
("Gooch & Housego", "G&H", the "Company" or the
"Group")
PRELIMINARY RESULTS FOR THE YEARED 30 SEPTEMBER 2016
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer
of optical components and systems, today announces its preliminary
results for the year ended 30 September 2016.
Year ended 30 September 2016 2015 Change
------------------------- ----- ----- --------
Revenue (GBPm) 86.1 78.7 9.3%
------------------------- ----- ----- --------
Adjusted profit before
tax (GBPm)* 14.2 12.9 9.7%
------------------------- ----- ----- --------
Adjusted basic earnings
per share (pence)* 42.5 39.5 7.6%
------------------------- ----- ----- --------
Statutory profit before
tax (GBPm) 10.1 10.1 -
------------------------- ----- ----- --------
Basic earnings per
share (pence) 29.1 30.9 (5.8%)
------------------------- ----- ----- --------
Total dividend per
share (pence) 9.0 8.2 9.8%
------------------------- ----- ----- --------
Net cash (GBPm) 11.7 17.3 (32.4%)
------------------------- ----- ----- --------
* adjusted figures exclude the amortisation of acquired
intangible assets, gain on bargain purchase, impairment of goodwill
and exceptional items being restructuring, provision for export
compliance and transaction costs.
Operating & Strategic Highlights
-- Excellent performance from our fibre based business, in
particular telecoms, satellite communications and fibre sensing
-- Strong second half performance with good momentum going into FY17
-- Two highly complementary acquisitions completed in the Aerospace & Defence sector
-- Substantially upgraded a number of our real estate assets
-- Ongoing performance improvement initiatives driving efficiencies
-- Investment in R&D up 15.4%, 21 new products introduced and 5 new patents granted
Financial Highlights
-- Revenue for the year GBP86.1m, 9.3% higher than 2015.
Acquisitions contributed GBP2.4m in the year.
-- Adjusted profit before tax up 9.7%
-- Strong cash performance delivering net cash of GBP11.7m at
year end, after investing GBP5.7m in acquisitions and GBP9.7m in
property, plant & equipment (2015: GBP17.3m).
-- Record year end order book of GBP52.8m, up 45% from 30 September 2015
-- Proposed final dividend of 5.7p. Full year dividend growth of 9.8%.
Mark Webster, Chief Executive Officer, commented
"During FY 2016 G&H made good progress with its strategic
goals of further diversification and moving up the value chain; we
met our financial objectives; made a number of strategically
important investments and have acquired two highly complementary
companies.
These strategic initiatives combined with a record year end
order book mean we are well placed for future material growth"
For further information please contact:
Gooch & Housego Mark Webster /
PLC Andrew Boteler 01460 256 440
Investec Bank Patrick Robb /
plc (Nomad & Broker) David Anderson 020 7597 5970
Mark Court / Sophie
Buchanan Cowles 020 7466 5000
Expected Financial Calendar
Annual General Meeting 22 February 2017
Payment date for final dividend 3 March 2017
for the year ended 30 September
2016 to shareholders on the register
at close of business 16 December
2016.
Subject to approval by shareholders June 2017
at the Annual General Meeting
30 September 2017
Interim Results announcement
December 2017
Financial Year End
Preliminary announcement of results
for the year ended
30 September 2017
Chairman's Statement
I am pleased to report that your company has performed well in
2016 and has continued to make good progress in delivering on its
strategic objectives. The year was characterised by mixed trading
conditions. After a slow start, activity increased as the year
progressed and was particularly strong in the second half,
following a trend that has continued into the start of the new
financial year. This trading pattern presented considerable
challenges in terms of manufacturing capacity planning towards the
end of the period, but investments in additional skills and a
programme of internal efficiency improvements across the
organisation ensured that these challenges were successfully met.
Other notable achievements include the completion of two
acquisitions and the relocation of one of our largest manufacturing
facilities.
Headline revenues increased 9.3% year on year, with
approximately 55% of total sales in the second half. Your company
has continued to deliver profitable growth with adjusted profit
before tax increasing by 9.7%. The business remains in a strong net
cash position at GBP11.7 million (2015 : GBP17.3 million) despite
making two acquisitions in the year and making material investments
in capital assets to drive the business forward.
We have started the current financial year with a favourable
trading environment. This is driven by the order book for our fibre
based business, in particular high reliability undersea fibre
couplers, fibre based satellite communications, fibre sensing and
critical components used in microelectronic manufacturing. At the
year end the order book stood at GBP52.8 million, an increase of
45% compared with the same time last year.
In July 2016 your company completed two acquisitions in the
Aerospace & Defence sector; one in the UK and the other in the
US. These acquisitions continue to further our strategic objectives
of broadening our product offerings and diversifying our markets,
both geographically and by sector. Kent Periscopes Ltd designs,
develops and manufactures periscopes and sighting systems for
Armoured Fighting Vehicles ("AFVs"). Alfalight specialises in diode
and diode-pumped lasers for the US defence sector.
Significant progress was made in the year in relocating and
upgrading a number of our real estate assets. The relocation of our
Palo Alto operations to nearby Fremont was a major undertaking but
it has provided much improved facilities and room for growth at a
similar ongoing cost. We have continued to upgrade and expand our
Torquay facility, allowing us to manage the considerable increases
in demand we have seen in this site over the past two years. 2016
also saw the commencement of the refurbishment of our Cleveland
facility, which will help drive much needed operational efficiency
as well as showcasing the site's unique world leading crystal
growth capabilities to customers.
