Gooch & Housego Regulatory News (GHH)

GOOCH & HOUSEGO PLC

("G&H", the "Company" or the "Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2020

Gooch & Housego PLC (AIM: GHH), the specialist manufacturer of optical components and systems, today announces its interim results for the six months ended 31 March 2020.

Key Financials

*Adjusted for amortisation of acquired intangible assets and non-recurring items.

Key points

· Reflecting previously reported trends and the COVID-19 emergency, revenue declined by 3.8% compared with the same period last year, or by 4.1% excluding the impact of foreign exchange.

· COVID-19 reduced manufacturing capacity in H1 but a return to full manufacturing capacity is expected by the end of Q4 FY2020.

· Demand for fibre optics, hi-reliability fibre couplers and our Aerospace & Defence and Life Science capabilities remains robust. There is improved demand for medical diagnostics and ventilator systems. Industrial laser demand is at below 'normalised' levels.

· Order book of £91.7m as at 31 March 2020, a reduction of 1.7% compared with same time last year, or 4.9% excluding the impact of foreign exchange.

· Adjusted profit before tax of £2.7m as a result of reduced volumes and product mix.

· Measured cost reduction actions implemented towards the end of the period and good progress on streamlining of manufacturing sites expected to deliver significant future margin progression.

· Group's total committed bank facility increased to $50m with a further $20m uncommitted acquisition related facility.

· The Board does not recommend an interim dividend (2019: 4.3p) and will consider the level of any full year dividend in light of the full year trading performance and market trading conditions at that time.

· Our outlook for the full year remains unchanged.

· There is substantial growth potential for our photonics technologies and enhanced system capabilities in all of our target sectors. As such, the long term prospects of the Company remain very strong.

Mark Webster, Chief Executive Officer of Gooch & Housego, commented:

"Trading in the last six months has reflected previously reported trends and the more recent impact of the COVID-19 emergency.

"In general Japan, South Korea and parts of China saw improved demand, but there was some order book push out in the USA and Europe. Western companies are now starting to reopen sites that were closed.

"G&H is proud that in the US most of our product lines were considered to be vital for essential services and national security enabling sites to stay open under "stay at home" orders. All UK sites remained open, but Torquay operated at reduced capacity in order to meet social distancing guidelines. Work is being carried out to enable a return to full capacity at the site by the end of FY2020.

"Measured cost reductions were put in place in the latter part of H1, enabling us to retain critical capabilities on a return to more "normal" trading conditions. Good progress has been made on the streamlining of our manufacturing base. Both of these initiatives will deliver significant future margin progression.

"The COVID-19 emergency has validated our long term policy of diversification and moving up the value chain. We will continue to pursue this policy through internal investment and, where appropriate, acquisitions."

Analyst meeting

A conference call for analysts will be held at 9.30am this morning, 2 June 2020; analysts who require dial-in details, please contact Buchanan at G&H@buchanan.uk.com

For further information please contact:

Notes to editors

1. Gooch & Housego is a photonics technology business 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. It is headquartered in Ilminster, Somerset, UK.

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.

COVID-19 Emergency

Our primary concern during the emergency has been the health and safety of our staff, customers and suppliers. Wherever possible our employees are working from home and for those that need to work at our manufacturing sites we have implemented a range of new health and safety measures to ensure that we rigorously meet social distancing and cleanliness requirements and other relevant guidelines and regulations.

Our teams have been exceptionally responsive and agile in this rapidly developing situation and we have worked hard to ensure we continue to support our customers' products and programmes, many of which are classified as essential products and services.

As previously reported two of our US sites, Fremont and Cleveland were closed in March in compliance with State "stay at home" orders but are now operating at close to full capacity as those restrictions have been progressively relaxed.

In the UK all of our five manufacturing sites have remained open though the unique nature of our Torquay facility is such that it will need to operate at a reduced capacity in order to adhere to the Government's COVID-19 guidelines. Work is ongoing to enable a return to full capacity by the end of FY2020.

The Group implemented a number of measures to control cash and costs, including taking advantage of the UK Government's Coronavirus Job Retention Scheme, as well as other tax deferment arrangements. The Group has been focused on retaining its highly skilled workforce and maintaining its infrastructure and capabilities to enable future growth post the COVID-19 emergency.

