Gooch & Housego Regulatory News (GHH)

29 Nov 2006 11:18

Gooch & Housego PLC29 November 2006 For Immediate Release 29 November 2006 The following press release replaces RNS number: 8766M Under notes section 2. Segmental Reporting - table now inserted. Gooch & Housego PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2006 "Sales and profit ahead of expectations" Gooch and Housego PLC, the specialist manufacturer of acousto-optic and electro-optic devices, precision optical components, crystals, instruments for measuringoptical radiation and hyperspectral imaging systems, today announces preliminaryresults for the year ended 30 September 2006. Financial Highlights • Group turnover increased by 14% to £25.36m (2005: £22.32m) • Profit before tax and before charging goodwill amortisation increased by £1.13m to £6.15m (2005: £5.02m) • Basic earnings per share increased by 25% to 20.1p (2005: 16.1p) • Operating profits for the Group improved by 21% to £5.74m (2005: £4.76m) • Final dividend increased by 8% to 4.2p (2005: 3.9p) Operational Highlights • Very strong performances by NEOS Technologies Inc and Cleveland Crystals Inc • Acquisition of ChromoDynamics Inc • Major reorganisation of optoelectronic components activities underway • Appointment of Dr Julian Blogh as non-executive Chairman • Developments of products and applications at ChromoDynamics Inc progressing well Gareth Jones, Chief Executive of Gooch & Housego, commented: "In favourable market conditions, demand for our products has been high and wehave reinforced our position as market leaders in several key product areas. Wehave embarked upon a number of initiatives aimed at sustaining growth and wehave begun to open up some exciting new markets through the Acquisition ofChromoDynamics Inc. For further information: Gooch & Housego PLC 01460 52271Gareth Jones / Ian Bayer Buchanan Communications 020 7466 5000Tim Thompson / Susanna Gale Gooch & Housego PLC Chairman's Statement 2006 I am pleased to have been asked to join the board of Gooch & Housego PLC, a longestablished and successful company with exciting prospects for the future. Ibelieve that I can make a positive contribution and look forward to helping thecompany to achieve its considerable potential. Although I joined the board after the end of the 2006 financial year I ampleased to note the encouraging results that follow on from similar growth inrevenues and profits in the previous two years. The excellent performances byNEOS and CCI are particularly noteworthy. Most of the growth has come from coreactivities and reflects the strengths the company has in these areas.Sustaining this level of growth in the longer term will require the company todiversify its products and markets. A first step has been made with theacquisition of CDI, and further investment is planned in 2007 to evaluate thepotential of its technology. The company is making a substantial investment in people, facilities andinfrastructure in the coming year to underpin future growth. I would like tothank all of our employees for their contribution to an excellent set ofresults. We clearly have an excellent workforce and top quality products and Ilook forward to the continuing success of the Group. Dr Julian Blogh Chief Executive's Review 2006 Overview After a slow start, the past year has been characterised by improving marketconditions culminating in strong demand in the last quarter. This upturn indemand was felt across most parts of the business and resulted in increases inrevenue and profit before tax for the Group of 14% and 23% respectively, andvery strong individual performances by NEOS Technologies Inc (NEOS) andCleveland Crystals Inc (CCI). Events of significance during the year include the appointment of Dr JulianBlogh as non-executive chairman, the acquisition of ChromoDynamics Inc (CDI),and the conferring of a second Queen's Award on Gooch & Housego's UK operations. I am very pleased to be able to welcome Dr Blogh to Gooch & Housego and I amsure that his extensive experience will prove to be invaluable. The Queen's Award is the most significant and widely recognised award that a UKbusiness can receive. To be able to add the Queen's Award for Enterprise:International Trade in recognition of our recent export performance to our 1994Queen's Award for Technological Achievement is an achievement of which theentire workforce can be very proud. The development of our new factory and headquarters in Ilminster has suffereddelays during the year due to the scale and complexity of the project, but it isnow progressing well, with the first phase nearing