Last checked at 6 Jun 2017 07:00
6 June 2017 |
GOOCH & HOUSEGO PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2017
Gooch & Housego PLC (AIM:GHH) ("Gooch & Housego", "G&H", the "Company" or the "Group"), the specialist manufacturer of optical components and systems, today announces its interim results for the six months ended 31 March 2017.
Financial Highlights
Period ended 31 March | HY2017 | HY2016 | Change (%) |
Revenue | £52.2m | £38.4m | 36.0% |
Adjusted profit before tax1 | £6.2m | £5.6m | 11.8% |
Adjusted basic earnings per share 1 | 18.7p | 17.0p | 10.0% |
Net cash | £7.8m | £12.3m | (36.9%) |
Statutory profit before tax | £4.7m | £3.5m | 33.3% |
Basic earnings per share | 14.1p | 10.8p | 30.6% |
Interim dividend per share | 3.7p | 3.3p | 12.1% |
1 Adjusted for amortisation of acquired intangible assets and non-recurring items.
Highlights
· Strong revenue growth driven by telecoms, precision inspection equipment and microelectronic manufacturing sectors
· Revenue growth of 36.0% compared with the same period last year. Excluding the impact of foreign exchange, an increase of 18.2% over last year
· Completed the acquisition of StingRay Optics in February 2017
· Continued investment in people and infrastructure to drive further growth and take advantage of the positive market conditions
· Targeted investment in R&D of £4.5 million, up 28.6% on the previous year
· Adjusted profit growth of 11.8% compared with same period last year
· Cash flow from operations of £7.9 million, compared with £2.9m last year
· Record order book of £66.6 million, as at 31 March 2017, an increase of 70.5% compared with the same period last year
· Interim dividend increased to 3.7p (2016:3.3p)
Mark Webster, Chief Executive Officer of Gooch & Housego PLC, commented on the results:
"G&H is well positioned to take advantage of the positive market conditions and has continued to invest in people and infrastructure in order to meet the demands of a strong order book. We remain on track to meet our full year expectations.
"G&H is committed to a strategy of diversification and moving up the value chain. This has been most evident in the A&D sector where our most recent acquisitions, combined with increased investment in R&D have gone some way towards our goal of achieving 'critical mass' in this sector.
"We will continue to invest in our performance improvement programme, which will underpin our future growth."
For further information please contact:
Gooch & Housego PLC | Mark Webster / Andrew Boteler | 01460 256 440 |
Buchanan | Mark Court / Sophie Cowles | 020 7466 5000 |
Investec Bank plc (Nomad & Broker) | Patrick Robb / David Anderson | 020 7597 5970 |
Notes to editors
1. Gooch & Housego is a photonics technology business headquartered in Ilminster, Somerset, UK with operations in the USA and Europe. A world leader in its field, the company researches, designs, engineers and manufactures advanced photonic systems, components and instrumentation for applications in the Aerospace & Defence, Industrial, Life Sciences and Scientific Research sectors. World leading design, development and manufacturing expertise is offered across a broad range of complementary technologies.
2. This announcement contains certain forward-looking statements that are based on management's current expectations or beliefs as well as assumptions about future events. These are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries and sectors in which G&H operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results, and G&H's plans and objectives, to differ materially from those currently anticipated or implied in the forward-looking statements. Investors should not place undue reliance on any such statements. Nothing in this announcement should be construed as a profit forecast.
Operating and Financial Review
Performance Overview
Market conditions continue to be positive, driven in large part by the telecommunications and industrial sectors, in particular high reliability fibre couplers for undersea cables, precision inspection equipment and critical components used in microelectronic manufacturing. First half revenue growth has been very good, albeit benefitting from a favourable foreign exchange environment and a relatively weak comparator period. The Company saw an acceleration in growth in the period, with the second quarter delivering 16.0% more revenue compared to quarter one. We are expecting a good second half trading performance driven by orders for our fibre business and the continued strength of the microelectronics sector.
Our order book stood at a record £66.6 million as at 31 March 2017, which represents an increase of 70.5% compared to the same time last year. Excluding the impact of foreign exchange and acquisitions this represents an increase of 17.2% over last year. Further investment has been necessary to enable us to take advantage of this strong order book, in particular at our Ilminster site, where we have upgraded equipment and trained new operators.
The increase in our interim dividend by 12.1% reflects our confidence in the business going forward and is underpinned by our strong balance sheet.
