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ANNUAL REPORT SEPTEMBER 2018
Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@goochandhousego.com
goochandhousego.com
GH79_AR_Covers_A4.indd 1
01/11/2018 10:34
>
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
Corporate Governance
Directors’ Report
Audit Committee Report
Nomination Committee Report
Remuneration Committee Report
Financial Statements
Independent Auditors’ Report – Group and Company
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
16
22
26
27
28
30
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36
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39
46
52
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53
54
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94
95
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2018 | 01
HIGHLIGHTS
HIGHLIGHTS
02 | ANNUAL REPORT 2018
Operating and Strategic Highlights
• A backdrop of generally favourable market conditions
in our three main sectors of Industrial, Aerospace &
Defence and Life Sciences / Biophotonics.
• Demand was high for critical components used in
microelectronic manufacturing. Hi- reliability fibre
couplers used in undersea cable networks down
overall, though came back strongly in the latter
part of the year.
• Strategically important investments were made in
order to increase capacity in industrial and medical
lasers and to exploit areas of R&D identified as having
high growth potential for our photonic technologies.
• Considerable progress was made towards our
strategic goals of further diversification and moving
up the value chain, including the acquisitions of ITL
and Gould Fiber Optics in August and September
2018 respectively.
Financial Highlights
• Revenue 11.5% higher than FY 2017, 11.1% excluding
foreign exchange and acquisitions / disposals.
• Adjusted profit before tax up 16.4%.
• Adjusted basic earnings per share up 15.8%
• £24m invested in acquisitions and capital expenditure
of £7.2m. Net debt of £10.6m (c.0.5 X EBITDA)
• Record year end order book of £96.1m, up 33% from
30 September 2017, 17% excluding foreign
exchange and acquisitions/ disposals.
GOOCH & HOUSEGO PLC HIGHLIGHTS
Revenue
(£m)
124.9
+11.5%
2017 112.0
Adjusted profit
before tax*
(£m)
18.8
+16.4%
2017 16.1
Statutory profit
before tax
(£m)
10.1
-19.8%
2017 12.6
Basic earnings
per share
(pence)
29.3
-19.5%
2017 36.4
2018
2017
2016
2015
124.9
112.0
86.1
78.7
2014
70.1
2018
2017
18.8
16.1
2016
14.2
2015
12.9
2014
11.5
2018
2017
2016
2015
2014
10.1
12.6
10.1
10.1
7.9
2018
2017
2016
2015
29.3
36.4
29.1
30.9
2014
22.5
HIGHLIGHTS
Adjusted basic
earnings per share*
(pence)
57.2
+15.8%
2017 49.4
Total dividend
per share
(pence)
11.3
+10.8%
2017 10.2
Net (debt) /cash
(£m)
(10.6)
-£25.5m
2017 14.9
2018
2017
57.2
49.4
2016
42.5
2015
39.5
2014
35.6
2018
2017
2016
2015
2014
11.3
10.2
9.0
8.2
7.2
2018
(10.6)
2017
2016
2015
2014
14.9
11.7
17.3
8.7
* adjusted figures exclude the amortisation of acquired
intangible assets, impairment of goodwill, adjustments to
accrued contingent consideration, exceptional items being
restructuring costs, site closure costs, transaction costs, and
interest on deferred consideration.
ANNUAL REPORT 2018 | 03
GOOCH & HOUSEGO PLC HIGHLIGHTS
HIGHLIGHTS
Manufacturing locations
Sales offices
Glenrothes
Ashford
PO
S
St Asaph
Ilminster
S
Norderstedt
AO
PO
H Q
FO
Paris
Torquay STG
Fremont
AO
PO
Moorpark
Keene
S
Cleveland
EO
PO
FO
Bedford
FO
Baltimore
S
Virginia
Shanghai
S
Nagoya
Gooch & Housego demonstrates
unparalleled capabilities in the
following photonic technologies:
• Acousto-optics (AO)
• Electro-optics (EO)
• Fibre optics (FO)
• Precision optics (PO)
• Systems (S)
REVENUE
BY CURRENCY
€ EUR
£ GBP
$ USD
04 | ANNUAL REPORT 2018
£ GBP
27.8%
£34.7m
2017
£25.2m 22.5%
$ USD
66.1%
£82.6m
2017
£80.8m 72.1%
€ EUR
6.1%
£7.6m
2017
£6.0m 5.4%
GOOCH & HOUSEGO PLC HIGHLIGHTS
HIGHLIGHTS
“G&H has had another good financial year. We have been able to take advantage of generally
positive market conditions and continue to execute on our long term strategy.
“Our strong performance has enabled us to continue to invest in manufacturing capacity
and R&D, as well as bringing complementary new technologies and customers into G&H
through acquisitions.
“There has been some recent gradual softening in demand growth for critical components
in microelectronic manufacturing, offset by a return to strong demand growth for our fibre
optics business generally, and hi-reliability fibre couplers in particular.
“We remain aware of potential macroeconomic and political risks. Overall G&H has a robust
order book combined with greater diversification. The Board remains confident that the
Group is well positioned to continue to deliver further progress in FY2019 and beyond.”
Mark Webster
Chief Executive Officer
Aerospace
& Defence
(£millions)
40.8
32.7%
Industrial
(£millions)
72.9
58.4%
Life
Sciences
(£millions)
11.2
8.9%
REVENUE
BY SECTOR
HISTORICAL REVENUE BY SECTOR
(£ millions)
Industrial
2018
2017
2016
2015
2014
Aerospace
& Defence
2018
2017
2016
2015
2014
72.9
64.3
54.3
46.1
39.8
40.8
34.9
20.0
19.8
18.8
Life
Sciences
2018
2017
11.2
9.6
2016
7.9
2015
9.0
2014
7.3
ANNUAL REPORT 2018 | 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.
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.
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 2018
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.
© Crown copyright 2010
© Crown copyright 2004
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.
© Crown copyright 2017
© Crown copyright 2009
ANNUAL REPORT 2018 | 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 2018
Image courtesy
of ESA
Image courtesy of ESA
GOOCH & HOUSEGO PLC 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.
Product development and design
Our new group company, ITL, provides full product
development, design, manufacturing and after-sale service for
the commercialisation of medical diagnostic, analytical,
precision electro-mechanical and laboratory instruments.
SECTORS AND APPLICATIONS
ANNUAL REPORT 2018 | 09
GOOCH & HOUSEGO PLC As the Group grows we are committed to continue to improve
the quality of corporate governance and in September confirmed
that we would apply the UK Corporate Governance code to how
we run the company. As a Board we are also very aware of the
value of diversity and our need to improve women’s
representation at all levels. We are supportive of the approaches
suggested in the Hampton-Alexander review and are committed
to improve representation of women at the Board and in senior
leadership positions in the Group.
While we remain conscious of potential risks arising from
macroeconomic challenges and the growth of global
protectionism, your business enters the new financial year with
a record order book and enhanced opportunities derived from
the continued investment in new technologies, capabilities and
routes to market. The Group is well positioned to continue to
deliver in FY2019 and beyond.
Gary Bullard
Chairman
27 November 2018
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
2018 was another year of significant progress in the development
of your company. Broadly favourable market conditions,
combined with development programmes entering production
generated another positive set of results, while we responded
to unprecedented demand patterns in some of our sites. G&H
delivered record revenues, adjusted profits and adjusted
earnings per share in the year.
The business continued to execute well on its long standing
strategies of diversification and moving up the value chain,
enhanced by the acquisitions made during the year of VITL Ltd
(“ITL”) and Gould Fiber Optics (“GFO”). ITL will substantially
increase the group’s life sciences / biophotonics presence and
provide a much improved systems capability. GFO consolidates
G&H’s position as a world leader in fused fibre technology and
gives enhanced access to the US aerospace and defence sector.
During the year G&H accelerated its transformation programme
and we enter next year with an organisation aligned to our
target end clients in the industrial, life-sciences / biophotonics,
and aerospace and defence sectors. Our manufacturing facilities
have been brought together into four groups based on their
underlying technology, each under dedicated leadership. This
will enable an increased focus on investment in people, plant and
processes and position the company well for future growth.
In successfully responding to the challenges of FY2018 an
exceptional effort was required of many people. I would like to
express my thanks to my fellow directors and to all employees of
G&H. During the year I took over from Gareth Jones as Chairman.
On behalf of the Company and his colleagues I would like to
thank Gareth for his huge contribution to G&H over the many
years of his leadership both as CEO and then Chairman. Andrew
Boteler, Chief Financial Officer, has informed the Board that he
will retire in the summer of 2019 and step down from the Board.
I would like to thank Andy for the support he has given me, the
Board and the company and wish him the best for the future. The
company has appointed a specialist recruitment agency and has
begun a search for a new Chief Financial Officer.
“Strong financial performance and executing
the strategy.”
10 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
FY2018 Performance
Strategic Goals
FY 2018 revenue of £124.9 million represents an increase of
11.5% over the previous year or excluding foreign exchange
and acquisitions / disposals, an increase of 11.1%. Adjusted
profit before tax was £18.8 million, an increase of 16.4% over
the previous year.
Gooch and Housego enters the new financial year with a record
order book, which, at 30 September 2018, stood at £96.1 million,
an increase of 33% compared to the same time last year.
Excluding the impact of foreign exchange and acquisitions and
disposals this represents an increase of 17%.
The Company benefited from generally positive market conditions,
particularly for critical components used in microelectronic
manufacturing, which experienced unprecedented levels of
growth. Despite a lower year overall for high reliability fused
fibre products used in undersea cables, they performed well in
the latter part of the year and exited with a strong order book.
Strategically important investments were made in people,
processes, and “best in class” capital equipment during the year,
allowing us to significantly increase capacity, especially at those
sites supplying critical components used in microelectronic
manufacturing.
G&H was able to make further investment in areas identified as
having high growth potential for our photonic technologies such
as the latest industrial laser systems, harsh environment sensing,
unmanned aerial vehicles (“UAVs”), novel aerospace and
defence programmes, space satellite communications, laser
surgery and medical diagnostics.
We acquired two companies in the last two months of the
financial year and they have strengthened our presence in life
sciences and the aerospace and defence sector. The life science
company, ITL, will enable us to move further up the value chain,
with a much enhanced systems capability. Gould Fiber Optics
allows enhanced access for our fibre products to US aerospace
and defence markets.
Considerable progress has been made towards our strategic
goals of further diversification and moving up the value chain.
Aerospace and defence (“A&D”) and life sciences both provide a
counter balance to the exposure that the industrial laser sector
has to the global economic cycle. Our main customers are the
tier one A&D and medical diagnostic companies, who often
prefer us to provide them with sub system and system solutions,
providing a strong impetus to move up the value chain. This
coupled with the regulatory and compliance hurdles inherent
in A&D and life sciences, provides a very robust business model
with high barriers to entry. We are increasingly well placed to
serve these companies.
Our aim is to achieve a ‘critical mass’ in both the A&D and life
sciences sectors and in an ‘ideal world’ an equal split between
the three main market sectors across G&H.
In large part this has been achieved in A&D, which represented
32.7% of FY 2018 revenue ( FY 2017: 31.1%). Life sciences
has a smaller share of FY 2018 revenue, representing 8.9 %
(FY 2017: 8.5%), but the acquisition of ITL should see life
science revenue take a substantial step forward in FY 2019.
Sub systems and systems now represent 25.6% of our
business ( FY 2017: 22.1%).
Acquisitions and Disposals
Kent Periscopes, acquired in July 2016, performed well in FY2018
and have now substantially achieved their full earn out
potential. StingRay Optics, acquired in February 2017, received
the first part of its earn out payment, having exceeded its first
performance target. We were pleased with the performance of
both companies during FY 2018 and the way they have both
integrated into G&H.
In August and September 2018 we acquired ITL and Gould
Fiber Optics respectively.
“Gooch & Housego has had another good year. We were able to take advantage
of generally positive market conditions and meet our financial goals. At the same
time we made substantial investments in people, process and “best in class”
equipment in order to increase capacity in industrial and medical lasers, invested
in R&D projects identified as delivering a high return for our photonic
technologies, and brought on board complementary technologies and customers
through acquisitions. Considerable progress was made towards our strategic
goals of further diversification and moving up the value chain.”
ANNUAL REPORT 2018 | 11
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
ITL is a UK based specialist in the design, development and
manufacture of high quality medical devices. It enables G&H to
double its life science business and move up the value chain, as
all of ITL’s sales come from system based products.
GFO is a US based market leading supplier of key enabling
components to tier one US A&D customers. It provides a platform
for G&H to obtain enhanced access for our fibre based business
with Tier 1 US based aerospace & defence companies.
Both acquisitions are very recent, but, so far, we are pleased
with their performance and level of integration.
G&H shut down and sold most of the trade and assets of its
Orlando light measurement business in September 2018. It was
a non-core business and delivered marginal returns and made a
small loss in FY2018. Its disposal will have a limited impact on
future earnings.
Research and Development (“R&D”)
There has been continued benefit from concentrating our R&D
efforts on fewer higher return projects. During FY 2018 we
introduced a record 29 new products and we expect the full
value of these products to come to fruition over the next three
years. Revenue generated from new products this year was
£12.0 million (FY 2017: £11.1 million).
Good progress has been made in the areas which have been
identified as offering the highest growth potential for our
photonic technologies.
Microelectronic manufacturing is entering a new phase of ultra
fast lasers, which allow for improved capabilities in existing
areas of use and new areas, such as via drilling techniques and
extreme UV lithography, which is utilised in the production of
nanoelectronics. The next generation of precision lasers and
laser systems are being developed with our laser manufacturer
and laser system partners.
We have capitalised on our expertise and knowledge gained on
space laser communications to provide solutions for applications
such as harsh environment sensing which utilises our ruggedised
photonic technologies. Two recent examples are projects in
the areas of oil pipeline security and LIDAR wind detection for
wind farms.
Unmanned aerial vehicles have a variety of commercial and
military uses and this is an area where we see significant
potential for G&H. We design, engineer and manufacture bespoke
complex optical arrays, often in the IR spectrum, that form part
of the imaging system contained in the UAV’s gimbal. They
typically provide targeting, surveillance and LIDAR capability.
communication systems for near term satellite launches. We
believe there is significant potential to expand this technology into
small satellite platforms for constellations and near space UAVs.
We have a number of ongoing R&D defence programmes in
the US and Europe, which operate under ITAR regulations or
confidentiality agreements, supporting future growth in what
is now a substantial A&D business.
Our optical coherence tomography (“OCT”) technology dominates
the retinal scanning and imaging arena. 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.
Performance Improvement Programme
We have built on the work done in previous years to improve
efficiency, customer service and to establish a more scalable
organisational model for future growth. During FY 2018 eight
of our sites were 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 centre has a leader and their role is to
ensure best practice is shared, there is process harmonisation
and optimal allocation of resource.
Kent Periscopes and StingRay Optics will form a fourth
manufacturing centre, called Systems, in the new financial
year. This will represent the next stage of assimilation of
these relatively recent acquisitions into G&H.
The two latest acquisitions, ITL and GFO, will, in time, slot into the
Systems and Fibre Optic manufacturing centres respectively.
In FY 2019 we will introduce three customer facing business units,
which will mirror our traditional market sectors of Industrials,
A&D and Life Sciences / Biophotonics. Each of the business units
will have a leader who will be responsible for the sector’s strategy
and longer term planning. They will work closely with the four
manufacturing heads to ensure our production resources
match the strategy and longer term planning.
This new approach will be underpinned by improved
business systems. In the new financial year we will enter the
second year of a phased introduction of new financial and
business systems.