completion and scheduled foroccupation in January 2007. We now expect to have completed the development andto have relocated all Ilminster operations by the end of 2007. Earlier in the year we embarked on a major reorganisation of our optoelectroniccomponents activities. Going by the project name of ORION, and comprising Gooch& Housego UK Ltd (G&HUK), CCI, NEOS and Landwehr Electronic GmbH (LE), thereorganisation is aimed at creating a more efficient and effective integratedglobal business with greater market presence and extended reach. Significantprogress has already been made in key areas such as establishing the essentialIT and communications infrastructure, and the project is on target to becompleted mid-2007. Under the new structure, as the boundaries between the individual businessesdissolve, we will report on the integrated business in terms of its products andmarkets, rather than by manufacturing locations as we have in the past. Theincrease in inter-company trading is already distorting individual results andemphasises the need to focus on ORION's overall performance. From 1 October 2006 we have also reorganised the corporate structure of theGroup, detaching the UK trading company from Gooch & Housego PLC andestablishing a new company, Gooch & Housego UK Ltd, to carry out UK tradingactivities. Financial Results For the year ended 30 September 2006, Group turnover increased by 14% to £25.36m(2005: £22.32m). Profit before tax, after charging goodwill amortisation of£0.38m (2005: £0.34m), increased by 23% to £5.77m (2005: £4.68m). Profitbefore tax and goodwill amortisation improved from £5.02m to £6.15m during theyear. Basic earnings per share increased by 24% to 20.1p (2005: 16.1p) whilebasic earnings per share, before goodwill amortisation, rose to 22.2p from lastyear's 18.0p. The Group's improved sales results were led by NEOS with sales of £6.38m, anincrease over 2005 of £1.20m. CCI were close to equalling this performance withsales in the year of £5.61m (2005: £4.46m). G&H maintained last year'sexceptional performance with sales of £7.52m (2005: £7.61m) and LE recordedsales of £2.54m (2005: £1.99m). Outside of the ORION companies Optronic Laboratories Inc (OLI) increased salesto £3.32m (2005: £3.08m). Operating profits for the Group improved by 21% to £5.74m (2005: £4.76m). ORIONcompanies contributed a total of £6.08m to total operating profits. NEOSreported profits of £2.31m (2005: £1.62m), G&H trading profits of £2.40m (2005:£2.41m) and CCI at £1.36m (2005: £ 0.78m). OLI returned a 13% increase in profits to £0.43m (2005: £0.38m) while LEreturned profits of £19,000 (2005: £85,000). Costs incurred from the newdevelopments at CDI since its acquisition in February, totalled £0.16m. Headoffice costs totalled £0.61m (2005: £0.51m) The Group's financial position remains strong with net funds inflow of £0.53m(2005: £2.04m). This is after financing the acquisition of CDI ata cost of £0.68m. At 30 September 2006 the Group had total net funds of £2.90m(2005: £2.37m). An overall tax rate of 37% for the year (2005:38%) is as a result of higherrates of US tax and the effect of the non-allowable charge for goodwillamortisation. Dividends Reflecting the Group's improved performance, the Directors are proposing a finaldividend of 2.8p making a total for the year of 4.2p. This represents anincrease of 8% over last year's total of 3.9p and is covered 4.8 times bypost-tax earnings. The shares are expected to go ex-dividend on 6 December2006, and following approval at the Annual General Meeting on 14 February 2007,the dividend will be paid to Shareholders on 15 February 2007. Gooch & Housego UK Ltd (G&HUK) G&HUK performed strongly in the year, despite the figures indicating flat salesand profits compared with the previous year. A significant increase ininter-company sales, which are taken at reduced margin, has had a negativeimpact on profits. With sales progressively being managed by local offices, anincreasing proportion of goods manufactured in the UK is now being sold viaother group companies, rather than directly as before. The market for Q-switches, still our most significant single product, was softduring the first quarter of the year, but picked up in the second quarter andwas strong throughout the second half. With the rise in demand threatening topush lead times to unacceptable levels, measures were put in place to increasecapacity by two thirds by the end of the year. The Super Q-switch has been oneof our success stories this year, demonstrating that there are major advances tobe made in what might be thought of as mature