REVENUE | |||||
Six months ended 31 March | 2017 | 2016 | |||
£'000 | % of total | £'000 | % of total | ||
Industrial | 31,336 | 60% | 24,764 | 65% | |
Aerospace & Defence | 14,578 | 28% | 8,064 | 21% | |
Life Sciences | 4,751 | 9% | 3,941 | 10% | |
Scientific Research | 1,488 | 3% | 1,592 | 4% | |
Group Revenue | 52,153 | 100% | 38,361 | 100% | |
Group revenue for the half year was £52.2 million, an increase of £13.8 million, or 36.0% over the comparative period last year. On a constant currency basis, revenue was 18.2% higher.
Order intake in the first half of the year has been encouraging. The Company has booked £59.5 million in orders since 1 October 2016, compared to £41.1 million in the corresponding period last year. Since March the order book has strengthened further.
Products and Markets - Industrial
Gooch & Housego's principal industrial markets are industrial lasers, telecommunications, metrology, sensing and semiconductor manufacturing. Industrial lasers are used in a diverse range of precision material processing applications ranging from microelectronics to automotive.
Business in our industrial market was good in the first six months of the year. Overall, sales of products into our industrial markets in the six months to 31 March 2017 were 26.5% higher compared with the equivalent period last year.
The industrial laser market was a principal driver of the revenue growth due to the continued high demand for precision lasers used in microelectronic manufacturing. This was a demand trend that emerged in the second half of last year. Demand for these products remains strong.
In telecommunications, the "step change" in demand for fibre optic components for under-sea telecommunications applications, reported throughout last year, has continued. We expect this demand to be maintained throughout this year and into next, as non-traditional, Silicon Valley based companies enter this market and look to lay their own undersea networks. Sales of lithium niobate wafers for modulation applications also continue to be high. The overall telecommunications market segment increased by 68% compared with the equivalent period last year.
Products and Markets - Aerospace & Defence
Product quality, reliability and performance are paramount in this sector and that plays to G&H's strengths, along with our commitment to provide value. We have solid, well established positions in target designation and range finding, ring laser and fibre optic gyroscope navigational systems, infrared and RF countermeasures and space satellite communications.
The market for G&H is characterised by high-value, long-term programmes involving the main US and European defence contractors. Over the last ten months G&H has strengthened its position in this market with the acquisition of three businesses (Kent Periscopes, Alfalight & StingRay) whose focus is either entirely, or largely Aerospace & Defence. This reflects G&H's commitment to this market which continues to represent an attractive growth area as more applications seek optical solutions in this demanding area.
Our Aerospace & Defence business grew by 80.8% during the first six months of FY2017, compared to the equivalent period last year. Excluding the impact of acquisitions, Aerospace & Defence grew organically by 15.0% compared to the same period last year.
Products and Markets - Life Sciences
G&H's three principal Life Sciences revenue streams are derived from diagnostics (fibre-optic modules for optical coherence tomography (OCT) applications), surgery / treatments (electro-optics and acousto-optics for lasers) and biomedical research (acousto-optics for microscopy applications). In each application area the Company is making steady progress in moving up the value chain and is currently selling sub-systems as well as components to several larger customers.
Our Life Sciences business grew by 20.6% in the six months to 31 March 2017, compared with the equivalent period last year, driven mainly by increased demand within our OCT business.
The principal commercial application of OCT systems is retinal imaging, and G&H continues to be the leading provider of fibre optic solutions (products and design services) to this industry. G&H considers OCT to be a growth technology and is investing both in the development of new products and in keeping its current products competitive.
Products and Markets - Scientific Research
The key application in Scientific Research is laser inertial confinement fusion ("laser fusion"), where lasers are used to create the conditions found in the core of a star, which are part of long term government funded projects, both in the USA and Europe. In addition to pure research in high energy and plasma physics, these vast laser systems are being used to investigate whether this technology could provide clean, carbon-free energy to reduce dependency on fossil fuels. G&H is continuing to supply crystals, precision optics and fibre components for new system construction and expects ongoing business to continue to service replacement and maintenance requirements.
Strategy
G&H's strategy is built around the twin pillars of diversification and moving up the value chain. In order to ensure its strategic goals are met management considers investment in R&D, acquisitions and strategic partnerships.
R&D: In the first six months of the current financial year, G&H invested £4.5 million in targeted research & development. Our main target areas are fibre based lasers, fibre sensing, precision inspection equipment for microelectronic manufacturing, laser surgery, A&D sub systems, OCT medical diagnostics and space satellite communications. This represents 8.6% of revenue and is 28.6% higher than the same period last year (2016: £3.5m). G&H's continued commitment to investing in targeted R&D programmes is bearing fruit, with a record eighteen new products launched in the period ended 31 March 2017.
