ANNUAL REPORT SEPTEMBER 2019
From sites across the UK, USA and Asia, our
capabilities span a uniquely broad range of
photonic technologies:
• Crystal growth
• Optical materials processing
• Acousto-optics and electro-optics
• Active and passive fibre optic components
• Precision optics
• Opto-mechanical
• Medical systems
HIGHLIGHTS CONTENTS
Highlights
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 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 Group 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
WELCOME
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GOOCH & HOUSEGO PLC
ANNUAL REPORT 2019 | 1
HIGHLIGHTS
Revenue
(£m)
129.1
+3.4%
2018 124.9
Adjusted profit
before tax*
(£m)
15.0
-19.9%
2018 18.8
Statutory profit
before tax
(£m)
6.0
-40.6%
2018 10.1
Basic earnings
per share
(pence)
15.1
-48.5%
2018 29.3
2 | ANNUAL REPORT 2019
2019
2018
2017
2016
129.1
124.9
112.0
86.1
2015
78.7
2019
15.0
2018
18.8
2017
16.1
2016
14.2
2015
12.9
2019
6.0
2018
2017
2016
2015
10.1
12.6
10.1
10.1
2019
15.1
2018
2017
2016
2015
29.3
36.4
29.1
30.9
Adjusted basic
earnings per share*
(pence)
46.8
-18.2%
2018 57.2
Total dividend
per share
(pence)
11.5
+1.8%
2018 11.3
Net (debt)/cash
(£m)
14.3
£3.7m
2018 10.6
2019
2018
2017
46.8
57.2
49.4
2016
42.5
2015
39.5
2019
2018
2017
2016
2015
11.5
11.3
10.2
9.0
8.2
2019
(14.3)
2018
(10.6)
2017
2016
2015
14.9
11.7
17.3
* adjusted figures exclude the amortisation of acquired
intangible assets, impairment of goodwill, adjustments to
accrued contingent consideration, non-underlying items
being restructuring costs, site closure costs, transaction
costs, and interest on deferred consideration.
GOOCH & HOUSEGO PLCHIGHLIGHTS HIGHLIGHTS
Operating & Strategic Highlights
• Trading: as previously disclosed, challenging macro-economic environment in our
industrial laser sector, contrasted with record levels of demand for fibre optics,
hi-reliability fibre couplers used in undersea cables and life science products.
• Industrial laser products: we believe that technical innovation in end
markets and new laser based manufacturing techniques combined with
our market leading position will ultimately drive improved demand.
• Strategic investment: we invested in order to deliver a multi-year growth
phase of hi-reliability fibre couplers and new US A&D contracts. Further
investment made in R&D projects that represent the highest potential for our
photonics technologies.
• Life science business: more than doubled in size compared with last year,
driven by growth in our existing market areas, strongly supported by the
addition of ITL, which has performed ahead of expectations since its
acquisition in August 2018.
• Strategic goals: we made considerable progress with further diversification
and moving up the value chain, in large part due to the continued growth in
A&D and Life Science business.
Financial Highlights
• Revenue of £129.1 million, increased by 3.4%.
• Adjusted profit before tax of £15.0 million, down 19.9%. This reflects both
lower market demand for relatively higher margin critical components for
industrial lasers and the investment required to deliver multi-year growth
in hi-reliability fibre couplers and new US A&D contracts.
• Adjusted earnings per share down 18.2%.
• Capital expenditure of £5.9m. Net debt of £14.3m (c.0.7 x Adjusted EBITDA).
• Dividend increased to 11.5p, reflecting the Board’s long term confidence
in the business.
• Order book of £94.4m, 1.8% lower than the same time last year, reflecting
strong demand for fibre optics, hi-reliability fibre couplers and our A&D and
Life Science capabilities, with industrial laser demand yet to recover to more
“normalised” levels.
ANNUAL REPORT 2019 | 3
GOOCH & HOUSEGO PLCHIGHLIGHTS HIGHLIGHTS
AO
Fremont
Moorpark
PO/S
Keene
PO/S
Cleveland
EO
PO/S
FO
Boston
FO Baltimore
PO/S Virginia
Glenrothes
PO/S
PO/S Ashford
PO/S
St. Asaph
FO
Torquay
STG
Paris
Munich
HQ
PO/S
AO
Ilminster
Nagoya
PO/S Shanghai
Sales offices
Manufacturing locations
AO
EO
FO
Acousto-optics
Electro-optics
Fibre optics
PO/S Precision Optics/Systems
REVENUE BY CURRENCY
€ EUR
$ USD
£ GBP
£ GBP
31.9%
£34.7m
2018
£34.7m 27.8%
$ USD
62.7%
£81.0m
2018
£82.6m 66.1%
€ EUR
5.4%
£7.0m
2018
£7.6m 6.1%
4 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
HIGHLIGHTS HIGHLIGHTS
Mark Webster, Chief Executive Officer, commented
“Trading reflected a challenging macro-economic environment for industrial lasers and in
contrast record demand for fibre optics, hi-reliability fibre couplers used in undersea cables
and life science products. We believe that ultimately technological innovation in industrial
laser end market applications and new laser-based manufacturing techniques will drive
improved demand for our industrial laser products.
“During the year we invested in manufacturing capacity for areas of high growth such as
hi-reliability fibre couplers and in R&D projects that represent the highest return for our
photonic technologies.
“Considerable progress was made on our strategic goals of further diversification and moving
up the value chain, with Life Sciences more than doubling compared with last year.
“Our order book reflects strong demand for fibre optics, hi-reliability fibre couplers and our A&D
and Life Science capabilities, with industrial laser demand yet to recover to more “normalised’
levels. G&H’s forecasts and plans are not dependent on an industrial laser recovery. The Board
is confident the Company is well positioned to deliver progress in FY20 and beyond.”
Aerospace
& Defence
(£millions)
44.2
34.2%
Industrial
& Telecom
(£millions)
60.9
47.1%
Life Sciences
& Biophotonics
(£millions)
24.1
18.7%
REVENUE
BY SECTOR
HISTORICAL REVENUE BY SECTOR
(£ millions)
Industrial
2019
2018
2017
2016
2015
Aerospace
& Defence
2019
2018
2017
2016
2015
60.9
72.9
64.3
54.3
46.1
Life
Sciences
44.2
40.8
34.9
2019
2018
2017
11.2
9.6
24.1
20.0
19.8
2016
7.9
2015
9.0
ANNUAL REPORT 2019 | 5
GOOCH & HOUSEGO PLCHIGHLIGHTS 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
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.
Telecommunications
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.
6 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC OUR SECTORS AND APPLICATIONS
Aerospace & Defence (A&D)
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 A&D 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.
SECTORS AND APPLICATIONS
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 2016
© Crown copyright 2010
ANNUAL REPORT 2019 | 7
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.
8 | ANNUAL REPORT 2019
Image courtesy
of ESA
Image courtesy
of NASA
Image courtesy of ESA
GOOCH & HOUSEGO PLC SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
Life Sciences and Biophotonics
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
We provide full product development, design, manufacturing and
after-sale service for the commercialisation of medical diagnostic,
analytical, precision electro-mechanical and laboratory instruments.
ANNUAL REPORT 2019 | 9
GOOCH & HOUSEGO PLC operational efficiency, supply chain improvement and health and
safety management. On behalf of the Board I would like to thank
all of our employees who have contributed to our business
performance in the financial year.
As previously announced, Andrew Boteler left the business in June
2019 and was replaced as Chief Financial Officer by Chris Jewell
who was formerly at TT Electronics plc. I would like to thank Andy
for his very significant contribution to the Group and welcome
Chris to the Board. Alex Warnock our Chief Operating Officer left
the business in November 2019. Alex has put in place a strong and
experienced management team to lead the three manufacturing
centres and as a result we do not currently intend to replace Alex
and the three manufacturing centre heads will report directly to
the CEO. I wish Alex well for his future endeavours.
As a Board we are committed to diversity and the need to improve
female representation at all levels. We have an active search
underway to add an experienced female Non-Executive Director
to the Board which we expect to conclude successfully in the New
Year. We are also seeking to improve the representation of women
in senior leadership positions throughout the Group.
Whilst the macroeconomic environment remains uncertain we enter
the new financial year with a solid order book and the continued
investment we have made in new technologies, capabilities and
business processes mean that the Group remains well positioned
to deliver progress in FY20 and beyond.
Gary Bullard
Chairman
3 December 2019
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
2019 was a challenging year for the business with the industrial
laser market declining as a result of a cyclical downturn in that
market and the uncertainty that has resulted from trade disputes
between the world’s two largest economies. Despite this the
Group has continued to make progress on its strategic objectives
of offering our customers more complex subassemblies and
system solutions whilst seeking new market applications for our
products and capabilities.
Offsetting the weakness in the industrial laser market the Group
succeeded in delivering good growth in its A&D and Life Sciences
businesses where our market leading products and capabilities
remained highly attractive.
We are seeing unprecedented levels of demand for our hi-reliability
fused fibre couplers thanks to major telecommunications
infrastructure projects and this will provide an important underpin
to the Group’s revenue for FY20.
Since its acquisition in August 2018 our ITL business has performed
ahead of expectations and we are exploiting the synergies this
acquisition provides by demonstrating the Group’s broader product
capability to our existing customer bases. Gould Fibre Optics
(“GFO”), acquired in September 2018, has performed below our
expectations at the time of acquisition, but as the earn-out portion
of the acquisition price was not paid, we believe the company was
acquired at an appropriate price. GFO is helping to consolidate
G&H’s position as a world leader in the provision of fused fibre
technology to the US A&D sector.
The consolidation of our manufacturing facilities into three
technology differentiated manufacturing centres has been
completed and this has facilitated a more efficient, cross Group
approach to the prioritisation of investment in people, plant and
processes. We are now in the process of supporting this by
bringing together our commercial teams in to a single Group-wide
organisation that will allow us to better respond to the broad and
complex needs of our customers.
The execution of these changes in the face of a challenging
environment in our industrial laser markets would not have been
possible without the hard work and dedication of our people across
all of our business areas. I am delighted with the contribution made
by our staff throughout the Group, particularly in the areas of
“Continued progress on strategic objectives.”
10 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
CHIEF EXECUTIVE OFFICER’S STATEMENT
STRATEGIC REPORT
FY19 Performance
In the year ended 30 September 2019 G&H achieved revenue of
£129.1 million representing an increase of 3.4% over the previous
year or excluding foreign exchange, flat, excluding acquisitions
and foreign exchange, a decline of 8.0%. Adjusted profit before
tax was £15.0 million, a decline of 19.9%.
Trading during the year reflected a challenging macro-economic
environment in our industrial lasers sector, contrasting sharply
with significant opportunities across the rest of the business.
The cyclical downturn in demand for critical components used
in industrial lasers for microelectronic and semiconductor
manufacturing has been well documented. In the rest of our
business, demand for our fibre optic products, hi-reliability fibre
couplers used in undersea networks and our life science products
was at record levels.
G&H believes that technical innovation in industrial laser end market
applications, such as 5G and the introduction of new laser based
manufacturing techniques, combined with our market leading
position will ultimately drive improved demand for our industrial
laser products.
Our fibre optics business has performed strongly. In particular
hi-reliability fibre couplers are experiencing a multi-year growth
phase and we have invested accordingly to take advantage of our
market leading position in this area.
A&D has performed well and we secured a number of new US A&D
contracts in FY19.
Our Life Science business has now established itself as a substantial
sector within G&H. This has been driven by growth in our existing
life sciences market areas, strongly supported by the addition of ITL,
which has performed ahead of our expectations since its
acquisition in August 2018.
G&H has entered its new financial year with a good order book which,
at 30 September 2019 stood at £94.4 million (30 September 2018:
£96.1 million), 1.8% lower than the same time last year, or a
reduction of 5.1% excluding the impact of foreign exchange. The
order book reflects strong demand for fibre optics, hi-reliability fibre
couplers and our A&D and life science capabilities, while industrial
laser demand is yet to recover to more ‘normalised’ levels.
Strategically important investments were made in people, process
and capital equipment in order to ensure we are able to deliver on
the multi-year growth of hi–reliability fibre couplers and to put in place
the enhanced organisational structure required to deliver our new US
A&D contracts. Elsewhere we have ‘right sized’ our organisational
structure to ensure that we respond to the current demand levels
in the industrial laser sector in a manner that retains core skills,
but enables us to sensibly manage the profitability of the affected
manufacturing sites.
G&H was able to make further R&D investment in areas we 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 A&D programmes, space
satellite communications, laser surgery and medical diagnostics. This
year we were also able to combine our medical photonics capabilities,
such as optical coherence tomography (“OCT”) with ITL’s system
capabilities which resulted in the presentation of more complete
and compelling medical diagnostic projects for our customers.
Strategic goals
We remain committed to our twin strategic goals of further
diversification and moving up the value chain. This enables us to
more fully exploit our photonic technologies and to continue to
bring greater balance to our business thereby further reducing
exposure to industrial lasers and the economic cycle.
A&D and Life Sciences provide a counter balance our industrial laser
business. Our customers are typically tier one A&D and multi-national
medical diagnostic companies which often prefer us to provide them
with subsystem and system solutions, therefore providing a strong
impetus to move up the value chain. This coupled with the regulatory
and compliance hurdles inherent in these sectors provides a high
barrier to entry. The direction of travel in both sectors is towards
greater use of photonic technologies, which means we are increasingly
well placed to serve these customers. Both of these sectors provide
G&H with the opportunity for robust growth going forward.
Our aim is to achieve a “critical mass’” in both the A&D and life
science sectors and in an “ideal world” there would be an equal
split between the three market sectors across G&H.
This was achieved in large part in A&D, which represented 34.2%
of our business in FY19. Historically life sciences has provided
Trading at Gooch and Housego reflected a challenging macro economic environment for industrial
lasers and in contrast record demand for fibre optic products, hi-reliability fibre couplers and life
science products. We believe that technical innovation in industrial laser end markets and laser
based manufacturing techniques will ultimately drive future growth in this sector. The Company
made substantial progress, investing in people and equipment in order to deliver the multi-year
growth of hi-reliability fibre couplers and new US A&D contracts, ‘right sized’ our industrial laser
manufacturing and invested in R&D projects identified as delivering a high return for our photonics
technologies. Life sciences enjoyed a ‘watershed’ year, more than doubling in size through organic
and acquisitive growth. This was a significant part of the considerable progress that was made
towards meeting our strategic goals of further diversification and moving up the value chain.”
