TIDMGHH
RNS Number : 6366V
Gooch & Housego PLC
05 December 2023
For immediate release 5 December 2023
Gooch & Housego PLC
("Gooch & Housego", "G&H", the "Company" or the
"Group")
RESULTS FOR THE YEARED 30 SEPTEMBER 2023
Gooch & Housego PLC (AIM: GHH), the specialist manufacturer
of photonic components and systems, today announces its audited
results for the year ended 30 September 2023.
Year ended / as at 30 September 2023 2022 Change
Revenue (GBPm) 148.5 124.8 19.0%
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Adjusted profit before tax
(GBPm)* 9.6 8.1 17.5%
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Adjusted basic earnings per
share (pence)* 31.3p 27.2p 15.1%
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Statutory profit / (loss)
before tax (GBPm) 5.0 (2.3) GBP7.3m
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Basic earnings / (losses)
per share (pence) 16.1p (8.0)p 24.1p
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Total dividend per share (pence) 13.0p 12.6p 3.2%
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Net debt excluding IFRS16
(GBPm) 20.9 12.8 GBP8.1m
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Net debt (GBPm) 31.7 19.1 GBP12.6m
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-- Adjusted figures exclude the amortisation of acquired
intangible assets, impairment of goodwill and acquired intangible
assets, non-underlying items being site closure costs, costs of
acquisitions and disposals and restructuring costs, together with
the related tax impact. A reconciliation of adjusted figures to
reported figures is shown in the Financial Review Section.
Key points
-- Strategy - a new strategy launched focusing on four pillars
of People, Self Help, Technology and Investment to deliver mid-teen
return on sales over the mid-term.
-- Revenue - up 19% or 13.6% on an organic, constant currency
basis to GBP148.5m (FY2022: GBP124.8m).
-- Profit - adjusted operating profit up 28.0% to GBP11.3m
(FY2022: GBP8.9m). Reported profit before tax up to GBP5.0m
(FY2022: loss of GBP2.3m).
-- Order book - order book returning to normalised levels at
GBP124.1m (FY2022: GBP147.7m). Book-to-bill ratio in the second
half of 1.04x.
-- Acquisitions - the acquisitions of GS Optics and Artemis
completed during the year. The integration of both businesses into
the Group is progressing well.
-- Debt - net debt increased to GBP31.7m (FY2022: GBP19.1m) of
which bank debt was GBP20.9m (FY2022: GBP12.8m) reflecting
investment in acquisitions. Group leverage remains comfortable at
1.1x.
-- Dividend - Full year dividend of 13.0p (FY2022: 12.6p)
reflecting the Board's confidence in the growth potential of the
Group.
-- Outlook - the Group is well positioned in structurally
growing markets. Our order book gives us good visibility for FY2024
and we are confident we will deliver further profitable growth in
the coming year.
Charlie Peppiatt, Chief Executive Officer, commented:
"FY2023 has been a year of strong growth for G&H reflecting
the significant improvements that have been made in operational
output.
" While mindful of the uncertain macroeconomic and geopolitical
landscape, G&H remains well positioned with a robust pipeline
across all our end markets and a fully deployed clear new strategy
to deliver sustainable profit growth."
For further information please contact:
Charlie Peppiatt, Chief Executive
Officer
Chris Jewell, Chief Financial Gooch & Housego +44 (0) 1460
Officer PLC 256440
Mark Court / Sophie Wills
/ Abigail Gilchrist +44 (0) 20 7466
G&H@buchanan.uk.com Buchanan 5000
Christopher Baird / David +44 (0) 20 7597
Anderson Investec Bank plc 5970
Analyst Meeting and Webcast
A meeting for analysts will be held today at 10.30am at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN. To register
attendance, please contact Buchanan at G&H@buchanan.uk.com
.
A live audio webcast of the meeting will be available via the
following link:
https://stream.buchanan.uk.com/broadcast/6549f8b66eba922222a2eef3
Following the meeting, a recording of the webcast will be made
available for replay at the Group's website at
https://gandh.com/investors/ .
2024 Expected Financial Calendar
Annual General Meeting 21 February 2024
Interim results announcement June 2024
Financial year end 30 September 2024
Full year results announcement December 2024
Chairman's Statement
Group Overview
I am very pleased with the Group's performance in FY2023. Under
the leadership of our new Chief Executive, Charlie Peppiatt,
significant progress was made in improving the operational
performance of the business. Through focused actions we were able
to fill many of the open roles created by the record order book
secured by the Group. As a result, we improved our on-time delivery
performance and reduced our lead times.
Along with the operational improvements delivered from our own
facilities, our suppliers also contributed materially to the
significant level of on time delivery improvement compared with the
prior year. In particular our Asian contract manufacturing partner
provided us with significant additional capacity for many of the
Group's acousto-optic products. We are building upon this firm
foundation by qualifying them for the manufacture of some of the
Group's fibre optic units and I am pleased to report that during
the year and after the long qualification programme that is
required for such hi-reliability products, they achieved their
first deliveries of fused fibre couplers direct to our
customers.
Thanks to these measures the Group was able to increase its
revenues by 19.0% compared with the prior year and deliver a 28.0%
increase in underlying operating profit.
Strategy Refresh
In June 2023 the team presented the results from a thorough
refresh of the Group's strategy. Despite the impact in recent years
of growing competition in some of our markets on the Group's
financial performance, we are well positioned in fast growing
markets that can offer the possibility for superior returns. Whilst
the profitability of the Group over the past few years has been
disappointing, some of which has been driven by our own operational
shortcomings, our new strategy sets out a path to deliver a return
to sustainable margin growth by positioning G&H in our growing
end markets as an innovative customer focused technology
company.
There will be a relentless focus on building long-term
partnerships with our customers through both superior operational
performance and by providing them with our new and exciting
technologies that address their most complex photonic needs. As an
enabler we have refreshed our product development roadmaps to
ensure we focus our resources on fewer activities thereby
accelerating the time to market for the developments that offer the
best returns.
Our suppliers will have an important part to play in helping us
deliver on this strategy. We have been clear that we expect to
increase the proportion of the Group's revenues that will come from
product fully outsourced to our contract manufacturing partners. To
achieve this we have invested further resources in our supply chain
teams and have permanently located G&H employees in our main
contract manufacturing supplier's facilities to ensure this
partnership is successful.
Ultimately the success of the strategy depends upon the skills
and expertise of my colleagues in G&H. I am always extremely
proud of their hard work and dedication. During the recent
difficult times they have risen to every challenge. The significant
progress made by the Group during the year would not have been
possible without them. I am also delighted that thanks to the
Group's growth we have been able to offer new, high quality
employment opportunities to colleagues at all stages in their
careers.
Focused Investment
In delivering the Group's strategy, the Board is focused on the
efficient use of capital. We have continued to invest in R&D to
embed ourselves in our customers' next generation programmes but we
are also prepared to make careful use of the balance sheet to
support inorganic growth. We were delighted to be able to complete
the acquisitions of both GS Optics and Artemis during the year. The
addition of both companies to the G&H family provides the
opportunity to drive significant synergies and is aligned to key
areas of focus outlined in our new strategy. The integration of
both companies into G&H is progressing well and I was pleased
to see during my recent visit to GS Optics' facility in Rochester
the additional space that we have taken on that campus to
accommodate our ITL medical and diagnostics device production
activities in the US.
The Environment
The Group's products are playing their part in the migration to
a more sustainable and healthier world. Our medical diagnostic
products help with the earlier diagnosis of disease and illness
ultimately leading to better patient outcomes whilst our sensing
products are integral to the efficient generation of clean,
renewable energy. We are committed to achieving net zero for our
scope 1 & 2 emissions by 2035 and made further significant
steps towards that target in the financial year. Our carbon
intensity measure which records our volume adjusted emissions
reduced by 33.2%. With the development of the renewable energy
market in the US we are now able to make progress in migrating our
US sites to purchase their energy from renewable sources following
the lead given by our UK sites where all of our purchased
electricity now comes from renewable sources.
We also recognise the importance of supporting the communities
in which we operate. As well as providing high quality, skilled
jobs we encourage our employees to support local charities, often
matching with G&H monies the amounts they raise.
Board
We were delighted to welcome Susan Searle to join the Board as a
new Non-Executive Director in April 2023. Susan brings strong
experience of commercialising new technologies as well as a broad
base of other expertise including ESG matters. I am sure she will
make a strong contribution to the further growth of the Group.
Recognising the importance the Board places upon ensuring the
long term sustainability of the Group we have established a new
Sustainability Committee of the Board. Susan will chair this
committee which will focus on the integration of the Group's
financial objectives with its social and environmental ambitions.
We will also explore the establishment of targets around some of
the Group's scope 3 emissions.
As a Board we take our governance responsibilities very
seriously and so I was delighted to see our further progression in
this area was recognised by rating agency MSCI, which has now
placed us in the highest scoring range relative to our global peers
for our corporate governance practices.
