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ANNUAL REPORT SEPTEMBER 2017
Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@goochandhousego.com
goochandhousego.com
GH35_AR_Covers_A4.indd 1
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Gooch & Housego generates, controls,
amplifies, connects, and measures
lasers and light sources. Our expertise
enables customers to push the
boundaries of commercial applications
of photonics technology.
WELCOME
CONTENTS
Highlights
Our Sectors and Applications
Strategic Report
Chairman’s Statement
Chief Executive Officer’s Statement
Market Overview
Financial and Operating Review
Strategy Overview
Principal Risks and Uncertainties
Governance
Board of Directors
Directors’ Report
Audit Committee Report
Nomination Committee Report
Remuneration Committee Report
Financial Statements
Independent Auditors’ Report – Group
Group Income Statement
Group Statement of Comprehensive Income
Group Balance Sheet
Group Statement of Changes in Equity
Group Cash Flow Statement
Notes to the Group Cash Flow Statement
Notes to the Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Company Cash Flow Statement
Notes to the Company Cash Flow Statement
Notes to the Company Financial Statements
Shareholder Information
Company Information
Notice of Annual General Meeting
02
06
10
11
14
22
26
27
28
30
34
36
37
42
47
47
48
49
50
51
52
77
78
79
80
81
89
90
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2017 | 01
HIGHLIGHTS
HIGHLIGHTS
02 | ANNUAL REPORT 2017
Operating and Strategic Highlights
• Strong financial performance set against a backdrop of
favourable market conditions in our three main sectors
of industrial, aerospace & defence and life sciences
• Demand was particularly high for critical components used
in microelectronic manufacturing and hi-reliability fibre
couplers used in undersea cable networks
• Significant progress was made towards our strategic goals
of further diversification and moving up the value chain
• StingRay Optics, acquired in February 2017, has
integrated well into the wider Group and is performing
above our expectations
• Investment in R&D up 16.2%, 22 new products introduced
and 7 new patents granted
• Substantial investments were made, enabling us to
meet increased demand and laying the foundation for
future growth
Financial Highlights
• Revenue for the year £112.0m, 30.2% higher than
FY 2016, 18.7% on a constant currency basis
The acquisition contributed £5.3m in the year
• Adjusted profit before tax up 13.7%
• Adjusted basic earnings per share up 16.2%
• Strong cash performance delivering net cash of £14.9m
at year end, an increase of 27.9%
• Record year end order book of £72.1m, up 36.5% from
30 September 2016
GOOCH & HOUSEGO PLC HIGHLIGHTS
Revenue
(£m)
112.0
+30.2%
2016 86.1
Adjusted profit
before tax*
(£m)
16.1
+13.7%
2016 14.2
Statutory profit
before tax
(£m)
12.6
+24.8%
2016 14.2
Basic earnings
per share
(pence)
36.4
+25.1%
2016 29.1
2017
2016
2015
112.0
86.1
78.7
2014
70.1
2013
63.3
2017
2016
16.1
14.2
2015
12.9
2014
11.5
2013
9.7
2017
2016
2015
2014
2013
12.6
10.1
10.1
7.9
8.3
2017
2016
2015
36.4
29.1
30.9
2014
22.5
2013
27.7
HIGHLIGHTS
Adjusted basic
earnings per share*
(pence)
49.4
+16.2%
2016 42.5
Total dividend
per share
(pence)
10.2
+13.3%
2016 9.0
Net cash
(£m)
14.9
+27.9%
2016 11.7
2017
2016
2015
49.4
42.5
39.5
2014
35.6
2013
32.0
2017
2016
2015
2014
2013
10.2
9.0
8.2
7.2
6.3
2017
2016
2015
14.9
11.7
17.3
2014
8.7
2013
5.7
* adjusted figures exclude the amortisation of acquired intangible
assets, impairment of goodwill, release of accrued contingent
consideration, exceptional items being restructuring, provision
for export compliance and transaction costs, and interest on
deferred consideration and gain on bargain purchase.
ANNUAL REPORT 2017 | 03
GOOCH & HOUSEGO PLC HIGHLIGHTS
HIGHLIGHTS
Manufacturing locations
Sales offices
Fremont
AO
PO
Moorpark
Cleveland
EO
PO
Keene
PO
PO
Orlando
FO
Bedford
Glenrothes
PO
St Asaph
Ilminster
PO
Norderstedt
AO
PO
H Q
FO
Paris
Torquay STG
Nagoya
Gooch & Housego demonstrates
unparalleled capabilities in the
following photonic technologies:
• Acousto-optics (AO)
• Electro-optics (EO)
• Fiber optics (FO)
• Precision optics (PO)
REVENUE
BY CURRENCY
€ EUR
£ GBP
$ USD
04 | ANNUAL REPORT 2017
£ GBP
22.5%
£25.2m
2016
£20.7m 24.0%
$ USD
72.1%
£80.8m
2016
£60.1m 69.8%
€ EUR
5.4%
£6.0m
2016
£5.3m 6.2%
GOOCH & HOUSEGO PLC HIGHLIGHTS
HIGHLIGHTS
“G&H met its FY 2017 financial goals and was able to make strategically important
investments in key skills, processes, systems and the latest capital equipment. Significant
progress has been made towards meeting our strategic aims of diversifying the business
and moving up the value chain.
“These strategic initiatives combined with a record year end order book mean the Board remains
confident that G&H is well positioned to deliver further progress in FY 2018 and beyond.”
Mark Webster
Chief Executive Officer
Aerospace
& Defence
(£millions)
34.9
31.1%
Scientific
Research
(£millions)
3.3
3.0%
Industrial
(£millions)
64.3
57.4%
Life
Sciences
(£millions)
9.6
8.5%
REVENUE
BY SECTOR
HISTORICAL REVENUE BY SECTOR
(£ millions)
Industrial
2017
2016
2015
2014
2013
Aerospace
& Defence
2017
2016
2015
2014
2013
Life
Sciences
2017
2016
2015
2014
2013
9.6
7.9
9.0
7.3
7.4
64.3
54.3
46.1
39.8
34.3
34.9
20.0
19.8
18.8
17.3
Scientific
Research
2017
3.3
2016 3.9
2015
3.9
2014
4.1
2013
4.3
ANNUAL REPORT 2017 | 05
GOOCH & HOUSEGO PLC SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
Gooch & Housego’s wide range of photonic devices are deployed across a uniquely broad
range of applications, often in challenging environments.
INDUSTRIAL
Telecommunications
Photonics play an ever-increasing role in industrial manufacturing.
G&H serves these applications and markets with a diverse
product portfolio, from components to sub-assemblies and
final test and measurement equipment.
We serve the more demanding applications within
telecommunications. Our customers deploy our fibre-based
products in undersea networks and in space for
satellite-to-satellite communications.
In addition we supply specialist crystals into 40G and 100G
modulation systems.
Production Technologies
Laser Material Processing
Laser material processing is a broad term which encompasses
production processes such as ablating, bending, cutting,
curing, forming, fusing, marking, micro-machining, sintering,
thermal annealing, via drilling, and welding.
For these applications, we design and manufacture products
which are used in laser cavities, to steer and control or to
modulate the beam.
Printing
In lithography and micro-lithography, the production process is
inherently photonic in nature. Computer-to-plate technologies,
flexographic, and offset printing production components utilize
laser processing to create the printing tools.
We provide a variety of optical components into these
applications where accurate transmitted wavefronts and high
energy tolerance provide superior printed image quality and
longevity in production.
Test and Measurement
Photonics is used across a wide variety of applications to ascertain
quality, damage, motion, chemical composition, temperature,
location, distance, and to automate these types of tests.
Sensing
Fibre optics are deployed in a wide variety of sensing applications.
These applications may use fibre simply as the communication
medium for speed, lack of ignition sources, or weight. They
may also integrate fibre gratings as the sensor to leverage the
superior resolution.
We supply fibre optic and acousto-optic sub-assemblies and
components to equipment manufacturers and installers of
these systems.
06 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
AEROSPACE & DEFENCE
Defence and avionics markets have been important drivers for
our investment in operational quality and program management.
We continue to invest in our continuous improvement and lean
manufacturing programs, as well as production equipment and
metrology to better serve our most demanding aerospace &
defence customers.
Communications
Tactical communications require rugged, hi-reliability
components and sub-systems; in some instances light-weight
for maximum mobility.
We support a number of C4ISR (command, control,
communications, computers, intelligence, surveillance, and
reconnaissance) applications including RF over fibre, secure
fibre optic networks and surveillance and target acquisition.
Our military-grade components are designed to survive under
extreme conditions, manufactured in AS9100C facilities, and
qualified to the necessary Telcordia, BSI, DIN, or MIL
specifications as required.
Imaging under Extreme Conditions
Sights, telescopes, periscopes, and other imaging systems have
long played a role in defence. In recent years photonics has
broadened imaging systems to a wide variety of conditions (night,
fog and haze, smoke, sand storm, aerial, and space) and adapted
to a range of situations. G&H provides an array of photonic
components, sub-assemblies, and systems into these applications
which include building and asset surveillance, fire-fighting,
policing and LIDAR mapping.
Target Designation and Range-Finding used on
Land-Based and Airborne Systems
From missiles to guided bombs, photonic targeting and
range-finding systems ensure correct deployment of munitions.
Extreme conditions require athermalized, instant “on” systems.
G&H designs and delivers a variety of sub-systems and
components to prime contractors.
Image by Jonathan Hamlet
© Crown copyright 2010
Image by Pete Mobbs © Crown copyright 2011
Countermeasures for Ground-Based Systems
and Airborne Platforms
Infrared countermeasures protect military assets from missile
attacks. These systems require accurate modulation of the
infrared energy under extreme environmental conditions.
We provide fibre optic, acousto-optic, and nonlinear crystal
products which are used in customer-specific countermeasure
applications, both ground based and airborne.
Gyroscopes for Navigation
Gyroscopes are used in inertial navigation systems in aircraft,
guided missiles, submarines, ships, and spacecraft for rotation
sensing to measure or maintain orientation.
We design and produce components for ring laser gyroscopes
and fibre optic gyroscopes which are deployed in commercial
aircraft as well as missiles, satellites,
and other military vehicles.
Image by Hamish Burke
© Crown copyright 2013
© Crown copyright 2011
Image by Russ Nolan
© Crown copyright 2013
ANNUAL REPORT 2017 | 07
GOOCH & HOUSEGO PLC SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
SPACE
G&H has a proven track record in the design and development
of space hardware for European Space Agency (ESA), National
Aeronautics and Space Administration (NASA), and other western
allied national space agencies, missions and other, commercial
projects, with components, modules and systems integrated
within operational satellites and on board the probes and rovers.
We maintain a leading role in research and development programs
in Europe, the USA and Asia, through multiple projects and
contracts centered on optical inter- and intra-satellite
communication links. Our work on space projects fuels the
company roadmap on a new generation of product lines.
G&H works with major prime contractors and government
agencies on ground-breaking scientific and technology
development programs for navigation, earth observation
and communication.
Our enabling technologies span our core capabilities in
Acousto-Optics, Fibre-Optics and Precision Optics.
08 | ANNUAL REPORT 2017
Image courtesy
of ESA
Image courtesy of ESA
GOOCH & HOUSEGO PLC SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
LIFE SCIENCES
G&H serves the life sciences markets with photonics engineering
solutions from across the company’s technology portfolio.
Optical Coherence Tomography (OCT)
Widely used for ophthalmic imaging, OCT has proven invaluable in
improving the diagnosis of glaucoma and macular degeneracy.
We serve most of the world’s leading manufacturers of OCT
retinal imaging systems.
Medical and Cosmetic Laser Systems
G&H is helping develop new laser products which enable less
invasive surgical techniques. Applications include cataract
replacement, vision correction, prostate surgery, varicose vein
treatment, and mole treatment in addition to tattoo removal,
teeth whitening, freckle removal, and wrinkle reduction.
SCIENTIFIC RESEARCH
G&H works with some of most prestigious Big Science projects
in the world.
We are a primary supplier of many critical optical components
such as very large frequency conversion crystals used in the
world’s most powerful laser system at the National Ignition
Facility (NIF) at Lawrence Livermore National Laboratory. We
supply similar products to the Commissariat à l’énergie atomique
et aux énergies alternatives (CEA) and other inertial confinement
fusion (ICF) programs around the world.
Image: Julie Russell
Image: James Pryatel
ANNUAL REPORT 2017 | 09
GOOCH & HOUSEGO PLC systems, business development, human resources, supply-chain
and research and development. These and planned future
changes reflect a recent board review of the organisational
structure of the G&H that had the objective of ensuring that it
be optimised for delivering sustainable growth over the long
term, as G&H grows both organically and by acquisition.
In successfully responding to the challenges of 2017 an
exceptional effort was required by many people. I would like to
express my thanks to my fellow directors and to all employees of
Gooch & Housego. I am pleased to welcome David Bauernfeind,
who joined the board as a non-executive director and Chair of
the Audit Committee on 1 May 2017.
Gooch & Housego is stronger today than at any time in its past.
With a sound financial foundation, new talents and capabilities,
a pipeline of exciting new products and a record order book to
start the year the Company is well-positioned to continue to
deliver in 2018 and beyond.
Gareth Jones
Chairman
28 November 2017
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Set against a backdrop of favourable market conditions, your
company has delivered a strong financial performance in 2017.
This has been delivered through a mix of organic and
acquisitive growth.
Demand for certain of Gooch & Housego’s products, particularly
from the microelectronics and undersea fibre optic
communications sectors, reached unprecedented levels during
the year. The resulting record order book presented a significant
challenge for some of the Company’s manufacturing operations.
Investments made in recent years in “lean manufacturing” and
“continuous improvement” meant that G&H was in part able to
respond to this demand through an enhanced ability to match
capacity with demand across the Company’s various
manufacturing locations. Combined with significant investments
during the year in people, and in the latest manufacturing
equipment, these initiatives made it possible to satisfy the needs
of our customers and begin to reduce lead times towards the
year-end.
In February 2017 G&H acquired StingRay Optics LLC (StingRay),
a USA based designer and manufacturer of specialist optical and
opto-mechanical systems. StingRay was a particularly significant
acquisition as it provides G&H with advanced optical systems
design capabilities for harsh and demanding applications. These
new capabilities support the Company’s twin strategic objectives
of moving up the value chain and achieving greater diversification
by enabling G&H to provide systems-level solutions to
Aerospace & Defence (“A&D”) customers. In 2017 the StingRay
acquisition helped sales into the A&D sector approach one third
of total revenues. StingRay has delivered a consistently strong
performance since acquisition. The acquisitions completed in the
previous year (Alfalight and Kent Periscopes) also made valuable
contributions in 2017.
The investment in people during 2017 represents an important
enhancement of the skills-base of G&H, and bodes well for the
future. In order to meet the challenges of greater scale and
complexity G&H has chosen to focus on specific high growth
products and markets. Recent recruitment has reflected the
need for a higher level of specialisation across a wide range of
business functions including manufacturing processes and
“Gooch & Housego is stronger today than at
any time in its past.”
10 | ANNUAL REPORT 2017
CEO Mark Webster accepting the 2017
AIM Award for Global Achievement
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
Overview
FY2017 Performance
Gooch & Housego (“G&H”) benefited from positive market
conditions and strong demand across its main sectors of
industrials, aerospace & defence (“A&D”) and life sciences.
Demand was particularly high for critical components used in
microelectronic manufacturing and high reliability fibre couplers
used in undersea cable networks.
FY 2017 has been a ‘watershed’ year for the company, as we
passed through the £100 million sales barrier for the first time.
Revenue of £112.0 million represents year on year growth of
30.2%, or on a constant currency basis 18.7%. Adjusted PBT,
which is less affected by foreign exchange fluctuations due to
the natural hedging within the business, was £16.1 million,
equating to a year on year profit growth of 13.7%.
Strategically important investments in people, processes, systems
and the latest capital equipment were made during the year,
enabling us to address high levels of demand in FY2017 and
provide an important platform for G&H’s future growth.
Strategic Goals
Considerable progress has been made towards our strategic
goals of further diversification and moving up the value chain.
A&D and life sciences both provide a counter balance to the
exposure that the industrial laser sector has to the global
economic cycle. These business areas have customer bases which
include tier one A&D and medical diagnostic companies, who
often prefer G&H to provide sub systems or systems rather than
solely critical components, providing a strong impetus to move
up the value chain. When coupled with the regulatory hurdles
inherent in both A&D and life sciences, these markets provide
a defensible business model with a high barrier to entry.
Our aim is to establish a ‘critical mass’ of business in both the
A&D and life science sectors.
This has in large part been achieved in A&D, which now represents
31.1% of G&H’s FY2017 revenue (2016: 23.2%); this was made
possible due to a combination of organic growth and by the
three acquisitions made in FY 2016 and FY 2017. Life sciences
has undergone good organic revenue growth, in particular with
products utilising our optical coherence tomography technology
and laser surgery, but the sector still needs further acquisitions
to achieve the desired ‘critical mass’.
Sub systems and systems now represent 22.1% of our business
(2016: 15.1%), with the growth again helped by the recent
acquisitions, most notably Kent Periscopes and StingRay. Kent
Periscopes, acquired in FY 2016, moved to a larger custom fitted
facility in St. Asaph, North Wales, during FY 2017. This was
funded in large part by the Welsh Government. As well as being
required for the growth of the existing Kent Periscopes business
the facility is earmarked to become a hub for assembly of sub
systems and systems across the Group.
Acquisitions
Strategic acquisitions remain an important part of G&H’s
business model and in February 2017 we acquired StingRay
Optics LLC (“StingRay”).
StingRay is a USA based specialist designer and manufacturer of
high performance optical and opto-mechanical sub systems for
demanding defence and commercial applications. Their product
range is focused on laboratory, ground based, airborne,
unmanned aerial vehicles (‘UAVs”) and space applications for
key US defence customers. Synergies include leveraging G&H’s
greater reach through our global sales teams and our expertise
in manufacturing infrared precision optics and specialist coatings.
The partnership has proven to be very successful so far, with
StingRay’s performance exceeding our expectations and their
talented workforce integrating well into the wider company.
Research and Development (“R&D”)
There has been continued benefit from concentrating our R&D
efforts on fewer higher return projects. During FY 2017 we
introduced a record 22 new products and we expect the full value
of these products to peak over the next three years. Revenue
generated from new products this year was £11.1 million.
“Gooch & Housego met its FY 2017 financial goals and was able
to make strategically important investments in key skills,
processes, systems and the latest capital equipment. Significant
progress has been made towards meeting our strategic aims of
diversifying the business and moving up the value chain, with
A&D now representing 31.1% of our business. We acquired
USA based StingRay in February 2017, which has integrated
well into the wider organisation and performed strongly”
ANNUAL REPORT 2017 | 11
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
Good progress has been achieved in our key R&D areas of
interest, notable among which are the following:
our contribution to the new industrial laser systems that are
currently in development.
Microelectronics is entering a new phase of nano technology
and the UV lithography and via drilling techniques required to
achieve this need a new generation of precision lasers and
laser systems which are being developed with our laser
manufacturer and laser system partners.
OCT technology dominates the retinal scanning and imaging
arena, but the longer term development partnerships we have
with medical diagnostic companies in the areas of cardiovascular
disease and cancer detection are now moving to the prototype
and early commercial model stage, with the prospect of new
product launches in the near future.
Our space communication group has gone from strength to
strength with European Space Agency and UK Space agency
funded work in satellite communications and is now attracting
commercial interest from the USA and elsewhere. In addition
to the grant funded work we have enhanced our $4 million
commercial contract to provide communication systems for
near term satellite launches. We are also developing similar
technology for the adjacent market of UAVs.
Various aspects of our R&D defence programmes in the US and
Europe are classified, but we are able to say that we are making
good headway in developing key parts of Kent Periscopes’ product
portfolio, so they are compatible with USA military standards.
We have recently moved some of our R&D effort into sensing
technology, focusing on use in harsh environments with
ruggedised photonics technology. We have been able to bring
some of our space communications experience to problem
solving in this arena.
In order to accommodate the need for more system based
projects, the Systems Technology Group (“STG”), primarily based
at our Torquay site, has been expanded. The group consists of
scientists and engineers who bring a wide range of skills such
as electronic, software and mechanical engineering, which are
required in order to present a complete sub system or system
to our customers.
Performance Improvement Programme
In addition to the enhanced R&D performance outlined above,
we have continued to expand our business development group,
adding a microelectronic business development executive to
the existing life science and A&D executives. The established
business development executives have brought enhanced
access to tier 1 A&D companies and multi-national medical
diagnostic organisations and have been instrumental in the
development of some of our most notable R&D projects. Our
expectation is that with the addition of the new microelectronics
business development executive we will be able to enhance
12 | ANNUAL REPORT 2017
G&H’s ongoing operational performance improvement programme
was instrumental in enabling us to meet the challenge of this
year’s high growth rate. The major infrastructure projects in
Fremont, CA and Cleveland, OH are now substantially complete.
Investment in key skills, lean processes and systems and the
latest capital equipment was accelerated in sites that provide
critical components for precision lasers used in microelectronic
manufacturing, namely Ilminster, Fremont, CA and Torquay.
We have built on the good work done in previous years to further
improve efficiency, customer service and to establish a more
scalable organisational model for future growth. Our ten
manufacturing sites have been organised into three
manufacturing centres. They are based on our sites’ areas of
technical expertise, namely Acousto Optic / Electro Optic,
Precision Optics and Fibre Optics. Each manufacturing area has
a leader and their role is to ensure best practice is shared; there
is process harmonisation and optimal allocation of resource.
G&H is in a strong positon financially and is well positioned to
make further investment in the business.
Market and Applications
Industrial
The industrial sector represents 57.4% of G&H’s revenue and is
composed of a diverse range of industrial applications aligned to
our world class photonic technologies, including microelectronic
manufacturing, semiconductor manufacturing and test, remote
sensing, metrology and optical communications.
Our industrials division grew by £10.0 million or 18.4% compared
to the previous year, reflecting a positive performance across
the range of industrial products.
Critical components for precision lasers used in microelectronic
manufacturing were in particular demand. This was driven by the
next generation of smart phones and tablets and the consequent
change in manufacturing technology required to produce them.
The aforementioned ‘cutting edge’ technology is primarily
dependent on the latest solid state lasers and we worked closely
with the laser manufacturers and laser system suppliers to meet
these demands.
Precision inspection equipment for real time calibration in smart
phone and tablet production continued to deliver significant
revenue for us during FY 2017.
The ongoing need for ever more data capacity from government,
industry and the consumer continues to drive a strong optical
telecommunications performance. G&H provides some of the
more technically challenging elements to both land and undersea
optical communications. Our ultra hi-reliability fibre couplers are
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
used in amplifiers that are a key part of undersea cable networks.
Over the last couple of years there has been a positive step
change in the requirement for these products, driven by
technology firms laying their own cable networks in order to
control the process of data delivery. This new level of demand
has continued unabated throughout FY 2017.
Aerospace & Defence
A&D represented 31.1% of our revenue and grew year on year by
£14.9 million or 74.5%. This was due to a combination of organic
growth and acquisition, as highlighted earlier. G&H is now able
to bring a wide range of photonic capabilities that very much
represent the “direction of travel” in this sector. These include
target designation, range finding, ring laser and fibre optic
gyroscope navigational systems, infra-red and RF counter
measures, periscopes and sighting systems for armoured vehicles
and opto-mechanical sub systems for unmanned aerial vehicles.
Delivering product quality, reliability and performance in
challenging environments is essential in the A&D arena and
this very much plays to G&H’s strengths. Our customers
encompass the major European and USA A&D companies.