ANNUAL REPORT 2019 | 11
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
10% or less of our revenue, though this year through a combination
of organic growth in our three main life science areas and the
performance and full year impact of ITL, it now represents 18.7%
(FY18: 8.9%) of the Group’s revenue.
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 LIDAR wind detection for wind farms and oil pipeline
security systems.
Sub systems and systems now represent 35.7% of our revenue,
compared with 25.6% last year, the increase in large part due to
the increased contribution of our A&D and Life Sciences sectors.
Acquisitions
In August and September 2018 we acquired ITL and Gould Fiber
Optics, respectively.
ITL is a UK-based specialist in the design, development and
manufacture of high quality medical devices. It has been a
significant factor in G&H more than doubling the size of its life
sciences business and moving up the value chain, as all of ITL’s
sales come from system based products.
ITL has exceeded our expectations, has achieved 100% of its first
year earn out and has integrated well with the rest of G&H. There
are a number of early stage joint photonic and system based
projects which have been presented to prospective customers
and which we expect will make a significant contribution to life
science growth in years to come.
GFO is a US based market leading supplier of key enabling fibre optic
components to tier one US A&D customers. We have invested in
the manufacturing site to bring it up to G&H standards and good
progress has been made by the new management team at the
Baltimore location.
GFO did not meet its earn out goals for this year, which meant the
earn-out portion of the acquisition price was not paid and as such,
we believe the price paid for the business was appropriate. It is a
high net margin business which provides G&H with a strategic
platform to access tier one US A&D companies with our fibre
based product portfolio. The write back of deferred consideration
and appropriate impairment of goodwill are considered in the
Financial and Operating Review.
Research and Development (“R&D”)
There has been continued benefit from concentrating our R&D
efforts on fewer higher return projects. During FY19 we introduced
48 new products, with 5 patents granted 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 £13.5
million (FY18: £12.0 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
12 | ANNUAL REPORT 2019
Unmanned aerial vehicles (“UAVs”) 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 that form part of the imaging system contained in
the UAV’s gimbal. They typically provide targeting, surveillance
and LIDAR capability.
We have a number of ongoing R&D defence programmes in the US
and Europe, which operate under US International Traffic in Arms
Regulations (“ITAR”) and/or confidentiality agreements, supporting
future growth in what is now a substantial A&D business.
Our space communication group has gone from strength to strength
with European and UK space agency funded work as well as
significant commercial contracts to provide satellite communication
systems for near term satellite launches. We believe there is
substantial potential to expand this technology into small satellite
platforms for constellations and near space UAVs.
Our optical coherence tomography (“OCT”) technology dominates
the retinal scanning and imaging arena. The partnerships we have
with medical diagnostic companies in the areas of cardiovascular
disease and cancer detection are now delivering new product
revenue for the group.
We have a range of medical diagnostic R&D collaborations through ITL
and have been able to combine our photonic capabilities with ITL’s
system expertise which we believe will result in R&D collaborations
with multinational medical diagnostic companies in the near future.
Performance Improvement Programme
Our three manufacturing centre approach remains key to
manufacturing efficiency, customer service and greater capacity.
Ten of our twelve manufacturing sites are now organised into
three manufacturing centres based on their areas of technical
excellence, namely Acousto Optic/Electro Optic, Fibre Optics and
Precision Optics/Systems. Each manufacturing centre has a leader
whose role is to ensure best practice is shared, there is process
harmonisation and optimal allocation of resource.
ITL’s two manufacturing sites remain outside of the structure for
the period of their earn out.
There are three customer facing business units which mirror our
traditional market sectors of Industrials, A&D and Life Sciences/
Biophotonics. Each unit is responsible for that sector’s strategy and
longer term planning. They all come under our newly appointed
Chief Commercial Officer (CCO), Adrian Meldrum, who will work
closely with our manufacturing heads to ensure our production
resources match our strategy and longer term planning goals.
This organisational approach is underpinned by improved
business systems. An ongoing process with a phased introduction
of new financial and business systems is being implemented over
a period of three years.
GOOCH & HOUSEGO PLC
CHIEF EXECUTIVE OFFICER’S STATEMENT
STRATEGIC REPORT
Markets and Applications
Industrial
47.1% of FY19 Group revenue
Our industrial division declined by £12.0 million or 16.5% compared
with the previous year.
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, opto-mechanical sub-systems for UAVs and long range
secure communications.
Industrial splits into four distinct areas: industrial lasers, optical
communications, ‘harsh environment’ sensing and scientific research.
The first two areas represent the majority of the sector’s business.
The Industrial sector’s year on year decline was due to a cyclical
downturn in the industrial laser market and a very strong
comparator year in FY18.
The cyclical downturn in FY19 for industrial lasers used in
microelectronic and semiconductor manufacturing has been well
documented by both G&H and external commentators. We believe
that the downturn has lasted longer than the last time we had an
equivalent event, our FY12, due to the overlay of the US/China
tariff dispute and other one-time factors such as the Japan/Korea
trade dispute.
G&H believes that technological innovation in end market
applications, such as 5G and the introduction of new laser based
manufacturing techniques, combined with our market leading
position in this area will ultimately drive improved demand for our
industrial laser business. We will continue to seek to reduce the cost
of producing critical components for industrial lasers to ensure
that we remain competitive. It is interesting to note that following
the FY12 industrial laser downturn G&H went through a period of
strong growth, more than doubling our business through to FY18.
Optical communications is dominated by hi-reliability fibre couplers
for undersea cables. Hi-reliability fibre couplers are undergoing a
multi-year growth phase. This is driven by well capitalised ‘Silicon
Valley’ companies sponsoring the laying of their own cable networks
and a doubling in the number of fibre couplers used per repeater
(the repeaters boost the signal every few kilometres of undersea
cable). G&H has invested in people and equipment in order to meet
an order book which has seen the demand nearly double in FY19,
then triple as we move into FY20.
‘Harsh environment’ sensing has performed well and we have picked
up new orders for our laser engines used for directional sensing in
wind farms and security related to oil pipelines.
Scientific research covers high profile ‘Big Science’ projects such as
supplying critical components to the world’s most powerful laser
system at the National Ignition Facility at Lawrence Livermore
National Laboratory (“LLNL”) in Northern California and to the
European equivalent, Commissariat a l’energie atomique et aux
energies alternatives (“CEA”) in Bordeaux, France. As the primary
supplier of critical laser components to these facilities this represents
a profitable and prestigious part of our industrials business.
A&D
34.2% of FY19 Group Revenue
A&D grew year on year by £3.4 million or 8.4%, on an organic
basis by 5.9%.
G&H is able to bring a wide range of photonic capabilities together
that very much represent the “direction of travel” in this sector.
The acquisition of GFO provides enhanced access for our fibre
based business to tier one US A&D companies.
Delivering product quality, reliability and performance in “harsh
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.
During FY19 we were able to win a number of high profile US A&D
contracts and have put in place an enhanced organisational
structure in order to deliver these multi-year projects.
Space satellite communication is undergoing a technological
revolution. The use of fibre optic lasers to transmit information means
satellite communication systems are more efficient and robust, as
well as being significantly lighter and more secure. This has changed
the economics of the sector and has helped lead 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 is allowing
us to contribute at the forefront of these developments globally.
Life Sciences/Biophotonics
18.7% of FY19 Group Revenue
Life Sciences/Biophotonics revenue grew year on year by £12.9
million or 114.7%, on an organic basis by 22.4%.
FY19 was a watershed year for G&H life sciences. Historically it has
represented 10% or less of G&H’s revenue, but during FY19 was able
to more than double in size through a combination of organic and
acquisitive growth and now represents 18.7% of Group revenue.
The principal photonic applications are in OCT, laser surgery and
microscopy and we had organic growth across all three main
areas. OCT is widely used in ophthalmology for 3D retinal scanning
and G&H has a leading position in supplying critical components
and sub-systems to the main equipment suppliers. The use of the
same technology in cardiovascular and cancer disease detection
has now started to drive revenue from US based medical
diagnostic companies.
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.
Microscopy had a good year with an increase in use of laser based
microscopy.
ITL, acquired in August 2018, has exceeded our expectations with
its business based around the design, development and manufacture
of high quality medical diagnostic systems. These range from the
supply of antibiotic testing and cancer detection systems through
to DNA sequencing. Their electronic, software and mechanical
engineering capability greatly enhances our ability to integrate our
photonic technology as part of a subsystem or system. During
ANNUAL REPORT 2019 | 13
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
FY19 this has resulted in us being able to present a number of OCT
based systems to new and existing customers. We expect this to be
a significant business driver in future years.
There is potential for photonic technology to be used in minimally
invasive surgery, endoscopy and robotic surgery. This sector
remains an area where G&H will continue to invest in R&D and to
look for further strategic acquisitions with the aim of at least
bringing the revenue into line with the other sectors.
Board Changes
Chris Jewell joined the Group as Chief Financial Officer on 9 September
2019. He replaced Andy Boteler who after more than ten years as
CFO 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 knowledge of the business, energy and considerable ability
will be missed.
Alex Warnock, after five years as Chief Operating Officer decided to
step down from the role and the Board after the end of the financial
year. He left on 8 November 2019. Alex has been an important part
of G&H’s success and his hard work, commitment and considerable
experience will be missed. Alex has put in place a strong and
experienced management team based around the three
manufacturing centres, which has been operating successfully in its
current structure for the last two years. The three manufacturing
heads will report directly into the CEO and there are no plans to
recruit a replacement COO.
G&H is committed to making further investment in R&D 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 diagnostic systems.
We will continue to actively pursue our strategic goals of further
diversification and moving up the value chain. The aim is to
achieve “critical mass” in the A&D and Life Science sectors, which
means in an “ideal world” each of the three sectors representing
one third of our business, through a mixture of investment in R&D
and acquisitions.
The order book as at 30 September 2019 reflects strong demand
for fibre optics, hi-reliability fibre couplers and our A&D and life
science capabilities, whilst industrial laser demand is yet to recover
to “normalised” levels. We believe that technical innovation will
ultimately drive future growth in the industrial laser sector. Our
forecasts and plans are not dependent on a recovery in the
industrial laser market.
The “direction of travel” in our main target sectors is very much
towards greater use of photonic technologies. This combined
with the technological platform and market presence that we
have in these target sectors means that the Board is confident
that the Company is well positioned to deliver progress in
FY20 and beyond.
Summary and Outlook
Trading during the year reflected a challenging macro-economic
environment in our industrial lasers sector, which contrasted with
record levels of demand for our fibre optics products, hi-reliability
fibre couplers used in undersea cables and life science products.
Mark Webster
Chief Executive Officer
3 December 2019
G&H believes that technical innovation in industrial laser end
market applications, such as 5G and new laser based manufacturing
techniques, combined with our leading position will ultimately
drive improved demand for our industrial laser products.
We made strategically important investments in people, process and
equipment to ensure we are able to deliver on the multi-year growth
phase of hi-reliability fibre couplers and put in place an enhanced
organisational structure to deliver our new US A&D contracts.
Elsewhere we have ‘right sized’ the organisation to ensure that we
respond to the current demand levels of the industrial laser sector
in a manner that retains core skills, but enables us to sensibly
manage the profitability of the impacted manufacturing sites.
We will continue to seek to reduce the cost of producing critical
components for industrial lasers. When necessary, we will continue
to make considered and proportionate organisational changes in
order to ensure we are able to take optimal advantage of the
opportunities and challenges we have in the business.
14 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC ANNUAL REPORT 2019 | 15
GOOCH & HOUSEGO PLCHIGHLIGHTS STRATEGIC REPORT
MARKET OVERVIEW
Industrial and Telecom
Applications, Products and Markets
Industrial Lasers for materials processing applications. G&H 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 over the last few years, except FY19,
driven by a move towards new laser enabled production techniques.
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.
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.
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.
Remote Sensing for applications including asset protection,
perimeter security, strain, temperature and pressure sensing.
G&H supplies fibre optic and acousto-optic components and
subassemblies, including the G&H developed Fibre-Q.
Manufacturers of these systems address diverse end markets
such as wind energy and oil and gas exploration and production.
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. G&H supplies many of the
world’s leading nuclear fusion and energy research facilities. We
are also the primary 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.
16 | ANNUAL REPORT 2019
Financial Performance
• Our overall Industrial business reduced by 16.5% in absolute
terms during the year, with revenues of £60.9 million, compared
with £72.9 million last year. Excluding foreign exchange and
acquisition/disposals this represented a 17.4% decrease.
• This reduction was driven by a cyclical downturn in demand for
critical components used in industrial lasers for microelectronic
and semiconductor manufacturing, particularly from China. We
believe that the downturn has lasted longer than the last time
we had an equivalent event, FY12, due to the overlay of the US/
China tariff dispute and other one-time factors such as the
Japan/Korea trade dispute.
• Because of the above, demand for the traditional Q switch fell
sharply in 2019, albeit against a very strong comparator year and
represented just 7.6% of total group revenue (2018: 15.5%).
• In contrast, demand for fibre optic products and hi-reliability
fibre couplers used in undersea networks has been strong.
Hi-reliability fibre couplers are experiencing a multi-year growth
phase and we have invested accordingly to take advantage of
our market leading position in this area.
• Our industrial business has also seen growth in the sensing
market with contracts for directional sensing at wind farms and
pipeline security.
• Adjusted operating profit for the Industrial division was lower at
£9.0 million, compared with £12.3 million last year, reflecting the
reduced revenue, lower demand for relatively higher margin
industrial laser products and investment in capacity for hi-reliability
fibre couplers.
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 FY19 G&H introduced nine new
products that address its industrial market.
• To focus on niche markets that play to the strengths of G&H,
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
subassemblies, instruments and systems, where appropriate.