technology. G&HUK continues to bethe world leader with this product. In precision optics we have continued to focus on those aspects of the businessin which we excel. In the areas of crystal optics and thin-film coatings wehave demonstrated world-class capabilities and as a result have been able to winincreased export business and improve our margins. By extending our reach aspart of the new integrated components business and by leveraging the marketpresence we already have in acousto-optics and electro-optics we expect tocontinue to increase optical component sales. Optronic Laboratories, Inc. (OLI) OLI has a highly specialised product range that addresses a niche market.Several key developments that will open up opportunities for OLI in new marketssectors are currently underway, with the first of these scheduled for launch in2007. The expertise of OLI in instrument design and engineering is being used toenable CDI to bring its hyperspectral imaging instrument to market more rapidlythan would otherwise be possible. OLI and CDI have also benefited from sharingmarket information and is a good example of how we are able to exploit synergiesbetween members of the Group. Cleveland Crystals, Inc. (CCI) CCI has returned an exceptional performance with revenues up by a quarter andprofits almost doubling when compared to the previous year. Growth has beenexperienced in both of the main sectors of the business, and CCI has beensuccessful in responding to demand and increasing output at modest additionalcost. This is reflected in the strong bottom-line performance. CCI has continued to incrementally improve its Pockels cell product range and asa result has reinforced its leading position in this market. To meet theincrease in demand for crystals for inertial confinement fusion (ICF)applications, production facilities in Cleveland are currently being expanded.The extended manufacturing facility will benefit from substantial externalinvestment in additional equipment in the coming months. NEOS Technologies, Inc. (NEOS) NEOS has once again been a star performer, with revenues up nearly a quarter andprofits by almost half when compared with 2005. The team at NEOS in their newfacility constitutes a highly efficient manufacturing unit. New product andprocess developments in the past year have improved quality and increasedcapacity, enabling NEOS to respond to the mid-year upturn in demand and increaseoutput significantly. Landwehr Electronic GmbH (LE) Sales at LE increased by nearly a third compared with the previous year anddemonstrate their success in channelling group products into the German market.The product mix continues to be dominated by acousto-optic devices and RFelectronics, but sales of crystal optics and precision optics have shownencouraging growth this year and illustrate the potential of this large market.Margins were adversely affected by the increase in inter-company sales and therecruitment of additional senior technical staff. There is now a strong team inplace at LE and the benefits of this investment are already being felt. LE's core RF electronics business continues to be a key element of the Group'swider acousto-optics capabilities, and several important new developments in thepast year are aimed at increasing RF driver sales, and as a consequence, overallmargins. ChromoDynamics, Inc. (CDI) The development of CDI's hyperspectral imaging engine is progressing well. A newsoftware team at CDI, engineering support from OLI and optical and electronicdesign and manufacturing support from across the group have combined to keephardware and software development on schedule for a product launch in the secondquarter of 2007. Initial applications will be in biomedical and pharmaceuticalresearch. In parallel, CDI is investigating applications in diagnostics. Sector Analysis In the light of our reorganisation of the Group into what are in effect twodivisions - Optoelectronic Components and Materials and Instrumentation I wouldlike to comment briefly on the Group's activities over the past year in ourprincipal product sectors. Acousto-optics is our largest product sector, served by NEOS, G&HUK and LE.Demand was initially slow at the start of the year but strengthenedprogressively as reported above. The greater coordination that now existsbetween NEOS, G&HUK and LE as we take a more global approach to theacousto-optics business has enabled us to be more responsive, to provide optimumsolutions to our customers and to maintain the Group's leading position in thismarket. Precision optics and crystal optics (G&HUK), the original business