Last checked at 25 Nov 2008 07:00
| For immediate release | 25 November 2008 |
Gooch & Housego PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
HIGHLIGHTS
Transformational year
Gooch & Housego PLC, the specialist manufacturer of optical components and systems, today announces preliminary results for the year ended 30 September 2008.
Financial highlights
Group turnover increased by 8.8% to £33.4m (20071: £30.7m)
Group normalised operating profits decreased by 19.2% to £5.7m (2007: £7.0m)
Basic earnings per share of 18.5p (20071: 21.9p), down by 15.5%
Normalised earnings per share of 20.0p (2007: 24.8p), down by 19.4%
Group normalised profit before tax of £5.4m (2007: £7.1m), a decrease of 22.9%
Group profit after tax of £3.6m (20071: £4.1m), a decrease of 13.7%
Total dividend held at 4.5p
1 All numbers are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in the EU and reflect the Group's first time adoption of IFRS.
Operational highlights
Revenue growth despite challenging market conditions
Profits impacted by a changing product mix and market conditions
Gooch & Housego re-positioned as an integrated global technology business
Board and management strengthened
Launched first dedicated Life Sciences products
Acquired General Optics delivering presence in US Aerospace & Defence market
Completed investments in Ilminster and Torquay facilities
Gareth Jones, Chief Executive of Gooch & Housego PLC, commented:
"This year has seen the realisation of our plans to re-position Gooch & Housego as an integrated global technology business. Our investments in infrastructure, R&D, sales & marketing and strategic acquisitions over the last year, in the face of challenging market conditions, provide a solid platform for future growth."
For further information:
Gooch & Housego PLC 01460 256440
Gareth Jones / Peter Quinn
Buchanan Communications 020 7466 5000
Tim Thompson / Chris McMahon
Investec Bank (UK) Limited 020 7597 5970
Michael Ansell / Patrick Robb Gooch & Housego PLC
Chairman's Statement 2008
This year we have experienced a difficult trading environment in our core industrial laser market, which has had a negative impact on profits despite an overall increase in revenues. Largely driven by the downturn in the semiconductor market, we saw a sharp decline in demand for our acousto-optic products during the first quarter followed by a modest recovery as customer inventory levels normalised. Nevertheless demand remained depressed throughout the year, and indications are that there will be little change in 2009.
Despite the slowdown in acousto-optics I am encouraged that we have achieved revenue growth in other sectors of our business. Part of our strategy has been to expand our product offering and to provide Gooch & Housego with greater exposure to new and growing markets. This is beginning to show benefits and this year we have seen sales growth in the telecommunications, life sciences, and aerospace and defence sectors. Our fibre optics business unit has been particularly successful in increasing sales this year. We aim to improve margins on this new business in the coming year as we migrate towards more specialised and higher value products.
During the year we completed a major reorganisation and re-positioning of the business that has created a more efficient management structure and enabled us to present a clearer message to our customers. The new framework we have established will facilitate the integration of future acquisitions and permit our strategy to be implemented consistently across the organisation. In parallel we have relocated our Ilminster operations and corporate headquarters to a new state-of-the-art facility and extended our Torquay fibre optics facility. While these were completed according to plan and without any significant problems they inevitably resulted in additional one-off costs and a certain amount of disruption which have compounded the effects of the economic slowdown. However, as an integrated business with a global outlook we are now well placed to deliver sustainable growth while improving the effectiveness and reducing the cost of our operations.
A benefit of the reorganisation is that we are now in a position to offer a more complete service to our customers and to work with them on their next generation products. While this sometimes requires us to extend our capabilities we now have the infrastructure and facilities to make this possible.
Our research & development and mergers & acquisitions strategy has focussed on reinforcing our leading position in our core industrial laser market while establishing a stronger presence in the key target markets of life sciences and aerospace & defence. Our recently launched products for microscopy applications have been well received and our work on diagnostics, although long term, continues to make good progress. The acquisition of General Optics significantly enhances our presence in the US aerospace & defence sector and provides Gooch & Housego with a world-leading optical manufacturing capability to complement our Ilminster operations.
Looking forward, we expect trading conditions to remain difficult for some time and so we will be seeking to derive benefits and savings from the investments and changes we have made this year.
I would like to thank all of our employees and my fellow directors for their contribution over the last 12 months.