Markets and Applications
Industrial
58.4% of FY18 revenue
Our space communication group has gone from strength to
strength with European and UK space agency funded work as
well as substantial commercial contracts to provide satellite
The industrial division is composed of a diverse range of industrial
applications aligned to our world class photonic technologies,
including microelectronic manufacturing, semiconductor
12 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
manufacturing and test, remote sensing, metrology and
optical communications.
The acquisition of GFO provides enhanced access for our fibre
based business to tier one US A&D companies.
Our industrials division grew by £5.3 million or 7.8% compared to
the previous year. For reporting purposes scientific research is
now contained within the industrial sector, which is consistent
with the previously discussed business units. Scientific
research is a small, but prestigious and profitable area for G&H.
The two traditionally largest areas of the industrial division,
industrial lasers and high reliability fused fibre products for
undersea cables, performed very differently during FY 2018.
There was an unprecedented level of demand for critical
components in precision lasers used for microelectronic
manufacturing. This demand was driven, in large part, by the
next generation of smart phones and tablets and the change
in manufacturing technology required to make them. The
technology is dependent on the latest solid state lasers being
able to deliver a high level of precision. We worked closely with
the laser manufacturers and laser system suppliers to meet
demand and have, through a combination of investment and
reorganisation of resources, made available substantial extra
capacity for these products going forward.
The ongoing need for ever more data from government,
industry and the consumer continues to drive a need for more
telecommunication capacity. This is especially true for
undersea cable networks where well-capitalised ‘Silicon Valley’
technology companies are sponsoring installation of their own
dedicated hardware. Our ultra high- reliability fused fibre
products are used in repeaters that are a key part of the
undersea cable networks.
Our business in high-reliability fused fibre products
underperformed in the year. This was due to delays in
deployment of planned undersea networks in the first half of
the year. The business though came back strongly in the latter
part of the year, as the planned networks moved into their
deployment phase and we have experienced good demand led
growth for hi-reliability fused fibre products, with a robust
order book, as at 30 September 2018.
Aerospace & Defence
32.7% of FY18 Group Revenue
A&D grew year on year by £5.9 million or 17.0%. This was due
to a combination of organic growth and the full year impact of
the StingRay Optics acquisition.
G&H is now able to bring a wide range of photonic capabilities
together that very much represent the “direction of travel” in
this sector. These include target designation, range finding,
ring laser and fibre optic gyroscopic 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 US and European A&D companies.
Space satellite communication is undergoing a technological
revolution. The use of fibre optic lasers to transmit information
means the satellite communication systems are more efficient
and robust, as well as 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
and near space UAVs, as part of a communications network. The
investment we have made in this segment allows us to contribute
at the forefront of these developments globally.
Our Moorpark site, which has historically been profitable,
remains key to our aerospace and defence business. However, it
has recently struggled to grow its business during some difficult
times in the commercial aerospace sector which has seen price
pressure from a key customer. Whilst recent investment,
improvements in the site’s operational set up, the adoption of
LEAN manufacturing principles, and diversification of its customer
base are moving the site in a favourable direction, an impairment
of £2.7m has been recognised in respect of the carrying value of
the goodwill relating to this site.
Life Sciences/Biophotonics
8.9% of FY18 Group Revenue
The principal applications are in 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 segment particularly in
ophthalmology, prostate and cosmetic surgery and has significant
potential to be exploited beyond these current areas of use.
The acquisition of ITL, in August 2018, has the potential to be
transformative for G&H in this sector. It will double the life
science / biophotonics revenue and their greater electronic,
software and mechanical engineering capability will substantially
enhance our ability to present our photonic technology as part
of a sub- system or system to our medical diagnostic customers.
There is potential for photonic technology to be used in minimally
invasive surgery, endoscopy and robotic surgery and this segment
remains an area where G&H will continue to invest in R&D and
to look for further strategic acquisitions.
ANNUAL REPORT 2018 | 13
GOOCH & HOUSEGO PLC STRATEGIC REPORT
Appointment of Non-Executive Chairman
and CFO succession
In December 2017 we announced that Gary Bullard was to be
appointed to the Board at the Annual General Meeting in February
2018. He was duly appointed and has had a successful period
in the post.
Gareth Jones stepped down as Non-Executive Chairman after 37
years of loyal service with the Company. On behalf of myself and
G&H, I would like to thank Gareth for his wisdom and guidance
as Chairman and for his immense contribution to G&H’s growth
as a business over many years. All his friends and colleagues at
the Company wish him well in the future.
After more than 10 years as CFO and some 12 years in G&H, Andy
Boteler has decided to step down as a public company executive.
Andy has been an important part of G&H’s success over many
years and his deep knowledge of the business, energy and
considerable ability will be missed. Everyone at G&H wishes him
well in his future endeavours. As part of a managed succession
process, a specialist recruitment agency has been appointed.
Andy has committed to stay on until we have a successor in place.
Outlook
G&H has had another good year. We were able to take advantage
of generally positive market conditions and meet our financial
goals. At the same time we made substantial investments in
people, process and “best in class” equipment in order to increase
capacity in industrial and medical lasers, invested in R&D
projects identified as delivering a high return for our photonic
technologies and brought on board complementary new
technologies and customers through acquisitions. Considerable
progress was made towards our strategic goals of diversification
and moving up the value chain.
We will continue an active policy towards creating a more diverse
and balanced business by building “critical mass” in A&D and
life sciences / biophotonics, through a mix of investment in
R&D and acquisitions.
G&H is committed to making further investment in R&D in target
areas that we believe represent the highest growth potential for
our photonic technologies. These include the latest industrial
laser systems, harsh environment sensing, UAVs, novel A&D
programmes, space satellite communications, laser surgery
and medical diagnostics.
We will continue to execute on our performance management
programme with the aim of improving operational efficiency,
customer service and putting in place a scalable organisational
model that will provide a platform for future growth. The
introduction, in FY 2019, of the fourth manufacturing centre,
based around systems and three customer facing business
units, will be the next step in this process.
There has been some recent gradual softening in demand
growth for critical components used in microelectronic
manufacturing, offset by a return to strong demand growth for
our fibre optics business generally and hi-reliability fibre
couplers in particular.
We remain aware of the current potential macroeconomic and
political risks. Overall G&H has a robust order book, combined
with greater diversification. The Board remains confident that
the Company is well positioned to deliver further progress in
FY 2019 and beyond.
Mark Webster
Chief Executive Officer
27 November 2018
14 | ANNUAL REPORT 2018
Trade show exhibits at
Photonics West, San Francisco
and VISION, Stuttgart
GOOCH & HOUSEGO PLC ANNUAL REPORT 2018 | 15
GOOCH & HOUSEGO PLCTITLE IN HERE STRATEGIC REPORT
MARKET OVERVIEW
Industrial
Applications, Products and Markets
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. Microelectronics materials processing
represents the largest end market and has grown strongly driven
by 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 recent years.
Metrology for laser-based, high-precision, non-contact
measurement systems. The Group principally supplies its
precision optics and acousto-optics into this market. Customers
are typically blue-chip OEMs.
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.
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.
Scientific Research the largest proportion being nuclear fusion
research & 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
very large 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
16 | ANNUAL REPORT 2018
fusion and 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.
Financial Performance
• Our overall Industrial business grew by 7.8% in absolute terms
during the year, with revenues of £72.9 million, compared with
£67.6 million last year. Excluding foreign exchange and
acquisitions / disposals this represented a 12.6% increase.
This growth was driven by a combination of our industrial laser,
semi-conductor and scientific research sub divisions. Growth in
this sector was offset by a reduction in telecommunications
revenues as a result of a pause in our customers’ ordering
patterns earlier in FY2018, which have now recovered, with a
healthy order book at the year end, demonstrating the benefits
of diversification. Revenue from the Group’s industrial laser and
semi-conductor business segments growth was driven by high
demand for precision lasers & inspection equipment used in
microelectronic manufacturing. Demand for the traditional Q
Switch grew in 2018 and represented 15.5% of total group
revenue (2017: 14.0%).
• Adjusted operating profit for the Industrial division was
marginally higher at £12.3 million, compared with £12.2
million last year. Percentage operating margin fell as a result
of the lower overhead absorption in our optical
communications segment.
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 FY2018 Gooch & Housego
introduced 12 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 requiring complex design and
engineering input and for a number of our products survivability
in harsh environments.
• To expand into and develop new geographical markets offering
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. The Company will continue to
seek high quality acquisition opportunities as a route to grow
its industrial business.
GOOCH & HOUSEGO PLC Revenue
(£millions)
72.9
+7.8%
2017 67.6
Adjusted
Operating Profit
(£millions)
12.3
+0.8%
2017 12.2
Percentage
of Revenue
58.4%
2017 60.4%
STRATEGIC REPORT
Image courtesy of ESA
ANNUAL REPORT 2018 | 17
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Aerospace & Defence
Applications, Products and Markets
Financial Performance
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.
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.
• A&D revenue was £40.8 million, up 17.0% on last year, driven
by organic growth and benefitting from the full year effect of
the StingRay acquisition in 2017 and a small benefit from the
Gould acquisition in 2018. Excluding foreign exchange and
acquisitions / disposals our A&D sector grew by 12%. These
results were driven by a strong performance from our periscopes
& sighting systems, opto-mechanical sub systems and target
designation & range finding businesses. These results
reinforce our belief that this division represents a growth
opportunity for Gooch & Housego, as optical technologies
continue to be increasingly deployed in this market.
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.
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, UK 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 a number of blue chip defence companies.
Opto-mechanical sub systems for Unmanned Aerial Vehicles.
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.
• Operating margins in this sector increased reflecting the higher
volume and strong margins achieved by our systems & sub
system based businesses in particular.
Growth Strategy
• To continue to focus energy and investment on moving from
being a components supplier to a sub-systems provider. Our
customers are changing their business models and are looking
for companies such as Gooch & Housego that are capable of
providing broader solutions.
• To continue to invest in manufacturing processes and
engineering in order to meet the exacting expectations of
this sector, which are 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.
• To introduce a greater number of new products, including
products which look to fill a “market need”, in a managed and
cost effective way, as well as projects initiated by our customers.
During 2018 Gooch & Housego introduced 16 new products
that address its aerospace & defence market.
18 | ANNUAL REPORT 2018
© Crown copyright 2001
GOOCH & HOUSEGO PLC Image courtesy
of ESA
© Crown copyright 2013
STRATEGIC REPORT
Revenue
(£millions)
40.8
+17.0%
2017 34.9
Adjusted
Operating Profit
(£millions)
5.7
+33.5%
2017 4.3
Percentage
of Revenue
32.7%
2017 31.1%
ANNUAL REPORT 2018 | 19
GOOCH & HOUSEGO PLC STRATEGIC REPORT
MARKET OVERVIEW
Life Sciences / Biophotonics
Applications, Products and Markets
Financial Performance
• In 2018 life sciences / biophotonics revenue was up by 17.2%
compared to the prior year. Excluding foreign exchange and
acquisitions / disposals this division was broadly flat, with the
majority of the growth being driven by the acquisition of ITL.
• On the back of this increase in volume, adjusted operating
margins in this sector increased 61.5% to £1.6 million.
Growth Strategy
• To continue to invest in longer term R&D projects, to develop
the existing portfolio of products and to ensure that they
remain competitive. During 2018 Gooch & Housego
introduced one new product that addresses its life sciences /
biophotonics market.
• Where appropriate to sell the full range of our life sciences /
biophotonics products to a wider range of customers.
• To make strategic acquisitions that are synergistic and
complementary to our existing life sciences / biophotonics
business, to help us build critical mass in this sector. Gooch &
Housego will continue to seek acquisition opportunities.
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.
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.
Microscopy modern, laser-based techniques are revolutionising
the field of microscopy. Gooch & Housego’s acousto-optic devices
are used to control the multiple laser sources and analyse
complex images. The end customers are typically medical
equipment manufacturers.
Systems following the acquisition of ITL, G&H now has a range
of capabilities including full product development, design,
manufacturing and after sale service for the commercialisation
of high-quality medical diagnostic, in vitro diagnostic (IVD)
devices, analytical, precision analytical, electro-mechanical and
laboratory instruments.
The growth strategy for life sciences / biophotonics mirrors
that for aerospace & defence in many respects. This is
particularly true in terms of the high growth potential of our
photonic technologies and the desire of the customer base to
“pull” Gooch & Housego up the value chain.
20 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC Revenue
(£millions)
11.2
+17.2%
2017 9.6
Adjusted
Operating Profit
(£millions)
1.6
+61.5%
2017 1.0
Percentage
of Revenue
8.9%
2017 8.5%
STRATEGIC REPORT
ANNUAL REPORT 2018 | 21
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
Performance Overview
Revenue
The business has once again delivered strong and profitable
growth.
Group revenue for the year was a record £124.9million. This
represents an increase of £12.9 million, or 11.5% over the previous
year of £112.0 million.
In August and September 2018 Gooch & Housego acquired ITL
and the trade and assets of Gould Fiber Optics respectively,
which, combined, contributed £2.5 million to group revenue in
the year. Additionally, the full year incremental benefit of our
2017 acquisition, StingRay Optics LLC, was £3.0m.
In September 2018, G&H sold the majority of the trade and
assets of its Orlando, Florida facility. In FY 2018 the Orlando
business contributed £5.0 million to Group revenue with
marginal profitability. The cost of closing the site, net of
disposals proceeds was £1.6m.
Our organic revenue, net of acquisitions and disposals, was up by
6.6%. Excluding foreign exchange and acquisitions / disposals
revenue growth was 11.1%, a higher rate of growth than the
previous year.
During 2018, G&H invested £6.0 million in property, plant and
equipment and £24.0 million in acquisitions. This has resulted in
the business moving into a net debt position of £10.6 million as at
30 September 2018 compared to a net cash position of £14.9
million, as at 30 September 2017. This represents approximately
0.5 X EBITDA.
In the financial year under review, adjusted operating profits
increased by £2.7 million to £19.1 million (2017: £16.4 million).
At a percentage margin level, adjusted operating margins were
15.3%, compared to 14.6% in 2017.
2018
2017
Year ended 30 September
£’000
% £’000
%
Industrial
72,881 58.4% 67,586 60.4%
Aerospace & Defence
40,789 32.7% 34,860
31.1%
Life Sciences / Biophotonics
11,213
8.9%
9,570
8.5%
Group Revenue
124,883
100% 112,016
100%
In our Industrial segment, revenue grew by 7.8%, in absolute
terms, from £67.6 million last year to £72.9 million this year.
On a constant currency basis this sector increased by 12.6%.
Revenue in our aerospace & defence business increased by
17.0% in absolute terms from £34.9 million to £40.8 million.
Excluding the acquisition of Gould Fiber Optics and the full
year impact of our 2017 acquisition, A&D revenue increased by
7.7%. Excluding foreign exchange and acquisitions / disposals
this sector increased by 12.0% in the year.
Life sciences / biophotonics revenue increased by 17.2% in
absolute terms from £9.6 million to £11.2 million. Excluding the
acquisition of ITL, life science / biophotonics revenue fell by
6.2%. Excluding foreign exchange and acquisitions / disposals
this sector was broadly flat year on year.