Dividend
Given the progression of the Group in the year and the long-term
positive outlook for the business underpinned by the work completed
during the year to refresh the Group's strategy, the Board is
proposing a final dividend of 8.2 pence per share for approval at
the Company's Annual General Meeting on 21 February 2024, giving a
total of 13.0 pence for the year. Payment of the dividend will be
made on 23 February 2024, to shareholders on the register as at 19
January 2024. The Board is committed to growing the level of
dividend cover.
Outlook
The strategic objectives that support the return of the Group to
mid-teens profitability over the mid-term are in place and already
delivering benefits. Our customers recognise us for the quality of
our products and the skills of our people. The Group is well
positioned in structurally growing markets. Our order book gives us
good visibility for FY2024 and we are confident we will deliver
further profitable growth in the coming year.
Gary Bullard
Chairman
5 December 2023
Chief Executive Officer's Statement
Introduction
FY2023 has been a year of strong growth for G&H reflecting
the significant improvements that have been in operational output.
This has been complemented by the number of new customer wins and
incremental business opportunities with existing customers. The
growth in revenue and the continued strong order intake also
reflect multi-year programme wins and the positive structural
trends evident in many of our end markets. Our teams across the
Group have executed exceptionally well in the continuing
challenging environment, given the significant supply chain and
cost headwinds, to deliver a strong trading performance with
improved profit growth in line with expectations. Having completed
my first full year with G&H, I am pleased with the progress
that has been made across the business through the collective hard
work of the workforce harnessed more effectively through our new
strategy that was launched in the summer.
I am proud that G&H products are playing a part in building
a better more sustainable world. Many of our products contribute
directly to the reduction of energy consumption and the more
efficient use of materials. In our own facilities we are also
making great strides in reducing our impact on the environment. In
FY2023 we achieved a 20.5% reduction in our emissions as we work
towards our goal of being net neutral on our Scope 1 and 2
emissions by 2035.
Business Performance
Following the positive performance reported in the first half,
the Group sustained strong trading momentum during the second half
of the year enhanced by the focused operational improvements and
capability investment over the last year. For the full financial
year 2023 G&H achieved revenues of GBP148.5m, representing an
increase of 19% over the previous year (FY2022: GBP124.8m), or on
an organic, constant currency basis saw growth of 13.6%. Adjusted
profit before tax was GBP9.6m, an increase of 17.5% over last year
(FY2022: GBP8.1m). At the same time, we saw continued strong levels
of customer demand albeit at more normalised levels resulting in
order book stabilising at GBP124.1m (FY2023 GBP147.7m) and positive
book-to-bill ratio in the second half of the year at 1.04x. There
has been further extension of the order book following the year
end.
Strategy
Over the last year many of my first impressions have been
confirmed, that G&H is a company with outstanding products,
enormous technical capability and highly talented people that
required greater focus on operational execution, customer
experience, employee engagement and better prioritisation of
valuable R&D technology investment.
Following a full strategic review of the business during the
first half of the year, in the Summer 2023 we launched a refreshed
strategy across the Group to ensure that the business is focused in
the right product development areas aligned to customer-led growth
drivers, it is 'easier to do business with G&H' ensuring
long-term profitable customer partnerships and we achieve greater
disciplined focus on superior operational execution to avoid
repeating the manufacturing and supply chain problems of the recent
past.
Our new strategy is now focused on delivering sustainable margin
growth and transforming G&H to become an 'innovative customer
focussed technology company' delivered responsibly by making a
'better world with photonics'. We seek to ensure that G&H
becomes and remains the 'first choice' for all our stakeholders
whether they are our employees, our customers, our shareholders,
our eco-system partners or the communities where we operate. We
will offer differentiated performance through the four pillars of
our strategy centred around firstly, our people by establishing
dynamic high performance teams and a purpose-led culture. Secondly
through self-help activities to deliver exceptional customer
service and superior operational execution. Thirdly, through value
creation from our technology and photonics expertise and finally by
focused investment, both organic and inorganic, to accelerate
accretive growth.
Acquisitions
The Group's new strategy has identified a path to mid-teens
returns over the medium term that includes benefits from our
'portfolio' achieved through addressing non-performers in
combination with pursuing 'speed to value' acquisitions. During
2023 I was delighted to be able to announce the completion of two
back-to-back strategic acquisitions of GS Optics and Artemis
Optical. These acquisitions marked a significant milestone and
alignment with G&H's strategic vision for growth through a
greater focus on adding value through the transition from complex
photonics components to a sub-system or full system solution by
targeting two businesses that enhance our fuller photonics systems
offering in A&D, advanced industrial or Life Sciences markets
with a focus on gaps that we have in coating, complex systems
assembly, new materials and specifically our Life Sciences
footprint in North America. Both acquisitions are already proving
an excellent fit in terms of our commitment to precision,
innovation and customer focus confirming their potential to support
the growth of the Group.
Our markets
Industrial demand continued to be strong, especially the
semiconductor and industrial laser markets, where underlying market
growth was complemented by very good uptake of new G&H products
launched in those market areas. Demand for our hi-reliability fibre
couplers remained robust, with the use of those products in the
growing satellite communications market complementing the
long-standing undersea cable business.
Life Sciences performed well and we saw continued growth in
demand for our products used in medical lasers and our medical
diagnostic products. A cancer care product initially designed by
our customer and then productionised by our engineering team
migrated through regulatory approvals and into production during
the year and we expect to see further growth from this product in
FY2024.
Volumes in our Aerospace & Defence markets grew
significantly as a result of improved productive capacity at
several of our sites and a number of projects move into production
phase. Our imaging and sighting systems business for armoured
vehicles and UAVs continues to progress well with a number of
multi-year new programme wins during FY2023 where the conflict in
Ukraine is fuelling increased demand and greater urgency of
supply.
Following the transfer of our acousto-optic products from our
Ilminster facility to our Asian contract manufacturing partner, we
have now qualified and successfully transferred the manufacture of
some of our hi-reliability fibre coupler business to that same
partner. With the appointment of a new VP of Supply Chain and
Contract Manufacturing during FY2023, we are looking to accelerate
the transfer of further opportunities to outsource several other
products, where technological sovereignty is not a differentiator,
building upon the successful partnership that we have now
established.
We have continued to invest in our technology roadmaps albeit it
with greater focus following the recent strategic review and are
working closely with many of our customers on their next generation
products. New products contributed a record GBP26.1m of revenue in
FY2023 (FY2022: GBP17.9m).
The Group retained high levels of inventory during FY2023,
similar to last year, as a risk reduction exercise given the
ongoing difficult supply chain environment. Although this is
expected to improve in FY2024 we don't expect it to return fully to
pre-pandemic levels in the next 12 months.
This combined with the funding of the two acquisitions resulted
in net debt excluding lease liabilities increasing to GBP20.9m from
GBP12.8m. Our leverage as measured for our banking covenant stands
at 1.1x (2022 0.7x), which along with available committed and
uncommitted bank facilities of $35.4m places G&H in a strong
position to pursue our strategic goals.
Research and Development (R&D)
G&H continues to work closely within the global photonics
ecosystem and with a number of key partners to develop their next
generation products. During FY2023 we introduced 57 new products
(FY2022: 54) and delivered GBP26.1m of revenue (FY2022 GBP17.9m)
from new products. Following our strategic review, we are
refocusing and prioritising our R&D effort and investment
behind the following seven vital few areas:
-- Expansion of AO technologies into Semiconductor and EUV.
-- New medical laser technologies and applications.
-- Advanced fibre technology supporting submarine networks.
-- Imaging and sighting systems.
-- Added value around our precision optics and optical coatings capability.
-- Moving up the value chain in Fibre-Optics with a focus on sensing, modules, LiDAR.
-- Medical diagnostics and bio-photonics IVD solutions.
The projects are expected to contribute GBP50m of incremental
margin accretive revenue over the plan period.
Corporate Responsibility
The Board is accountable to its shareholders and is committed to
the highest standards of corporate governance. To this end the
Company has adopted the UK Corporate Governance Code (2018). In
order to ensure the Company is meeting the most up to date
standards regular reviews of policy are held by the relevant
committees of the Board of Directors. During the year the Board
undertook a self-assessment to identify opportunities for
improvement and incorporate a greater focus on ESG. We were pleased
to welcome Susan Searle to join the Board during the year with her
wealth of experience in many of the markets in which we operate.
Susan also assumed the role of Chair for our newly introduced
Sustainability Committee.
G&H is committed to creating a safe, engaging, diverse and
inclusive place to work for the Company's employees and all
stakeholders. We continue to establish a culture that proactively
works towards reducing harm and promotes equality, diversity and
inclusion across the company. The Company remains focused on
providing equal employment opportunities for all and aims to
improve diversity at all levels of the organisation. Our
recruitment partners have been instructed to ensure that they
include women in all shortlist applications and we are actively
engaged with encouraging International Women in Engineering.