Dr Julian Blogh
Chairman
25 November 2008 Chief Executive's Review 2008
Overview
This has been a transformational year for Gooch & Housego. We have completed major investments in facilities and infrastructure, strengthened the Board and management team, integrated our operations to create a more effective divisional structure and re-positioned Gooch & Housego as a global technology business. In addition, we have increased investment in Research and Development (R&D), launched several important new products and completed our largest acquisition to date while managing to grow year-on-year revenues by 8.8% despite a challenging economic climate.
We have made further progress in diversifying our product portfolio and developing new markets and applications. A significant proportion of our R&D and Merger and Acquisition (M&A) activity has been focussed on developing opportunities beyond our traditional markets. While we have been successful in increasing sales into sectors such as life sciences, aerospace & defence and telecommunications the consequent change in product mix, and increased expenditure on R&D, sales and marketing as we establish a presence in these markets, has had an adverse affect on margins. Therefore, while encouraging, the gains from these initiatives are not yet great enough to offset the slowdown that we have experienced in some parts of our traditional business, and overall our profits have declined by 13.7% year on year.
Worst affected has been the industrial laser market. This is currently our most important market and is one into which we sell many products, including our acousto-optic Q-switch, a product in which we are the world leader. Although lasers are progressively replacing conventional machine tools in materials processing applications the well publicised downturn in the semiconductor & microelectronics sector has had an adverse affect on sales and profits. While this is likely to be a temporary phenomenon and the longer term prospects for this market are good, there is as yet no evidence of a recovery in demand in the near term.
In contrast, other parts of the business have performed well. Most notably our fibre optics business unit, acquired in May 2007, increased revenues by 40.3% during its first full year as part of Gooch & Housego as a result of strong demand from the industrial, life sciences and telecoms markets. We have also been encouraged by increased sales of precision optics, electro-optics and non-linear materials.
Markets and Applications
Establishing a presence in new markets is difficult and takes time but is essential if we are to achieve sustained growth and reduce our susceptibility to sector volatility. Today we are still dependent on the Industrial & Research market but during the past year we have made good progress in establishing a greater presence in the emerging Aerospace & Defence and Life Sciences markets. The adoption of optical technologies in these markets is accelerating and Gooch & Housego possesses enabling technology that can facilitate this process. As a result we believe these markets offer significant opportunities for growth in the coming years. The acquisition of General Optics after the year end has placed us squarely in the US Aerospace & Defence market. In Life Sciences we have continued to invest heavily in R&D and this year launched our first two entirely new system-level products aimed at applications in microscopy and diagnostics.
Despite our drive to develop new markets we believe there is long term potential in the industrial laser market and we have continued to make substantial investments in this important sector of our business.
Looking at our main market sectors in more detail: -
Industrial & Research
Gooch & Housego is the market leader in acousto-optic Q-switches for industrial lasers, in electro-optic Q-switches for research lasers and in fibre optic combiners for fibre lasers. We are also the world's leading manufacturer of large aperture crystals for laser inertial confinement fusion research. This is our principal market today and is likely to remain the primary source of revenue and profit for the next few years. During the past year we have invested substantial sums in state-of-the-art manufacturing facilities and in R&D in order to maintain our leadership role in this sector and to develop complementary new products.
Fibre lasers are the fastest growing segment of the laser market. This year we initiated two major R&D projects to develop new product families targeted at the fibre laser market. We have combined our expertise in acousto-optics, crystal optics and high laser damage threshold coatings with our recently acquired fibre optics capability to develop what we intend to be world leading products. The first of these products has recently been launched and is receiving positive customer feedback, while the second is scheduled for launch in January 2009. Both of these entirely new products have the potential to sell in significant numbers alongside our world leading Q-switch.
This sector has suffered most from the downturn in the semiconductor equipment market. Demand appears to have stabilised but with some sectors, such as automotive, showing signs of increasing weakness, while others, such as solar, are growing the near term outlook remains unclear. By introducing key new products we are seeking to deliver continued growth in spite of the current uncertainty.
Aerospace & Defence
The number of applications for optical technology in Aerospace & Defence is growing. In order to position G&H to take advantage of this trend we have sought to expand our capabilities to meet the specific needs of this market. In 2007 we broadened our scope with the acquisition of a fibre optics capability. This year we have extended our capability to include the manufacture and test of optical sub-assemblies through the provision of clean room assembly facilities in our new Ilminster factory and most recently we acquired General Optics, a California based business specialising in ultra-high precision optics. Approximately 70% of the revenue of General Optics is derived from sales of optical components for the US Aerospace & Defence market.