Group Earnings Performance
All amounts in £’000
Adjusted
Reported
Year ended
30 September
2018
2017
2018
2017
Operating profit
19,100
16,406
10,796
13,278
Net finance costs
(343)
(295)
(683)
(676)
Profit before taxation
18,757
16,111
10,113
12,602
Taxation
(4,677)
(4,059)
(2,893)
(3,710)
Profit for the year
14,080
12,052
7,220
8,892
Basic earnings
per share (p)
57.2p
49.4p
29.3p
36.4p
Reconciliation of Adjusted Performance Measures
Operating profit
Net finance costs
Taxation
Earnings per share
Year ended 30 September
£’000
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
2017
Reported
10,796
13,278
(683)
(676)
(2,893)
(3,710)
Amortisation of acquired intangible assets
Site closure
Impairment of goodwill
Charge/(credit) in respect of accrued
contingent consideration
Restructuring costs
Transaction fees
Interest on deferred consideration
Tax credit on US deferred tax due to rate change
2,141
1,569
2,708
417
864
605
–
–
2,202
–
615
(615)
536
390
–
–
–
–
–
–
–
–
–
–
–
–
–
–
340
–
381
–
(276)
(359)
–
–
(169)
(116)
–
(864)
(168)
–
–
–
(105)
(76)
–
–
Adjusted
19,100
16,406
(343)
(295)
(4,677)
(4,059)
£’000
2018
29.3p
7.6p
4.9p
11.0p
1.7p
2.8p
2.0p
1.4p
(3.5p)
57.2p
£’000
2017
36.4p
8.3p
–
2.5p
(2.5p)
1.8p
1.3p
1.6p
–
49.4p
22 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
The Group adjusted profit before tax amounted to £18.8 million
(2017: £16.1 million) and represented a margin of 15.0%.
Statutory profit before tax was £10.1 million compared with
£12.6 million last year.
The adjusted effective rate of tax was 24.9% (2017: 25.2%).
The reduction in the rate was due to US tax reforms, offset to a
large extent by a greater proportion of the group’s profits being
subject to state taxes in the US. The effective rate of tax of 28.6%
(2017: 29.4%) was higher than the adjusted effective rate
because of the effect of the goodwill impairment, which is not
subject to tax, and which was partially offset by the one-off gain
on re-measurement of the US deferred tax liabilities following
the reduction of the US tax rate.
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.
Adjusted earnings per share (EPS) increased from 49.4p in
FY2017 to 57.2p in FY2018. Reported basic EPS was 29.3p
compared with 36.4p last year.
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, impairment of
goodwill, adjustments to contingent consideration, costs
associated with the acquisition and disposal of subsidiary
companies, and the interest charge on deferred consideration.
Research and Development (R&D)
Gooch & Housego continues to invest in R&D and regards this
as fundamental to the continued growth of the company. There
were a record 29 product releases in 2018, together with 4 new
patents granted.
Expenditure on R&D in FY2018 increased by 2.4% from £8.6
million to £8.8 million. R&D expenditure represented 7.1% of
revenue (2017: 7.7%). The Group capitalised £0.6m of
development expenditure (2017: £0.7 million).
Operations
In September 2018 G&H shut down its Orlando, Florida, light
measurement business. Most of the trade and assets of the
business have been sold. It was a non-core business and in the
recent past had delivered marginal returns. This business made
a small loss in FY 2018. The cost of closing this facility, net of the
sale of the majority of the trade & assets is £1.6 million in 2018.
The Orlando property is owned by G&H and is being marketed
for sale in FY2019. It is expected that following the sale of the
property, the overall site closure will be cash neutral. Both the
closure costs and any future profit on sale of the building will
be treated as adjusting items.
As reported in 2017, the Company won its legal dispute with the
landlord of its Fremont facility, as a result of which, a Californian
court awarded G&H in the region of $2 million in damages plus
costs, arising from the landlord’s non-performance in respect of
the lease. The landlord has commenced an appeal against this
ruling and whilst legal opinion remains confident that the original
ruling will be upheld, no recognition of the damages award has
been made in this set of financial statements. Any net benefit
will be treated as an exceptional item.
As part of the plan to position G&H for future growth the business
is in the process of being reorganised. As outlined in our FY2017
Annual Report, our manufacturing sites have been organised into
manufacturing centres. In addition to the three areas of technical
expertise, namely Acousto Optic / Electro Optic, Precision Optics
and Fibre Optics announced in FY2017, G&H is also adding Systems
as the fourth manufacturing centre, announced in FY2018. 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. In FY2018 the business has also
announced three business units that mirror our traditional market
sectors of Industrial, A&D and Life Sciences / Biophotonics.
These business units will provide a market facing focus, tailored
to the specific needs of these discrete and often very diverse
market sectors. The fourth manufacturing centre and the three
new business units will be introduced in the new financial year.
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 August 2018 G&H acquired ITL. This acquisition expands the
Company’s presence in the life sciences sector and further
enables G&H’s move into system based products.
Founded in 1977, ITL is a UK based specialist in the design,
development and manufacture of high quality medical and in
vitro diagnostic (IVD) devices. ITL is a market leading supplier
with an established group of long standing multi-national
customers. It provides full product development, design,
manufacturing and after sale service for the commercialisation
of medical diagnostic, analytical, precision electro-mechanical
and laboratory instruments.
ITL is headquartered in Ashford, Kent, with manufacturing sites in
Ashford and Shanghai, China, plus a US client servicing capability
based in Virginia, USA. This acquisition enables G&H to take a
significant step towards meeting its strategic objectives, including
doubling the revenue of its life science business and accelerating
ANNUAL REPORT 2018 | 23
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
the Company’s move up the value chain, with all of ITL’s sales
coming from system based products. ITL’s core group of electronic,
software and mechanical engineers, provides an enhanced
platform on which G&H can expand its systems capabilities.
Over time there are a number of potential benefits that will accrue
from ITL becoming part of G&H. These include leveraging G&H’s
commercial footprint in the US, China and Far East and combining
the Company’s photonic expertise with ITL’s high level systems
capability in order to provide a more attractive product offering
to G&H’s medical diagnostic customer base.
Acquired in quarter 4, ITL has performed well, contributing
£2.2 million to group revenue and £0.5 million in profit before
tax in the year.
In September 2018 G&H acquired the trade and assets of Gould
Technology LLC, trading as Gould Fiber Optics. This acquisition
strengthens G&H’s position as the world leader in fused fibre
optic technology and provides enhanced access to strategic US
aerospace and defence customers.
Founded in 1978 and headquartered in Baltimore, MD, USA,
GFO is a specialist in the design, development and manufacture
of fibre optic components and sub systems. GFO is a market
leading supplier of key enabling components into tier 1 US
Aerospace and Defence customers. The GFO product range is
highly complementary to that of G&H. Whilst G&H is the leading
manufacturer of high reliability undersea fused fibre optic
components, together with a strong presence in the life sciences
and fibre laser markets, GFO specialises in the supply of polarisation
maintaining (“PM”) fibre components to the US defence market.
As GFO was acquired very late in the financial year its
contribution to the 2018 results has been minimal, adding circa
£0.3 million to group revenue and a marginal contribution to profit.
This acquisition enables G&H to take another step towards
meeting its strategic objective of further diversification in its core
markets. GFO brings the technology and routes to market required
for G&H to access the US aerospace and defence fibre optic market.
In turn G&H’s much larger US salesforce/business development
group and the combined broader based product portfolio should
provide the platform for greater expansion within this sector.
As a result of an excellent trading performance in 2018, Kent
Periscopes has substantially achieved its full earn out potential.
Consequently, the provision for a proportion of this payment
previously released in 2017, has been charged to the income
statement for the current year.
Non Trading Items
Restructuring costs of £0.9 million (FY2017: £0.5 million) related
to the legal dispute associated with the re-location of our Palo
Alto facility to Fremont and to restructuring costs arising from
the re-organisation of the manufacturing centres and the
introduction of the customer facing business units.
24 | ANNUAL REPORT 2018
Transaction costs of £0.6 million relate to the acquisition of ITL
and Gould Fiber Optics.
Site closure costs relate to the closure of the Company’s
Orlando facility. These comprise inventory write off costs and
personnel expenses, net of the proceeds received.
Provision of contingent consideration of £0.4 million related to
the Kent Periscopes acquisition meeting its full earn-out.
As part of its annual review of the carrying value of goodwill, the
Board has taken the decision to impair the goodwill of the General
Optics acquisition. General Optics, now referred to as Gooch &
Housego Moorpark, was acquired in October 2008 for a
consideration of $21m and, prior to the impairment, the carrying
value of the associated goodwill was £6.4m. Over the last ten years
this acquisition has played a vital role in Gooch & Housego’s
diversification strategy, by providing the knowledge and routes to
market required for the Group to become a credible player in the
Aerospace and Defence market. However, on a stand-alone basis,
Moorpark has recently struggled to grow its business during some
difficult times in the commercial aerospace sector which has seen
price pressure from a key customer. Whilst, recent improvements
in the site’s operational set up, the adoption of LEAN
manufacturing principles, and diversification of its customer
base, are moving the performance of Moorpark in a favourable
direction, an impairment charge of £2.7m has been recognised
in relation to the carrying value of the Moorpark goodwill.
Balance Sheet
The Group’s total equity at the end of the year was £107.8 million,
an increase of £9.7 million over the prior year. This increase
comprised £4.6m from retained earnings, £2.7m from issues of
share capital and a net increase of £2.4m from foreign exchange
and other movements.
Additions to property, plant and equipment totalled £6.0m
(excluding acquisitions). The main additions related to investment
in plant and machinery to deliver the capacity requirements in 2018.
Working capital was 27.4% of revenue in the current year
compared to 19.2% in 2017, due to higher inventory levels
required to cope with the volume increase and a heavy weighting
of shipments towards the end of the financial year driving up
accounts receivable. This metric has also been affected by the
two acquisitions and one site closure in the later part of the
year. Excluding these the working capital was 24.6%.
Inventory at year end was £24.4 million, an increase of £3.4
million over the prior year. Excluding the impact of the inventory
attributable to the acquisitions and site closure, the underlying
inventory increased by £2.3 million, or 10.7%, in the year. This
increase is reflective of the increased activity in the year.
Trade receivables at year end were £32.2 million, an increase of
£11.7 million over the prior year. Excluding the impact attributable
to the acquisitions and site closure, the underlying receivables
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
increased by £8.7 million, or 42.6%, in the year. This increase
was due a heavier than normal weighting of shipments in Q4.
There has been good cash collection post year end.
an increase of 10.8%. The final dividend, if approved, will be
payable on 1 March 2019 to shareholders on the Company’s share
register as at the close of business on 25 January 2019.
Cash balances at 30 September 2018 were £19.4 million,
compared with £26.4 million in the prior year. Net cash flows
from operating activities totalled £9.2 million, compared with
£17.6 million last year, reflecting a cash generated from operations
to adjusted operating profit rate of 62.6% (2017: 119%) as a
result of the increase in the working capital position. During the
year the business moved from a net cash position of £14.9 million
to a net debt position of £10.6 million, as a result of investing
£24.0 million in the acquisitions and £6.0m in property, plant
and equipment.
In August 2018 G&H re-financed its banking facilities with its
existing bankers, Natwest. The new arrangement, set for a
three year term, comprises a committed $40 million revolving
credit facility and an uncommitted $20 million accordion facility.
Movement in Net Cash / (Debt)
All amounts in £m
Gross
Gross
Net
Cash
Debt
Cash / (Debt)
At 1 October2017
Operating cash flows
Debt drawdown
26.4
20.7
17.3
Acquisitions / (disposals)
(23.6)
Net capital expenditure
Working capital
Interest, tax and dividends
Exchange movements
At 30 September 2018
Order Book
(7.2)
(8.8)
(5.7)
0.3
19.4
(11.5)
–
(17.3)
(0.4)
–
–
–
(0.8)
(30.0)
14.9
20.7
–
(24.0)
(7.2)
(8.8)
(5.7)
(0.5)
(10.6)
As at 30 September 2018, the Group order book stood at £96.1
million, compared to £72.1 million at the end of the 2017 financial
year, a 33% increase. The net effect of the acquisitions and
disposal added £10.3 million to the order book. Excluding foreign
exchange and acquisitions / disposals the order book was 17%
higher. The book to bill ratio for the business as a whole was
0.95 (six month rolling average) as at 30 September 2018
(2017: 1.08). This partly reflects the strong shipments in Q4.
Staff
The Group workforce increased from 823 at 30 September
2017 to 1,007 at the end of September 2018, an increase of
184. This is a net position and therefore reflects both the work
the business has done in driving efficiency improvements and
the additional headcount that has come from the recent
acquisitions and investment in capacity.
Dividends
The Directors propose a final dividend of 7.1p per share making
a total dividend per share for the year of 11.3p (2017: 10.2p),
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:
Total revenue growth
At actual exchange rates
At constant exchange rates
2018
12%
16%
2017
30%
19%
2016
9%
3%
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)
2018
40.8
11.2
2017
34.9
9.6
2016
20.0
7.9
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 acquisition, StingRay Optics LLC, combined
with a small contribution from Gould Fiber Optics in 2018.
Net (debt) / cash analysis
Net (debt) / cash (£m)
2018
(10.6)
2017
14.9
2016
11.7
In order to balance business risk with the investment needs of the
Company, management closely monitors and manages net cash/
(debt). This year, following the acquisition of ITL and Gould Fiber
Optics and the investment in capital assets the net cash reduced
from a net cash position of £14.9 million to a net debt position of
£10.6 million. This represents a Net Debt : EBITDA ratio of c. 0.5.
Earnings per share (EPS)
2018
2017
Adjusted diluted EPS (pence)
56.5p
48.5p
2016
41.7p
As a result of a strong trading performance, the business has
been able to deliver growth in adjusted diluted EPS of 16.5%,
from 48.5p to 56.5p in 2018.
ANNUAL REPORT 2018 | 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 2018,
Gooch & Housego grew its business in the areas of:
• Industrial lasers
• Semi-conductors
b) Aerospace & Defence.
• Acquisition of Gould Fiber Optics
c) Life Sciences
• Acquisition of ITL
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
• Further investment in systems based R&D projects
• Acquisition of ITL
Organic Research and Development
To leverage Gooch & Housego’s world leading products,
technologies and capabilities to develop innovative
new products.
Progress
• In 2018 the company’s organic research & development
programmes have delivered a record 29 new products.
In addition, 4 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
2.4% in 2018.
26 | ANNUAL REPORT 2018
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
There is an ongoing risk of loss of market
This is a key area of focus for the G&H management team. Fundamental to mitigating the
share or price erosion due to the activities
effects of our competitors is to maintain our product quality and on-time delivery performance
of competitors in our market places.
to ensure our customers’ expectations are fulfilled.
This could lead to a reduction in revenue
and profitability.
Our significant investment in R&D enabled us to launch 29 new products during FY2018.
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
Our people are at the heart of our business. We maintain development and reward schemes to
retaining and developing its highly skilled
encourage individuals to play a long term role in the future development of the Group.
management team and workforce in order
to achieve its strategic objectives.
CAPACITY MANAGEMENT
Succession planning is reviewed by the senior management team on a regular basis.
Recent market trends have led to
There has been continued management focus on increasing efficiency during FY18 in order to
unprecedented demand for certain products
increase capacity. The grouping of our sites into manufacturing centres is expected increase
which has exceeded the capacity of certain of
efficiency going forward.
our facilities during FY18.
We have continued to invest in machinery and people. Significant progress has again been made
in increasing capacity at strategically important plants.
GLOBAL ECONOMIC TRENDS
Adverse changes in the major markets in which the
Group operates can have a significant impact on
the Group’s performance.
BREXIT
Various Brexit scenarios could affect the group’s
financial position, supply chain and people.
US / CHINA TARIFFS
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
33% higher than the previous year, including the impact of acquisitions and disposals.
Our Brexit steering group continually monitors the evolving impact of Brexit and oversees
our response.
Tariffs levied by the US and China could affect our
sales and margins in certain markets.
Our US/ China tariff steering group continually monitors progress and takes mitigating action
where necessary, such as moving some production from our US to UK sites.