Performance Overview

Trading conditions in the first six months of our 2020 financial year were challenging due to the ongoing COVID-19 emergency and the continuing cyclical downturn in the industrial laser market. The emergency reduced demand initially from our Asian markets and then towards the end of the reporting period from our European and North American markets. The impact of the COVID-19 emergency was most significantly felt in our Industrial market facing businesses. Our Life Science and Aerospace & Defence businesses were substantially unaffected given the nature of the products and services supplied, as well as the physical characteristics of our sites from which we supply those markets. However, overall half year revenue declined by 3.9%, or 4.1% excluding the impact of foreign exchange.

The demand picture in the industrial laser markets remains below 'normalised' levels, though our fibre optic module and hi-reliability fibre coupler order book remains strong. We have started to see recent recovery in the levels of orders from our Asian customers as that market reopens following lockdown. However, in Europe and North America customers remain slow to commit to significant new orders, though we note that customer facilities are now starting to reopen.

Demand for our Life Sciences and A&D businesses has remained robust through the COVID-19 emergency and we believe both businesses will perform in line with management expectations for the remainder of the current financial year. Our Life Sciences business delivered revenue growth of 5% in the first half compared with the prior year. The recently acquired ITL business performed strongly. In Aerospace & Defence, revenues progressed from the previous year and important milestones were completed, paving the way for improvement in profitability levels in that business in the second half of the current financial year.

Cost reduction measures implemented in the second quarter of the financial year will deliver an overall reduction in our cost base for FY2020. We are also progressing with the previously announced plan to streamline our acousto optic and precision optic manufacturing which will start to deliver significant benefits in FY2021. These measures will help deliver a lower and more flexible cost base for the future. 

The order book at 31 March 2020 stood at £91.7 m, close to the order book of £93.2m in the prior year. In Q1 order intake progressed well, up 11.5% compared with Q1 FY2019. This included recovery in segments of the industrial laser market, such as semi-conductors, but as the COVID-19 situation developed intake in Q2 fell 14% below the levels achieved in the first quarter. Overall the book to bill ratio for the first half was 0.93.

The Board remains confident in the long term growth potential of the business, but the short term impact of the COVID-19 emergency remains uncertain. As such, the Board does not recommend an interim dividend and will consider the level of any final dividend in light of full year trading performance and market trading conditions at that time.

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.

Performance in our industrial market varied significantly between subsectors in the first six months of the year. Overall, sales of products into our industrial markets in the six months to 31 March 2020 were 10.3% lower compared with the equivalent period last year.

Revenues from the industrial laser market were 17.9% lower, due to the cyclical downturn in that market and compounded in the second quarter by the impact of the COVID-19 emergency. Sales to semiconductor companies grew by 3.9%, evidence of a return of demand in that sub-sector.

In contrast in telecommunications, revenues grew by 7.6%, despite the impact of customer and in house constraints on levels of revenue as the impact of the COVID-19 emergency started to be felt in the second quarter. Our order book for hi-reliability fibre couplers for undersea cables remains at record levels for both FY2020 and FY2021.

Products and Markets - Aerospace & Defence ("A&D")

Product quality, reliability and performance are paramount in this sector, playing 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, periscopes and sighting systems, opto-mechanical subsystems used in unmanned aerial vehicles ("UAVs") and space satellite communications.

The A&D market for G&H is characterised by high-value, long-term programmes involving the main US and European defence contractors. This market represents an attractive growth area for G&H as more applications seek photonics solutions in a sector with high regulatory and compliance hurdles and challenging expectations of its equipment.

Our Aerospace & Defence revenue grew by 1.2% during the first six months of FY2020, compared with the equivalent period last year. In our Boston site important programme development milestones were completed which will allow the transition to higher production volumes for that facility in the second half. Furthermore we expect to be able to recognise revenue for additional customer requested development activity completed in H1 FY2020.

Products and Markets - Life Sciences / Biophotonics

G&H's three principal Life Sciences / Biophotonics revenue streams are derived from diagnostics applications (design, development and manufacturing services provided to the Life Science industry, and 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). The recent acquisition of the ITL business, in August 2018, with its system design capability rapidly accelerates the Company in its strategic intent of moving up the value chain.

Our Life Sciences / Biophotonics revenue grew by 5% in the six months to 31 March 2020, compared with the equivalent period last year. Our ITL business benefited from increased demand for medical diagnostic kits and a unit which improves respiratory function and oxygen supply as part of a ventilator system for patients in critical care, including those with the COVID-19 virus.