G&H is committed to conducting our business in an
environmentally responsible and sustainable manner. With the
appointment of our new non-executive director we have established a
Sustainability Committee responsible for monitoring the Group's
achievement against its ESG targets. We are investing in order to
generate our electricity in a sustainable manner and to reduce our
overall energy usage. Each of our sites has an energy reduction
plan that it is working to. In the year we reduced our scope 1 and
2 carbon emissions by 20.5%, a major step forward in achieving our
target of being net neutral on this measure by 2035. We were also
pleased to see two sites, Ilminster and Torquay, join our Fremont
site with certification to the environmental ISO14001 standard. As
part of our new strategy, we have deployed a road map to roll this
same initiative out across all our manufacturing sites by 2027. The
Executive Directors and senior leadership team all have specific
environmental management and carbon reduction goals in their
remuneration schemes.
Outlook
FY2023 was a year of strong operational, strategic and financial
progress. We delivered excellent top line growth for the Group
through improved operational execution on our record order book,
which reflected a significant number of new customer wins,
incremental business opportunities with existing customers and
market share gains. Our teams across the Group have performed
exceptionally well in a year characterised by significant change,
ongoing supply chain issues and continued cost inflation.
At the same time, we have completed our strategic review and
deployed a clear new plan for G&H to become an innovative
customer focused technology company delivered responsibly by making
a 'better world with photonics' and ensuring that G&H becomes
and remains the 'first choice' for all our stakeholders whether
they are our employees, our customers, our shareholders, our
eco-system partners or the communities where we operate. G&H is
well-aligned with the prevailing global mega trends, many
underpinned by the next frontier of photonics, that is driving
demand from high-growth markets.
Despite the strength of the order book across the business that
provides good visibility for FY2024, we still face some operational
and commercial headwinds in the near term. The labour markets for
talent in both the UK and US remain highly competitive leading to
ongoing supply side challenges that continue to frustrate the
recruitment of the required talent, especially in engineering and
technical positions. Global supply chain constraints continue to
persist alongside an inflationary environment for wages, material
costs and energy. Whilst price increases have been passed onto
customers in the second half of FY2023 to address these cost
increases, cost inflation continues to impact the business.
Nevertheless we expect to be able to offset cost base inflation
through pricing actions in the coming financial year.
While mindful of the increasingly uncertain macroeconomic and
geopolitical landscape, G&H remains well positioned for growth
with a robust pipeline across all our end markets. The business
will invest to ensure G&H can capitalise on the accelerating
deployment of photonics technologies into continuously expanding
areas of the industrial, life sciences, aerospace and defence
markets underpinning the future growth potential of the Group.
I am confident we will build on the progress made in our
financial and operational performance as well as the clear
direction from our new strategy to progress to become a resilient
and agile higher margin business over the coming years for all our
stakeholders and realise our clear vision of 'A Better World with
Photonics'.
Charlie Peppiatt
Chief Executive Officer
5 December 202 3
Operations Review
Industrial
Revenue GBP77.1m (FY2022: GBP64.6m)
Adjusted Operating Profit GBP10.5m (FY2022: GBP8.4m)
Adjusted Operating Margin 13.6% (FY2022: 13.0%)
Operating Profit GBP9.3m (FY2022: GBP7.3m)
Percentage of Revenue 51.9% (FY2022: 51.7%)
Market Drivers
-- Cloud computing, artificial intelligence, hyper connectivity
and automation all drive demand for semiconductors.
-- Political uncertainties driving the re-shoring of the manufacture of key components such as semiconductors.
-- Next generation products such as EUV lithography lasers for
nanoelectronics and new design germanium modulators.
-- New flexible materials being used for the next generation
personal data devices require new forms of industrial laser cutting
and marking machines.
-- Increasing transfer of data internationally for both business
and personal use drives the demand for subsea data cables.
-- Accelerating investment in wind generated clean energy
particular in the US. Our 'laser engine' sensing technology
improves the efficiency of wind turbines.
-- Remote border and infrastructure asset protection receiving
increasing investment driving demand for our sensing products.
Our products enable
-- Industrial lasers for materials processing applications.
G&H supplies Q-switches and other acousto-optic, electro-optic
and fibre optic products.
-- Semiconductor for lithography and test and measurement applications.
-- Metrology for laser-based, high-precision, non-contact measurement systems.
-- Optical communications specifically for high reliability and high-performance applications.
-- Remote sensing for applications including asset protection,
perimeter security, strain, temperature and pressure sensing.
-- Scientific research the largest proportion being nuclear
fusion research and energy - laser technology is being used to
recreate the conditions found in the core of the sun.
Our strategy in action
With investment and focus on our recruitment activities we were
able to solve many of the resourcing problems that had impacted the
Group in the previous year. We looked at our benefits packages to
make sure we were an attractive place to work for our existing and
new employees.
The work we have done with our supply chain supported additional
capacity for our deliveries in to the Industrial markets in FY2023.
We completed the qualification our contract manufacturing partner
in Asia for the production of hi-reliability fused couplers in
addition to the acousto-optic products they are already making for
us.
The result was a significant step up in output compared with the
prior year and a reduction in our overdue backlog. Our customers
are seeing our on time performance improve and our lead times
reduce.
Overall, sales of products into our Industrial markets grew by
19.5% (15.3% excluding foreign exchange) compared to the prior
year. Revenue growth into our semiconductor markets was
particularly strong as we delivered against the very strong order
book we brought into FY2023. Our FY2023 revenue into this market
included our first deliveries for fibre optic splitter units used
in the world's most advanced deep and extreme ultraviolet
semiconductor lithography machines. This customer programme is
forecast to increase in volume in the coming years.
Revenues into our core industrial laser market also grew
strongly. Demand for our germanium acousto-optic modulator used in
the Q switching of solid-state lasers was particularly strong. In
the second half of the year we saw some evidence of over stocked
positions amongst some of our distributor customers who were asking
for either a slow down or pause in deliveries to them whilst they
normalised their inventory holding. This market is ultimately
driven by end consumer demand primarily for personal electronics
and this market tends to be naturally cyclical. We are monitoring
closely the demand picture in this market to ensure we make
operational capacity adjustments in a timely manner.
Our performance in the sensing market in the year was also
strong with revenues growing by around one third. Our laser engines
provided by our Torquay facility are our core offering into this
market and two significant end customer programmes ramped up in
FY2023 after a quieter performance in FY2022. Our customers' end
programmes are for border, perimeter and pipeline monitoring and
protection. We are also seeing growing demand for our sensing
products that are critical to the safe and efficient operation of
wind turbines. We secured an important new contract win with
Europe's largest wind turbine provider who rely upon us for the
laser engine that controls their wind turbine systems.
Revenues for our hi-reliability fused coupler products used in
subsea data cables grew marginally in FY2023 compared with the
prior year. As noted above we completed the qualification of our
Asian contract manufacturing partner for the production of these
products during the year and first deliveries were made from them
direct to some of our customers. This opens up a third source of
supply for these products and in particular offers the possibility
for some margin expansion on this product line. We now have the
capability to offer significantly more capacity for these products
to our fibre laying customers and we are hopeful of securing a
greater proportion of our customers' needs.
Strategic priorities for FY2024
-- We have recently invested in further product management
resources for our acousto- and electro-optic products which form
the majority of our product offerings in to the Industrial market.
This will enable us to further collaborate with our customers and
invest our R&D in the areas that address their most demanding
needs.
-- We will bring new products to the market and ensure that we
remain at the cutting edge of technology in this growing market.
During FY2023 G&H introduced 12 new products in Industrials
generating GBP10.6m of revenue.
-- We will work with our low-cost contract manufacturing
partners to outsource more products to them in order to support our
margin expansion and to extend the lives of these products. This
will support us offering our customers additional capacity and
shorter lead times.
-- We will focus on niche markets that play to the strengths of
G&H, principally those that demand high levels of quality and
reliability, typically requiring technically challenging design and
engineering input incorporating a range of our products. Those
markets may require survivability in harsh environments.
-- We will leverage our technology roadmaps to transition from
being a components supplier to a manufacturer of subassemblies,
instruments and systems.
Aerospace & Defence
Revenue GBP38.6m (FY2022: GBP30.6m)
Adjusted Operating Loss GBP(2.3)m (FY2022: GBP(2.7m))
Adjusted Operating Margin (6.0%) (FY2022: (8.7%))
Operating Loss GBP(2.9)m (FY2022: GBP(3.4m))
Percentage of Revenue 26.0% (FY2022: 24.5%)
Market Drivers
-- The Ukraine conflict has driven further investment in both
armoured vehicles and unmanned aerial vehicles (UAV) and measures
to counter them.
-- Users require new features within their latest optical
systems that integrate electronics and optics in single more
complex packages.
-- Optics used in the defence arena increasingly require complex
coatings, for which G&H is a leading supplier.