The strategic report has been approved by the Board of Directors and signed on its behalf by:
Mark Webster
Chief Executive Officer
27 November 2018
ANNUAL REPORT 2018 | 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 2018
GOOCH & HOUSEGO PLC BOARD OF DIRECTORS
Non-Executive Directors
GOVERNANCE
Gary Bullard Non-Executive Chairman (Appointed 21 February 2018)
Gary previously held senior management positions, including sales and marketing roles,
at IBM and BT Group plc was a non-executive director of Chloride Group plc. Gary most
recently held the position of President of Logica UK until October 2012 and was a member
of the Executive Committee of Logica plc.
Gary is a non–executive director of Spirent Communications PLC and Rotork PLC. He is
also founder and CEO of Catquin Limited and Chairman of New Model Identity Limited.
Gary is a member of the Nomination and Remuneration Committees of the
Gooch & Housego Board.
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 2018 | 29
GOOCH & HOUSEGO PLC GOVERNANCE
CORPORATE GOVERNANCE
Introduction
The Board is accountable to shareholders and is committed to the
highest standards of corporate governance. To this end, the
company adopted the UK Corporate Governance Code (2016)
during the year. The Code is available to download at
www.frc.org.uk
Gooch & Housego PLC adopted the code in September 2018
since when it has complied with the code, save that it was not
in compliance with the following provision:
Code Provision E1.1 states that the senior independent director
should attend sufficient meetings with a range of major
shareholders to listen to their views in order to help develop a
balanced understanding of the issues and concerns of major
shareholders. The senior independent director has not met with
shareholders during the year, although the board believe the level
of dialogue with shareholders during the year has been appropriate.
The Chief Executive and Chief Financial Officers have regular
meetings with the shareholders and following his appointment
during the year, the Chairman also met with a number of key
shareholders. All of the non executive directors receive a report
prepared by our brokers summarising the shareholder feedback
from the half and full year investor roadshows. The senior
independent director was available at the annual general
meeting and we will engage with shareholders in FY19 to
determine if individual meetings are desired.
How we govern the company
The Board leads the Group’s governance framework. It is
responsible for setting the strategic targets for the Group,
monitoring progress made, approving proposed actions and for
ensuring that the appropriate internal controls are in place and
that they are operating effectively.
The Board is assisted by three principal committees (Audit,
Nomination and Remuneration) each of which is responsible
for dealing with matters within its own terms of reference,
which are available on the company’s web site.
The Board
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 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.
The terms of appointment of the Directors are available for
inspection during business hours at the registered office of
Gooch & Housego PLC and are also be available at the AGM.
30 | ANNUAL REPORT 2018
All the non-executive Directors are considered by the Board to
be independent of management and free of any relationship
which could materially interfere with the exercise of their
independent judgement.
The Nomination Committee is responsible for approving
appointments to the board. The board’s policy is to appoint the
highest calibre individuals regardless of an individual’s
background, race or gender. The board has not set any specific
objectives in relation to diversity, but understands and
recognises the benefits that diversity can bring.
Roles and responsibilities
There is a documented clear division of responsibilities between
the Chairman and the Chief Executive Officer to ensure that
there is a balance of power and authority between leadership
of the Board and executive leadership.
All Directors are entitled to seek independent, professional
advice at the Company’s expense in order to discharge their
responsibilities as Directors. Gooch & Housego PLC maintains
appropriate directors’ and officers’ insurance cover.
Board activities
Day to day responsibility for the running of the Company is
delegated to executive management. However, there are a
number of matters where, because of their importance to the
Group, it is not considered appropriate to do this. The Board
therefore has a documented schedule of matters reserved for its
decision. This schedule is available on the company’s web site.
There are typically 8 board meetings a year. At least once annually,
the Board meets at one of Gooch & Housego’s locations other than
its head office in Ilminster. This allows the Board, particularly
the non-executive directors, the opportunity to gain a deeper
understanding of other Gooch & Housego businesses and to
meet local staff.
Meetings between the non-executive directors, without the
executive directors present are scheduled in the Board’s annual
programme. These meetings are encouraged by the Chairman and
provide the non-executive directors with a forum in which to share
experiences and to discuss wider business topics, fostering
debate in Board and committee meetings and strengthening
working relationships.
The Board has established a procedure for directors, if deemed
necessary, to take independent professional advice at the
Company’s expense in the furtherance of their duties. The
Chairman ensures that the Board is kept properly informed and
is consulted on all matters reserved to it. Board papers and other
information are distributed in a timely fashion to allow directors
to be properly briefed in advance of meetings.
In accordance with best practice, the Chairman addresses the
developmental needs of the Board as a whole, with a view to
GOOCH & HOUSEGO PLC GOVERNANCE
CORPORATE GOVERNANCE
further developing its effectiveness as a team, and ensures that
each director refreshes and updates his or her individuals skills,
knowledge and expertise.
A formal, comprehensive and tailored induction is given to all
non-executive directors following their appointment, including
access to external training courses, visits to key locations
within the Group and meetings with members of the senior
management team.
Peter Bordui is the Senior Independent Director. His role includes
providing a sounding board for the Chairman and acting as an
intermediary for the non-executive directors, where necessary.
The Board believes that Peter has the appropriate experience,
knowledge and independence to continue this role.
Board meeting attendance is presented in the following table.
Executive Directors
Mark Webster
Andrew Boteler
Alex Warnock
Non-executive Directors
Gary Bullard
Peter Bordui
Brian Phillipson
David Bauernfeind
Gareth Jones
8/8
8/8
8/8
6/6
8/8
8/8
8/8
3/3
Appointed 21 February 2018
Retired 21 February 2018
Maintaining a dialogue with shareholders
The Chairman ensures that the Board maintains an appropriate
dialogue with shareholders. The Chief Executive Officer and the
Chief Financial Officer regularly meet with institutional investors
to discuss strategic issues and to make presentations on the
Company’s results.
In addition to the full and half year results, the company
publishes Regulatory News Service announcements through
the London Stock Exchange.
The Company’s web site contains an archive of information on
the Company’s history, leadership, governance, financial results,
dividend history and up to date share price information.
Although the non-executive directors are not formally required
to meet the shareholders of the Company, their attendance at
the Annual General Meeting and at presentations of the
interim and annual results is encouraged.
Board effectiveness
led by the Senior Independent Director, Peter Bordui.
The Senior Independent Director annually arranges a meeting
of the non-executive directors to appraise the Chairman’s
performance. Due to appointment of Gary Bullard on 21 February
2018, this review did not take place during the year ended 30
September 2018. A first review of Gary’s performance will take
place in the year ending 30 September 2019.
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.
Board Committees
The Board has established a number of committees to assist in
the discharge of its duties. The formal terms of reference for the
principal committees can be found on the company’s web site.
The Board has three formally constituted committees, the Audit
committee, the Remuneration committee and the Nomination
committee. A report on the activities of each committee
follows later in this report.
Accountability
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.
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.
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.
The Chairman is responsible, with assistance from the Nomination
Committee, for ensuring that the Company has an effective Board
with a suitable range of skills, expertise and experience. Every
year, a performance evaluation of the Board is carried out. This
year, the evaluation commenced in September 2018, and was
The Audit Committee is responsible for reviewing the
effectiveness of the Company’s financial reporting, internal
control policies and procedures for the identification, assessment
and reporting of risk. It is also responsible for Advising the Board
on whether the Committee believes the Annual Report taken
ANNUAL REPORT 2018 | 31
GOOCH & HOUSEGO PLC GOVERNANCE
CORPORATE GOVERNANCE
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.
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. In FY2019, an internal audit
function will be introduced.
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.
Remuneration
The Remuneration Committee is responsible for setting
remuneration packages of the Executive Directors which are
designed to promote the long term success of the Company
and take account of current corporate governance practice.
The committee ensures that performance related components
of Executive Director remuneration are transparent, stretching
and rigorously applied. The committee also monitors the level
and structure of remuneration for other senior management.
No director is involved in deciding his or her own remuneration.
32 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC GOVERNANCE
DIRECTORS’ REPORT
The Directors present their report together with the audited
consolidated financial statements for the year ended 30
September 2018.
of foreign currency risk on the trading transactions undertaken
by group companies and on the translation of the net assets of
overseas subsidiaries. This exposure is principally to the US dollar.
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 16 to 21.
Key Financial 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.
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.
Dividends
During the year ended 30 September 2018 a final dividend of
6.5p per share was paid for the previous financial year. The
final 2016 dividend of 5.7p per share was paid in the year ended
30 September 2017. A further interim dividend of 4.2p per share
was paid for the half year ended 31 March 2018 (2017: 3.7p).
For the year ended 30 September 2018, the Directors propose
that a final dividend of 7.1p per share be paid.
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.
Substantial shareholdings
Directors’ Indemnities
As at 15 November 2018, 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
3,705,912
14.88%
Investec Wealth & Investment
2,133,432
8.57%
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.
Oppenheimer Funds
2,000,000
8.03%
Employee Involvement
Aberdeen Standard Investments
1,934,249
Canaccord Genuity Wealth Management
1,518,126
7.77%
6.10%
Black Rock Investment Management
945,884
3.80%
Franklin Templeton Investment Management
906,841
JM Finn & Co
756,236
3.64%
3.04%
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.
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
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.
Statement on Equal Employment Opportunities
The Group is committed to providing equal employment
opportunities for all employees and applicants for employment.
ANNUAL REPORT 2018 | 33
GOOCH & HOUSEGO PLC GOVERNANCE
DIRECTORS’ REPORT
The company does not discriminate in employment opportunity
or practices on the grounds of gender, race, religion or belief, age,
disability, sexual orientation, or any other characteristic protected
by national laws under which the Group operates. Appropriate
arrangements are made for the continued employment and
training, career development and promotion of disabled persons
employed by the group. If members of staff become disabled the
group continues employment, either in the same or an alternative
position, with appropriate retraining being given if necessary.
Our employees have diverse backgrounds, skills, and ideas that
collectively contribute to the Company’s success. The Group
operates to national standards of diversity in employment
including the Affirmative Action Program (AAP) in the United
States which is designed to attract, retain and develop a
diverse pool of talent and which operates to an audit and
reporting system.
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:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European
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;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern basis
34 | ANNUAL REPORT 2018
unless it is inappropriate to presume that the company will
continue in business.
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 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 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.
Directors’ Confirmations
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.
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.
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.
For this reason, the Directors continue to adopt the going
concern basis in preparing the financial statements.
Viability Statement
Business planning processes within G&H require the preparation
of detailed financial plans over a three year time period. The CEO
leads an annual review of the ongoing plan, a process in which
all functions are involved. The Group’s strategy is developed,
GOOCH & HOUSEGO PLC GOVERNANCE
and capital investment decisions are made based on cash flow
forecasts over a medium term horizon.
The Group’s strategy is key to understanding its prospects.
Further details of the strategy can be found in the Strategic
Report. Key to the strategy is moving up the value chain and
diversification, which will reduce the exposure the Group has
to global economic trends affecting the industrial laser market.
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:
There are many factors which could affect the growth of G&H
going forward. There are discussed regularly by the Executive
management team and the board. The principal risk factors
which the board concluded could affect business performance
over the medium term are set out on page 27.
Mark Webster
Director
27 November 2018
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 at least a
three year period.
ANNUAL REPORT 2018 | 35
GOOCH & HOUSEGO PLC GOVERNANCE
AUDIT COMMITTEE REPORT
Membership
Responsibilities
The Audit Committee is chaired by David Bauernfeind, a Chartered
Accountant, who is currently Chief Financial Officer of Domino’s
Pizza Group PLC, a company listed on the London Stock Exchange.
The Committee comprises David Bauernfeind, Peter Bordui and
Brian Phillipson and 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
Dr Peter Bordui
Brian Phillipson
3/3
3/3
3/3
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.
36 | ANNUAL REPORT 2018
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
Integrated Technologies Limited and Gould Fiber Optics 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 year
of goodwill. These impairment reviews are based on future projected
is appropriate and that the remaining carrying value of goodwill is
cash flows and are therefore inherently judgmental. The Audit
supportable.
Committee reviewed the key judgements underpinning the impairment
reviews performed.
INVENTORIES
The Committee has reviewed the sensitivity disclosures in note 17 and
concluded that they are appropriate.
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.
INTERNAL AUDIT
The Group has not historically had an internal audit function. Senior
Following the adoption of the UK Governance Code in the year, and in
finance staff members performed periodic reviews at each site.
recognition of the growing size of the group, the Audit Committee have
External auditors
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.
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.
decided to recruit a new senior finance team member in FY2019. This
individual will spend a proportion of their time implementing an
internal audit function.
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.
Approval
David Bauernfeind
Chairman of the Audit Committee
27 November 2018
ANNUAL REPORT 2018 | 37
GOOCH & HOUSEGO PLC
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.
Membership and attendance at meetings held in 2018
Non-executive Directors
Dr Peter Bordui
Gary Bullard
Brian Phillipson
David Bauernfeind
Gareth Jones
Executive Directors
Mark Webster
4/4
2/2
3/4
4/4
2/2
4/4
Appointed 21 February 2018
Retired 21 February 2018
Areas of focus for the Nomination Committee
during FY18
Approval
• Appointment of a new Non-Executive Chairman following
the retirement of Gareth Jones in February 2018.
Peter Bordui
Chairman of the Nomination Committee
• Succession planning for other members of the Board.
27 November 2018
Advisors
During FY18, the Committee appointed Edward Drummond, an
external search agency, to assist with the identification of
suitable Chairman candidates.
Appointment Process
As part of the appointments process, the Committee determined
the selection criteria for the Chairman role. 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 Gary Bullard as Non-Executive Chairman
on 21 February 2018.
38 | ANNUAL REPORT 2018
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.
Following the review of the remuneration schemes in FY2017,
the Remuneration Committee are satisfied that the schemes are
appropriate. In recognition of the new Corporate Governance
guidance, LTIPs granted in FY2019 will be subject to the usual
three year performance period, but a further two year holding
period will apply to any shares which vest, after disposals to fulfil
tax obligations. The recipients will be permitted to dispose of
shares required to fulfil tax obligations at the time of vesting.
50% of the remaining shares may be sold one year after vesting
with the balance available for sale two years after vesting. No
other changes are proposed to the remuneration schemes.
Following the adoption of the UK governance code in the year,
the Remuneration Committee has reviewed the remuneration
of the senior management team directly below board level.
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)
Gary Bullard
Dr Peter Bordui
David Bauernfeind
Gareth Jones
4/4
2/2
4/4
4/4
2/2
Appointed 21 February 2018
Retired 21 February 2018
ANNUAL REPORT 2018 | 39
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Remuneration Policy Table
The table below summarises our policy for 2018 and the planned changes for 2019:
Element of
Purpose and link to
FY18 Policy and approach
Opportunity
FY19 Policy and approach
remuneration
strategy
Base
Salary
Takes into account
• Reviewed annually with changes effective
Base salary increases
• The Remuneration Committee
experience
and personal
contribution to the
company’s strategy
Attracts and retains
executives of the
quality required
to deliver the
company’s strategy
from 1 October if applicable
are applied in line
approved a 5% increase to Mark
with the outcome of
Webster’s salary. This was in
the annual review
recognition of the growing scale
and complexity of the group.
The salaries of Alex Warnock
and Andrew Boteler have been
increased in line with inflation.