Instrumentation & Life Sciences
We are continuing to invest over $1.0 million per year in the development of instruments and systems for applications in diagnostics and biomedical research. This work is generating a portfolio of intellectual property and know-how in fields such as hyperspectral imaging and optical coherence tomography. With applications for our products as diverse as early stage diagnosis of cancer, ophthalmic imaging, biomedical and pharmaceutical research, dentistry, and surgery we believe that the life sciences will become one of our most important markets, both in terms of size and rate of growth, which can be rapid once the necessary approvals are in place.
The step from being a supplier of components to instrument manufacturers to becoming a manufacturer of systems for sale to end users in the biomedical instrumentation market is a large one. Earlier this year we launched two important new system-level products aimed at the microscopy market - the OL490, a spectrally agile light source, and the HSi300, a hyperspectral imaging system. Despite being new to this market these products have been well received and initial uptake has been encouraging, with several systems sold and valuable feedback received form customers.
In parallel with developing products we have been exploring routes to market. We recognise that to realise the full potential of these products in what is a vast and specialised market we will need to work with appropriate partners. I am pleased to be able to report that we have recently partnered with Nikon to bring the benefits of hyperspectral imaging to the widefield microscopy market. Gooch & Housego's HSi300 will be made available through Nikon's distribution network in conjunction with their research grade microscopes and specialist operating software.
Looking beyond the instrument to the applications, we are continuing to investigate the potential of hyperspectral imaging to assist in the diagnosis of disease. Although long term, this work continues to show promise.
Reorganisation
Including the General Optics plant in California, Gooch & Housego now operates from eight manufacturing and R&D facilities (five in the USA, two in the UK and one in Germany) and four sales offices (USA West Coast, Central USA, USA East Coast and the Far East) giving us a presence in all of our major markets. In order to present a clearer message to our customers and to facilitate the management of such a geographically dispersed organisation we have established a divisional structure.
The Components and Materials Division encompasses the whole of Gooch & Housego's traditional business and today accounts for more than 90% of revenues and profits. Until earlier this year the five plants that comprise the Components and Materials Division operated as discrete businesses under their separate names. Following the reorganisation the division functions as a single business, branded as Gooch & Housego, under the control of a new management team with global responsibility. General Optics has recently become the sixth member of the division and has also been re-named Gooch & Housego. The result is a "new" business with a superb portfolio of world-leading products and a greatly enhanced market presence, that is able to use our sales, marketing and R&D resources to much greater effect than was previously possible.
The products of the Instrumentation & Life Sciences Division, which comprises Optronic Laboratories, Inc. and ChromoDynamics, Inc., are very different in terms of applications, customers, unit value and routes to market, and although small today it is the focus of considerable investment in R&D and has the potential to grow rapidly.
Given that our strategy is to leverage our exceptional components and materials capabilities to create world leading instrumentation products there is a great deal of cross-fertilisation behind the scenes between the divisions.
Prospects
The progress we have made in the last year has created a stronger Gooch & Housego. With the additional revenues from the General Optics business and the contribution from several important new products scheduled for launch during the year we are looking forward to continued growth.
It is likely that the problems affecting the global economy will continue to adversely affect our traditional industrial laser market in the coming year. However, with exciting new product launches in the coming year we believe that this sector continues to offer good medium to long term potential.
Looking at the business as a whole, while other sectors are proving to be more resilient we are not expecting any significant underlying growth beyond that resulting from our ongoing investment in new products, new markets and acquisitions.
In order to reduce the impact of a prolonged slowdown we have continued to drive through improvements in efficiency and effectiveness, and we are reducing costs where we can do this without impairing our longer term growth prospects. We will continue extend our geographical coverage and increase our market diversity to provide greater resilience and to create a stronger business that is ready for the recovery when it comes. We have the advantage of excellent people, exceptional capabilities and a strong balance sheet.
Gareth C.W. Jones
Chief Executive Officer
25 November 2008
Chief Financial Officer's Report
International Financial Reporting Standards
The Group adopted International Financial Reporting Standards ("IFRS") as adopted in the EU effective for the twelve month period to 30 September 2008 and as a result the comparative figures in respect of the twelve month period to 30 September 2007 have been restated in accordance with IFRS requirements.
Financial Results - Headline
For the twelve month period to 30 September 2008 the Group returned profit after tax of £3.577m compared to the corresponding period to 30 September 2007 when the Group returned profit after tax of £4.147m.
On an earnings per share basis for the twelve month period to 30 September 2008 the Group returned basic and diluted earnings per share of 18.5p (2007: 21.9p) and 18.0p (2007: 21.5p), respectively.