on whichGooch & Housego was founded nearly sixty years ago, will become an increasinglyimportant part of the Group's product offering as applications such asindustrial, medical and research laser systems and semiconductor lithographydemand more sophisticated optical solutions that play to our strengths.Historically focussed on the UK market, we have been successful in winningoptics business in the USA and Europe in the past year. Electro-optic Q-switches, or Pockels cells, (CCI) is another product sector inwhich we have a leading market position that has been reinforced over the lastyear. Optical instrumentation (OLI and CDI) has been a more difficult market for uswith OLI serving a relatively small and highly specialised market, and with CDIyet to begin trading. New developments at OLI and some exciting prospects forCDI point to this sector growing in importance in the coming years. Prospects With market conditions improving during 2006 and demand continuing to be strongat the start of our new financial year, prospects for continued revenue growthare favourable. We will continue to invest in research and development, salesand marketing and infrastructure for sustained long-term growth. Theseinitiatives will begin to make a positive contribution in 2007, but the fullbenefits are unlikely to be felt until 2008. In the short term, Project ORION,CDI and the new UK factory will contribute to increased costs in 2007. A key element of project ORION is the creation of a new global sales team forthe optoelectronics business. In place of four separate teams, each supportinga narrow range of products on a worldwide basis, we will have a single teamcapable of supporting all of our products in each of our principal markets. Wehave already demonstrated that sales can be increased by taking our currentproducts to a wider audience but the benefits have been limited to date by lackof sales resource and coordination. In parallel with our investment in sales,the creation of a strategic marketing capability will enable us to form aclearer picture of our markets and their dynamics and help us develop a betterunderstanding of our customers' current and future requirements. We have been active in research and development in the past year, with fourpatent applications filed and several more in the pipeline. Some of ourdevelopment activities will reach the market in the coming year, including a newproduct family at OLI and the first CDI hyperspectral imaging system. We are notexpecting these products to make a significant contribution to revenues until2008. Continuing to develop the core components and materials activities is central toour strategy, while we also recognise the potential of the instrumentationbusiness to deliver significant growth in new markets. In addition to theorganic growth that will follow from the development of new products andcapabilities, we will look for acquisitions that will enable us to deliver ourstrategy more quickly. In summary, the Gooch & Housego group is well placed for continued growth byvirtue of its unique combination of products and capabilities and its skilledand dedicated workforce. G C W Jones Chief Executive Officer Gooch & Housego PLC GROUP PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 30 SEPTEMBER 2006 2006 2005 (unaudited) (Restated) £'000 £'000 Turnover 25,364 22,315Trading expenditure excluding goodwill amortisation (19,239) (17,213) Operating profit before goodwill amortisation 6,125 5,102 Goodwill amortisation (381) (339) Operating profit 5,744 4,763 Other interest receivable and similar income 123 41 Interest payable and similar charges (96) (126) Profit on ordinary activities before taxation 5,771 4,678 Tax on profit on ordinary activities (2,145) (1,779) Profit on ordinary activities after taxation 3,626 2,899 Dividends on equity shares (720) (666) Retained profit for the financial year 2,906 2,233 Basic earnings per share 20.1p 16.1p Diluted earnings per share 19.7p 15.9p All operations undertaken by the Group during the current year are continuing. The results of theacquisition made during the year have not been separately disclosed on the face of the profit and lossaccount as they are not considered material to the Group result. The results of the acquired entity have,however, been disclosed in segmental disclosures included in note 2. Gooch & Housego PLC GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR THE YEAR ENDED 30 SEPTEMBER 2006 2006 2005 (unaudited) (Restated) £'000 £'000 Profit for the financial year 3,626 2,899 Currency translation differences on foreign currency net