• Consideration given to individual and
company performance
• General pay increases across the
wider workforce are also taken into
consideration
• 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
• No changes proposed
achievement of
short-term financial
targets that the
Committee considers
to be critical drivers
• Introduction of broader performance
base salary
measures
• Up to 60% payable for exceeding target
EPS by 10%.
of business growth
• 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 pension
10% of base salary
• No changes proposed
with market
plan
The Committee keeps
competitive pension
scheme
• Company contributes 10% of salary
the benefit policy and
benefit levels under
regular review
Benefits
Provide employees
• Executive Directors receive private health
The Committee keeps
• No changes proposed
with market
insurance, life assurance and long term
the benefit policy and
competitive benefits
disability insurance
benefit levels under
regular review
Long Term
Incentivise executive
• Awards vest after three years subject to
Award levels are
• LTIPs granted in FY19 will be
Incentive Plan
performance over
achievement of targets.
(LTIP)
the longer term
• Absolute TSR retained for 60% of awards,
Performance
with full vesting at 15% TSR per annum.
measures linked
to the long-term
strategy of the
business and
the creation of
shareholder value
over the longer term
• 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.
• Awards may vest pro rata on retirement.
determined by
reference to an
subject to a three year
performance period and a further
individual’s position
two year holding period. At the
and performance
end of year three shares can be
prior to grant.
sold to meet tax obligations only.
Annual awards of
120% of base salary
for the CEO and 110%
for the CFO and COO.
Maximum award of
300% of base salary.
At the end of year four, 50% of
remaining shares vesting can be
sold with the balance available
for sale at the end of year five.
• The above change brings the
scheme into line with the
guidance in the revised UK
Governance code.
40 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
Directors’ Remuneration
2018
Basic pay
Performance
Benefits
Pension
Subtotal
LTIPs
related bonus
£’000
£’000
in kind
£’000
contribution
£’000
2018
£’000
exercised
£’000
Executive
M Webster
A Boteler
A Warnock
Non-executive
G Bullard*
Dr P Bordui
B Phillipson
D Bauernfeind
G Jones **
326
213
241
45
40
40
40
32
977
190
128
137
–
–
–
–
–
455
13
7
15
–
–
–
–
2
37
–
10
10
–
–
–
–
–
529
358
403
45
40
40
40
34
1,272
392
964
–
–
–
–
–
20
1,489
2,628
2017
Basic pay
Performance
Benefits in
Pension
Subtotal
related bonus
£’000
£’000
kind
£’000
contribution
£’000
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
Share
options
£’000
–
152
–
241
–
–
–
–
GOVERNANCE
Total
2018
£’000
1,801
750
1,367
45
40
40
40
34
4,117
Total
2017
£’000
504
495
412
323
40
40
17
17
474
26
20
1,455
393
1,848
The above disclosure has been audited.
*
Gary Bullard was appointed on 21 February 2018.
**
Gareth Jones resigned on 21 February 2018.
***
David Bauernfeind was appointed 1 May 2017.
****
Paul Heal retired on 22 February 2017.
ANNUAL REPORT 2018 | 41
GOOCH & HOUSEGO PLC
GOVERNANCE
REMUNERATION COMMITTEE REPORT
Basic Pay
2018 performance Related Bonuses
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 long term incentive 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. No such payments were made in FY2018.
Gooch & Housego has continued to perform well in 2018,
delivering strong financial performance and continuing to
make progress in its key strategic goals of diversification and
moving up the value chain.
Bonuses in 2018 were based 60% on EPS, 20% on operating
cash flow and 20% on personal strategic objectives. Details of
the performance achieved against the EPS and cash flow
targets are shown in the table below:
Financial targets
Performance
Performance
required to trigger
bonus payment
EPS target (adjusted diluted)
Operating cash flow target
53.5p
£22.1m
required at
maximum
58.9p
£22.1m
% payable
at maximum
performance
60%
20%
Performance
% bonus awarded
outcome
56.5p
£11.9m
46.7%
–
The EPS target for the year was exceeded, triggering a 46.7%
pay-out against a maximum of 60%. However, due to the
increase in working capital, the operating cash flow target was
missed so this part of the bonus was not eligible for payment.
is process harmonisation and optimal allocation of resource.
In FY19, we will introduce the fourth manufacturing centre
(systems) and we will also introduce three customer facing
business units, which will mirror our three market sectors.
Personal strategic objectives, which accounted for 20% of the
bonus opportunity, were set at the start of the year.
Our work to improve efficiency and customer service continued
in FY18, resulting in eight of our sites being organised into three
manufacturing centres to ensure best practice is shared, there
The Remuneration Committee felt it appropriate to focus the
Executive Directors’ personal objectives on the actions required
to enable the above changes.
Details of the objectives set are summarised in the table below:
Mark Webster, CEO
Alex Warnock, COO
Andrew Boteler, CFO
• Deliver the first phase of organisational
• Deliver the first phase of operational
• Deliver necessary changes to Business
change to support the FY19 business plan
organisational change to support the FY19
Systems
and progress organisational change to meet
business plan and progress organisational
longer term growth objectives
change to meet longer term growth
• Deliver necessary changes to business
objectives
systems and processes
• Deliver necessary changes to business
• Mature planning for the second phase of
systems and processes
organisational change needed to underpin
• Define and begin implementation of a
target growth
• Deliver detailed strategic plans approved by
strategic plan for the manufacturing
centres, sites and support functions
• Develop new organisational structures,
processes and procedures for the finance
and IT groups
• Introduce an internal trading system and
revised legal / financial structure
• Definition and implementation of a new
organisational structure across BUs,
Manufacturing Centres and Support
the Board for the A&D Business Unit and the
• Define and begin implementation of specific
functions without compromising FY 2018
three Manufacturing Centres
improvement plans for the Boston and
performance
• Ensure that the HR and general staff
Moorpark sites
• Develop Strategic Plans for the new
management processes, systems and
• Deliver improved operational performance in
organisation structures
objectives are consistent with and enable the
On Time Delivery, RFQ lead time, Product
targeted long term sustainable growth
lead time and Forecast output accuracy
The view of the Remuneration Committee is that excellent
progress was made against the objectives set. After due
consideration by the Committee, it was agreed the bonus pay
outs on the personal objective part of the bonus scheme should
be as follows: Mark Webster 83%, Alex Warnock 65% and
Andrew Boteler 80%.
42 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Directors’ Pension Arrangements
Long Term Incentive Plan
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 (2017: 2). Contributions to a scheme on behalf of
continuing Directors amount to 10% of the Director’s basic salary.
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.
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 under the Long Term Incentive Scheme by the Directors
are summarised below. Gareth Jones’ exercise in the year ended
30 September 2017 relates to LTIPs awarded to him during his
tenure as an Executive Director. He retired on 21 February 2018
and no longer holds any unvested or unexercised share options.
The exercises in FY2018 for Mark Webster and Alex Warnock were
exceptional awards granted by the Remuneration Committee on
appointment.
2018
Scheme
Number of
Director
M Webster
A Boteler
A Warnock
Share Options
No.
LTIP
LTIP
LTIP
90,866
28,032
68,878
2017
Scheme
Number of
Director
A Boteler
G Jones
Share Options
No.
LTIP
LTIP
12,873
19,784
Market
Price
p
1,400
1,400
1,400
Market
Price
p
1,182.9
1,216.3
Exercise
Price
p
0.0
0.0
0.0
Exercise
Price
p
0.0
0.0
Exercise
Date
19/01/18
19/01/18
19/01/18
Exercise
Date
27/02/17
01/03/17
Total
Gain
£’000
1,272
392
964
Total
Gain
£’000
152
241
Director Shareholdings
The Directors’ beneficial interests in the issued ordinary share
capital of the Company were as follows:
Number of shares at
% of salary as at
Number of shares at
% of salary as at
30 September 2018
30 September 2018
30 September 2017
30 September 2017
Executive Directors
Mark Webster
Andrew Boteler
Alex Warnock
Non-executive Directors
Gary Bullard
Dr Peter Bordui
Brian Phillipson
David Bauernfeind
21,429
26,181
16,430
3,172
–
–
–
127%
227%
127%
N/A
–
–
–
–
26,181
–
196%
–
–
–
–
–
–
–
–
–
–
ANNUAL REPORT 2018 | 43
GOOCH & HOUSEGO PLC
GOVERNANCE
Shareholding Guidelines
The Gooch & Housego 2013 Long Term Incentive Plan
Executive Directors are required to acquire and maintain a
qualifying interest in the ordinary shares of the company
equivalent to 100% of base salary. All were in compliance with
this requirement as at 30 September 2018. 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 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 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.
For any awards vested in relation to FY2019 grants, after sales
to satisfy tax obligations, 50% must be held for a further year
and 50% must be held for a further two years. The exercise
price of all awards is nil.
Date of
grant
17.12.2014
23.12.2015
10.03.2017
21.12.2017
17.12.2014
23.12.2015
10.03.2017
21.12.2017
17.12.2014
23.12.2015
10.03.2017
21.12.2017
– Number of ordinary shares under option –
At
Awarded
Exercised
Lapsed
At
01.10.2017
in year
in year
30.09.2018
Expiry
Date
90,866
36,080
34,606
–
–
–
–
24,145
68,878
26,949
25,674
–
–
–
–
16,968
28,032
22,661
21,680
–
–
–
–
15,050
(90,866)
–
–
–
(68,878)
–
–
–
(28,032)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17.12.2018
36,080
34,606
24,145
23.12.2019
26.03.2021
21.12.2021
–
17.12.2018
26,949
25,674
16,968
23.12.2019
26.03.2021
21.12.2021
–
17.12.2018
22,661
21,680
15,050
23.12.2019
26.03.2021
21.12.2021
Executive
M Webster
M Webster
M Webster
M Webster
A Warnock
A Warnock
A Warnock
A Warnock
A Boteler
A Boteler
A Boteler
A Boteler
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.
During the year ended 30 September 2018, £675,000 (2017:
£587,000) 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)
and £185,000 (2017: £446,000) in respect of employer’s
national insurance contributions, based on a year end share
price of £17.73 (2017: £14.20).
Brian Phillipson
Chairman of the Remuneration Committee
27 November 2018
44 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC ANNUAL REPORT 2018 | 45
GOOCH & HOUSEGO PLCTITLE IN HERE FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Report on the audit of the financial statements
Our Opinion
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.
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 2018 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 International
Financial Reporting Standards (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 2018; 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, 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.
46 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Our Audit Approach
Overview
Key audit
matters
• Overall group materiality: £667,000 (2017: £620,000), based on 5% of
profit before tax, after adding back a one-off impairment charge of £2.7m
in relation to Moorpark.
• Overall parent company materiality: £92,500 (2017: £122,000), based on
5% of profit before tax.
• The UK audit team performed an audit of the complete financial
information of two operating units in the USA (Gooch & Housego (Palo
Alto) LLC, and Stingray Optics 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 five reporting units (post consolidation entries)
account for 79% 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 one reporting unit in the UK (Kent Periscopes Limited).
• Valuation of goodwill and intangibles (group) and investments (parent
company) (Group and parent).
• Acquisition accounting (Group).
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 2018 | 47
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 £2.7m impairment had been taken in relation to the Moorpark business, the
goodwill and intangibles involves judgment
result of a poorer than expected result.
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.
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. We concluded that the judgment that impairment was not required at
any site, with the exception of Moorpark was reasonable. We note however that goodwill and
intangibles held remain sensitive to changes in key assumptions. In particular, a failure to achieve
These are areas of continued focus for the
growth objectives for certain sites could give rise to an impairment in the future. Given this
audit to ensure that assets are valued
management has disclosed relevant sensitivities (see note 17).
correctly and not overstated in the context
of the trading performance of the relevant
cash generating units.
Group and parent
From our review of the impairment assessments, we note no impairment is required for
investments held by the parent company.
We assessed the appropriateness of the accounting and related disclosures included in the
financial statements. These are deemed reasonable.
Acquisition accounting
ITL
Acquisition accounting involves a number of
We reviewed the underlying transactions, agreed the fair value of the assets and liabilities
judgements from management and is
acquired to supporting schedules, tested the valuation of intangible assets identified as part of
therefore a subjective area.
the purchase price allocation, by reviewing the model and assumptions used, and reviewed the
The risk is that the purchase price allocation
disclosures in the financial statements.
(PPA) model may not reflect the true value
There were no significant issues noted from our work.
of the acquisitions made, leading to
misstatement in the financial statements.
Group
48 | ANNUAL REPORT 2018
Included within the ITL total consideration was £8m 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 (£4.75m and £3.25m) will be made.
We have reviewed the available information and based on our work consider that management’s
judgment is reasonable.
Gould Technologies LLC
We reviewed the underlying transactions, agreed the fair value of the assets and liabilities acquired
to supporting schedules, tested the valuation of intangible assets identified as part of the purchase
price allocation, by reviewing the model and assumptions used, and reviewed the disclosures in the
financial statements.
There were no significant issues noted from our work.
Included within the Gould total consideration was $3.4m 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 ($1.2m and $2.2m) will be made.
We have reviewed the available information and based on our work consider that management’s
judgment is reasonable.
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.
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.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
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
£667,000 (2017: £620,000).
£92,500 (2017: £122,000).
How we determined it
5% of profit before tax, after adding back a one-off
5% of profit before tax.
impairment charges of £2.7m relating to Moorpark.
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.
These one-off costs have been excluded from the
determination of overall materiality, because in our
view the users of the financial statements will focus
on the underlying profit of the business rather than
the generally accepted benchmark of profit before
tax, which is not impacted by these one-off costs.
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 £92,670 and £633,000. 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 £33,000
(Group audit) (2017: £31,000) and £4,500 (Parent company audit)
(2017: £6,100) as well as misstatements below those amounts
that, in our view, warranted reporting for qualitative reasons.
Going Concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in
We have nothing material to add or to draw
respect of the directors’ statement in the financial statements about whether the directors
attention to. However, because not all future
considered it appropriate to adopt the going concern basis of accounting in preparing the
events or conditions can be predicted, this
financial statements and the directors’ identification of any material uncertainties to the
statement is not a guarantee as to the group’s
group’s and the parent company’s ability to continue as a going concern over a period of
and parent company’s ability to continue as
at least twelve months from the date of approval of the financial statements.
a going concern.
ANNUAL REPORT 2018 | 49
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
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.
With respect to the Strategic Report, Directors’ Report and
Corporate Governance Statement, 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, the Companies Act 2006
(CA06) and ISAs (UK) require us also to report certain opinions
and matters as described below (required by ISAs (UK) unless
otherwise stated).
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 2018 is
consistent with the financial statements and has been prepared
in accordance with applicable legal requirements. (CA06)
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. (CA06)
The directors’ assessment of the prospects of the
group and of the principal risks that would threaten the
solvency or liquidity of the group
As a result of the directors’ voluntary reporting on how they
have applied the UK Corporate Governance Code (the “Code”),
we are required to report to you if we have anything material
to add or draw attention to regarding:
50 | ANNUAL REPORT 2018
• The directors’ confirmation on page 27 of the Annual Report
that they have carried out a robust assessment of the principal
risks facing the group, including those that would threaten
its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those
risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 34 of the Annual Report
as to how they have assessed the prospects of the group,
over what period they have done so and why they consider
that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the group
will be able to continue in operation and meet its liabilities as
they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing to report in respect of this responsibility.
Other Code Provisions
As a result of the directors’ voluntary reporting on how they
have applied the Code, we are required to report to you if, in
our opinion:
• The statement given by the directors, on page 34, that they
consider the Annual Report taken as a whole to be fair,
balanced and understandable, and provides the information
necessary for the members to assess the group’s and parent
company’s position and performance, business model and
strategy is materially inconsistent with our knowledge of
the group and parent company obtained in the course of
performing our audit.
• The section of the Annual Report on page 36 describing the
work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
Responsibilities for the Financial Statements and
the Audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of Directors’
Responsibilities, 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
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
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.
Mark Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
27 November 2018
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.
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:
• we have not received all the information and explanations
we require for our audit; or
• 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.