• To build strong relationships with our customers’ development
teams to ensure we are designed in to their next generation
products.
• 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
HIGHLIGHTS
Percentage
of Revenue
47.1%
2018 58.4%
Revenue
(£millions)
60.9
-16.5%
2018 72.9
Adjusted
Operating Profit
(£millions)
9.0
-26.8%
2018 12.3
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2019 | 17
STRATEGIC REPORT
MARKET OVERVIEW
A&D
Applications, Products and Markets
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. G&H navigation components are used in a
variety of end markets, including civil and military aircraft, missiles,
satellites and space exploration.
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 the European Space Agency, UK Space Agency
and commercial organisations to develop and deploy subsystems
for inter-satellite and satellite to ground communications, radio over
fibre and optically inter-connected on-board processors within
telecommunications satellites.
Periscopes & 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 Subsystems for Unmanned Aerial Vehicles. The
business provides system level optical products (including in IR and
SWIR frequency bands and LIDAR sensors) for use in harsh
environments to key US defence and European A&D customers. This
is a growing area in both the core defence and commercial markets.
Financial Performance
• A&D revenue was £44.2 million, up 8.4% on last year, driven
primarily by organic growth and also benefitting from the full
year effect of the Gould acquisition which occurred late in FY18.
Excluding foreign exchange and acquisitions/disposals our A&D
sector grew by 2.4%.
• The organic growth was driven by increased demand for our
components used in guidance and navigation and countermeasures.
Our periscopes & sighting systems, opto-mechanical sub systems
and target designation & range finding businesses also performed
well. 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.
• Operating margins in this sector reduced due to additional costs
incurred as we completed complex development programmes
that are now entering their production phase. Furthermore, our
Moorpark facility experienced issues with the integration of one of
its products into the customer’s systems, delaying some revenues
• Our Boston site has a particularly strong order book going into FY20.
Growth Strategy
• To continue to focus energy and investment on moving from
being a components supplier to a subsystems provider. Our
customers are changing their business models and are looking
for companies such as G&H 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 move
towards our strategic goal of building “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 take on projects with a high technical content
initiated by our customers. During 2019 G&H introduced 30 new
products that addressed its A&D market.
18 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC HIGHLIGHTS
© Crown copyright 2016
Image courtesy of ESA
Percentage
of Revenue
34.2%
2018 32.7%
Revenue
(£millions)
44.2
+8.4%
2018 40.8
Adjusted
Operating Profit
(£millions)
3.5
-38.6%
2018 5.7
© Crown copyright 2001
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2019 | 19
STRATEGIC REPORT
MARKET OVERVIEW
Life Sciences and Biophotonics
Applications, Products and Markets
Optical Coherence Tomography (OCT) primarily used in retinal
imaging for the diagnosis of glaucoma and macular degeneration,
but now including cardiovascular disease and cancer diagnostics.
G&H 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. G&H’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 G&H has a range of capabilities including full product
development, design, manufacturing, certification and after sale
service for the commercialisation of high-quality medical diagnostic,
in vitro diagnostic (IVD) devices, precision analytical, electro-
mechanical and laboratory instruments.
Financial Performance
• In 2019 life sciences/biophotonics revenue was £24.1m, up by
114.7% compared to the prior year or 18.2% excluding foreign
exchange and acquisitions. This was driven by a combination of
organic growth, and the better than expected growth and full
year effect of ITL, which was acquired in August 2018.
• Organic growth was generated in microscopy, surgical lasers,
OCT and ophthalmology, reflecting the success of our strategy
of diversification into these markets.
• ITL exceeded our expectations in its first full year as a G&H
company, achieving revenue of £12.8m.
Growth Strategy
• To continue to invest in R&D projects in close collaboration
with our customers, to develop the existing portfolio of products
and to ensure that they remain competitive. During 2019 G&H
introduced nine new products that address 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 utilise the considerable improvement in our systems capability
with the acquisition of ITL to present our breadth of technologies
as part of subsystems or systems.
The growth strategy for life sciences/biophotonics mirrors that for
A&D 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” G&H up the value chain.
• 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. G&H will
continue to seek acquisition opportunities.
20 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
HIGHLIGHTS
Percentage
of Revenue
18.7%
2018 8.9%
Revenue
(£millions)
24.1
+114.7%
2018 11.2
Adjusted
Operating Profit
(£millions)
5.1
218.8%
2018 1.6
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2019 | 21
STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
Performance Overview
Trading performance in the year suffered from a cyclical slowdown
in our Industrial laser markets and underlying operating profit fell
14.9% to £16.3m. Revenue and underlying profit before tax were
however, in line with revised management expectations for the
year reflecting a level of stabilisation in the second half’s trading.
Group revenue for the year totalled £129.1 million. This represents
an increase of £4.3 million, or 3.4% over the previous year. On an
organic basis and measured at constant currency, revenues
declined by 8.0%.
Revenue
2019
2018
Year ended 30 September
Industrial
A&D
Life Sciences/Biophotonics
Group Revenue
£’000
% £’000
60,854 47.1% 72,881
44,203 34.2% 40,789
18.7% 11,213
24,076
100% 124,883
129,133
%
58.4%
32.7%
8.9%
100%
In our Industrial segment, revenue declined by 16.5%, in absolute
terms, from £72.9 million last year to £60.9 million this year. On an
organic and constant currency basis, the decline totalled 17.4%.
The Group adjusted profit before tax amounted to £15.0 million
(2018: £18.8 million) and represented a margin of 11.6% (2018:
15.0%). Statutory profit before tax was £6.0 million compared
with £10.1 million last year.
Revenue in our A&D business increased by 8.4% in absolute terms
from £40.8 million to £44.2 million. Excluding the impact of
acquisitions and measuring at constant currency, revenues in this
segment grew 2.4%.
During 2019 the Group continued to invest for the future with
R&D spend at 6% of revenues, which was in line with last year’s
proportional spend when measured on an organic basis. G&H
invested £5.9m in property, plant and equipment including investment
to provide our manufacturing centres with new capabilities that will
help us address emerging customer demands. The business finished
the year with net debt of £14.3 million compared with a net debt
position of £10.6 million as at 30 September 2018. This represents
approximately 0.7 x adjusted EBITDA.
In the financial year under review, adjusted operating profits
decreased by £2.8 million to £16.3 million (2018: £19.1 million).
At a percentage margin level, adjusted operating margins were
12.6%, compared with 15.3% in 2018. This reduction reflects
the impact of lower sales of our relatively higher margin
industrial laser products and the investment made in capacity
for the multi-year growth of the hi-reliability fibre couplers, and
additional costs required to deliver new US A&D contracts.
Life Sciences/Biophotonics revenue increased by 114.7% in absolute
terms from £11.2 million to £24.1 million. Excluding the effect of
foreign exchange and acquisitions, this segment grew by 18.1%.
Group Earnings Performance
All amounts in £’000
Year ended
30 September
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit for the year
Basic earnings
Adjusted
Reported
2019
16,254
(1,238)
15,016
(3,332)
11,684
2018
19,100
(343)
18,757
(4,677)
14,080
2019
8,408
(2,456)
5,952
(2,191)
3,761
2018
10,796
(683)
10,113
(2,893)
7,220
per share (p)
46.8p
57.2p
15.1p
29.3p
Reconciliation of Adjusted Performance Measures
Year ended 30 September
Reported
Amortisation of acquired intangible assets
Site closure
Impairment of goodwill
(Credit)/charge in respect of accrued
contingent consideration
Restructuring costs
Transaction fees
Interest on deferred consideration
Tax credit on US deferred tax due to rate change
Adjusted
Operating profit
2019
2018
£’000
8,408
3,690
(382)
6,258
(3,075)
1,355
–
–
–
16,254
£’000
10,796
2,141
1,569
2,708
417
864
605
–
–
19,100
Net finance costs
Taxation
Earnings per share
2019
£’000
(2,456)
–
–
–
–
–
–
1,218
–
(1,238)
2018
£’000
(683)
–
–
–
–
–
–
340
–
(343)
2019
£’000
(2,191)
(676)
65
(921)
662
(271)
–
–
–
(3,332)
2018
£’000
(2,893)
(276)
(359)
–
–
(169)
(116)
–
(864)
(4,677)
2019
pence
15.1p
12.1p
(1.3p)
21.4p
(9.7p)
4.3p
–
4.9p
–
46.8p
2018
pence
29.3p
7.6p
4.9p
11.0p
1.7p
2.8p
2.0p
1.4p
(3.5p)
57.2p
Adjusted earnings per share (EPS) reduced from 57.2p in FY18 to 46.8p in FY19. Reported basic EPS was 15.1p compared with 29.3p last year.
22 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
FINANCIAL AND OPERATING REVIEW
The adjusted effective rate of tax was 22.2% (2018: 24.9%). The
reduction in the rate was largely due to a combination of the full year
effect of US rate reductions implemented last year and the utilisation
of tax losses in the US. The effective rate of tax of 36.8% (2018:
28.6%) was higher than the adjusted effective rate largely because
of the effect of the goodwill impairment, which is not deductible in
arriving at the Group’s tax charge. 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 net finance costs increased to £1.2m principally as a result
of additional borrowing at the end of FY18 to fund the ITL and
Gould Fiber Optics acquisitions.
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-underlying
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.
Adjusted Earnings Before Interest, Tax, Depreciation and
Amortisation (“EBITDA”) is EBITDA excluding site closure costs
and restructuring costs identified as non-recurring.
Non-underlying Items
Restructuring costs of £1.4 million (FY2018: £0.9 million) related to
expenses arising from the re-organisation of the manufacturing
centres, and the Group’s commercial and business development
teams into a single integrated function.
Site closure costs relate to the profit generated on the sale of the
Company’s Orlando facility, partially offset by the costs associated
with the closure of the Madison office.
As noted above the performance of the Gould Fiber Optic business
has not been sufficient to trigger the payment of the contingent
consideration provided for in the Purchase Agreement and accrued
within the September 2018 balance sheet. As a result the amount
of $3.4m was credited to the income statement during the year.
Furthermore the excess of contingent consideration compared with
that paid in respect of the StingRay acquisition of £0.5m was
released in the period.
As part of its annual review of the carrying value of goodwill, the
Board has taken the decision to impair the goodwill of the Gould
Fiber Optic business. The business was acquired in September 2018
for a consideration of $16.4m including a contingent element of
$3.4m and, prior to the impairment, the carrying value of the
associated goodwill was £9.2m. Whilst the acquisition has helped
provide the Group with further access to the US A&D market the
business has not generated the profitable growth required to support
the payment of the contingent consideration. The lower than
expected performance means that an impairment charge of £3.6m
has been recognised in relation to the carrying value of that site’s
goodwill. Further detail is given in note 17 to the financial statements.
STRATEGIC REPORT
As reported at the half year, the Board took the decision to
recognise an impairment of £2.6m in respect of the goodwill
relating to the Boston site.
Transaction fees of £0.6m in FY18 related to the acquisitions of
ITL and Gould Fiber Optics.
The interest charge on discounted deferred consideration of
£1.2m (2018: £0.3m) relates to the unwind of the discount on
deferred consideration liabilities.
Research & Development (R&D)
G&H continues to invest in R&D and regards this as fundamental
to the continued growth of the Company. There were 48 product
releases in FY19, together with five new patents granted.
Excluding the impact of acquisitions and divestments, expenditure
on R&D in FY2019 was maintained at 6% of revenue, only marginally
lower than the equivalent figures in the previous financial year
(6.4%). The Group capitalised £0.7m of development expenditure
(2018: £0.5 million).
Operations
The Group has completed the establishment of its three
Manufacturing Centres which combine the Group’s operational
expertise into the three technology areas of Acousto Optic/Electro
Optic, Fibre-Optic and Precision Optics/Systems. There are three
customer facing business units which mirror our traditional market
sectors of industrial, A&D and Life Science/Biophotonics. Each unit
is responsible for that sector’s strategy and longer term planning.
They all come under our newly appointed CCO who will work closely
with our manufacturing heads to ensure our production resources
match our strategy and longer term planning goals.
We have made further investment in our business systems to
better support our operations. We have continued the roll out of
our Syspro ERP/MRP system which now forms the core of our
sales and operations planning processes enabling us to ensure
our in house and supply chain resources are better aligned with
our market forecasts.
Following the closure and sale of the Orlando, Florida, light
measurement business in the previous year the Group completed
the sale of the site for proceeds of £1.5m in FY19. The resultant
gain on disposal of the site of £0.8m has been treated as
non-underlying income.
As reported in previous years, the Company has been successful in 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 commenced an appeal against
this ruling which is yet to be heard 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 a non-
underlying item in a future accounting period.
Acquisitions
G&H continues to evaluate acquisition opportunities that have the
potential to accelerate delivery of the Company’s strategic objectives.
ANNUAL REPORT 2019 | 23
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
G&H is focused on moving up the value chain in each of the markets
it serves. Whilst the business will continue to evaluate bolt on
businesses in our core component technologies, we are focused
on identifying value enhancing acquisitions that can extend our
technical capabilities and help us achieve further penetration into
the markets that we serve.
In its first full year of ownership the ITL business has exceeded
our expectation contributing £12.8m of revenue and £3.2m of
operating profit to the Group result. During the period it has
secured some important new design wins with new customers.
The acquisition of Gould Technology LLC, trading as Gould Fiber Optics,
in the previous financial year has allowed G&H to strengthen its
position as the world leader in fused fibre optic technology and
brought G&H access to strategic US A&D customers. During the year
Gould contributed £4.4m of revenue and £0.7m of operating profit to
the Group results. However, this was a level lower than that required
to generate payment of the contingent consideration of $3.4m
provided for on acquisition of the business and this was, therefore,
released as a non-underlying credit to the income statement in the
year. The impact of the avoided earn-out payments on the carrying
value of goodwill is considered in note 17 to the financial statements.
As a result of strong trading in 2018 earn out payments were
made in the year in respect of the StingRay business (£2.6m) and
the Kent Periscopes business (£1.7m). These payments were the
final amounts due in respect of those two acquisitions.