Excluding the impact of the amortisation of acquired intangibles assets relating to the acquisition of the Group's fibre optics business, Gooch & Housego (Torquay) Limited, profit after tax in the twelve month period to 30 September 2008 amounted to £3.793m compared to profit after tax in the corresponding period last year of £4.533m.
Financial Performance - Income Statement
Group revenue for the twelve month period to 30 September 2008 amounted to £33.369m, an increase of £2.694m or 8.8% over the corresponding period last year.
The increase in revenue in absolute terms, year over year, was predominantly driven by the performance of the Group's Components and Material Division's fibre optics business, acquired in May 2007, which generated revenue of £6.661m in the twelve month period to 30 September 2008 and significantly off-set the sales weakness experienced by the Group's Components and Materials Division's acousto-optic business in the supply of its Q-switch product portfolio to the semiconductor and microelectronics industry.
Group gross profit for the twelve month period to 30 September 2008 amounted to £15.890m or 47.6% compared to the corresponding period last year when the Group returned gross profit of £16.024 or 52.2%.
Group operating profit for the twelve month period to 30 September 2008 amounted to £5.353m compared to the corresponding period last year when the Group returned an operating profit of £6.450m.
Excluding the impact of the amortisation of acquired intangible assets relating to the acquisition of the Group's fibre optics business, Gooch & Housego (Torquay) Limited, operating profit in the twelve month period to 30 September 2008 amounted to £5.657m compared to operating profit in the corresponding period last year which amounted to £7.001m.
Group operating expenditures for the twelve month period to 30 September 2008 amounted to £10.608m or 31.8% of revenue compared to the corresponding period last year of £9.155m or 29.8% of revenue.
Of significance and impacting on Group operating profit in the twelve month period to 30 September 2008 was the Group's commitment to Research & Development, with expenditures incurred amounting to £2.703m (2007: £1.898m) representing 8.1% (2007: 6.2%) of revenue and Sales & Marketing with expenditures incurred amounting to £1.859m (2007: £1.383m) representing 5.6% (2007: 4.5%) of revenue.
The increase in Research & Development expenditures in the twelve month period to 30 September 2008 represents investment by the Group in its engineering capabilities and in its strategic objective to increase its revenues through organic growth derived from in-house product development.
The increase in Sales & Marketing expenditures in the twelve month period to 30 September 2008 compared to the corresponding period last year results from the establishment and staffing of the Components and Materials Division's integrated world-wide sales force and the establishment of sales offices in Hong Kong and on the West Coast of the USA.
Excluding the impact of the increased operating expenditure on Research & Development and Sales & Marketing the Group incurred expenditure on Administration of £ 6.046m or 18.1% of revenues compared to the corresponding period last year of £5.874m or 19.1% of revenue.
Group profit before tax for the twelve month period to 30 September 2008 amounted to £5.135m compared to the corresponding period last year when the Group returned profit before tax of £6.507m.
Group profit after tax for the twelve month period to 30 September 2008 amounted to £3.577m after a tax provision of 30.3% of profit before tax compared to the corresponding period last year when the Group returned profit after tax of £4.147m after a tax provision of 36.3% of profit before tax.
The reduction in the tax rate year on year reflects a number of actions including the impact of the establishment of US Federal and State Tax Group structures.
Financial Performance - Balance Sheet
The Group Balance Sheet remains strong with net assets of £29.040m, an increase of £3.045m on the year-end position as at 30 September 2007.
Group non-current assets as at 30 September 2008 amounted to £24.968m a net increase of £3.246m compared to the position at the year-end 30 September 2007.
The increase in non-current assets is predominantly the result of expenditure on the Group's Components and Materials Division's new facility and corporate headquarters at Dowlish Ford, Ilminster, United Kingdom.
Group net current assets as at 30 September 2008 amounted to £5.661m a decrease of £0.595m compared to the position at the year-end 30 September 2007.
The decrease is net current assets is predominantly the result of a decrease in cash and cash equivalents and an increase in borrowings amounting to £3.052m off-set, to an extent, by an increase in inventories and trade and other receivables amounting to £1.711m.
Shareholders funds at 30 September 2008 increased by £3.045m predominantly driven by the financial performance in the year.
Financial Performance - Cash
Total Group net borrowings at 30 September 2008 amounted to £3.295m (2007:£0.980m)
The Group net cash outflow in the twelve month period to 30 September 2008 totalled £1.953m (2007:£3.054m).