-- Photonic components and systems offer size, weight, power and
reliability benefits for multiple A&D sub sectors.
-- IR optical arrays are used for targeting, range finding,
navigation and surveillance capabilities for both UAV and counter
measures.
-- These same capabilities are needed in the operation of
remotely controlled and autonomous A&D systems for land, sea
and air.
-- Space satellite communication systems are migrating from
traditional radio frequency to laser-based systems. G&H's laser
amplifier technology sits at the heart of these systems.
-- Directed energy systems have already been deployed on to
naval platforms as part of their integrated defence systems.
Significant investment is being made by Western governments in more
powerful laser systems for other applications within and beyond
naval warfare.
Our products enable
-- Target designation and range finding used on both land-based and airborne systems.
-- Guidance and navigation components for ring laser gyroscope
and fibre optic gyroscope inertial navigation systems.
-- Countermeasures for ground-based systems and airborne platforms.
-- Space photonics G&H is leveraging its heritage of
ultra-high reliability components for both space and very high
altitude unmanned aerial vehicle applications in order to address
the growing market for laser-based space communications.
-- Periscopes and sighting systems for land based armoured fighting vehicles.
-- Opto-mechanical subsystems for unmanned aerial and ground vehicles.
-- Directed energy systems for military platform and infrastructure defence applications.
-- Advanced optical coatings for both laser protection and platform stealth
-- Acrylic optics for low weight, less expensive optics as
required for solider, body worn system such as night vision goggles
and rifle scopes.
Our strategy in action
FY2023 saw significant improvements in our on time delivery to
this market thanks to resolving some of the staffing issues that
had resulted from our operational footprint restructuring programme
over the previous two years. Our customers saw a reduction in lead
times and an improvement in our on time delivery performance. We
were rewarded by receiving a greater share of some of our larger
customers' overall needs.
Important milestones were achieved in the development of our
next generation periscopes systems which are to be deployed on the
upgraded Challenger tank platform and on some of our export
programmes.
We were delighted to be able to complete the acquisition of
Artemis in July 2023. The opportunity to combine optical substrates
from our Ilminster facility with the coating capabilities that the
Artemis business offers is exciting. We were able to showcase
Artemis on the G&H stand at this year's DSEI trade show and
there was significant customer interest in the integrated offering
that we are now able to offer. Our newly acquired GS Optics
business also provides us a new capability with which to access the
market for low weight optics for solider, body worn systems.
The resolution of some of the production constraints seen in the
prior financial year meant that our A&D revenues grew sharply
by 26.2% during FY2023, compared with the equivalent period last
year, and by
22.0% on a constant currency basis. We achieved significant
increases in revenues of components and systems used in imaging
systems in the defence arena, including thermal imaging cameras
from our
Keene, New Hampshire facility. Demand is currently strong for
these systems driven in part by the increasing need for new systems
that have the capability to counter UAVs.
Our Boston facility also moved in to full scale volume
production for the supply of their fibre optic modules used in a
missile defence platform. Whilst we continue to work on our
production yields for these highly sensitive modules, which remain
below expected level, we were pleased with the increasing levels of
output and the fact that we were able to reduce our past due
backlog on these programmes.
Revenues from our deliveries of periscopes and sighting systems
for armoured vehicles increased marginally from the prior year but
in FY2023 we started to record revenues for our development and
prototyping activities on the UK MoD's Challenger 3 upgrade
programme. This exciting new programme for us will generate
revenues for us for several years to come as the UK fleet is
progressively updated. The core technology that is being used will
also form the basis of a number of other programmes that we have
either been awarded or are in the process of bidding, most of which
can be directly linked to the current Ukraine conflict.
Whilst it still represents a small percentage of the Group's
FY2023 revenues, our engineering teams continue to be active in the
field of laser based space communications. Building upon work
previously completed with our satellite partners we are now
developing more powerful laser amplifiers that will enable transfer
of greater volumes of data. We also continue to be active in
working on customer funded programmes that use the same technology
fitted to very high-altitude unmanned air vehicles. The area of
laser based space communications is a key element of our more
focused and accelerated technology development programme.
Our teams have continued to work on Directed Energy Systems with
a number of prime contractor customers. G&H's expertise in
coating the large optics that are positioned at the heart of these
systems means that we are well positioned to secure recurring
production revenues once development activities are complete.
In the commercial aerospace market we are seeing strong recovery
in demand for our components that are used in ring laser gyroscopes
for guidance and navigation purposes. Our Moorpark business that
provides these components has been asked by its principal customer
to increase delivery volumes and the site is busy recruiting to
service that growing demand picture. We believe some of that
growing demand is as a result of our securing a greater share of
the end customer's allocation of their overall needs given the
quality of the G&H product.
Our growth in revenues in this market compared with the prior
year helped to reduce our adjusted operating loss for the segment
from GBP2.7m in FY 2022 to GBP2.3m in the current year. We
recognise we have much work to do to restore this business to the
levels of profitability that are required. We are investing
additional, dedicated resources to improve our production yields in
our A&D businesses. We are also reviewing whether we have
sufficiently differentiated product offerings in all of the areas
currently supplied by our existing A&D business to justify
continuing to supply.
Strategic priorities for FY2024
-- We are investing to move up the value chain using
combinations of our components and technologies to demonstrate our
capability to build systems and sub systems. The addition of
Artemis coating capabilities provides further supports this
strategy. Our customers are changing their business models and are
actively encouraging companies such as G&H to provide them the
supply of fully outsourced sub-assemblies and modules.
-- We will exploit our latest technology in digital periscopes
to win new programme positions in a growing market. Our work on the
UK's Challenger programmes provides the underpinning technology
that we can carry forward into other programmes.
-- We will continue to invest in our manufacturing processes and
engineering in order to meet the needs of our customers. We are
exploring new combinations of optical materials and thin film
coatings to address the market's developing needs.
-- We will introduce a greater number of new products, including
products which look to fill a market need, in a managed and
cost-effective way, as well as take on projects with a high
technical content initiated by our customers. During FY2023 G&H
introduced 42 new products and generated GBP10.5m of revenue from
new products that addressed the A&D market including space
satellite laser-based communication systems, new sighting systems
and IR lens assemblies for UAVs.
Life Sciences/Biophotonics
Revenue GBP32.8m (FY2022: GBP29.7m)
Adjusted Operating Profit GBP4.1m (FY2022: GBP4.0m)
Adjusted Operating Margin 12.5% (FY2022: 13.3%)
Operating Profit GBP3.2m (FY2022: GBP3.7m)
Percentage of Revenue 22.1% (FY2022: 23.8%)
Market Drivers
-- Strong growth in laser enabled aesthetic procedures
especially from Asia, and in the West for tattoo removal.
-- A growing middle class influenced by social media eager to
access laser enabled cosmetic and aesthetic procedures.
-- A growing aging population generating demand for a shift
towards early diagnosis rather than later, more serious treatment
of undetected conditions.
-- A trend towards more point of care and personalised medicine
driving demand for simple, volume diagnostic products.
-- New applications for optical coherence technologies beyond
the traditional areas of eye examination and treatment.
-- Greater use of cheap, disposable plastic optics in life
science instruments to avoid infection.
Our products enable
-- Optical coherence tomography (OCT) primarily used in retinal
imaging for the diagnosis of glaucoma and macular degeneration, but
also now used in the detection of cardiovascular disease and cancer
diagnostics.
-- Laser surgery used in a wide range of applications including
prostate surgery, scar correction, cataract surgery, freckle, mole
and tattoo removal as well as wrinkle reduction and teeth
whitening.
-- Microscopy: Modern, laser-based techniques are revolutionising the field of microscopy.
-- Medical diagnostic instruments: G&H has a range of
capabilities including full product development, design,
manufacturing, certification and after sale service for the
commercialisation of high-quality medical diagnostic, in vitro
diagnostic (IVD) devices, precision analytical, electro-mechanical
and laboratory instruments.
-- Advanced polymer optics are playing an increasing part in
medical optics due to the cost and weight benefits as well as the
need for disposable systems to avoid infection.
Our strategy in action
We were pleased to be able to complete the acquisition of the GS
Optics business. This addition to the Group significantly increases
our commercial footprint in several high-growth areas within the
large US life sciences market including ophthalmic lenses, surgical
imaging and diagnostic instrumentation. It also adds the new
capability of polymer optics to the Group.
Immediately following the acquisition we have invested into the
GS Optics site in Rochester, NY state to establish our centre of
excellence for Life Sciences in North America. We will use the site
to mirror many of the existing capabilities we have in ITL Ashford,
Kent for the UK and European medical device market to offer ITL's
solutions to the US Life Sciences market. We are growing our
medical instrument design and development team at the Rochester
location and are now able to offer our OEM Medical Device customers
significantly more capacity for production build in the US than was
previously the case.
