Goodwin Regulatory News (GDWN)

PRELIMINARY ANNOUNCEMENT

Goodwin PLC today announces its preliminary results for the year ended 30th April 2014.

CHAIRMAN'S STATEMENT

I am pleased to report that the pre-tax profit for the Group for the twelve month period ended 30th April 2014 was £24.1 million (2013: £20.3 million), an increase of 18.7% on a revenue of £130.8 million (2013: £127.0 million). The Directors propose an ordinary dividend of 42.348p per share (2013: ordinary dividend of 35.290p, extraordinary dividend of 17.645p).

The gross profit earned of £44.8 million was higher by 10.5% than for the previous financial year. This further improvement in gross profit and pre-tax profit earned stems from the energy market sector having remained buoyant throughout the financial year, allowing us to make use of our investment on capital equipment working 24 hours a day, 6.5 days a week, especially at Goodwin International and Goodwin Steel Castings.

The tax charge has been substantially lower this year for three main reasons: the Group has benefited from firstly the recently enacted patent box relief, secondly the lower effective corporation tax rate within the UK, and thirdly the revision of prior year estimates.

The Group continues to focus on mechanical engineering and refractory engineering as described below and in our business model and strategy in the following pages. Our activities, products and KPI's are detailed on our website www.goodwin.co.uk/2014.

Other than our traditional business in the oil and gas and power generation industries, our Mechanical Engineering Division continues to target engineering work for large construction projects which we believe will continue to add to our market sector diversity. The Group order work load as at 30th April 2014 was 10% higher than 12 months earlier and stood at £101 million, which should provide the Group with an opportunity of further improvement in this new financial year. However, since the commencement of the new financial year there has been a noticeable slow down in order input from the oil and gas industries which is in line with the statements in the press by a number of chairmen of major oil companies, who have indicated that they are slowing down their capital investment programmes. Whether we are able to further increase our global market penetration and find additional customers to overcome this only time will tell, but any impact is more likely to affect the financial year 2015/2016.

Whilst the energy mix is changing over the long term, it is considered that fossil fuels will likely remain the dominant energy resource in the future and hold 80% of the energy mix by 2035. Crude oil, natural gas (including shale gas) and coal we think will be evenly split in the energy market and it is unlikely by then that there will be any dominant energy form. These sectors by definition have a long term future as the world population continues to grow and attain higher living standards, especially in the Pacific Basin. Over the past 50 years the world population has more than doubled from 3.2 billion to 7.3 billion people and in that same time the average energy consumption per person has also gone up by 50%. As the developing world continues to evolve, this average increase in energy consumption per person on the planet is unlikely to subside, so long term there will remain a significant demand for industrial products for the fossil fuel industries.

In my statement last year, I noted that the Group's Refractory Division had suffered a downturn. I am pleased to report that this year the Refractory Division, despite the continuing difficult market conditions, has delivered a 6.9% increase in sales and a 19.3% increase in pre-tax profits over the previous financial year. We are hopeful given the hard work by all involved that this trend will continue in this new financial year.

The dividend this year is proposed to be £3,049,056, an increase of 20% on last year's ordinary dividend, similar to the post-tax profit increase. Despite having £15.5 million of capital expenditure this last year we will likely need to further invest over the next two years if we are to maintain our position as the leading global supplier of super nickel cast alloys.

Shareholders' equity has risen by £15.2 million from £58.4 million at 30th April 2013 to £73.6 million at 30th April 2014, and Total Shareholder Return has again substantially increased this year by more than 100% but very much more over a 5, 10 or 20 year period.