Having spent eight years as a non-executive Director, Paul Heal
has decided not to stand for re-election at the AGM in February
2017. Paul has played an integral role in the development of Gooch
& Housego as a business over those years and I would like to
record my thanks to Paul for his support and guidance, which have
been invaluable. We have begun a process to identify a replacement
for Paul.
In summary, 2016 has been a busy and successful year for Gooch
& Housego. We have acquired two businesses, continued our drive
for operational excellence, relocated one of our largest facilities
and materially expanded another. All of this has been achieved
against a backdrop of challenging, if ultimately favourable,
trading conditions. As we enter 2017, the strength of the US Dollar
against the British Pound will benefit the business in the short
term, but there remains uncertainty in world markets. With a strong
balance sheet, good cash flow, excellent order book and enhanced
facilities, processes and systems, the Company is well positioned
to exploit exciting growth opportunities in photonics. I would like
to thank my fellow directors and employees of Gooch & Housego
for making 2016 another successful year for the Company.
Gareth Jones
Chairman
Chief Executive Officer's Statement
Overview
Gooch and Housego (G&H) has made good progress towards
achieving its twin strategic goals of further diversification and
moving up the value chain. We have continued to focus on driving a
higher level of organic growth from our portfolio of world leading
products and technologies, invested in a number of strategically
important areas and have acquired two highly complementary
companies during FY 2016.
G&H's FY 2016 financial expectations were met, with revenue
and adjusted profit growth of 9.3% and 9.7% respectively. This was
achieved despite challenging first quarter market conditions in our
industrial laser business and is testament to the resilience of the
business and our active policy of diversification designed to
offset the impact of the economic cycle on some of our core
markets.
In addition to pursuing further diversification we want to build
a company that moves up the value chain by selling sub-systems and
systems wherever possible. The Systems Technology Group ("STG"),
based at our Torquay site, is dedicated to helping G&H achieve
this and now has over 30 engineers and scientists. They bring a
wide range of skills such as electronic, software and mechanical
engineering, which are necessary if we are to present a complete
sub-system or system to our customers.
The most notable success of the STG during FY 2016 has been the
growth of the strategically important space satellite
communications business. Funding has been secured from the European
Space Agency, UK Space Agency and other sources to pursue leading
edge research and we have won our first commercial contract for the
development of critical subsystems used in inter satellite
communications.
Our performance improvement plan has made further progress
during the course of the year. The aim is to develop a more unified
business where the skills, expertise and technologies across our
nine sites are better leveraged throughout G&H and our
customers are presented with a more complete and professional
offering.
G&H's operations group has now established small globally
focused teams representing each of the key manufacturing
disciplines. They hold each site to the same high standards and
have made a good start on introducing lean manufacturing
principles. The recently introduced A&D business development
executives have brought enhanced access to tier 1 companies and
helped develop new A&D focused R&D projects. In FY 2016 we
hired our first Life Science business development executive in the
USA and intend to achieve similar positive results in this sector.
A more targeted approach has been taken towards R&D, with
better funded projects and this has resulted in a record 21 new
products in FY 2016.
The Industrial sector represents 63% of G&H's revenue and
has provided most of the growth during FY 2016. A&D and Life
Sciences give a better balance to our business, provide significant
opportunities for our technologies and have greater potential than
Industrials for moving up the value chain. It is our intention to
grow A&D and Life Sciences to levels where we can, over time,
establish a similar critical mass to our Industrial sector. This
will be achieved through a mix of investment in R&D and
acquisitions.
To this end, we acquired two A&D businesses during 2016:
-- Kent Periscopes Ltd (Kent) is a UK based supplier of
periscopes, vehicle sights and related equipment for land based
armoured vehicles. Its proven capability in system level optical
products in harsh environments and impressive 'blue chip' customer
list make it a great fit. Kent will benefit from G&H's greater
global reach and complementary technologies.
-- The trade and assets of Alfalight Inc, a designer and
manufacturer of high reliability, laser based, electro-optic
systems for defence and security applications, based in Madison,
Wisconsin. It is highly complementary to our existing Boston,
Massachusetts, site and will be incorporated into this business
unit.
The completion of substantial infrastructure investment in our
Torquay site has enabled us to meet the challenge of the
exceptional year on year growth of our high reliability fibre
couplers for undersea cables. Our Palo Alto facility has now
completed its move across the San Francisco Bay to a purpose- built
facility in Fremont, with plenty of room for further growth for its
core business, based on fibre lasers and 40G / 100G modulation
systems for land based telecommunications. The Cleveland site which
houses our strategically important crystal growth facility will
complete its upgrade project during FY 2017.
G&H is in a strong position financially and is well
positioned to make further investment in the business.
Markets and Applications - Industrial
The Industrial sector represents 63% of G&H's revenue and is
composed of a diverse range of industrial applications aligned to
our world class photonic technologies, including microelectronic
manufacturing, semiconductor manufacturing and test, remote
sensing, metrology and telecommunications.
Our Industrials division grew by GBP8.2 million or 17.9%
compared to previous year and this is reflective of a number of
positive market trends in this sector. This growth was achieved
despite the challenging market conditions for microelectronic
manufacturing in China and the far east, which saw a slow down in
the first quarter. The industrial laser market did pick up markedly
for the rest of the year and when combined with record orders for
our fibre based business it led to a higher second half weighting
than last year and a strong overall performance.
There is a general trend towards fibre optic solutions across a
range of applications and this is especially so for lasers used in
materials processing applications. Fibre lasers are gaining share
from solid state lasers and at the same time increasing the number
of applications where lasers have utility; this is due to fibre
lasers often providing improved reliability and flexibility at a
lower cost.