The deployment of our improved operational processes also
supported our performance in to the Life Sciences market. Our Life
Sciences revenue grew by 10.4% in the year to 30 September 2023,
compared with the prior year. When measured at constant currency
this represents growth of 8.2%. Medical diagnostic demand remained
broadly flat compared with the levels seen in FY2022 but one of our
customers' important next generation instruments has recently
received final accreditation and will therefore move into full
scale production providing important underpin to FY2024
revenues.
Our ITL engineering team in Ashford continue to service a
healthy order book of new development work from which we expect
future production volumes will be secured. We have refreshed the
management team at the site with proven leadership skills recruited
from large Life Science companies and they will support the site in
its next stage of growth and development.
Demand for our components used in specialist medical laser
products achieved mid-single digits growth. Demand was strong in
the first half of the financial year as we dealt with the very
large order book, including some late deliveries brought forward
from the previous financial year. In the second half we saw some
tailing off of demand as some customers requested push outs of
scheduled deliveries whilst they corrected their own inventory
holdings. We remain watchful of the demand picture in this end
market which is ultimately driven by end consumer demand for
cosmetic procedures.
Strategic priorities for FY2024
-- We will complete the investments we are making in business
winning and engineering resources located in our North American
Life Sciences hub located on GS Optics hub in Rochester and secure
a greater share of the large North American medical diagnostic
market.
-- We will work with our OEM Life Sciences customers on the
development and accreditation of their next generation medical
devices and secure the follow-on production revenues from their
instrument build.
-- We will work on our crystal growth processes and look to
outsource a greater proportion of our component build for medical
lasers to deliver margin expansion from this product line.
-- We will integrate our new polymer optics capabilities into
the overall product offering for our customers helping to drive the
further growth of our GS Optics business.
-- We will continue to invest in R&D projects in close
collaboration with our customers, to develop the existing portfolio
of products and to ensure that they remain competitive. During
FY2023 G&H introduced 3 new products and generated GBP4.9m of
revenue from products that address its life Sciences/Biophotonics
market, especially in the medical instrumentation market.
Financial Review
Overview of the Year
We entered FY2023 with a record order book including a higher
than normal level of past due backlog. During the year we have made
excellent progress in delivering that order book and bringing our
late backlog levels down thanks to focused activities in the area
of resourcing and supply chain management. The result was growth in
revenue of 17.3% excluding the effect of the two acquisitions
completed over the summer months and on a constant currency basis.
When the contribution from the two acquisitions is added revenues
for the year totalled GBP148.5m (2022: GBP124.8m). It was good to
see significant revenue progression being made in each of our three
market areas.
Inflation was a net headwind to Group profitability in the first
half of the financial year but in the second half our pricing
actions offset the cost base inflation we experienced. After the
difficulties we experienced in securing on time, in full deliveries
from our supply chain in FY2022 and the first few months of FY2023
in the second half of the year the situation improved and at the
same time materials inflation started to abate.
The additional volumes helped to contribute to an increase in
adjusted operating profit to GBP11.3m (2022: GBP8.9m), despite the
net headwind from inflation in the first half of the financial
year. We have also invested to add further skilled resources in our
engineering, supply chain and operations teams to establish a
strong foundation on which to support the further growth of the
Group. After the impact of adjusting items which included
acquisition and disposal costs and the cost of the Group's
restructuring and site consolidation activities, the full year
statutory operating profit was GBP6.9m (2022: a loss of
GBP(1.6)m).
Adjusted EPS increased to 31.3 pence (2022: 27.2 pence)
reflecting the Group's improved adjusted operating profit in year.
Basic earnings per share was a profit of 16.1 pence (2022: a loss
of (8.0) pence), with the improvement attributable to both the
improvement in adjusted operating profit as well as a reduction in
adjusting items compared to the prior year.
During the year we invested GBP11.7m cash in the acquisitions of
GS Optics and Artemis and a further GBP2.0m in working capital
levels to support the Group's growing order book and to mitigate
the risks from some elements of our supply chain. Our investment in
additional inventory peaked at the end of the first half and in the
second half of the year we inflowed GBP3.7m from reductions in our
inventory holdings, reflecting our growing confidence in our supply
chain and our ability to hold lower levels of safety stocks in the
business. Cashflow from operating activities totalled GBP16.2m
(2022: GBP6.1m). We ended the year with net debt of GBP31.7m (2022:
GBP19.1m) including IFRS 16 lease liabilities of GBP10.8m (2022:
GBP6.3m). Dividend payments totalled GBP3.2m (2022 - GBP3.1m). At
30 September 2023 leverage was 1.1x (2022: 0.7 times).
In the first half of the financial year, our order book returned
to normalised levels as our customers took advantage of our
shortening lead times and, in some cases, took steps to regularise
their inventory holdings which had become inflated. The result was
that in the first six months of the financial year, our
book-to-bill ratio was 0.8x and the order book reduced to GBP124.4m
at the end of March 2023. During the second half of the financial
year excluding the two newly acquired businesses the Group's
book-to-bill ratio stood at 1.04x and the Group finished the year
with an order book of GBP124.1m. This provides a good level of
underpin and visibility for FY2024 revenues.
Revenue
REVENUE
------------------------------------------------------------------
2023 2022
---------------- -----------------
Year ended 30 September GBP'000 % GBP'000 %
----------------------------- -------- ------ -------- -------
Industrial 77,131 51.9% 64,553 51.7%
----------------------------- -------- ------ -------- -------
A&D 38,556 26.0% 30,553 24.5%
----------------------------- -------- ------ -------- -------
Life Sciences / Biophotonics 32,789 22.1% 29,696 23.8%
----------------------------- -------- ------ -------- -------
Group Revenue 148,476 100% 124,802 100.0%
----------------------------- -------- ------ -------- -------
Group revenue totalled GBP148.5m (2022: GBP124.8m) including a
GBP2.2m contribution from the two acquired businesses. Group
revenue was 13.6% higher than the prior year on an organic,
constant currency basis. Revenue is the second half grew 5%
compared with the first half, again excluding the contribution from
the two acquired businesses and on a constant currency basis. We
saw growth in revenues across all three of our end markets with the
largest percentage increase coming from our A&D business where
we migrated a number of programmes into volume production and
demand for our components and camera systems for a range of imaging
systems was strong. Revenues into our A&D market grew by 20.4%
on an organic, constant currency basis.
In our Industrial markets demand for our components that are
used in semiconductor production were strong while we also achieved
growth into the industrial laser and sensing market. Revenue grew
in our Industrial markets by 13.7% on an organic constant currency
basis. Finally in our Life Sciences markets volumes for our medical
diagnostic business were broadly flat compared with the prior year
but revenues in to the medical laser market were good resulting in
a 6.2% revenue growth for this section when measured on an organic,
constant currency basis.
Operating profit and margin
The Group's adjusted operating profit was GBP11.3m (2022:
GBP8.9m) and statutory profit was GBP6.8m (2022: loss of GBP1.6m)
after a charge of GBP4.5m (2022: GBP10.4m) for items excluded from
adjusted operating profit. This included:
-- Acquisition costs of GBP2.8m (2022: GBP1.9m) of which GBP1.7m
(2022: GBP1.9m) related to the non-cash amortisation charges on
intangible assets arising on the Group's historical and current
year business combinations. The remaining GBP1.1m related to costs
incurred associated with the changes to the Group's portfolio of
businesses, most significantly the acquisitions of GS Optics and
Artemis.
-- Restructuring costs of GBP0.8m (2022: GBP1.2m) associated
with the restructuring of the Group's operations and the costs
incurred to establish our contract manufacturing partner's
capability to manufacture both acousto-optic and fibre optic
products.
-- Site closure costs of GBP0.9m (2022: GBPnil). During the year
the Group closed its small facility in Shanghai and transferred its
ITL business' US operation from its site in Virginia into the GS
Optics campus in Rochester.
The adjusted operating margin of 7.6% (2022: 7.1%) reflects the
benefit of the additional volumes as well as the first stages of
our operational improvement programme. The above margin improvement
was achieved despite a net headwind to profitability in the first
half of the year from increases in input costs outstripping our own
price increases to customers. In the second half of the year there
was a balance achieved between increases in our input costs and our
pricing to customers. Whilst profitability in our Life Sciences and
Industrial businesses is approaching our medium term target of
mid-teens returns our A&D business remains loss making. We are
investing further resources to address poor production yields on
some of our product ranges. We are also assessing whether some of
our current product offering should be discontinued if we cannot
formulate a clear path to acceptable returns.