The Group has invested heavily during the year on land and buildings and on plant and machinery. This expenditure will generate some of the additional capacity needed for the future growth of the Group. It is pleasing that the cash flow situation, that was unsatisfactory last year, has significantly improved through the hard work of many Group personnel, despite the very substantial capital investments this year. However, we must remain vigilant as a further £12.7 million of additional capital expenditure has already been authorised for the new financial year. Of this, £4.0 million was already committed as at the balance sheet date with an additional £8.7 million being sanctioned subsequent to the year end. As mentioned above we will likely need to further invest in our super nickel alloy casting manufacturing capability as well as in certain other specific projects if we are to sustain future growth in exports. The expected growth will also result in increased working capital needs. Financial incentives from the Government will enable the release of necessary capital expenditure which otherwise may be constrained by our cash management.

Research and Development costs of £2.0 million during the year were mainly on the ongoing projects associated with higher efficiency electricity generation allied to CO2 capture. In the previous year, R&D spend was £2.6 million.

As part of our risk analysis, external independent reviews have been carried out on the Group's financial arrangements, insurance policy wordings, insured values, cyber security, intellectual property rights, health of key staff and operatives, energy efficiency and business continuity. The assessments which are being undertaken by specialist firms with extensive global experience, remain work in progress, but to date, no significant issues have come to light. The reviews have contributed to the Group's awareness of business risks and training needs as our stream of apprentices progress in the Group.

We are once again extremely grateful to our UK and overseas directors and employees for their hard work in driving forward the performance of the Group.

OBJECTIVES, STRATEGY AND BUSINESS MODEL

The Group's main OBJECTIVE is to have a sustainable long term engineering based business with good potential for profitable growth while providing a fair return to our shareholders.

The Board's STRATEGY to achieve this is:

• to supply a range of technically advanced products to growth markets in the mechanical engineering and refractory engineering segments in which we have built up a global reputation for engineering excellence, quality, efficiency, reliability, price and delivery;

• to manufacture advanced technical products profitably, efficiently, and economically;

• to maintain an ongoing programme of investment in plant, facilities, sales and marketing, research and development with a view to increasing efficiency, reducing costs, increasing performance, delivering better products for our customers, expanding our global customer base and keeping us at the forefront of technology within our markets;

• to control our working capital and investment programme to ensure a safe level of gearing;

• to maintain a strong capital base to retain investor, customer, creditor and market confidence and so help sustain future development of the business;

• to support a local presence and a local workforce in order to stay close to our customers;

• to invest in training and development of skills for the Group's future.

BUSINESS MODEL

The Group's focus is on manufacturing within two sectors; mechanical engineering and refractory engineering and through this division of our manufacturing activities, the Group benefits from market diversity. Further details of our business and products are shown on our website www.goodwin.co.uk/2014.

Mechanical Engineering

The Group produces a wide range of dual plate and axial nozzle check valves to serve the oil, petrochemical, gas, LNG and water treatment markets. We create value by globally sourcing the best quality raw material at good prices, manufacturing in highly efficient facilities using up to date technology to provide the very reliable products to the required specification, at competitive prices and with timely deliveries.

Our mechanical engineering markets also include high alloy castings, machining and general engineering products which typically form part of large construction projects such as power generation plants, oil refineries, high integrity offshore structural components and bridges. The Group through its foundry and CNC machine shop has the capability to pour the castings, radiograph and also finish them in-house. This capability is also targeting the defence industry.

Goodwin International, the largest company in the Mechanical Engineering Division, designs and manufactures dual plate and axial nozzle valves and also undertakes specialised CNC machining and fabrication work. Noreva GmbH also designs and manufactures axial nozzle valves. Both Goodwin International and Noreva purchase the majority of their sand mould castings from Goodwin Steel Castings and this vertical integration gives rise to competitive benefits, increased efficiencies, and timely deliveries.

At Goodwin Pumps India we manufacture a superior range of submersible slurry pumps for end users in India, China, Brazil and Africa. Easat Antennas designs and builds bespoke high-performance radar antennas to the global market of major defence contractors, civil aviation authorities and border security agencies. We create value on these by innovative design and assembly in our own facilities using bought in or engineered in-house components.

