Gooch & Housego Regulatory News (GHH)

7 Jun 2006 07:01

Gooch & Housego PLC07 June 2006 For Immediate Release 7 June 2006 Gooch & Housego PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2006 "Sales and profit ahead of expectations" Gooch & Housego PLC, the specialist manufacturer of acousto-optic andelectro-optic devices, precision optical components, crystals, and instrumentsfor measuring optical radiation, today announces interim results for the sixmonths ended 31 March 2006. Financial Highlights •Group turnover up for the half year by 16% to £ £12.65m (2005: £10.90m) •Profit before tax and after goodwill amortisation up by 31% to £2.59m (2005: £1.98m) •Basic earnings per share up by 31% to 8.5p (2005: 6.5p) •Period end net funds of £2.08m (2005: net funds of £0.43m) •Interim dividend increased by 8% to 1.4p (2005: 1.3p) Operational Highlights •Acquisition of ChromoDynamics, Inc. •Commenced reorganisation to support long-term growth •Work commenced on new UK factory •New Q-switch products launched Gareth Jones, Chief Executive of Gooch & Housego, commented: "A positive start to the year combined with a strong position in our key marketsand a pipeline of innovative new products allows us to be optimistic about ourprospects. We will continue to look for acquisition opportunities that bringmarket presence or key technology more quickly than would be possible by purelyorganic means." For further information: Gareth Jones / Ian Bayer 01460 52271Gooch & Housego PLC Tim Thompson / Susanna GaleBuchanan Communications 020 7466 5000 Chief Executives Review Overview The Group has made a good start to the year and I am pleased to be able toreport sales and profits ahead of expectations. The trend towards a more evenspread of sales throughout the year was once again a contributory factor, havingthe effect of lifting first half sales. During the first half of this year we embarked on several major projects thatwill provide the technology, infrastructure and manufacturing capacity tosupport the continued development of the Group. These are the acquisition ofChromoDynamics, Inc. (CDI), the reorganisation of the Group's optoelectroniccomponents and materials activities, and the commencement of work on the newfactory in the UK. While these projects have resource implications in theshort-term, they provide the foundation for sustained growth in the medium tolong-term. The acquisition of CDI in February 2006 demonstrates our intention to leverageour optoelectronic components and optical instrumentation expertise to move upthe value-chain and to diversify into new, high-growth market sectors. The moveinto spectral imaging is a logical extension of our existing technology andproducts but represents a major leap in terms of markets and applications. Theuse of spectral imaging technology in biomedical and pharmaceutical applicationsis relatively new, but the benefits it can bring are such that it has thepotential to grow rapidly. The Group's businesses fall into two distinct categories - "OptoelectronicComponents and Materials", and "Instrumentation". Gooch & Housego (G&H), CCI, NEOS Technologies, Inc. (NEOS) and LandwehrElectronic GmbH (LE) are manufacturers of optoelectronic components andmaterials. They manufacture goods of similar value, serve the same markets inthe same territories and frequently supply the same customers. There is someproduct duplication. At the same time they operate as semi-autonomousbusinesses, so we are not readily able to leverage technology and marketsynergies, eliminate duplication and improve efficiency. We have thereforeembarked upon a programme of reorganisation to create an integrated businesswith a stable, scaleable structure capable of supporting sustained growth andfuture acquisitions. In addition to providing a clear vision and strategy itwill also significantly enhance our market presence. The process will takearound eighteen months to complete. Optronic Laboratories, Inc. (OLI) and CDI are manufacturers of high-valuespectroscopic instrumentation. As CDI moves from research and development toproduction it will develop increasingly close links with OLI to form the core ofa broader instrumentation offering. These changes signal the beginning of a transition from a collection of smallbusinesses into a more focussed and integrated medium-sized business with thepotential to be a mainstream player in our chosen fields. All of the Group companies have recently been burdened over to a greater orlesser extent with the need to comply with the EU directive on the Restrictionsof the use of certain Hazardous Substances in electronic equipment (the RoHSdirective). This directive, which comes into effect on 1st July 2006, hassignificant implications for our electronics manufacturing