A reconciliation between adjusted profit and statutory profit is
shown below.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
-------------- -----------------
Operating Net finance Profit / Taxation Earnings Operating
profit / costs (loss) before / (losses) cash flow
(loss) tax per share
---------------- ----------------- ------------------ ----------------- ------------------ --------------- -----------------
Year ended 30 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
September GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 pence pence GBP000 GBP000
Reported 6,850 (1,557) (1,830) (717) 5,020 (2,274) (972) 264 16.1p (8.0p) 16,164 6,084
Acquisition
costs 1,156 - 57 - 1,213 - (83) - 4.3p - 1,116 -
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Amortisation
of acquired
intangible
assets 1,672 1,903 - - 1,672 1,903 (327) (412) 5.4p 6.0p - -
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Impairment of
goodwill and
intangible
assets - 6,726 - - - 6,726 - (288) - 25.7p - -
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Restructuring
and site
closure 1,666 1,179 - - 1,666 1,179 (337) (235) 5.5p 3.8p 934 526
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
CEO succession - 613 - - - 613 - (87) - 2.0p - -
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Deferred tax
on goodwill - - - - - - - (695) - (2.8p) - -
---------------- ------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Tax charge
arising
from
restatement
of UK Deferred
tax at 25% - - - - - - - 127 - 0.5p - -
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Adjusted 11,344 8,864 (1,773) (717) 9,571 8,147 (1,719) (1,326) 31.3p 27.2p 18,214 6,610
---------------- ------- -------- -------- -------- ------- -------- -------- -------- ------ ------- ------- --------
Finance costs
Net finance costs totalled GBP1.8m (2022: GBP0.7m) with the
increase due to the higher drawn debt levels and higher base rates.
Included within these costs is a charge of GBP0.3m (2022: GBP0.2m )
in respect of lease interest. A 1% increase in the cost of the
Group's bank borrowings would have resulted in an annualised
increase in interest expense of GBP225,000 (2022: GBP147,000).
Further details of the Group's debt facilities are set out
below.
Taxation
The Group's overall tax charge was GBP1.0m (2022 credit of
GBP0.3m) including a GBP0.7m credit (2022: GBP1.6m) in respect of
items excluded from adjusted profit. The adjusted tax charge was
GBP1.7m (2022: GBP1.3m) resulting in an effective tax rate of 18.0%
(2022: 16.3%). 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.
Earnings Per Share
Basic adjusted earnings per share increased to 31.3 pence (2022:
27.2 pence), reflecting the improved adjusted profit in the period.
Basic earnings per share improved to 16.1 pence (2022: 8 pence
loss). This improvement was driven by the improvement in adjusted
operating profit and the reduction in adjusting items set out
above.
Cash flow
Cash flow generated from operating activities was GBP16.2m
(2022: 6.5m). During the first half of the financial year the Group
invested GBP3.5m in additional working capital, principally in
additional inventory to support growing production volumes but also
to protect our customers' delivery schedules in the face of
continuing inconsistency in on time delivery from some parts of our
supply chain. In the second half of the year, the Group was able to
reduce its investment by GBP1.5m thanks to better on time
performance from our suppliers and therefore our growing confidence
that lower levels of safety stocks were required.
Our net capital expenditure totalled GBP6.9m (2022: GBP8.6m).
The spend included further investment in our contract manufacturing
partner's facility to equip them for the build of hi-reliability
fibre couplers in addition to the acousto-optic devices already
transferred to them. We also transferred our ITL business on to the
Group ERP system during the year.
Our cash investment in the acquisition of GS Optics and Artemis
totalled GBP11.7m, of which GBP8.6m was in respect of GS Optics and
GBP3.1m in respect of Artemis. To fund the investment $20m was
converted from our uncommitted accordion facility into our base
revolving credit facility. Since that time repayments of $5.5m have
been made. In addition ordinary shares with a value of GBP2.1m were
issued to the sellers of the GS Optics business and of GBP2.4m to
the sellers of Artemis. Deferred and contingent consideration of up
to $2.1m is payable for the acquisition of GS Optics dependent upon
its financial performance in the 12 months ended 31 December 2023.
Deferred and contingent consideration of up to GBP2.2m is payable
for the acquisition of Artemis dependent upon its financial
performance to 31 July 2025.
Dividend payments in the year totalled GBP3.2m (2022:
GBP3.1m).
Funding and Liquidity
The Group's operations are funded through a combination of
retained profits, equity and borrowings. Borrowings are raised at
Group-level from the Group's banking partner and lent to the
subsidiaries. At 30 September 2023, the Group had drawn $34.6m from
its Group debt facility leaving undrawn committed and uncommitted
facilities of $35.4m. The Group's borrowings are in the form of a
US$ denominated Revolving Credit Facility (RCF). The RCF matures in
March 2027. A further summary of the Group's borrowings and
maturities are set out in note 23 of the Group Financial
Statements.
The Group's leverage is expressed in terms of its net
debt/adjusted EBITDA ratio. Under the Group's credit facility, the
figure for net debt used in this ratio excludes IFRS 16 lease
liabilities and other IFRS 16 impacts. The Group's main financial
covenants in its bank facilities states that net debt must be below
2.5 times adjusted EBITDA, and adjusted EBITDA is required to cover
interest charges, excluding interest on pension schemes, by at
least 4.5 times. At 30 September 2023 net debt/adjusted EBITDA was
1.1 times (30 September 2022: 0.7). Interest cover at 30 September
2023 was 9.0 times (30 September 2022: 24.6 times).
The Group maintains sufficient available committed borrowings to
meet any forecast funding requirements.
Dividend Policy
In determining the level of dividend, the Board considers not
only the adjusted earnings cover, but also looks to the future
expected underlying growth of the business and its capital and
other investment requirements. The Group's balance sheet position
and its expected future cash generation are also considered. The
Board takes into consideration the Group's Principal Risks, which
are set out in our Annual Report. The Group's ability to pay a
dividend is impacted by the distributable reserves available in the
parent Company, which operates as a holding company, primarily
deriving its net income from dividends paid by its subsidiary
companies. At 30 September 2023, Gooch & Housego PLC had
sufficient distributable reserves to pay dividends for the
foreseeable future.
Given the strength of the Group's order book and the growth
potential of the Group confirmed by our recent strategic review the
Board is proposing a final dividend of 8.2 pence per share (FY2022:
7.9p), giving a total of 13.0 pence per share (FY2022: 12.6p) for
the year when combined with the 4.8 pence per share paid as an
interim dividend in July 2023 (FY2022: 4.7p). The Board is
committed to growing the level of dividend cover.
Financial Risk Management
The Group's main financial risks relate to funding and
liquidity, interest rate fluctuations and currency exposures. The
Group uses financial instruments to manage financial risks arising
from underlying business activities.
Foreign Currency
The Group is exposed to both translational and transactional
currency risk. We are able to partially mitigate the transaction
risk through matching supply currency with sales currencies but in
our UK businesses we remain a net seller of US dollars and Euros.
We address these net sales through forward hedge contracts seeking
to cover at least 75% of the forecast net exposure over the coming
twelve months. These contracts are used to reduce volatility which
might affect the Group's cash balance and income statement.
The following are the average and closing rates of the foreign
currencies that have the most impact on the translation of the
Group's Income Statement and Balance Sheet into GBP.
2023 2022
Income Statement Average rate
---------------
USD/GBP 1.23 1.28
------- ------
Euro/GBP 1.15 1.18
------- ------
Balance Sheet Closing rate
---------------
USD/GBP 1.22 1.12
------- ------
Euro/GBP 1.15 1.14
------- ------
The Group's revenue is more sensitive to exchange rate movements
than its profit. A one cent change in the average Dollar exchange
rate would have a GBP0.7m effect on revenue but less than GBP0.1m
effect on profit. The Group's results are not significantly
affected by movements in the Euro exchange rate.