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 actively looks to invest in R&D, acquisitions and strategic partnerships.

R&D: In the first six months of the current financial year, G&H invested £4.1 m in targeted research & development. Our main target areas are a new generation of precision lasers and laser systems, optical sensing for harsh environments, OCT medical diagnostics, laser surgery, space satellite communications, opto-mechanical systems for UAVs and armoured vehicles and laser directed energy weapons. This investment represented 7.1% of revenue and is 1.4% higher than the same period last year (2019: £4.0m), demonstrating G&H's continued commitment to investing in targeted R&D programmes. This commitment continues to bear fruit, with £7.6m of revenue in the half year coming from new products launched since the beginning of FY 2017. We will continue to invest in novel cutting edge technologies in order to drive future growth across all of our target sectors.

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 our key sectors in order to ensure we maintain a balanced portfolio and over time achieve critical mass in Life Sciences and further strengthen our position in A&D. The acquisition of the ITL business greatly improved our position in Life Sciences / Biophotonics, which now represents 21.3% of our business.

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. The proportion of our business derived from sub-system or system revenues increased from 31.7% in H1 FY2019 to 42.1%, for H1 FY2020. G&H has a 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 global R&D team 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 previously reported, the Company has launched a project to streamline its Acousto Optic (AO) and Precision Optic (PO) manufacturing.

An AO hub is being created at our Fremont, California site, which will combine the AO capabilities of our Fremont and Ilminster facilities. Fremont will assume responsibility as the global AO design authority and lead the Group's AO technological roadmap.

In support of this approach we are in the process of outsourcing a large proportion of our AO manufacturing with established contract manufacturers who have facilities in South East Asia. They will manufacture a significant portion of the Group's AO Q-switches and other critical industrial laser components, which are currently manufactured at Ilminster and Fremont. These plans will enable us to consolidate design, engineering and R&D resources and to continue to provide high quality, cost competitive products to the industrial laser market.

Our PO business has strong future growth potential. In order to fully exploit these opportunities it is important we aspire to lead in terms of cost, quality and delivery performance. We are, therefore, in the process of establishing a single UK PO hub at our Ilminster facility fashioned from our two current PO sites at Ilminster and Glenrothes. As previously announced, we are transferring Glenrothes PO manufacturing resources and capabilities into Ilminster and the Glenrothes site will be closed.

These transfer programmes are expected to be completed during the second half of FY2021.The total investment is expected to be c. £5m across FY2020 and FY2021 and the one off income statement impact will be excluded from adjusted profit before tax. Savings are expected to build over time, with the aim of achieving a positive benefit in the second half of FY2021 and an annualised benefit of c. £1.25m by FY2022.

During the period the long running legal dispute with the landlord of the Company's Fremont facility has been concluded in the Company's favour. The court in California awarded G&H $2m in damages plus costs and interest arising from the landlord's non-performance in respect of the lease. The recovery of this amount is supported by a bond and was therefore judged sufficiently certain to support the recognition of this receivable in the Company's balance sheet at 31 March 2020. The elements of the award that relate to costs and interest have been reflected in the income statement as non-underlying credits in the period. The $2m damages have been credited to the Right of Use asset in respect of the Fremont lease.

Principal Risks and Uncertainties

The principal risks and uncertainties to which the Group is exposed and our approach to managing those risks are unchanged from those identified on page 27 of our 2019 Annual Report, except for the addition of the impact of the COVID-19 emergency which is discussed above together with the mitigating actions implemented to respond to this new challenge to the business.

Since the emergence of the COVID-19 crisis additional cashflow modelling of potential downside scenarios has been implemented in order to provide early warning of any liquidity risk. As a result of a strong focus on cash collections and prudent cost containment measures the Group has seen its cash balances grow since the half year reporting date. In addition extended funding facilities have been secured as detailed later in this report. Long term cash flow projections modelling the impact of an extended downturn, together with the other principal risks identified by the Group, have been prepared. These show that the Group would have sufficient funding available to withstand a plausible downside scenario.

Acquisitions

G&H continues to evaluate various 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 remains focused 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. Building upon the success of the Company's acquisition of the ITL business in August 2018 the Group has been actively exploring other businesses in the Life Sciences market albeit this activity has been paused given the restrictions of the COVID-19 emergency on the ability to conduct full due diligence of target companies.