G&H is a world leader in acousto-optic products for
industrial lasers and is well positioned to take advantage of this
trend. Fibre laser components now represent a higher proportion of
our business than the traditional conduction cooled or water cooled
"Q-switches" for solid state lasers. The ground breaking Fibre-Q
used for a range of laser modulation applications was the recipient
of a prestigious Queen's Award for Enterprise in the Innovation
category this year. We remain committed to further investment in
new products and cost reduction initiatives in this area to enable
us to retain our market leading position.
This year saw the first contract for our precision measurement
system used on smart phone/ tablet production lines and is an area
of good future potential.
The semiconductor manufacture and test market showed strong
growth during FY 2016. Laser technology is essential to enhance
miniaturisation and speed in this fast moving sector, which means
that we see this as a good growth driver for G&H over the
medium term.
Remote sensing took a step forward this year with a hard-earned
security and surveillance contract for an oil pipeline.
The need for ever more data capacity from government, industry
and the consumer has driven an especially strong telecommunications
performance. G&H provides the more technically challenging
elements to both land based and undersea telecommunications
systems. There has been a significant 'uptick' in demand for our
ultra high reliability fibre couplers which are used in amplifiers
on the sea bed in the undersea cable network. This growth is driven
by 'non- traditional' investors in these undersea networks from
'Silicon Valley' that want to control their own traffic.
Markets and Applications - Aerospace & Defence
A&D represented 23% of our revenue in FY 2016 and was flat
on the previous year. This reflects a sector that for G&H's
range of technological capabilities is a target rich environment,
but a business that has not yet reached a critical mass. The two
recent A&D acquisitions coupled with the investment in new
areas of growth such as SWIR lenses, for low light environments and
our developing position in space satellite communications are key
'steps on the way' to achieving this.
Product quality, reliability and performance are essential
success criteria in the A&D arena and that plays to G&H's
strengths. We have well established positions in target
designation, range finding, ring laser and fibre optic gyroscope
navigational systems, infra red and RF countermeasures and have
recently added SWIR lenses, for low light environments and space
photonics. The customers for our products encompass the major
A&D companies in both Europe and the USA.
Our fibre optic and infrared capabilities very much reflect the
'direction of travel' for this sector as our A&D customers
upgrade their products to lighter, more durable and reliable
technologies. Many of our customers in this sector prefer to buy
sub- systems and integrate them into their systems and though the
quality barriers to this are challenging we have succeeded with
some high profile companies in selling sub systems' rather than
just high quality critical components and are actively trying to
move more customers up the value chain.
Space satellite communication is entering into a new period of
development based on lighter, more efficient and robust fibre optic
technology and G&H is at the leading edge of this
revolution.
Markets and Applications - Life Sciences
Life Sciences represents 9% of G&H's revenue and after a
strong year last year sales were down. As with A&D we see good
potential for our technologies in this sector, a greater ability to
move up the value chain than with Industrials, but a business that
has not yet reached critical mass. It is therefore susceptible to
the ordering patterns of one or two customers. The desired "future
state" will be achieved through a combination of investment in
R&D and acquisitions.
The principal applications are in optical coherence tomography
(OCT), laser surgery and microscopy. OCT is widely used in
ophthalmology and G&H has developed a strong position with the
main participants in this market. The potential for this technology
to be used in other areas of medical diagnostics is high and we
have a number of programmes with medical diagnostic companies
designed to exploit these opportunities.
Laser surgery is a fast growing area particularly in
ophthalmology, prostate and aesthetic treatments and has the
potential to be exploited beyond these current areas of high
use.
G&H has established a sub-system presence with a number of
our customers and our aim is to extend this during FY 2017.
Markets and Applications - Scientific Research
G&H's scientific research market is dominated by a small
number of 'big science' projects in the fields of nuclear fusion
research and synchrotron radiation sources. It provides 5% of our
revenue and revenue is flat year-on-year. This is a prestigious and
profitable sector for G&H where we have some unique
capabilities and over time this is an area that should provide
steady growth, and we will continue to selectively invest in this
area.
Outlook
During FY 2016 G&H made good progress with its strategic
goals of further diversification and moving up the value chain; we
met our financial objectives; made a number of strategically
important investments and have acquired two highly complementary
companies.
We are committed to make further R&D investment in our
targeted high growth areas. These include fibre optic lasers, fibre
optic sensing, precision inspection equipment for microelectronic
manufacturing, laser surgery, A&D sub systems, OCT medical
diagnostics and space satellite communications.
G&H intends to build on the good progress made with our
performance improvement programme by: further improving operational
efficiency, with particular reference to the introduction of lean
manufacturing across all our sites; continuing to invest in A&D
business development, establishing similar business development
activity in Life Sciences and focussing our resources on fewer, but
higher return R&D projects.
We will continue with an active policy of making further
progress towards a more diverse and balanced business by building
critical mass in A&D and Life Sciences through a mix of R&D
investment and acquisitions.
These strategic initiatives combined with a record year end
order book mean the Board remains confident that Gooch and Housego
is well positioned to deliver further progress in FY 2017 and
beyond.
Mark Webster
Chief Executive Officer
Performance Overview
The business has once again delivered strong profitable
growth.
Group revenue for the year was a record GBP86.1 million. This
represents an increase of GBP7.3 million, or 9% over the previous
year of GBP78.7 million. During the year Gooch & Housego
acquired two businesses, which contributed a combined GBP2.4
million to group revenue and GBP0.3m in profit before tax in the
year. On a constant currency basis revenue was 3% higher than the
previous year.
During 2016, Gooch & Housego invested GBP9.7 million in
property, plant and equipment and GBP5.7 million in acquisitions.
Despite this the business has maintained a net cash position of
GBP11.7 million at 30 September 2016 (2015: GBP17.3 million),
through strong operating cash flows.
