Goodwin Regulatory News (GDWN)

PRELIMINARY ANNOUNCEMENT

Goodwin PLC today announces its preliminary results for the year ended 30th April 2016.

CHAIRMAN'S STATEMENT

The pre-tax profit for the Group for the twelve month period ending 30th April 2016 was £12.3 million (2015: £20.1 million), a decrease of 39% on a revenue of £124 million (2015: £127 million) which is 3% down on the figures reported for the same period last financial year. The Directors propose an unchanged ordinary dividend of 42.348p (2015: 42.348p).

The diversity of products that address different world markets is part of the Group's strength, but even the history of diversity between our foundry, our valve companies that primarily address the oil, gas and LNG industries, our pump companies that primarily address the mining industries, our radar systems company and our ten refractory companies has not been enough to prevent the decline in profits over the past two years.

The severe contraction of the oil and gas industry worldwide, with over US$530 billion of cancelled or delayed projects, and the mining industries who have had a very difficult year has presented a challenge and the resultant reduced spending levels in the jewellery markets and the slowdown in China have all been unhelpful. There is, however, brightness on the horizon, with Easat Radar Systems, which absorbed NRPL Aero Oy, Finland this last year, and has a record work load of £12.5 million. Noreva GmbH has a similar order book level for its nozzle valves, which results from a combination of winning large orders in Saudi Arabia and from the USA LNG industry, and also starts the new year with a record order book.

Steps have been taken at Goodwin International over the past two years to add additional market sectors to its portfolio of products and customers by offering machining and high integrity fabrication for other customers. This has resulted in additional order input for the new financial year but as yet not enough to compensate for the drop off of the oil and gas sector where we are still winning some orders of the few that are available. Some of this new non valve work will be spread out over multi-year contracts, but nevertheless it has in part allowed the Group to mitigate some of the major damage from such a vast contraction of the oil, gas and mining industry activity where we will be unlikely to see significant signs of regeneration for another two years.

Goodwin Refractory Services benefitted from the asset purchase it made last year from a complementary French casting powder company and grew its pre-tax profits by 47% to £1.47 million. Similarly, in this new financial year, following intangible asset purchases in October 2015 from Westland (GB Trading) Limited and having spent six months of last year constructing a new perlite plant at Hoben International, both Dupré Minerals and Hoben International are expected to significantly improve their profitability as compared to the financial year just completed.

All the above does not alter the fact that our steel foundry and UK valve manufacturing activity have less orders and the ones we have are on tighter margins, but at least the new areas of business are softening the unwelcome severe downturn in the oil and gas and mining industries. It would be appropriate to thank all those involved in developing these new areas of business which have programmes that run for many years.

The Group order work load as at 30th April 2016 is 16 % higher than 12 months earlier and stood at £92 million. Although some of this workload has tighter margins, it provides a better start to the new year which will be difficult with world trading conditions being less than buoyant.

Goodwin International will be launching its newly developed and patented axial piston control and shut off valve at the Düsseldorf Valve World Exhibition this coming November and, similarly in Düsseldorf, Goodwin Steel Castings will be presenting a paper at the Duplex Conference in October on higher performing duplex stainless steel castings and welding electrode wire and rod.

The Group's net cash generated from operating activities prior to investments amounted to £9.9 million (2015: £18.0 million) and the Group's gearing at the year end was 26.1 % (2015: 12.3 %).

Shareholders' equity has risen from £82.7 million to £86.3 million. It has been decided by the Board that it would be appropriate, subject to shareholder approval at the AGM, to incentivise the Executive Directors of Goodwin PLC to drive back the total shareholder return (TSR) towards the levels it enjoyed two years ago by increasing Group turnover and pre-tax profitability. Whilst this may not occur in one year, the three year programme targeted to bring in new products and customers will hopefully, with hard work, position the Group in a more favourable situation. Accordingly, shareholders are also being asked to approve a revised Directors' Remuneration Policy incorporating the new long term incentive plan.

For the key performance indicators and ratios please refer to the web site www.goodwin.co.uk/2016.

We take the opportunity of thanking the employees and the Directors both in our UK and overseas companies for the hard work put in to achieve these Group results.

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/2016.

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 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 Radar Systems 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), 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 nine other investment casting powder companies around the world that carry out the same activities as GRS, located in China, India, Thailand and Brazil. These nine companies are vertically integrated with another of our UK refractory companies, Hoben International, which manufactures cristobalite that it sells to the ten group jewellery casting manufacturing companies, as well as producing ground silica which also goes into casting powders. Towards the end of the year Hoben International started to manufacture and sell perlite products.