Balance Sheet
The Group’s total equity at the end of the year was £112.8 million,
an increase of £3.8 million over the prior year. This increase
comprised £0.9m from retained earnings, £0.5m 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 £5.9m. The
additions included investment to provide our facilities with new
capabilities to satisfy our customers’ developing needs.
Working capital was 33.9% of revenue in the current year compared
with 28.6% in 2018, due to higher inventory levels as a result of
inventory built in anticipation of the return of market demand in the
industrial lasers market which has been delayed, and inventory
held to deliver the strong multi-year growth of hi-reliability fibre
couplers. Whilst it was consistent with the prior year, a heavy
weighting of shipments towards the end of the financial year kept
accounts receivable high.
Inventory at year end was £33.3 million, an increase of £7.4 million
over the prior year. Excluding the impact of foreign exchange
inventory increased by £6.6 million, or 25.5%, in the year. This
movement is expected to partially unwind as trading levels grow
in the coming year.
Trade receivables at year end were £31.1 million, a reduction of
£1.1 million compared with the prior year. The reduction was due
to the lower trading level albeit the weighting of shipments in Q4
remained heavy. There has been good cash collection post year
end, albeit we are seeing some overseas customers extending
their payment terms.
24 | ANNUAL REPORT 2019
Cash balances at 30 September 2019 were £17.5 million, compared
with £19.4 million in the prior year. Net cash flows from operating
activities totalled £11.6 million, compared with £9.2 million last year,
reflecting a cash generated from operations to adjusted operating
profit rate of 80% (2018: 63%) as a result of a lower investment in
working capital year-on-year. During the year net debt increased
by £3.7 million, of which £1.8 million was as a result of exchange
rate movement on the Group’s US$ denominated borrowings.
Movement in Net Debt
All amounts in £m
At 1 October2018
Operating cash flows
Debt drawdown
Acquisitions (deferred consideration)
Net capital expenditure
Working capital
Interest, tax and dividends
Exchange movements
At 30 September 2019
Gross
Gross
Cash
19.4
19.6
–
(3.9)
(5.9)
(6.6)
(5.4)
0.3
17.5
Debt
(30.0)
–
0.1
–
–
–
–
(1.9)
(31.8)
Net
Debt
(10.6)
19.6
0.1
(3.9)
(5.9)
(6.6)
(5.4)
(1.6)
(14.3)
Prior Year Restatement
In support of the establishment of the Group’s three
manufacturing centres, and to enable a better comparison of
operational performance across the Group, the methodology
for the inclusion of overhead costs into inventory values was
standardised in the year. The effect of this standardisation
was to increase inventory values.
In the financial statements for the year the effect of this
standardisation has been applied retrospectively to the prior
year comparators which have been restated. This adjustment has
been made so as not to distort FY19 profitability and is detailed
further in note 2 to the financial statements. The effect in FY19
was not material.
Order Book
As at 30 September 2019, the Group order book stood at £94.4
million, compared with £96.1 million at the end of the 2018
financial year. Excluding foreign exchange the order book was 5%
lower. The book to bill ratio for the business as a whole was 0.98
(six month rolling average) as at 30 September 2019 (2018: 0.95).
This partly reflects the strong shipments in Q4.
Staff
The Group workforce reduced from 1,007 at 30 September 2018
to 984 at the end of September 2019. The reduction reflects the
action the business has taken to adjust to the lower levels of
market demand in its industrial lasers markets whilst ramping up
for increasing levels of demand in particular for its hi-reliability
fused fibre coupler products.
Dividends
The Directors propose a final dividend of 7.2p per share making a
total dividend per share for the year of 11.5p (2018: 11.3p), an
increase of 1.8%. The final dividend, if approved, will be payable
on 28 February 2020 to shareholders on the Company’s share
register as at the close of business on 24 January 2020.
GOOCH & HOUSEGO PLC FINANCIAL AND OPERATING REVIEW
Key Performance Indicators (KPIs)
The Group’s objective is to deliver sustainable, long-term growth in
revenue and profits through the execution of the Board’s strategy.
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
2019
3%
–
2018
12%
16%
2017
30%
19%
The Board is focused on driving revenue growth by investing both
organically and through acquisitions. The Group’s revenue at
constant exchange rate was flat year on year with the downturn
in our key industrial sector offsetting the performance elsewhere
in the business, including from last year’s acquisitions.
Target market revenue
A&D (£m)
Life Sciences (£m)
2019
44.2
24.1
2018
40.8
11.2
2017
34.9
9.6
The Group’s target markets of A&D and Life Sciences provide a route
to sustainable growth, and a more diversified revenue base. These
markets also provide significant opportunities for G&H to migrate
up the value chain from materials and components to higher value
subassemblies, 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, Gould Fiber Optics in 2018 while the
Life Sciences revenue growth includes the full year effect of the ITL
acquisition in 2018. Measured on an organic constant currency basis
A&D revenues increased by 2.4% and Life Sciences by 18.2%
Net (debt)/cash analysis
Net (debt)/cash (£m)
2019
(14.3)
2018
(10.6)
2017
14.9
In order to balance business risk with the investment needs of the
Company, management closely monitors and manages net (debt)
/cash. This year, as a result of earn out payments made for the
acquisition of the StingRay and Kent Periscopes businesses and
the investment in capital equipment and working capital, net debt
increased from £10.6m to £14.3m. This represents a Net Debt :
Adjusted EBITDA ratio of c. 0.7x.
Earnings per share (EPS)
Adjusted diluted EPS (pence)
2019
46.7p
2018
56.5p
2017
48.5p
As a result of the difficult trading environment in the industrial
laser sector, adjusted diluted EPS fell 17.3%, from 56.5p to 46.7p.
STRATEGIC REPORT
ANNUAL REPORT 2019 | 25
GOOCH & HOUSEGO PLC STRATEGIC REPORT
STRATEGY OVERVIEW
G&H’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 FY19, G&H grew
its business in the areas of:
• Hi-Reliability fibre couplers
• Sensing
• Lidar
b) A&D
• Acquisition of Gould Fiber Optics in the prior year
• Greater programme penetration through focused business
development leading to organic growth.
Moving up the Value Chain
To leverage our excellence in materials and components to move
up the value chain to more complex subassemblies and systems.
Progress
• Further investment in systems based R&D projects, utilising the
enhanced systems capability from ITL.
Organic Research & Development
To leverage G&H’s world leading products, technologies and
capabilities to develop innovative new products
Progress
• In FY19 the company’s organic research & development
programmes have delivered 48 new products. In addition,
five new patents have been awarded.
• The Group continues to invest in R&D projects in all of its
c) Life Sciences
key markets.
• Very successful first full year for ITL under G&H ownership
• Organic growth across key sub-sectors
26 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC PRINCIPAL RISKS AND UNCERTAINTIES
STRATEGIC REPORT
G&H 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 share
or price erosion due to the activities of
competitors in our marketplaces. This could
lead to a reduction in revenue and profitability.
This is a key area of focus for the G&H management team. Fundamental to mitigating the
effects of our competitors is to maintain our product quality and on-time delivery performance
to ensure our customers’ expectations are fulfilled. This will help us to counteract the
emergence of lower cost competitors in the market.
Our significant investment in R&D enabled us to launch 48 new products during FY19.
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 marketplace and attend key trade
shows which enables them to monitor competitor activity and respond accordingly.
Our people are at the heart of our business. We maintain development and reward schemes to
encourage individuals to play a long term role in the future development of the Group.
Succession planning is reviewed by the senior management team on a regular basis.
There has been continued management focus on increasing efficiency during FY19 in order to
increase capacity. The grouping of our sites into manufacturing centres is driving efficiency gains.
We have continued to invest in machinery and people. Significant progress has again been made
in increasing capacity at strategically important plants and “right sizing” where appropriate.
Retention of Key Personnel
The Group recognises the importance of
retaining and developing its highly skilled
management team and workforce in order
to achieve its strategic objectives.
Capacity Management
It is important that we are able to respond to
customer demand patterns, particularly where
markets are cyclical.
Global Economic Trends
Adverse changes in the major markets in which
the Group operates can have a significant
impact on the Group’s performance.
Through its strategies of market diversification and moving up the value chain, the Group
seeks to secure routes to new markets and reduce its dependence on any one market sector.
We have a good order book going into FY20.
Brexit
Various Brexit scenarios could affect the
group’s financial position, supply chain
and people.
US/China Tariffs
Our Brexit steering group continues to monitor the evolving impact of Brexit and oversees our
response.
We have assessed that our supply chain is not materially exposed to supply from the EU.
The majority of our terms with customers are for delivery ex-works. Therefore our exposure to
incremental tariffs is also limited.
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 or other sites.
Information and Cyber Security
There is a risk of loss of digital intellectual
property/data or ability to operate systems due
to internal failure or external attack.
Clear ownership of cyber risk and IT controls defined.
A risk framework has been established with plans for management, mitigation and resolution
of device failures.
Data is appropriately stored and backed up with IT system recovery plans in place.
The strategic report has been approved by the Board of Directors and signed on its behalf by:
Mark Webster
Chief Executive Officer
3 December 2019
ANNUAL REPORT 2019 | 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.
Chris Jewell Chief Financial Officer (Appointed September 2019)
Chris holds masters degrees from Cambridge
University and the London School of
Economics. He is a Fellow of the Institute of
Chartered Accountants in England and Wales.
Chris has twenty five years’ experience
working in senior finance roles in
international engineering and manufacturing
businesses, operating in Europe, North
America and Asia. Prior to joining Gooch &
Housego PLC Chris was Group Director of
Financial Control at TT Electronics PLC,
Senior Vice President of Finance at Cobham
PLC and Finance Director of MBDA UK.
He qualified as a Chartered Accountant
whilst working with Ernst & Young.
28 | ANNUAL REPORT 2019
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 and was a
non-executive director of Chloride Group plc
and Rotork 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. 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 G&H Board.
Dr Peter Bordui Senior Independent Director (Appointed February 2012)
Peter has thirty years’ experience in the
photonics industry in senior leadership roles
within Bookham, NewFocus, JDSU and
Siemens and has held a number of additional
non-executive chairman and director roles.
He is also currently 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 is the Senior Independent Director.
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 A&D
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 and
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 has also undertaken a number of
interim/consultancy roles and recently
joined Munich based Lilium GmbH as
Deputy CTO and Head of Design.
Brian holds an MA (Hons) in Engineering
from Cambridge University.
Brian is Chairman of the Remuneration
Committee and a member of the Audit
and Nomination Committees.
David Bauernfeind (Appointed 1 May 2017)
David is Chief Financial Officer of Domino’s
Pizza Group PLC, a company listed on the
London Stock Exchange. He was previously
Chief Financial Officer of Connect Group PLC,
a specialist distribution company listed on
the London Stock Exchange. Prior to that
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 G&H Board.
ANNUAL REPORT 2019 | 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 has adopted the UK Corporate Governance Code (2016).
The Code is available to download at www.frc.org.uk. The UK
Corporate Governance Code (2018), issued in July 2018, will apply
for the first time to our year ending 30 September 2020.
Gooch & Housego PLC has complied with the Code during the year
ended 30 September 2019, 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. 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.
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 two 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.gandh.com. As disclosed in the
Nomination Committee Report, we are currently in the process of
recruiting a female Non-executive Director who we expect to be
appointed early in the new calendar year.
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 available at the AGM.
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
30 | ANNUAL REPORT 2019
relation to diversity, but understands and recognises the benefits that
diversity can bring. To this end, the Board has recently appointed
Warren Partners to lead a search for a female Non-executive Director
who is expected to be appointed early in the new calendar year.
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 eight board meetings a year. At least once
annually, the Board meets at one of G&H’s locations other than
its head office in Ilminster. This allows the Non-executive Directors
the opportunity to gain a deeper understanding of other G&H
businesses and to meet local staff. During FY19, board meetings
were held in our Fremont and Ashford sites, in addition to those
held at our head office. Furthermore, our Non-executive Directors
have visited other sites individually during the course of the year.
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
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
GOOCH & HOUSEGO PLC CORPORATE GOVERNANCE
intermediary for the Non-executive Directors, where necessary.
The Board believes that Peter has the appropriate experience,
knowledge and independence to continue this role.
structure of delegation below Board level and includes matters
reserved for the Board.
GOVERNANCE
Board meeting attendance is presented in the following table.
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.
Appointed 9 September 2019
Resigned 8 November 2019
Resigned 14 June 2019
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.
Executive Directors
Mark Webster
Chris Jewell
Alex Warnock
Andrew Boteler
Non-executive Directors
Gary Bullard
Peter Bordui
Brian Phillipson
David Bauernfeind
8/8
1/1
8/8
6/6
8/8
8/8
8/8
8/8
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
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 took place in October 2018, and was led by the Senior
Independent Director, Peter Bordui.
The Senior Independent Director leads an annual appraisal of
the Chairman’s performance. This review took place during August
and September 2019. Peter Bordui met with each of the Directors
and the Company Secretary to obtain feedback on the Chairman’s
performance. This feedback was collated and fed back to the
Chairman by Peter Bordui. The Chairman summarised the key
aspects of the feedback at the September board meeting.
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.
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.
G&H 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 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 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 visit the sites to perform reviews of controls and
processes in place. Additional recruitment was completed early in
the new financial year in the Group finance team, which will
enable the frequency of these visits to be increased.
Annual budgets and 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.
A framework of delegated authorities is in place that details the
No director is involved in deciding his or her own remuneration.
ANNUAL REPORT 2019 | 31
GOOCH & HOUSEGO PLC
GOVERNANCE
DIRECTORS’ REPORT
The Directors present their report together with the audited
consolidated financial statements for the year ended 30 September
2019. The Directors who held office during the year are shown on
page 39.
All balances not immediately required for group operations are
placed on short-term deposit with leading international highly
rated financial institutions.
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.
Dividends
During the year ended 30 September 2019 a final dividend of 7.1p
per share was paid for the previous financial year. A further interim
dividend of 4.3p per share was paid for the half year ended 31
March 2019 (2018: 4.2p).