activities and hasresulted in a small amount of non-compliant inventory being written-off. Goodprogress towards achieving compliance has been achieved but some products willremain non-compliant after the deadline because of lack of availability ofalternative compliant components or because of lack of time to implement thenecessary changes. It is not anticipated that this will have a material adverseaffect on trading. The implications for our optical components activities areless onerous and most, if not all, of our products will be compliant by thedeadline. On a high note, I am delighted to report that the Queen's Award for Enterprise:International Trade has been conferred upon the UK business unit. The Queen'sAward for Enterprise in the International Trade recognises outstanding growth inoverseas earnings and commercial success over a period of at least three years.Gooch & Housego is winning the award for the first time for increasing overseassales by £2.5 million to £6.7 million in three years and for selling 70% of itsproducts overseas. It is interesting to note that the product that hascontributed most to this result is the acousto-optic Q-switch, and that it wasfor the development of acousto-optic technology that the Queen's Award forTechnological Achievement was conferred upon G&H back in 1994. Financial Results For the half year to 31 March 2006, Group turnover increased by 16% to £12.65m(2005 : £10.90m). Profit before tax, after charging goodwill amortisation,increased by 31% to £2.59m (2005 : £1.98m), basic earning per share increased by31% to 8.5p (2005 : 6.5p) and basic earnings per share before goodwillamortisation rose to 9.5p from last years 7.4p. The US Group performed well with improvement in reported sales from £6.12m in2005 to £7.82m for 2006. CCI improved by 42% to £3.11m (2005 : £2.19m), OLI wasup by £0.29m to £1.74m (2005 : £1.45m) and NEOS improved by £0.49m to £2.97m(2005 : £2.48m). LE returned an improvement in sales from £1.04m for 2005 to £1.29m for 2006. Sales in the UK at G&H showed a modest reduction from £3.74m to £3.54m. Group operating profits, after charging goodwill amortisation of £0.17m (2005 :£0.17m), were up by 31% from £1.98m to £2.59m. In the UK trading profits mirrorthe reduction in sales at £1.02m (2005 : £1.18m). Head office costs were £0.38m(2005 : £0.34m). The US companies all reported increased operating profits with a total of £1.93m(2005 : £1.28m) an increase of 57%. CCI returned increased profits of 105% at£0.84m (2005 : £0.41m), OLI profits were £0.23m (2005 : £0.18m) and NEOS profitswere £0.88m (2005 : £0.69m). CDI only reported for the two month postacquisition period to 31 March 2006 and showed an operating loss of £0.02m. LE reported half year operating profits of £0.12m, an increase of £0.05m overthe prior year. The Group's financial trading position remains strong. The acquisition of CDIwas funded from the Groups own resources at a cost of £0.68m. Prior to this costthe company had net funds inflow, before net loan repayment of £0.61m. Thecompany has net funds of £2.08m as at 31 March 2006 (2005 : £0.43m). An overall tax rate of 41.1% for the half year (2005 : 41.3%) is again a resultof higher rates of US tax and the effect of the non-allowable charge forgoodwill amortisation. Dividends The Directors have declared an interim dividend of 1.4p to be paid on 14 July2006 to all shareholders on the register at 16 June 2006. This represents anincrease of 8% when compared with the 1.3p paid last year. The shares areexpected to go ex-dividend on 14 June 2006. As described in note 2, the Group has adopted FRS21 "Events after the balancesheet date" in preparing this Interim Statement meaning that this interimdividend will be recognised at the date of payment rather than at the balancesheet date. Gooch & Housego Sales and profits in the UK were slightly behind those achieved for the sameperiod last year, which benefited from the clearance of a large backlog oforders for Q-switches. By contrast the market this year for Q-switches wasdistinctly softer throughout most of the first half, although it has picked upwell during the last three months. Other factors adversely affecting trading arespace constraints and the re-distribution of business within the Group. While space is at a premium in our original, town centre premises we have beenfortunate in being able to progressively transfer people and equipment to ournew site, to the extent that we currently have ten people working therefulltime. Redevelopment of the site has commenced with demolition,refurbishment, flood prevention and design work on the new building allprogressing in parallel. Fortunately the site is large enough for us to benefitfrom the additional space while this work proceeds, so we hope to