Space satellite communication is undergoing a technology
revolution. The use of fibre optic lasers to transmit information
means the satellite communication systems are more efficient
and robust, as well being significantly lighter. This has changed
the economics of the sector and has led to smaller satellites and
encouraged the move towards the use of satellite constellations
as part of a communications network. The investment we have
made in this area means we are at the forefront of some of
these developments.
Life Sciences
Life Sciences represents 8.5% of G&H’s revenue and grew year on
year by £1.7 million or 21.1%. Despite the increase in revenue the
profit did decline year on year, which is primarily due to the
investments made into future capabilities. Though life sciences
is a relatively small sector for G&H we see this as a strategically
important one going forward.
The principal applications are in optical coherence tomography
(“OCT”), laser surgery and microscopy. OCT is widely used in
ophthalmology for 3D retinal scanning and G&H has a dominant
position in supplying critical components and sub systems to
the main equipment suppliers. We also have a number of R&D
collaborations with medical diagnostic companies in
cardiovascular and cancer detection.
Laser surgery is a fast growing area particularly in ophthalmology,
prostate and cosmetic surgery and has significant potential to
be exploited beyond these current areas of use.
There is potential for photonic technology to be used in minimally
invasive surgery, endoscopy and robotic surgery and this sector
remains an area where G&H will continue to invest in R&D and
look for strategic acquisitions.
Scientific Research
G&H’s research market is dominated by a small number of “big
science” projects in the fields of nuclear fusion research and
synchrotron radiation sources. It provides 3.0% of our revenue.
The year on year decline was due to the phasing of one of the
projects. This is a profitable sector for G&H, where we have some
unique capabilities, that has the capacity to deliver growth and
we will continue to selectively invest in this area.
Outlook
G&H met its FY 2017 financial goals and was able to make
strategically important investments in key skills, processes,
systems and the latest capital equipment. Significant progress
has been made towards meeting our strategic aims of
diversifying the business and moving up the value chain, with
A&D now representing 31.1% of our business by revenue. We
acquired USA based StingRay Optics LLC in February 2017,
which has integrated well into the wider organisation and
performed strongly.
G&H will continue with an active policy of making further
progress towards a more diverse and balanced business by
building “critical mass” in A&D and life sciences, through a mix
of investment in R&D and acquisitions.
We are committed to making further investment in R&D in our
targeted high growth areas. These include fibre and solid state
laser systems, precision inspection equipment for microelectronic
manufacturing, OCT medical diagnostics, laser surgery, space
satellite communications, A&D sub systems and fibre optic
sensing systems.
G&H intends to take the performance improvement programme to
the next level, by further investment in business development
activity, focusing our global resources on a few high return R&D
projects and continuing to improve operational efficiency. We
believe the introduction of three well defined and focused
manufacturing centres will provide a scalable platform for
enhanced lean manufacturing practice
These strategic initiatives combined with a record year end
order book mean the Board remains confident that G&H is well
positioned to deliver further progress in FY 2018 and beyond
Mark Webster
Chief Executive Officer
28 November 2017
ANNUAL REPORT 2017 | 13
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Industrial
Applications, Products and Markets
Growth Strategy
• To continue to invest in R&D and process engineering in order
to develop our existing portfolio, bring to the market new
products and to ensure that we remain at the cutting edge of
technology in this important area. During 2017 Gooch &
Housego introduced twelve new products that address its
Industrial market.
• To focus on niche markets that play to the strengths of
Gooch & Housego, principally those that demand high levels
of quality and reliability, typically require complex design and
engineering input and for a number of our products require
survivability in harsh environments.
• To expand into and develop new geographical markets that
offer high growth opportunities, through leveraging and
expanding the Group’s global sales organisation.
• To continue to focus our energies and investment on making
the transition from a components supplier to a manufacturer of
sub-assemblies, instruments and systems, where appropriate.
• To invest in longer term R&D projects.
• To make strategic acquisitions. Gooch & Housego will continue
to seek high quality acquisition opportunities as a route to
grow its industrial business.
Industrial Lasers for materials processing applications. Gooch &
Housego supplies Q-switches and other acousto-optic, electro-
optic and fibre optic products. The end users for industrial lasers
are extensive due to the ubiquitous adoption of this technology
in high tech manufacturing. The microelectronics materials
processing represents the largest end market. A move towards
new laser enabled production techniques has driven strong
growth in the microelectronic materials processing end market.
Optical communications specifically for high reliability and high
performance applications. The products supplied into this market
are based upon the Group’s fibre optic, crystal growth and
precision optics technologies. The end users of these products
are typically global telecommunication equipment companies, and
more recently large technology companies, for applications such
as undersea and long haul telecommunication networks. The
demand for more data from government, industry and particularly
the consumer, has driven strong growth in this sector.
Metrology for laser-based, high-precision, non-contact
measurement systems. The Group principally supplies its
precision optics, acousto-optics and instrumentation systems
into this market; the customers are typically blue-chip OEMs.
This market was flat on the previous year.
Remote sensing for applications including asset protection,
perimeter security, strain, temperature and pressure sensing.
Gooch & Housego supplies fibre optic and acousto-optic
components and sub-assemblies, including the recently
developed Fibre-Q. Manufacturers of these systems address
diverse end markets such as wind energy and oil and gas
exploration and production. This area was lower in 2017 due to
customer ordering patterns and a very strong FY2016 comparator.
Semiconductor for lithography and test and measurement
applications. The products supplied into this market are precision
optics and acousto-optics. Customers are typically global
semiconductor equipment manufacturers. This market is
closely aligned with the micro-electronics industry and has
demonstrated good growth across the year.
G&H (Torquay) Integrity Award presentation from
Sharing in Growth (SiG) CEO Andy Page
14 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC Revenue
(£millions)
64.3
+18.4%
2016 54.3
Adjusted
Operating Profit
(£millions)
11.8
+9.3%
2016 10.8
Percentage
of Revenue
57.4%
2016 63.1%
STRATEGIC REPORT
ANNUAL REPORT 2017 | 15
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Aerospace & Defence
Applications, Products and Markets
Growth Strategy
Target designation and range finding used on both land-based
and airborne systems. The products supplied into this market are
based upon our precision optics and electro-optics technologies.
Our customers are US and European defence contractors. In 2017
this business was in line with the previous financial year.
• To continue to focus energy and investment on moving from
being a components supplier to a sub-systems provider. Our
Aerospace & Defence customers are changing their business
models and are looking for companies such as Gooch &
Housego that are capable of providing a full service.
• To continue to invest in manufacturing processes and
engineering in order to meet the exacting expectations of
this sector, which is becoming increasingly demanding in
terms of quality and price.
• To make strategic acquisitions that will provide synergies, are
complementary to our existing A&D business and will help us
build a critical mass in this sector. G&H acquired StingRay
Optics LLC, a USA based specialist designer and manufacturer
of high performance optical and opto-mechanical subsystems
for demanding defence applications.
• To introduce a greater number of new products, including
products which look to fill a “market need” as well as projects
initiated by our customers. During 2017 Gooch & Housego
introduced five new products that address its Aerospace &
Defence market.
Guidance and navigation components for ring laser gyroscope
and fibre optic gyroscope inertial navigation systems. The
products supplied into this market are based upon our precision
optic and fibre optic technologies. Gooch & Housego navigation
components are used in a variety of end markets, including civil
and military aircraft, missiles, satellites and space exploration.
In 2017 this business was in line with the previous financial year.
Countermeasures for ground based systems and airborne
platforms. The products supplied into this market are based upon
fibre optic, acousto-optic and non-linear optics technologies.
The customers are US and European defence contractors. In
2017 this business grew compared to the previous year.
Space Photonics G&H is leveraging its heritage of ultra-high
reliability components for space applications in order to address
the next generation requirement for fibre optics on satellites.
We are working with both the European Space Agency and
commercial organisations to develop and deploy sub-systems
for inter-satellite and satellite to ground communications,
radio over fibre and optically inter-connected on-board
processors within telecommunications satellites.
Periscopes and Sighting Systems for land based Armoured
Fighting Vehicles. G&H provides system level products for harsh
environments, to an impressive list of blue chip defence
companies. 2017 was a challenging year for this segment due
to customer push outs, although prospects remain positive,
supported by a strong order book.
Opto-mechanical sub systems for Unmanned Aerial Vehicles.
This capability was added during the year following the
acquisition of StingRay Optics LLC. The business provides
system level optical products for use in harsh environments
to key US defence customers. This is a growing area in both
the core defence and commercial markets.
16 | ANNUAL REPORT 2017
Image by Chris Hill
© Crown copyright 2011
GOOCH & HOUSEGO PLC STRATEGIC REPORT
Image by Andy Holmes © Crown copyright 2011
Revenue
(£millions)
34.9
+74.5%
2016 20.0
Adjusted
Operating Profit
(£millions)
4.3
+186.7%
2016 1.5
Percentage
of Revenue
31.1%
2016 23.2%
Image by Graeme Main
© Crown copyright 2011
Image courtesy of ESA
ANNUAL REPORT 2017 | 17
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Life Sciences
Applications, Products and Markets
Growth Strategy
• To continue to invest in longer term R&D projects and to
develop the existing portfolio of products, to ensure that they
remain competitive. During 2017 Gooch & Housego introduced
five new products that address its Life Sciences market.
• Where appropriate seek to sell the full range of our Life
Sciences products to a wider range of customers.
• To make strategic acquisitions that are synergistic, are
complementary to our existing Life Science business and will
help us build critical mass in this sector. Gooch & Housego
will continue to seek high quality acquisitions as a route to
grow its Life Sciences business should the opportunity arise.
Optical Coherence Tomography (OCT) primarily used in retinal
imaging for the diagnosis of glaucoma and macular degeneration.
Gooch & Housego provides a family of fibre optic products in this
market, ranging from discrete components to full optical systems.
Customers include most of the world’s leading manufacturers
of OCT retinal imaging systems. This market grew in 2017 and
we continue to work on the next generation of products with
key customers.
Laser surgery used in a wide range of applications including
prostate surgery, scar correction, cataract surgery, freckle,
mole and tattoo removal as well as wrinkle reduction and teeth
whitening. The products supplied into this market are based
upon electro-optic, fibre optic and acousto-optic technologies.
The customers in this market include both laser system
manufacturers and biomedical equipment manufacturers.
This market remained buoyant in the year and continues to
be a growth area.
Microscopy modern, laser-based techniques are revolutionising
the field of microscopy. Gooch & Housego’s acousto-optic
devices and hyperspectral imaging systems are used to control
the multiple laser sources and analyse complex images. The end
customers are typically medical equipment manufacturers.
This market was stable in the year for G&H.
The growth strategy for Life Sciences mirrors that for
Aerospace & Defence in many respects. This is particularly true
in terms of the size of the available market and the desire of the
customer base to “pull” Gooch & Housego up the value chain.
18 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC STRATEGIC REPORT
Revenue
(£millions)
9.6
+21.1%
2016 7.9
Adjusted
Operating Profit
(£millions)
1.0
-37.5%
2016 1.6
Percentage
of Revenue
8.5%
2016 9.2%
Image courtesy of
Michelson Diagnostics
ANNUAL REPORT 2017 | 19
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Scientific Research
Applications, Products and Markets
Growth Strategy
• To maintain and develop the business’s capabilities in crystal
growth and ultra-precision optics for nuclear fusion research
and energy, university research and “Big Science” projects.
Gooch & Housego is the custodian of some of the world’s
most advanced optical technologies.
• To continue to invest in R&D to develop and commercialise
the next generation of Instrumentation products.
Image courtesy of Lawrence
Livermore National Laboratory
Image courtesy of Lawrence
Livermore National Laboratory
Nuclear fusion research and energy laser technology is being
used to recreate the conditions found in the core of the sun. At
these temperatures and pressures isotopes of hydrogen fuse to
form helium and in doing so release huge amounts of energy
– the energy that powers the sun and stars. One of the most
exciting potential applications of this research is using laser
fusion to provide limitless quantities of clean, carbon-free energy
to meet the world’s growing needs. The products supplied into
this market utilise a wide range of the Company’s technologies
including crystal growth, precision optics, thin-film coatings and
fibre optics. Gooch & Housego supplies many of the world’s
leading nuclear fusion energy research facilities. We are also the
sole supplier of many critical optical components used in the
world’s most powerful laser system at the National Ignition
Facility (NIF) at Lawrence Livermore National Laboratory in
Northern California.
Instrumentation for applications in agricultural, solar, marine
and industrial research. An example of an industrial research
application is the development of Light Emitting Diode (LED)
illumination systems. Instrumentation products are supplied from
our Orlando facility and include photometers, radiometers,
spectroradiometers and their associated calibration services. The
customer base ranges from universities and research institutes
to Government agencies and national standards laboratories.
A small number of “Big Science” projects, which are reliant on
government funding, dominate this market.
The products supplied into this market span the complete
breadth of the Company’s technology portfolio. Many of Gooch
& Housego’s current products have evolved from early stage
collaborations with universities and this is an area the
Company will focus on, on a selective basis.
20 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC STRATEGIC REPORT
Revenue
(£millions)
3.3
-14.2%
2016 3.9
Adjusted
Operating Profit
(£millions)
0.4
-42.9%
2016 0.7
Percentage
of Revenue
3.0%
2016 4.5%
Image courtesy of Lawrence Livermore National Laboratory
ANNUAL REPORT 2017 | 21
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
Performance Overview
Group Earnings Performance
The business has once again delivered strong profitable growth.
All amounts in £’000
Adjusted
Reported
Group revenue for the year was a record £112.0million. This
represents an increase of £25.9 million, or 30.2% over the previous
year of £86.1 million. During the year Gooch & Housego acquired
StingRay Optics LLC, which contributed £5.3 million to Group
revenue in the year, so organic revenue was up by 23.9%. On a
constant currency basis revenue was 18.7% higher than the
previous year.
During 2017, Gooch & Housego invested £5.8 million in property,
plant and equipment and £5.7 million in acquisitions. Despite this
the business has increased its net cash position to £14.9 million
at 30 September 2017 (2016: £11.7 million), through sustained
strong operating cash flows.
In the financial year under review, adjusted operating margins
increased by £2.1 million in absolute terms to £16.4 million (2016:
£14.3 million). At a percentage margin level, adjusted operating
margins were 14.6%, compared to 16.6% in 2016, as a result of
foreign exchange and planned investment in people and systems
to support the growth.
Revenue
2017
2016
Year ended 30 September
£’000
%
£’000
%
Industrial
64,261
57.4% 54,296
63.1%
Aerospace & Defence
34,860
31.1% 19,977
23.2%
Life Sciences
Scientific Research
9,570
3,325
8.5%
3.0%
7,904
3,874
9.2%
4.5%
Group Revenue
112,016
100% 86,051
100%
In our Industrial segment, revenue grew by 18.4% from £54.3
million last year to £64.3 million this year. Revenue in our
Aerospace & Defence business increased by 74.5% from £20.0m
to £34.9m. Excluding the acquisition in the year, A&D revenue
increased by 48.0%. Life Sciences revenue increased by 21.1%
whilst sales in our smallest segment, Scientific Research,
reduced by 14.2%.
Reconciliation of Adjusted Performance Measures
Year ended
30 September
2017
2016
2017
2016
Operating profit
16,406
14,258
13,278
10,184
Net finance costs
(295)
(88)
(676)
(88)
Profit before taxation
16,111
14,170
12,602
10,096
Taxation
(4,059)
(3,865)
(3,710)
(3,048)
Profit for the year
12,052
10,305
8,892
7,048
Basic earnings
per share (p)
49.4p
42.5p
36.4p
29.1p
The Group adjusted profit before tax amounted to 16.1 million
(2016: £14.2 million) and represented a net margin of 14.4%.
Statutory profit before tax was £12.6 million compared with
£10.1 million last year.
The adjusted effective rate of tax was 25.2% (2016: 27.3%),
the reduction caused by a number of factors including a lower
applicable corporate tax rate in the UK, tax deductions being
available on intangibles on recent US acquisitions and certain
one off effects in the prior year. The effective rate of tax of
29.4% (2016: 30.2%) was higher than the adjusted effective
rate because of the effect of the interest charge on deferred
consideration which is not subject to tax, and the restructuring
and acquisition costs being incurred in the UK which has a lower
tax rate than the overall rate for the Group. The rate reflects a
combination of the varying tax rates applicable throughout the
countries in which the Group operates, principally the UK and
the USA.
The effective rate of tax should benefit in the future from further
reductions in the UK tax rate, although the proportion of profit
generated in the USA, where tax rates are higher, will affect this.
Adjusted earnings per share (EPS) increased from 42.5p to 49.4p.
Reported basic EPS was 36.4p compared with 29.1p last year.
Operating Profit
Net finance costs
Taxation
Earnings per share
Year ended 30 September
Reported
£’000
2017
£’000
2016
13,278
10,184
£’000
2017
(676)
£’000
2016
£’000
2017
£’000
2016
(88)
(3,710)
(3,048)
Amortisation of acquired intangible assets
2,202
Gain on bargain purchase
Impairment of goodwill
Release of accrued contingent consideration
Provision for regulatory compliance risk
Restructuring costs
Transaction fees
Interest on deferred consideration
–
615
(615)
–
536
390
–
1,263
(578)
771
–
500
1,652
466
–
Adjusted
16,406
14,258
–
–
–
–
–
–
–
381
(295)
22 | ANNUAL REPORT 2017
£’000
£’000
2017
36.4p
8.3p
–
2.5p
(2.5p)
–
1.8p
1.3p
1.6p
2016
29.1p
3.8p
(2.4p)
3.2p
–
2.1p
5.2p
1.5p
–
–
–
–
–
–
–
–
–
(168)
(333)
–
–
–
–
(105)
(76)
–
–
–
–
–
(391)
(93)
–
(88)
(4,059)
(3,865)
49.4p
42.5p
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
Non GAAP Measures
The Company uses a number of non GAAP measures which are
shown in the table above and in the segmental analysis. These
measures are used to illustrate the impact of non-recurring and
non-trading items on the Company’s financial results. These are
the impact of the amortisation of acquired intangible assets, costs
associated with restructuring activities, interest on deferred
consideration, impairment of goodwill and release of accrued
contingent consideration. In 2016 they also included the
provision for regulatory risk compliance and the gain on
bargain purchase of Alfalight.
Segmental Analysis
Industrial
Our Industrial business grew strongly during the year, with
revenues of £64.3 million, compared with £54.3 million last year.
This growth was largely driven by a combination of our industrial
laser and telecommunications businesses. Revenue from the
Group’s industrial laser business segment grew strongly, driven
by high demand for precision lasers used in microelectronic
manufacturing. Demand for the traditional Q Switch grew in 2017
and represented 14.0% of total Group revenue (2016: 10.2%).
Adjusted operating profit for the Industrial sector as a whole
was 10.1% higher at £11.8 million, compared with £10.8
million last year.
Aerospace & Defence (A&D)
A&D revenue was £34.9 million, up 74.5% on last year,
benefitting from the full year effect of the two acquisitions in
FY16 and the acquisition of StingRay in FY17. These results
reinforce our belief that this sector represents a growth
opportunity for Gooch & Housego, as optical technologies
continue to be increasingly deployed in this market. Operating
margins in this sector increased reflecting the higher volume
and strong margins achieved by StingRay in particular.
Life Sciences
In 2017 Life Sciences revenue was up by 21.1% compared to the
prior year. The majority of this growth was driven by a strong
performance in our Optical Coherence Tomography (“OCT”)
market driven largely by our customers’ development cycles.
Despite this, adjusted operating margins in this sector were down
on the previous year due to the competitive nature of the OCT
market and the investment in this relatively small sector.
Scientific Research
Our activities in the Scientific Research market are dominated by
a small number of large, long-term programmes. This market was
down in 2017 due to demand phasing.
Research and Development (R&D)
Gooch & Housego continues to invest in R&D in all areas of the
business and regards this as fundamental to the continued
growth of the company. There were a record 22 product releases
in 2017, together with 7 new patents granted.
Expenditure on R&D in the year to 30 September 2017 increased
by 16.2% from £7.4 million to £8.6 million. A proportion of this
increase was funded through UK and European grant funding.
R&D expenditure represented 7.7% of revenue (2016: 8.6%).
The Group capitalised £0.7m (2016: £0.7 million) of
development expenditure.
Operations
As reported in our Interim Statement, the Company has
committed to upgrading its Cleveland, Ohio facility. This facility,
which houses G&H’s world leading crystal growth capabilities, is
a key contributor to current and future profitability and will benefit
from the modernisation that has been taking place. The upgrade
is substantially complete and we will have invested in the region
of $5 million. The refurbishment will help drive much needed
operational efficiency, provide greater capacity, as well as a more
compelling showcase of our capabilities for customers.
The Company has concluded a legal dispute with the landlord
of its Fremont facility. As a result of this, a Californian court has
awarded G&H in the region of $2 million in damages arising
from the landlord’s non-performance in respect of the lease.
This will be accounted for in FY18.
Investment in key skills, lean processes, systems and the latest
capital equipment was accelerated in sites that provide critical
components for precision lasers used in microelectronic
manufacturing, namely Ilminster, Fremont, CA and Torquay.
We have built on the good work done in previous years to further
improve efficiency, customer service and to establish a more
scalable organisational model for future growth. Our ten
manufacturing sites have been organised into three manufacturing
areas. They are based on our sites’ areas of technical expertise,
namely Acousto Optic / Electro Optic, Precision Optics and Fibre
Optics. Each manufacturing area has a leader and their role is to
ensure best practice is shared, there is process harmonisation
and optimal allocation of resources.
Acquisitions
G&H will continue to evaluate acquisition opportunities that have
the potential to accelerate delivery of the Company’s strategic
objectives. Having established a presence in its target markets,
G&H is now focussing on moving up the value chain in each of
those markets. Whilst the business will continue to evaluate bolt
on businesses in our core component technologies, continued
strong focus is being placed on acquisition opportunities that
enhance the Company’s ability to wrap electronics and software
around core photonic products to yield system-level solutions.
In February 2017 G&H acquired StingRay Optics LLC, a US based
specialist designer and manufacturer of high performance
ANNUAL REPORT 2017 | 23
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
optical and opto-mechanical subsystems for demanding defence
and commercial applications.
StingRay was founded in 2004 and has established itself as a
market leading designer, manufacturer and supplier of world class
custom optical assemblies. The business has a proven capability
in providing system level optical products for use in harsh
environments to key US defence customers. StingRay’s product
range covers laboratory, ground based, airborne, unmanned
aerial vehicles and space applications.
The acquisition of StingRay is aligned with G&H’s strategic
objectives of moving up the value chain and further diversification
into the Aerospace & Defence sector. Potential synergies include
leveraging G&H’s greater reach through our global sales teams
and our expertise in manufacturing infrared precision optics
and specialist coatings.
StingRay has performed very well since acquisition, contributing
£5.3 million to Group revenue and £1.6 million in profit before
tax in the year.
As a result of two key customers delaying the delivery of product
from existing orders, Kent Periscopes did not reach its threshold
for the first tranche of its earn-out to be triggered. Consequently,
the provision for a proportion of this payment (approximately
£0.6m), made under IFRS accounting rules, has been released to
the income statement for the current year. Whilst the delay in
delivery of these contracts has affected the anticipated results
of Kent Periscopes for the earn-out period, the outlook for the
business remains positive. The order book for the next two years
remains very strong at approximately £12.5 million. Whilst the core
value of this business remains strong, as part of its bi-annual
review of the carrying value of goodwill, the Board has taken the
decision to impair the goodwill of the Kent Periscopes acquisition
to the sum of £0.6 million.
Non Trading Items
Restructuring costs of £0.5 million (2016: £1.7 million) related
to the re-location of our Palo Alto facility to Fremont and to
restructuring costs arising from the efficiency savings the
business has put in place.