investments (496) 234 Total recognised gains and losses for the financial year 3,130 3,133 No note of historical cost profit for the Group or the Company has beenpresented as the difference between the reported profit and the historical costprofit is immaterial. Gooch & Housego PLC GROUP BALANCE SHEETAS AT 30 SEPTEMBER 2006 2006 2005 (unaudited) (Restated) £'000 £'000 £'000 £'000FIXED ASSETSIntangible assets 5,200 4,893Tangible assets 6,541 5,499 11,741 10,392 CURRENT ASSETSStocks 3,875 3,872Debtors 4,473 3,490Cash at bank and in hand 3,791 3,532 12,139 10,894 CREDITORS : amounts falling due within one year (4,127) (3,907) NET CURRENT ASSETS 8,012 6,987 TOTAL ASSETS LESS CURRENT LIABILITIES 19,753 17,379 CREDITORS : amounts falling due after more thanone year (679) (740) PROVISIONS FOR LIABILITIES AND CHARGES (202) (177) NET ASSETS 18,872 16,462 CAPITAL AND RESERVESCalled up share capital 3,600 3,600Share premium account 3,404 3,404Revaluation reserve 308 308Profit and loss account 11,560 9,150 EQUITY SHAREHOLDERS' FUNDS 18,872 16,462 Gooch & Housego PLC GROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 2006 2005 Note (unaudited) £'000 £'000 £'000 £'000 Cash inflow from operating activities (i) 5,734 5,467 Returns on investments and servicing offinanceInterest received 123 44Interest paid (63) (109)Interest element of hire purchase contracts (33) (19) Net cash outflow from returns on investmentsand servicing of finance 27 (84) TaxationUK tax paid (321) (337)Overseas tax paid (1,613) (1,376)Cash outflow from taxation (1,934) (1,713) Capital expenditure and financial investmentPurchase of tangible fixed assets (1,753) (1,677)Sale of tangible fixed assets 6 621 Net cash outflow from capital expenditure andfinancial investment (1,747) (1,056) Acquisitions Acquisition of subsidiary (690) (20)Cash acquired on acquisition 25 - Net cash outflow from acquisition (665) (20) Equity dividends paid (720) (666) Cash inflow before financing 695 1,928 Financing Increase in borrowings 169 204Repayment of bank loan (274) (1,163)Capital element of hire purchase contracts (128) (120) Net cash outflow from financing (233) (1,079)Increase in cash in the year (ii) (iii) 462 849 Gooch & Housego PLC NOTES TO THE CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 (i) Reconciliation of operating profit to net cash inflow fromoperating activities 2006 2005 (unaudited) £'000 £'000 Operating profit 5,744 4,763Amortisation of goodwill 381 339Amortisation of debt issue costs - 16Depreciation 608 436Increase in stocks (154) (185)Increase in debtors (1,139) (76)Increase in creditors 294 174 5,734 5,467 (ii) Reconciliation of net cash outflow to movement in net funds 2006 2005 (unaudited) £'000 £'000 Increase in cash in the year 462 849Cash outflow from decrease indebt and lease financing 402 1,079 Changes in net funds resulting from cash flows 864 1,928 New hire purchase contracts (169) (101)Movement in debt issue costs - (16)Translation difference (165) 233 Movement in net funds in the year 530 2,044 Net funds at 1 October 2005 2,371 327 Net funds at 30 September 2006 2,901 2,371 Gooch & Housego PLC NOTES TO THE CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 (continued) (iii) Analysis of net funds At At 1 Oct Cashflow Exchange Non-cash 30 Sep 2005 Movement Movement 2006 (unaudited) £'000 £'000 £'000 £'000 £'000 Cash in hand and at bank 3,532 731 (203) - 4,060Bank overdraft - (269) - - (269) 3,532 462 (203) - 3,791 Debt due after 1 year (578) - 37 29 (512)Debt due within 1 year (273) 274 (1) (29) (29)Hire Purchase (310) 128 2 (169) (349) 2,371 864 (165) (169) 2,901 Gooch & Housego PLC NOTES TO THE PRELIMINARY ANNOUNCEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 1. Basis of preparation The unaudited financial information contained in this preliminaryannouncement does not comprise statutory accounts within the meaning of Section240 of the Companies Act 1985. The figures in this preliminary announcement have been prepared undergenerally accepted accounting policies in the United Kingdom. The accountingpolicies adopted are those set out in the Annual Report and Accounts for theyear ended 30 September 2005 which includes the unqualified report of theindependent auditors and which have been filed with the Registrar of Companies,with the exception of the adoption of Financial Reporting Standard 21 ("FRS 21")as described below. The Group has adopted FRS 21, "Events after the balance sheet date" in preparingthis unaudited financial information. The adoption of this standard representsa change in accounting policy and the comparative figures have been restatedaccordingly. FRS 21 requires that the Group only recognise 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 financial year. The proposed final dividend for the current year of£503,977 will be recognised in the financial year to 30 September 2007 as it hasyet to be approved. 