be able tominimise the impact of the short-term space limitations. The G&H Group is an international business operating in a global market. As weincreasingly take a world-view we are changing the way we support our customersin our principal geographical markets. For acousto-optics this means that we areprogressively channelling business with US based customers via NEOS (based inMelbourne, Florida) and with German customers via LE (located near Hamburg),with the consequence that sales of the UK business appear to decrease. As aresult, while UK acousto-optic sales are 9% lower than those for the same periodlast year, the combined sales of acousto-optic products from G&H, NEOS and LEhas increased. Managing this change in the way we manufacture and sell ourproducts is addressed in our reorganisation programme. There have been some significant Q-switch developments over the past six months.The so-called Super Q-switch is a radical design aimed at the latest generationof high power lasers and was originally launched two years ago, when it wasperhaps slightly ahead of the market. However, after extensive evaluation by ourcustomers it has since been designed into some of the newest lasers with theresult that sales have risen sharply of late. The VHE Q-switch (VHE stands forVery High Efficiency) was launched in March 2006 following the submission of apatent application, and is another innovative design to keep pace with thelatest advances in laser technology. These developments reinforce G&H's dominantposition in this market. The precision optics business, which accounts for approximately 30% of UKmanufacturing output, has performed strongly with sales up by 35% when comparedwith the same period last year. The ongoing process of reviewing our markets,identifying opportunities that play to our strengths and then focussing ourinvestment and sales efforts in these areas is already producing results. Thisprocess is also being used to manage capacity and increase margins byconcentrating on high-value, high-margin work at the expense of lower marginnon-core activities. Optronic Laboratories, Inc. OLI has continued the trend established in the second half of last year with asteady and consistent growth in sales and profits supported by a promising salespipeline. Once again the OL770 instrument, launched three years ago, has beenone of the biggest winners with a 27% increase in sales over the same periodlast year, demonstrating that OLI's new product developments are accuratelyanticipating market requirements. Looking further to the future, OLI has commenced a major new product developmentprogramme that will extend the product range as well as significantly enhancingexisting product offerings. This programme is based on radical new technologythat OLI has licensed exclusively for use in its markets and which will providesignificant advantages over competing products. The first new products based onthis technology are scheduled for launch in early 2007. The process of rationalising the sales channels and moving towards a more directsales model is progressing well. A West Coast Business Development Manager hasrecently been appointed to join the two previous Business development Managerhires on the East Coast, the objectives being to take ownership of therelationship with our customers, improve sales effectiveness and reduce costs. Cleveland Crystals, Inc. CCI has achieved record sales for the first six months of the year, resulting inan increase in operating profits of 105% when compared to the same period lastyear. This excellent result reflects their success in overcoming equipmentreliability and capacity issues to meet customer requirements for ICF crystals,and also in responding to increased demand for their electro-optic Q-switchproducts. Historically the ICF crystals business has been notoriously "lumpy" because ofthe high value of the products and the irregularity of shipments to meetgovernment budget requirements. While this lumpiness has helped the first halfyear results, it is unlikely to be repeated in the second half and the trendcontinues to be towards a more even spread of sales throughout the year now thatthe projects have moved into the production phase. Additional space has recentlybeen leased to accommodate additional equipment to increase capacity in ICFcrystal growth and finishing to meet projected demand. CCI's outstanding product quality and depth of materials expertise are factorsthat have helped them win orders for components (Q-switches) and materials inrecent months. However, in the case of some of the more exotic crystals,achieving a respectable yield represents a challenge that has to be overcomebefore demand can be translated into sales and profits. NEOS Technologies, Inc. NEOS has made