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, 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th April, 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30th April, 2016

CONSOLIDATED BALANCE SHEET

at 30th April, 2016

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 30th April, 2016

PRINCIPAL RISKS AND UNCERTAINTIES

The Group's operations expose it to a variety of risks and uncertainties. These risks are no different to previous years, and they are not expected to change substantially in the foreseeable future. The Directors confirm that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. The key risks are discussed below.

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. As shown in note 2 to the financial statements, 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. 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, secured and unsecured credit lines, 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.

Assessment of Principal Risks: Changes and likely impact: The lead up to the vote on whether to leave or remain in the EU saw delays in the release of public and private infrastructure investments. Although a post balance sheet event the UK's vote to exit from the EU will impose new challenges and uncertainties. The review of trade agreements and legislation is an unknown. However, we see the immediate effect of a weakening of sterling as being a major competitive advantage in our favour. For year end 30th April, 2015 60% of our exports were to countries other than those in the EU and this year over 50% of sales are to non EU areas where we will now be more competitive.

Forward looking statements

The Preliminary Statement contains 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 for future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Statement of directors' responsibilities in respect of the annual report and the financial statements

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 or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Group Strategic Report includes 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.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

J. W. Goodwin, Chairman

R. S. Goodwin, Managing Director

J. Connolly, Director

M. S. Goodwin, Director

S. R. Goodwin, Director

S. C. Birks, Director

B. R. E. Goodwin, Director

T. J. W. Goodwin, Director

J. E. Kelly, Non-Executive Director

Accounting Policies

Goodwin PLC (the "Company") is incorporated in the UK.

The Group Financial Statements consolidate those of the Company and its subsidiaries (together referred to as the "Group") and equity account the Group's interest in associates. 

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 1 of the financial statements to be published shortly. The comparative results for the year ended 30th April, 2015 have also been prepared on this basis.

New IFRS standards and interpretations adopted during 2016

In 2016 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:

· Annual improvements to IFRSs 2010-2012 Cycle (effective for annual periods beginning on or after 1 February, 2015

· Annual improvements to IFRSs 2011-2013 Cycle (endorsed on 18th December, 2014)

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, 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the Registrar of Companies, and those for 2016 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 2016 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, Goodwin 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 Intangible assets

During the year, the Group added to its portfolio of goodwill and intangible assets. The main additions are described below:

£3.5 million on manufacturing rights and customer lists relating to the acquisition of the vermiculite and perlite activities from Westland (GB Trading) Limited during October 2015 satisfied fully by cash.

£1.07 million of goodwill relating to the 100% acquisition by Easat Radar Systems Limited (Easat) of NRPL Aero Oy, a Finnish transceiver company. The transaction comprised cash of £1.56 million and the transfer of 20% of the equity of Easat to the former owner of NRPL Aero Oy. Management have assessed the fair value of the NRPL brand name to be £408,000 based on the expected net present value of future cash flows.

£640,000 on the acquisition of the manufacturing rights and non-compete agreements in relation to a Chinese lost wax investment powder manufacturing company in China.

£736,000 has been capitalised during the year in relation to transceiver development expenditure by NRPL.

£594,000 has been capitalised during the year in relation to the development of a new check valve range by Goodwin International.

Note 3 Acquisitions

Easat Radar Systems Limited (Easat) acquired 100% of the share capital of NRPL Aero Oy during the year for a cash consideration of £1.525 million plus 20% of the share capital of Easat. The fair value of the Easat shares was assessed as 20% of the net asset value of Easat as at the 31st May 2015. The transaction costs involved in completing the acquisition were not significant. The acquisition gives the Group the capability to supply complete radar systems to the air traffic control and coastal surveillance market place.

Ultratec Jewelry Supplies Limited acquired 100% of the share capital of Shenzhen King-Top Modern Hi-Tech Company Limited in January 2016 for a cash consideration of USD $600,000. The transaction costs involved were not significant. The acquisition has strengthened the Group's presence within the Chinese investment powder supplies market.

Note 4

The directors propose the payment of an ordinary dividend of 42.348 per share (2015: ordinary dividend of 42.348p).  If approved by shareholders, the ordinary dividend will be paid on 7th October, 2016 to shareholders on the register at the close of business on 9th September, 2016.

Note 5

The earnings per ordinary share has been calculated on profit after taxation for the year attributable to equity holders of the parent of £8,838,000 (2015: £15,025,000) 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 6

The Annual General Meeting will be held at 10.30 a.m. on 5th October, 2016 at Crewe Hall, Weston Road, Crewe, Cheshire CW1 6UZ.

END