Group Income Statement
For the year ended 30 September 2023
30 September 2023 30 September 2022
Note Underlying Non-underlying Total Underlying Non-underlying Total
(Note (Note
4) 4)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 2 148,476 - 148,476 124,802 - 124,802
Cost of revenue (104,454) - (104,454) (85,741) - (85,741)
----------- --------------- ---------- ----------- --------------- ---------
Gross profit 44,022 - 44,022 39,061 - 39,061
Research and development (9,274) - (9,274) (9,181) - (9,181)
Sales and marketing
expenses (10,259) - (10,259) (8,697) - (8,697)
Administration
expenses (13,980) (4,494) (18,474) (12,879) (3,695) (16,574)
Impairment of goodwill
and acquired intangible
assets - - - - (6,726) (6,726)
Other income 835 - 835 560 - 560
----------- --------------- ---------- ----------- --------------- ---------
Operating profit
/ (loss) 2 11,344 (4,494) 6,850 8,864 (10,421) (1,557)
Finance income 11 - 11 - - -
Finance costs (1,784) (57) (1,841) (717) - (717)
----------- --------------- ---------- ----------- --------------- ---------
Profit / (loss)
before income
tax (expense)
/ income 9,571 (4,551) 5,020 8,147 (10,421) (2,274)
Income tax (expense)
/ income 3 (1,719) 747 (972) (1,326) 1,590 264
----------- --------------- ---------- ----------- --------------- ---------
Profit / (loss)
for the year 7,852 (3,804) 4,048 6,821 (8,831) (2,010)
----------- --------------- ---------- ----------- --------------- ---------
Basic earnings
/ (losses) per
share 5 31.3p (15.2p) 16.1p 27.2p (35.2p) (8.0p)
Diluted earnings
/ (losses) per
share 5 31.0p (15.0p) 16.0p 27.0p (35.0p) (8.0p)
----------- --------------- ---------- ----------- --------------- ---------
Group Statement of Comprehensive Income
For the year ended 30 September 2023
2023 2022
GBP000 GBP000
-------- --------
Profit / (loss) for the year 4,048 (2,010)
Other comprehensive income / (expense)
- items that may be reclassified
subsequently to profit or loss
Gains / (losses) on cash flow hedges 1,287 (1,137)
Currency translation differences (5,801) 9,774
Other comprehensive (expense) /
income for the year net of tax (4,514) 8,637
Total comprehensive (expense) /
income for the year attributable
to the shareholders of Gooch & Housego
PLC (466) 6,627
-------- --------
Group Balance Sheet
For the year ended 30 September 2023
2023 2022
GBP000 GBP000
--------- ---------
Non-current assets
Property, plant and equipment 41,818 42,447
Right of use assets 9,932 5,063
Intangible assets 59,729 47,939
Deferred income tax assets 2,178 1,969
--------- ---------
113,657 97,418
Current assets
Inventories 37,582 37,073
Trade and other receivables 34,075 35,598
Cash and cash equivalents 7,294 5,999
78,951 78,670
Current liabilities
Trade and other payables (21,156) (22,765)
Borrowings (10) (64)
Lease liabilities (1,443) (1,732)
Income tax liabilities (581) (578)
(23,190) (25,139)
Net current assets 55,761 53,531
Non-current liabilities
Borrowings (28,157) (18,730)
Lease liabilities (9,394) (4,539)
Provisions for other liabilities
and charges (1,582) (848)
Deferred consideration (870) -
Deferred income tax liabilities (9,682) (8,291)
(49,685) (32,408)
119,119
--------- ---------
Net assets 119,733 118,541
--------- ---------
Shareholders' equity
Capital and reserves
attributable to equity shareholders
Called up share capital 5,159 5,008
Share premium account 16,051 16,000
Merger reserve 11,561 7,262
Cumulative translation reserve 10,027 15,828
Hedging reserve 15 (1,272)
Retained earnings 76,920 75,715
--------- ---------
Total equity 119,733 118,541
--------- ---------
Group Statement of Changes in Shareholders' Equity
For the year ended 30 September 2023
Note Called Share Merger Retained Hedging Cumulative Total
up share premium reserve earnings Reserve translation equity
capital account GBP000 GBP000 GBP000 reserve GBP000
GBP000 GBP000 GBP'000
---------- --------- --------- ---------- --------- ------------- --------
At 1 October
2021 5,008 16,000 7,262 80,087 (135) 6,054 114,276
Loss for the
financial year - - - (2,010) - - (2,010)
Other
comprehensive
expense /
(income)
for the year - - - - (1,137) 9,774 8,637
---------- --------- --------- ---------- --------- ------------- --------
Total
comprehensive
(expense) /
income for the
year - - - (2,010) (1,137) 9,774 6,627
---------- --------- --------- ---------- --------- ------------- --------
Dividends 6 - - - (3,105) - - (3,105)
Share-based
payments - - - 743 - - 743
Total
contributions
by and
distributions
to owners of
the parent
recognised
directly in
equity - - - (2,362) - - (2,362)
At 30 September
2022 5,008 16,000 7,262 75,715 (1,272) 15,828 118,541
---------- --------- --------- ---------- --------- ------------- --------
At 1 October
2022 5,008 16,000 7,262 75,715 (1,272) 15,828 118,541
Profit for the
financial year - - - 4,048 - - 4,048
Other
comprehensive
income /
(expense)
for the year - - - - 1,287 (5,801) (4,514)
---------- --------- --------- ---------- --------- ------------- --------
Total
comprehensive
income /
(expense)
for the year - - - 4,048 1,287 (5,801) (466)
---------- --------- --------- ---------- --------- ------------- --------
Dividends 6 - - - (3,180) - - (3,180)
Shares issued 151 51 4,299 - - - 4,501
Share-based
payments - - - 337 - - 337
Total
contributions
by and
distributions
to owners of
the parent
recognised
directly in
equity 151 51 4,299 (2,843) - - 1,658
At 30 September
2023 5,159 16,051 11,561 76,920 15 10,027 119,733
---------- --------- --------- ---------- --------- ------------- --------
Group Cash Flow Statement
For the year ended 30 September 2023
2023 2022
Note GBP000 GBP000
--------- --------
Cash flows from operating activities
Cash generated from operations 7 16,164 6,084
Income tax repaid 2 456
--------- --------
Net cash generated from operating
activities 16,166 6,540
--------- --------
Cash flows from investing activities
Acquisition of subsidiaries, net (11,697) -
of cash acquired
Purchase of property, plant and
equipment (6,257) (6,669)
Sale of property, plant and equipment 516 -
Purchase of intangible assets (1,062) (1,899)
Interest received 11 -
Net cash used in investing activities (18,489) (8,568)
--------- --------
Cash flows from financing activities
Drawdown of borrowings 19,154 6,300
Repayment of borrowings (8,378) (1,312)
Principal elements of lease payments (1,624) (1,584)
Interest paid (1,784) (717)
Dividends paid to ordinary shareholders (3,180) (3,105)
Net cash generated from / (used
in) financing activities 4,188 (418)
--------- --------
Net increase / (decrease) in
cash 1,865 (2,446)
Cash at beginning of the year 5,999 8,352
Exchange (losses) / gains on cash (570) 93
--------- --------
Cash at the end of the year 7,294 5,999
--------- --------
Notes to the preliminary report
1. Basis of preparation
The Preliminary Report has been prepared under the historical
cost convention and in accordance with International Accounting
Standards.
The Preliminary Report does not constitute statutory financial
statements within the meaning of section 434 of the Companies Act
2006.
Comparative figures in the Preliminary Report for the year ended
30 September 2022 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 2022,
as described in those financial statements.
2. Segmental analysis
The Group's segmental reporting reflects the information that
management uses within the business. The business is divided into
three market sectors, being Aerospace and Defence, Life
Sciences/Biophotonics and Industrial, together with the Corporate
cost centre.
The Industrial business segment primarily comprises the
Industrial laser market for use in the semiconductor and
microelectronic industries, but also includes other Industrial
applications such as metrology, telecommunications and scientific
research. Further information can be found in our Operations Review
on pages 20-25.
Aerospace
and Defence Life Sciences/Biophotonics Industrial Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000
For year ended 30
September 2023
------------------------------- ------------- ---------------------------
Revenue
Total revenue 40,110 34,928 80,748 - 155,786
Inter and intra-division (1,554) (2,139) (3,617) - (7,310)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
External revenue 38,556 32,789 77,131 - 148,476
Divisional expenses (38,889) (28,426) (64,224) 929 (130,610)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
EBITDA(1) (333) 4,363 12,907 929 17,866
------------------------------- ------------- --------------------------- ----------- ---------- ----------
EBITDA % (0.9%) 13.3% 16.7% - 12.0%
Depreciation and
amortisation (2,604) (1,205) (3,641) (1,894) (9,344)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit before amortisation
of acquired intangible
assets (2,937) 3,158 9,266 (965) 8,522
Amortisation of acquired
intangible assets - - - (1,672) (1,672)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit (2,937) 3,158 9,266 (2,637) 6,850
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit margin % (7.6%) 9.6% 12.0% - 4.6%
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Add back non-underlying
items and amortisation
of acquired intangibles 639 946 1,232 1,677 4,494
Adjusted operating
(loss) / profit (2,298) 4,104 10,498 (960) 11,344
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Adjusted (loss) /
profit margin % (6.0%) 12.5% 13.6% - 7.6%
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Finance costs (59) (65) (172) (1,534) (1,830)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
(Loss) / Profit
before income tax
expense (2,996) 3,093 9,094 (4,171) 5,020
------------------------------- ------------- --------------------------- ----------- ---------- ----------
2. Segmental analysis (continued)
Aerospace
and Defence Life Sciences/Biophotonics Industrial Corporate Total
GBP000 GBP000 GBP000 GBP000 GBP000
For year ended 30
September 2022
------------------------------- ------------- ---------------------------
Revenue
Total revenue 32,992 33,190 69,316 - 135,498
Inter and intra-division (2,439) (3,494) (4,763) - (10,696)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
External revenue 30,553 29,696 64,553 - 124,802
Divisional expenses (31,220) (24,640) (53,437) 107 (109,190)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
EBITDA(1) (667) 5,056 11,116 107 15,612
------------------------------- ------------- --------------------------- ----------- ---------- ----------
EBITDA % (2.2%) 17.0% 17.2% - 12.5%
Depreciation and
amortisation (2,745) (1,378) (3,803) (614) (8,540)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit before amortisation
of acquired intangible
assets (3,412) 3,678 7,313 (507) 7,072
Amortisation and
impairment of acquired
intangible assets - - - (8,629) (8,629)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit (3,412) 3,678 7,313 (9,136) (1,557)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Operating (loss)
/ profit margin % (11.2%) 12.4% 11.3% - (1.2%)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Add back non-underlying
items and amortisation
of acquired intangibles 746 273 1,093 8,309 10,421
Adjusted operating
(loss) / profit (2,666) 3,951 8,406 (827) 8,864
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Adjusted (loss) /
profit margin % (8.7%) 13.3% 13.0% - 7.1%
------------------------------- ------------- --------------------------- ----------- ---------- ----------
Finance costs (113) (56) (130) (418) (717)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
(Loss) / profit
before income tax
expense (3,525) 3,622 7,183 (9,554) (2,274)
------------------------------- ------------- --------------------------- ----------- ---------- ----------
(1)EBITDA = Earnings before interest, tax, depreciation and
amortisation
Management have added back the amortisation and impairment of
acquired intangibles and goodwill, restructuring costs, site
closure costs and CEO succession costs in the above analysis. This
has been shown because the Directors consider the analysis to be
more meaningful excluding the impact of these non-underlying
expenses.