an excellent start to the year. Market conditions have beenfavourable and a strong order book and sales pipeline has enabled monthly salesto consistently exceed expectations. Counterbalancing the healthy demand for product has been the challenge ofstriving to achieve compliance with the RoHS directive, building stronger linkswith other Group companies to share technology and resources, and building upproduction resources in the face of strong local demand for skilled people. Important recent initiatives include strengthening the teams in sales andquality control and adopting latest manufacturing, test and inspection practicesin electronics manufacturing. Landwehr Electronic GmbH Sales and profits at LE are in line with expectations and comfortably exceedthose of the same period last year. LE has continued to make a significantinvestment in human resources, with over half of the workforce having joined thecompany since the acquisition in 2004. Recent appointments in engineering, salesand administration are helping to keep on top of demand, which has grownsteadily. The process of investment in people and infrastructure will continue in linewith our objective of increasing sales into mainland Europe, and Germany inparticular. Historically LE has strongly supported acousto-optic sales butrecent efforts have resulted in increased sales of precision optics. Technicalsales support will be extended to cover all optoelectronic components andmaterials as part of the reorganisation. Like NEOS, LE has been working to achieve RoHS compliance, while in parallelthey have completed the development of several important new RF drivers tosupport the latest generation of G&H Q-switches. These have been lengthy andcostly projects but they are central to maintaining the Group's pre-eminentposition as the technology and performance leader, and they provide a solidfoundation for future sales. ChromoDynamics, Inc. Since the acquisition of CDI in February work has focussed on productengineering and market definition to determine those applications in which thetechnology can gain early traction. Directors and staff I would like to express my thanks to the Directors and all employees of theGroup for their contribution to a successful first half year. I would also like to take this opportunity to thank Andrew Virgin on behalf ofthe Directors for the contribution he has made as Group Marketing Director sincehis appointment just over three years ago. Andrew left the company at the end ofMay 2006 to explore new opportunities after over ten years with the business. The position of Chairman continues to be vacant despite several meetings withpotential candidates during the first half of the year. Given the lack ofprogress it was decided that a formal search should be commissioned in order toimprove the chances of securing the best possible candidate. Interviews willtake place shortly and it is hoped that an appointment can be made before theend of the current financial year. Prospects A positive start to the year combined with a strong position in our key marketsand a pipeline of innovative new products allows us to be optimistic about ourprospects. In the short-term we are not expecting the same level of growth inthe second half of the year, and the cost and distraction of the major projectswe have recently initiated will hold us back to some extent. Looking slightlyfarther ahead though, the sharper focus, better infrastructure and greateremphasis on sales and marketing will enable the Group to exploit its fullpotential in a global market, which is something we are not achieving atpresent. In addition to our plans to grow through the launch of new products and moreeffective sales and marketing, we will continue to look for acquisitionopportunities that bring market presence or key technology more quickly thanwould be possible by purely organic means. A scaleable infrastructure thatfacilitates future acquisitions is one of the objectives of our currentreorganistion programme. Gareth CW Jones,Chief Executive Officer and Acting Chairman7 June 2006 GOOCH & HOUSEGO PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2006 GOOCH & HOUSEGO PLCUNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 31 March 2006 6 months 6 months 12 months ended ended ended 31 March 31 March 30 September 2005 2005 2006 (restated) (restated) (unaudited) (unaudited) (audited) £'000 £'000 £'000 Turnover 12,646 10,899 22,315-----------------------------------------------------------------------------------------Trading expenditure excludinggoodwill amortisation (9,883) (8,703) (17,213) Goodwill amortisation (174) (166) (339)-----------------------------------------------------------------------------------------Operating profit 2,589 2,030 4,763 Other