For the year ended 30 September 2019, the Directors propose
that a final dividend of 7.2p per share be paid.
Substantial Shareholdings
As at 15 November 2019, 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
Invesco
Investec Group
Standard Life Aberdeen
Canaccord Genuity Wealth Management
Black Rock Inc
Franklin Resources
Rathbone plc
Charles Stanley Group
Number % holding
14.03%
7.99%
7.96%
7.09%
6.19%
4.83%
4.10%
3.28%
3.14%
3,511,834
2,000,000
1,993,173
1,776,064
1,549,089
1,208,185
1,027,000
820,059
786,245
Save for these interests, the Directors have not been notified that
any person is directly or indirectly interested in 3% or more of the
issued ordinary share capital of the Company.
Treasury Policies
The Group’s treasury policies are designed to manage financial risk to
the Group that arises from operating in a number of foreign currencies
and to maximise interest income on cash deposits, whilst maintaining
the security of these deposits. As an international group of
companies, the main exposure is in respect of foreign currency
risk on the trading transactions undertaken by group companies
and on the translation of the net assets of overseas subsidiaries.
This exposure is principally to the US dollar.
At a transactional level, the Group seeks to offset its exposure to
foreign exchange movements by contracting with significant
supply partners in US Dollars and undertakes regular financial
reviews to assess whether it would be appropriate for the Group
to enter into currency hedging contracts to mitigate the currency
risk. During the year there were no forward contracts in place.
The Group’s bank borrowings are denominated in US Dollars, which
acts as a partial hedge of a net investment against its US Dollar
denominated companies within the Group. Further information on
financial risks is given in note 5 to the Financial Statements.
Research and Development
The Group has a continuing commitment to a high level of
research and development. This commitment is to actively
develop new technologies and capabilities that will become a key
part of the Group’s future product portfolio and revenue.
Directors’ Indemnities
The Directors have the benefit of an indemnity which is a qualifying
third party indemnity provision as defined by Section 234 of the
Companies Act 2006. The indemnity was in force throughout the
last financial year and is currently in force. The Company also
purchased and maintained throughout the financial year Directors’
and Officers’ liability insurance in respect of itself and its Directors.
Employee Involvement
The Group is committed to including all employees in the
performance and development of the business. An established
employee appraisal and reward scheme is in operation and
employees are appraised regularly with relevant development
support provided by the Group.
The Group attaches considerable importance to informing and
involving its employees on matters which concern them and in the
achievement of its business objectives. The Group has a formal
employee communication plan involving regular meetings between
management and employees and the provision of a comprehensive
employee handbook.
Statement on Equal Employment Opportunities
The Group is committed to providing equal employment opportunities
for all employees and applicants for employment. 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.
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.
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
32 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC DIRECTORS’ REPORT
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
unless it is inappropriate to presume that the group and parent
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.
GOVERNANCE
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. The CEO leads an annual review of the
ongoing plan, a process in which all functions are involved. The
Group’s strategy is developed, 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.
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.
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.
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:
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.
Mark Webster
Director
3 December 2019
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.
ANNUAL REPORT 2019 | 33
GOOCH & HOUSEGO PLC GOVERNANCE
AUDIT COMMITTEE REPORT
Membership
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
auditors, PricewaterhouseCoopers LLP, attended meetings
together with the Chairman, Chief Executive Officer, Chief Financial
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.
Responsibilities
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
auditors and the approval of their remuneration and terms of
engagement;
• Assessing the external auditors’ independence and objectivity
and the effectiveness of the audit process;
• Reviewing the policy on the engagement of the external
auditors to supply non-audit services.
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
Adoption of IFRS15
Conclusion
IFRS15 applied to the Group’s financial statements for
the first time in the year ended 30 September 2019.
This is a complex standard and has potential implications
for our sites which have programme revenues.
The Audit Committee has reviewed the assessment made in respect of IFRS15, together
with the conclusions of the work performed by the external auditors. This work included
assessing the judgements applied in accounting for the Group’s long term contracts.
Based on the work done, the audit committee is satisfied that revenue has been
recognised appropriately.
Long Term Contract Accounting
Some of the Group’s sites are engaged in long term
development contracts. These contracts must be traded
based upon an estimate of the contracts’ outturn
profitability which requires estimation and judgement.
Goodwill Impairment Reviews
Management perform annual impairment reviews of
the carrying value of goodwill. These impairment
reviews are based on future projected cash flows
and are therefore inherently judgmental. The Audit
Committee reviewed the key judgements
underpinning the impairment reviews performed.
The Committee considered the procedures in place to monitor both the stage of
completion and the outturn profitability of long term contracts within the Group. It also
reviewed the procedures in place for the correct segregation of costs between contracts.
After careful consideration the Committee concluded that the judgements and estimates
made in this regard were reasonable.
The Committee is satisfied that the impairments recognised in the year are appropriate
and that the remaining carrying value of goodwill is supportable.
The Committee has reviewed the sensitivity disclosures in note 17 and concluded that
they are appropriate.
The Committee reviewed changes to the business a result of the reorganization and concluded
that at present the CGUs remain unchanged from prior years (i.e. Site based), but that this
was likely to change in the future.
34 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
GOVERNANCE
AUDIT COMMITTEE REPORT
Area of Focus
Inventories
Conclusion
The Committee reviewed management’s estimates
in relation to inventory valuation and obsolescence.
Non-Underlying Items
The Committee reviewed management’s estimates
in relation to inventory ageing and obsolescence.
Fair, Balanced Understandable and
Comprehensive Reporting
Internal Audit
The Group has not historically had an internal audit
function. Senior finance staff members performed
periodic reviews at each site.
The Committee reviewed the level of inventory at the year end, which has increased in
the period. The Committee was satisfied that the provisions made adequately reflected
the risk of impairment.
During the year, work was completed to standardise the Group’s methodology with respect
to the costs of the business that are absorbed into our inventory values. The effect of
this change has been reflected in a restatement of prior year comparative figures so as
not to distort current year profitability. The Audit Committee has reviewed the work done
in this regard and is satisfied that the accounting treatment and related disclosures in the
financial statements are appropriate.
The Committee was satisfied that the presentation of normalised profit before tax provides a
reasonable view of the underlying performance of the Group and that there was transparent
and consistent disclosure of items shown separately as non-underlying items.
This was based on a review of the items added back in arriving at underlying profit.
The Audit Committee has provided advice to the Board on whether 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’s financial position and performance,
business model and strategy. Each Director was also asked to provide this confirmation.
Following the adoption of the UK Governance Code in 2018, and in recognition of the
growing size of the group, the Audit Committee decided to recruit a new senior finance
team member in FY19. Given the change of Chief Financial Officer in the year, it was
decided that the incoming CFO should manage the recruitment of this new role.
Since the year end, this role has been filled and we expect this appointment to
support a programme of site visits to review the financial controls environment.
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 auditors 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. To
ensure compliance with this policy, the Audit Committee reviewed and
approved the remuneration received by PricewaterhouseCoopers
LLP for the audit service, audit-related services and non-audit work.
Approval
David Bauernfeind
Chairman of the Audit Committee
3 December 2019
ANNUAL REPORT 2019 | 35
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.
Brian Phillipson
• Identifies and recommends for Board approval suitable
candidates to be appointed to the Board.
David Bauernfeind
Executive Directors
Mark Webster
• Considers succession planning for Directors and other senior
executives and in doing this considers diversity, experience,
knowledge and skills.
Approval
Non-executive Directors
Dr Peter Bordui
Gary Bullard
4/4
4/4
3/4
4/4
4/4
Membership and Attendance at Meetings Held in 2019
Areas of focus for the Nomination Committee during FY19
• Appointment of a new Chief Financial Officer in preparation for
the departure of Andrew Boteler in June 2019.
Peter Bordui
Chairman of the Nomination Committee
3 December 2019
• Succession planning for other members of the Board
Advisors
During FY19, the Committee appointed Warren Partners, an
external search agency, to assist with the identification of
suitable Chief Financial Officer candidates.
Appointment Process
As part of the appointments process, the Committee determined
the selection criteria for the Chief Financial Officer role. The
Committee worked with Warren Partners who drew up a list of
internal and 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 Chris Jewell as Chief Financial Officer as
announced on 30 April 2019. Chris Jewell joined the board on 9
September 2019.
Board Composition
The Board is cognisant of the importance of gender diversity and
has recently appointed Warren Partners to lead a search for a
female Non-Executive Director who is expected to be appointed
early in the new calendar year.
36 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
GOVERNANCE
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.
Attendance at meetings
held in 2019
Brian Phillipson (Chairman)
Gary Bullard
Dr Peter Bordui
David Bauernfeind
4/4
4/4
4/4
4/4
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 conducted in
FY17, the Remuneration Committee remain satisfied that the
schemes are appropriate.
A minimum shareholding requirement is in place for Executive
Directors. This is unchanged from previous years. Executive Directors
are required through company share award schemes to build and
hold a shareholding equivalent in value to 100% of salary.
In recognition of the new Corporate Governance guidance, LTIPs
granted in FY19 were subject to the usual three year performance
period, but a further two year holding period applied 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, subject to minimum shareholding
requirements being satisfied.
During FY19, the rate of company pension contributions for new
executive directors was reduced from 10% to 6%. This brings the
company’s policy in line with the UK Corporate Governance Code
2018 which recommends that contribution rates for executive
directors, or payments in lieu thereof, should be aligned with
those available to the workforce.
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.
ANNUAL REPORT 2019 | 37
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Remuneration Policy Table
The table below summarises our policy for FY19 and the planned changes for FY20:
Element of
remuneration
Purpose and link to
strategy
FY19 Policy and approach
Opportunity
FY20 Policy and approach
Base salary increases
are applied in line with
the outcome of the
annual review
• The Remuneration Committee
approved a 2.5% increase to
Mark Webster’s salary, which is
in line with the increase given to
the wider workforce.
• Chris Jewell is entitled to a
Director’s fee of £10,000 per
annum in addition to his basic
salary.
Maximum of 100% of
base salary
• No changes proposed
• The 6% contribution was
introduced in response to the
Corporate Governance code
which requires Director Pension
contributions to be no higher
than those of the wider
workforce.
• No changes proposed
• A proportion of Chris Jewell’s
LTIPs to be granted in FY20
will be eligible to vest after
two years. This was agreed by
the Remuneration Committee
to compensate for LTIPs
forfeited when Chris left his
former employer.
Base
Salary
Annual
Bonus
Takes into account
experience and
personal contribution
to the company’s
strategy
Attracts and retains
executives of the
quality required to
deliver the company’s
strategy
Incentivise
achievement of
short-term financial
targets that the
Committee considers
to be critical drivers
of business growth
Pension
Provide employees
with market
competitive pension
scheme
• Reviewed annually with changes effective
from 1 October if applicable
• 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
• Awarded annually
• Introduction of broader performance
measures
• Up to 60% payable for exceeding target
EPS by 10%.
• 20% of bonus payable for achieving target
operating cash flow. Nil if not met.
• 0-20% of bonus payable for achievement
of personal objectives linked to operational
performance and major initiatives.
• Defined contribution personal pension
plan
6 - 10% of base
salary.
• Company contributes 10% of salary for
Directors appointed prior to 1 October
2018. For Directors appointed thereafter,
the Company contributes 6% of salary.
The Committee keeps
the benefit policy and
benefit levels under
regular review
Benefits
Provide employees
with market
competitive benefits
• Executive Directors receive private health
insurance, life assurance and long term
disability insurance
Long Term
Incentive
Plan (LTIP)
Incentivise executive
performance over
the longer term
• Awards vest after three years subject
to achievement of targets, and are then
subject to a two year holding period.
Performance
measures linked
to the long-term
strategy of the
business and
the creation of
shareholder value
over the longer term
• Absolute TSR retained for 60% of awards,
with full vesting at 15% TSR per annum.
• 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.
The Committee keeps
the benefit policy and
benefit levels under
regular review
Award levels are
determined by
reference to an
individual’s position
and performance.
Annual awards of
120% of base salary
for the CEO and 110%
for the CFO.
Maximum award of
300% of base salary.
38 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
GOVERNANCE
Directors’ Remuneration
2019
Basic pay
Executive
M Webster
C Jewell*
A Warnock
A Boteler**
Non-executive
G Bullard***
Dr P Bordui
B Phillipson
D Bauernfeind
£’000
342
16
247
168
78
42
42
42
977
2018
Basic pay
Executive
M Webster
A Boteler
A Warnock
Non-executive
G Bullard***
Dr P Bordui
B Phillipson
D Bauernfeind
G Jones ****
£’000
326
213
241
45
40
40
40
32
977
Performance
related bonus
£’000
Benefits
in kind
£’000
Pension
contribution
£’000
Subtotal
2019
£’000
LTIPs
exercised
£’000
Total
2019
£’000
–
–
–
–
–
–
–
–
–
14
1
9
8
–
–
–
–
32
–
1
10
8
–
–
–
–
19
356
18
266
184
78
42
42
42
353
–
263
218
–
–
–
–
1,028
834
Performance
related bonus
£’000
Benefits
in kind
£’000
Pension
contribution
£’000
Subtotal
2018
£’000
LTIPs
exercised
£’000
190
128
137
–
–
–
–
–
455
13
7
15
–
–
–
–
2
37
–
10
10
–
–
–
–
–
529
358
403
45
40
40
40
34
1,272
392
964
–
–
–
–
–
709
18
529
402
78
42
42
42
1,862
Total
2018
£’000
1,801
750
1,367
45
40
40
40
34
The above disclosure has been audited.
Chris Jewell was appointed on 9 September 2019
Andrew Boteler resigned on 14 June 2019
Gary Bullard was appointed on 21 February 2018
*
**
***
**** Gareth Jones resigned on 21 February 2018
20
1,489
2,628
4,117
ANNUAL REPORT 2019 | 39
GOOCH & HOUSEGO PLC
GOVERNANCE
REMUNERATION COMMITTEE REPORT
Basic Pay
Executive Directors are paid a basic salary together with annual
bonus payments based on the achievement of Group profitability
and cash targets. In addition, Executive Directors participate in a
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 FY19.