Balance Sheet
The Group’s total equity at the end of the year was £98.1 million,
an increase of £8.0 million over the prior year. This increase
comprised £6.6m from retained earnings, £2.0m from issues
of share capital and a net reduction of £0.6m from foreign
exchange and other movements.
Additions to property, plant and equipment totalled £5.8m
(excluding acquisitions). The main additions related to investment
in plant and machinery, the expansion of our Torquay facility,
and the refurbishment of our Cleveland facility.
24 | ANNUAL REPORT 2017
Working capital was 19.2% of revenue in the current year
compared to 24.5% in 2016. This metric has benefitted from
the year end GBP:USD exchange rate being higher than the
average for the year, but also reflects management efforts to
reduce working capital as a percentage of sales.
Inventory at the year end was £21.1 million, an increase of £2.1
million over the prior year. Excluding the impact of currency and
the inventory attributable to the acquisition, the underlying
inventory increased by £1.6m, or 8.5%, in the year. This increase
is reflective of the increased activity in the year.
Trade receivables were unchanged at £20.5m. The effect of a
strong shipment profile towards the end of the year and the
acquisition of StingRay were largely offset by movements in
the dollar exchange rate.
Cash balances at 30 September 2017 were £26.4 million,
compared with £23.2 million at 30 September 2016. Net cash
flows from operating activities totalled £17.6 million, compared
with £12.6 million last year, reflecting a cash generated from
operations to adjusted operating profit rate of 119% (2016: 96%).
During the year the business increased its net cash position from
£11.7m to £14.9 million, despite investing £5.7m in the acquisition
of StingRay and £5.8m in property, plant and equipment.
Movement in Net Cash
All amounts in £m
Gross
Gross
Cash
Debt
Net
Cash
At 1 October2016
Operating cash flows
Debt repayment (net of drawdown)
Acquisitions
Net capital expenditure
Working capital
Interest, tax and dividends
Exhange movements
23.2
19.8
0.4
(5.7)
(6.4)
(0.3)
(4.5)
(0.1)
(11.5)
–
(0.4)
–
–
–
–
0.4
At 30 September 2017
26.4
(11.5)
11.7
19.8
–
(5.7)
(6.4)
(0.3)
(4.5)
0.3
14.9
Order Book
As at 30 September 2017, the Group order book stood at £72.1
million, compared to £52.8 million at the end of the 2016 financial
year, a 36.5% increase. The acquisition of StingRay added £3.5
million to the order book. On a constant currency basis the order
book was 39.1% higher. The book to bill ratio for the business as
a whole was 1.08 (six month rolling average) as at 30 September
2017 (2016: 1.01).
Staff
The Group workforce increased from 755 at 30 September
2016 to 823 at the end of September 2017, an increase of 68.
This is a net position and therefore reflects both the work the
business has done in driving efficiency improvements and the
GOOCH & HOUSEGO PLC FINANCIAL AND OPERATING REVIEW
STRATEGIC REPORT
Net cash analysis
Net cash (£m)
2017
14.9
2016
11.7
2015
17.3
In order to balance business risk with the investment needs of
the Company, management closely monitors and manages net
cash. This year, following the acquisition of StingRay and the
investment in capital assets the net cash position increased
from £11.7 million to £14.9m.
Earnings per share (EPS)
2017
2016
2015
Adjusted diluted EPS (pence)
48.5p
41.7p
38.9p
As a result of a strong trading performance, the business has
been able to deliver growth in adjusted diluted EPS of 16.3%,
from 41.7p to 48.5p in 2017.
The revenue, cash and earnings per share targets for the year
were met.
additional headcount that has come from the recent
acquisitions and investment in capacity.
Dividends
The Directors propose a final dividend of 6.5p per share making
a total dividend per share for the year of 10.2p (2016: 9.0p), an
increase of 13.3%. The final dividend, if approved, will be payable
on 2 March 2018 to shareholders on the Company’s share register
as at the close of business on 26 January 2018.
Key Performance Indicators (KPIs)
The Group objective is to deliver sustainable, long-term growth
in revenue and profits. This is to be achieved through the
execution of the Board’s strategies.
In striving to achieve these strategic objectives, the main
financial performance measures monitored by the Board are:
All amounts in £m
At actual exchange rates
At constant exchange rates
2017
30%
19%
2016
9%
3%
2015
12%
8%
The Board is focused on driving revenue growth by investing both
organically and through acquisitions. The Group business has
delivered strong underlying growth.
Target market revenue
Aerospace & Defence (£m)
Life Sciences (£m)
2017
34.9
9.6
2016
20.0
7.9
2015
19.8
9.0
The Group targeted markets of Aerospace & Defence and Life
Sciences provide a route to sustainable growth, and a more
diversified revenue base. These markets also provide significant
opportunities for Gooch & Housego to migrate up the value chain
from materials and components to higher value sub-assemblies,
modules and systems in response to the trend for our larger
customers to outsource increasingly complex parts of their
business. The increase in A&D revenue includes the full year
effect of last year’s acquisitions, combined with the acquisition
of StingRay in FY17.
ANNUAL REPORT 2017 | 25
GOOCH & HOUSEGO PLC STRATEGIC REPORT
STRATEGY OVERVIEW
Gooch & Housego’s strategy is built around the twin pillars of diversification and moving up the
value chain. In order to ensure its strategic goals are met management considers investment in
R&D, acquisitions and strategic partnerships.
STRATEGIES
Diversification
To develop, through R&D and acquisition, a presence in new
markets that offer the potential for significant growth as a
result of their adoption of photonic technology, while also
reducing our exposure to cyclicality in any particular sector.
Progress
a) Diversification within the Industrial market. In 2017,
Gooch & Housego grew its business in the areas of:
• Telecommunications
• Semi-conductors
b) Aerospace & Defence.
• Acquisition of StingRay Optics LLC
c) Life Sciences
• 26.5% growth in Optical Coherence Tomography business
Moving up the Value Chain
To leverage our excellence in materials and components to
move up the value chain to more complex sub-assemblies
and systems.
Progress
• Continued expansion of the Systems Technology Group to
further focus the business’s drive up the value chain.
• Acquisition of StingRay Optics LLC.
Organic Research and Development
To leverage Gooch & Housego’s world leading products,
technologies and capabilities to develop innovative
new products.
Progress
• In 2017 the company’s organic research and development
programmes have delivered a record 22 new products.
In addition, 7 new patents have been awarded.
• The Group continues to invest in longer term R&D projects
in all of its key markets. Investment in R&D increased by
16.2% in 2017.
26 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
Gooch & Housego adopts a formal risk identification and management process designed to
ensure that risks are properly identified, prioritised, evaluated and mitigated to the extent possible.
A formal Group wide risk register is maintained and approved by the Board on an annual basis.
The following represent the significant risks identified in the Group’s risk register.
RISK
COMPETITION
MITIGATION
The Group recognises the importance of retaining and developing
This is a key area of focus for the G&H management team.
its highly skilled management team and workforce in order to
Fundamental to mitigating the effects of our competitors is to maintain
achieve its strategic objectives.
our product quality and on-time delivery performance to ensure our
customers’ expectations are fulfilled.
Our significant investment in R&D enabled us to launch 22 new
products during FY2017.
The Group also has a cost reduction roadmap in place including the roll
out of lean manufacturing practices across our sites, and the use of
lower cost manufacturing partners where it is efficient to do so.
Our business development teams maintain a presence in the market
place and attend key trade shows which enables them to monitor
competitor activity and respond accordingly.
RETENTION OF KEY PERSONNEL
The Group recognises the importance of retaining and developing its
Our people are at the heart of our business. We maintain development
highly skilled management team and workforce in order to achieve its
and reward schemes to encourage individuals to play a long term role in
strategic objectives.
CAPACITY PLANNING
the future development of the Group.
Recent market trends have led to unprecedented demand for certain
There has been significant management focus on increasing efficiency
products which has exceeded the capacity of certain of our facilities
during FY17 in order to increase capacity. This included investment in
during FY17.
GLOBAL ECONOMIC TRENDS
Adverse changes in the major markets in which the Group operates can have
a significant impact on the Group’s performance.
machinery and people, and removing bottlenecks from production lines.
Significant progress has been made in increasing capacity at
strategically important plants.
Gooch & Housego PLC has seen substantial growth in its business in
recent years. Through its strategies of market diversification and moving
up the value chain, the Group seeks to provide routes to new markets and
reduce its dependence on any one market sector. Whilst the continued
growth in the business remains challenging to predict, the year-end order
book was 37% higher than the previous year, including the impact of
an acquisition.
The strategic report has been approved by the Board of Directors and signed on its behalf by:
Mark Webster
Chief Executive Officer
28 November 2017
ANNUAL REPORT 2017 | 27
GOOCH & HOUSEGO PLC GOVERNANCE
BOARD OF DIRECTORS
Executive Directors
Mark Webster Chief Executive Officer (Appointed January 2015)
Mark was previously Chief Executive Officer of Bio Products Laboratory Ltd. He has extensive
executive experience and has held a number of senior leadership roles, such as Senior Vice
President, Bayer Healthcare AG, Head of Global Strategic Marketing and M&A/Business
Development, Shire Pharmaceuticals Group PLC and Vice President, Abbott Laboratories Inc.
Mark was a non-executive Director of Gooch & Housego PLC before becoming an Executive
Officer. He has also been a non-executive Director at Abcam PLC.
Mark holds an honours degree in Chemistry from the University of Durham.
Andrew Boteler Chief Financial Officer (Appointed August 2009)
Andrew Boteler is a Chartered Accountant, having trained with Ernst & Young and qualified
in 1993. He has an honours degree from Exeter University.
In 2002 Andrew was part of the team that bought out the US telecommunications
components group JDSU’s UK fibre optics business, to establish SIFAM Fibre Optics Ltd. There,
he held the position of Finance Director until the company was acquired by Gooch & Housego
PLC in May 2007.
Between 2007 and 2009 Andrew held the positions of Head of Finance for Europe, Middle
East and Africa and Acting Chief Financial Officer for Gooch & Housego PLC, before joining
the Board in August 2009.
Alex Warnock Chief Operating Officer (Appointed November 2014)
Alex Warnock is a Chartered Engineer and member of the Institute of Engineering &
Technology and Institute of Directors. Prior to joining Gooch & Housego PLC, Alex held senior
positions at Optos PLC, most recently Chief Operating Officer. He has also worked in senior
roles at Johnson & Johnson and Pace Micro Technology Inc. Alex has an honours degree in
Electrical and Electronic Engineering. He has lived and worked in the USA and Germany.
28 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC BOARD OF DIRECTORS
Non-Executive Directors
GOVERNANCE
Gareth Jones Non-Executive Chairman (Appointed January 2015.
Gareth was formerly Chief Executive Officer from January 2003)
Gareth Jones has an honours degree in Physics from Imperial College and is a Fellow of the
Institute of Physics. He joined Gooch & Housego in 1978 and was instrumental in the
development of new products and capabilities that helped transform the business from a
craft-based optical engineering company into today’s global technology business.
Gareth became Technical Director in 1985 and Managing Director in 1995. In 1997 he was a
member of the team that led Gooch & Housego’s IPO on the Alternative Investment Market.
In 2000, he left Gooch & Housego to become a Partner in a leading UK venture capital firm.
He re-joined Gooch & Housego in 2003 as Chief Executive Officer.
Dr Peter Bordui (Appointed February 2012)
Peter Bordui has thirty years’ experience in the photonics industry in senior leadership roles
within Bookham, NewFocus, JDSU and Crystal Technology (at the time a subsidiary of
Siemens) and has held a number of additional non-executive director roles. He is a governing
trustee of a private charitable foundation and a director of the non-profit organisation
American Citizens Abroad.
Peter has bachelors, masters and PhD degrees from MIT.
Peter has taken on the role of Senior Independent Director from 1 October 2016. He is Chairman
of the Nomination Committee and a member of the Remuneration and Audit Committees.
Brian Phillipson (Appointed 1 September 2015)
Brian has extensive experience of the Aerospace & Defence industry in both Strategic and
Operational roles across a range of locations. Most recently he has been a Board Member and
Business Unit MD at Marshall Aerospace & Defence Group. Previously he held a number of
senior roles within BAe Systems PLC, including Director of Strategy; Group Managing Director
Major Programme Assurance; Group Managing Director Sea Systems; and first CEO, then
later COO, of Eurofighter GmbH based in Munich.
Brian holds an MA (Hons) in Engineering from Cambridge University.
Brian Phillipson took over the role of Chairman of the Remuneration Committee with effect
from 1 October 2016. Brian is a member of the Audit and Nomination Committees.
David Bauernfeind (Appointed 1 May 2017)
David is Chief Financial Officer of Connect Group PLC, a specialist distribution company listed
on the London Stock Exchange. Prior to his current role, David was Chief Financial Officer and
Executive Director at Xchanging PLC, a position he held from 2011 until its takeover and
delisting in 2016. David was also a director of Xchanging Solutions Limited (formerly Cambridge
Solutions Limited), a subsidiary of Xchanging PLC with a dual listing on the National Stock
Exchange of India and the Bombay Stock Exchange. Before joining Xchanging in 2001, David
held management roles in BAE Systems PLC and Johnson Matthey PLC.
David is Chairman of the Audit Committee and a member of the Remuneration and Nomination
Committees of the Gooch & Housego Board.
ANNUAL REPORT 2017 | 29
GOOCH & HOUSEGO PLC GOVERNANCE
DIRECTORS’ REPORT
The Directors present their report together with the audited
consolidated financial statements for the year ended 30
September 2017.
A review of the development and performance of the Group during
the year and its future prospects is set out in the Financial
Highlights on page 2 and in the Financial and Operating Review on
pages 22 to 25. An outline of the business’s principal activities,
strategy and the Group’s progress in the year towards these
strategies is given in the Strategic Report on pages 10 to 27.
An analysis of the segmental information by market sector is
given on pages 14 to 21.
Key Performance Indicators (“KPIs”)
The Group uses a selection of KPIs to monitor and review the
performance of the business. These are detailed from page 25
of the Financial and Operating Review.
Dividends
During the year ended 30 September 2017 a final dividend of
5.7p per share was paid for the previous financial year. The final
2015 dividend of 5.2p per share was paid in the year ended 30
September 2016. A further interim dividend of 3.7p per share was
paid for the half year ended 31 March 2017 (2016: 3.3p).
For the year ended 30 September 2017, the Directors propose
that a final dividend of 6.5p per share be paid.
Substantial shareholdings
As at 15 November 2017, the following shareholders had notified
the Company that they held an interest in 3% or more of its
issued ordinary share capital:
Shareholder
Octopus Investments
Number % holding
3,835,243
15.64%
Investec Wealth & Investment
2,192,019
8.94%
Aberdeen Standard Investments
1,884,407
7.69%
Hargreave Hale
1,590,027
6.49%
Black Rock Investment Management
1,525,047
Franklin Templeton Investment Management
1,297,550
JM Finn & Co
776,825
6.22%
5.29%
3.17%
Save for these interests, the Directors have not been notified that
any person is directly or indirectly interested in 3% or more of
the issued ordinary share capital of the Company.
Treasury Policies
The Group’s treasury policies are designed to manage financial
risk to the Group that arises from operating in a number of foreign
currencies and to maximise interest income on cash deposits,
whilst maintaining the security of these deposits. As an
international group of companies, the main exposure is in respect
of foreign currency risk on the trading transactions undertaken
30 | ANNUAL REPORT 2017
by Group companies and on the translation of the net assets of
overseas subsidiaries. This exposure is principally to the US dollar.
Monthly cash management reporting and forecasting is in place
to facilitate management of this currency risk. The operations of
Group treasury take place at head office.
All balances not immediately required for Group operations are
placed on short-term deposit with leading international highly
rated financial institutions.
At a transactional level, the Group seeks to offset its exposure to
foreign exchange movements by contracting with significant
supply partners in US Dollars and undertakes regular financial
reviews to assess whether it would be appropriate for the Group
to enter into currency hedging contracts to mitigate the currency
risk. During the year there were no forward contracts in place.
The Group’s bank borrowings are denominated in US Dollars,
which acts as a partial hedge of a net investment against its
US Dollar denominated companies within the Group.
Research and Development
The Group has a continuing commitment to a high level of
research and development. This commitment is to actively
develop new technologies and capabilities that will become a
key part of the Group’s future product portfolio and revenue.
Directors’ Indemnities
The Directors have the benefit of an indemnity which is a
qualifying third party indemnity provision as defined by Section
234 of the Companies Act 2006. The indemnity was in force
throughout the last financial year and is currently in force.
The Company also purchased and maintained throughout the
financial year Directors’ and Officers’ liability insurance in respect
of itself and its Directors.
Employee Involvement
The Group is committed to including all employees in the
performance and development of the business. An established
employee appraisal and reward scheme is in operation and
employees are appraised regularly with relevant development
support provided by the Group.
The Group attaches considerable importance to informing and
involving its employees on matters which concern them and in
the achievement of its business objectives. The Group has a
formal employee communication plan involving regular meetings
between management and employees and the provision of a
comprehensive employee handbook.
Corporate Governance
The Board recognises the importance of good corporate
governance and has put in place procedures it
considers appropriate.
GOOCH & HOUSEGO PLC DIRECTORS’ REPORT
The Board currently comprises three executive and four
non-executive Directors. The directors holding office during
the period of this report and their biographies are detailed
from page 28 and are also available on our website;
www.goochandhousego.com
The Board focuses on formulation of strategy, management
of effective business controls and review of business
performance. The Board is specifically responsible for
the approval of annual and interim results and interim
management statements, acquisitions and disposals, major
capital expenditure, borrowings, director and company
secretary appointments and removals, any material litigation,
strategic forecasting and major development projects.
A framework of delegated authorities is in place that details
the structure of delegation below Board level and includes
matters reserved for the Board.
All the non-executive Directors are considered by the Board to
be independent in character and judgement.
In accordance with the Company’s Articles of Association all
directors will retire at the Annual General Meeting and, being
eligible, offer themselves for re-election.
The Board has three formally constituted committees, the
Audit committee, the Remuneration committee and the
Nomination committee.
Board membership and meeting attendance is presented in
the following table.
Executive Directors
Mark Webster
Andrew N Boteler
Alex Warnock
Non-executive Directors
Gareth Jones
Peter Bordui
Brian Phillipson
David Bauernfeind
Paul Heal
8/8
8/8
7/8
8/8
8/8
8/8
3/3
3/3
GOVERNANCE
The Group does not have an internal audit department, but
senior finance staff regularly visit the sites to perform reviews
of controls and processes in place.
Annual budgets and three year strategic plans are prepared for
each company. Financial and operational reports enable the
Board to compare performance against budget and to take
action where appropriate.
During the year all senior staff within the organisation
undertook Anti Bribery training.
Financial Risk Management
An explanation of the Group’s financial risk management
objectives is contained in note 5.
Environmental Policy
The policy of the Group is to meet the statutory environmental
requirements placed upon it and to apply good environmental
practice in its operations while recognising that it is contractually
obliged to meet its customer requirements.
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and parent company financial statements
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union. Under company law
the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and parent company and of the profit or
loss of the Group for that period. In preparing these financial
statements, the directors are required to:
(Appointed 1 May 2017)
• select suitable accounting policies and then apply them
(Retired 22 February 2017)
consistently;
Risk management and internal control
• state whether applicable IFRSs as adopted by the European
The Directors acknowledge that they are responsible for the
Group’s system of internal financial control. The system can
provide only reasonable, and not absolute, assurance against
material misstatements and losses.
Union have been followed for the Group financial statements and
IFRSs as adopted by the European Union have been followed
for the company financial statements, subject to any material
departures disclosed and explained in the financial statements;
There are defined lines of responsibility and delegation of
authorities. There are also internal financial controls in existence
which are centrally maintained and documented and provide
reasonable assurance of the maintenance of proper accounting
records and the reliability of financial information used within
the business.
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
ANNUAL REPORT 2017 | 31
GOOCH & HOUSEGO PLC Going Concern
Based on Management’s operating projections and cash flow
forecasts, the Directors believe that the Group will generate
sufficient cash and have access to working capital facilities to
enable it to meet its funding requirements for at least the next
12 months and will continue to comply with its banking covenants.
Accordingly, the Directors have formed a judgement, at the time
of approving the financial statements, that there is a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. For this reason, the Directors continue to adopt the
going concern basis in preparing the financial statements.
Independent Auditors
A resolution to reappoint PricewaterhouseCoopers LLP as
auditors to the Company and the Group will be proposed at
the Annual General Meeting.
Approved and signed on behalf of the Board of Directors by:
Mark Webster
Director
28 November 2017
GOVERNANCE
DIRECTORS’ REPORT
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
parent company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
parent company and enable them to ensure that the financial
statements comply with the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
The directors are also responsible for safeguarding the assets
of the Group and parent company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors of the ultimate parent company are responsible for
the maintenance and integrity of the ultimate parent company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
parent company’s performance, business model and strategy.
Each of the directors, whose names and functions are listed on
pages 28 and 29 confirm that, to the best of their knowledge:
• the parent company financial statements, which have been
prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities and
financial position of the parent company;
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give
a true and fair view of the assets, liabilities, financial position
and profit of the Group; and
• the Annual Report and Financial Statements includes a fair
review of the development and performance of the business
and the position of the Group and parent company, together
with a description of the principal risks and uncertainties
that it faces.
In the case of each director in office at the date the Directors’
Report is approved:
• so far as the director is aware, there is no relevant audit
information of which the Group and company’s auditors are
unaware; and
• they have taken all the steps that they ought to have taken as
a director in order to make themselves aware of any relevant
audit information and to establish that the Group and parent
company’s auditors are aware of that information.
32 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC GOVERNANCE
ANNUAL REPORT 2017 | 33
GOOCH & HOUSEGO PLC GOVERNANCE
AUDIT COMMITTEE REPORT
Membership
Responsibilities
The Audit Committee comprises all of the non-executive directors
and is chaired by David Bauernfeind, a Chartered Accountant,
who is currently Chief Financial Officer of Connect Group PLC, a
company listed on the London Stock Exchange. The Audit
Committee is considered to have had an appropriate balance
between those individuals with finance or accounting training
and those from a general business background.
How the Committee operates
The Committee met three times during the year as part of its
standard schedule to consider matters planned around the
Group’s financial calendar. Attendance at those meetings is
summarised below:
Non-executive Directors
David Bauernfeind
Gareth Jones
Dr Peter Bordui
Brian Phillipson
Paul Heal
2/2
2/3
3/3
3/3
1/1
(Appointed 1 May 2017)
(Retired 22 February 2017)
At the invitation of the Committee, representatives of the external
auditor, PwC LLP, attended meetings together with the Chief
Executive, Chief Financial Officer, Chief Operating Officer and the
Company Secretary. The Committee also seeks to meet regularly
with the external auditor without the Executive Directors in
attendance. In the year, the Committee met twice with
representatives from PwC LLP without others being present.
The role and responsibilities of the Committee are set out in its
terms of reference, which are available on the Company’s web
site and from the Company Secretary on request. The terms of
reference are reviewed annually by the Committee.
The principal responsibilities of the Committee are:
• reviewing the effectiveness of the Company’s financial
reporting, internal control policies and procedures for the
identification, assessment and reporting of risk;
• Advising the Board on whether the Committee believes the
Annual Report taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s performance,
business model and strategy;
• Considering and making recommendations to the Board as to
the appointment, reappointment or removal of the external
auditor and the approval of their remuneration and terms of
engagement;
• Assessing the external auditor’s independence and
objectivity and the effectiveness of the audit process;
• Reviewing the policy on the engagement of the external
auditor to supply non-audit services.