2. Segmental reporting During the current year the Group has embarked upon a major reorganisation ofits optoelectronic components activities under the project name Orion. The newOrion sub-Group comprises G&H UK, NEOS, CCI and LE and is aimed at creating amore efficient and effective integrated global business with greater marketpresence and extended reach. As a result of this development, the segmentaldisclosures below have been realigned to be more consistent with the revisedstructure of the Group. As at 1 October 2006 we have also reorganised the corporate structure of thegroup, detaching the UK trading company from Gooch & Housego PLC andestablishing a new company, Gooch & Housego UK Ltd, to carry out UK tradingactivities. Total turnover Inter-segment Sales to third Operating profit sales parties 2006 2005 2006 2005 2006 2005 2006 2005 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Optoelectronic Components andMaterialsGooch & Housego trading 9,124 8,532 (1,603) (924) 7,521 7,608 2,402 2,408 NEOS Technologies Inc. 6,950 5,484 (572) (304) 6,378 5,180 2,305 1,621 Cleveland Crystals Inc. 5,630 4,489 (24) (30) 5,606 4,459 1,355 780 Landwehr Electronic GmbH 2,830 2,159 (286) (172) 2,544 1,987 19 85 24,534 20,664 (2,485) (1,430) 22,049 19,234 6,081 4,894InstrumentationOptronic Laboratories Inc. 3,496 3,204 (181) (123) 3,315 3,081 428 377 ChromoDynamics Inc. - - - - - - (157) - 3,496 3,204 (181) (123) 3,315 3,081 271 377 Gooch & Housego head office - - - - - - (608) (508) Group total 28,030 23,868 (2,666) (1,553) 25,364 22,315 5,744 4,763 Net interest receivable/(payable) 27 (85) Group profit before taxation 5,771 4,678 The analysis of turnover by destination is as follows: 2006 2005 (unaudited) £'000 £'000 United Kingdom 2,886 2,921North America 12,463 10,539Continental Europe 5,480 4,669Other 4,535 4,186 25,364 22,315 2. Segmental reporting (continued) The Group acquired a 100% interest in ChromoDynamics Inc., a developer ofhyperspectral imaging systems based in the United States, on 6 February 2006 fora cash consideration of US$1,180,000 plus expenses. The Group has recognised agoodwill balance of £661,000 in respect of this acquisition. 3. Taxation The charge for taxation on the profit for the year is made up asfollows: 2006 2005 (unaudited) £'000 £'000 UK Corporation tax 381 571Overseas taxation 1,715 1,180Deferred taxation 49 28 2,145 1,779 4. Earnings per share The calculation of earnings per 20p Ordinary Share is based on theprofit on ordinary activities after taxation using as a divisor the weightedaverage number of Ordinary Shares in issue during the year. For 2006 and 2005the actual number of Ordinary Shares in issue throughout the year was17,999,162. All share options in respect of which the related performancecriteria have been met as at 30 September 2006 and 2005 and which have anexercise price lower than the average market price of the Group's share price ineach year have been included in the calculation of diluted earnings per share.The weighted average number of shares in issue during the year, taking intoaccount of the dilutive effect of the share options was 18,435,688 (2005:18,201,870). A reconciliation of the earnings used in the earnings per sharecalculation is set out below: 2006 2005 (unaudited) £'000 p per share £'000 p per share Basic earnings per share 3,626 20.1 2,899 16.1 Goodwill amortisation 381 2.1 339 1.9 Basic earnings per share before goodwill 4,007 22.2 3,238 18.0amortisation Diluted earnings per share 3,626 19.7 2,899 16.0 Goodwill amortisation 381 2.0 339 1.9 Diluted earnings per share before goodwillamortisation 4,007 21.7 3,238 17.9 Basic and diluted earnings per share before goodwill amortisation has been shown because, in theopinion of the directors, it more accurately reflects the trading performance of the Group. 5. The proposed final dividend of 2.8 pence per share will be paid on 16February 2007 to shareholders on the register at close of business on 8 December2006. 6. Copies of the Report and Accounts will be despatched to shareholdersduring the week commencing 2 January 2007 and will also be available from theCompany Secretary, Gooch & Housego PLC, The Old Magistrates Court, Ilminster,Somerset TA19 0AB. This information is provided by RNS The company news service from the London Stock Exchange