Refractory Engineering

Within the Refractory Engineering Division, Goodwin Refractory Services, GRS (UK), creates value by developing, manufacturing and selling investment casting powders, waxes, silicone rubber and machinery for use in the following operations: jewellery casting, aerospace, tyre moulding and the compressor wheels for turbochargers. The Division has six other investment casting powder companies around the world that carry out the same activities as GRS (UK), located in China, India, Thailand and Brazil. These seven companies are vertically integrated with another of our UK refractory companies, Hoben International, which manufactures cristobalite that it sells to the seven group jewellery casting manufacturing companies, as well as producing ground silica which also goes into casting powders.

The other UK refractory company is Dupré Minerals which focuses on producing exfoliated vermiculite that is used in insulation, brake linings and fire protection products including textiles that can withstand high temperatures. Dupré also sells consumables to the shell moulding casting industry.

CONSOLIDATED INCOME STATEMENT

for the year ended 30th April 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th April 2014

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30th April 2014

CONSOLIDATED BALANCE SHEET

at 30th April 2014

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 30th April 2014

PRINCIPAL RISKS AND UNCERTAINTIES

The Group's operations expose it to a variety of risks and uncertainties, the principal ones being as follows. These risks are no different to previous years, and they are not expected to change substantially in the foreseeable future.

Market risk: The Group provides a range of products and services, and there is a risk that the demand for these products and services will vary from time to time because of competitor action or economic cycles or international trade friction or even wars. The Group operates across a range of geographical regions, and its turnover is split across the UK, Europe, USA, the Pacific Basin and the rest of the world. This spread reduces risk in any one territory. Similarly, the Group operates in both mechanical engineering and refractory engineering sectors, mitigating the risk of a downturn in any one product area. The potential risk of the loss of any key customer is limited as, typically, no single customer accounts for more than 10% of turnover. As described in the Business Model, the Group generates significant sales from the worldwide energy markets. Whilst these markets may suffer short term short declines, over the medium to long term the growing worldwide demand for energy will ensure these markets remain buoyant.

Technical risk: The Group develops and launches new products as part of its strategy to enhance the long term value of the Group. Such development projects carry business risks, including reputational risk, abortive expenditure and potential customer claims which may have a material impact on the Group. The potential risk here is seen as manageable given the Group is developing products in areas in which it is knowledgeable and new products are tested prior to their release into the market.

Product failure/Contractual risk: The risks that the Group supplies products that fail or are not manufactured to specification are risks that all manufacturing companies are exposed to but we try to minimise these risks through the use of highly skilled personnel operating within robust quality control system environments using third party accreditations where appropriate. With regard to the risk of failure in relation to new products coming on line, the additional risks here are minimised at the R&D stage, where prototype testing and the deployment of a robust closed loop product performance quality control system provides feed back to the design department for the products we manufacture and sell. The risk of not meeting safety expectations, or causing significant adverse impacts to customers or the environment is countered by the combination of the controls mentioned within this section. The risk of product obsolescence is countered by R&D investment.

Health and safety: The Group's operations involve the typical health and safety hazards inherent in manufacturing and business operations. The Group is subject to numerous laws and regulations relating to health and safety around the world. Hazards are managed by carrying out risk assessments and introducing appropriate controls, as well as attending safety training courses.

Acquisitions: The Group's growth plan over recent years has included a number of acquisitions. There is the risk that these, or future acquisitions, fail to provide the planned value. This risk is mitigated through financial and technical due diligence during the acquisition process and the Group's inherent knowledge of the markets they operate in.

Financial risk: The principal financial risks faced by the Group are changes in market prices (interest rates, foreign exchange rates and commodity prices). Detailed information on the financial risk management objectives and policies is set out in note 20 to the financial statements to be published shortly. The Group has in place risk management policies that seek to limit the adverse effects on the financial performance of the Group by using various instruments and techniques, including credit insurance, stage payments, forward foreign exchange contracts and interest rate swaps.