ANNUAL REPORT 2018 | 51
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
For the year ended 30 September 2018
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
Charge / (release) re-accrued contingent
Impairment of goodwill
Site closure costs
Restructuring costs
Transaction fees
Interest on discounted deferred consideration
Adjusted profit before tax
Note
7
9
11
12
12
13
15
15
Note
17
17
11
11
12
2018
£’000
124,883
(74,811)
50,072
(8,229)
(9,237)
(22,317)
507
10,796
16
(699)
10,113
(2,893)
7,220
29.3p
29.0p
2018
£’000
10,113
2,141
417
2,708
1,569
864
605
340
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
18,757
16,111
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2018
Profit for the year
Other comprehensive income / (expense) – items that may be reclassified subsequently
to profit or loss
Currency translation differences
Other comprehensive income / (expense) for the year net of tax
Total comprehensive income for the year attributable to the shareholders of Gooch & Housego PLC
Note
26
2018
£’000
7,220
1,657
1,657
8,877
2017
£’000
8,892
(1,410)
(1,410)
7,482
52 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
GROUP BALANCE SHEET
As at 30 September 2018
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
FINANCIAL STATEMENTS
Note
16
17
24
18
19
20
21
22
23
22
24
25
26
26
26
26
2018
£’000
38,320
65,734
1,944
105,998
24,445
–
35,028
19,433
78,906
2017
£’000
33,890
40,250
2,703
76,843
21,078
267
24,723
26,425
72,493
(25,262)
(23,758)
(75)
(309)
(988)
(5,774)
(32,408)
(6)
(579)
(888)
(4,286)
(29,517)
46,498
42,976
(29,964)
(6,322)
(8,363)
(11,492)
(5,938)
(4,253)
(44,649)
(21,683)
107,847
98,136
4,982
15,530
7,262
7,231
72,842
107,847
4,903
15,530
4,640
5,574
67,489
98,136
The financial statements for Gooch & Housego PLC, registered number 00526832, on pages 52 to 81 were approved by the Board
of Directors on 27 November 2018 and signed on its behalf by:
Mark Webster
Director
Andrew Boteler
Director
ANNUAL REPORT 2018 | 53
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018
Note
Called up
Share
share
capital
£’000
4,852
premium
account
£’000
15,530
Merger
reserve
Retained
Cumulative
Total
Earnings
translation
equity
£’000
2,671
–
–
–
–
1,969
–
–
£’000
60,135
8,892
–
8,892
(2,289)
(15)
587
179
1,969
(1,538)
67,489
67,489
7,220
–
7,220
(2,647)
(45)
675
150
–
–
–
–
2,622
–
–
2,622
(1,867)
reserve
£’000
6,984
–
(1,410)
(1,410)
–
–
–
–
–
5,574
5,574
–
1,657
1,657
–
–
–
–
–
£’000
90,172
8,892
(1,410)
7,482
(2,289)
2,005
587
179
482
98,136
98,136
7,220
1,657
8,877
(2,647)
2,656
675
150
834
–
–
–
–
51
–
–
51
–
–
–
–
–
–
–
–
–
–
–
–
79
–
–
79
–
–
–
–
–
–
–
–
4,903
4,903
15,530
15,530
4,640
4,640
At 1 October 2016
Profit for the financial year
Other comprehensive expense 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 2017
At 1 October 2017
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
14
25
14
25
At 30 September 2018
4,982
15,530
7,262
72,842
7,231
107,847
54 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
GROUP CASH FLOW STATEMENT
For the year ended 30 September 2018
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
Disposal of trade and assets
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 generated from / (used in) financing activities
Net (decrease) / increase in cash
Cash at beginning of the year
Exchange gains / (losses) on cash
Cash at the end of the year
FINANCIAL STATEMENTS
2018
£’000
11,949
(2,779)
9,170
2017
£’000
19,526
(1,957)
17,569
(24,029)
(5,658)
384
(5,849)
–
(1,377)
9
(304)
–
(5,799)
29
(604)
27
(326)
(31,166)
(12,331)
17,272
(16)
(2,647)
14,609
(7,387)
26,425
395
19,433
5,918
(5,523)
(2,289)
(1,894)
3,344
23,167
(86)
26,425
ANNUAL REPORT 2018 | 55
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP CASH FLOW STATEMENT
For the year ended 30 September 2018
Reconciliation of cash generated from operations
Profit before income tax
Adjustments for:
– Amortisation of acquired intangible assets
– Amortisation of other intangible assets
– Proceeds from sale of trade and assets
– Impairment of goodwill
– Charge / (release) re-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 (outflow) / inflow to movements in net cash / (debt)
(Decrease) / increase in cash in the year
Drawdown of borrowings
Repayment of borrowings
Changes in net cash resulting from cash flows
Finance leases and borrowings acquired
Translation differences
Movement in net cash in the year
Net cash at 1 October
Net (debt) / cash at 30 September
Analysis of net cash
Cash at bank and in hand
Debt due after 1 year
Finance leases
Net cash / (debt)
56 | ANNUAL REPORT 2018
At 1 Oct
Cash flow
Exchange
Acquired
At 30 Sep
2017
£’000
26,425
(11,480)
(18)
£’000
(7,387)
(17,263)
7
14,927
(24,643)
movement
£’000
£’000
395
(930)
–
(535)
–
(334)
(21)
(355)
2018
£’000
19,433
(30,007)
(32)
(10,606)
2018
£’000
10,113
2,141
683
(384)
2,708
417
4,009
675
(370)
(16)
699
2017
£’000
12,602
2,202
199
–
615
(615)
3,664
587
(370)
(27)
703
10,562
6,958
(1,295)
(7,847)
416
(8,726)
(1,442)
(1,465)
2,873
(34)
11,949
19,526
2018
£’000
(7,387)
(17,272)
16
(24,643)
(355)
(535)
(25,533)
14,927
(10,606)
2017
£’000
3,344
(5,918)
5,523
2,949
–
310
3,259
11,668
14,927
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
1. General information
there are more detailed disclosure note requirements.
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 94.
The consolidated financial statements of the Group for the year
ended 30 September 2018 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 89.
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,the United States and China.
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 2018, 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 have been no new standards, amendments or
interpretations issued and made effective for the financial year
ended 30 September 2018 that have had a material impact on
the financial statements of the group.
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’
Includes new regulations for the recognition of revenue that
are independent of a specific industry or transaction. The new
standard replaces the current risk and reward approach of IAS 18:
Revenue with a contract-based five-step model. In addition to
substantially more extensive application guidance for the
accounting treatment of revenue from contracts with customers,
Application of the standard is mandatory for financial years
beginning on or after 1 January 2018. The Group has not elected
to early adopt the standard which will therefore apply for the
first time from 1 October 2018. The Group has elected to apply
the fully retrospective method for initial application, applying
IFRS 15 retrospectively (and restating comparatives if necessary)
from the period beginning 1 October 2017.
As part of the implementation, the Group has conducted an
analysis of all material revenue streams and customer contracts
and reviewed sales and accounting processes to identify the need
for changes. The Directors have assessed the anticipated
impact of implementing IFRS 15 to be not material to the Group
balance sheet and income statement for the year ended 30
September 2018 based on the revenues generated during, and
balance sheet position as at 30 September 2018.
IFRS16 leases
The Group is continuing to assess the impact of adopting IFRS 16,
which will be effective for the year ending 30 September 2020.
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
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
ANNUAL REPORT 2018 | 57
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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, G&H Property Holdings Limited, Integrated
Technologies Limited, Integrated Technologies (Holdings)
Limited, VITL Limited and ORF Limited are exempt from the
requirement to file audited financial statements 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.
• 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
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.
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:
Intangible Assets
a. Goodwill
Goodwill represents the excess of the cost of a business
58 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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.
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 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
ANNUAL REPORT 2018 | 59
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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.
60 | ANNUAL REPORT 2018
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 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
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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.
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 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.
All other leases are classified as operating leases. Operating lease
rentals are expensed in equal annual amounts over the lease term.
Share Capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares
ANNUAL REPORT 2018 | 61
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
or options are shown in equity as a deduction, net of tax, from
the proceeds.
• to continue as a going concern,
• to provide returns for shareholders and benefits for other
Revenue Recognition
stakeholders and
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.
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.
5. Financial Risk Management
Capital Risk Management
Management considers capital as equity, as shown in the Group
balance sheet, excluding net debt.
The Group’s objectives when managing capital are to
safeguard the Group’s ability
62 | ANNUAL REPORT 2018
• 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.
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 2018 or 2017.
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 2017, with all other variables
constant, post tax profits for the year would have been
unchanged (2017: £123,000 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
£738,000 lower (2017: £1,953,000 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
£901,000 higher (2017: £2,388,000 higher).
b. Cash flow interest rate risk
The Group has cash balances of £19.4m 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
£299,000 (2017: 146,000) had the Group’s borrowings been
in place throughout the year.
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 2018 accounted for 25% of the Group’s
revenue (2017: 25%). 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.
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.
The Company’s facilities comprise a committed revolving credit
facility of $40m of which $39m is drawn and an uncommitted
flexible acquisition facility of $20m which is undrawn. Both are
available until 31 August 2021. 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.
Borrowings issued at variable interest rates expose the Group
to cash flow interest rate risk. During 2017 and 2018, the
The estimates and assumptions that have significant risk of
causing a material adjustment to the carrying amounts of assets
ANNUAL REPORT 2018 | 63
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
and liabilities within the next financial year are outlined below.
Critical accounting judgements
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 ITL Limited and Gould Fiber Optics. 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.
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.
Management do not consider there to be any key
sources judgement uncertainty.
7. Segmental Analysis
The Company’s segmental reporting reflects the information that management uses within the business. The business is divided into
three market sectors, being Aerospace & Defence, Life Sciences / Biophotonics and Industrial, 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. The Scientific Research sector,
which covers academic and government funded research including major multi-national projects, was merged with the Industrial
sector in the year.
For the year ended 30 September 2018
Aerospace
Life Sciences/
Industrial
Corporate
Total
& Defence
Biophotonics
£’000
£’000
£’000
£’000
£’000
Revenue
Total revenue
inter and intra-division
External revenue
Divisional expenses
EBITDA1
EBITDA%
Depreciation and amortisation
Operating profit before amortisation of acquired
intangible assets and goodwill impairment
Amortisation of acquired intangible assets and
goodwill impairment
Operating profit
Operating profit margin %
Add back non-recurring items, amortisation of acquired
intangible assets and goodwill impairment
Adjusted operating profit
Adjusted profit margin %
Finance costs
Profit before income tax expense
64 | ANNUAL REPORT 2018
41,023
(234)
40,789
(34,454)
6,335
15.5%
(758)
5,577
–
5,577
13.7%
116
5,693
14.0%
–
5,577
11,440
(227)
11,213
(9,189)
2,024
18.1%
(399)
1,625
–
1,625
14.5%
17
1,642
14.6%
–
1,625
80,363
(7,482)
72,881
(59,146)
13,735
18.8%
(2,450)
11,285
–
11,285
15.5%
1,030
12,315
16.9%
–
11,285
–
–
–
(1,757)
(1,757)
–
(1,085)
(2,842)
(4,849)
(7,691)
–
7,141
(550)
–
(683)
(8,374)
132,826
(7,943)
124,883
(104,546)
20,337
16.3%
(4,692)
15,645
(4,849)
10,796
8.6%
8,304
19,100
15.3%
(683)
10,113
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
For the year ended 30 September 2017
Aerospace
Life Sciences/
Industrial
Corporate
Total
& Defence
Biophotonics
£’000
£’000
£’000
£’000
£’000
Revenue
Total revenue
inter and intra-division
External revenue
Divisional expenses
EBITDA1
EBITDA%
Depreciation and amortisation
Operating profit before amortisation of acquired
intangible assets
Amortisation of acquired intangible assets
and goodwill impairment
Operating profit
Operating profit margin %
Add back amortisation of intangibles, goodwill impairment,
and non-recurring items
Adjusted operating profit
Adjusted profit margin %
Finance costs
Profit before income tax expense
34,860
–
34,860
(29,880)
4,980
14.3%
(715)
4,265
–
4,265
12.2%
–
4,265
12.2%
–
4,265
9,570
–
9,570
(8,165)
1,405
14.7%
(388)
1,017
–
1,017
10.6%
–
1,017
10.6%
–
1,017
74,661
(7,075)
67,586
(53,238)
14,348
21.2%
(2,136)
12,212
–
12,212
18.1%
–
12,212
18.1%
–
–
–
–
(1,389)
(1,389)
–
(625)
(2,014)
(2,202)
(4,216)
–
3,128
(1,088)
–
(676)
119,091
(7,075)
112,016
(92,672)
19,344
17.3%
(3,864)
15,480
(2,202)
13,278
11.9%
3,128
16,406
14.6%
(676)
12,212
(4,892)
12,602
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
Management have added back the amortisation of intangibles, impairment of goodwill, restructuring costs, site closure costs, charge
/ release in respect of contingent consideration 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
2018
2018
2018
2017
2017
2017
Assets
Liabilities
Net Assets
Assets
Liabilities
Net Assets
£’000
£’000
93,311
(56,955)
90,382
(19,999)
495
716
(42)
(61)
£’000
36,356
70,383
453
655
£’000
75,104
73,641
545
46
£’000
£’000
(32,612)
42,492
(18,477)
55,164
(98)
(13)
447
33
184,904
(77,057)
107,847
149,336
(51,200)
98,136
For the year to 30 September 2018 non-current asset additions were £3.8m (2017: £1.9m) for the UK and for the USA £3.6m
(2017: £4.5m). There were no additions to non-current assets in respect of Europe (2017: £nil) or the Asia Pacific region (2017:
£nil). The value of non-current assets in the USA was £62.4m (2017: £47.9m), the United Kingdom £45.7m (2017: £29.0m)
and Europe £nil (2017: £nil). There were no non-current assets in the Asia-Pacific region.
ANNUAL REPORT 2018 | 65
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
Analysis of revenue by destination:
United Kingdom
North America
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
Impairment of goodwill
Charge / (release) of accrued contingent consideration
Other income and expenses
9. Other Income and Expenses
Grants receivable
Amounts claimed under the RDEC
Other (expense) / income
2018
£’000
21,081
44,899
29,788
29,115
2017
£’000
18,624
45,485
24,233
23,674
124,883
112,016
Note
2018
£’000
2017
£’000
42,794
35,598
(1,005)
(710)
10
49,989
46,508
12,858
12,991
4,009
2,141
683
2,708
417
(507)
3,664
2,202
199
615
(615)
(1,714)
114,087
98,738
9
2018
£’000
1,002
370
(865)
507
2017
£’000
1,285
370
59
1,714
The other expense includes £1m of the site closure costs incurred in the year. The other site closure costs are included in the
relevant income statement line.
66 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
2018
£’000
2017
£’000
40,898
37,841
3,499
675
3,323
1,594
3,434
587
3,233
1,413
49,989
46,508
2018
2017
Number
Number
574
292
866
2018
£’000
7,025
675
651
512
263
775
2017
£’000
5,732
587
187
8,351
6,506
Key management comprise the Executive Board and the senior operational staff.
Directors’ remuneration, including the highest paid Director, has been included on page 41 of the Remuneration Committee
Report. These disclosures have been audited.
ANNUAL REPORT 2018 | 67
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 (gains) / losses on foreign exchange
Operating lease rentals
Transaction fees
Impairment of goodwill
Charge / (credit) in relation to accrued contingent consideration on acquisitions
2018
£’000
46
140
25
14
33
65
(145)
1,714
605
2,708
417
2017
£’000
45
105
82
66
–
45
225
1,732
390
615
(615)
Restructuring costs of £864,000 were incurred in the year (2017: £536,000). These related to the Palo Alto site move (£384,000)
and reorganisation costs of £480,000. The costs have been included in the income statement within cost of revenue, administration
costs and other income and expenses as appropriate.