interest receivable andsimilar income 48 41 41Interest payable and similar charges (44) (86) (126)-----------------------------------------------------------------------------------------Profit on ordinary activitiesbefore taxation 2,593 1,985 4,678 Tax on profit on ordinary activities (1,066) (820) (1,779)-----------------------------------------------------------------------------------------Profit on ordinary activities aftertaxation 1,527 1,165 2,899 Dividends on equity shares (468) (432) (666)-----------------------------------------------------------------------------------------Retained profit for the financial period 1,059 733 2,233=========================================================================================Basic earnings per 20p ordinary share 8.5p 6.5p 16.1p Diluted earnings per 20p ordinary share 8.3p 6.4p 15.9p========================================================================================= GOOCH & HOUSEGO PLCUNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the six months ended 31 March 2006 6 months 6 months 12 months ended ended ended 31 March 31 March 30 September 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit for the financial period 1,527 1,165 2,899 Currency translation differences onforeign currency net investments 40 (321) 234-----------------------------------------------------------------------------------------Total recognised gains and losses forthe financial period 1,567 844 3,133========================================================================================= RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDSFor the six months ended 31 March 2006 6 months 6 months 12 months ended ended ended 31 March 31 March 30 September 2005 2005 2006 (restated) (restated) (unaudited) (unaudited) (audited) £'000 £'000 £'000 Profit on ordinary activities aftertaxation 1,527 1,165 2,899 Dividends in period (468) (432) (666)----------------------------------------------------------------------------------------- 1,059 733 2,233 Other recognised gains and losses 40 (321) 234-----------------------------------------------------------------------------------------Net addition to shareholders' funds 1,099 412 2,467 Opening shareholders' funds as previouslyreported 15,994 13,563 13,563 Prior year adjustment 468 432 432-----------------------------------------------------------------------------------------Opening shareholders' funds 16,462 13,995 13,995-----------------------------------------------------------------------------------------Closing shareholders' funds 17,561 14,407 16,462========================================================================================= GOOCH & HOUSEGO PLCUNAUDITED CONSOLIDATED BALANCE SHEETAs at 31 March 2006 As at As at As at 31 March 2006 31 March 2005 30 September 2005 (restated) (restated) (unaudited) (unaudited) (audited) £'000 £'000 £'000FIXED ASSETSIntangible assets 5,410 4,985 4,893Tangible assets 5,764 4,402 5,499----------------------------------------------------------------------------------------------- 11,174 9,387 10,392 CURRENT ASSETSStock 3,711 3,561 3,872Debtors 3,977 3,537 3,490Asset held for resale - 525 -Cash at bank and in hand 3,175 2,141 3,532----------------------------------------------------------------------------------------------- 10,863 9,764 10,894 CREDITORSAmounts falling due within one year (3,504) (3,798) (3,907)-----------------------------------------------------------------------------------------------NET CURRENT ASSETS 7,359 5,966 6,987 TOTAL ASSETS LESS CURRENT LIABILITIES 18,533 15,353 17,379 CREDITORS:Amounts falling due after more than one year (795) (774) (740) PROVISIONS FOR LIABILITIES AND CHARGES (177) (172) (177)-----------------------------------------------------------------------------------------------NET ASSETS 17,561 14,407 16,462===============================================================================================CAPITAL AND RESERVES Called upshare capital 3,600 3,600 3,600Share premium 3,404 3,404 3.404Revaluation reserve 308 308 308Profit and loss account 10,249 7,095 9,150-----------------------------------------------------------------------------------------------EQUITY SHAREHOLDERS' FUNDS 17,561 14,407 16,462=============================================================================================== GOOCH & HOUSEGO PLCUNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 March 2006 6 months 6 months 12 months ended ended ended 31 March 31 March 30 September 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000Net cash inflow from operatingactivities (i) 2,149 1,789 5,467-------------------------------------------------------------------------------------------------Returns on investments and servicing offinanceInterest received 53 