The Group's working capital requirements are funded under a $10.0m committed secured facility from the Group's bankers, The Royal Bank of Scotland plc.
The Group's cash outflow was predominantly the result of expenditure in connection with the Components and Materials Division's new facility and Group corporate headquarters at Dowlish Ford, Ilminster, UK which amounted to £4.102m.
The Group increased its borrowings following the year-end to fund the acquisition of the assets and business of General Optics, completed on 8 October. See Note 8 to the Preliminary Announcement.
Dividends
The Group paid an interim dividend of 1.5p on 1 August 2008.
The Directors are proposing a final dividend of 3.0p making a total for the year of 4.5p which is the same as last year.
The total dividend is covered 4.1 times by post tax earnings. The shares are expected to go ex-dividend on 5th December 2008, and following approval at the Annual General Meeting on 25 February 2009, the dividend will be paid to shareholders on 26 February 2009.
Peter J. Quinn
Chief Financial Officer
25 November 2008
Group Income Statement
For the year ended 30 September 2008
| Note | 2008 | 2007 | |
| £000 | £000 | ||
| Revenue | 2 | 33,369 | 30,675 |
| Cost of revenue | (17,479) | (14,651) | |
| Gross profit | 15,890 | 16,024 | |
| Research & Development | (2,703) | (1,898) | |
| Sales & Marketing | (1,859) | (1,383) | |
| Administration | (6,046) | (5,874) | |
| Other income | 375 | 132 | |
| Operating profit before amortisation of acquired intangible assets | 2 | 5,657 | 7,001 |
| Acquired intangible assets amortisation | (304) | (551) | |
| Operating profit | 2 | 5,353 | 6,450 |
| Finance income | 94 | 181 | |
| Finance costs | (312) | (124) | |
| Profit before income tax expense | 5,135 | 6,507 | |
| Income tax expense | 3 | (1,558) | (2,360) |
| Profit for the period | 3,577 | 4,147 | |
| Basic earnings per share | 4 | 18.5p | 21.9p |
| Diluted earnings per share | 4 | 18.0p | 21.5p |
Group Balance Sheet
As at 30 September 2008 (unaudited)
| 2008 | 2007 | ||
| £000 | £000 | ||
| Non-current assets | |||
| Property, plant & equipment | 16,376 | 12,192 | |
| Intangible assets | 7,440 | 7,122 | |
| Deferred income tax assets | 1,152 | 2,408 | |
| 24,968 | 21,722 | ||
| Current assets | |||
| Inventories | 5,929 | 5,081 | |
| Trade and other receivables | 7,470 | 6,627 | |
| Income tax receivable | 971 | 227 | |
| Cash and cash equivalents | 3,901 | 5,428 | |
| Non-current assets held for resale | - | 357 | |
| 18,271 | 17,720 | ||
| Current liabilities | |||
| Trade and other payables | (4,961) | (5,378) | |
| Borrowings | (6,720) | (5,195) | |
| Income tax liabilities | (665) | (255) | |
| Provision for other liabilities and charges | (264) | (280) | |
| (12,610) | (11,108) | ||
| Net current assets | 5,661 | 6,612 | |
| Non-current liabilities | |||
| Borrowings | (476) | (1,213) | |
| Deferred income tax liabilities | (1,113) | (1,126) | |
| (1,589) | (2,339) | ||
| Net assets | 29,040 | 25,995 | |
| Shareholders' equity Capital and reserves attributable to equity shareholders | |||
| Called up share capital | 3,853 | 3,785 | |
| Share premium account | 4,105 | 3,719 | |
| Merger reserve | 2,671 | 2,671 | |
| Cumulative translation reserve | 62 | (567) | |
| Retained earnings | 18,349 | 16,387 | |
| Equity Shareholders' Funds | 29,040 | 25,995 |
Group Statement of Changes in Shareholders' Equity
For the year ended 30 September 2008 (unaudited)
| 2008 | 2007 | ||
| £000 | £000 | ||
| Balance at beginning of period | 25,995 | 19,113 | |
| Deferred income tax movement on share option scheme | (848) | 717 | |
| Currency translation differences | 629 | (567) | |
| Net (expense)/income recognised directly in equity | (219) | 150 | |
| Profit for the period | 3,577 | 4,147 | |
| Total recognised income and expense | 3,358 | 4,297 | |
| Employee share option schemes: | |||
| - Fair value of employee services | 92 | 199 | |
| - Proceeds from shares issued | 454 | 371 | |
| Dividends | (859) | (785) | |
| Shares issued on the acquisition of a subsidiary | - | 2,800 | |
| (313) | 2,585 | ||
| Balance at end of the period | 29,040 | 25,995 | |
Group Cash Flow Statement
For the year ended 30 September 2008 (unaudited)
| Note | 2008 | 2007 | |
| £000 | £000 | ||
| Cash flows from operating activities | |||
| Cash generated from operations | 7 | 5,658 | 6,547 |
| Income tax paid | (1,470) | (2,691) | |
| Net cash generated from operating activities | 4,188 | 3,856 | |
| Cash flows from investing activities | |||
| Acquisition of subsidiary, net of cash acquired | - | (1,769) | |