34 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC GOVERNANCE
AUDIT COMMITTEE REPORT
Financial Reporting
During the year, the Audit Committee reviewed the
appropriateness of the Group’s interim and full year financial
statements, including the consideration of significant financial
reporting judgements made by management taking into account
reports from management and the external auditors. The main
area of focus considered by the Committee during the year
were as follows:
AREA OF FOCUS
ACQUISITION ACCOUNTING
CONCLUSION
The Audit Committee reviewed the accounting for the acquisition of
The Committee reviewed the nature of the intangible assets identified
StingRay Optics LLC during the year.
and the assumptions underpinning management’s valuation thereof. The
Committee satisfied itself that the acquisition accounting was reasonable.
GOODWILL IMPAIRMENT REVIEWS
Management perform annual impairment reviews of the carrying value
The Committee is satisfied that the impairment recognised in the
of goodwill. These impairment reviews are based on future projected
year is appropriate and that the remaining carrying value of goodwill
cash flows and are therefore inherently judgmental. The Audit
is supportable.
Committee reviewed the key judgements underpinning the impairment
reviews performed.
INVENTORIES
The Committee reviewed management’s estimates in relation to
The Committee was satisfied that the provisions made adequately
inventory ageing and obsolescence.
reflected the risk of impairment.
EXCEPTIONAL ITEMS
The Committee considered the appropriateness of the measure
The Committee was satisfied that the presentation of normalised profit
of adjusted profits, quality of earnings, and the classification and
before tax provides a reasonable view of the underlying performance of
transparency of items separately disclosed as Exceptional items.
the Group and that there was transparent and consistent disclosure of
items shown separately as Exceptional items.
External auditors
Approval
David Bauernfeind
Chairman of the Audit Committee
28 November 2017
Under its terms of reference the Committee is responsible for
assessing the scope, fee, objectivity and effectiveness of external
audits and for making a recommendation to the Board regarding
the appointment, reappointment or removal of the auditor on
an annual basis.
In line with professional standards, the Company’s external
auditor (PwC LLP) has a policy of rotating engagement partners
every five years. As FY16 was the fifth audit overseen by Colin
Bates, a new partner, Mark Ellis, was appointed to undertake
the FY17 audit.
The Committee also regularly reviews the nature, extent,
objectivity and cost of non-audit services provided by the
auditors. In doing this the Committee does not approve additional
services which would compromise the auditors’ independence.
The auditors are required to make a formal report to the Audit
Committee on an annual basis on the safeguards that are in place
to maintain their independence and the internal safeguards in
place to ensure their objectivity. To ensure compliance with
this policy, the Audit Committee reviewed and approved the
remuneration received by PwC for the audit service, audit-related
services and non-audit work.
ANNUAL REPORT 2017 | 35
GOOCH & HOUSEGO PLC Membership and attendance at meetings held in 2017
Non-executive Directors
Dr Peter Bordui
Gareth Jones
Brian Phillipson
David Bauernfeind
Paul Heal
Executive Directors
Mark Webster
Approval
5/5
5/5
5/5
3/3
1/1
5/5
(Appointed 1 May 2017)
(Retired 22 February 2017)
Peter Bordui
Chairman of the Nomination Committee
28 November 2017
GOVERNANCE
NOMINATION COMMITTEE REPORT
The Nomination Committee, which consists of the Chief
Executive Officer and all four Non-Executive Directors, is
responsible for the composition of the Board.
Role of the Committee
• Reviews the composition of the Board and its committees.
• Identifies and recommends for Board approval suitable
candidates to be appointed to the Board.
• Considers succession planning for Directors and other senior
executives and in doing this considers diversity, experience,
knowledge and skills.
Areas of focus for the Nomination Committee
during FY17
• Appointment of a new Non-Executive Director to act as
Chairman of the Audit Committee following the retirement of
Paul Heal in February 2017.
• Succession planning for other members of the Board.
Advisors
During FY17, the Committee appointed Edward Drummond, an
external search agency, to assist with the identification of suitable
Non-Executive Director candidates to take over as Chairman of
the Audit Committee.
Appointment Process
As part of the appointments process, the Committee determined
the selection criteria for the Chairman and Non-Executive
Director roles. The Committee worked with Edward Drummond
who drew up a list of external candidates from a range of
industries and backgrounds for initial appraisal by the Committee.
From this, a shortlist of suitable candidates that met the search
and selection criteria was prepared and these candidates were
interviewed by the Board.
Following these interviews, the Nomination Committee
recommended to the Board, which duly approved, the
appointment of David Bauernfeind as Non-Executive Director
on 1 May 2017.
36 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Introduction
It is an objective of the Group to attract and retain high calibre
Directors and employees and reward them in a way which
encourages the creation of value for shareholders.
The incentive and remuneration schemes employed by G&H were
largely developed and introduced in 2013, and few changes have
been made to the schemes since then. The Group’s market
capitalisation has increased threefold in less than five years,
during which time there have also been significant changes to
governance expectations. Accordingly, the Remuneration
Committee felt it appropriate to update our remuneration
schemes during 2017, to which end the Committee engaged
FIT Remuneration Consultants to assist the Committee with a
review of the G&H remuneration policy for Executive Directors
and other senior management. This review confirmed that our
schemes continue to be appropriate and that they are in line with
practise not just on AIM, but also among many FTSE SmallCaps
on the Main Market. However, following the review it was felt
appropriate to make some adjustments to the Annual Bonus
and Long Term Incentive Plan criteria. None of these proposed
changes require shareholder approval, although we have
consulted with our major shareholders who have been supportive
of the proposals. Further detail of the changes are given in the
Remuneration Policy table on the following page.
The Committee values all feedback from shareholders and
hopes to receive your support at the forthcoming AGM.
Operation of the Remuneration Committee
The Remuneration Committee is chaired by Brian Phillipson
and comprises all the non–executive directors.
Although not a member of the committee, the Chief Executive
Officer submits a report outlining proposals and is usually
requested to present the report to the committee. After
presenting the report he withdraws from the meeting and
does not participate in the decision making or voting processes.
The Committee has three scheduled meetings each year to deal
with ordinary business. In addition to these, the Committee
meets on an ad hoc basis when there are additional matters to
deal with. Brian Phillipson gives an update on the Remuneration
Committee’s activities at each Board meeting.
Non-executive Directors
Brian Phillipson (Chairman)
Gareth Jones
Brian Phillipson
David Bauernfeind
Paul Heal
4/4
4/4
4/4
2/2
1/1
(Appointed 1 May 2017)
(Retired 22 February 2017)
ANNUAL REPORT 2017 | 37
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Remuneration Policy Table
The table below summarises our policy for 2017 and the planned changes for 2018:
Element of
Purpose and link to
FY17 Policy and approach
Opportunity
FY18 Policy and approach
remuneration
strategy
Base
Salary
Takes into account
• Reviewed annually with changes
Base salary increases
• The FIT review identified that Mark
experience and
effective from 1 October if
are applied in line with
Webster’s salary was lower than
personal contribution
applicable
the outcome of the
the median for AIM 100 Company
annual review
CEOs and the Committee therefore
increased his base pay accordingly
with effect from 1 October 2017.
to the company’s
strategy
Attracts and retains
executives of the
quality required to
deliver the company’s
• Consideration given to individual
and company performance
• General pay increases across the
wider workforce are also taken into
consideration
strategy
• Where the company considers it
appropriate and necessary, larger
increases may be awarded in
exceptional circumstances
Annual Bonus Incentivise
• Awarded annually
Maximum of 100% of
• Introduction of broader performance
achievement of short-
term financial targets
that the Committee
considers to be critical
drivers of business
growth
• Award level is based upon level of
normalised diluted earnings per
share and operating cash flow
against internal targets
• 50% of the maximum bonus is
payable for reaching threshold
targets
• Maximum bonus is achieved for
reaching 10% over threshold
targets
base salary
measures
• Up to 60% payable for exceeding
target EPS by 10%.
• 20% of bonus payable for achieving
target operating cash flow. Nil if not
met.
• 0-20% of bonus payable for
achievement of personal objectives
linked to operational performance
and major initiatives.
Pension
Provide employees
• Defined contribution personal
10% of base salary
• No changes proposed
with market
pension plan
competitive pension
scheme
The Committee keeps
• Company contributes 10% of salary
the benefit policy and
benefit levels under
regular review
Benefits
Provide employees
• Executive Directors receive private
The Committee keeps
• No changes proposed
with market
health insurance, life assurance
the benefit policy and
competitive benefits
and long term disability insurance
benefit levels under
regular review
Long Term
Incentivise executive
• Award levels are determined by
Maximum award of
• No changes to maximum awards.
Incentive Plan
performance over the
reference to an individual’s position
120% of base salary
(LTIP)
longer term
and performance prior to grant
• Absolute TSR retained for 60% of
awards, with full vesting at 15% TSR
Performance
• Awards vest after three years
per annum.
measures linked to the
subject to achievement of Total
long-term strategy
Shareholder Return targets.
of the business
and the creation of
shareholder value over
the longer term
38 | ANNUAL REPORT 2017
• Introduction of an EPS target for
remaining 40% of awards. Full
vesting at 15% EPS growth per annum.
• 15% growth per annum target is in line
with the Board’s objective of doubling
the size of the company over a period
of 5 years.
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Directors’ Remuneration
2017
Basic pay
Performance
Benefits in
Pension
Subtotal
related bonus
£’000
£’000
kind
£’000
contribution
£’000
2017
£’000
Share
options
£’000
Total
2017
£’000
Executive
M Webster
A Boteler
A Warnock
Non-executive
G Jones
Dr P Bordui
B Phillipson
D Bauernfeind *
P Heal **
306
199
239
77
40
40
17
17
935
190
130
154
–
–
–
–
–
8
4
9
5
–
–
–
–
–
10
10
–
–
–
–
–
504
343
412
82
40
40
17
17
–
152
–
241
–
–
–
–
474
26
20
1,455
393
2016
Basic pay
Performance
Benefits in
Pension
Subtotal
related bonus
£’000
£’000
kind
£’000
contribution
£’000
2016
£’000
Executive
M Webster
A Boteler
A Warnock
Non-executive
G Jones
P Heal **
Dr P Bordui
B Phillipson
294
178
225
36
40
18
37
828
146
100
119
–
–
–
–
365
34
6
12
4
–
–
–
56
–
25
16
38
–
–
–
79
The above disclosure has been audited.
*
David Bauernfeind was appointed 1 May 2017.
** Paul Heal retired on 22 February 2017.
*** During the year ended 30 September 2016, Peter Bordui was
paid £19,140 for consultancy services in addition to the
amounts shown. This arrangement ceased on 30 September
2016 since when his entire remuneration has been paid
through the payroll.
504
495
412
323
40
40
17
17
1,848
Total
2016
£’000
474
617
372
577
40
18
37
Share
options
£’000
–
308
–
499
–
–
–
474
309
372
78
40
18
37
1,328
807
2,135
ANNUAL REPORT 2017 | 39
GOOCH & HOUSEGO PLC
GOVERNANCE
REMUNERATION COMMITTEE REPORT
Basic Pay
Executive Directors are paid a basic salary together with annual
bonus payments based on the achievement of Group profitability
and cash targets. In addition, Executive Directors participate in
a share option scheme and receive benefits in kind, including
medical expenses and insurance.
Non-executive directors are paid a fee to attend board meetings
and to serve as members of the Audit, Nomination and
Remuneration committees. Further payments may be made
in respect of additional services provided at the request of
the Company.
2017 performance Related Bonuses
Gooch & Housego has continued to perform well in 2017,
delivering strong financial performance and continuing to
make progress in its key strategic goals of diversification and
moving up the value chain.
In terms of financial performance, adjusted profit before tax
increased by 13.7% to £16.1m. Once again a strong cash
performance resulted in the Group reporting a net cash position
of £14.9m, after significant investment in property, plant and
equipment, and a successful acquisition. The increasing strength
of the balance sheet meant that the Company was able to
recommend a 13.3% increase in the total dividend for the year.
Delivering growth through diversification within our sectors
and by moving up the supply chain to provision of higher value
offerings, as well as improvements in operational performance,
have continued to be the principal strategic themes of the
business. The trend towards a more balanced spread of business
across the Company’s principal market sectors has continued.
New product development at both the operational sites and
within the Systems Technology Group continues to deliver with
22 new products being launched in 2017. The business has made
progress on its drive for operational efficiency, through its
continued adoption of lean principles, as well as investments
in plant, equipment, staff and processes.
The Executive Directors’ 2017 bonus outcomes were 69% of
maximum, reflecting the strong results for the year.
Directors’ Pension Arrangements
During the year the Company contributed to a money purchase
pension scheme on behalf of the executive
Directors. The number of Directors who are currently accruing
benefits under a pension scheme is 2 (2016: 2). Contributions to
a scheme on behalf of continuing Directors amount to 10% of the
Director’s basic salary. Gareth Jones sacrificed part of his salary
in exchange for increased company pension contributions, until
the arrangement ceased on 31 August 2016. Mark Webster has
sacrificed his entitlement to company pension scheme
contributions in exchange for an increase to his salary of an
equal amount. Alex Warnock and Andrew Boteler have both
sacrificed part of their pension entitlement for an increase in
salary of the same amount during the year.
Directors’ Contracts
The Executive Directors have rolling service contracts that are
subject to either six or twelve months’ notice. The Chairman and
non-executive Directors do not have contracts of service.
Exercises of Share Options by Directors
Exercises of share options under the Long Term Incentive
Scheme by the Directors are summarised below. Gareth Jones’
exercises relate to LTIPs awarded to him during his tenure as
an Executive Director. He no longer holds any unvested or
unexercised share options.
Share Options Exercised
2017
Scheme
Number of
Director
A Boteler
G Jones
Share Options
No.
LTIP
LTIP
12,873
19,784
2016
Scheme
Number of
Director
A Boteler
A Boteler
G Jones
G Jones
LTIP
LTIP
LTIP
LTIP
40 | ANNUAL REPORT 2017
Share Options
No.
27,500
7,576
27,500
29,376
Market
Price
p
1,182.9
1,216.3
Market
Price
p
878.2
875.0
878.2
875.0
Exercise
Price
p
0.0
0.0
Exercise
Price
p
0.0
0.0
0.0
151.0
Exercise
Date
27/02/17
01/03/17
Exercise
Date
08/01/16
11/01/16
08/01/16
11/01/16
Total
Gain
£’000
152
241
Total
Gain
£’000
242
66
242
257
GOOCH & HOUSEGO PLC
GOVERNANCE
REMUNERATION COMMITTEE REPORT
Director Shareholdings
Shareholding Guidelines
The Directors’ beneficial interests in the issued ordinary share
capital of the Company were as follows:
Number of shares
Number of shares
at 30 September
at 30 September
2017
2016
Executive Directors
Mark Webster
Andrew Boteler
Alex Warnock
Non-executive Directors
Gareth Jones
Dr Peter Bordui
Brian Phillipson
David Bauernfeind
–
26,181
–
–
26,181
–
65,401
55,401
–
–
–
–
–
–
Following the review during the year, formal Executive Director
shareholding guidelines have been introduced. Executive
Directors are required to acquire and maintain a qualifying interest
in the ordinary shares of the company equivalent to 100% of
base salary. For LTIPs granted in March 2017 and subsequent
awards, the Directors will not be permitted to sell shares unless
the specified shareholding has been achieved, other than sale of
shares to satisfy tax obligations. For LTIPs granted in 2014 and
2015, until the minimum holding is achieved the Directors are
permitted to sell up to 50% of shares vesting, after sufficient
have been sold to settle tax liabilities.
The Gooch & Housego 2013 Long Term Incentive Plan
The Gooch & Housego 2013 LTIP was adopted on 9 April 2013.
Under the plan, awards will be made annually to key employees
based on a percentage of salary or management grade. Subject
to the satisfaction of the required TSR performance criteria and
EPS financial performance, these grants will vest upon
publication of the results of the Company three years after
the grant date. The exercise price of all awards is nil.
– Number of ordinary shares under option –
Date of
grant
At
Awarded
Exercised
01.10.2016
in year
in year
Lapsed
in year
At
30.09.2017
Expiry
Date
17.12.2014
23.12.2015
10.03.2017
17.12.2014
23.12.2015
10.03.2017
01.12.2013
17.12.2014
23.12.2015
10.03.2017
90,866
36,080
–
–
34,606
68,878
26,949
–
–
25,674
25,911
28,032
22,661
–
–
–
–
21,680
–
–
–
–
–
–
–
–
(12,873)
(13,038)
–
–
–
–
–
–
90,866
36,080
34,606
68,878
26,949
25,674
–
28,032
22,661
21,680
17.12.2018
23.12.2019
23.12.2021
17.12.2018
23.12.2019
26.03.2021
16.12.2017
17.12.2018
23.12.2019
26.03.2021
Executive
M Webster
M Webster
M Webster
A Warnock
A Warnock
A Warnock
A Boteler
A Boteler
A Boteler
A Boteler
Non-executive
G Jones
01.12.2013
39,822
–
(19,784)
(20,038)
–
16.12.2017
The Gooch & Housego 2013 Long Term Incentive Plan specifies
that the Company will operate within the standard dilution limit
of 10% of the Company’s issued share capital over a 10 year
period, but excluding the dilution arising from the 2010 Value
Creation Plan.
and £446,000 (2016: £36,000) in respect of employer’s national
insurance contributions, based on a year end share price of
£14.20 (2016: £10.10).
During the year to 30 September 2017, £587,000 (2016:
£638,000) was charged to the income statement in respect of
the IFRS 2 share based payments charge on all share option
schemes (valued using the Monte Carlo option pricing model)
Brian Phillipson
Chairman of the Remuneration Committee
28 November 2017
ANNUAL REPORT 2017 | 41
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Our Audit Approach
Context
Gooch & Housego PLC is listed on the Alternative Investment
Market (AIM) of the London Stock Exchange and its principal
activities comprise the research, design, engineering and
manufacture of advanced photonic systems, components and
instruments in the Aerospace & Defence, Industrial, Life Sciences
and Scientific Research sectors. It has operations across the
USA and Europe.
In February 2017, the Group completed the acquisition of
StingRay Optics LLC in Keene, USA. The acquisition allows the
business to further its strategic objective of broadening its
product offering and diversifying its markets and follows two
previous acquisitions in FY16.
The Group’s strategic objectives remain the diversification of
its product offering and moving up the value chain.
Report on the audit of the financial statements
Our Opinion
In our opinion, Gooch & Housego PLC’s Group financial
statements and parent company financial statements (the
“financial statements”):
• give a true and fair view of the state of the Group’s and of the
parent company’s affairs as at 30 September 2017 and of the
Group’s profit and the Group’s and the parent company’s cash
flows for the year then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union and, as regards the parent
company’s financial statements, as applied in accordance
with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of
the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Financial Statements (the “Annual Report”),
which comprise: the Group and company balance sheets as at
30 September 2017; the Group income statement and Group
statement of comprehensive income, the Group and company
cash flow statements, the notes to the Group and company cash
flow statements, and the Group and company statements of
changes in equity for the year then ended; and the notes to the
Group and company financial statements, which include a
description of the significant accounting policies.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in
the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard,
as applicable to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
42 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Overview
• Overall Group materiality: £620,000 (2016: £635,000), based on 5% of profit
before tax.
• Overall parent company materiality: £122,000 (2016: £92,000), based on 5% of
profit before tax.
• The UK audit team performed an audit of the complete financial information
of one operating unit in the USA (Gooch & Housego (Palo Alto) LLC and
two operating units in the UK (Gooch & Housego (UK) Limited and Gooch &
Housego (Torquay) Limited) as well as the Parent company based in the UK
(Gooch & Housego PLC).
• Additional procedures were also performed at a Group level over centralised
processes and functions, including the audit of consolidation journals.
• Taken together, these four reporting units (post consolidation entries) account
for 87% of Group profit before tax.
• Specific audit procedures were also performed by the UK audit team on certain
other balances and transactions and the remaining sixteen reporting units.
In particular, additional detailed testing was performed on revenue at three
reporting units in the USA (Gooch & Housego (Ohio) LLC, StingRay Optics LLC
and EM4 Inc.).
• Valuation of goodwill and intangibles (Group) and investments (parent
company) (Group and parent).
• Acquisition accounting (Group).
Key audit
matters
The scope of our audit
Key audit matters
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in
all of our audits we also addressed the risk of management
override of internal controls, including evaluating whether there
was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit
of the financial statements of the current year and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list
of all risks identified by our audit.
ANNUAL REPORT 2017 | 43
GOOCH & HOUSEGO PLCMaterialityAudit scope FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Valuation of goodwill and intangibles
We examined management’s impairment assessment, auditing in detail the key underlying
(Group) and investments (parent company)
assumptions in the discounted cash flow models.
The assessment of the carrying value of
We noted that a £0.6m impairment had been taken in relation to the Kent Periscopes business,
goodwill and intangibles involves judgment
the result of a poorer than expected first full year post acquisition.
and any impairment of the carrying value of
such assets could have a material impact on
the Group’s financial statements.
Similarly, the assessment of the carrying
value of investments held involves judgment
and any impairment of the carrying value of
such assets could have a material impact on
the parent company’s financial statements.
These are areas of continued focus for the
audit to ensure that assets are valued
correctly and not overstated in the context
of the trading performance of the relevant
cash generating units.
Group and parent
We met with management and key operational personnel to update our understanding of the various
sites and considered the discounted cash flow models with reference to current performance.
We assessed each of the key assumptions in turn and sensitised management’s model, which itself
built in an element of sensitivity against budget, to reflect uncertainty in the future cash flows.
We also compared key assumptions such as discount rate and long-term growth with market data
in the UK and the US for reasonableness.
Based on our work, we determined that the judgment of management that a £0.6m impairment was
required at Kent Periscope was reasonable. We also concluded that the judgment that no further
impairment was required at either this site or any other was also reasonable. We note however
that goodwill and intangibles held remain sensitive to changes in key assumptions. In particular, a
failure to achieve growth objectives for certain sites could give rise to an impairment in the
future. Given this management has disclosed relevant sensitivities (see note 17).
We assessed the appropriateness of the accounting and related disclosures included in the
financial statements. These are deemed reasonable.
Acquisition accounting
StingRay
Acquisition accounting involves a number of
judgements from management and is
therefore a subjective area.
The risk is that the purchase price allocation
(PPA) model may not reflect the true value of
the acquisitions made, leading to
misstatement in the financial statements.
Group
We reviewed the underlying transactions, tested the fair value of the assets and liabilities
acquired together with the intangible assets identified as part of the purchase price allocation
and reviewed the disclosures in the financial statements.
There were no significant issues noted from our work.
Included within the StingRay total consideration was $10m of deferred consideration payable
based on performance over two earn out periods subsequent to the acquisition.
Management have reassessed this deferred consideration at the balance sheet date. Based on
the current activity within the business, historical growth rates and the latest forecasts for the
business, management consider that both payments ($6.0m and $4.0m) will be made.
We have reviewed the available information and based on our work consider that management’s
judgment is reasonable.
Kent Periscopes
We note that a reassessment was also made of the deferred consideration associated with the
acquisition of Kent Periscopes (acquired in 2016). Based on the current activity levels, historical
performance and forecasts for the coming period, management concluded that the first earn out
target would be missed, but the second would be achieved.
A £0.6m adjustment was made to the deferred consideration, reflecting the amount no longer payable.
We have reviewed the available information and based on our work consider that the adjustment
made is reasonable. Further, the decision to hold the remaining deferred consideration as due
against the second earn out is deemed reasonable.
44 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the parent company, the accounting processes and
controls, and the industry in which they operate.