Director’s Fee
In addition to his basic salary, Chris Jewell is paid a Director’s fee of
£10,000 per annum. This is included in the basic pay disclosure
above, and is neither pensionable nor subject to bonus.
2019 Performance Related Bonuses
Bonuses in 2019 were based 60% on EPS, 20% on operating
cash flow and 20% on personal strategic objectives. The element
related to personal objectives is not eligible for payment unless
the budgeted EPS target is achieved. Details of the performance
achieved against the EPS and cash flow targets are shown in the
table below:
Financial targets
Performance
required to trigger
bonus payment
Performance
required at maximum
EPS target (adjusted diluted)
Operating cash flow target
63.7p
£18.2m
70.1p
£18.2m
% Payable
at maximum
performance
60%
20%
Performance
outcome
% Bonus awarded
46.7p
£13.1m
–
–
The EPS and cash flow targets for the year were not achieved so
no bonuses have been earned in respect of FY19.
subject to review and approval by the Remuneration Committee.
They are focused on a range of activities which are key to
enabling our strategic objectives.
Personal strategic objectives, which accounted for 20% of the
bonus opportunity, were set at the start of the year. These were
Details of the objectives set are summarised in the table below:
Mark Webster, CEO
Alex Warnock, COO
Andrew Boteler, CFO (resigned 14 June 2019)
• Achieve quarterly turnover at or above
• Achieve quarterly turnover at or above
• Achieve quarterly turnover at or above
phased budget levels
phased budget levels
phased budget levels
• Drive synergistic gains from recent
• Achieve specific on-time delivery and
• Introduce an internal audit function
acquisitions
product lead time targets
• Define and implement the finance
• Deliver necessary changes to business
• Develop strategic plans for the
organisation and strategic plan required to
systems and processes
manufacturing centres to drive
support the next stage of G&H’s growth.
• Implement the next phase of organisational
change to support the FY19 business plan
performance improvement across a number
of key areas
• Implement required business
system changes
and progress organisational change to meet
• Implement organisational and business
longer term growth objectives
system changes necessary to facilitate the
• Manage the investor community
above
The view of the Remuneration Committee is that excellent progress
was made against the objectives set. However, because the EPS
target was not met, the part of the bonus related to personal
objectives was not eligible for payment.
Directors’ Pension Arrangements
During the year the Company contributed to a money purchase
pension scheme on behalf of the executive Directors. The number
of Directors who are currently accruing benefits under a pension
scheme is 1 (2018: 2). Mark Webster is entitled to company pension
contributions of 10% of his basic salary, although he sacrificed this
entitlement for an increase in salary of the same amount. Chris
Jewell is entitled to company pension contributions of 6% of his
basic salary, although he has sacrificed part of that entitlement for
an increase in salary of the same amount. Both Alex Warnock and
Andrew Boteler were entitled to company pension contributions of
10% of salary and 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.
40 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
Long Term Incentive Plan
Exercises under the Long Term Incentive Scheme by the Directors
are summarised below.
The exercises in FY18 for Mark Webster and Alex Warnock were
exceptional awards granted by the Remuneration Committee
on appointment.
2019
Scheme
Director
M Webster
A Boteler
A Warnock
LTIP
LTIP
LTIP
2018
Scheme
Director
M Webster
A Boteler
A Warnock
LTIP
LTIP
LTIP
Number of
Share Options
No.
28,437
17,601
21,240
Number of
Share Options
No.
90,866
28,032
68,878
Market
Price
p
1,240
1,240
1,240
Market
Price
p
1,400
1,400
1,400
Director Shareholdings
The Directors’ beneficial interests in the issued ordinary share
capital of the Company were as follows:
GOVERNANCE
Exercise
Price
p
0.0
0.0
0.0
Exercise
Price
p
0.0
0.0
0.0
Exercise
Date
28/03/19
28/03/19
28/03/19
Exercise
Date
19/01/18
19/01/18
19/01/18
Total
Gain
£’000
353
218
263
Total
Gain
£’000
1,272
392
964
Number of shares at
30 September 2019
% of salary as at
30 September 2019
Number of shares at
30 September 2018
% of salary as at
30 September 2018
Executive Directors
Mark Webster
Chris Jewell
Alex Warnock
Non-executive Directors
Gary Bullard
Dr Peter Bordui
Brian Phillipson
David Bauernfeind
36,366
1,278
28,403
7,024
–
1,954
3,000
137%
6%
143%
N/A
–
N/A
N/A
21,249
N/A
16,430
3,172
–
–
–
127%
N/A
127%
N/A
–
–
–
Shareholding Guidelines
Executive Directors are required to maintain a qualifying interest
in the ordinary shares of the company equivalent to 100% of base
salary from shares vesting under the LTIP. The Directors will not
be permitted to sell shares vesting in the future under the LTIP
unless the specified shareholding has been achieved, other than
sale of shares to satisfy tax obligations.
ANNUAL REPORT 2019 | 41
GOOCH & HOUSEGO PLC
GOVERNANCE
REMUNERATION COMMITTEE REPORT
The Gooch & Housego 2013 Long Term Incentive Plan
The Gooch & Housego 2013 LTIP was adopted on 9 April 2013.
Under the plan, awards will be made annually to key employees
based on a percentage of salary or management grade. Subject to
the satisfaction of the required TSR performance criteria and EPS
financial performance, these grants will vest upon publication of the
results of the Company three years after the grant date. For any
awards vested in relation to FY19 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.
Executive
M Webster
M Webster
M Webster
M Webster
A Warnock
A Warnock
A Warnock
A Warnock
A Boteler
A Boteler
A Boteler
Date of
grant
23.12.2015
10.03.2017
21.12.2017
08.01.2019
23.12.2015
10.03.2017
21.12.2017
08.01.2019
23.12.2015
10.03.2017
21.12.2017
– Number of ordinary shares under option –
At
Awarded
Exercised
Lapsed
At
01.10.2018
in year
in year
30.09.2019
Expiry
Date
36,080
34,606
24,145
–
–
–
–
26,676
26,949
25,674
16,968
–
–
–
–
18,301
(28,437)
(7,643)
–
23.12.2019
–
–
–
–
–
–
34,606
24,145
26,676
26.03.2021
21.12.2021
08.01.2023
(21,240)
(5,709)
–
23.12.2019
–
–
–
–
–
–
25,674
16,968
18,301
–
–
–
26.03.2021
21.12.2021
08.01.2023
23.12.2019
26.03.2021
21.12.2021
22,661
21,680
15,050
–
–
–
(17,601)
–
–
(5,060)
(21,680)
(15,050)
Alex Warnock’s remaining options lapsed when he left the
company on 8 November 2019.
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 2019, £191,000 (2018:
£675,000) 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 a credit of
£106,000 (2018: charge £185,000) in respect of employer’s
national insurance contributions, based on a year end share price
of £11.88 (2018: £17.73).
Brian Phillipson
Chairman of the Remuneration Committee
3 December 2019
42 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
GOVERNANCE
ANNUAL REPORT 2019 | 43
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
Report on the audit of the financial statements
X
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.
Opinion
In our opinion, Gooch & Housego plc’s group financial statements and
parent company financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the
company’s affairs as at 30 September 2019 and of the group’s
profit and the group’s and the 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 2019; 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 financial
statements, which include a description of the significant
accounting policies.
44 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
FINANCIAL STATEMENTS
X
Our Audit Approach
Overview
• Overall group materiality: £525,000 (2018: £667,000), based on 5% of profit
before tax, after adding back an impairment of goodwill of £6.3m, less a £3.1m
release of accrued contingent consideration and adding interest on
discounted deferred consideration of £1.2m.
• Overall company materiality: £49,000 (2018: £92,500), 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
Gooch & Housego (Ohio) LLC) and three operating units in the UK (Gooch
& Housego (UK) Limited, Integrated Technologies 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.
• Specific audit procedures were also performed by the UK audit team on
certain other balances and transactions on the remaining sixteen reporting
units. In particular, additional detailed testing was performed on revenue at
one reporting unit in the US (EM4 Inc)
• Taken together, the six reporting units in full scope and the specified procedures
at EM4 Inc (post consolidation entries) account for 70% of Group’s revenue.
• Valuation of goodwill and intangibles (group) and investments (parent
company) (Group and parent).
• Risk of fraud in revenue recognition, particularly in respect of long term
contract accounting (Group).
• Valuation of inventory (Group).
Key audit
matters
The Scope of Our Audit
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
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 period 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 2019 | 45
GOOCH & HOUSEGO PLCMaterialityAudit scope FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
Key Audit Matter
How Our Audit Addressed the Key Audit Matter
Valuation of goodwill and intangibles (Group)
and investments (company)
We examined management’s impairment assessment, auditing in detail the key underlying
assumptions in the discounted cash flow models.
The assessment of the carrying value of goodwill
and intangibles involves judgment and any
impairment of the carrying value of such assets
could have a material impact on the Group’s
financial statements.
Similarly, the assessment of the carrying value of
investments held involves judgment and any
impairment of the carrying value of such assets
could have a material impact on the parent
company’s financial statements.
These are areas of continued focus for the audit
to ensure that assets are valued correctly and
not overstated in the context of the trading
performance of the relevant cash generating
units.
Group and parent
We noted that impairments of £3.7m and £2.6m had been taken against the goodwill in
respect of Baltimore and Boston respectively, being the result of poorer than expected
performance.
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 Baltimore and Boston, was
reasonable. We note however that goodwill and intangibles held remain sensitive to changes
in key assumptions. In particular, a failure to achieve growth objectives for certain sites could
give rise to an impairment in the future. Given this management has disclosed relevant
sensitivities (see note 17).
From our review of the impairment assessments, we note no impairment is required for
intangibles and investments in subsidiary companies held by the parent company.
We assessed the appropriateness of the accounting and related disclosures included in the
financial statements. These are deemed reasonable.
Risk of fraud in revenue recognition,
particularly in respect of long term
contract accounting
We determined that the most likely risk of fraud in
revenue recognition would be due to overstatement
of revenue, particularly in respect of posting journals
to revenue and the judgements surrounding
long-term contract accounting, rather than the
normal transactional point in time revenue.
Long term contract accounting has also been
assessed by management as the main area of
the group’s activities affected by the adoption of
IFRS 15 ‘Revenue from contracts with customers’.
Revenue of £5.9m was generated by the group
from long-term contracts in the year, and we
have focused our audit work in this area.
We performed testing over journals in the year using CAATs (computer aided audit
techniques) by specifically identifying any unusual journal combinations impacting revenue
and testing them by agreeing them to valid supporting documentation. No issues were noted
from our testing.
We reviewed management’s assessment of contracts with customers to determine the
appropriateness of transaction price and identification of performance obligations. We tested
management’s assessment by reviewing a sample of contracts with customers to determine
the impact of IFRS15 and whether we agree with management’s assessment.
We tested a sample of costs incurred in the year to assess whether they have been allocated
appropriately to either a long-term contract or a normal point in time sale.
For a sample of contracts, we agreed the total contract value to the contract and re-
calculated the revenue to be recognised under a percentage of completion basis in
accordance with IFRS 15 and assessed the costs to complete by obtaining progress
information from the customer to challenge the reasonableness of the costs to complete.
From our testing performed we did not identify any material misstatements in revenue
recognition.
We have obtained management’s revised standard costing alignment calculations and
ensured that they are in accordance with IAS 2.
We have tested the valuation of raw materials by agreeing a sample to supporting
documentation such as purchase invoices at each of the in-scope entities.
We have tested the absorption of labour and overheads by agreeing the calculations to
supporting documentation and ensured that only directly attributable overheads have been
absorbed in the calculations.
We have agreed management’s calculation of the prior year adjustment impact of the change
in standard costing methodology to supporting documentation, which includes agreeing the
inventory values to the inventory records held at the sites subject to a full scope audit and
assessing the impact of the uplift in overheads absorbed on a site by site basis on the prior
year inventory value.
We obtained an understanding of the inventory provisioning policy and tested that it has
been applied at each of the sites in full scope in the year, which included testing the aging of
the stock held and re-performing the provision calculations in accordance with the group
inventory provisioning policy.
Group
Valuation of inventory
During the year the level of inventory has
increased from £25.9m to £33.3m and
management have re-assessed their standard
costing methodology to ensure alignment across
the whole of the group.
As a result of the group’s re-assessment of their
standard costing methodology and re-alignment
throughout the group a prior year adjustment of
£1.5m has been booked to reflect the uplift in
the inventory valuation in prior years. This uplift
is due to the alignment of overheads absorbed
into inventory throughout the group.
The assessment of the valuation of inventory,
both in the amount of overheads absorbed into
inventory and in the level of inventory provisions
required, involves judgement and due to the
levels of inventory held could have a material
impact on the Group’s financial statements.
Group
46 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
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 company, the accounting processes and controls,
and the industry in which they operate.
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 Gooch & Housego (Ohio) LLC) and three operating
units in the UK (Gooch & Housego (UK) Limited, Integrated
Technologies 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 six reporting units (post consolidation entries)
account for 70% of Group’s revenue.
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 US (EM4 Inc).
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to
determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect
of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group Financial Statements
Company Financial Statements
Overall materiality
£525,000 (2018: £667,000).
How we determined it
% of profit before tax, after adding back an
impairment of goodwill of £6.3m, less a £3.1m release
of accrued contingent consideration and adding interest
on discounted deferred consideration of £1.2m.
Rationale for benchmark applied Based on the benchmarks used in the annual report
and our understanding of the business, profit before
tax is the primary measure used by the shareholders
in assessing the performance of the group, and is
a generally acceptable auditing benchmark. These
one-off costs/income 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.
£49,000 (2018: £92,500).
5% of profit before tax.
We believe that profit before tax is the primary
measure used by the shareholders in assessing the
performance of the entity, and is a generally accepted
auditing benchmark.