In the financial year under review, adjusted operating margins
were 16.6%, compared to 16.6% in 2015. Margin was influenced by a
number of factors during the year. Whilst there were price
pressures in our navigation and fibre laser components businesses,
this was counteracted by the business benefiting from volume driven
margin increases in our Torquay fibre based and Orlando
instrumentation businesses.
REVENUE
------------------------------- ----- -------- -------
2016 2015
--------------- -----------------
Year ended 30 GBP'000 % GBP'000 %
September
--------------------- -------- ----- -------- -----
Industrial 54,296 63% 46,054 59%
--------------------- -------- ----- -------- -----
Aerospace & Defence
(A&D) 19,977 23% 19,804 25%
--------------------- -------- ----- -------- -----
Life Sciences 7,904 9% 8,978 11%
--------------------- -------- ----- -------- -----
Scientific Research 3,874 5% 3,866 5%
--------------------- -------- ----- -------- -----
Group Revenue 86,051 100% 78,702 100%
--------------------- -------- ----- -------- -----
In our Industrial segment, revenue grew by 18% from GBP46.1
million last year to GBP54.3 million this year. Revenue in our
Aerospace & Defence business was broadly flat, and our Life
Sciences business fell from GBP9.0 million to GBP7.9 million. Sales
into our smallest segment, Scientific Research, remained stable at
GBP3.9 million.
GROUP EARNINGS PERFORMANCE
------------------------------ -------- -------- ----------
All amounts in Adjusted Reported
GBP'000
--------------------
Year ended 30 2016 2015 2016 2015
September
-------------------- -------- -------- -------- --------
Operating profit 14,258 13,102 10,184 10,294
-------------------- -------- -------- -------- --------
Net finance costs (88) (188) (88) (188)
-------------------- -------- -------- -------- --------
Profit before
taxation 14,170 12,914 10,096 10,106
-------------------- -------- -------- -------- --------
Taxation (3,865) (3,380) (3,048) (2,647)
-------------------- -------- -------- -------- --------
Profit for the
year 10,305 9,534 7,048 7,459
Basic earnings
per share (p) 42.5p 39.5p 29.1p 30.9p
-------------------- -------- -------- -------- --------
The Group adjusted profit before tax amounted to GBP14.2 million
(2015: GBP12.9 million) and represented a net margin of 16.5% which
is broadly consistent with the previous year. Statutory profit
before tax was GBP10.1 million compared with GBP10.1 million last
year, including the one-off costs associated with the Palo Alto
facility move, restructuring costs, provision for regulatory risk
compliance and acquisition costs.
The adjusted effective rate of tax was 27.3% (2015: 26.2%). The
effective rate of tax of 30.2% (2015: 26.2%) was higher due to the
inclusion of the Research and Development Expenditure Credit
("RDEC") within operating profit for the year and the effect of the
impairment of goodwill and gain on bargain purchase, neither of
which are subject to tax. The rate reflects a combination of the
varying tax rates applicable throughout the countries in which the
Group operates, principally the UK and the USA.
The effective rate of tax should benefit in the future from
further reductions in the UK tax rate, although the proportion of
profit generated in the USA, where tax rates are higher, will
affect this.
Adjusted earnings per share (EPS) increased from 39.5p to 42.5p.
Basic EPS was 29.1p compared with 30.9p last year.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
Operating Net finance Taxation Earnings
Profit costs per share
----------------- ------------------ ------------------ ------------------ ----------------
Year ended 2016 2015 2016 2015 2016 2015 2016 2015
30 September GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 pence pence
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Reported 10,184 10,294 (88) (188) (3,048) (2,647) 29.1p 30.9p
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Amortisation
of acquired
intangible
assets 1,263 1,604 - - (333) (419) 3.8p 4.9p
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Gain on bargain
purchase (578) - - - - - (2.4p) -
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Impairment
of goodwill 771 - - - - - 3.2p -
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Provision
for regulatory
compliance
risk 500 - - - - - 2.1p -
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Restructuring
costs 1,652 1,204 - - (391) (314) 5.2p 3.7p
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Transaction
fees 466 - - - (93) - 1.5p -
----------------- -------- -------- -------- -------- -------- -------- ------- -------
Adjusted 14,258 13,102 (88) (188) (3,865) (3,380) 42.5p 39.5p
----------------- -------- -------- -------- -------- -------- -------- ------- -------
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 and costs associated
with restructuring activities, the provision for regulatory risk
compliance and also include the gain on bargain purchase of
Alfalight and impairment of goodwill in 2016. The Company also uses
the term EBITDA (Earnings before interest, taxation, depreciation
and amortisation), which 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 GBP54.3 million, compared with GBP46.1 million last
year. This growth was largely driven by a combination of our
sensing, instrumentation and telecommunications businesses. Revenue
from the Group's industrial laser business segment, after a poor
first quarter, showed an increase compared with the previous year.
The traditional Q Switch now represents 10.0% of total group
revenue (2015: 9.9%).
After adjusting for the costs associated with the Palo Alto
facility move and restructuring, operating profit for the
Industrial sector as a whole was 12% higher at GBP10.8 million,
compared with GBP9.6 million last year. This primarily reflects a
combination of the growth in our Torquay fibre business and our
instrumentation business.
Aerospace & Defence (A&D)
A&D revenue was GBP20.0 million, broadly flat on last year,
although this is being flattered by the acquisitions which
contributed revenue of GBP2.4m in this sector. The business
provides both components and sub-systems to the Company's European
and US A&D customers. We continue to believe this business
represents a growth opportunity for Gooch & Housego, as optical
technologies continue to be increasingly deployed in this market
sector. This sector has been significantly strengthened this year
with the acquisitions in July of Kent Periscopes and Alfalight.