| Purchase of property, plant and equipment | (4,594) | (4,430) | |
| Sale of property, plant and equipment | - | 12 | |
| Purchase of intangible assets | (421) | - | |
| Interest received | 94 | 183 | |
| Net cash used in investing activities | (4,921) | (6,004) | |
| Cash flows from financing activities | |||
| Proceeds from issue of ordinary shares | 454 | 371 | |
| Repayment of borrowings | (261) | (229) | |
| Interest paid | (554) | (263) | |
| Dividends paid to ordinary shareholders | (859) | (785) | |
| Net cash used in financing activities | (1,220) | (906) | |
| Net decrease in cash, cash equivalents and bank overdraft | (1,953) | (3,054) | |
| Cash, cash equivalents and bank overdraft at beginning of the period | 513 | 3,791 | |
| Exchange gains/(losses) on cash and bank overdrafts | (557) | (224) | |
| Cash, cash equivalents and bank overdrafts at the end of the period | (1,997) | 513 | |
Cash, cash equivalents and bank overdrafts at the end of the period are made up of:
| 2008 | 2007 | ||
| £000 | £000 | ||
| Cash and cash equivalents | 3,901 | 5,428 | |
| Bank overdraft | (5,898) | (4,915) | |
| Cash, cash equivalents and bank overdrafts at the end of the period | (1,997) | 513 |
Notes to the Preliminary Report
Basis of Preparation
The unaudited Preliminary Report has been prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and interpretations in issue at 30 September 2008.
The Preliminary Report was approved by the Board of Directors and the Audit Committee on 19 November 2008. The Preliminary Report does not constitute statutory financial statements within the meaning of the Companies Act 1985 and has not been audited.
In anticipation of changes required under IFRS, the Group published an IFRS transition statement on 27 May 2008. The transition statement set out the effect of adopting IFRS for the Group, the basis of preparation, the accounting policies, and details of significant adjustments in respect of the opening Balance Sheet at 1 October 2006, the results for the year ended 30 September 2007, the results for the 6 months ended 31 March 2007 and the balance sheets at 31 March 2007 and 30 September 2007.
Following the release of the IFRS transition statement on 27 May 2008, £440,000 was reclassified from a deferred tax asset to a deferred tax liability. The liability was in respect of deferred income tax arising from the adoption of IFRS 3 relating to the SIFAM acquisition.
All periods presented are unaudited.
The Preliminary Report will be announced to all shareholders on the London Stock Exchange and published on the Group's website on 25 November 2008. Copies will be available to members of the public upon application to the Company Secretary at Dowlish Ford, Ilminster, Somerset, TA19 0PF.
2. Divisional analysis
For year ended 30 September 2008
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| Revenue | ||||
| Total revenue | 33,654 | 3,317 | - | 36,971 |
| Inter and intra-division | (3,461) | (141) | - | (3,602) |
| External revenue | 30,193 | 3,176 | - | 33,369 |
| Divisional expenses | (21,284) | (3,059) | (2,242) | (26,585) |
| EBITDA¹ | 8,909 | 117 | (2,242) | 6,784 |
| EBITDA % | 29.5% | 3.7% | n/a | 20.3% |
| Depreciation | (906) | (1) | (220) | (1,127) |
| Operating profit before amortisation of acquired intangible assets | 8,003 | 116 | (2,462) | 5,657 |
| Acquired intangible assets amortisation | (304) | - | - | (304) |
| Operating profit | 7,699 | 116 | (2,462) | 5,353 |
| Operating profit margin % | 25.5% | 3.7% | n/a | 16.0% |
| Net assets employed | 22,429 | 1,941 | 4,670 | 29,040 |
For year ended 30 September 2007
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| Revenue | ||||
| Total revenue | 30,900 | 3,326 | - | 34,226 |
| Inter and intra-division | (3,359) | (192) | - | (3,551) |
| External revenue | 27,541 | 3,134 | - | 30,675 |
| Divisional expenses | (18,738) | (3,092) | (1,136) | (22,966) |
| EBITDA¹ | 8,803 | 42 | (1,136) | 7,709 |
| EBITDA % | 32.0% | 1.3% | n/a | 25.1% |
| Depreciation | (560) | (71) | (77) | (708) |
| Operating profit before amortisation of acquired intangible assets | 8,243 | (29) | (1,213) | 7,001 |
| Acquired intangible assets amortisation | (551) | - | - | (551) |
| Operating profit | 7,692 | (29) | (1,213) | 6,450 |
| Operating profit margin % | 27.9% | (0.9%) | n/a | 21.0% |
| Net assets employed | 19,574 | 2,252 | 4,169 | 25,995 |
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
All of the amounts recorded in this Preliminary Report are in respect of continuing operations.