The Group comprises four divisions, being Industrial, Aerospace
& Defence, Life Sciences and Scientific Research and we focused
our audit work on the Group’s largest operating units, within
these divisions, in the USA and UK. The UK audit team conducted
an audit of the complete financial information of four operating
units (the largest in the USA, the two largest in the UK and the
Parent company based in the UK) due to their size and risk
characteristics. In addition, procedures were performed at a
Group level over centralised processes and functions, including
the audit of consolidation journals.
Specific audit procedures were also performed by the UK team
on certain balances and transactions material to the Group
financial statements at the remaining reporting units. Taken
altogether, these procedures gave us the evidence we needed
for our opinion on the Group financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Overall materiality
£620,000 (2016: £635,000).
How we determined it
5% of profit before tax.
£122,000 (2016: £92,000).
5% of profit before tax.
Rationale for benchmark applied
Based on the benchmarks used in the annual report
We believe that profit before tax is the primary
and our understanding of the business, profit before
measure used by the shareholders in assessing
tax is the primary measure used by the shareholders
the performance of the entity, and is a generally
in assessing the performance of the Group, and is a
accepted auditing benchmark.
generally acceptable auditing benchmark.
For each component in the scope of our Group audit, we allocated
a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between
£122,000 and £589,000. Certain components were audited to
a local statutory audit materiality that was also less than our
overall Group materiality.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £31,000
(Group audit) (2016: £31,750) and £6,100 (Parent company audit)
(2016: £4,600) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Conclusions Relating to Going Concern
We have nothing to report in respect of the following matters
in relation to which ISAs (UK) require us to report to you when:
• the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements any
identified material uncertainties that may cast significant doubt
about the Group’s and parent company’s ability to continue to
adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial
statements are authorised for issue.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
and parent company’s ability to continue as a going concern.
Reporting on Other Information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based
on these responsibilities.
ANNUAL REPORT 2017 | 45
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
With respect to the Strategic Report and Directors’ Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, ISAs (UK) require us also
to report certain opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic Report and Directors’
Report for the year ended 30 September 2017 is consistent with
the financial statements and has been prepared in accordance
with applicable legal requirements.
In light of the knowledge and understanding of the Group and
parent company and their environment obtained in the course
of the audit, we did not identify any material misstatements in
the Strategic Report and Directors’ Report.
A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and
only for the parent company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no
other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
Other Required Reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
Responsibilities for the Financial Statements and
the Audit
• we have not received all the information and explanations
we require for our audit; or
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of Directors’
Responsibilities set out on pages 31 and 32, the directors are
responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied
that they give a true and fair view. The directors are also responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate
the Group or the parent company or to cease operations, or have
no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
46 | ANNUAL REPORT 2017
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• the parent company financial statements are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Other Voluntary Reporting
Directors’ remuneration
The parent company voluntarily prepares a Directors’
Remuneration Report in accordance with the provisions of the
Companies Act 2006. The directors requested that we audit
the part of the Directors’ Remuneration Report specified by
the Companies Act 2006 to be audited as if the parent
company were a quoted company.
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the CA06.
Mark Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
28 November 2017
GOOCH & HOUSEGO PLC GROUP INCOME STATEMENT
For the year ended 30 September 2017
Revenue
Cost of revenue
Gross profit
Research and Development
Sales and Marketing
Administration
Other income and expenses
Operating profit
Finance income
Finance costs
Profit before income tax expense
Income tax expense
Profit for the year
Basic earnings per share
Diluted earnings per share
Reconciliation of operating profit to adjusted operating profit:
Profit before tax
Amortisation of acquired intangible assets
Gain on bargain purchase
Release of accrued contingent consideration
Impairment of goodwill
Provision for regulatory compliance risk
Restructuring costs
Transaction fees
Interest on discounted deferred consideration
Adjusted profit before tax
FINANCIAL STATEMENTS
Note
7
9
11
12
12
13
15
15
Note
17
17
23
11
11
2017
£’000
112,016
(65,937)
46,079
(8,119)
(9,459)
(16,937)
1,714
13,278
27
(703)
12,602
(3,710)
8,892
36.4p
35.8p
2017
£’000
12,602
2,202
–
(615)
615
–
536
390
381
16,111
2016
£’000
86,051
(53,752)
32,299
(6,697)
(6,469)
(11,425)
2,476
10,184
39
(127)
10,096
(3,048)
7,048
29.1p
28.6p
2016
£’000
10,096
1,263
(578)
–
771
500
1,652
466
–
14,170
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2017
Profit for the year
Other comprehensive (expense) / income – items that may be reclassified subsequently
to profit or loss
Currency translation differences
Other comprehensive (expense) / income for the year net of tax
Note
26
2017
£’000
8,892
2016
£’000
7,048
(1,410)
(1,410)
5,954
5,954
Total comprehensive income for the year attributable to the shareholders of Gooch & Housego PLC
7,482
13,002
ANNUAL REPORT 2017 | 47
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
GROUP BALANCE SHEET
As at 30 September 2017
Non-current assets
Property, plant and equipment
Intangible assets
Deferred income tax assets
Current assets
Inventories
Income tax assets
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings
Income tax liabilities
Provision for other liabilities and charges
Deferred consideration
Net current assets
Non-current liabilities
Borrowings
Deferred income tax liabilities
Deferred consideration
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Merger reserve
Cumulative translation reserve
Retained earnings
Total equity
Note
16
17
24
18
19
20
21
22
23
22
24
25
26
26
26
26
2017
£’000
33,890
40,250
2,703
76,843
21,078
267
24,723
26,425
72,493
2016
£’000
32,384
29,916
2,674
64,974
18,973
394
22,679
23,167
65,213
(23,758)
(19,624)
(6)
(579)
(888)
(4,286)
(29,517)
(4)
(891)
(940)
–
(21,459)
42,976
43,754
(11,492)
(5,938)
(4,253)
(21,683)
(11,494)
(4,806)
(2,256)
(18,556)
98,136
90,172
4,903
15,530
4,640
5,574
67,489
98,136
4,852
15,530
2,671
6,984
60,135
90,172
The financial statements for Gooch & Housego PLC, registered number 00526832, on pages 47 to 76 were approved by the
Board of Directors on 28 November 2017 and signed on its behalf by:
Mark Webster
Director
Andrew Boteler
Director
48 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2017
FINANCIAL STATEMENTS
Note
Called up
Share
share
capital
£’000
4,818
premium
account
£’000
15,530
Merger
reserve
Retained
Cumulative
Total
Earnings
translation
equity
£’000
2,671
–
–
–
–
–
–
–
–
–
–
–
–
1,969
–
–
£’000
54,318
7,048
–
7,048
(2,055)
(34)
638
220
(1,231)
60,135
60,135
8,892
–
8,892
(2,289)
(15)
587
179
1,969
(1,538)
reserve
£’000
1,030
–
5,954
5,954
–
–
–
–
–
6,984
6,984
–
(1,410)
(1,410)
–
–
–
–
–
£’000
78,367
7,048
5,954
13,002
(2,055)
–
638
220
(1,197)
90,172
90,172
8,892
(1,410)
7,482
(2,289)
2,005
587
179
482
–
–
–
–
34
–
–
34
–
–
–
–
–
–
–
–
–
–
–
–
51
–
–
51
–
–
–
–
–
–
–
–
4,852
4,852
15,530
15,530
2,671
2,671
At 1 October 2015
Profit for the financial year
Other comprehensive income for the year
Total comprehensive income for the year
Dividends
Shares issued
Fair value of employee services
Tax credit relating to share option schemes
Total contributions by and distributions to owners
of the parent recognised directly in equity
At 30 September 2016
At 1 October 2016
Profit for the financial year
Other comprehensive income for the year
Total comprehensive income / (expense)
for the year
Dividends
Shares issued
Fair value of employee services
Tax credit relating to share option schemes
Total contributions by and distributions to owners
of the parent recognised directly in equity
14
14
At 30 September 2017
4,903
15,530
4,640
67,489
5,574
98,136
ANNUAL REPORT 2017 | 49
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
GROUP CASH FLOW STATEMENT
For the year ended 30 September 2017
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Sale of property, plant and equipment
Purchase of intangible assets
Interest received
Interest paid
Net cash used in investing activities
Cash flows from financing activities
Drawdown of borrowings
Repayment of borrowings
Dividends paid to ordinary shareholders
Net cash (used in) / generated from financing activities
Net increase / (decrease) in cash
Cash at beginning of the year
Exchange (losses) / gains on cash
Cash at the end of the year
2017
£’000
19,526
(1,957)
17,569
(5,658)
(5,799)
29
(604)
27
(326)
2016
£’000
13,897
(1,324)
12,573
(5,687)
(9,710)
–
(629)
39
(111)
(12,331)
(16,098)
5,918
(5,523)
(2,289)
(1,894)
3,344
23,167
(86)
26,425
5,426
(39)
(2,055)
3,332
(193)
22,556
804
23,167
50 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC NOTES TO THE GROUP CASH FLOW STATEMENT
For the year ended 30 September 2017
Reconciliation of cash generated from operations
FINANCIAL STATEMENTS
2017
£’000
12,602
2016
£’000
10,096
2,202
1,263
199
–
615
(615)
3,664
587
(370)
(27)
703
355
(578)
771
–
3,042
638
(270)
(39)
127
6,958
5,309
(1,442)
(1,465)
2,873
(34)
223
(4,436)
2,705
(1,508)
19,526
13,897
2017
£’000
3,344
(5,918)
5,523
2,949
–
310
3,259
11,668
14,927
2016
£’000
(193)
(5,426)
39
(5,580)
(25)
(55)
(5,660)
17,328
11,668
At 1 Oct 2016
Cash flow
Exchange
At 30 Sep 2017
£’000
23,167
(11,474)
(25)
11,668
£’000
3,344
(402)
7
2,949
movement
£’000
(86)
396
–
310
£’000
26,425
(11,480)
(18)
14,927
ANNUAL REPORT 2017 | 51
Profit before income tax
Adjustments for:
– Amortisation of acquired intangible assets
– Amortisation of other intangible assets
– Gain on bargain purchase of Alfalight
– Impairment of goodwill
– Release of accrued contingent consideration
– Depreciation
– Share based payment charge
– Amounts claimed under the RDEC
– Finance income
– Finance costs
Total
Changes in working capital
– Inventories
– Trade and other receivables
– Trade and other payables
Total
Cash generated from operating activities
Reconciliation of net cash inflow to movements in net cash
Increase / (Decrease) in cash in the year
Drawdown of borrowings
Repayment of borrowings
Changes in net cash resulting from cash flows
Finance leases acquired
Translation differences
Movement in net cash in the year
Net cash at 1 October
Net cash at 30 September
Analysis of net cash
Cash at bank and in hand
Debt due after 1 year
Finance leases
Net cash
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
1. General information
Gooch & Housego PLC (the “Company”) is incorporated and
domiciled in the United Kingdom. The Company is listed on the
Alternative Investment Market (“AIM Market”) of the London
Stock Exchange. The address of the registered office of the
Company is given on page 89.
The consolidated financial statements of the Group for the year
ended 30 September 2017 comprise the Company, Gooch &
Housego PLC, and its subsidiaries (together referred to as the
“Group”). A listing of the Company’s subsidiaries is set out on
page 84.
The Group is a manufacturer of specialist optoelectronic
components, materials and systems and specialist
instrumentation and life sciences devices. The Group has
facilities in the United Kingdom, Germany and the United States.
2. Basis of Preparation
These financial statements have been prepared under the
historical cost convention as modified by financial assets and
financial liabilities (including derivative instruments) at fair
value and in accordance with International Financial Reporting
Standards as adopted by the European Union (“IFRS”) and IFRIC
Interpretations in issue at 30 September 2017, and with those
parts of the Companies Act 2006 applicable to companies
preparing financial statements in accordance with IFRS. The
financial statements have been prepared on a going concern basis.
3. Application of IFRS
Adoption of New Standards
There has been no material impact from the adoption of new
standards or revised standards or interpretations which are
relevant to the Group:
• Annual Improvements 2012-2014
• Amendment to IAS16 “Property, plant and equipment” and
IAS 38 “Intangible Assets” on depreciation and amortisation
• Amendments to IAS27 “Separate financial statements” on
equity accounting
• Amendments to IFRS10 “Consolidated financial statements”
and IAS28 “Investments in associates and joint ventures” on
applying the consolidation exemption
• Amendments to IAS1 “Presentation of financial statements”
disclosure initiative
ISA (UK) 700
ISA (UK) 700 “Forming an opinion and reporting on financial
statements” applies to AIM listed entities for periods commencing
on or after 17 June 2016. The form and content of the audit report
contained within the financial statements has been extended.
52 | ANNUAL REPORT 2017
The following standards will apply to the Group in future
accounting periods:
IFRS 9 Financial Instruments
This standard will apply for the first time in the year ending 30
September 2019. Management do not currently envisage this
standard having a material effect on the financial statements,
because the Group does not currently utilise derivatives, although
there may be some changes to the disclosure related to
financial instruments.
IFRS 15 Revenue from Contracts with Customers
IFRS15 will apply to the Group for the first time in the year ending
30 September 2019. Management have been monitoring the
potential effect of the Standard on the Group’s financial
statements. The majority of the Group’s revenue is derived from
sale of products, none of which have warranty terms extended
beyond the standard for the industry. Because of this,
management do not currently expect IFRS15 to have a material
impact on the financial statements, but will continue to monitor
this as the adoption date gets closer.
IFRS 16 Leases
This new standard will apply to the Group for the first time in the
year ending 30 September 2020. Following adoption of the
standard, management expect all of the Group’s operating leases
to be reclassified onto the balance sheet. This will entail the
recognition of right of use assets and lease liabilities relating to
existing operating leases, although we do not currently envisage
a material effect on the Group’s net assets or profit before tax.
4. Accounting Policies
The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have
been consistently applied to all of the years presented, unless
otherwise stated.
Consolidation
Subsidiaries are entities that are directly or indirectly controlled by
the Group. Control exists where the Group has the power to govern
the financial and operating policies of the entity so as to obtain
benefits from its activities. In assessing control, potential voting
rights that are currently exercisable or convertible are taken
into account.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of a business
combination is measured as the fair value of the assets given,
equity instruments issued, the fair value of contingent or deferred
consideration and liabilities incurred or assumed at the date of
exchange. Costs directly attributable to the business combination
are charged to the income statement. The excess of the costs of
a business combination over the fair value of the identifiable net
assets acquired is recorded as goodwill. If the cost of a business
combination is less than the fair value of the net assets of the
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
subsidiary acquired, the difference is recognised directly in the
income statement. Should the fair value of contingent or deferred
consideration vary from the actual value on settlement date, the
difference is recognised directly in the income statement.
Where deferred consideration is payable in cash, the amount is
discounted to present value at the date of acquisition, using the
Group’s weighted average cost of capital. The financing charge
which arises on the discounted consideration between the
acquisition date and the date of payment is included within
finance costs.
Transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses
are also eliminated but considered an impairment indicator of
the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with
the policies adopted by the Group.
Subsidiary audit Exemptions
Gooch & Housego (UK) Limited, Gooch & Housego (Torquay)
Limited, Spanoptic Limited, Kent Periscopes Limited, G&H US
Holdings Limited and G&H Property Holdings Limited are exempt
from the requirement to file audited accounts by virtue of Section
479A of the Companies Act 2006.
Segment Reporting
A business segment is a grouping of operations engaged in
providing products or services that are subject to risks and
returns that are different from those of other business segments.
A market segment is engaged in providing products or services
within a particular economic environment that are subject to
risks and returns which are different from those of segments
operating in other economic environments.
The chief operating decision maker in determining a business
or operating segment is the Board of Directors.
Foreign Currency Translation
a. Functional and presentation currency
The consolidated financial statements are presented in
Pounds Sterling, which is the Group’s presentation currency.
Items included in the financial statements of each of the
Group’s subsidiaries are measured using the currency of the
primary economic environment in which the entity operates
(the “functional currency”).
b. Transactions and Balances
Foreign currency transactions are translated into an entity’s
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from
the translation at balance sheet exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred in
equity as qualifying cash flow hedges and qualifying net
investment hedges.
c. Subsidiaries
The results and financial position of subsidiaries that have a
functional currency different from the presentation currency
are translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated
at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and
expenses are translated at the rate on the dates of the
transactions); and
• all resulting exchange differences are recognised in other
comprehensive income and as a separate component of equity.
On consolidation, exchange differences arising from the
translation of the net investment in foreign operations, and
of borrowings and other currency instruments designated as
hedges of such investments, are taken to shareholders’ equity.
When a foreign operation is partially disposed of or sold,
exchange differences that were recorded in equity are
recognised in the income statement as part of the gain or loss
on sale.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
No depreciation is charged on freehold land or capital work in
progress. Certain plant used in the manufacturing process which
is constructed from precious metals is not depreciated.
Depreciation on other assets is calculated to allocate their cost
over their estimated useful lives, as follows:
• Freehold buildings
2-3% Straight line
• Leasehold property
over term of lease Straight line
• Plant and machinery
10-20% Straight line
• Fixtures, fittings and computers 10-33% Straight line
• Motor vehicles
25% Reducing balance
ANNUAL REPORT 2017 | 53
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date. Where an
asset’s carrying amount is greater than its estimated recoverable
amount, the asset’s carrying amount is written down immediately
to its recoverable amount. The recoverable amount is the higher
of an asset’s fair value less costs to sell or an asset’s value in use.
Intangible Assets
a. Goodwill
Goodwill represents the excess of the cost of a business
combination over the fair value of the net identifiable assets of
the acquired business. Goodwill arising from business
combinations is included in ‘intangible assets’.
Goodwill is tested annually for impairment and carried at cost
less accumulated impairment losses. The impairment testing
requires an estimation of the ‘value in use’ of the Cash-generating
unit (the “CGU”) to which goodwill is allocated using appropriately
discounted cash flow projections. Any impairment is recognised
immediately as an expense to the income statement and is not
subsequently reversed.
For the purpose of impairment testing a CGU is defined as either
a business segment or an operating entity, as appropriate.
Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
b. Patents, Trademarks and Licenses
Internally incurred costs associated with the filing and perfection
of patents and trademarks are capitalised and carried at cost less
accumulated amortisation. Amortisation is calculated using the
straight line method to allocate the cost over their useful
economic lives and are charged to Research and Development
in the income statement.
Acquired patents, trademarks and licences are shown at historical
cost. Patents, trademarks and licences have a finite useful life and
are carried at cost less accumulated amortisation. Amortisation
is calculated using the straight line method to allocate the cost
over their useful economic lives.
c. Computer Software
Costs associated with developing or maintaining computer
software programmes are recognised as an expense as incurred.
Costs that are directly associated with the development of
identifiable and unique software products controlled by the
Group, and that will probably generate economic benefits
exceeding costs beyond one year, are capitalised and recognised
as intangible assets. Costs include the software development
employee costs and an appropriate portion of relevant overheads.
Acquired computer software and licences are capitalised on
the basis of the costs incurred to acquire and bring to use the
specific software.
54 | ANNUAL REPORT 2017
Capitalised software costs are amortised using the straight
line method over their estimated useful lives of up to 5 years
and charged to Administration in the income statement.
d. Research and Development
Expenditure on research activities, undertaken with the
prospect of gaining new scientific or technical knowledge
and understanding, is recognised as an expense as incurred.
Development costs incurred after the point at which the
commercial and technical feasibility of the product have been
proven, and the decision to complete the development has
been taken and resources made available, are capitalised. The
expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads.
Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses. Development
costs are amortised using the straight line method over their
estimated useful life lives, which is typically 5 years, and are
charged to Research and Development in the income statement.
e. Acquired Intangibles
Other acquired intangible assets are stated at fair value less
accumulated amortisation and impairment losses.
The useful life of each of these assets is assessed based on
the differing natures of each of the intangible assets acquired.
Amortisation is charged on a straight-line basis over the
estimated useful life of the assets acquired and charged to
administration in the Income Statement.
• Customer relationships
• Brand names
up to 10 years
up to 10 years
• Acquired patents, trademarks and licences
up to 3 years
Government Grants
Government grants are accounted for on an accruals basis. Grants
are credited to the income statement over the life of the project.
Where grants are used to fund the acquisition of property, plant
and equipment, the grant is initially credited to deferred income
then credited to the income statement over the estimated
economic life of the asset.
Impairment of Non-financial Assets
The Group assesses at each balance sheet date whether an
asset may be impaired. If any such indicator exists, the Group
tests for impairment by estimating the recoverable amount
which is the higher of the value in use and the fair value less
costs to sell. If the recoverable amount is less than the carrying
value of the asset, the asset is impaired and the carrying value
is reduced to its recoverable amount. In addition to this, assets
with indefinite lives are tested for impairment annually.
Non-financial assets other than goodwill which have suffered
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
an impairment are reviewed for possible reversal of the
impairment at each balance sheet date.
Loans and Receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except those with
maturities greater than 12 months from the balance sheet date.
These are classified as non-current assets. Loans and receivables
are classified as trade and other receivables in the balance sheet.
Inventories
Inventories are stated at the lower of weighted average cost
and net realisable value. The cost of finished goods and work in
progress comprises design costs, raw materials, direct labour,
other direct costs and related production overheads (based on
normal operating capacity). It excludes borrowing costs. Net
realisable value is the estimated selling price in the ordinary
course of business, less applicable variable selling expenses.
Long term contract balances included in work in progress comprise
costs incurred on long term contracts, net of any amounts
transferred to trading expenditure, after deducting foreseeable
losses and related payments on account. Costs include all direct
material and labour costs incurred in bringing a contract to its state
of completion at the year end. Provisions for estimated losses
on contracts are made in the period in which such losses are
foreseen. Long term contract balances do not include attributable
profit. The amount by which customer billings exceed the revenue
recognised on a contract is shown as a payment on account.
Trade Receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more
than 30 days overdue) are considered indicators that the trade
receivable may be impaired.
The amount of the provision is the difference between the asset’s
carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. The
carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the loss is recognised in
the income statement within ‘Administration costs’. When a
trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries
of amounts previously written off are credited against
‘Administration costs’ in the income statement.
Cash and Cash Equivalents
Cash and cash equivalents for the purpose of the cash flow
statement includes cash in hand and deposits held on call with
banks with original maturities of three months or less.
Trade Payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised
cost; any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the income
statement over the period of the borrowings using the
effective interest method.
Borrowing costs which are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised
as part of the cost of that asset.
Borrowing costs are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
Financial Instruments
Financial instruments are initially recognised at fair value on
the date that a contract is entered into and are subsequently
remeasured at their fair value. The Group documents the
relationship between the hedging instrument and the hedged
item and, on a periodic basis, assesses whether the hedge
is effective.
Current and Deferred Income Tax
Income tax on the profit or loss for the year comprises current
and deferred tax.
Current tax is the expected tax payable on the taxable income
for the year using rates enacted at the balance sheet date, and
any adjustments to tax payable in respect of prior years.
Amounts claimed under the RDEC scheme have been
recognised within operating profit.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, the deferred income tax is not
accounted for, if it arises from initial recognition of an asset or
liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting
nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted by the balance
ANNUAL REPORT 2017 | 55
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability
is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in other comprehensive income and equity, in which case it is
recognised in other comprehensive income and equity.
In the UK and US, the Company is entitled to a tax deduction for
amounts treated as compensation on exercise of certain
employee share options under each jurisdiction’s tax rules. As
explained under “Share options” below, a compensation expense
is recorded in the Company’s income statement over the period
from the grant date to the vesting date of the relevant options.
As there is a temporary difference between the accounting and
tax bases, a deferred income tax asset is recorded. The deferred
income tax asset arising is calculated by comparing the estimated
amount of tax deduction to be obtained in the future (based on
the Company’s share price at the balance sheet date) with the
cumulative amount of the compensation recorded in the income
statement. If the amount of estimated future tax deduction
exceeds the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in equity.