Operating margins in this sector fell as a result of the timing of
some programme business and tighter margins on our navigation
components business.
Life Sciences
In 2016 Life Sciences revenue was down by 12% compared to the
prior year. Sales of electro-optic products into the laser surgery
market remained strong, but this was offset by a decline in sales
into Optical Coherence Tomography due to customers' product
lifecycles becoming more mature. Despite this, adjusted operating
profit in this sector was in line with the previous year due to a
more beneficial mix. We are working on the next generation products
with key customers and 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 stable in 2016 and this resulted in a consistent
financial performance when compared to the previous year.
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 a record 21 product releases in
2016, together with five new patents granted.
Expenditure on R&D in the year to 30 September 2016
increased by 15.4% from GBP6.4 million to GBP7.4 million. A
proportion of this increase was funded through UK and European
grant funding. R&D expenditure represented 8.6% of revenue
(2015: 8.0%). The Group capitalised GBP0.7m (2015: GBP0.7 million)
of development expenditure.
SITE PERFORMANCE
In 2015 G&H took the decision to re-locate its Palo Alto
facility to nearby Fremont. This decision was based on a landlord
change which threatened the long term viability of Palo Alto as a
location. This move is now complete and has provided a much
improved facility and room for growth at a similar rent. The move
itself took longer than expected due to regulatory licence and
landlord contractual issues. The delay contributed an additional
GBP0.9 million in costs in the first six months of 2016.
The Torquay site has recently been expanded and upgraded
allowing us to manage the capacity challenges that come with a 2.5
fold increase in demand for Hi-Reliability undersea fibre couplers.
Further investment in capacity at this site will continue
throughout 2017.
Our continuous improvement programme is proceeding well.
Operationally the move to a lean manufacturing environment across
all of our sites is set to deliver efficiency savings in 2017 and
the drive for fewer more productive R&D projects combined with
enhanced business development support has started to deliver an
increased number of product opportunities.
As reported last year, the Company has committed to upgrading
its Cleveland, Ohio facility. This facility, which houses the
business's world leading crystal growth capabilities, is a key
contributor to current and future profitability and will benefit
from the proposed modernisation. The refurbished facility will help
drive much needed operational efficiency as well as showcasing our
capabilities to customers. The upgrade is expected to be a two-year
programme costing in the region of $5 million.
NON TRADING ITEMS
Restructuring costs of GBP1.7 million (2015: GBP1.2 million)
related to the re-location of our Palo Alto facility to Fremont and
to restructuring costs arising from the efficiency savings the
business was able to derive from its operational efficiency
measures.
Management have booked a provision for export compliance risk of
GBP0.5m in the year.
BALANCE SHEET
The Group's total equity at the end of the year was GBP90.2
million, an increase of GBP11.8 million over the prior year. This
increase comprised GBP6.0 million due to foreign exchange and
GBP5.8 million from retained earnings.
Additions to property, plant and equipment totalled GBP8.4m
(excluding acquisitions). The main additions related to investment
in plant and machinery, the expansion of our Torquay facility, the
refurbishment of our Cleveland facility and the Palo Alto facility
move.
Working capital was 24.5% of revenue in the current year
compared to 20.3% in 2015. This metric has been adversely affected
by the acquisitions in July and the impact of the GBP:USD exchange
rate on balance sheet values.
Inventory at the year end was GBP19.0 million, an increase of
GBP3.0 million over the prior year. Once the impact of currency and
the inventory attributable to the acquisitions are removed, the
underlying inventory fell by GBP0.5m, or 3%, in the year.
Trade receivables have increased by GBP8.8 million from GBP11.7
million in 2015 to GBP20.5 million at this year-end. This is a
function of a strong shipment profile towards the end of the year,
the acquisitions and the impact of foreign exchange rates.
Cash balances at 30 September 2016 were GBP23.2 million,
compared with GBP22.6 million at 30 September 2015. Net cash flows
from operating activities generated GBP12.6 million, compared with
GBP13.6 million last year. During the year the business moved from
a net cash position of GBP17.3 million as at 30 September 2015 to a
net cash position of GBP11.7 million, following the acquisition of
Alfalight & Kent Periscopes and the GBP9.7 million invested in
property, plant and equipment.
MOVEMENT IN NET CASH
All amounts in GBPm Gross Gross Net
Cash Debt Cash
----------------------------- ------- ------- -------
At 1 October 2015 22.6 (5.3) 17.3
Operating cash flows 15.7 - 15.7
Debt repayment (net of
drawdown) 5.4 (5.4) -
Acquisitions (5.7) - (5.7)
Net capital expenditure (10.3) - (10.3)
Working capital (1.8) - (1.8)
Interest, tax and dividends (3.5) - (3.5)
Exchange movement 0.8 (0.8) -
----------------------------- ------- ------- -------
At 30 September 2016 23.2 (11.5) 11.7
----------------------------- ------- ------- -------
ORDER BOOK
As at 30 September 2016, the Group order book stood at GBP52.8
million, compared to GBP36.3 million at the end of the 2015
financial year, a 45% increase. The acquisition of Alfalight and
Kent Periscopes added GBP11.4 million to the order book. On a
constant currency basis the order book was 36% higher. Book to bill
ratios for the business as a whole were 1.01 times (six month
rolling average) as at 30 September 2016.
STAFF
The Group workforce increased from 700 at 30 September 2015 to
755 at the end of September 2016, an increase of 55. This is a net
position and therefore reflects both the reductions in staffing
resulting from the work the business has done in driving efficiency
improvements and the additional headcount that has come from the
recent acquisitions.