For each component in the scope of our group audit, we allocated a
materiality that is less than our overall group materiality. The range
of materiality allocated across components was between £49,000
and £495,000. 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 £26,000
(Group audit) (2018: £33,000) and £2,450 (Company audit)
(2018: £4,500) 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 respect of the directors’ statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting in preparing the financial statements and the directors’
identification of any material uncertainties to the group’s and the company’s
ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can
be predicted, this statement is not a guarantee as to the
group’s and company’s ability to continue as a going concern.
For example, the terms on which the United Kingdom may
withdraw from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the
group’s trade, customers, suppliers and the wider economy.
ANNUAL REPORT 2019 | 47
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
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 2019 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
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:
• The directors’ confirmation on page 33 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 33 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 33, 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 company’s position and
performance, business model and strategy is materially
inconsistent with our knowledge of the group and company
obtained in the course of performing our audit.
• The section of the Annual Report on pages 34 and 35 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.
48 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
FINANCIAL STATEMENTS
Reporting on Other Information
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
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.
Mark Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
3 December 2019
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
set out on page 33, 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 company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
the directors either intend to liquidate the group or the company
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions
of users taken on the basis of these financial statements.
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 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.
ANNUAL REPORT 2019 | 49
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
For the year ended 30 September 2019
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 profit before tax to adjusted profit before tax:
Profit before tax
Amortisation of acquired intangible assets
Adjustment to accrued contingent consideration
Impairment of goodwill
Site closure costs
Restructuring costs
Transaction fees
Interest on discounted deferred consideration
Adjusted profit before tax
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2019
Profit for the year
Other comprehensive income – items that may be reclassified subsequently
to profit or loss
Currency translation differences
Other comprehensive income for the year net of tax
Total comprehensive income for the year attributable to the shareholders of
Gooch & Housego PLC
Note
26
50 | ANNUAL REPORT 2019
Note
7
2019
£’000
2018
£’000
129,133
124,883
9
11
12
12
13
15
15
Note
17
11
17
11
11
11
12
(84,231)
44,902
(7,074)
(8,545)
(21,526)
651
8,408
21
(2,477)
5,952
(2,191)
3,761
15.1p
15.0p
2019
£’000
5,952
3,690
(3,075)
6,258
(382)
1,355
–
1,218
15,016
2019
£’000
3,761
2,549
2,549
6,310
(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
18,757
2018
£’000
7,220
1,657
1,657
8,877
GOOCH & HOUSEGO PLC
GROUP BALANCE SHEET
For the year ended 30 September 2019
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
2019
£’000
39,621
58,598
1,539
99,758
33,313
–
33,190
17,512
84,015
Restated
2018 1
£’000
Restated
2017 1
£’000
38,320
65,734
1,944
105,998
25,910
–
35,028
19,433
80,371
33,890
40,250
2,703
76,843
22,543
267
24,723
26,425
73,958
(22,668)
(25,262)
(23,758)
(77)
(1,114)
(1,243)
(4,750)
(29,852)
(75)
(603)
(988)
(5,774)
(32,702)
(6)
(873)
(888)
(4,286)
(29,811)
54,163
47,669
44,147
(31,722)
(6,409)
(2,947)
(41,078)
(29,964)
(6,322)
(8,363)
(44,649)
(11,492)
(5,938)
(4,253)
(21,683)
112,843
109,018
99,307
5,008
16,000
7,262
9,780
74,793
112,843
4,982
15,530
7,262
7,231
74,013
109,018
4,903
15,530
4,640
5,574
68,660
99,307
Note
16
17
24
18
19
20
21
22
23
22
24
25
26
26
26
26
The financial statements for Gooch & Housego PLC, registered number 00526832, on pages 50 to 76 were approved by the Board of
Directors on 3 December 2019 and signed on its behalf by:
Mark Webster
Director
Chris Jewell
Director
1 Restated. See note 2 for details.
ANNUAL REPORT 2019 | 51
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2019
At 1 October 2017
Restatement
As restated
Profit for the financial year
Other comprehensive income for the year
Total comprehensive income for the year
Dividends
Shares issued
Fair value of employee services
Tax credit relating to share option schemes
Total contributions by and distributions to owners
of the parent recognised directly in equity
At 30 September 2018
At 1 October 2018
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
14
14
25
Note
Called up
share
capital
£’000
Share
premium
account
£’000
4,903
15,530
2
–
–
4,903
15,530
4,640
Merger
reserve
Retained
Earnings
£’000
4,640
–
–
–
–
–
2,622
–
–
£’000
67,489
1,171
68,660
7,220
–
7,220
(2,647)
(45)
675
150
2,622
(1,867)
–
–
–
–
79
–
–
79
–
–
–
–
–
–
–
–
4,982
4,982
15,530
15,530
7,262
7,262
–
–
–
–
26
–
–
26
–
–
–
–
470
–
–
470
–
–
–
–
–
–
–
–
74,013
74,013
3,761
–
3,761
(2,849)
(19)
191
(304)
(2,981)
Cumulative
translation
reserve
£’000
5,574
–
5,574
–
1,657
1,657
–
–
–
–
–
7,231
7,231
–
2,549
2,549
–
–
–
–
–
Total
equity
£’000
98,136
1,171
99,307
7,220
1,657
8,877
(2,647)
2,656
675
150
834
109,018
109,018
3,761
2,549
6,310
(2,849)
477
191
(304)
(2,485)
At 30 September 2019
5,008
16,000
7,262
74,793
9,780
112,843
52 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
GROUP CASH FLOW STATEMENT
For the year ended 30 September 2019
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 (used by)/ generated from financing activities
Net decrease in cash
Cash at beginning of the year
Exchange gains on cash
Cash at the end of the year
FINANCIAL STATEMENTS
2019
£’000
12,967
(1,321)
11,646
2018
£’000
11,949
(2,779)
9,170
(3,940)
(24,029)
–
(5,792)
1,480
(1,620)
21
(1,116)
(10,967)
–
(74)
(2,849)
(2,923)
(2,244)
19,433
323
17,512
384
(5,849)
–
(1,377)
9
(304)
(31,166)
17,272
(16)
(2,647)
14,609
(7,387)
26,425
395
19,433
ANNUAL REPORT 2019 | 53
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP CASH FLOW STATEMENT
For the year ended 30 September 2019
Reconciliation of cash generated from operations
Profit before income tax
Adjustments for:
– Amortisation of acquired intangible assets
– Amortisation of other intangible assets
– Profit/loss on disposal
– Impairment of goodwill
– Adjustment to 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
2019
£’000
5,952
3,690
672
(741)
6,258
(3,075)
4,548
191
(350)
(21)
2,477
13,649
(6,646)
2,729
(2,717)
(6,634)
2018
£’000
10,113
2,141
683
(384)
2,708
417
4,009
675
(370)
(16)
699
10,562
(1,295)
(7,847)
416
(8,726)
Cash generated from operating activities
12,967
11,949
Reconciliation of net cash (outflow)/inflow to movements in net cash/(debt)
2019
£’000
(2,244)
–
74
2018
£’000
(7,387)
(17,272)
16
(2,170)
(24,643)
–
(1,511)
(3,681)
(10,606)
(14,287)
At 1 Oct
2018
£’000
19,433
(60)
(29,947)
(32)
(10,606)
Cash flow
£’000
(2,244)
60
–
14
(2,170)
Exchange
movement
£’000
Acquired
£’000
323
–
(1,834)
–
(1,511)
–
(60)
60
–
–
(355)
(535)
(25,533)
14,927
(10,606)
At 30 Sep
2019
£’000
17,512
(60)
(31,721)
(18)
(14,287)
Decrease 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 (debt)/cash at 1 October
Net debt at 30 September
Analysis of net cash
Cash at bank and in hand
Debt due within 1 year
Debt due after 1 year
Finance leases
Net debt
54 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
FINANCIAL STATEMENTS
1. General Information
Gooch & Housego PLC (the “Company”) is a public limited company
incorporated and domiciled in the United Kingdom. The Company is
listed on the Alternative Investment Market (“AIM Market”) of the
London Stock Exchange. The address of the registered office of the
Company is given on page 89.
The consolidated financial statements of the Group for the year
ended 30 September 2019 comprise the Company, Gooch & Housego
PLC, and its subsidiaries (together referred to as the “Group”).
A listing of the Company’s subsidiaries is set out on page 84.
The Group is a manufacturer of specialist optoelectronic components,
materials and systems and specialist instrumentation and life
sciences devices. The Group has facilities in the United Kingdom,
Germany, 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 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 2019, 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.
Prior year restatement
During the year, in order to support the better operation of the
Group’s newly formed manufacturing centres, work was completed
to standardise the Group’s methodology with respect to the costs
of the business that are absorbed into our inventory values. The
effect of this change has been reflected in a restatement of prior
year comparative figures so as not to distort FY19 profitability.
The effect was to increase inventory by £1.5m, tax liabilities by
£0.3m and retained earnings by £1.2m at both 30 September
2017 and 30 September 2018.
3. Application of IFRS
Adoption of new standards
The following two new standard standards were effective for the
financial year ended 30 September 2019:
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 replaced the
old 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, there are more detailed disclosure
note requirements.
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. Following a detailed review of material revenue streams, no
material impact arose from adopting this standard on either the
current or the prior year.
IFRS 9 Financial Instruments
This standard applied for the first time in the year ending 30
September 2019. No material effect arose on the financial
statements as a result of adopting the standard.
The following standards will apply to the Group in future
accounting periods:
IFRS16 leases
IFRS 16 will apply to the group for the first time in the year ending
30 September 2020. The standard provides a single lease accounting
model, requiring lessees to recognize assets and liabilities for all
leases unless the lease term is 12 months or less or the underlying
asset has a low value. The group will apply the modified retrospective
approach to transition. Our initial estimated impact on recognition
is a right of use asset of between £8.25m and £9.25m and
associated lease liabilities of between £8.25m and £9.25m.
The estimated impact of the new standard on profit before tax for
the coming year is a reduction of £0.2m – £0.3m.
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 which
arises on the discounted consideration between the acquisition
date and the date of payment is included within finance costs, and
treated as a non-underlying item.
Transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are
also eliminated but considered an impairment indicator of the
ANNUAL REPORT 2019 | 55
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies
adopted by the Group.
that were recorded in equity are recognised in the income
statement as part of the gain or loss on sale.
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.
c. Subsidiaries
The results and financial position of subsidiaries that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
• all resulting exchange differences are recognised in other
comprehensive income and as a separate component of equity.
On consolidation, exchange differences arising from the translation
of the net investment in foreign operations, and of borrowings
and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign
operation is partially disposed of or sold, exchange differences
56 | ANNUAL REPORT 2019
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
• Leasehold property
• Plant and machinery
• Fixtures, fittings and computers
• Motor vehicles
2-3% Straight line
over term of lease Straight line
10-20% Straight line
10-33% Straight line
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.
Intangible assets
a. Goodwill
Goodwill represents the excess of the cost of a business combination
over the fair value of the net identifiable assets of the acquired
business. Goodwill arising from business combinations is included
in ‘intangible assets’.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. The impairment testing requires an
estimation of the ‘value in use’ of the Cash-generating unit (the
“CGU”) to which goodwill is allocated using appropriately discounted
cash flow projections. Any impairment is recognised immediately as an
expense to the income statement and is not subsequently reversed.
For the purpose of impairment testing a CGU is defined as either a
business segment or an operating entity, as appropriate.
Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
b. Patents, Trademarks and Licenses
Internally incurred costs associated with the filing and perfection
of patents and trademarks are capitalised and carried at cost less
accumulated amortisation. Amortisation is calculated using the
straight line method to allocate the cost over their useful
economic lives and are charged to Research and Development in
the income statement.
Acquired patents, trademarks and licences are shown at historical
cost. Patents, trademarks and licences have a finite useful life and
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
FINANCIAL STATEMENTS
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
• Acquired patents, trademarks and licences
up to 10 years
up to 10 years
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
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.
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.
ANNUAL REPORT 2019 | 57
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 Research and Development Expenditure
Credit 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 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.
58 | ANNUAL REPORT 2019
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.
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
FINANCIAL STATEMENTS
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.
Non underlying items
Transactions are classified as non underlying 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
or options are shown in equity as a deduction, net of tax, from
the proceeds.
Revenue recognition
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.
Revenue is recognised to depict the transfer of control over
promised goods or services to customers in an amount that
reflects the amount of consideration specified in a contract with
a customer, to which the Group expects to be entitled in exchange
for those goods or services. Revenue represents sales, net of
discounts, and excluding value added tax and other sales related
taxes. Performance obligations are unbundled in each contractual
arrangement if they are distinct from one another. The contract
price is allocated to the distinct performance obligations based
on the relative standalone selling prices of the goods or services.
The way in which the Group satisfies its performance obligations
varies by business and may be on shipment, delivery, as services
are rendered or on completion of services depending on the nature
of the product/service and terms of the contract which govern
how control passes to the customer. Revenue is recognised at a
point in time or over time as appropriate.
A contract asset is recognised when the Group’s right to consideration
is conditional on something other than the passage of time, for
example the completion of future performance obligations under
the terms of the contract with the customer. In some instances,
the Group receives payments from customers based on a billing
schedule, as established in the contract, which may not match the
pattern of performance under the contract. In this instance, a
contract asset or contract liability is recognised depending on the
phasing of payment in relation to the performance.
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
• to continue as a going concern,
• to provide returns for shareholders and benefits for other
stakeholders and
• to maintain an optimal capital structure to reduce the cost of capital.
The Board is satisfied that these objectives have been met during
the year. Actions taken during the year to achieve these
objectives are outlined in the Chief Executive Officer’s Review.
In order to maintain or adjust the capital structure, the Group may
• adjust the amount of dividends paid to shareholders,
• return capital to shareholders,
• issue new shares,
• sell assets to reduce debt and
• vary the level of debt financing.
While the Group’s debt to equity ratio is consistently monitored,
changes in the Group’s need for capital and the selection of the source
and funding of capital are assessed against a number of criteria
which may have a direct effect on the Group debt to equity ratio.
The Group’s capital needs include, but are not solely limited to, its
• investment in non-current assets;
• investment in working capital; and
• acquisition of businesses, technologies and other intangible assets.