Employee benefits
a. Pension Obligations
The Group operates money purchase pension schemes for UK
employees and Section 401(k) plans for US employees. The
Group pays contributions to publicly or privately administered
pension insurance plans on a mandatory, contractual or voluntary
basis. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised
as an employee benefit expense in the income statement when
they are due. Prepaid contributions are recognised as an asset
to the extent that a cash refund or a reduction in the future
payments is available.
b. Profit Share and Bonus Plans
The Group recognises a liability and an expense for bonuses
and profit-sharing, based on a formula that takes into
consideration the profit attributable to the Group’s shareholders
after certain adjustments. The Group recognises a provision
where contractually obliged or where there is a past practice
that has created a constructive obligation.
56 | ANNUAL REPORT 2017
c. Share Options
The Group operates a number of share option schemes. In
accordance with IFRS 2 the fair value of the employee services
received in exchange for the grant of the options is recognised as
an expense in the income statement. The total amount to be
expensed over the vesting period is determined by reference to
the fair value of the options granted, excluding the impact of any
non-market vesting conditions (for example, profitability targets).
Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest.
Employer’s National Insurance in the United Kingdom and
equivalent taxes in other jurisdictions are payable on the exercise
of certain share options. In accordance with IFRS 2, this is treated
as a cash-settled transaction. A provision is made, calculated
using the fair value of the Company’s shares at the balance sheet
date, pro-rated over the vesting period of the options.
At each balance sheet date, for awards with non market vesting
conditions, the entity revises its estimates of the number of
options that are expected to vest. It recognises the impact of the
revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity. The fair value of
the options under the Gooch & Housego 2013 Long Term
Incentive Plan are determined by using the Monte Carlo option
pricing model.
The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share
premium when the options are exercised.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated.
The Group monitors and assesses its warranty provision
requirement on a continuing basis. The provision for other
liabilities and charges provides for the anticipated cost of repair
and rectification of products under warranty, based on historical
repair and replacement costs. In addition the Directors will also
assess expected changes in future costs based on current
information.
Exceptional Items
Transactions are classified as exceptional where they relate to an
event that falls outside the ordinary activities of the business
and where individually or in aggregate they have a material
impact on the financial statements.
Leases
Leases which transfer substantially all the risks and rewards of
ownership of an asset are treated as a finance lease. Assets
held under a finance lease are capitalised at their fair value at
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
the inception of the lease and depreciated over the estimated
useful economic life of the asset or lease term if shorter.
Finance charges are associated with the finance lease are
expensed in proportion to the capital amount outstanding.
Dividend distribution
Dividend distributions to the Company’s shareholders are
recognised as a liability in the Group’s financial statements
in the period in which the dividends are approved by the
Company’s shareholders.
All other leases are classified as operating leases. Operating
lease rentals are expensed in equal annual amounts over the
lease term.
5. Financial Risk Management
Capital Risk Management
Share Capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction, net of tax, from
the proceeds.
Management considers capital as equity, as shown in the
Group balance sheet, excluding net cash.
The Group’s objectives when managing capital are to safeguard
the Group’s ability
• to continue as a going concern,
Revenue Recognition
• to provide returns for shareholders and benefits for other
Revenue comprises the fair value of the consideration received
or receivable for the sale of goods and services in the ordinary
course of the Group’s activities. Revenue is shown net of
value-added tax, returns, rebates and discounts and after
eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can
be reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met
for each of the Group’s activities as described below. The amount
of revenue is not considered to be reliably measurable until all
contingencies relating to the sale have been resolved.
a. Sale of Goods
Revenue is recognised when the risks and rewards of the
underlying sale have been transferred to the customer, and when
collectability of the related receivable is reasonably assured.
Depending on the terms of business, this occurs either on the
dispatch/delivery of the goods supplied or on acceptance by
the customer.
b. Long Term Contracts
Revenue is recognised on long term contracts by reference to
the stage of completion of the contract activity at the balance
sheet date. Revenue and profits are determined by estimating
the outcome of the contract and determining the costs and
profit attributable to the stage of completion.
Where the outcome of the contract cannot be reliably estimated,
contract costs are recognised as an expense when incurred and
revenue is recognised to the extent of the costs incurred that
are expected to be recoverable. In both cases, any expected
contract loss is recognised immediately.
c. Interest Income
Interest income is recognised on a time-proportion basis using
the effective interest method.
stakeholders and
• to maintain an optimal capital structure to reduce the cost
of capital.
The Board is satisfied that these objectives have been met
during the year. Actions taken during the year to achieve these
objectives are outlined in the Chief Executive Officer’s Review.
In order to maintain or adjust the capital structure, the Group may
• adjust the amount of dividends paid to shareholders,
• return capital to shareholders,
• issue new shares,
• sell assets to reduce debt and
• vary the level of debt financing.
While the Group’s debt to equity ratio is consistently monitored,
changes in the Group’s need for capital and the selection of the
source and funding of capital are assessed against a number
of criteria which may have a direct effect on the Group debt to
equity ratio.
The Group’s capital needs include, but are not solely limited to, its
• investment in non-current assets;
• investment in working capital; and
• acquisition of businesses, technologies and other intangible
assets.
ANNUAL REPORT 2017 | 57
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
The criteria against which the Group’s capital needs are
assessed include, but are not limited to,
• availability of and cost of debt financing;
• ability to raise equity financing at an acceptable share price; and
• ratio of debt to equity.
Financial Risks
The Group’s activities expose it to a variety of financial risks:
market risk (including foreign exchange risk and cash flow interest
rate risk), credit risk and liquidity risk.
The Group’s overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
Where considered appropriate, the Company will use derivative
financial instruments to hedge risk exposures, although no
such arrangements were in place during the year ended 30
September 2017 or 2016.
i. Market risk
a. Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures,
primarily with respect to the US Dollar.
Foreign exchange risk arises from
• future commercial transactions;
• recognised assets and liabilities; and
• net investments in foreign operations.
The Group has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.
Currency exposure arising from the net assets of the Group’s
foreign operations is managed primarily through borrowings
denominated in the relevant foreign currencies.
No financial derivatives have been entered into to manage
foreign exchange exposure.
As a significant amount of the Group’s profit is earned by its US
subsidiaries, the Group’s profit is sensitive to movements in the
US Dollar exchange rate. If the average US Dollar exchange rate
for the year had been consistent with the closing exchange rate
at 30 September 2016, with all other variables constant, post tax
profits for the year would have been £123,000 lower (2016:
£447,000 lower) as a result of the translation in US Dollars.
Equity is more sensitive to movement in the US Dollar exchange
rate as a significant amount of the Group’s net assets are held in
the Group’s US subsidiaries. If the US Dollar weakened by 10%
against Pound Sterling with all other variables held constant,
the net assets of the Group would be £1,953,000 lower (2016:
£1,821,000 lower). If the US Dollar strengthened by 10% against
Pound Sterling with all other variables held constant, the net
assets of the Group would be £2,388,000 higher (2016:
£2,226,000 higher).
b. Cash flow interest rate risk
The Group has cash balances of £26.4m which are held in interest
bearing current accounts. The Group’s income and operating
cash flows are substantially independent of changes in market
interest rates.
The Group’s interest rate risk arises from its revolving credit
facility. A 1% increase in the cost of borrowing would have
resulted in an annualised increase in interest expense of
£146,000 (2016: £68,000) had the Group’s borrowings been
in place throughout the year.
Borrowings issued at variable interest rates expose the Group to
cash flow interest rate risk. During 2016 and 2017, the Group’s
borrowings at variable interest rates were denominated in
Pound Sterling and US Dollars as detailed in Note 22.
ii. Credit Risk
Credit risk is the risk of financial loss to the Group if a customer
or counterparty to a financial instrument fails to meet its
contractual obligations. It arises principally from the Group’s
trade receivables.
a. Trade and other receivables
The management of credit risk exposure is the responsibility of
each business unit which has credit policies in place to mitigate
the risk. The credit policies seek to verify a customer’s credit
worthiness prior to trading and maintain the level of trading
within agreed credit limits. Changes to credit limits require
authorisation in accordance with internal control policies.
The Group is exposed to concentration of credit risk. The Group’s
top ten customers in 2017 accounted for 25% of the Group’s
revenue (2016: 26%). No individual customer made up more
than 6% of revenue in either the current or prior year.
The Group’s trade receivables are analysed in note 19.
b. Cash
Cash is held in current and deposit accounts with financial
institutions which have credit ratings of A- or greater.
58 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
iii. Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet
its financial obligations as they fall due. The Group aims to
achieve a balance between certainty of funding and a flexible,
cost effective borrowing structure.
Inventory Provision
The Group continually monitors and assesses the provision for
old and slow moving inventory. Factors considered by the
Directors include the expected future usage and the potential
obsolescence and deterioration of the Inventory.
The Company’s facilities comprise a committed revolving credit
facility of $15m of which $8m is drawn and an uncommitted
flexible acquisition facility of $20m of which $7.5m is drawn.
Both are available until 30 April 2019. These are analysed in
Notes 22 and 29.
The Group aims to ensure that there are sufficient funds or credit
lines available to supplement cash flows generated from trading
to meet known obligations in the next twelve months.
6. Critical accounting estimates and judgments
The preparation of financial statements in accordance with
International Financial Reporting Standards (IFRS) requires the
Directors to make critical accounting estimates and judgments
that affect the amounts reported in the financial statements
and accompanying notes. These estimates and judgments are
continually evaluated and are based on historical experiences
and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. The
resulting accounting estimates will on occasions fail to equal
actual results.
The estimates and assumptions that have significant risk of
causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined below.
Impairment of Goodwill
The Group tests goodwill for impairment at least annually. This
requires an estimation of the value in use of the Cash Generating
Units (the “CGUs”) to which goodwill is allocated. The value in
use calculations are based on forecast cash flows of the CGU
discounted at the Group’s weighted average cost of capital. These
calculations have a number of significant variables including
forecast revenue and margins, working capital movements and
maintenance capital expenditure levels. The calculations are also
sensitive to the discount rate used. Further details are given in
note 17.
Accounting for Acquisitions
An assessment of the fair value of the purchase consideration
and net assets acquired has been undertaken in respect of the
acquisition of StingRay Optics LLC. Determining the fair value
of the consideration involves an estimate of the deferred
consideration payable, which is dependent on post-acquisition
performance, and therefore inherently uncertain. Intangible
assets relating to customer relationships, the order book and
the brand have been recognised based on an estimate of the
future cash flows to be derived from those assets.
ANNUAL REPORT 2017 | 59
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
7. Segmental Analysis
The Company’s segmental reporting reflects the information that management uses within the business. The business is divided into
four market sectors, being Aerospace & Defence, Life Sciences, Industrial and Scientific Research, together with the Corporate
cost centre.
The industrial business segment primarily comprises the industrial laser market for use in the semiconductor and microelectronic
industries, but also includes other industrial applications such as metrology and telecommunications. Scientific Research covers
academic and government funded research including major multi-national projects.
For the year ended 30 Spetember 2017
Aerospace
Life
Industrial
Scientific
Corporate
Total
Revenue
Total revenue
inter and intra-division
External revenue
Divisional expenses
EBITDA1
EBITDA%
& Defence
Sciences
Research
£’000
£’000
£’000
£’000
£’000
£’000
34,860
9,570
71,336
3,325
–
–
(7,075)
–
34,860
9,570
64,261
3,325
–
–
–
119,091
(7,075)
112,016
(29,880)
(8,165)
(50,417)
(2,821)
(1,389)
(92,672)
4,980
14.3%
1,405
14.7%
13,844
21.5%
504
(1,389)
19,344
15.2%
–
17.3%
Depreciation and amortisation
(715)
(388)
(2,000)
(136)
(625)
(3,864)
Operating profit before amortisation of acquired
intangible assets, goodwill impairment and release of
4,265
1,017
11,844
368
(2,014)
15,480
contingent consideration
Amortisation of acquired intangible assets, goodwill
–
–
–
–
(2,202)
(2,202)
impairment and release of contingent consideration
Operating profit
Operating profit margin %
4,265
12.2%
1,017
10.6%
11,844
18.4%
368
11.1%
(4,216)
–
13,278
11.9%
Add back non-recurring items and amortisation of acquired
intangibles, goodwill impairment and release of contingent
–
–
–
–
3,128
3,128
consideration
Adjusted operating profit
Adjusted profit margin %
Finance costs
4,265
12.2%
–
1,017
10.6%
–
11,844
18.4%
–
Profit before income tax expense
4,265
1,017
11,844
368
11.1%
–
368
(1,088)
16,406
–
14.6%
(676)
(676)
(4,892)
12,602
60 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
For the year ended 30 Spetember 2016
Aerospace
Life
Industrial
Scientific
Corporate
Total
Revenue
Total revenue
inter and intra-division
External revenue
Divisional expenses
EBITDA1
EBITDA%
Depreciation and amortisation
Operating profit before amortisation of acquired
& Defence
Sciences
Research
£’000
£’000
£’000
£’000
£’000
£’000
19,977
7,904
59,875
3,874
–
–
(5,579)
–
19,977
7,904
54,296
3,874
–
–
–
91,630
(5,579)
86,051
(18,055)
(6,017)
(42,719)
(2,881)
(1,342)
(71,014)
1,922
9.6%
(545)
1,887
23.9%
11,577
21.3%
993
(1,342)
25.6%
–
15,037
17.5%
(335)
(1,776)
(310)
(431)
(3,397)
intangible assets
1,377
1,552
9,801
683
(1,773)
11,640
Amortisation of acquired intangible assets, gain on
bargain purchase and goodwill impairment
Operating profit
Operating profit margin %
Add back amortisation of intangibles, impairment of goodwill,
gain on bargain purchase and non-recurring items
Adjusted operating profit
Adjusted profit margin %
Finance costs
–
1,377
6.9%
108
1,485
7.4%
–
–
1,552
19.6%
53
1,605
20.3%
–
–
9,801
18.1%
960
10,761
19.8%
–
Profit before income tax expense
1,377
1,552
9,801
–
683
17.6%
37
720
18.6%
–
683
(1,456)
(1,456)
(3,229)
–
10,184
11.8%
2,916
(313)
–
(88)
4,074
14,258
16.6%
(88)
(3,317)
10,096
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
Management have added back the amortisation of intangibles, gain on bargain purchase, impairment of goodwill, restructuring
costs, provision for export compliance risk and transaction fees in the above analysis. This has been shown because the Directors
consider the analysis to be more meaningful excluding the impact of these non-recurring expenses.
All of the amounts recorded are in respect of continuing operations.
Analysis of net assets / (liabilities) by location:
United Kingdom
USA
Continental Europe
Asia Pacific
2017
2017
2017
2016
2016
2016
Assets
Liabilities
Net Assets
Assets
Liabilities
Net Assets
£’000
75,104
73,641
545
46
£’000
£’000
(32,612)
42,492
(18,477)
55,164
(98)
(13)
447
33
£’000
70,336
59,077
726
48
£’000
£’000
(30,580)
39,756
(9,112)
49,965
(318)
(5)
408
43
149,336
(51,200)
98,136
130,187
(40,015)
90,172
ANNUAL REPORT 2017 | 61
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
For the year to 30 September 2017 non-current asset additions were £1.9m (2016: £2.0m) for the UK and for the USA £4.5m
(2016: £7.3m). There were no additions to non-current assets in respect of Europe (2016: £nil) or the Asia Pacific region (2016: £nil).
The value of non-current assets in the USA was £47.9m (2016: £34.7m), the United Kingdom £29.0m (2016: £30.1m) and Europe
£nil (2016: £nil). There were no non-current assets in the Asia-Pacific region.
2017
£’000
18,624
45,485
24,233
23,674
112,016
2016
£’000
17,247
34,918
19,189
14,697
86,051
2017
£’000
2016
£’000
35,598
27,424
(710)
1,357
47,290
12,209
3,664
2,202
199
–
615
(615)
38,280
6,429
3,042
1,263
355
(578)
771
–
Note
10
9
(1,714)
(2,476)
98,738
75,867
2017
£’000
1,285
370
59
2016
£’000
2,220
270
(14)
1,714
2,476
Analysis of revenue by destination:
United Kingdom
USA
Continental Europe
Asia Pacific and Other
8. Expenses by Nature
Raw materials and consumables
Changes in inventory
Employee costs
Other operating charges
Depreciation
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Gain on bargain purchase – Alfalight
Impairment of goodwill
Release of accrued contingent consideration
Other income and expenses
9. Other Income and Expenses
Grants receivable
Amounts claimed under the RDEC
Other income / (expense)
62 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
10. Employee Benefit Expense
Wages and salaries
Social security costs
Share based payment charge
Medical and other insurance
Other pension costs
The average monthly number of employees during the year was:
Manufacturing
Sales, finance and administration
Key management compensation
Salaries and other short-term benefits
Share based payments
Other pension costs
FINANCIAL STATEMENTS
2017
£’000
2016
£’000
37,841
30,971
3,434
587
4,015
1,413
2,551
638
2,851
1,269
47,290
38,280
2017
2016
Number
Number
512
263
775
2017
£’000
5,732
587
187
471
204
675
2016
£’000
4,908
638
230
6,506
5,776
Key management comprise the Executive Board and the senior operational staff.
Directors’ remuneration, including the highest paid Director, has been included on page 39 of the Remuneration Committee
Report. These disclosures have been audited.
ANNUAL REPORT 2017 | 63
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
11. Operating Profit
Operating profit is stated after charging / (crediting):
Fees payable to the Company’s auditors for the audit of the parent company and consolidated financial statements
Fees payable to the Company’s auditors and its associates for other services:
– audit of the Company’s subsidiaries pursuant to legislation
– taxation compliance services
– taxation advisory services
– taxation advisory services related to abortive acquisitions
– due diligence services related to grant funding
Net losses / (gains) on foreign exchange
Operating lease rentals
Transaction fees
Impairment of goodwill
Release of accrued contingent consideration
2017
£’000
45
105
82
66
–
45
225
1,732
390
615
(615)
2016
£’000
45
110
78
117
10
97
(860)
1,520
466
771
–
Restructuring costs of £536,000 were incurred in the year (2016: £1,652,000). These related to the Palo Alto site move (£180,000)
and redundancy costs of £356,000. The costs have been included in the income statement within cost of revenue, administration
costs and other income and expenses as appropriate.
12. Finance Income and Costs
Finance income comprises:
– Bank interest
Finance costs comprise:
– Bank interest
– Finance lease interest
– Interest on discounted deferred consideration
2017
£’000
2016
£’000
27
39
(321)
(1)
(381)
(703)
(126)
(1)
–
(127)
64 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
13. Income Tax Expense
Analysis of tax charge in the year
Current taxation
UK Corporation tax
Overseas tax
Adjustments in respect of prior year tax charge
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior year deferred tax
Impact of change in the UK tax rate
Total deferred tax
FINANCIAL STATEMENTS
2017
£’000
2016
£’000
1,318
2,165
(1,315)
2,168
227
1,315
–
1,542
1,760
887
(77)
2,570
218
290
(30)
478
Income tax expense per income statement
3,710
3,048
The taxation expense for the year is higher (2016: higher) than the standard rate of corporation tax in the UK. An explanation of
the differences is detailed below:
Profit before income tax
Profit at the effective standard rate of tax of 19.5% for the year (2016: 20.0%)
Income not subject to tax
Permanent differences
Adjustments in respect of foreign tax rates
Re-measurement of deferred tax – change in UK tax rate
Adjustments in respect of prior year
Total tax expense
Factors Affecting the Future Tax Charge
2017
£’000
2016
£’000
12,602
10,096
2,457
2,019
(72)
(132)
1,457
–
–
(116)
134
828
(30)
213
3,710
3,048
Overseas tax losses of £3.7m (2016: £3.8m) and UK tax losses of £0.8m (2016: £0.8m) are available against future profits of the
Group. The utilisation of these losses is not sufficiently certain to recognise a deferred tax asset.
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Act 2016 in September 2016. These included
the replacement of the 18% rate from 1 April 2020 with a lower rate of 17%. To date, no further changes have been announced.
The Group operates internationally; as a result, it is subject to various overseas tax rules and regulations. A change in the assessment
of their implementation could result in an increase in G&H’s liability, though no such change is currently considered necessary.
ANNUAL REPORT 2017 | 65
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
14. Dividends
Final 2016 dividend paid in 2017: 5.7p per share (Final 2015 dividend paid in 2016: 5.2p per share)
2017 Interim dividend paid: 3.7p per share (2016: 3.3p)
2017
£’000
1,383
906
2,289
2016
£’000
1,254
801
2,055
The Directors propose a final dividend of 6.5p per share making the total dividend paid and proposed in respect of the 2017
financial year 10.2p (2016: 9.0p).
15. Earnings Per Share
The calculation of earnings per 20p Ordinary Share is based on the profit for the year using as a divisor the weighted average number
of Ordinary Shares in issue during the year. The weighted average number of shares for the year ended 30 September is given below:
Number of dilutive shares
Dilutive shares
A reconciliation of the earnings used in the earnings per share calculation is set out below:
2017
Number
2016
Number
24,457,701
22,248,471
412,901
436,112
24,870,602
24,684,583
Basic earnings per share
Amortisation of acquired intangible assets (net of tax)
Goodwill impairment
Release of accrued contingent consideration
Gain on bargain purchase of Alfalight
Provision for regulatory compliance
Restructuring costs (net of tax)
Transaction fees (net of tax)
Interest on deferred consideration
Total adjustments net of income tax expense
Adjusted basic earnings per share
Basic diluted earnings per share
Adjusted diluted earnings per share
2017
2016
£’000
pence per share
£’000
pence per share
8,892
2,034
615
(615)
–
–
431
314
381
3,160
12,052
8,892
12,052
36.4p
7,048
8.3p
2.5p
(2.5p)
–
–
1.8p
1.3p
1.6p
13.0p
49.4p
35.8p
48.5p
930
771
–
(578)
500
1,261
373
–
3,257
10,305
7,048
10,305
29.1p
3.8p
3.2p
–
(2.4p)
2.1p
5.2p
1.5p
–
13.4p
42.5p
28.6p
41.7p
Basic and diluted earnings per share before amortisation and other adjustments has been shown because, in the opinion of the
Directors, it provides a useful measure of the trading performance of the Group.
66 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
16. Property, Plant and Equipment
Capital work
Freehold
Leasehold
Plant and
Fixtures,
Motor
Total
in progress
land and
property
machinery
fittings and
vehicles
buildings
computers
£’000
£’000
£’000
£’000
£’000
£’000
£’000
9,001
3,163
25,451
2,868
50
44,246
Cost or valuation
At 1 October 2015
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
At 30 September 2016
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
At 30 September 2017
Accumulated depreciation
At 1 October2015
Charge for the year
Acquired
Disposals
Exchange rate differences
At 30 September 2016
Charge for the year
Disposals
Exchange rate differences
At 30 September 2017
Net book value
At 1 October 2015
At 30 September 2016
At 30 September 2017
3,713
6,894
–
–
(8,013)
255
2,849
3,374
–
–
(656)
(214)
5,353
–
–
–
–
–
–
–
–
–
–
–
–
–
12
9,013
–
–
–
–
(3)
4
22
–
7,636
1,180
12,005
139
5
(43)
93
(371)
1,247
290
(4)
359
1,842
29,185
1,866
67
(326)
510
(448)
217
112
(4)
40
122
3,355
385
26
(71)
53
(42)
9,010
11,828
30,854
3,706
1,471
168
–
–
13
1,652
168
–
(3)
1,335
401
7
–
227
1,970
773
(42)
(95)
14,762
2,190
151
–
1,156
18,259
2,361
(326)
(267)
1,728
277
68
(4)
83
2,152
359
(71)
(23)
1,817
2,606
20,027
2,417
3,713
2,849
5,353
7,530
7,361
7,193
1,828
10,035
9,222
10,689
10,926
10,827
1,140
1,203
1,289
–
–
–
–
2
52
–
–
(8)
–
(1)
43
35
6
–
–
1
42
3
(8)
–
37
15
10
6
8,362
424
(8)
22
3,413
56,459
5,764
98
(448)
–
(1,079)
60,794
19,331
3,042
226
(4)
1,480
24,075
3,664
(447)
(388)
26,904
24,915
32,384
33,890
At 30 September 2017, plant and machinery purchased under a hire purchase or finance lease agreement had a cost of £38,000
(2016: £38,000) and net book value of £19,000 (2016: £25,000).