DIVIDS
The Directors propose a final dividend of 5.7p per share making
a total dividend per share for the year of 9.0p (2015: 8.2p), an
increase of 9.8%. The final dividend, if approved, will be payable
on 3 March 2017 to shareholders on the Company's share register as
at the close of business on 16 December 2016.
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.
In striving to achieve these strategic objectives, the main
financial performance measures monitored by the Board are:
Total revenue growth 2016 2015 2014
---------------------- ----- ----- -----
At actual exchange
rates 9% 12% 11%
---------------------- ----- ----- -----
At constant exchange
rates 3% 8% 16%
---------------------- ----- ----- -----
The Board is focused on driving revenue growth by investing both
organically and through acquisitions. The Group business has
delivered underlying growth which was particularly strong in the
second half of the year.
Target market revenue 2016 2015 2014
----------------------- ----- ----- -----
Aerospace & Defence
(GBPm) 20.0 19.8 18.8
----------------------- ----- ----- -----
Life Sciences (GBPm) 7.9 9.0 7.3
----------------------- ----- ----- -----
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 decline in revenue from Life Sciences was driven by
lower demand from one area of our Life Sciences markets.
Net cash analysis 2016 2015 2014
------------------- ------------ ----- -----
Net cash (GBPm) 11.7 17.3 8.7
------------------- ------------ ----- -----
In order to balance business risk with the investment needs of
the Company, management closely monitors and manages net cash. This
year, following the acquisition of Alfalight and Kent Periscopes
and the investment in capital assets the net cash position reduced
from GBP17.3 million to GBP11.7 million.
Earnings per share 2016 2015 2014
(EPS)
---------------------- ------ ------ ------
Adjusted diluted EPS
(pence) 41.7p 38.9p 35.2p
---------------------- ------ ------ ------
As a result of a strong trading performance, the business has
been able to deliver growth in adjusted diluted EPS of 7.2%, from
38.9p to 41.7p in 2016.
The revenue, cash and earnings per share targets for the year
were met.
Group Income Statement
For the year ended 30 September 2016 (unaudited)
2016 2015
Note GBP000 GBP000
--------- ---------
Revenue 2 86,051 78,702
Cost of revenue (53,752) (47,659)
--------- ---------
Gross profit 32,299 31,043
Research and Development (6,697) (5,712)
Sales and Marketing (6,469) (5,626)
Administration (11,425) (10,353)
Other income and expenses 2,476 942
--------- ---------
Operating profit 2 10,184 10,294
Finance income 39 26
Finance costs (127) (214)
--------- ---------
Profit before income tax
expense 10,096 10,106
Income tax expense 3 (3,048) (2,647)
--------- ---------
Profit for the year 7,048 7,459
--------- ---------
Basic earnings per share 4 29.1p 30.9p
Diluted earnings per share 4 28.6p 30.4p
--------- ---------
Reconciliation of operating profit to adjusted operating
profit:
2016 2015
GBP000 GBP000
------- -------
Operating profit 10,184 10,294
Amortisation of acquired
intangible assets 1,263 1,604
Gain on bargain purchase (578) -
Impairment of goodwill 771 -
Provision for regulatory 500 -
compliance risk
Restructuring costs 1,652 1,204
Transaction fees 466 -
Adjusted operating profit 14,258 13,102
------- -------
Group Balance Sheet
For the year ended 30 September 2016 (unaudited)
2016 2015
GBP000 GBP000
--------- ---------
Non-current assets
Property, plant and equipment 32,384 24,915
Intangible assets 29,916 20,155
Deferred income tax assets 2,674 2,552
--------- ---------
64,974 47,622
Current assets
Inventories 18,973 16,013
Income tax assets 394 854
Trade and other receivables 22,679 14,394
Cash and cash equivalents 23,167 22,556
65,213 53,817
Current liabilities
Trade and other payables (19,624) (14,059)
Borrowings (4) (39)
Income tax liabilities (891) (411)
Provision for other liabilities
and charges (940) (342)
--------- ---------
(21,459) (14,851)
Net current assets 43,754 38,966
Non-current liabilities
Borrowings (11,494) (5,189)
Deferred income tax liabilities (4,806) (3,032)
Deferred consideration (2,256) -
(18,556) (8,221)
Net assets 90,172 78,367
--------- ---------
Shareholders' equity
Called up share capital 4,852 4,818
Share premium account 15,530 15,530
Merger reserve 2,671 2,671
Cumulative translation
reserve 6,984 1,030
Retained earnings 60,135 54,318
--------- ---------
Total equity 90,172 78,367
--------- ---------
Group Statement of Changes in Shareholders' Equity
For the year ended 30 September 2016 (unaudited)
Called Share
up premium Merger Hedging Retained Total
share account reserve reserve earnings equity
Note capital GBP000 GBP000 GBP000 GBP000 GBP000
GBP000
--------- --------- --------- ---------- ----------- ---------
At 1 October
2014 4,774 15,420 2,671 (21) 47,093 69,937
Profit for the
financial year - - - - 7,459 7,459
Other comprehensive
income for the
year - - - 21 1,800 1,821
--------- --------- --------- ---------- ----------- ---------
Total comprehensive
income for the
year - - - 21 9,259 9,280
--------- --------- --------- ---------- ----------- ---------
Dividends 5 - - - - (1,823) (1,823)
Shares issued 44 110 - - (38) 116
Fair value of
employee services - - - - 485 485
Tax credit relating
to share option
schemes - - - - 372 372
Total contributions
by and distributions
to owners of
the parent recognised
directly in equity 44 110 - - (1,004) (850)
At 30 September
2015 4,818 15,530 2,671 - 55,348 78,367