All of the amounts recorded are in respect of continuing
operations.
2. Segmental analysis (continued)
Analysis of net assets by location:
2023 2023 2023 2022 2022 2022
Assets Liabilities Net Assets Assets Liabilities Net Assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------- ------------ ----------- -------- ------------ -----------
United Kingdom 83,746 (47,947) 35,799 72,870 (33,909) 38,961
USA 107,748 (24,323) 83,425 101,574 (23,472) 78,102
Continental
Europe 198 (84) 114 488 (52) 436
Asia Pacific 916 (521) 395 1,156 (114) 1,042
-------- ------------ ----------- -------- ------------ -----------
192,608 (72,875) 119,733 176,088 (57,547) 118,541
-------- ------------ ----------- -------- ------------ -----------
For the year to 30 September 2023 non-current asset additions
were GBP2.5m (2022: GBP5.5m) for the UK and for the USA GBP6.5m
(2022: GBP3.3m). There were no additions to non-current assets in
respect of Europe (2022: GBPnil) or the Asia Pacific region (2022:
GBPnil). The value of non-current assets in the USA was GBP66.2m
(2022: GBP56.4m) and in the United Kingdom GBP45.5m (2022:
GBP41.5m). There were no non-current assets in Europe or the
Asia-Pacific region.
Analysis of revenue by destination:
2023 2022
GBP000 GBP000
-------- --------
United Kingdom 27,309 27,848
North America 59,328 47,267
Continental Europe 34,769 26,749
Asia Pacific and
Other 27,070 22,938
Total revenue 148,476 124,802
-------- --------
3. Income tax expense
Analysis of tax charge / (credit) in the year
2023 2022
GBP000 GBP000
Current taxation
UK Corporation tax 843 399
Overseas tax 703 (3)
Adjustments in respect of prior
years (1,130) (678)
-------- --------
Total current tax 416 (282)
-------- --------
Deferred tax
Origination and reversal of temporary
differences (349) (422)
Adjustments in respect of prior
years 874 313
Change to UK tax rate 31 127
Total deferred tax 556 18
Income tax expense / (income)
per income statement 972 (264)
-------- --------
4. Non-underlying items
2023 2022
GBP000 GBP000
-------- --------
Included within administration
expenses
Amortisation of acquired intangible
assets 1,672 1,903
Acquisitions and disposals 1,156 -
Restructuring costs 787 1,179
Site closure costs 879 -
Impairment of goodwill and acquired
intangible assets - 6,726
Other - 613
4,494 10,421
-------- --------
Included within finance costs
Unwind of discount on deferred 57 -
consideration
------ --------
57 -
------ --------
Included within taxation
Tax effect of the non-underlying
items above (747) (1,022)
Restatement of UK deferred tax
balances at 25% - 127
Release of deferred tax on goodwill - (695)
------ --------
(747) (1,590)
------ --------
Acquisition costs of GBP1.2m (2022: GBPnil) related to costs
incurred associated with the changes to the Group's portfolio of
business, most significantly the acquisitions of GS Optics and
Artemis.
Restructuring costs of GBP0.8m (2022:GBP1.2m) associated with
the restructuring of the Group's operating model and the costs
incurred to establish our contract manufacturing partners
capability to manufacture both acousto-optic and fibre optic
products.
Site closure costs of GBP0.9m (2022: GBPnil). During the year
the Group closed its small facility in Shanghai and transferred its
ITL business' US operation from its site in Virginia into the GS
Optics campus in Rochester.
Restructuring costs incurred in the year ended 30 September 2022
related to the ongoing streamlining of our manufacturing operations
and outsourcing production of our commodity AO products to a
contract manufacturer in Thailand. The costs incurred in the period
largely comprised staff costs, severance costs, travel costs and
asset write downs at the sites being closed.
Other non-underlying items in the year ended 30 September 2022
relate to costs associated with the chief executive officer
succession and principally included payment in lieu of notice and
accelerated IFRS 2 costs.
The UK corporation tax rate increased to 25% with effect from 1
April 2023. During the year ended 30 September 2022, a charge of
GBP0.1m was incurred in relation to the tax rate differential
between current and deferred tax on timing differences arising in
the year. The effect in the year ended 30 September 2023 was
GBP31,000, which has been included in the underlying tax
charge.
5. 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 2023 is
given below:
2023 2022
Number of shares used for basic earnings
per share 25,085,805 25,040,919
Number of dilutive shares - impact
of share options granted 272,361 211,603
Number of shares used for dilutive
earnings per share 25,358,166 25,252,522
----------- -----------
A reconciliation of the earnings used in the earnings per share
calculation is set out below:
2023 2022
pence pence
GBP000 per share GBP000 per share
------- ----------- -------- -----------
Basic earnings / (losses)
per share 4,048 16.1p (2,010) (8.0p)
Amortisation of acquired intangible
assets (net of tax) 1,345 5.4p 1,491 6.0p
Acquisitions and disposals 1,073 4.1p - -
Site closure costs 729 2.9p - -
Impairment of goodwill and
intangible assets (net of
tax) - - 6,438 25.7p
Restructuring costs (net of
tax) 599 2.6p 944 3.8p
Other non-underlying items
(net of tax) - - 526 2.0p
Unwind of discount on deferred
consideration 58 0.2p
Release of deferred tax on
goodwill - - (695) (2.8p)
UK deferred tax rate change - - 127 0.5p
------- ----------- -------- -----------
Total adjustments net of income
tax expense 3,804 15.2p 8,831 35.2p
------- ----------- -------- -----------
Adjusted basic earnings per
share 7,852 31.3p 6,821 27.2p
------- ----------- -------- -----------
Basic diluted earnings /
(losses) earnings per share 4,048 16.0p (2,010) (8.0p)
------- ----------- -------- -----------
Adjusted diluted earnings
per share 7,852 31.0p 6,821 27.0p
------- ----------- -------- -----------
Basic and diluted earnings / (losses) 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.
6. Dividends
2023 2022
GBP000 GBP000
-------- --------
Final 2022 dividend: 7.7p per share
(Final 2021 dividend paid in 2022:
7.7p) 1,978 1,928
2023 Interim dividend of 4.8p per
share (2022: 4.7p per share) 1,202 1,177
-------- --------
3,180 3,105
-------- --------
The Directors have proposed a final dividend of 8.2p per share
making the total dividend paid and proposed in respect of the 2023
financial year 13.0p. (2022: 12.6p per share). The total value of
the proposed final dividend is GBP2,114,000 (2022:
GBP1,978,000).
7. Cash generated from operating activities
Reconciliation of cash generated
from operations
2023 2022
GBP000 GBP000
-------- ---------
Profit / (loss) before income
tax 5,020 (2,274)
Adjustments for:
- Amortisation of acquired intangible
assets 1,672 1,903
- Amortisation of other intangible
assets 1,692 1,438
- Impairment of intangible assets - 6,726
- Loss on disposal of property,
plant and equipment 234 71
- Write back of lease creditor
on early termination of lease - (96)
- Depreciation 7,652 7,102
- Share based payment charge 337 743
- Amounts claimed under the RDEC (200) (200)
- Finance income (11) -
- Finance costs 1,841 717
- Non cash interest charge included
in finance costs (57)
-------- ---------
Total 13,160 18,404
Changes in working capital
- Inventories (1,291) (5,557)
- Trade and other receivables 1,005 (5,707)
- Trade and other payables (1,730) 1,218
Total (2,016) (10,046)
Cash generated from operating
activities 16,164 6,084
-------- ---------
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END
FR FSEFULEDSESE
(END) Dow Jones Newswires
December 05, 2023 02:00 ET (07:00 GMT)
Gooch & Housego (LSE:GHH)
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