No interest was capitalised in the year (2016: £Nil).
ANNUAL REPORT 2017 | 67
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
17. Intangible Assets
Cost or valuation
At 1 October 2015
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
At 30 September 2016
Additions
Acquired
Disposals
Exchange rate differences
At 30 September 2017
Accumulated amortisation and impairment
At 1 October2015
Charge for the year
Acquired
Disposals
Exchange rate differences
At 30 September 2016
Charge for the year
Disposals
Exchange rate differences
At 30 September 2017
Net book value
At 1 October 2015
At 30 September 2016
At 30 September 2017
Goodwill
Acquired
Capitalised
intangible
R&D, Patents
Software
and other
Total
assets
£’000
and licences
intangibles
£’000
£’000
£’000
£’000
22,035
–
4,620
–
–
1,970
28,625
–
6,099
–
(838)
11,471
–
4,768
–
–
805
17,044
–
7,986
–
(757)
2,404
624
52
(3)
(22)
68
3,123
584
–
(23)
(27)
1,733
70
5
(1)
–
42
1,849
102
–
(44)
(9)
33,886
24,273
3,657
1,898
5,654
771
–
–
–
6,425
615
–
–
9,640
1,263
–
–
778
11,681
2,202
–
(218)
729
218
3
(3)
29
976
83
(3)
(5)
1,465
137
3
(1)
39
1,643
116
(43)
(8)
37,643
694
9,445
(4)
(22)
2,885
50,641
686
14,085
(67)
(1,631)
63,714
17,488
2,389
6
(4)
846
20,725
3,016
(46)
(231)
7,040
13,665
1,051
1,708
23,464
16,381
22,200
26,846
1,831
5,363
10,608
1,675
2,147
2,606
268
206
190
20,155
29,916
40,250
Goodwill is allocated to operating sites as follows: Cleveland (£2.1m), Ilminster (£1.5m), Torquay (£1.6m), Moorpark (£6.2m),
Boston (£4.9m), Palo Alto (£0.9m), St Asaph (£4.0m) and Keene (£5.7m).
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. The impairment testing requires
an estimation of the ‘value in use’ of the CGU. The value in use calculations use post-tax cash flow projections based on the latest
projections approved by the Board for year one. For the purposes of the impairment review, the following key assumptions were
made in respect of the cash flows beyond year one:
• Projected gross profit margins of 22% to 44%
• Average growth in EBITDA to 2022 of up to 10%, and 2% thereafter
• 8.3% post tax discount rate used to discount cash flows
The projected gross profit margin and average growth is based on past performance and the Directors’ expectations for the
foreseeable future.
68 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
The Boston cash generating unit’s performance improved significantly over FY16, reflecting the effect of the Alfalight acquisition
in the prior year, and improved sales of the Boston site’s existing products and services. Management expect the new combined
business to continue to grow profitably and it remains a key part of the Group’s Space Photonics activities. The impairment
calculation for the Boston cash generating unit utilises a specific set of growth assumptions based on revenue increasing by an
average of 6% per annum in the period to 30 September 2022, which results in an average annual forecast EBITDA of £1.5m over
the same period. Management do not consider any impairment of goodwill to have arisen in the year because of the significantly
improved result and the growth opportunities of the new enlarged business. If the discount rate were increased to 9.7%, or if the
average annual EBITDA were reduced by £0.3m, the headroom on the impairment calculation would be reduced to zero.
The impairment calculation for the Moorpark cash generating unit is based on an average annual forecast EBITDA to 2022 of £1.2m.
The headroom on the calculation (of £2.1m) would be reduced to zero if the average annual EBITDA to 2022 were reduced by £0.3m
or the discount rate increased to 9.4%. The Directors are satisfied that no impairment is necessary.
Kent Periscopes’ performance in the year was lower than the targets set for the deferred consideration which was potentially payable
in the year. Accordingly, a release of the accrued contingent consideration of £0.6m has been credited to the income statement.
Management performed an impairment review of the goodwill based on an average annual EBITDA to 2022 of £0.7m. Following this
review, the Directors consider it appropriate to impair the goodwill by £0.6m. If the discount rate were increased to 9.3%, then a
further impairment of £1.0m would arise. However, the Directors expect a significant improvement in the results going forward, and
are therefore satisfied no further impairment is necessary.
18. Inventories
Raw materials
Work in progress
Finished goods
2017
£’000
7,374
9,819
3,885
2016
£’000
6,955
8,689
3,329
21,078
18,973
The cost of inventories recognised as an expense and included in cost of revenue amounted to £67.0m (2016: £56.8m).
The movement in the inventories provision is as follows:
At 1 October
Acquired
Increase in provision
Exchange rate movement
At 30 September
2017
£’000
4,208
328
783
(59)
2016
£’000
3,582
264
71
291
5,260
4,208
ANNUAL REPORT 2017 | 69
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
19. Trade and Other Receivables
Trade receivables
Other receivables
Grant funding held in trust account
Prepayments
The carrying amount of the Group’s trade and other receivables is denominated in the following currencies:
Pound Sterling
US Dollar
Euro
Yen
At 30 September
The ageing of trade receivables by due date is as follows:
Current
1 to 3 months
Over 3 months
Less provision for impairment
Net trade receivables
None of the trade receivables are with customers where we have had any history of default.
The movement on the provision for impairment of trade receivables is as follows:
At 1 October
Utilisation of provision
Increase in provision
Exchange rate movement
At 30 September
20. Cash and Cash Equivalents
Cash at bank and on hand
70 | ANNUAL REPORT 2017
2017
£’000
2016
£’000
20,504
20,451
2,025
1,535
659
1,326
230
672
24,723
22,679
2017
£’000
9,041
14,334
1,342
6
2016
£’000
9,929
11,861
884
5
24,723
22,679
2017
£’000
15,417
4,139
1,327
2016
£’000
14,567
4,701
1,402
20,883
20,670
(379)
(219)
20,504
20,451
2017
£’000
219
(35)
198
(3)
379
2016
£’000
183
–
28
8
219
2017
£’000
2016
£’000
26,425
23,167
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
21. Trade and Other Payables
Trade payables
Other taxation and social security
Grant funding held in trust account
Accruals
22. Borrowings
Current:
Finance leases
Non-current:
Bank borrowings
Finance leases
Total borrowings
FINANCIAL STATEMENTS
2017
£’000
6,610
1,095
1,535
14,518
23,758
2016
£’000
6,386
553
230
12,455
19,624
2017
£’000
2016
£’000
6
6
4
4
11,480
11,473
12
21
11,492
11,494
11,498
11,498
The carrying values of the bank borrowings and finance leases are not materially different from their fair values and are included
as part of the fair value disclosure for all financial instruments in note 29.
Gooch & Housego’s primary lending bank is The Royal Bank of Scotland plc. The Group’s facilities comprise a $15m dollar revolving
credit facility and a $20m flexible acquisition facility. At 30 September 2017, the balance drawn on the revolving credit facility was
$8m (2016: $15m) and on the flexible acquisition facility $7.5m (2016: nil).
The facilities above are committed until 30 April 2019 and attract an interest rate of between 0.9% and 1.8% above LIBOR
dependent upon the Company’s leverage ratio, payable on rollover dates, typically quarterly.
Maturity Profile of Bank and Other Borrowings
Within one year
Between one and five years
2017
£’000
6
11,492
11,498
2016
£’000
4
11,494
11,498
ANNUAL REPORT 2017 | 71
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
23. Provision for Other Liabilities and Charges
The movements in the Group provision for other liabilities and charges during the year are as follows:
At 1 October
Acquired
Utilised during year
Charged to the income statement
Exchange movements
At 30 September
2017
£’000
2016
£’000
940
80
(135)
13
(10)
888
342
38
–
556
4
940
The Group provision for other liabilities and charges includes amounts provided for the anticipated cost of repair and rectification
of products under warranty, based on known exposures and historical occurrences.
In 2016, a provision for £500,000 was recorded in respect of a potential penalty related to two isolated potential violations of
export control laws, which were voluntarily disclosed to the relevant authorities after having been identified by an internal review.
This matter is ongoing, and therefore the provision has been retained.
24. Deferred Tax Assets and Liabilities
The movements in the Group’s deferred tax assets and liabilities during the year are as follows:
At 1 October
Charged to the income statement
Acquired
Arising on acquired intangible assets
Credited directly to equity
Exchange movements
Net liability at 30 September
2017
£’000
(2,132)
(1,542)
146
–
148
145
2016
£’000
(480)
(478)
(28)
(1,121)
45
(70)
(3,235)
(2,132)
The deferred tax provided for in the financial statements is disclosed under the following balance sheet headings and can be
analysed as follows:
Deferred income tax assets
Intangible assets
Share options
Provisions
Other timing differences
Deferred income tax liabilities
Property, plant and equipment
Intangible assets
Deferred tax balance at 30 September
72 | ANNUAL REPORT 2017
2017
£’000
2016
£’000
906
721
814
262
1,071
573
788
242
2,703
2,674
(3,827)
(2,111)
(5,938)
(3,235)
(2,446)
(2,360)
(4,806)
(2,132)
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
Overseas tax losses of £3.7m (2016: £3.8m) and UK tax losses of £0.8m (2016: £0.8m) are available to offset against future
profits of the Group. The Group has not recognised a deferred income tax asset of £1.4m (2016: £1.4m) in respect of these losses
due to uncertainty as to whether they would be utilised within the foreseeable future.
No deferred tax has been provided in relation to unremitted earnings from overseas subsidiaries on the basis that no incremental
tax charge is currently anticipated to arise upon remittance of these earnings to the UK.
25. Called Up Share Capital
Issued and fully paid
At 1 October
Shares issued and fully paid
At 30 September
2017
Number
2016
Number
2017
£’000
24,260,024
24,091,118
4,852
254,537
168,906
51
24,514,561
24,260,024
4,903
2016
£’000
4,818
34
4,852
During the year 72,734 shares (2016: 168,906 shares) were allotted under share option schemes.
26. Reserves
At 1 October 2016
Profit for the financial year
Dividends paid
Shares issued
Fair value of share options
Tax credit relating to share options
Currency translation differences
At 30 September 2017
Share premium
account
£’000
15,530
–
–
–
–
–
–
Merger
reserve
£’000
2,671
–
–
1,969
–
–
–
15,530
4,640
Cumulative
translation reserve
£’000
6,984
–
–
–
–
–
(1,410)
5,574
Retained
earnings
£’000
60,135
8,892
(2,289)
(15)
587
179
–
67,489
ANNUAL REPORT 2017 | 73
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
27. Share Options
The Company operates the Gooch & Housego 2013 Long Term Incentive Plan (the “2013 LTIP”).
The Gooch & Housego 2013 Long Term Incentive Plan
The Gooch & Housego 2013 Long Term Incentive Plan was adopted on 9 April 2013. Under the plan, awards are made annually
to key employees based on a percentage of salary. Subject to the satisfaction of the required TSR performance criteria and EPS
financial performance, these grants will vest upon publication of the results of the Company three years after the grant date.
There have been five grants of options under the 2013 Long Term Incentive Plan. The remuneration report provides further details
on the share options awarded and exercised during the financial year.
The 2013 Long Term Incentive Plan Awards were valued using the Monte Carlo option pricing model. The expected volatility used
in the model was based on the historical volatility of the Company’s share price over the three years prior to the grant date.
The details of awards extant as at 30 September 2017 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
A reconciliation of total share option movements is shown below:
Grant date
10 Mar 2017
23 Dec 2015
17 Dec 2014
133,146
147,458
260,193
26%
0.9%
25%
0.9%
29%
0.8%
784,041
629,506
878,475
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2017
2016
Number
Weighted average
Number
Weighted average
exercise price
exercise price
512,852
133,146
(72,734)
(87,256)
486,008
–
–
–
–
–
–
–
546,300
147,458
(168,906)
(12,000)
512,852
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 589.0p per option (2016: 427.0p per option). For the options
exercised, the average market price was 1,238.0p per share.
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
2013 LTIP
8-Apr-2023
0.0p
exercise price
2017
486,008
2016
512,852
Expiry date
Weighted average
Number of share options
The total charge for the year relating to share options was £587,000 (2016: £638,000), all of which related to equity-settled
share based payment transactions.
74 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
28. Operating Leases
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within one year
Between one to five years
29. Financial Instruments
FINANCIAL STATEMENTS
2017
£’000
1,166
3,900
5,066
2016
£’000
1,199
3,652
4,851
The Group’s financial instruments comprise bank borrowings, cash at bank, finance leases and various items such as trade
receivables and trade payables that directly arise from its operations. The main risks arising from the Group’s financial instruments
are interest rate risk, liquidity risk and foreign currency risk.
The Board’s policy on these risks is set out in note 5.
Operations are financed through a mixture of retained profits, cash reserves, bank borrowings and finance leases. Other than
finance leases the Board’s policy is to use variable rate borrowings whenever possible.
The currency profile for the Group’s financial assets and liabilities are set out below.
Pound Sterling
US Dollar
Euro
Yen
Financial assets
Financial liabilities
2017
£’000
16,438
8,101
1,849
37
2016
£’000
11,269
9,999
1,857
42
2017
£’000
18
2016
£’000
24
11,480
11,474
–
–
–
–
26,425
23,167
11,498
11,498
The financial assets listed in the above table are subject to floating rates of interest. The interest rates on the financial liabilities
are provided in Note 22. The financial assets include cash at bank but exclude short-term receivables, prepayments and other
receivables. The financial liabilities includes bank borrowings and finance leases. Other short-term payables are excluded from this
disclosure.
30. Capital Commitments
Authorised and contracted but not provided for
All capital commitments relate to property, plant and equipment.
31. Related Party Transactions
2017
£’000
1,440
2016
£’000
264
No contracts or arrangements have been entered into during the year, nor existed at the end of the year, in which a director or key
manager had a material interest.
Details of key management compensation are given in note 10.
ANNUAL REPORT 2017 | 75
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2017
32. Acquisition of StingRay Optics LLC
On 21 February 2017, the Group completed the acquisition of the entire unit capital of StingRay Optics LLC, a Keene, New Hampshire,
based specialist designer and manufacturer of high performance optical and opto-mechanical subsystems for demanding defence
and commercial applications. The acquisition strengthened the Group’s position in the aerospace & defence sector.
The consideration for the acquisition will be up to $20m comprising initial consideration of $7.5m paid in cash and $2.5m paid in new
G&H ordinary shares. There is also deferred contingent consideration of up to $10m, payable in cash, based on the performance of
the business for a period of up to three years post acquisition.
The fair value of the assets acquired is summarised as follows:
Property, plant and equipment
Intangible assets
Cash
Trade and other receivables
Inventory
Trade and other payables
Current and deferred tax assets
Net assets acquired
Consideration paid:
Cash and shares paid on completion
Deferred consideration
Goodwill
Provisional fair value
£’000
98
7,986
231
655
1,058
(1,274)
156
8,910
7,996
7,013
6,099
The fair value of the intangible assets represents the estimated fair value of StingRay’s order book, its customer relationships and
its brand. These have been valued using a discounted cash flow model. The deferred consideration has been discounted using the
company’s weighted average cost of capital.
The goodwill arising on acquisition reflects items not separately recognised, including the expertise of StingRay’s employees and
their contacts in target markets.
Post-acquisition, the acquired business contributed £5.3 million of revenue and £1.0 million of profit after tax to the consolidated
income statement.
33. Post Balance Sheet Events
In October 2017 the Company concluded a legal dispute with the landlord of its Fremont facility. As a result of this, a Californian
court has awarded G&H in the region of $2 million in damages arising from the landlord’s non-performance in respect of the lease.
76 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
As at 30 September 2017
Non-current assets
Investments
Property, plant and equipment
Intangible assets
Deferred income tax assets
Current assets
Other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Net current assets
Non-current liabilities
Deferred income tax liabilities
Deferred consideration
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Merger reserve
Retained earnings
Total equity
Note
£’000
£’000
£’000
£’000
2017
2016
5
6
7
9
8
3,974
10,298
14,272
10
(5,301)
9
11
28,811
7,104
47
793
36,755
–
–
–
–
8,971
(61)
(1,641)
44,024
4,903
15,530
1,969
21,622
44,024
2,769
7,211
9,980
(3,774)
27,169
7,482
156
681
35,488
–
–
–
–
6,206
(101)
–
41,593
4,852
15,530
–
21,211
41,593
The financial statements on pages 77 to 88, were approved by the Board of Directors on 28 November 2017 and signed on its
behalf by:
Mark Webster
Director
Andrew Boteler
Director
ANNUAL REPORT 2017 | 77
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2017
Called up
Share premium
Merger
At 1 October 2015
Profit for the financial year
Total comprehensive income for the year
Dividends
Proceeds from shares issued
Fair value of employee services
Tax credit relating to share option schemes
Total contributions by and distributions to owners
of the parent recognised directly in equity
At 30 September 2016
At 1 October 2016
Profit for the financial year
Total comprehensive income for the year
Dividends
Proceeds from shares issued
Fair value of employee services
Tax credit relating to share option schemes
Total contributions by and distributions to owners
of the parent recognised directly in equity
Note
Share capital
account
£’000
4,818
£’000
15,530
4
4
–
–
–
34
–
–
34
–
–
–
–
–
–
–
4,852
4,852
15,530
15,530
–
–
–
51
–
–
51
–
–
–
–
–
–
–
Reserve
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
1,969
–
–
Retained
earnings
£’000
18,611
3,750
3,750
(2,055)
(34)
638
301
Total
equity
£’000
38,959
3,750
3,750
(2,055)
–
638
301
(1,150)
(1,116)
21,211
21,211
1,962
1,962
(2,289)
(15)
587
166
41,593
41,593
1,962
1,962
(2,289)
2,005
587
166
469
1,969
(1,551)
At 30 September 2017
4,903
15,530
1,969
21,622
44,024
78 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2017
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Dividends received from subsidiary companies
Dividends paid to ordinary shareholders
Interest paid
Net cash generated from financing activities
Net increase / (decrease) in cash
Cash at beginning of the year
Cash at the end of the year
FINANCIAL STATEMENTS
2017
£’000
2016
£’000
1,461
4,280
–
(41)
1,461
4,239
–
(7,999)
(106)
–
21
(15)
(13)
36
(85)
(7,991)
4,000
4,905
(2,289)
(2,055)
–
(13)
1,711
2,387
3,087
7,211
10,298
(915)
8,126
7,211
ANNUAL REPORT 2017 | 79
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2017
Reconciliation of cash generated from operations
2017
£’000
1,549
2016
£’000
2,561
(4,000)
(4,905)
109
483
587
(21)
–
154
469
638
(36)
13
(2,842)
(3,667)
209
2,545
2,754
4,038
1,348
5,386
1,461
4,280
At 1 Oct 2016
Cash flow
At 30 Sep 2017
£’000
7,211
7,211
£’000
3,087
3,087
£’000
10,298
10,298
Profit before income tax
Adjustments for:
- Dividends received from subsidiaries
- Amortisation of other intangible assets
- Depreciation
- Share based payment charge
- Finance income
- Finance costs
Total
Changes in working capital
- Trade and other receivables
- Trade and other payables
Total
Cash generated from operating activities
Analysis of net cash
Cash at bank and in hand
Net cash
80 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
1. Company Accounting Policies
Basis of Preparation
These financial statements have been prepared under the historical cost convention as modified by financial assets and liabilities
(including derivative financial instruments) at fair value and in accordance with International Financial Reporting Standards as adopted
by the European Union (“IFRS”) and IFRIC interpretations in issue at 30 September 2017, and with those parts of the Companies
Act 2006 applicable to companies preparing financial statements in accordance with IFRS. The financial statements have been
prepared on a going concern basis.
The accounting policies have been consistently applied over the period reported.
Adoption of New Standards
There has been no material impact from the adoption of new standards or revised standards or interpretations which are relevant
to the Group:
• Annual Improvements 2012-2014
• Amendment to IAS16 “Property, plant and equipment” and IAS 38 “Intangible Assets” on depreciation and amortization
• Amendments to IAS27 “Separate financial statements” on equity accounting
• Amendments to IFRS10 “Consolidated financial statements” and IAS28 “Investments in associates and joint ventures” on
applying the consolidation exemption
• Amendments to IAS1 “Presentation of financial statements” disclosure initiative
The following standard will apply to the Company in future accounting periods:
IFRS 9 Financial Instruments
This standard will apply for the first time in the year ending 30 September 2019. Management do not currently envisage this
standard having a material effect on the financial statements.
Pension Schemes
The Company operates a money purchase pension scheme for Directors and staff. The assets of the scheme are held in separately
administered funds. Contributions are recognised as an employee benefit expense in the income statement when they are due.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Share Options
The Company operates a number of share option schemes. In accordance with IFRS 2 the fair value of the employee services received in
exchange for the grant of the options is recognised as an expense in the income statement. The total amount to be expensed over the
vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting
conditions (for example, profitability targets). Non-market vesting conditions are included in assumptions about the number of
options that are expected to vest.
Employer’s National Insurance in the United Kingdom and equivalent taxes in other jurisdictions are payable on the exercise of certain
share options. In accordance with IFRS 2, this is treated as a cash-settled transaction. A provision is made, calculated using the fair
value of the Company’s shares at the balance sheet date, pro-rated over the vesting period of the options.
At each balance sheet date, for awards with non market vesting conditions, the entity revises its estimates of the number of options
that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a
corresponding adjustment to equity. The fair value of the options under the Gooch & Housego 2013 Long Term Incentive Plan are
determined by using the Monte Carlo option pricing model.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share
premium when the options are exercised.
Foreign Currency Translation
a. Functional and presentation currency
The financial statements are presented in Pounds Sterling, which is the Company’s presentation currency.
ANNUAL REPORT 2017 | 81
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
b. Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income
statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Property, Plant and Equipment
Property, plant and equipment is stated at historical purchase cost less accumulated depreciation. Cost includes expenditure that
is directly attributable to the acquisition of the items. No depreciation is charged on freehold land or capital work in progress.
Depreciation on other assets is calculated to allocate their cost over their estimated useful lives, as follows:
• Freehold buildings
2-3%
Straight line
• Plant and machinery
10-20%
Straight line
• Fixtures, fittings and computers
10-33%
Straight line
• Capitalised software and licences 25-33%
Straight line
Investments
Investments are stated at cost less provision for any impairment in value. Where overseas borrowing is required to finance the
investment in overseas subsidiaries, the investment is retranslated at the exchange rate ruling at the balance sheet date.
Deferred Tax
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted
for, if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other
comprehensive income and equity, in which case it is recognised in other comprehensive income and equity.
In the UK and US, the Company is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee
share options under each jurisdiction’s tax rules. As explained under “Share options” below, a compensation expense is recorded in the
Company’s income statement over the period from the grant date to the vesting date of the relevant options. As there is a temporary
difference between the accounting and tax bases, a deferred income tax asset is recorded. The deferred income tax asset arising is
calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company’s share price
at the balance sheet date) with the cumulative amount of the compensation recorded in the income statement. If the amount of
estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate, the excess is
recorded directly in equity.