At 1 October
2015 4,818 15,530 2,671 - 55,348 78,367
Profit for the
financial year - - - - 7,048 7,048
Other comprehensive
income for the
year - - - - 5,954 5,954
--------- --------- --------- ---------- ----------- ---------
Total comprehensive
income for the
year - - - - 13,002 13,002
--------- --------- --------- ---------- ----------- ---------
Dividends 5 - - - - (2,055) (2,055)
Shares issued 34 - - - (34) -
Fair value of
employee services - - - - 638 638
Tax credit relating
to share option
schemes - - - - 220 220
Total contributions
by and distributions
to owners of
the parent recognised
directly in equity 34 - - - (1,231) (1,197)
At 30 September
2016 4,852 15,530 2,671 - 67,119 90,172
--------- --------- --------- ---------- ----------- ---------
Group Statement of Comprehensive Income
For the year ended 30 September 2016 (unaudited)
2016 2015
GBP000 GBP000
------- -------
Profit for the year 7,048 7,459
Other comprehensive income
- items that may be reclassified
subsequently to profit or
loss
Fair value adjustment of
interest rate swap net of
tax - 21
Currency translation differences 5,954 1,800
Other comprehensive income
for the year net of tax 5,954 1,821
Total comprehensive income
for the year attributable
to the shareholders of Gooch
& Housego PLC 13,002 9,280
------- -------
Group Cash Flow Statement
For the year ended 30 September 2016 (unaudited)
Note 2016 2015
GBP000 GBP000
--------- --------
Cash flows from operating
activities
Cash generated from operations 6 13,897 14,692
Income tax paid (1,324) (1,067)
--------- --------
Net cash generated from
operating activities 12,573 13,625
--------- --------
Cash flows from investing
activities
Acquisition of subsidiaries, (5,687) -
net of cash acquired
Purchase of property, plant
and equipment (9,710) (3,053)
Sale of property, plant
and equipment - 635
Purchase of intangible
assets (629) (793)
Interest received 39 26
Interest paid (111) (189)
--------- --------
Net cash used in investing
activities (16,098) (3,374)
--------- --------
Cash flows from financing
activities
Drawdown of borrowings 5,426 5,168
Repayment of borrowings (39) (8,777)
Proceeds from issues of
share capital - 115
Dividends paid to ordinary
shareholders (2,055) (1,823)
Net cash generated from
/ (used in) financing activities 3,332 (5,317)
--------- --------
Net (decrease) / increase
in cash (193) 4,934
Cash at beginning of the
year 22,556 17,094
Exchange gains on cash 804 528
--------- --------
Cash at the end of the
year 23,167 22,556
--------- --------
Analysis of net cash
At 1 Exchange Non cash At 30
Oct 2015 Cash movement movement Sep
flow 2016
GBP000 GBP000 GBP000 GBP000 GBP000
---------- -------- ---------- ---------- ---------
Cash at bank
and in hand 22,556 (193) 804 - 23,167
Debt due after
1 year (5,189) (5,426) (859) - (11,474)
Finance leases (39) 39 - (25) (25)
---------- -------- ---------- ---------- ---------
Net cash 17,328 (5,580) (55) (25) 11,668
---------- -------- ---------- ---------- ---------
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 2016.
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 2015 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 2015,
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
29 November 2016. 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 Life Scientific
& Defence Sciences Industrial Research Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
For year ended
30 September
2016
-------------------------- ----------- ----------
Revenue
Total revenue 19,977 7,904 59,875 3,874 - 91,630
Inter and intra-division - - (5,579) - - (5,579)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
External revenue 19,977 7,904 54,296 3,874 - 86,051
Divisional expenses (18,055) (6,017) (42,719) (2,881) (1,342) (71,014)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
EBITDA(1) 1,922 1,887 11,577 993 (1,342) 15,037
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
EBITDA % 9.6% 23.9% 21.3% 25.6% - 17.5%
Depreciation
and amortisation (545) (335) (1,776) (310) (431) (3,397)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit
before amortisation
of acquired
intangible assets 1,377 1,552 9,801 683 (1,773) 11,640
Amortisation
of acquired
intangible assets,
gain on bargain
purchase and
goodwill impairment - - - - (1,456) (1,456)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit 1,377 1,552 9,801 683 (3,229) 10,184
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit
margin % 6.9% 19.6% 18.1% 17.6% - 11.8%
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Add back amortisation
of intangibles,
impairment of
goodwill, gain
on bargain purchase
and non-recurring
items 108 53 960 37 2,916 4,074
Adjusted operating
profit 1,485 1,605 10,761 720 (313) 14,258
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Adjusted profit
margin % 7.4% 20.3% 19.8% 18.6% - 16.6%
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Finance costs - - - - (88) (88)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Profit before
income tax expense 1,377 1,552 9,801 683 (3,317) 10,096
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
(1)EBITDA = Earnings before interest, tax, depreciation and
amortisation
Management have added back the amortisation of intangibles, gain
on bargain purchase, impairment of goodwill, restructuring costs,
provision for export compliance risk and transaction fees in the
above analysis. This has been shown because the Directors consider
the analysis to be more meaningful excluding the impact of this
non-recurring expense.