2 Divisional analysis (cont'd)
Analysis of turnover by destination for year ended 30 September 2008:
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| United Kingdom | 4,036 | 1 | - | 4,037 |
| North America | 14,071 | 2,052 | - | 16,123 |
| Continental Europe | 6,975 | 526 | - | 7,501 |
| Other | 5,111 | 597 | - | 5,708 |
| External revenue | 30,193 | 3,176 | - | 33,369 |
Analysis of turnover by destination for year ended 30 September 2007:
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| United Kingdom | 2,975 | 48 | - | 3,023 |
| North America | 13,268 | 2,019 | - | 15,287 |
| Continental Europe | 6,016 | 535 | - | 6,551 |
| Other | 5,282 | 532 | - | 5,814 |
| External revenue | 27,541 | 3,134 | - | 30,675 |
Break down of net assets by division and region as at 30 September 2008:
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| United Kingdom | 17,037 | - | 4,670 | 21,707 |
| North America | 4,830 | 1,941 | - | 6,771 |
| Continental Europe | 562 | - | - | 562 |
| Net assets total | 22,429 | 1,941 | 4,670 | 29,040 |
Break down of net assets by division and region as at 30 September 2007:
| Components & Materials | Instrumentation & Life Sciences | Corporate | Total | |
| £000 | £000 | £000 | £000 | |
| United Kingdom | 7,754 | - | 4,169 | 11,923 |
| North America | 11,655 | 2,252 | - | 13,907 |
| Continental Europe | 165 | - | - | 165 |
| Net assets total | 19,574 | 2,252 | 4,169 | 25,995 |
3 Income tax expense
Income tax expense for the twelve month period to 30 September 2008 and the corresponding period to 30 September 2007 is set-out below.
Analysis of tax charge for the year:
|
| 2008 £000 | 2007 £000 | ||
| Current taxation | ||||
| UK Corporation tax | (15) | 233 | ||
| Overseas tax | 1,488 | 2,016 | ||
| Adjustments in respect of prior year tax charge | (91) | (135) | ||
| Total current tax | 1,382 | 2,114 | ||
| Deferred tax | ||||
| Origination and reversal of timing differences | 176 | 246 | ||
| Total deferred tax | 176 | 246 | ||
| Tax on profit on ordinary activities | 1,558 | 2,360 | ||
4 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 for the year ending 30 September is given below:
| 2008 | 2007 | |
| Number of shares used for basic earnings per share | 19,383,631 | 18,971,775 |
| Dilutive shares | 493,106 | 295,482 |
| Number of shares used for dilutive earnings per share | 19,876,737 | 19,267,257 |
A reconciliation of the earnings used in the earnings per share calculation is set out below:
| 2008 | 2007 | |||
| £000 | p per share | £000 | p per share | |
| Basic earnings per share | 3,577 | 18.5p | 4,147 | 21.9p |
| Acquired intangible assets amortisation (net of income tax expense) | 219 | 1.1p | 397 | 2.1p |
| Adjusted basic earnings per share | 3,796 | 19.6p | 4,544 | 24.0p |
| Diluted earnings per share | 3,577 | 18.0p | 4,147 | 21.5p |
| Acquired intangible assets amortisation (net of income tax expense) | 219 | 1.1p | 397 | 2.1p |
| Adjusted diluted earnings per share | 3,796 | 19.1p | 4,544 | 23.6p |
Basic and diluted earnings per share before amortisation has been shown because, in the opinion of the Directors, it more accurately reflects the trading performance of the Group.