Trade Payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
Dividend Distribution
Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period
in which the dividends are approved by the Company’s shareholders.
82 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
Financial Instruments
The Company has not used derivative financial instruments to hedge its exposure to currency risk.
Share Capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from
the proceeds.
2. Company Profit and Loss Account
Gooch & Housego PLC has taken advantage of section 408(3) of the Companies Act 2006 and has not included its own profit and
loss account in these financial statements. The Company’s profit after tax was £1,962,000 (2016: £3,750,000 profit).
Fees payable to the Company auditors for the statutory audit for the year amounted to £16,000 (2016: £16,000).
3. Employee Benefit Expense
Wages and salaries
Social security costs
Medical and other insurances
Share based payments
Pension costs
The average number of employees during the year was 13 (2016: 12), all of whom were administrative.
Directors’ Remuneration
Directors’ remuneration
Relocation allowance
Medical and other insurances
Directors’ pension scheme contributions
2017
£’000
2,035
443
26
587
38
2016
£’000
1,635
170
33
638
100
3,129
2,576
2017
£’000
1,409
–
26
20
2016
£’000
1,192
23
33
80
1,455
1,328
The aggregate emoluments of the highest paid Director including gain on exercise of share options were £504,000 (2016:
£617,000). Further information is included in the Remuneration Committee report on page 37.
The aggregate gain on Directors’ share option exercises in the year was £393,000 (2016: £807,000).
The number of Directors who are accruing retirement benefits under a money purchase pension scheme is 2 (2016: 2).
These disclosures have been audited.
4. Dividends
Final 2016 dividend paid in 2017: 5.7p per share. (Final 2015 dividend paid in 2016: 5.2p per share)
2017 Interim dividend paid: 3.7p per share (2016: 3.3p)
Cost and net book value at 30 September
2017
£’000
1,383
906
2,289
2016
£’000
1,254
801
2,055
The Directors propose a final dividend of 6.5p per share making the total dividend paid and proposed in respect of the 2017 financial
year 10.2p (2016: 9.0p). Should the final dividend be approved at the Company Annual General Meeting, cut-off dates for payment are:
- Record date 26 January 2018
- Payment date 2 March 2018
ANNUAL REPORT 2017 | 83
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
5. Investments
Cost and net book value at 1 October
Additions
Cost and net book value at 30 September
2017
£’000
27,169
1,642
28,811
2016
£’000
19,170
7,999
27,169
The subsidiary companies at 30 September 2017, all of which are wholly owned either directly or indirectly, are listed below:
Company Name
%
Registered Office
Activity
ownership
of ordinary
shares
Gooch & Housego (UK) Limited
100% Dowlish Ford, Ilminster, Somerset, TA19 0PF
Manufacturer of acousto-optic products and
precision optics
Gooch & Housego (Torquay)
100% Dowlish Ford, Ilminster, Somerset, TA19 0PF
Manufacturer of fibre-optic products
Limited
Spanoptic Limited
100% Telford Road, Glenrothes, KY7 4NX
Manufacturer of precision optics
Kent Periscopes Limited
100% 6 Ffordd Richard Davies
Manufacturer of periscopes and vehicle
St Asaph, LL17 0LJ
sights
Gooch & Housego (Deutschland)
100% Berliner Allee 55, 22850 Norderstedt, Germany
Provider of sales and customer service
GmbH
functions
Constelex Technology Enablers
100% Sarou 12, Athens 15125, Greece
Designer and manufacturer of advanced
Limited
photonic systems
Gooch & Housego (Ohio) LLC
100% 676 Alpha Drive, Highland Heights, OH44143, USA Manufacturer of electro-optic products and
crystals
Gooch & Housego (California) LLC
100% 5390 Kazuko Court, Moorpark, CA93021, USA
Manufacturer of precision optics
Gooch & Housego (Florida) LLC
100% 676 Alpha Drive, Highland Heights, OH44143, USA Non-trading company
Optronic Laboratories LLC
100% 4632 36th St, Orlando, FL32811,USA
Manufacturer of instruments for measuring
optical radiation
EM4 Inc.
100% 7 Oak Park Drive, Bedford, MA 01730, USA
Manufacturer of fibre optics products
Gooch & Housego (Palo Alto) LLC
100% 44247 Nobel Dr, Fremont, CA94538, USA
Manufacturer of acousto-optic, electro-optic
and fibre optic components and systems
StingRay Optics LLC
100% 17A Bradco Street, Keene, NH 03431 USA
Designer and manufacturer of optical and
opto-mechanical subsystems
Gooch & Housego Japan KK
100% Level 4, Nikko Shiken Building, 3-2-3 Sakae,
Provider of sales and customer service
Nagoya, Japan
functions
G&H (Property) Holdings Limited
100% Dowlish Ford, Ilminster, Somerset, TA19 0PF
Property holding company
G&H (US Holdings) Limited
100% Dowlish Ford, Ilminster, Somerset, TA19 0PF
Holding company
G&H Holdings (Delaware) Inc.
100% 676 Alpha Drive, Highland Heights, OH44143, USA Holding company
G&H Capital Holdings (Florida) Inc.
100% 676 Alpha Drive, Highland Heights, OH44143, USA Non-trading company
The directors believe that the carrying value of the investments is supported by their underlying net assets.
84 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
6. Property, Plant and Equipment
Freehold land
Plant and
Fixtures and
Computer
Total
Cost or valuation
At 1 October 2015
Additions
At 30 September 2016
Additions
At 30 September 2017
Accumulated depreciation
At 1 October2015
Charge for the year
At 30 September 2016
Charge for the year
At 30 September 2017
Net book value
At 1 October 2015
At 30 September 2016
At 30 September 2017
7. Intangible Assets
Cost or valuation
At 1 October 2015
Additions
At 30 September 2016
Additions
At 30 September 2017
Accumulated depreciation
At 1 October2015
Charge for the year
At 30 September 2016
Charge for the year
At 30 September 2017
Net book value
At 1 October 2015
At 30 September 2016
At 30 September 2017
and buildings
machinery
£’000
£’000
fittings
£’000
equipment
£’000
6,183
–
6,183
–
6,183
1,139
108
1,247
108
1,355
5,044
4,936
4,828
3,987
–
3,987
–
3,987
1,790
265
2,055
265
2,320
2,197
1,932
1,667
1,392
–
1,392
–
1,392
704
93
797
93
890
688
595
502
483
15
498
105
603
476
3
479
17
496
7
19
107
£’000
12,045
15
12,060
105
12,165
4,109
469
4,578
483
5,061
7,936
7,482
7,104
Computer
Other
Total
software
£’000
£’000
£’000
1,216
–
1,216
–
1,216
1,086
73
1,159
45
1,204
130
57
12
452
13
465
–
465
285
81
366
64
430
167
99
35
1,668
13
1,681
–
1,681
1,371
154
1,525
109
1,634
297
156
47
ANNUAL REPORT 2017 | 85
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
8. Other Receivables
Amounts owed by Group undertakings
Prepayments and accrued income
Group tax relief receivable
2017
£’000
791
102
3,081
3,974
2016
£’000
251
86
2,432
2,769
Amounts owed by Group undertakings are unsecured and due within one year. Non-trading amounts owed by US Group undertakings
are charged interest at the US LIBOR rate applicable for the year. Non-trading amounts owed by UK Group undertakings are charged
interest at the UK LIBOR rate applicable for the year.
9. Deferred Tax
The movement in the deferred tax asset / (liability) during the year was as follows:
At 1 October
Credited to the income statement
Credited directly to reserves
At 30 September
The deferred tax provided for in the financial statements can be analysed as follows:
Property, plant and equipment
Share options
Other timing differences
Factors Affecting the Future Tax Charge
2017
£’000
580
17
135
732
2017
£’000
(61)
632
161
732
2016
£’000
394
61
125
580
2016
£’000
(101)
497
184
580
UK tax losses of £0.8m (2016: £0.8m) are available against future profits of the Group. The utilisation of these losses is not sufficiently
certain to recognise a deferred tax asset.
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Act 2016 in September 2016. These included
the replacement of the 18% rate from 1 April 2020 with a lower rate of 17%. To date, no further changes have been announced.
86 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
10. Trade and Other Payables
Trade payables
Amounts owed to Group undertakings
Taxation and Social Security
Accruals and deferred income
FINANCIAL STATEMENTS
2017
£’000
221
2,593
583
1,904
5,301
2016
£’000
410
1,264
226
1,874
3,774
Amounts owed to Group undertakings are unsecured and due within one year. Non-trading amounts owed to US Group undertakings
are charged interest at the US LIBOR rate applicable for the year. Non-trading amounts owed to UK Group undertakings are charged
interest at the UK LIBOR rate applicable for the year.
In 2016, a provision for £500,000 was recorded in respect of a potential penalty related to two isolated potential violations of export
control laws, which were voluntarily disclosed to the relevant authorities after having been identified by an internal review. This
matter is ongoing, and therefore the provision has been retained.
11. Called Up Share Capital
Allotted, issued and fully paid
At 1 October
Shares issued and fully paid
At 30 September
2017
Number
2016
Number
2017
£’000
24,260,024
24,091,118
4,852
254,537
168,906
51
24,514,561
24,260,024
4,903
2016
£’000
4,818
43
4,852
During the year 72,734 shares (2016: 168,906 shares) were allotted under share option schemes.
ANNUAL REPORT 2017 | 87
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2017
12. Share Options
The Company operates the Gooch & Housego 2013 Long Term Incentive Plan (the “2013 LTIP”).
The Gooch & Housego 2013 Long Term Incentive Plan
The Gooch & Housego 2013 Long Term Incentive Plan was adopted on 9 April 2013. Under the plan, awards are made annually to key
employees based on a percentage of salary or management grade. Subject to the satisfaction of the required TSR performance criteria
and EPS financial performance, these grants will vest upon publication of the results of the Company three years after the grant date.
There have been five grants of options under the 2013 Long Term Incentive Plan. The remuneration report provides further details
on the share options awarded and exercised during the financial year.
The 2013 Long Term Incentive Plan Awards were valued using the Monte Carlo option pricing model. The expected volatility used in
the model was based on the historical volatility of the Company’s share price over the three years prior to the grant date.
Details of awards extant as at 30 September 2017 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
A reconciliation of total share option movements is shown below:
Grant date
10 Mar 2017
23 Dec 2015
17 Dec 2014
133,146
147,458
260,193
26%
0.9%
25%
0.9%
29%
0.8%
784,041
629,506
878,475
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2017
2016
Number
Weighted average
Number
Weighted average
exercise price
exercise price
512,852
133,146
(72,734)
(87,256)
486,008
–
–
–
–
–
–
–
546,300
147,458
(168,906)
(12,000)
512,852
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 589.0p per option (2016: 427.0p per option). For the options
exercised, the average market price was 1,238.0p per share.
Share options outstanding at the end of the year have the following expiry dates and exercise prices:
2013 LTIP
8-Apr-2023
0.0p
exercise price
2017
486,008
2016
512,852
Expiry date
Weighted average
Number of share options
The total charge for the year relating to share options was £587,000 (2016: £638,000), all of which related to equity-settled
share based payment transactions.
13. Related Party Disclosures
The company recharges certain costs and provides financing to its subsidiaries in the ordinary course of business. The closing balances
due from and to the subsidiary companies are shown in notes 8 and 10 respectively.
No other material contracts or arrangements have been entered into during the year, nor existed at the end of the year, in which a
director or key manager had a material interest.
88 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION
COMPANY INFORMATION
Nominated Adviser and Broker
Independent Auditors
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Legal Advisers
Burges Salmon LLP
One Glass Wharf
Bristol
BS2 0ZX
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
2 Glass Wharf
Bristol
BS2 0FR
Registrars
Link Asset Services
65 Gresham Street
London
EC2V 7NQ
Company Secretary and
Registered Office
COMPANY SECRETARY
Gareth J Crowe
REGISTERED OFFICE
Dowlish Ford
Ilminster
Somerset
TA19 0PF
United Kingdom
COMPANY NUMBER
00526832
Expected Financial Calendar
Annual General Meeting
21 February 2018
Payment date for final dividend for the year ended 30 September 2017 to shareholders on the register at close of
2 March 2018
business 26 January 2018.
Subject to approval by shareholders at the Annual General Meeting.
Interim Results announcement
Financial Year End
Preliminary announcement of results for the year ending 30 September 2018
June 2018
30 September 2018
November 2018
For further information please contact:
Gooch & Housego PLC
Mark Webster / Andrew Boteler
Investec Bank plc (Nomad & Broker)
Patrick Robb / David Anderson
Buchanan
Mark Court / Sophie Cowles
01460 256440
020 7597 5970
020 7466 5000
ANNUAL REPORT 2017 | 89
GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
the Company will be held at Dowlish Ford, Ilminster, Somerset,
TA19 0PF on 21 February 2018 at 11.00 a.m. for the following
purposes:
To consider and, if thought fit, to pass the following
resolutions as Ordinary Resolutions:
1
2
To receive the Annual Report and Financial Statements for
the financial year ended 30 September 2017 together with
the Directors’ Report and Auditors’ Report thereon.
To receive and approve the Remuneration Committee
Report set out on pages 37 to 41 (excluding page 38) of
the Annual Report and Financial Statements for the
financial year ended 30 September 2017.
3
To declare a final dividend, as recommended by the
Directors, of 6.5 pence per ordinary share for the financial
year ended 30 September 2017.
under such authority to make at any time prior to the expiry
of such authority any offer or agreement which would or
might require shares in the Company to be allotted after
the expiry of such authority and the Directors may allot
shares in pursuance of such offer or agreement as if such
authority had not expired.
To consider and, if thought fit, to pass the following resolutions
as Special Resolutions:
13 THAT the Directors of the Company be, and they are hereby,
generally and unconditionally empowered pursuant to
section 570 of the Companies Act 2006 (the “Act”), in
substitution for any existing authority to the extent
unused, to allot equity securities (as defined in section 560
of the Act) for cash pursuant to the authority conferred by
Resolution 12 above as if section 561 of the Act did not
apply to such allotment, provided that the power hereby
conferred shall be limited to:
(i) the allotment of equity securities in connection with an
offer of securities, open for acceptance for a period fixed
by the Directors, by way of rights to the holders of
ordinary shares in proportion (as nearly as may be) to
the respective numbers of ordinary shares held by them
on a record date fixed by the Directors and subject to
such exclusions or other arrangements as the Directors
may deem necessary or expedient to deal with legal or
practical problems under the laws of any overseas
territory or the requirements of any regulatory body or
any stock exchange in any territory or in connection
with fractional elements or otherwise howsoever; and
(ii) otherwise than pursuant to sub-paragraph (i) above,
the allotment of equity securities up to an aggregate
nominal amount of £490,291 (representing
approximately 10 per cent. of the total ordinary share
capital of the Company in issue at 28 November 2017),
and the power hereby conferred shall expire at the conclusion
of the next Annual General Meeting of the Company or 22
May 2019 (whichever is the earlier), save that the Company
may before such expiry make an offer or agreement which
would or might require equity securities in the Company to
be allotted after such expiry and the Directors may allot
equity securities in pursuance of such offer or agreement
as if the power conferred hereby had not expired.
4 To re-elect Mark Webster as a Director.
5 To re-elect Alex Warnock as a Director.
6 To re-elect Andrew Boteler as a Director.
7 To re-elect Peter Bordui as a Director.
8 To re-elect Brian Phillipson as a Director.
9 To elect David Bauernfeind as a Director
10 To re-appoint Messrs PricewaterhouseCoopers LLP as
Auditors.
11 To authorise the Directors to fix the remuneration of the
Auditors.
12 THAT the Directors of the Company be, and they are hereby,
generally and unconditionally authorised in accordance with
section 551 of the Companies Act 2006 (the “Act”), in
substitution for any existing authority to the extent unused,
to exercise all the powers of the Company to allot shares in
the Company or grant rights to subscribe for or to convert
any security into shares in the Company on, and subject to,
such terms as the Directors may determine. The authority
hereby conferred shall, subject to section 551 of the Act, be
for a period commencing on the date of the passing of this
Resolution and expiring at the conclusion of the next Annual
General Meeting of the Company or 21 May 2019 (whichever
is the earlier) unless reviewed, varied or revoked by the
Company in General Meeting and the maximum nominal
amount of shares which may be allotted pursuant to such
authority shall be £1,634,304 (representing approximately
one third of the total ordinary share capital of the Company in
issue at 28 November 2017). The Directors shall be entitled
90 | ANNUAL REPORT 2017
GOOCH & HOUSEGO PLC
NOTICE OF ANNUAL GENERAL MEETING
SHAREHOLDER INFORMATION
14 THAT the Company be and is hereby generally and
unconditionally authorised for the purposes of section 701
of the Companies Act 2006 (the “Act”) to make one or more
market purchases (within the meaning of section 693(4) of
the Act) of fully paid ordinary shares of £0.20 each in the
capital of the Company on such terms and in such manner
as the Directors may determine, provided that:
(a) the maximum aggregate number of ordinary shares
hereby authorised to be purchased is 2,451,456
(representing approximately 10 per cent of the total
ordinary share capital of the Company in issue at 28
November 2017);
(b) the minimum price (exclusive of expenses) which may
be paid for each ordinary share is 20 pence per share;
(c) the maximum price (exclusive of expenses) which may
be paid for each ordinary share shall not be more than 5 per
cent. above the average of the middle market quotations
for an ordinary share as derived from the AIM section of the
London Stock Exchange Daily Official List for the five
business days immediately preceding the date on which
the ordinary share is contracted to be purchased;
(d) unless previously renewed, varied or revoked, the
authority hereby conferred shall expire at the conclusion of
the next Annual General Meeting of the Company or 21 May
2019 (whichever is the earlier);
(e) the Company may, pursuant to the authority hereby
conferred, enter into a contract to purchase ordinary shares
which would, will or might be executed wholly or partly after
the expiry of such authority and the Company may make a
purchase of ordinary shares in pursuance of such contract
as if the authority conferred hereby had not expired.
By order of the Board
Gareth J Crowe
Company Secretary
28 November 2017
Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF
Registered Number: 526832
ANNUAL REPORT 2017 | 91
GOOCH & HOUSEGO PLC
SHAREHOLDER INFORMATION
NOTES
1
Explanatory note on Resolution 2: Resolution 2 is an advisory vote
message must be received by the issuer’s agent by 11.00 a.m. on 19
only. The Remuneration Committee Report is set out on pages 37 to
February 2018. For this purpose, the time of receipt will be taken to
41 of the Annual Report and Financial Statements for the financial
be the time (as determined by the timestamp applied to the message
year ended 30 September 2017. Pages 37, 39, 40 and 41 of the
by the CREST Applications Host) from which the issuer’s agent is able
Remuneration Committee Report set out the pay and benefits
to retrieve the message. After this time any change of instructions
received by each of the directors for the year ended 30 September
to a proxy appointed through CREST should be communicated to the
2017. The Company’s policy on remuneration and potential pay outs
proxy by other means. CREST Personal Members or other CREST
to directors in the future, which is set out on page 38 of the Annual
sponsored members, and those CREST Members who have appointed
Report and Financial Statements for the financial year ended 30
voting service provider(s) should contact their CREST sponsor or
September 2017, is specifically excluded from this Resolution.
voting service provider(s) for assistance with appointing proxies via
2
Resolutions 1 to 12 (inclusive) are proposed as Ordinary Resolutions.
This means that for those resolutions to be passed, more than half
of the votes cast on such resolutions must be in favour of such
resolutions. Resolutions 13 and 14 are proposed as Special Resolutions.
This means that for those resolutions to be passed, at least
three-quarters of the votes cast on such resolutions must be in
favour of such resolutions.
3
A member entitled to attend and vote at the meeting is entitled to
appoint one or more proxies to exercise all or any of the member’s
rights to attend, speak and vote at the meeting (or any adjournment
of the meeting). A proxy need not be a member of the Company. If a
member appoints more than one proxy in relation to the meeting,
each proxy must be appointed to exercise the rights attached to a
different share or shares held by that member. If a member submits
more than one valid proxy appointment in relation to the same share,
the appointment received last before the latest time for receipt of
proxies will take precedence. A member may only appoint a proxy in
accordance with the procedures described in notes 4,5 and 6.
4
To appoint a proxy outside of the CREST system, a form of proxy is
enclosed for use. To be valid, this form of proxy (and any power of
attorney or other authority (if any) under which it is signed) must by
duly completed and signed and sent to or deposited at the office of
the Company’s registrars, Link Asset Services, PXS, 34 Beckenham
Road, Beckenham, Kent BR3 4TU so as to be received not less than
48 hours before the time for holding the meeting (or any adjournment
of the meeting). Completion of a form of proxy does not preclude a
member from attending and voting in person at the meeting if that
member so wishes.
5
To appoint as a proxy a person other than the Chairman of the meeting,
a member must insert the proxy’s full name in the box on the proxy
form. If a member signs and returns a proxy form with no name in the
box, the Chairman of the meeting will be deemed to be the member’s
proxy. Where a member appoints as a proxy someone other than the
Chairman, the member is responsible for ensuring that the proxy
attends the meeting and is aware of the member’s voting intentions.
If a member wishes a proxy to make any comments on the member’s
behalf, the member will need to appoint someone other than the
Chairman and give them the relevant instructions directly.
6
To appoint a proxy or to give or amend an instruction to a previously
appointed proxy via the CREST system (Link ID: RA10), the CREST
92 | ANNUAL REPORT 2017
CREST. For further information on CREST procedures, limitations and
system timings please refer to the CREST Manual. The Company or
its Registrars may treat as invalid a proxy appointment sent by CREST
in the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001. In any case your Form
of Proxy must be received by the Company’s Registrars by no later
than 11.00 a.m. on 19 February 2018.
7
A member which is a corporation is entitled to appoint one or more
corporate representatives to exercise the same powers on behalf
of the corporation as the corporation could exercise if it were an
individual member. If a member which is a corporation appoints more
than one corporate representative in relation to the meeting (or any
adjournment of the meeting), each such corporate representative
shall be entitled to exercise the same powers on behalf of that
corporation as that corporation could exercise if it were an individual
member, provided that if such persons purport to exercise those
powers the same way, those powers shall be treated as exercised in
that way, but if those persons purport to exercise those powers in
different ways, those powers shall be treated as not exercised. In the
case of a member which is a corporation, the proxy form must be
executed under the corporation’s common seal or signed on its behalf
by a duly authorised officer of the corporation or an attorney for
the corporation.
8
Pursuant to Regulation 41 of the Uncertificated Securities Regulations
2001, the Company specifies that only those members entered in the
Company’s register of members at close of business on 19 February
2018 shall be entitled to attend and vote at the meeting in respect
of the number of shares registered in their names at that time.
Changes in the Company’s register of members after that time shall
be disregarded in determining the rights of any person to attend
and vote at the meeting. If the meeting is adjourned, the time which
is 48 hours (disregarding any part of a day which is not a working day)
before the time fixed for the adjourned meeting shall apply for the
purpose of determining the entitlement of members to attend and
vote at the adjourned meeting.
9
Copies of Directors’ service agreements and letters of appointment
and the rules of the Company’s share option schemes will be available
for inspection at the registered office of the Company from the date
of this Notice of AGM until the date of the meeting during normal
business hours, and at the place of the meeting from 10.45 a.m.
until its conclusion.
GOOCH & HOUSEGO PLC >|
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ANNUAL REPORT SEPTEMBER 2017
Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@goochandhousego.com
goochandhousego.com
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