2. Segmental analysis (continued)
Aerospace Life Scientific
& Defence Sciences Industrial Research Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
For year ended
30 September
2015
-------------------------- ----------- ----------
Revenue
Total revenue 19,880 8,978 51,892 3,866 - 84,616
Inter and intra-division (76) - (5,838) - - (5,914)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
External revenue 19,804 8,978 46,054 3,866 - 78,702
Divisional expenses (17,112) (7,067) (35,885) (3,058) (783) (63,905)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
EBITDA(1) 2,692 1,911 10,169 808 (783) 14,797
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
EBITDA % 13.6% 21.3% 22.1% 20.9% - 18.8%
Depreciation
and amortisation (572) (322) (1,746) (129) (130) (2,899)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit
before amortisation
of acquired
intangible assets 2,120 1,589 8,423 679 (913) 11,898
Amortisation
of acquired
intangible assets - - - - (1,604) (1,604)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit 2,120 1,589 8,423 679 (2,517) 10,294
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Operating profit
margin % 10.7% 17.7% 18.3% 17.6% - 13.1%
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Add back restructuring
costs 20 23 1,156 5 - 1,204
Operating profit
excluding restructuring
costs 2,140 1,612 9,579 684 (2,517) 11,498
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Adjusted profit
margin % 10.8% 18.0% 20.8% 17.7% - 14.6%
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Finance costs - - - - (188) (188)
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Profit before
income tax expense 2,120 1,589 8,423 679 (2,705) 10,106
-------------------------- ----------- ---------- ----------- ----------- ---------- ---------
Management have added back the restructuring costs 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.
All of the amounts recorded are in respect of continuing
operations.
Analysis of net assets / (liabilities) by location:
2016 2016 2016 2015 2015 2015
Assets Liabilities Net Assets Assets Liabilities Net Assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- ------------ ----------- -------- ------------ -----------
United Kingdom 70,336 (30,580) 39,756 50,359 (12,999) 37,360
USA 59,077 (9,112) 49,965 50,193 (9,679) 40,514
Continental
Europe 726 (318) 408 872 (389) 483
Asia Pacific 48 (5) 43 15 (5) 10
-------- ------------ ----------- -------- ------------ -----------
130,187 (40,015) 90,172 101,439 (23,072) 78,367
-------- ------------ ----------- -------- ------------ -----------
2. Segmental analysis (continued)
Analysis of revenue by destination:
2016 2015
GBP000 GBP000
-------- --------
United Kingdom 17,247 14,897
USA 34,918 34,762
Continental
Europe 19,189 16,890
Asia Pacific
and Other 14,697 12,153
Total revenue 86,051 78,702
-------- --------
3. Income tax expense
Analysis of tax charge in the year
2016 2015
GBP000 GBP000
Current taxation
UK Corporation tax 1,760 1,480
Overseas tax 887 724
Adjustments in respect
of prior year tax charge (77) (983)
-------- --------
Total current tax 2,570 1,221
-------- --------
Deferred tax
Origination and reversal
of temporary differences 218 274
Adjustments in respect
of prior year deferred
tax 290 1,152
Impact of change in the (30) -
UK tax rate
-------- --------
Total deferred tax 478 1,426
Income tax expense per
income statement 3,048 2,647
-------- --------
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:
2016 2015
Number of shares used for
basic earnings per share 24,248,471 24,115,878
Dilutive shares 436,112 405,311
Number of shares used for
dilutive earnings per share 24,684,583 24,521,189
----------- -----------
A reconciliation of the earnings used in the earnings per share
calculation is set out below:
2016 2015
pence
pence per
GBP000 per share GBP000 share
------- ----------- ------- -------
Basic earnings per
share 7,048 29.1p 7,459 30.9p
Amortisation of acquired
intangible assets (net
of tax) 930 3.8p 1,184 4.9p
Goodwill impairment 771 3.2p - -
Gain on bargain purchase
of Alfalight (578) (2.4p) - -
Provision for regulatory
compliance 500 2.1p - -
Restructuring costs
(net of tax) 1,261 5.2p 891 3.7p
Transaction fees (net
of tax) 373 1.5p - -
------- ----------- ------- -------
Total adjustments net
of income tax expense 3,257 13.4p 2,075 8.6p
------- ----------- ------- -------
Adjusted basic earnings
per share 10,305 42.5p 9,534 39.5p
------- ----------- ------- -------
Basic diluted earnings
per share 7,048 28.6p 7,459 30.4p
------- ----------- ------- -------
Adjusted diluted earnings
per share 10,305 41.7p 9,534 38.9p
------- ----------- ------- -------
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
2016 2015
GBP000 GBP000
-------- --------
Final 2015 dividend paid
in 2016: 5.2p per share
(Final 2014 dividend paid
in 2015: 4.6p per share) 1,254 1,101
2016 Interim dividend paid:
3.3p per share (2015: 3.0p) 801 722
-------- --------
2,055 1,823
-------- --------
The Directors propose a final dividend of 5.7p per share making
the total dividend paid and proposed in respect of the 2016
financial year 9.0p (2015: 8.2p).
6. Cash generated from operating activities
2016 2015
GBP000 GBP000
-------- --------
Profit before income tax 10,096 10,106
Adjustments for:
- Amortisation of acquired
intangible assets 1,263 1,604
- Amortisation of other
intangible assets 355 301
- Gain on bargain purchase (578) -
of Alfalight
- Impairment of goodwill 771 -
- Depreciation 3,042 2,715
- Loss on disposal of property,
plant and equipment - 508
- Share based payment charge 638 485
- Finance income (39) (26)
- Finance costs 127 214
-------- --------
Total 5,579 5,801
Changes in working capital
- Inventories 223 (729)
- Trade and other receivables (4,706) (1,101)
- Trade and other payables 2,705 615
Total (1,778) (1,215)
Cash generated from operating
activities 13,897 14,692
-------- --------
The company news service from the London Stock Exchange
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