Diversification: G&H seeks to develop, through R&D and acquisition, a presence in new markets that offer the potential for significant growth as a result of their adoption of photonic technology, whilst also reducing exposure to cyclicality in any particular sector. We will continue to invest in all of our key sectors in order to ensure we maintain a balanced portfolio and over time achieve a critical mass in Life Sciences and A&D. Our recent acquisitions have greatly improved our position in A&D, which now represents 28.0% of our business (2016: 21.0%)
Moving up the Value Chain: G&H seeks to move up the value chain to more complex sub-assemblies and systems through leveraging its excellence in materials and components, and by providing photonic design and engineering solutions for our customers. This will enable G&H to transition from a components supplier to a solutions provider. A significant proportion of our business in the Aerospace & Defence market now comes from the sale of sub-systems rather than discrete components. Our recent acquisitions are all photonic design and sub-assembly businesses and have helped to increase the proportion of our business derived from non-component revenues from 15.2% in FY2016 to 20.8% in FY2017. G&H now has "world class" capability in opto-mechanical design and this substantially enhances our ability to offer "end to end" design and manufacturing solutions to our customers.
As well as continuing to develop a leadership position in space photonics, the Systems Technology Group is actively engaged in near-market developments in OCT, fibre lasers and fibre optic sensing as the Company leverages its components expertise to move up the value chain in these important areas.
Operations
As reported last year, the Company has committed to upgrading its Cleveland, Ohio facility. This facility, which houses G&H's world leading crystal growth capabilities, is a key contributor to current and future profitability and will benefit from the modernisation that has been taking place. The upgrade is substantially complete and we will have invested in the region of $5 million. The refurbished facility will help drive much needed operational efficiency, provide greater capacity, as well as a more compelling showcase for our capabilities for customers.
Our continuous improvement programme is proceeding well. Operationally the move to a lean manufacturing environment across all of our sites is set to deliver efficiency savings in 2017 and the drive for fewer more productive R&D projects combined with enhanced business development support has started to deliver an increased number of product opportunities.
Acquisitions
G&H will continue to evaluate acquisition opportunities that have the potential to accelerate delivery of the Company's strategic objectives. Having established a presence in its target markets, G&H is now focussing on moving up the value chain in each of those markets. Whilst the business will continue to evaluate bolt on businesses in our core component technologies, continued strong focus is being placed on acquisition opportunities that enhance the Company's ability to wrap electronics and software around core photonic products to yield system-level solutions.
In February 2017 G&H acquired StingRay Optics LLC ("StingRay"), a New Hampshire, USA based specialist designer and manufacturer of high performance optical and opto-mechanical subsystems for demanding defence and commercial applications.
StingRay was founded in 2004 and has established itself as a market leading designer, manufacturer and supplier of world class custom optical assemblies. The business has a proven capability in providing system level optical products for use in harsh environments to key US defence customers. StingRay's product range covers laboratory, ground based, airborne, Unmanned Aerial Vehicles (UAVs) and space applications.
The acquisition of StingRay is aligned with G&H's strategic objectives of moving up the value chain and further diversification into the Aerospace & Defence sector. Potential synergies include leveraging G&H's greater reach through our global sales teams and our expertise in manufacturing infrared precision optics and specialist coatings.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES |
Operating Profit | Net finance costs | Taxation | Earnings per share | |||||
Half Year to 31 March | 2017 £000 | 2016 £000 | 2017 £000 | 2016 £000 | 2017 £000 | 2016 £000 | 2017 pence | 2016 pence |
Reported | 4,900 | 3,560 | (197) | (33) | (1,261) | (913) | 14.1 | 10.8 |
Amortisation of acquired intangible assets | 797 | 733 | - | - | (214) | (191) | 2.4 | 2.2 |
Restructuring costs | 351 | 1,106 | - | - | (94) | (288) | 1.0 | 3.4 |
Transaction fees | 287 | 194 | - | - | (77) | (50) | 0.3 | 0.6 |
Interest on discounted deferred consideration | - | - | 80 | - | - | - | 0.9 | - |
Adjusted | 6,335 | 5,593 | (117) | (33) | (1,646) | (1,442) | 18.7 | 17.0 |
Adjusted profit before tax was £6.2 million, an increase of 11.8% on the prior year (H1 2016: £5.6 million). This strong profit performance has been delivered at the same time as investing in the increased capacity required to deliver the positive demand conditions we are currently experiencing. This investment is largely now in place for the second half of 2017.