The charge in relation to accrued contingent consideration on acquisitions relates to Kent Periscopes Limited. The business performed
better than expected in FY2018 and therefore part of the amount released in FY2017 was charged back to the income statement.
2018
£’000
2017
£’000
16
27
(358)
(1)
(340)
(699)
(321)
(1)
(381)
(703)
12. Finance Income and Costs
Finance income comprises:
– Bank interest
Finance costs comprise:
– Bank interest
– Finance lease interest
– Interest on discounted deferred consideration
68 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
2018
£’000
1,895
1,381
–
3,276
481
–
(864)
(383)
2017
£’000
1,318
2,165
(1,315)
2,168
227
1,315
–
1,542
Income tax expense per income statement
2,893
3,710
The taxation expense for the year is higher (2017: 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 19.0% for the year (2017: 19.5%)
Income not subject to tax
Permanent differences
Adjustments in respect of foreign tax rates
Total tax expense
Factors Affecting the Future Tax Charge
2018
£’000
10,113
2017
£’000
12,602
1,921
2,457
–
233
739
2,893
(72)
(132)
1,457
3,710
Overseas tax losses of £3.8m (2017: £3.7m) and UK tax losses of £0.8m (2017: £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 2017. 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 2018 | 69
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
14. Dividends
Final 2017 dividend paid in 2018: 6.5p per share (Final 2016 dividend paid in 2016: 5.7p per share)
2018 Interim dividend paid: 4.2p per share (2017: 3.7p)
2018
£’000
1,608
1,039
2,647
2017
£’000
1,383
906
2,289
The Directors propose a final dividend of 7.1p per share making the total dividend paid and proposed in respect of the 2018
financial year 11.3p (2017: 10.2p).
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 shares used for basic earnings per share
Dilutive shares
Number of shares used for dilutive earnings per share
A reconciliation of the earnings used in the earnings per share calculation is set out below:
2018
Number
2017
Number
24,629,591
24,457,701
265,817
412,901
24,895,408
24,870,602
Basic earnings per share
Amortisation of acquired intangible assets (net of tax)
Goodwill impairment
Charge / (release) re accrued contingent consideration
Site closure costs (net of tax)
Restructuring costs (net of tax)
Transaction fees (net of tax)
Interest on deferred consideration
One off credit due to US tax rate change
Total adjustments net of income tax expense
Adjusted basic earnings per share
Basic diluted earnings per share
Adjusted diluted earnings per share
2018
2017
£’000
pence per share
£’000
pence per share
7,220
1,865
2,708
417
1,210
695
489
340
(864)
6,860
14,080
7,220
14,080
29.3p
7.6p
11.0p
1.7p
4.9p
2.8p
2.0p
1.4p
(3.5p)
27.9p
57.2p
29.0p
56.5p
8,892
2,034
615
(615)
–
431
314
381
–
3,160
12,052
8,892
12,052
36.4p
8.3p
2.5p
(2.5p)
–
1.8p
1.3p
1.6p
–
13.0p
49.4p
35.8p
48.5p
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.
70 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
Cost or valuation
At 1 October 2016
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
At 30 September 2017
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
2,849
3,374
–
–
(656)
(214)
5,353
1,151
–
–
(3,805)
5
At 30 September 2018
2,704
10,676
9,013
12,005
–
–
–
–
(3)
9,010
14
1,650
–
–
2
1,652
168
–
(3)
1,817
174
–
2
139
5
(43)
93
(371)
11,828
243
–
(201)
3,445
428
15,743
1,970
773
(42)
(95)
2,606
889
(97)
94
29,185
1,866
67
(326)
510
(448)
30,854
4,273
326
(974)
323
441
3,355
385
26
(71)
53
(42)
3,706
265
99
(213)
61
30
35,243
3,948
18,259
2,361
(326)
(267)
20,027
2,522
(925)
240
2,152
359
(71)
(23)
2,417
421
(199)
24
–
–
–
–
–
–
–
–
–
1,993
3,492
21,864
2,663
2,849
5,353
2,704
7,361
7,193
8,683
10,035
9,222
12,251
10,926
10,827
13,379
1,203
1,289
1,285
52
–
–
(8)
–
(1)
43
12
12
56,459
5,764
98
(448)
–
(1,079)
60,794
5,958
2,087
(16)
(1,404)
–
–
51
42
3
(8)
–
37
3
(8)
1
33
10
6
18
24
(906)
68,365
24,075
3,664
(447)
(388)
26,904
4,009
(1,229)
361
30,045
32,384
33,890
38,320
Accumulated depreciation
At 1 October 2016
Charge for the year
Disposals
Exchange rate differences
At 30 September 2017
Charge for the year
Disposals
Exchange rate differences
At 30 September 2018
Net book value
At 1 October 2016
At 30 September 2017
At 30 September 2018
At 30 September 2018, plant and machinery purchased under a hire purchase or finance lease agreement had a cost of £77,000
(2017: £38,000) and net book value of £40,000 (2017: £25,000).
No interest was capitalised in the year (2017: £Nil).
ANNUAL REPORT 2018 | 71
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
17. Intangible Assets
Cost or valuation
At 1 October 2016
Additions
Acquired
Disposals
Exchange rate differences
At 30 September 2017
Additions
Acquired
Disposals
Reclassifications
Exchange rate differences
At 30 September 2018
Accumulated amortisation and impairment
At 1 October2016
Charge for the year
Disposals
Exchange rate differences
At 30 September 2017
Charge for the year
Disposals
Exchange rate differences
At 30 September 2018
Net book value
At 1 October 2016
At 30 September 2017
At 30 September 2018
Goodwill
Acquired
Capitalised
Software
Total
intangible
R&D, Patents
and other
assets
£’000
and licences
intangibles
£’000
£’000
£’000
17,044
–
7,986
–
(757)
24,273
–
9,943
–
–
408
34,624
11,681
2,202
–
(218)
13,665
2,141
–
226
3,123
584
–
(23)
(27)
3,657
497
–
(3)
(24)
19
1,849
102
–
(44)
(9)
1,898
958
–
(114)
–
6
50,641
686
14,085
(67)
(1,631)
63,714
1,455
28,828
(117)
(24)
977
4,146
2,748
94,833
976
83
(3)
(5)
1,051
618
(3)
(19)
1,643
116
(43)
(8)
1,708
65
(105)
4
20,725
3,016
(46)
(231)
23,464
5,532
(108)
211
£’000
28,625
–
6,099
–
(838)
33,886
–
18,885
–
–
544
53,315
6,425
615
–
–
7,040
2,708
–
–
9,748
16,032
1,647
1,672
29,099
22,200
26,846
43,567
5,363
10,608
18,592
2,147
2,606
2,499
206
190
1,076
29,916
40,250
65,734
Goodwill is allocated according to each operating site as follows: Cleveland (£2.1m), Ilminster (£1.5m), Torquay (£1.6m), Moorpark
(£3.6m), Boston (£5.1m), Palo Alto (£0.9m), St Asaph (£4.0m), Keene (£5.8m), Baltimore (£8.7m) and Ashford (£10.2m).
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 2023 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.
72 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
The Boston cash generating unit’s performance was lower than expected during FY18 largely due to reduced demand from certain
customers. As part of our work on driving efficiency, the Boston site has now been organised into our fibre optic manufacturing
centre. It is therefore under new management, and a new strategy has been developed for the business. The strategy focusses on
developing the product side of the business for which a number of target customers and markets have been identified. The impairment
calculation for Boston utilises a specific set of growth assumptions based on revenue increasing by an average of 13% per annum in
the period to 30 September 2023, 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, but acknowledge a significant improvement in the site’s results
is required to continue to support the carrying value of goodwill. If the discount rate were increased to 12.2%, the headroom on
the impairment calculation would be reduced to zero. If the average annual EBITDA were reduced by 35%, then an impairment of
£460,000 would arise.
The Moorpark site had a difficult year. The site has recently struggled to grow its business during some difficult times in the commercial
aerospace sector which has seen price pressure from a key customer. Whilst recent improvements in the site’s operational set up, the
adoption of LEAN manufacturing principles, and diversification of its customer base, are moving Moorpark in the right direction, an
impairment of £2.7m has been booked following this year’s impairment review. The impairment calculation for the Moorpark cash
generating unit is based on an average annual forecast revenue growth and EBITDA to 2023 of 8% and £0.6m respectively. A further
impairment charge may arise if the business’s results fall short of these forecasts.
18. Inventories
Raw materials
Work in progress
Finished goods
2018
£’000
9,043
10,992
4,410
2017
£’000
7,374
9,819
3,885
24,445
21,078
The cost of inventories recognised as an expense and included in cost of revenue amounted to £74.8m (2017: £67.0m).
The movement in the inventories provision is as follows:
At 1 October
Acquired
(Utilisation of) / increase in provision
Exchange rate movement
At 30 September
2018
£’000
5,260
868
(459)
61
2017
£’000
4,208
328
783
(59)
5,730
5,260
ANNUAL REPORT 2018 | 73
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
Other
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
Acquired
Utilisation of provision
Increase in provision
Exchange rate movement
At 30 September
20. Cash and Cash Equivalents
Cash at bank and on hand
74 | ANNUAL REPORT 2018
2018
£’000
32,231
1,344
484
969
2017
£’000
20,504
2,025
1,535
659
35,028
24,723
2018
£’000
14,172
19,370
1,245
241
2017
£’000
9,041
14,334
1,342
6
35,028
24,723
2018
£’000
23,190
6,980
2,453
2017
£’000
15,417
4,139
1,327
32,623
20,883
(392)
(379)
32,231
20,504
2018
£’000
2017
£’000
379
7
(113)
117
2
392
219
–
(35)
198
(3)
379
2018
£’000
2017
£’000
19,433
26,425
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
21. Trade and Other Payables
Trade payables
Other taxation and social security
Grant funding held in trust account
Accruals
22. Borrowings
Current:
Bank borrowings
Finance leases
Non-current:
Bank borrowings
Finance leases
Total borrowings
FINANCIAL STATEMENTS
2018
£’000
9,188
864
484
14,726
25,262
2017
£’000
6,610
1,095
1,535
14,518
23,758
2018
£’000
2017
£’000
61
14
75
–
6
6
29,947
11,480
17
12
29,964
11,492
30,039
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 NatWest Bank. The Group’s facilities were renewed in the year and now comprise a
$40m dollar revolving credit facility and a $20m flexible acquisition facility. At 30 September 2018, the balance drawn on the
revolving credit facility was $39m (2017: $8m) and on the flexible acquisition facility nil (2017: $7.5m).
The facilities above are committed until 31 August 2021 and attract an interest rate of between 1.2% and 1.7% above US 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
2018
£’000
75
29,964
30,039
2017
£’000
6
11,492
11,498
ANNUAL REPORT 2018 | 75
GOOCH & HOUSEGO PLC 2017
£’000
940
80
(135)
13
(10)
888
2017
£’000
(2,132)
(1,542)
146
–
148
145
2018
£’000
(3,235)
383
67
(1,231)
(268)
(94)
(4,378)
(3,235)
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
2018
£’000
888
50
–
46
4
988
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.
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
Credited / (charged) to the income statement
Acquired
Arising on acquired intangible assets
(Debited) / credited directly to equity
Exchange movements
Net liability at 30 September
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
2018
£’000
2017
£’000
587
453
888
16
906
721
814
262
1,944
2,703
(3,641)
(2,681)
(6,322)
(4,378)
(3,827)
(2,111)
(5,938)
(3,235)
Overseas tax losses of £3.8m (2017: £3.7m) and UK tax losses of £0.8m (2017: £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 (2017: £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.
76 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
25. Called Up Share Capital
Issued and fully paid
At 1 October
Shares issued and fully paid
At 30 September
2018
Number
2017
Number
2018
£’000
2017
£’000
24,514,561
24,260,024
4,903
4,852
393,270
254,537
79
51
24,907,831
24,514,561
4,982
4,903
During the year 227,403 shares (2017: 72,734 shares) were allotted under share option schemes.
26. Reserves
At 1 October 2017
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 2018
Share premium
account
£’000
15,530
–
–
–
–
–
–
Merger
reserve
£’000
4,640
–
–
2,622
–
–
–
15,530
7,262
Cumulative
translation reserve
£’000
5,574
–
–
–
–
–
1,657
7,231
Retained
earnings
£’000
67,489
7,220
(2,647)
(45)
675
150
–
72,842
ANNUAL REPORT 2018 | 77
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 six 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 2018 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
21 Dec 2017
10 Mar 2017
23 Dec 2015
96,123
29%
0.56%
914,164
133,146
147,458
26%
0.9%
25%
0.9%
784,041
629,506
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2018
2017
Number
Weighted average
Number
Weighted average
exercise price
exercise price
486,008
96,123
(227,403)
(12,461)
342,267
–
–
–
–
–
–
–
512,852
133,146
(72,734)
(87,256)
486,008
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 786.0p per option (2017: 589.0p per option).
For the options exercised, the average market price was 1,400p per share.
Share options outstanding at the end of the year expire one year after their respective vesting dates and have
the following exercise prices:
2013 LTIP
Weighted average
Number of share options
exercise price
0.0p
2018
342,267
2017
486,008
The total charge for the year relating to share options was £675,000 (2017: £587,000), all of which related to equity-settled
share based payment transactions.
78 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
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
2018
£’000
1,804
4,319
6,123
2017
£’000
1,166
3,900
5,066
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
2018
£’000
4,927
12,202
2,233
71
2017
£’000
16,438
8,101
1,849
37
2018
£’000
356
2017
£’000
18
29,683
11,480
–
–
–
–
19,433
26,425
30,039
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
2018
£’000
325
2017
£’000
1,440
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 2018 | 79
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
32. Acquisition of Integrated Technologies Limited
On 7 August 2018, the Group completed the acquisition of the entire share capital of VITL Limited, an Ashford, Kent, based
specialist in the design, development and manufacture of high quality medical and in vitro diagnostic devices. The acquisition
strengthened the Group’s position in the life sciences sector, and further enables G&H’s move into system based products.
The consideration for the acquisition will be up to £22m comprising initial consideration of £12.6m paid in cash and £1.4m paid in
new G&H ordinary shares. There is also deferred contingent consideration of up to £8m, payable in cash, based on the performance
of the business for a period of two 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
Finance lease acquired
Bank borrowings acquired
Net assets acquired
Consideration paid:
Cash and shares paid on completion
Deferred consideration
Goodwill
Provisional fair value
£’000
2,074
6,839
1,623
1,669
1,489
(1,144)
(1,429)
(21)
(334)
10,766
14,000
6,978
10,212
The fair value of the intangible assets represents the estimated fair value of ITL’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 ITL’s employees and their
contacts in target markets.
Post-acquisition, the acquired business contributed £2.2 million of revenue and £0.5 million of profit after tax to the consolidated
income statement.
80 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2018
33. Acquisition of Gould Fiber Optics
On 5 September 2018, the Group completed the acquisition of the trade and assets of Gould Technology LLC, a Baltimore, Maryland,
based specialist in the design, development and manufacture of fibre optic components and sub systems. The acquisition strengthened
the Group’s position as the world leader in fused fibre optic technology and provides enhanced access to strategic US Aerospace
and Defence customers.
The consideration for the acquisition will be up to $16.4m comprising initial consideration of $11.6m paid in cash and $1.4m paid in
new G&H ordinary shares. There is also deferred contingent consideration of up to $3.4m, payable in cash, based on the performance
of the business over the period to 30 September 2019.