17 44Interest paid (36) (53) (109)Interest element of hire purchase contracts (8) (9) (19)-------------------------------------------------------------------------------------------------Net cash inflow/(outflow) from returns oninvestments and servicing of finance 9 (45) (84)-------------------------------------------------------------------------------------------------TaxationUK tax paid (57) (156) (337)Overseas tax paid (701) (476) (1,376)-------------------------------------------------------------------------------------------------Cash outflow from taxation (758) (632) (1,713)-------------------------------------------------------------------------------------------------Capital expenditure Purchase of tangible fixed assets (331) (414) (1,677)Sale of tangible fixed assets 6 1 621-------------------------------------------------------------------------------------------------Net cash outflow from capital expenditureand financial investment (325) (413) (1,056)-------------------------------------------------------------------------------------------------Acquisitions-------------------------------------------------------------------------------------------------Acquisition of subsidiary (663) (20) (20)-------------------------------------------------------------------------------------------------Net cash outflow from acquisitions (663) (20) (20)-------------------------------------------------------------------------------------------------Equity dividends paid (468) (432) (666)-------------------------------------------------------------------------------------------------Net cash (outflow)/inflow before financing (56) 247 1,928-------------------------------------------------------------------------------------------------Financing New bank loan - 197 204Repayment of bank loan (216) (550) (1,163)Capital element of hire purchase repayments (65) (78) (120)-------------------------------------------------------------------------------------------------Net cash outflow from financing (281) (431) (1,079)-------------------------------------------------------------------------------------------------(Decrease)/increase in cash in the period (ii) (iii) (338) (184) 849================================================================================================= GOOCH & HOUSEGO PLCNOTES TO THE UNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 March 2006 6 months 6 months 12 months ended ended ended 31 March 31 March 30 September 2006 2005 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 (i) Reconciliation of operating profit tonet cash inflow from operating activitiesOperating profit 2,589 2,030 4,763Amortisation of goodwill 174 166 339Amortisation of debt issue costs - 8 16Depreciation 247 247 436Decrease/(Increase) in stock 209 (109) (185)Increase in debtors (455) (235) (76)(Decrease)/Increase in creditors (615) (318) 174------------------------------------------------------------------------------------------------- 2,149 1,789 5,467================================================================================================= (ii) Reconciliation of net cash outflow tomovement in net funds in the periodDecrease in cash in the period (338) (184) 849Cash outflow from decrease in debt and leasefinancing 281 430 1,079-------------------------------------------------------------------------------------------------Changes in net funds resulting from cash flows (57) 246 1,928New hire purchase contracts (206) (128) (101)Movement in debt issue costs - (8) (16)Translation difference (25) (12) 233--------------------------------------------------------------------------------------------------Movement in net funds in the period (288) 98 2,044Net funds at beginning of period 2,371 327 327--------------------------------------------------------------------------------------------------Net funds at end of period 2,083 425 2,371================================================================================================== (iii) Analysis of net funds At Cash flow Exchange Non-cash At 1 October 2005 Movement Movement 31 March 2006 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 3,532 (338) (19) - 3,175Bank overdrafts - - - - - ------- (338) Debt due after one year (578) 17 (30) - (591)Debt due within one year (273) 199 (3) - (77)Hire purchase (310) 65 27 (206) (424) ------- 281------------------------------------------------------------------------------------------------ 2,371 (57) (25) (206) 2,083================================================================================================ GOOCH & HOUSEGO PLCNOTES TO THE INTERIM STATEMENTFor the six months ended 31 March 2006 1. The financial information set our above does not constitute statutoryfinancial statements within the meaning of Section 240 of the Companies Act1985. The summarised results for the six months ended 31 March 2006 and comparativefigures for the six months ended 31 March 2005 are unaudited. The figuresincluded for the year ended 30 September 2005 have been extracted from the Groupstatutory financial statements, which have been filed with the Registrar ofCompanies and contain an unqualified audit opinion. 