Cash Flow and Financing
In the six months to 31 March 2017 G&H generated cash from operations of £7.9 million, compared with £2.9 million in the same period of 2016. In respect of the StingRay acquisition, the consideration payable by G&H will be up to $20 million, on a debt free, cash free basis with a normalised level of working capital remaining in the business. This comprised an initial consideration of $7.5 million in cash which was paid on completion from existing G&H debt facilities and $2.5 million in new G&H ordinary shares, which are 'locked up' for one year from February 2017. There is also a deferred contingent consideration of up to $10 million, payable in cash, based upon the performance of the business for a period of up to three years.
Capital expenditure on property, plant and equipment was £3.6 million in the period (2016: £5.6 million). The main fixed asset additions were in relation to the modernisation of our Cleveland facility. This investment, together with our continued commitment to the principles of lean manufacturing are vital to improved manufacturing performance and providing increased capacity in the medium term.
The Company's net cash position remains robust at £7.8 million, down from £12.3 million at 30 September 2015, following the acquisition of StingRay.
Staff
The Company workforce increased from 755 at 30 September 2016 to 786 at the end of March 2017. This increase comes largely from the acquisition of StingRay, but also reflects our investment in increased capacity, offset by efficiency savings.
Dividends
The Directors have declared an interim dividend of 3.7p per share (2016 : 3.3p per share), a 12.1% increase on the prior period, which is reflective of the Directors' confidence in the business going forward and is underpinned by our strong balance sheet. This will be payable on 17 July 2017 to shareholders on the register as at 23 June 2017.
Prospects and outlook
G&H remains committed to the twin pillars of our strategy, namely diversification and moving up the value chain. Our recent A&D acquisitions, combined with increased investment in R&D have gone some way towards achieving our goal of establishing 'critical mass' in this sector.
The Company is well-positioned to take advantage of positive market conditions and has continued to invest in people and infrastructure to meet the demands of a strong order book. We remain on track to meet our full year expectations.
G&H will continue to pursue its strategy and invest in our continuous improvement programme prioritising further operational excellence, enhanced business development in our key markets and a more focused R&D portfolio; all of which will underpin our future performance.
Gareth Jones Mark Webster Andrew Boteler
Chairman Chief Executive Officer Chief Financial Officer
6 June 2017
Unaudited interim results for the 6 months ended 31 March 2017
Group Income Statement | Note | Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) |
£'000 | £'000 | £'000 | ||
Revenue | 5 | 52,153 | 38,361 | 86,051 |
Cost of revenue | (31,944) | (25,252) | (53,752) | |
Gross profit | 20,209 | 13,109 | 32,299 | |
Research and Development | (4,096) | (2,889) | (6,697) | |
Sales and Marketing | (4,706) | (2,976) | (6,469) | |
Administration | (7,438) | (5,247) | (11,425) | |
Other income and expenses | 931 | 1,563 | 2,476 | |
Operating profit | 5 | 4,900 | 3,560 | 10,184 |
Net finance costs | (197) | (33) | (88) | |
Profit before income tax expense | 4,703 | 3,527 | 10,096 | |
Income tax expense | 6 | (1,261) | (913) | (3,048) |
Profit for the period | 3,442 | 2,614 | 7,048 | |
Earnings per share
| 7 | 14.1p | 10.8p | 29.1p |
Reconciliation of operating profit to adjusted operating profit:
Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | ||
£'000 | £'000 | £'000 | ||
Operating profit | 4,900 | 3,560 | 10,184 | |
Amortisation of acquired intangible assets | 797 | 733 | 1,263 | |
Gain on bargain purchase | - | - | (578) | |
Impairment of goodwill | - | - | 771 | |
Provision for regulatory compliance risk | - | - | 500 | |
Restructuring costs
| 351 | 1,106 | 1,652 | |
Transaction fees | 287 | 194 | 466 | |
Adjusted operating profit | 6,335 | 5,593 | 14,258 |
Group Statement of Comprehensive Income | Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) |