Regulatory compliance: The Group's operations are subject to a wide range of laws and regulations. Both within Goodwin PLC and its subsidiaries, the Directors and Senior Managers within the companies make best endeavours to comply with the relevant laws and regulations.

Forward Looking Statements

This Preliminary Announcement and the Strategic Report to be published shortly contain forward-looking type statements and information based on current expectations, and assumptions and forecasts made by the Group. These expectations and assumptions are subject to various known and unknown risks, uncertainties and other factors, which could lead to substantial differences between the actual future results, financial performance and the estimates and historical results given in this report. Many of these factors are outside the Group's control. The Group accepts no liability to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Responsibility statements of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

• The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

• The Strategic Report and the Directors' Reports in the financial statements to be published shortly include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

J.W. Goodwin, Chairman

R.S. Goodwin, Managing Director

J. Connolly, Director

M.S. Goodwin, Director 

A.J. Baylay, Director

S.R. Goodwin, Director

S.C. Birks, Director

B.R.E. Goodwin, Director

 Accounting policies

Goodwin PLC is a company incorporated in the UK.

The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The accounting policies are included in note 2 of the financial statements to be published shortly. The comparative results for the year ended 30th April 2013 have also been prepared on this basis.

New IFRS standards and interpretations adopted during 2014

In 2014 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:

· Amendments to IAS 1 Presentation of Items of Other Comprehensive Income

· Amendments to IFRS 13 Fair Value Measurement

· Annual Improvement Projects to IFRS's. The Annual Improvement Project to IFRS's provides a vehicle for making non-urgent but necessary amendments to IFRS's. Amendments to a number of standards have been adopted.

The adoption of these standards and amendments has not had a material impact on the Group's financial statements.

The financial information previously set out does not constitute the Company's statutory accounts for the years ended 30th April 2014 or 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies, and those for 2014 will be delivered in due course. The auditors have reported on those accounts; their report was:

i. unqualified;

ii. did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

iii. did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

Copies of the 2014 accounts are expected to be posted to shareholders within the next two weeks and will also be available on the Company's website: www.goodwin.co.uk and from the Company's Registered Office: Ivy House Foundry, Hanley, Stoke-on-Trent ST1 3NR.

Note 1 Segmental information

Products and services from which reportable segments derive their revenues

For the purposes of management reporting to the chief operating decision maker, the Board of Directors, the Group is organised into two reportable operating divisions: mechanical engineering and refractory engineering. Financial information for each operating division is also available in a disaggregated form in line with the identified cash generating units. Segment assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis. In accordance with the requirements of IFRS 8 the Group's reportable segments, based on information reported to the Group's Board of Directors for the purposes of resource allocation and assessment of segment performance are as follows;

· Mechanical Engineering - casting, machining and general engineering

· Refractory Engineering - powder manufacture and mineral processing

Information regarding the Group's operating segments is reported below. Associates are included in Refractory Engineering.

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Board of Directors monitors the tangible and financial assets attributable to each segment. All assets and liabilities are allocated to reportable segments with the exception of those held by the parent Company ('PLC') and those held as consolidation adjustments.

Geographical segments

The Group operates in the following principal locations.

In presenting the information on geographical segments, revenue is based on the location of its customers and assets on the location of the assets.

Note 2

The directors propose the payment of an ordinary dividend of 42.348 per share (2013: ordinary dividend 35.290p/extraordinary dividend 17.645p). If approved by shareholders, the ordinary dividend will be paid on 10th October 2014 to shareholders on the register at the close of business on 12th September 2014.

Note 3

The earnings per ordinary share has been calculated on profit after taxation for the year attributable to equity holders of the parent of £19,035,000 (2013: £15,247,000) and by reference to the 7,200,000 ordinary shares in issue throughout both years. The company has no share options or other diluting instruments and accordingly there is no difference in the calculation of diluted earnings per share.

Note 4

The Annual General Meeting will be held at 10.30 a.m. on 8th October 2014 at Crewe Hall, Weston Road, Crewe, Cheshire CW1 6UZ.

END