2. The Group has adopted FRS 21, 'Events after the balance sheet date' inpreparing this Interim Statement. The adoption of this standard represents achange in accounting policy and the comparative figures have been restatedaccordingly. FRS 21 requires that the Group only recgonise a liability for adividend at a balance sheet date if it has either been paid during the period orproposed and approved by Shareholders at the balance sheet date. The effect of this change in accounting policy was to recognise the finalproposed dividend of £467,978 for the year ended 30 September 2005 in thecurrent interim period. The proposed interim dividend for the current year of£260,988 (1.4 pence per share) will be recognised in the second half of thefinancial year as it has yet to be approved. The change in accounting policy hashad in a similar impact on the results for the six months ended 31 March 2005and the twelve months ended 30 September 2005 and as a result the results ofthese periods have been restated accordingly. 3. Taxation for the six months ended 31 March 2006 and 31 March 2005 has beenrecognised at the forecast annual effective rate. Taxation for the year ended 30September 2005 is the actual provision for that year. 4. The calculation of earnings per 20p Ordinary Share is based on the profit onordinary activities after taxation using as a divisor the weighted averagenumber of Ordinary Shares in issue during the year. For the six months ended 31March 2006 the actual number of Ordinary Shares in issue throughout the year was17,999,162. The number of shares in issue throughout the current period was also 17,999,162,however, the Group issued a number of share options on 23 July 2004, followingthe approval by shareholders of "The Gooch & Housego Plc 2004 Share OptionScheme" and as a result, a diluted earnings per share has been disclosed. All share options in respect of which the related performance criteria have beenmet as at 30 September 2005 and which have an exercise price lower than theaverage market price of the Group's share price in the period since issue havebeen included in the calculation of diluted earnings per share. The weighted average number of shares in issue during the six months ended 31March 2006, taking into account of the dilutive effect of the share options was18,363,248 and for the year to 30 September 2005 was 18,201,870. GOOCH & HOUSEGO PLCNOTES TO THE INTERIM STATEMENT (CONTINUED)For the six months ended 31 March 2006 A reconciliation of the earnings used in the earnings per share calculation isset out below: 6 months ended 6 months ended 12 months ended 31 March 2006 31 March 2005 30 Sep 2005 (unaudited) (unaudited) (audited) £'000 p per £'000 p per £'000 p per share share share Basic earnings per share 1,527 8.5 1,165 6.5 2,899 16.1 Goodwill amortisation 174 1.0 166 0.9 339 1.9 Basic earnings per sharebefore goodwill amortisation 1,701 9.5 1,331 7.4 3,238 18.0 Diluted earnings per share 1,527 8.3 1,165 6.4 2,899 15.9 Goodwill amortisation 174 1.0 166 0.9 339 1.9 Diluted earnings per share before goodwill amortisation 1,701 9.3 1,331 7.3 3,238 17.8 ------ ------ ------ ------ ------ ------ Basic and diluted earnings per share before goodwill amortisation have beenshown above because, in the opinion of the directors, it reflects the underlyingperformance of the group. 5. All of the amounts reported in this Interim Statement are in respect ofcontinuing operations. The trading results of CDI, the subsidiary acquiredduring the period, have not been separately disclosed on the face of the profitand loss account as, in the opinion of the directors, they are not material tothe reported performance of the Group for the period. In respect of this acquisition the Group has recognised a provisional goodwillbalance of £661,000 at 31 March 2006. 6. Accounting policies are consistent with those applied in previous years andare as set out in the Group's audited statutory financial statements at 30September 2005, with the exception of the adoption of FRS 21 as described above. 7. The interim dividend will be paid on 14 July 2006 to shareholders on theregister at close of business on 16 June 2006. 8. Copies of the Interim Statement are available from the Company Secretary,Gooch & Housego PLC, The Old Magistrates Court, Ilminster, Somerset TA19 0AB. 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