£'000 | £'000 | £'000 | |
Profit for the period | 3,442 | 2,614 | 7,048 |
Other comprehensive income | |||
Currency translation difference
| 1,801 | 2,289 | 5,954 |
Other comprehensive income for the period
| 1,801 | 2,289 | 5,954 |
Total comprehensive income for the period | 5,243 | 4,903 | 13,002 |
Unaudited interim results for the 6 months ended 31 March 2017
Group Balance Sheet | 31 Mar 2017(Unaudited) | 31 Mar 2016(Unaudited) | 30 Sep 2016(Audited) | |
£'000 | £'000 | £'000 | ||
Non-current assets | ||||
Property, plant and equipment | 34,935 | 29,645 | 32,384 | |
Intangible assets | 44,418 | 21,074 | 29,916 | |
Deferred income tax assets | 2,785 | 2,382 | 2,674 | |
82,138 | 53,101 | 64,974 | ||
Current assets | ||||
Inventories | 21,025 | 16,269 | 18,973 | |
Income tax assets | - | 800 | 394 | |
Trade and other receivables | 21,852 | 15,532 | 22,679 | |
Cash and cash equivalents | 25,686 | 17,810 | 23,167 | |
68,563 | 50,411 | 65,213 | ||
Current liabilities | ||||
Trade and other payables | (20,547) | (11,675) | (19,624) | |
Borrowings | (3) | (10) | (4) | |
Income tax liabilities | (594) | (312) | (891) | |
Provision for other liabilities and charges | (803) | (380) | (940) | |
(21,947) | (12,377) | (21,459) | ||
Net current assets | 46,616 | 38,034 | 43,754 | |
Non-current liabilities | ||||
Borrowings | (17,913) | (5,482) | (11,494) | |
Deferred income tax liabilities | (4,951) | (3,169) | (4,806) | |
Deferred consideration | (9,437) | - | (2,256) | |
(32,301) | (8,651) | (18,556) | ||
Net assets | 96,453 | 82,484 | 90,172 | |
Shareholders' equity Capital and reservesattributable to equity shareholders | ||||
Called up share capital | 4,895 | 4,852 | 4,852 | |
Share premium account | 15,530 | 15,530 | 15,530 | |
Merger reserve | 4,640 | 2,671 | 2,671 | |
Cumulative translation reserve | 8,785 | 3,319 | 6,984 | |
Retained earnings | 62,603 | 56,112 | 60,135 | |
Equity Shareholders' Funds | 96,453 | 82,484 | 90,172 |
Unaudited interim results for the 6 months ended 31 March 2017
Statement of Changes in Equity | Sharecapitalaccount£000 | Sharepremiumaccount£000 | Mergerreserve£000 |
Retained earnings£000 |
Total equity £000
|
At 1 October 2015 | 4,818 | 15,530 | 2,671 | 55,348 | 78,367 |
Profit for the period | - | - | - | 2,614 | 2,614 |
Other comprehensive income for the period | - | - | - | 2,289 | 2,289 |
Total comprehensive income for the period | - | - | - | 4,903 | 4,903 |
Dividends | - | - | - | (1,254) | (1,254) |
Proceeds from shares issued | 34 | - | - | (34) | - |
Fair value of employee services | - | - | - | 319 | 319 |
Tax credit relating to share option schemes | - | - | - | 149 | 149 |
At 31 March 2016 (unaudited) | 4,852 | 15,530 | 2,671 | 59,431 | 82,484 |
At 1 October 2016 | 4,852 | 15,530 | 2,671 | 67,119 | 90,172 |
Profit for the period | - | - | - | 3,442 | 3,442 |
Other comprehensive income for the period | - | - | - | 1,801 | 1,801 |
Total comprehensive income for the period | - | - | - | 5,243 | 5,243 |
Dividends | - | - | - | (1,383) | (1,383) |
Proceeds from shares issued | 43 | - | 1,969 | (7) | 2,005 |
Fair value of employee services | - | - | - | 329 | 329 |
Tax credit relating to share option schemes | - | - | - | 87 | 87 |
At 31 March 2017 (unaudited) | 4,895 | 15,530 | 4,640 | 71,388 | 96,453 |
Unaudited interim results for the 6 months ended 31 March 2017
Group Cash Flow Statement | Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | |
£'000 | £'000 | £'000 | ||
Cash flows from operating activities | ||||
Cash generated from operations | 7,871 | 2,911 | 13,897 | |
Income tax paid | (802) | (465) | (1,324) | |
Net cash generated from operating activities | 7,069 | 2,446 | 12,573 | |
Cash flows from investing activities | ||||
Acquisition of subsidiaries, net of cash acquired | (5,549) | - | (5,687) | |
Purchase of property, plant and equipment | (3,568) | (5,639) | (9,710) | |
Sale of property, plant and equipment | 26 | - | - | |
Purchase of intangible assets | (348) | (654) | (629) | |
Interest received | 18 | 20 | 39 | |
Interest paid | (109) | (50) | (111) | |
Net cash used in investing activities | (9,530) | (6,323) | (16,098) | |
Cash flows from financing activities | ||||
Drawdown of acquisition borrowing facility | 6,045 | - | 5,426 | |
Repayment of borrowings | - | (29) | (39) | |