5. Cornhill Property
In December 2006, the Group exchanged contracts and received a deposit of £75,000 for the sale of its Cornhill property in Ilminster. In May 2008 the prospective buyer forfeited their interest in the contract and the deposit has been recognised as other income.
Even though the property is being marketed for sale, it has been reclassified in the Balance Sheet as a non-current tangible asset due o the uncertainty regarding he timing of any future sale.
6. Dividend
| 2008 | 2007 | ||
| £000 | £000 | ||
| Interim dividend paid in 2008: 1.5p per share (2007:1.5p per share) | 291 | 281 | |
| Final 2007 dividend paid in 2008: 3.0p per share (2006:2.8p per share) | 568 | 504 | |
| 859 | 785 |
The Directors have proposed a final dividend of 3.0p per share. This dividend has not been accounted for with the 2008 financial year as it is yet to be approved.
7. Cash generated from operating activities
| 2008 | 2007 | ||
| £000 | £000 | ||
| Profit before income tax | 5,135 | 6,507 | |
| Adjustments for: | |||
| - Amortisation of acquired intangible assets | 304 | 551 | |
| - Amortisation of other intangible assets | 177 | - | |
| - Depreciation | 971 | 706 | |
| - Loss/(profit) on disposal of property, plant and equipment | 2 | 6 | |
| - Share-based payment obligations | (88) | 316 | |
| - Finance income | (94) | (181) | |
| - Finance costs | 312 | 118 | |
| Total | 1,584 | 1,516 | |
| Changes in working capital | |||
| - Inventories | (783) | (812) | |
| - Trade and other receivables | (14) | (1,651) | |
| - Trade and other payables | (387) | 1,037 | |
| - Provisions for liabilities and charges | 123 | (50) | |
| Total | (1,061) | (1,476) | |
| Cash generated from operating activities | 5,658 | 6,547 |
8. Post Balance Sheet Event
On 8 October 2008 the Group completed the acquisition of the business and assets of General Optics from GSI Group following receipt of US governmental regulatory approval.
The acquisition price was $21m and was subject to a net asset adjustment, on a dollar for dollar basis, should the net assets of the business be either greater or less than $5.5m.
Financing was provided through two tranches of five year amortising secured debt from the Group's bankers The Royal Bank of Scotland plc of $15.8675m and £3.562m, respectively.
The debt was drawn on 6 October 2008.
The interest rate on the debt is based on the London Inter Bank Ordinary Rate ('LIBOR') relating to the appropriate debt currency for the selected interest period of either one, three or six months duration plus an applicable margin.
The US Dollar debt is repayable by one installment of US$575,000 and nine subsequent installments of US$1,700,000. The first installment to be paid six months after the debt is drawn with the subsequent installments being paid half yearly thereafter until the debt has been repaid in full
The Sterling debt is repayable by nine installments of £118,700 and a final installment of £2,493,700 commencing six months after the debt is drawn.
The facilities includes a number of financial covenants covering
Interest Cover (EBITA to interest cost)
Net Debt to EBITDA (Debt less cash on hand)
Debt Service Cover (Net cash flow to borrowing costs paid)
As a condition of the debt agreements with The Royal Bank of Scotland plc the Group entered into a hedge arrangement with The Royal Bank of Scotland plc under which $12.0m of the US Dollar denominated debt, on a reducing balance basis proportionately to the balance of US Dollar debt outstanding, was swapped from a variable to a fixed interest rate.
9. Called up share capital
| 2008 | 2007 | 2008 | 2007 | |
| No. | No. | £000 | £000 | |
| Authorised | ||||
| Ordinary shares of 20p each | 24,000,000 | 24,000,000 | 4,800 | 4,800 |
| 2008 | 2007 | 2008 | 2007 | |
| No. | No. | £000 | £000 | |
| Allotted, issued and fully paid | ||||
| Ordinary shares of 20p each | ||||
| At 1 October | 18,924,453 | 17,999,162 | 3,785 | 3,600 |
| Allotted under share option schemes | 339,937 | 277,892 | 68 | 56 |
| Allotted on acquisition of subsidiary | - | 647,399 | - | 129 |
| At 30 September | 19,264,390 | 18,924,453 | 3,853 | 3,785 |
Consideration received for the shares allotted under share option schemes during 2008 was £453,816 (2007: £370,985).
Included in the allotment under share option schemes are 300,655 20p ordinary shares allotted to directors.