Alternative Performance Measures

In the analysis of the Group's financial performance alternative performance measures are presented to provide readers with additional information. The interim report includes both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business. Items excluded from the adjusted results, together with their prior period comparatives, are set out below.

In accordance with guidance issued in April 2020 by the European Securities and Markets Authority the impact of the COVID-19 emergency on the financial results of the Group for the six month period has not been excluded from the underlying results. Whilst it is not possible to accurately quantify the impact on the Group's financial results of reduced demand as a result of the COVID-19 emergency on our customers' businesses, the effect of our site closures in March was to reduce reported revenues by circa £1.1m and operating profit by circa £0.7m.

Adjusted profit before tax was £2.7m, a reduction of 50.8% on the prior year (H1 2019: £5.4 m). This reduction in profit reflects lower volumes in our industrial laser market, the delay in receipt of a customer contract amendment for requested design changes on one of our significant A&D contracts and the impact of COVID-19 related site closures towards the end of the reporting period.

The implementation of IFRS 16 Leases in the reporting period reduced adjusted profit before tax by £0.1m compared with prior GAAP as depreciation and interest charges exceeded lease rental payments.

IFRS 16

IFRS 16 - accounting for leases has been adopted in the period. This new standard introduces the principle that all leased assets should be reported on the balance sheet of the lessee, recognising an asset for the right to use the leased item and a liability for the present value of its future lease payments. This resulted in the recognition of a right of use assets of £9.8m and a lease liability of £9.6m on 1 October 2019. It has resulted in an increase to the deprecation charge of £0.9m, an increase in finance charges of £0.2m and a corresponding decrease in operating lease rentals of £1.0m.

Cash Flow and Financing

In the six months to 31 March 2020, G&H generated cash from operations of £7.9m, compared with £5.0m in the same period of 2019. Inventory has increased by £1.9m since the year end. This increase was principally in our Torquay facility where inventory levels were inflated due to the impact of the temporary partial site closure in the final week of March 2020 whilst the facility was reconfigured to comply with Government COVID-19 guidelines. As expected, the year end trade receivables position has unwound and is £9.1m lower as at 31 March 2020.

Capital expenditure on property, plant and equipment was £2.8m in the period (2019: £2.8m). Significant investments were made in new advanced coating and polishing capabilities for our Precision Optics business. Expenditure on upgrading our ERP system of £0.3m is included in intangible capital expenditure.

Cash balances stood at £14.0m at 31 March 2020, a reduction of £3.5m from the end of the previous financial year.

Including the impact of IFRS 16 - Leases total net debt at the end of March 2020 stood at £28.0m. Excluding the impact of the new accounting standard net debt stood at £18.5m, up from £14.3m at 30 September 2019, following the payment of the first ITL earn out amount.

Shortly following the end of the half year reporting period the Company extended its Revolving Credit Facility by $10m to $50m with a further $20m uncommitted flexible acquisition facility.

Board Changes

As previously announced our Chief Operating Officer, Alex Warnock, left the Group on the 8 November 2019. We wish him well for his future endeavours. Alex has not been replaced and the three manufacturing heads now report directly to the CEO.

We also reported with great sadness the passing of David Bauernfeind, a Non-Executive Director and Audit Committee Chair, in a tragic accident on 26 December 2019 whilst on holiday with his family. David was hugely liked and we miss him sorely. Our thoughts are with his family and loved ones.

We recently announced that Louise Evans has been appointed to the Company's Board as a Non-Executive Director and Chair of the Audit Committee, with effect from 11 May 2020 and are sure she will make a valuable contribution to the continuing progress of the Group.

Dividends

The short term impact of the COVID-19 emergency remains uncertain. As such the Board does not recommend an interim dividend (2019:4.3p) and will consider the level of any final dividend in light of full year trading performance and prevailing market conditions.

Prospects and outlook 

Trading reflected previously reported trends and the impact of the COVID-19 emergency. Our order book for fibre optics, hi- reliability fibre couplers and our A&D and life science capabilities remains robust. Though semiconductor orders displayed some growth overall demand for critical components for industrial lasers remained at below "normalised" levels. New precision laser based manufacturing techniques and the widespread adoption of 5G technology will drive growth in this sector.