Dividends paid to ordinary shareholders | (1,383) | (1,254) | (2,055) | |
Net cash generated from / (used in) financing activities | 4,662 | (1,283) | 3,332 | |
Net increase / (decrease) in cash | 2,201 | (5,160) | (193) | |
Cash at beginning of the period | 23,167 | 22,556 | 22,556 | |
Exchange gains on cash | 318 | 414 | 804 | |
Cash at the end of the period | 25,686 | 17,810 | 23,167 |
Notes to the Group Cash Flow Statement | Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | |
£'000 | £'000 | £'000 | ||
Profit before income tax | 4,703 | 3,527 | 10,096 | |
Adjustments for: | ||||
- Amortisation of acquired intangible assets | 797 | 733 | 1,263 | |
- Amortisation of other intangible assets | 98 | 110 | 355 | |
- Gain on bargain purchase of Alfalight | - | - | (578) | |
- Impairment of goodwill | - | - | 771 | |
- Depreciation | 1,750 | 1,428 | 3,042 | |
- Share based payment obligations | 329 | 319 | 638 | |
- Finance income | (17) | (20) | (39) | |
- Finance costs | 214 | 53 | 127 | |
Total adjustments | 3,171 | 2,623 | 5,579 | |
Changes in working capital | ||||
- Inventories | (605) | 220 | 223 | |
- Trade and other receivables | 1,578 | (811) | (4,706) | |
- Trade and other payables | (976) | (2,648) | 2,705 | |
Total changes in working capital | (3) | (3,239) | (1,778) | |
Cash generated from operating activities | 7,871 | 2,911 | 13,897 |
Reconciliation of net cash flow to movements in net cash
Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | ||
£'000 | £'000 | £'000 | ||
Increase / (decrease) in cash in the period | 2,201 | (5,160) | (193) | |
Borrowings | (6,045) | - | (5,426) | |
Repayment of borrowings | - | 29 | 39 | |
Changes in net cash resulting from cash flows | (3,844) | (5,131) | (5,580) | |
Finance leases acquired | - | - | (25) | |
Translation differences | (54) | 121 | (55) | |
Movement in net cash in the period / year | (3,898) | (5,010) | (5,660) | |
Net cash at start of period | 11,668 | 17,328 | 17,328 | |
Net cash at end of period | 7,770 | 12,318 | 11,668 |
Analysis of net cash
At 1 Oct 2016 | Cash flow | Exchange movement | At 31 Mar 2017 | |
£'000 | £'000 | £'000 | £'000 | |
Cash at bank and in hand | 23,167 | 2,201 | 318 | 25,686 |
Debt due after 1 year | (11,474) | (6,045) | (371) | (17,890) |
Finance leases | (25) | - | (1) | (26) |
Net cash | 11,668 | (3,844) | (54) | 7,770 |
Notes to the Interim Report
1. Basis of Preparation
The unaudited Interim Report has been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union.
The Interim Report was approved by the Board of Directors and the Audit Committee on 6 June 2017. The Interim Report does not constitute statutory financial statements within the meaning of the Companies Act 2006 and has not been audited.
Comparative figures in the Interim Report for the year ended 30 September 2016 have been taken from the Group's audited statutory financial statements on which the Group's auditors, PricewaterhouseCoopers LLP, expressed an unqualified opinion. The comparative figures to 31 March 2016 are unaudited.
The Interim Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 6 June 2017. Copies will be available to members of the public upon application to the Company Secretary at Dowlish Ford, Ilminster, Somerset, TA19 0PF.
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2016, as described in those financial statements.
2. Application of IFRS
Adoption of new standards
During the current reporting period there were no new standards or amendments which had a material impact on the net assets of the Group. In addition, standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group. However, the Group is closely monitoring the IASB projects on Contract Revenue recognition and the Lease accounting overhaul as they could potentially have a material impact on the Group's results.
3. Estimates
The preparation of interim financial statements requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 30 September 2016.
4. Financial risk management
The Company's activities expose it to a variety of financial risks, market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
The interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual financial statements as at 30 September 2016.
There have been no changes to the risk management policies since the year end.