The fair value of the assets acquired is summarised as follows:
Property, plant and equipment
Intangible assets
Trade and other receivables
Inventory
Trade and other payables
Net assets acquired
Consideration paid:
Cash and shares paid on completion
Deferred consideration
Goodwill
Provisional fair value
£’000
27
3,104
369
322
(141)
3,681
10,120
2,234
8,673
The fair value of the intangible assets represents the estimated fair value of Gould’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 Gould’s employees and
their contacts in target markets.
Post-acquisition, the acquired business contributed £0.3 million of revenue and £0.1 million of profit after tax to the consolidated
income statement.
ANNUAL REPORT 2018 | 81
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
As at 30 September 2018
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 (liabilities) / 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
2018
2017
5
6
7
9
8
3,934
2,605
6,539
10
(9,692)
9
11
51,045
6,641
892
666
59,244
–
–
–
–
(3,153)
(11)
(6,978)
49,102
4,982
15,530
4,591
23,999
49,102
3,974
10,298
14,272
(5,301)
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
The financial statements on pages 82 to 93, were approved by the Board of Directors on 27 November 2018 and signed on its
behalf by:
Mark Webster
Director
Andrew Boteler
Director
82 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018
Called up
Share premium
Merger
Note
Share capital
account
£’000
4,852
£’000
15,530
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
At 30 September 2017
At 1 October 2017
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
4
4
Reserve
£’000
–
–
–
–
1,969
–
–
–
–
–
2,622
–
–
Retained
earnings
£’000
21,211
1,962
1,962
(2,289)
(15)
587
166
21,622
21,622
4,157
4,157
(2,647)
(45)
675
237
2,622
(1,780)
Total
equity
£’000
41,593
1,962
1,962
(2,289)
2,005
587
166
469
44,024
44,024
4,157
4,157
(2,647)
2,656
675
237
921
–
–
–
51
–
–
51
–
–
–
–
–
–
–
–
–
–
79
–
–
79
–
–
–
–
–
–
–
1,969
(1,551)
4,903
4,903
15,530
15,530
1,969
1,969
At 30 September 2018
4,982
15,530
4,591
23,999
49,102
ANNUAL REPORT 2018 | 83
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2018
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
Net cash generated from financing activities
Net (decrease) / increase in cash
Cash at beginning of the year
Cash at the end of the year
2018
£’000
2017
£’000
2,374
1,461
–
–
2,374
1,461
(12,602)
(41)
(896)
7
(13,532)
–
(106)
–
21
(85)
6,112
4,000
(2,647)
(2,289)
3,465
1,711
(7,693)
10,298
3,087
7,211
2,605
10,298
84 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2018
Reconciliation of cash generated from operations
Profit before income tax
Adjustments for:
- Dividends received from subsidiaries
- Amortisation of other intangible assets
- Depreciation
- Share based payment charge
- Finance income
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
FINANCIAL STATEMENTS
2018
£’000
4,116
2017
£’000
1,549
(6,112)
(4,000)
51
504
675
(7)
109
483
587
(21)
(4,889)
(2,842)
2,455
692
3,147
209
2,545
2,754
2,374
1,461
At 1 Oct 2017
Cash flow
At 30 Sep 2018
£’000
10,298
10,298
£’000
(7,693)
(7,693)
£’000
2,605
2,605
ANNUAL REPORT 2018 | 85
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 2018, 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 have been no new standards, amendments or interpretations issued and made effective for the financial year ended
30 September 2018 that have had a material impact on the financial statements of the Company.
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.
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.
86 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
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.
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.
ANNUAL REPORT 2018 | 87
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 £4,157,000 (2017: £1,962,000 profit).
Fees payable to the Company auditors for the statutory audit for the year amounted to £16,000 (2017: £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 (2017: 12), all of whom were administrative.
Directors’ Remuneration
Directors’ remuneration
Medical and other insurances
Directors’ pension scheme contributions
2018
£’000
2,611
304
30
675
43
2017
£’000
2,035
443
26
587
38
3,663
3,129
2018
£’000
1,432
37
20
2017
£’000
1,409
26
20
1,489
1,455
The aggregate emoluments of the highest paid Director including gain on exercise of share options were £1,801,000 (2017: £504,000).
Further information is included in the Remuneration Committee report on page 39.
The aggregate gain on Directors’ share option exercises in the year was £2,628,000 (2017: £393,000).
The number of Directors who are accruing retirement benefits under a money purchase pension scheme is 2 (2017: 2).
4. Dividends
Final 2017 dividend paid in 2018: 6.5p per share. (Final 2016 dividend paid in 2017: 5.7p per share)
2018 Interim dividend paid: 4.2p per share (2017: 3.7p)
2018
£’000
1,608
1,039
2,647
2017
£’000
1,383
906
2,289
The Directors propose a final dividend of 7.1p per share making the total dividend paid and proposed in respect of the 2018 financial
year 11.3p (2017: 10.2p). Should the final dividend be approved at the Company Annual General Meeting, cut-off dates for payment are:
- Record date 25 January 2019
- Payment date 1 March 2019
5. Investments
Cost and net book value at 1 October
Additions
Cost and net book value at 30 September
88 | ANNUAL REPORT 2018
2018
£’000
28,811
22,234
51,045
2017
£’000
27,169
1,642
28,811
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
The subsidiary companies at 30 September 2018, 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
Integrated Technologies Limited
100% Viking House, Ellingham Way, Ashford, TN23 6NF Development and manufacture of high quality
medical and in vitro diagnostic devices
Integrated Technologies
100% Viking House, Ellingham Way, Ashford, TN23 6NF Non-trading company
(Holdings) Limited
ORF Limited
VITL Limited
100% Viking House, Ellingham Way, Ashford, TN23 6NF Non-trading company
100% Viking House, Ellingham Way, Ashford, TN23 6NF Non-trading company
ITL (Virginia) Inc.
100% 305 Ashcake Rd, VA23005, USA
Development and manufacture of high quality
medical and in vitro diagnostic devices
Integrated Electronic Systems
100% T3-11 Factory Building Unit 201, 5001 Huadong
Development and manufacture of high quality
(Shanghai) Ltd
Road, Shanghai 201201 China
medical and in vitro diagnostic devices
The directors believe that the carrying value of the investments is supported by their underlying net assets.
ANNUAL REPORT 2018 | 89
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
6. Property, Plant and Equipment
Freehold land
Plant and
Fixtures and
Computer
Total
and buildings
machinery
£’000
£’000
fittings
£’000
equipment
£’000
6,183
–
6,183
14
6,197
1,247
108
1,355
109
1,464
4,936
4,828
4,733
3,987
–
3,987
–
3,987
2,055
265
2,320
265
2,585
1,932
1,667
1,402
1,392
–
1,392
–
1,392
797
93
890
93
983
595
502
409
498
105
603
27
630
479
17
496
37
533
19
107
97
£’000
12,060
105
12,165
41
12,206
4,578
483
5,061
504
5,565
7,482
7,104
6,641
Assets in the
Computer
Other
Total
course of
software
construction
£’000
£’000
£’000
£’000
–
–
–
842
842
–
–
–
–
–
–
–
842
1,216
–
1,216
–
1,216
1,159
45
1,204
12
1,216
57
12
–
465
–
465
54
519
366
64
430
39
469
99
35
50
1,681
–
1,681
896
2,577
1,525
109
1,634
51
1,685
156
47
892
Cost or valuation
At 1 October 2016
Additions
At 30 September 2017
Additions
At 30 September 2018
Accumulated depreciation
At 1 October2016
Charge for the year
At 30 September 2017
Charge for the year
At 30 September 2018
Net book value
At 1 October 2016
At 30 September 2017
At 30 September 2018
7. Intangible Assets
Cost or valuation
At 1 October 2016
Additions
At 30 September 2017
Additions
At 30 September 2018
Accumulated amortisation
At 1 October2016
Charge for the year
At 30 September 2017
Charge for the year
At 30 September 2018
Net book value
At 1 October 2016
At 30 September 2017
At 30 September 2018
90 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
8. Other Receivables
Amounts owed by Group undertakings
Prepayments and accrued income
Group tax relief receivable
FINANCIAL STATEMENTS
2018
£’000
–
119
3,815
3,934
2017
£’000
791
102
3,081
3,974
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
Charged / (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
2018
£’000
732
(102)
25
655
2017
£’000
580
17
135
732
2018
£’000
2017
£’000
(11)
453
213
655
(61)
632
161
732
UK tax losses of £0.8m (2017: £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.
ANNUAL REPORT 2018 | 91
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
10. Trade and Other Payables
Trade payables
Amounts owed to Group undertakings
Taxation and Social Security
Accruals and deferred income
Deferred consideration payable
2018
£’000
686
4,165
518
2,186
2,137
9,692
2017
£’000
221
2,593
583
1,904
–
5,301
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.
11. Called Up Share Capital
Allotted, issued and fully paid
At 1 October
Shares issued and fully paid
At 30 September
2018
Number
2017
Number
2018
£’000
2017
£’000
24,514,561
24,260,024
4,903
4,852
393,270
254,537
79
51
24,907,831
24,514,561
4,982
4,903
During the year 227,403 shares (2017: 72,734 shares) were allotted under share option schemes.
92 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2018
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 six 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 2018 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
21 Dec 2017
10 Mar 2017
23 Dec 2015
96,123
29%
0.56%
914,164
133,146
147,458
26%
0.9%
25%
0.9%
784,041
629,506
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2018
2017
Number
Weighted average
Number
Weighted average
exercise price
exercise price
486,008
96,123
(227,403)
(12,461)
342,267
–
–
–
–
–
–
–
512,852
133,146
(72,734)
(87,256)
486,008
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 786.0p (2017: 589.0p). For the options exercised, the average
market price was 1,400.0p per share.
Share options outstanding at the end of the year expire one year after their respective vesting dates and have the following exercise prices:
2013 LTIP
Weighted average
Number of share options
exercise price
0.0p
2018
486,008
2017
512,852
The total charge for the year relating to share options was £675,000 (2017: £587,000), 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.
ANNUAL REPORT 2018 | 93
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
20 February 2019
Payment date for final dividend for the year ended 30 September 2018 to shareholders on the register at close of
1 March 2019
business 25 January 2019.
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 2019
June 2019
30 September 2019
November 2019
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 Wills
01460 256440
020 7597 5970
020 7466 5000
94 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC NOTICE OF ANNUAL GENERAL MEETING
SHAREHOLDER INFORMATION
Form of proxy
You will not receive a form of proxy for the 2019 AGM in the post. Instead, you can vote online at www.signalshares.com. To
register you will need your Investor Code, which can be found on your share certificate. You will still be able to vote in person at
the AGM, and may request a hard copy proxy form directly from our Registrars, Link Asset Services on 0871 664 0300. Calls cost
12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300.
Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00 am – 5.30 pm,
Monday to Friday excluding public holidays in England and Wales.
Notice is hereby given that the Annual General Meeting of
the Company will be held at Dowlish Ford, Ilminster, Somerset,
TA19 0PF on 20 February 2019 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 2018 together with
the Directors’ Report and Auditors’ Report thereon.
To receive and approve the Remuneration Committee
Report set out on pages 39 to 44 (excluding page 40) of
the Annual Report and Financial Statements for the
financial year ended 30 September 2018.
3
To declare a final dividend, as recommended by the
Directors, of 7.1 pence per ordinary share for the financial
year ended 30 September 2018.
4 To elect Gary Bullard as a Director.
5 To re-elect Mark Webster as a Director.
6 To re-elect Alex Warnock as a Director.
7 To re-elect Andrew Boteler as a Director.
8 To re-elect Peter Bordui as a Director.
9 To re-elect Brian Phillipson as a Director.
10 To re-elect David Bauernfeind as a Director
11 To re-appoint Messrs PricewaterhouseCoopers LLP as
Auditors.
12 To authorise the Directors to fix the remuneration of the
Auditors.
13 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 20 May 2020 (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 £1,660,522 (representing approximately one third of the
total ordinary share capital of the Company in issue at 27
November 2018). The Directors shall be entitled 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:
14 (a) 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
13 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 £249,078 (representing approximately 5 per
cent. of the total ordinary share capital of the Company
in issue at 27 November 2018); and
ANNUAL REPORT 2018 | 95
GOOCH & HOUSEGO PLC
SHAREHOLDER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
(b) THAT the Directors of the Company be authorised in
addition to any authority granted under Resolution 14(a) to
allot equity securities (as defined in section 560 of the Act)
for cash under the authority conferred by resolution 13 above
as if section 561 of the Act did not apply to any such allotment,
provided that the power hereby conferred shall be:
(i) limited to the allotment of equity securities up to an
aggregate nominal amount of £249,078 (representing
approximately 5 per cent. of the total ordinary share capital
of the Company in issue at 27 November 2018); and
(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
20 May 2020 (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.
(ii) used only for the purpose of financing (or refinancing, if
the authority is to be used within 6 months after the
original transaction) a transaction which the Directors
determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on
Disapplying Pre-Emption Rights most recently published
by the Pre-Emption Group prior to the date of this notice.
By order of the Board
Gareth J Crowe
Company Secretary
27 November 2018
Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF
Registered Number: 526832
The powers hereby conferred in this Article 14 shall expire
at the conclusion of the next Annual General Meeting of
the Company or 20 May 2020 (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.
15 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 2,490,783 (representing
approximately 10 per cent. of the total ordinary share capital
of the Company in issue at 27 November 2018);
(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;
96 | ANNUAL REPORT 2018
GOOCH & HOUSEGO PLC
NOTES
1
2
3
4
5
6
Shareholders can vote online by logging on to www.signalshares.com
and following the instructions. Alternatively shareholders can request
a hard copy proxy form by contacting our registrars, Link Asset
Services, on 0871 664 0300 from the UK (calls cost 12p per minute
plus network extras) or +44371 664 0300 from outside the UK (calls
chargeable at the applicable international rate) and returning it
according to paragraph 4 below.
Explanatory note on Resolution 2: Resolution 2 is an advisory vote
only. The Remuneration Committee Report is set out on pages 39 to
44 of the Annual Report and Financial Statements for the financial
year ended 30 September 2018. Pages 39, 41, 42, 43 and 44 of
the Remuneration Committee Report set out the pay and benefits
received by each of the directors for the year ended 30 September
2018. The Company’s policy on remuneration and potential pay outs
to directors in the future, which is set out on page 40 of the Annual
Report and Financial Statements for the financial year ended 30
September 2018, is specifically excluded from this Resolution.
Resolutions 1 to 13 (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 14 and 15 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.
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.
To vote by proxy outside of the CREST system, you can do so online
via www.signalshares.com, or you can request a proxy form from
our Registrars (see Note 1). 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.
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
SHAREHOLDER INFORMATION
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someone other than the Chairman and give them the relevant
instructions directly.
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
message must be received by the issuer’s agent by 11.00 a.m. on 18
February 2019. For this purpose, the time of receipt will be taken to
be the time (as determined by the timestamp applied to the message
by the CREST Applications Host) from which the issuer’s agent is able
to retrieve the message. After this time any change of instructions to
a proxy appointed through CREST should be communicated to the
proxy by other means. CREST Personal Members or other CREST
sponsored members, and those CREST Members who have appointed
voting service provider(s) should contact their CREST sponsor or
voting service provider(s) for assistance with appointing proxies via
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 18 February 2019.
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.
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
18 February 2019 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.
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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
ANNUAL REPORT 2018 | 97
GOOCH & HOUSEGO PLC 98 | ANNUAL REPORT 2018
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ANNUAL REPORT SEPTEMBER 2018
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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