Demand from the Far East has started to grow, though in US and Europe there have been limited signs of growth in H1. We are though starting to see some of our customers' manufacturing sites that were shut reopen. Our six US manufacturing sites are now fully open. In the UK all sites are open, but our Torquay site will not be at full capacity until the end of FY2020. Our Shanghai facility is fully open.

The short term impact of the COVID-19 emergency is uncertain, but the Company has been responsive and agile in a rapidly developing situation and we are working hard to ensure we continue to support our customers' products and programmes, many of which are classified as essential products and services. We have put in place measured cost reductions and have continued to make progress on the streamlining of our manufacturing sites, both of which will deliver significant future margin progression.

The outlook for the current year remains unchanged.

There is substantial growth potential for our photonics technologies and enhanced system capabilities in all of our target sectors. As such, the long term prospects of the Company remain very strong.

G&H's balance sheet and finances remain robust.

The Company remains committed to further diversification and moving up the value chain. We will continue to invest in R&D and where appropriate make acquisitions to meet these strategic objectives.

Mark Webster Chris Jewell

Chief Executive Officer Chief Financial Officer

2 June 2020

Unaudited interim results for the 6 months ended 31 March 2020

Reconciliation of profit before tax to adjusted profit before tax:

Unaudited interim results for the 6 months ended 31 March 2020

Unaudited interim results for the 6 months ended 31 March 2020

Unaudited interim results for the 6 months ended 31 March 2020

Reconciliation of net cash flow to movements in net debt

Analysis of net debt

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.

Since the emergence of the COVID-19 crisis additional cashflow modelling of potential downside scenarios has been implemented in order to provide early warning of any liquidity risk. As a result of a strong focus on cash collections and prudent cost containment measures the Group has seen its cash balances grow since the half year reporting date. In addition extended funding facilities have been secured as detailed later in this report. Long term cash flow projections modelling the impact of an extended downturn, together with the other principal risks identified by the Group, have been prepared. These show that the Group would have sufficient funding available to withstand a plausible downside scenario, and therefore the financial statements have been prepared on a going concern basis.

The Interim Report was approved by the Board of Directors and the Audit Committee on 2 June 2020. 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 2019 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 2019 are unaudited.

The Interim Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 2 June 2020. 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 2019, as described in those financial statements.

2. Application of IFRS - Adoption of new standards

In preparing the interim financial statements, the Group has adopted IFRS16 ("Leases") for the first time. This standard provides a single lease accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less, or the underlying asset has a low value.

The effect of adopting IFRS16 at 1 October 2019 was to increase right of use assets by £9.8m and lease liabilities by £9.6m. The lease liability was higher than the range given in the 2019 Annual Report (£8.25m to £9.25m), because of developments regarding certain lease renewals which occurred since the initial estimate was made. The effect on profit before tax for the period ended 31 March 2020 was a reduction of £0.2m, representing the increase in depreciation and interest charges over the cash lease cost.

The leases have been considered as a single transaction in which the asset and liability are integrally linked at inception. Therefore no temporary difference arose on adoption of IFRS16, and no deferred tax was recognised. Where temporary differences have subsequently arisen on the settlement on the liability and the depreciation of the leased asset, deferred tax has been recognised.

The inclusion of the lease liabilities increased net debt by £9.5m as at 31 March 2020.

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 2019.

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 2019. There have been no changes to the risk management policies since the year end.

5. Segmental analysis

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

6. Tax expense

Analysis of tax charge in the period

The tax charge for the six months ended 31 March 2020 is based on the estimated effective rate of the tax for the Group for the full year to 30 September 2020. The estimated rate is applied to the profit before tax.

The adjusted effective tax rate is 23.4% (H1 2019: 24.4%).

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.

A reconciliation of the earnings used in the earnings per share calculation is set out below:

Adjusted earnings per share before amortisation of acquired intangible assets 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 not declared an interim dividend for the half year ended 31 March 2020.

9. Borrowings

The group's banking facilities with NatWest Bank were renewed in April 2020 and now comprise a committed revolving credit facility of $50m and an uncommitted flexible acquisition facility of $20m both available until 30 April 2023.

The revolving credit facility attracts an interest rate of between 1.4% and 1.9% above LIBOR dependent upon the Company's leverage ratio.

10. Called up share capital