5. Segmental analysis
Aerospace & Defence | Life Sciences | Industrial | Scientific Research | Corporate | Total | |
For half year to 31 March 2017 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Revenue | ||||||
Total revenue | 14,578 | 4,751 | 34,463 | 1,488 | - | 55,280 |
Inter and intra-division | - | - | (3,127) | - | - | (3,127) |
External revenue | 14,578 | 4,751 | 31,336 | 1,488 | - | 52,153 |
Divisional expenses | (13,178) | (4,216) | (25,121) | (1,415) | (677) | (44,607) |
EBITDA¹ | 1,400 | 535 | 6,215 | 73 | (677) | 7,546 |
EBITDA % | 9.6% | 11.3% | 19.8% | 4.9% | - | 14.5% |
Depreciation and Amortisation | (334) | (192) | (942) | (57) | (324) | (1,849) |
Operating profit before amortisation of acquired intangible assets | 1,066 | 343 | 5,273 | 16 | (1,001) | 5,697 |
Amortisation of acquired intangible assets | - | - | - | - | (797) | (797) |
Operating profit | 1,066 | 343 | 5,273 | 16 | (1,798) | 4,900 |
Operating profit margin % | 7.3% | 7.2% | 16.8% | 1.1% | - | 9.4% |
Add back non-recurring items | - | - | - | - | 638 | 638 |
Operating profit excluding non-recurring items | 1,066 | 343 | 5,273 | 16 | (1,160) | 5,538 |
Adjusted profit margin % | 7.3% | 7.2% | 16.8% | 1.1% | - | 10.6% |
Aerospace & Defence | Life Sciences | Industrial | Scientific Research | Corporate | Total | |
For half year to 31 March 2016 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
Revenue | ||||||
Total revenue | 8,064 | 3,941 | 27,365 | 1,592 | - | 40,962 |
Inter and intra-division | - | - | (2,601) | - | - | (2,601) |
External revenue | 8,064 | 3,941 | 24,764 | 1,592 | - | 38,361 |
Divisional expenses | (7,364) | (3,271) | (20,059) | (1,375) | (462) | (32,531) |
EBITDA¹ | 700 | 670 | 4,705 | 217 | (462) | 5,830 |
EBITDA % | 8.7% | 17.0% | 19.0% | 13.6% | - | 15.2% |
Depreciation and Amortisation | (248) | (178) | (985) | (66) | (60) | (1,537) |
Operating profit before amortisation of acquired intangible assets | 452 | 492 | 3,720 | 151 | (522) | 4,293 |
Amortisation of acquired intangible assets | - | - | - | - | (733) | (733) |
Operating profit | 452 | 492 | 3,720 | 151 | (1,255) | 3,560 |
Operating profit margin % | 5.6% | 12.5% | 15.0% | 9.5% | - | 9.3% |
Add back non-recurring items | 21 | 23 | 1,055 | 7 | 194 | 1,300 |
Operating profit excluding non-recurring items | 473 | 515 | 4,775 | 158 | (1,061) | 4,860 |
Adjusted profit margin % | 5.9% | 13.1% | 19.3% | 9.9% | - | 12.7% |
¹EBITDA = Earnings before interest, tax, depreciation and amortisation.
All of the amounts recorded are in respect of continuing operations.
5. Segmental analysis continued
Analysis of revenue by destination
Half year to 31 Mar 2017 (Unaudited) | Half year to 31 Mar 2016 (Unaudited) | ||
£'000 | £'000 | ||
United Kingdom | 8,714 | 8,351 | |
America | 21,393 | 15,189 | |
Continental Europe | 11,675 | 8,687 | |
Asia-Pacific | 10,371 | 6,134 | |
52,153 | 38,361 |
6. Income tax expense
Analysis of tax charge in the period
Half Year to 31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016 (Audited) | ||
£'000 | £'000 | £'000 | ||
Current taxation | ||||
UK Corporation tax | 569 | 448 | 1,760 | |
Overseas tax | 517 | 319 | 887 | |
Adjustments in respect of prior year tax charge | - | - | (77) | |
Total current tax | 1,086 | 767 | 2,570 | |
Deferred tax | ||||
Origination and reversal of temporary differences | 175 | 146 | 218 | |
Adjustments in respect of prior year deferred tax | - | - | 290 | |
Impact of change in the UK tax rate | - | - | (30) | |
Total deferred tax | 175 | 146 | 478 | |
Income tax expense per income statement | 1,261 | 913 | 3,048 | |
The tax charge for the six months ended 31 March 2017 is based on the estimated effective rate of the tax for the Group for the full year to 30 September 2017. The estimated rate is applied to the profit before tax.
7. Earnings per share
The calculation of earnings per 20p Ordinary Share is based on the profit for the period using as a divisor the weighted average number of Ordinary Shares in issue during the period. The weighted average number of shares is given below.
Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | |
No. | No. | No. | |
Number of shares used for basic earnings per share | 24,374,577 | 24,213,432 | 24,248,471 |
Dilutive shares | 376,517 | 393,973 | 436,112 |
Number of shares used for dilutive earnings per share | 24,751,094 | 24,607,405 | 24,684,583 |
A reconciliation of the earnings used in the earnings per share calculation is set out below:
Half Year to31 Mar 2017 (Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to30 Sep 2016(Audited) | ||||
£'000 | p pershare | £'000 | p pershare | £'000 | p pershare | |
Basic earnings per share | 3,442 | 14.1p | 2,614 | 10.8p | 7,048 | 29.1p |
Adjustments net of income tax expense: | ||||||
Amortisation of acquired intangible assets | 583 | 2.4p | 542 | 2.2p | 930 | 3.8p |
Goodwill impairment | - | - | - | - | 771 | 3.2p |
Gain on bargain purchase of Alfalight | - | - | - | - | (578) | (2.4p) |
Provision for regulatory risk compliance | - | - | - | - | 500 | 2.1p |
Restructuring costs | 257 | 1.0p | 818 | 3.4p | 1,261 | 5.2p |
Transaction fees | 210 | 0.9p | 144 | 0.6p | 373 | 1.5p |
Interest on discounted deferred consideration | 80 | 0.3p | - | - | - | - |
Total adjustments net of income tax expense | 1,130 | 4.6p | 1,504 | 6.2p | 3,257 | 13.4p |
Adjusted basic earnings per share | 4,572 | 18.7 | 4,118 | 17.0p | 10,305 | 42.5p |
Basic diluted earnings per share | 3,442 | 13.8 | 2,614 | 10.6p | 7,048 | 28.6p |
Adjusted diluted earnings per share | 4,572 | 18.5 | 4,118 | 16.7p | 10,305 | 41.7p |
Adjusted earnings per share before amortisation and adjustments has been shown because, in the opinion of the Directors, it more accurately reflects the trading performance of the Group.
8. Dividend
The Directors have declared an interim dividend of 3.7 pence per share for the half year ended 31 March 2017. This dividend has not been accounted for within the period to 31 March 2017 as it is yet to be paid.
Half Year to31 Mar 2017(Unaudited) | Half Year to31 Mar 2016(Unaudited) | Full Year to 30 Sep 2016(Audited) | |
£'000 | £'000 | £'000 | |
Final 2016 dividend paid: 5.7p per share | 1,383 | - | - |
Final 2015 dividend paid : 5.2p per share | - | 1,254 | 1,254 |
2016 Interim dividend paid : 3.3p per share | - | - | 801 |
1,383 | 1,254 | 2,055 |
9. Borrowings
The group's banking facilities with the Royal Bank of Scotland comprise a committed revolving credit facility of $15m and an uncommitted flexible acquisition facility of $20m both available until 30 April 2019.
The revolving credit facility attracts an interest rate of between 0.9% and 1.8% above LIBOR dependent upon the Company's leverage ratio.
10. Called up share capital
2017 No. | 2016 No. | 2017 £'000 | 2016 £'000 | |
Allotted, issued and fully paid Ordinary share of 20p each |
24,476,471 |
24,260,024 |
4,895 |
4,852 |
11. Acquisition of StingRay Optics LLC
On 21 February 2017, the Group completed the acquisition of the entire unit capital of StingRay Optics LLC, a Keene, New Hampshire, based specialist designer and manufacturer of high performance optical and opto-mechanical subsystems for demanding defence and commercial applications. The acquisition strengthened the Group's position in the aerospace and defence sector.
The consideration for the acquisition will be up to $20m comprising initial consideration of $7.5m paid in cash and $2.5m paid in new G&H ordinary shares. There is also deferred contingent consideration of up to $10m, payable in cash, based on the performance of the business for a period of up to three years post acquisition.
The fair value of the assets acquired is summarised as follows:
Provisional fair value | ||
£'000 | ||
Property, plant and equipment | 98 | |
Intangible assets | 7,986 | |
Cash | 231 | |
Trade and other receivables | 655 | |
Inventory | 1,058 | |
Trade and other payables | (1,274) | |
Current and deferred tax assets | 156 | |
Net assets acquired | 8,910 | |
Consideration paid: | ||
Cash and shares paid on completion | 7,996 | |
Deferred consideration | 7,013 | |
Goodwill | 6,099 |
The fair value of the intangible assets represents the estimated fair value of StingRay's order book, its customer relationships and its brand. These have been valued using a discounted cash flow model. The deferred consideration has been discounted using the company's weighted average cost of capital.
The goodwill arising on acquisition reflects items not separately recognised, including the expertise of StingRay's employees and their contacts in target markets.
Post-acquisition, the acquired business contributed £1.1 million of revenue and £0.3 million of profit after tax excluding central costs to the consolidated income statement.