ANNUAL REPORT 2019 | 59
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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.
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 £306,000 (2018:
£299,000) had the Group’s borrowings been in place throughout
the year.
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.
Borrowings issued at variable interest rates expose the Group to
cash flow interest rate risk. During 2018 and 2019, the Group’s
borrowings at variable interest rates were denominated in Pound
Sterling and US Dollars as detailed in Note 22.
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 2019 or 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;
• ecognised assets and liabilities; and
• net investments in foreign operations.
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 2019 accounted for 25% of the Group’s
revenue (2018: 25%). No individual customer made up more than
6% of revenue in either the current or prior year.
The Group has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.
The Group’s trade receivables are analysed in note 19.
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 2018, with all other variables constant, post tax
profits for the year would have been £145,000 lower (2018:
unchanged) 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 £2,747,000 lower (2018: £738,000
lower).If the US Dollar strengthened by 10% against Pound
Sterling with all other variables held constant, the net assets of
the Group would be £2,747,000 higher (2018: £901,000 higher).
b. Cash flow interest rate risk
The Group has cash balances of £17.5m 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.
60 | ANNUAL REPORT 2019
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. We are in the early stages of reviewing options for
renewing these facilities.
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.
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
FINANCIAL STATEMENTS
The resulting accounting estimates will on occasions fail to equal
actual results.
The estimates and assumptions that have significant risk of
causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined below.
Critical accounting estimates
Carrying value 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.
Carrying value of accounts receivable
The Group reviews the carrying value of accounts receivable on a
regular basis. We have seen some overseas customers extending
their payment terms during the current cyclical downturn in our
industrial laser market. Appropriate provision for impairment has
been recorded where appropriate.
Accounting for acquisitions
An assessment of the fair value of the purchase consideration
and net assets acquired is undertaken in respect of acquisitions
when made.
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 of
accounting judgement uncertainty.
Long term contract accounting
Some of the Group’s sites are engaged in long term development
contracts. These contracts must be traded based upon an
estimate of the contracts’ outturn profitability which requires
estimation and judgement.
ANNUAL REPORT 2019 | 61
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 A&D, 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, telecommunications and scientific research.
For the year ended 30 September 2019
Aerospace
& Defence
£’000
Life Sciences/
Biophotonics
£’000
Industrial
Corporate
Total
£’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
For the year ended 30 September 2018
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
44,222
(19)
44,203
(40,505)
3,698
8.4%
(1,076)
2,622
–
2,622
5.9%
902
3,524
8.0%
–
2,622
25,130
(1,054)
24,076
(18,538)
5,538
23.0%
(649)
4,889
–
4,889
20.3%
194
5,083
21,1%
–
4,889
67,931
(7,077)
60,854
(49,905)
10,949
18.0%
(2,517)
8,432
–
8,432
13.9%
540
8,972
14.7%
–
8,432
–
–
–
3,391
3,391
–
(978)
2,413
(9,948)
(7,535)
–
6,210
(1,325)
–
(2,456)
(9,991)
137,283
(8,150)
129,133
(105,557)
23,576
18.3%
(5,220)
18,356
(9,948)
8,408
6.5%
7,846
16,254
12.6%
(2,456)
5,592
Aerospace
& Defence
£’000
Life Sciences/
Biophotonics
£’000
Industrial
Corporate
Total
£’000
£’000
£’000
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
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
62 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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-underlying expenses.
FINANCIAL STATEMENTS
All of the amounts recorded are in respect of continuing operations.
Analysis of revenue by type:
Revenue from sale of products
Revenue from long term contracts
Total revenue
Analysis of net assets by location:
United Kingdom
USA
Continental Europe
Asia Pacific
2019
£’000
2018
£’000
123,245
117,261
5,888
7,622
129,133
124,883
2019
Assets
£’000
98,624
84,196
260
693
2019
Liabilities
£’000
(57,859)
(12,933)
(37)
(101)
2019
Net Assets
£’000
40,765
71,263
223
592
2018
Assets
£’000
93,636
91,522
495
716
2018
Liabilities
£’000
(57,207)
(20,041)
(42)
(61)
2018
Net Assets
£’000
36,429
71,481
453
655
183,773
(70,930)
112,843
186,369
(77,351)
109,018
For the year to 30 September 2019 non-current asset additions were £5.8m (2018: £3.8m) for the UK and for the USA £1.7m (2018:
£3.6m). There were no additions to non-current assets in respect of Europe (2018: £nil) or the Asia Pacific region (2018: £nil). The value
of non-current assets in the USA was £58.3m (2018: £62.4m), the United Kingdom £41.4m (2018: £45.7m) and Europe £nil (2018: £nil).
There were no non-current assets in the Asia-Pacific region.
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
Adjustment to accrued contingent consideration
Other income and expenses
2019
£’000
32,054
50,097
25,816
21,166
2018
£’000
21,081
44,899
29,788
29,115
129,133
124,883
Note
10
9
2019
£’000
45,294
(6,646)
58,707
11,928
4,548
3,690
672
6,258
(3,075)
(651)
2018
£’000
42,794
(1,005)
49,989
12,858
4,009
2,141
683
2,708
417
(507)
120,725
114,087
ANNUAL REPORT 2019 | 63
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
9. Other Income and Expenses
Grants receivable
Amounts claimed under the RDEC
Other expense
The other expense in 2019 largely relates to the costs of closing our facility in Madison, Wisconsin.
10. Employee Benefit Expense
Wages and salaries
Social security costs
Share based payment charge
Medical and other insurance
Other pension costs
The average number of employees during the year was:
Manufacturing
Sales, finance and administration
The average number of employees during the year was:
Salaries and other short-term benefits
Share based payments
Other pension costs
2019
£’000
622
350
(321)
651
2018
£’000
1,002
370
(865)
507
2019
£’000
2018
£’000
48,950
40,898
4,077
191
3,314
2,175
3,499
675
3,323
1,594
58,707
49,989
2019
Number
2018
Number
696
268
964
2019
£’000
6,880
191
313
574
292
866
2018
£’000
7,025
675
651
7,384
8,351
Key management comprise the Executive Board and the senior operational staff.
Directors’ remuneration, including the highest paid Director, has been included on page 39 of the Remuneration Committee Report. These
disclosures have been audited.
64 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 completed acquisitions
– due diligence services
Net gains on foreign exchange
Operating lease rentals
Transaction fees
Impairment of goodwill
(Credit)/charge in relation to accrued contingent consideration on acquisitions
FINANCIAL STATEMENTS
2019
£’000
46
128
130
7
–
–
(322)
2,479
–
6,258
(3,075)
2018
£’000
46
140
25
14
33
65
(145)
1,714
605
2,708
417
Non-underlying items
Restructuring costs of £1,355,000 were incurred in the year (2018: £864,000) These related to expenses arising from the re-organisation
of the manufacturing centres, and the Group’s commercial and business development teams into a single integrated function.
Site closure costs
Site closure costs relate to the profit generated on sale of the Company’s Orlando facility (£0.8m), partially offset by the costs associated
with the closure of the Madison office (£0.4m).
Adjustment to accrued contingent consideration
The credit in respect of accrued contingent consideration related to StingRay (£0.5m). The final tranche of the earn out was paid in FY19 but
the maximum potential was not achieved. In addition to this, the full amount of the deferred consideration in respect of Gould Fiber Optics
was written back during FY19 (£2.6m).
12. Finance Income and Costs
Finance income comprises:
– Bank interest
Finance costs comprise:
– Bank interest
– Finance lease interest
– Interest on discounted deferred consideration
2019
£’000
2018
£’000
21
16
(1,258)
(1)
(1,218)
(2,477)
(358)
(1)
(340)
(699)
ANNUAL REPORT 2019 | 65
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
13. Income Tax Expense
Analysis of tax charge in the year
Current taxation
UK Corporation tax
Overseas tax
Total current tax
Deferred tax
Origination and reversal of temporary differences
Impact of change in the US tax rate
Total deferred tax
2019
£’000
1,756
653
2,409
(218)
–
(218)
2018
£’000
1,895
1,381
3,276
481
(864)
(383)
Income tax expense per income statement
2,191
2,893
The taxation expense for the year is higher (2018: 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 (2018: 19.0%)
Utilisation of losses
Permanent differences
Adjustments in respect of foreign tax rates
Other timing differences
Total tax expense
2019
£’000
5,952
1,131
(106)
721
376
69
2018
£’000
10,113
1,921
–
233
739
–
2,191
2,893
Factors affecting the future tax charge
Overseas tax losses of £4.1m (2018: £3.8m) and UK tax losses of £0.8m (2018: £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 19% 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.
14. Dividends
Final 2018 dividend paid in 2019: 7.1p per share (Final 2017 dividend paid in 2018: 6.5p per share)
2019 Interim dividend paid: 4.3p per share (2018: 4.2p)
2019
£’000
1,772
1,077
2,849
2018
£’000
1,608
1,039
2,647
The Directors propose a final dividend of 7.2p per share making the total dividend paid and proposed in respect of the 2019 financial year
11.5p (2018: 11.3p).
66 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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:
FINANCIAL STATEMENTS
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:
2019
Number
2018
Number
24,936,438
24,629,591
141,696
265,817
25,078,134
24,895,408
Basic earnings per share
Amortisation of acquired intangible assets (net of tax)
Goodwill impairment (net of tax)
(Release)/charge accrued contingent consideration (net of tax)
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
2019
2018
£’000
pence per share
£’000
pence per share
3,761
3,014
5,337
(2,413)
(317)
1,084
–
1,218
–
7,923
11,684
3,761
11,684
15.1p
12.1p
21.4p
(9.7p)
(1.3p)
4.3p
–
4.9p
–
31.7p
46.8p
15.0p
46.7p
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
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.
ANNUAL REPORT 2019 | 67
GOOCH & HOUSEGO PLC Freehold
land and
buildings
£’000
Leasehold
property
Plant and
machinery
£’000
£’000
Fixtures,
fittings and
computers
£’000
Motor
vehicles
Total
£’000
£’000
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
16. Property, Plant and Equipment
Capital work
in progress
£’000
5,353
1,151
–
–
(3,805)
5
2,704
1,232
–
(375)
27
Cost or valuation
At 1 October 2017
Additions
Acquired
Disposals
Reclassification
Exchange rate differences
At 30 September 2018
Additions
Disposals
Reclassification
Exchange rate differences
9,010
14
1,650
–
–
2
10,676
25
(1,064)
–
5
11,828
243
–
(201)
3,445
428
15,743
609
(214)
17
885
30,854
4,273
326
(974)
323
441
35,243
3,350
(1,464)
299
903
3,706
265
99
(213)
61
30
3,948
656
(813)
59
61
At 30 September 2019
3,588
9,642
17,040
38,331
3,911
Accumulated depreciation
At 1 October 2017
Charge for the year
Disposals
Exchange rate differences
At 30 September 2018
Charge for the year
Disposals
Exchange rate differences
At 30 September 2019
Net book value
At 1 October 2017
At 1 October2018
At 30 September 2019
–
–
–
–
–
–
–
–
–
5,353
2,704
3,588
1,817
174
–
2
1,993
202
(348)
5
1,852
7,193
8,683
7,790
2,606
889
(97)
94
3,492
1,020
(16)
216
4,712
9,222
12,251
12,328
20,027
2,522
(925)
240
21,864
2,858
(1,449)
482
23,755
10,827
13,379
14,576
2,417
421
(199)
24
2,663
463
(588)
47
2,585
1,289
1,285
1,326
43
12
12
60,794
5,958
2,087
(16)
(1,404)
–
–
51
–
(8)
–
1
44
37
3
(8)
1
33
5
(8)
1
31
6
18
13
24
906
68,365
5,872
(3,563)
–
1,882
72,556
26,904
4,009
(1,229)
361
30,045
4,548
(2,409)
751
32,935
33,890
38,320
39,621
At 30 September 2019, plant and machinery purchased under a hire purchase or finance lease agreement had a cost of £77,000 (2018:
£77,000) and net book value of £16,000 (2018: £40,000).
No interest was capitalised in the year (2018: £Nil).
68 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
FINANCIAL STATEMENTS
17. Intangible Assets
Cost or valuation
At 1 October 2017
Additions
Acquired
Disposals
Reclassifications
Exchange rate differences
At 30 September 2018
Additions
Disposals
Exchange rate differences
At 30 September 2019
Accumulated amortisation and impairment
At 1 October 2017
Charge for the year
Disposals
Exchange rate differences
At 30 September 2018
Charge for the year
Disposals
Exchange rate differences
At 30 September 2019
Net book value
At 1 October 2017
At 30 September 2018
At 30 September 2019
Acquired
intangible
assets
£’000
Capitalised
R&D, Patents
and licences
£’000
Software
and other
intangibles
£’000
Total
£’000
Goodwill
£’000
33,886
–
18,885
–
–
544
53,315
–
–
1,641
54,956
7,040
2,708
–
–
9,748
6,258
–
–
24,273
–
9,943
–
–
408
34,624
–
–
1,068
35,692
13,665
2,141
–
226
16,032
3,690
–
600
3,657
497
–
(3)
(24)
19
4,146
776
(276)
29
4,675
1,051
618
(3)
(19)
1,647
562
–
1
16,006
20,322
2,210
26,846
43,567
38,950
10,608
18,592
15,370
2,606
2,499
2,465
1,898
958
–
(114)
–
6
2,748
844
(136)
10
3,466
1,708
65
(105)
4
1,672
110
(136)
7
1,653
190
1,076
1,813
63,714
1,455
28,828
(117)
(24)
977
94,833
1,620
(412)
2,748
98,789
23,464
5,532
(108)
211
29,099
10,620
(136)
608
40,191
40,250
65,734
58,598
Goodwill is allocated according to each operating site as follows: Cleveland (£2.1m), Ilminster (£1.5m), Torquay (£1.6m), Moorpark (£4.0m),
Boston (£2.9m), Fremont (£0.9m), St Asaph (£4.0m), Keene (£6.2m), Baltimore (£5.5m) 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 19% to 37%
• Average growth in EBITDA to 2023 of up to 10%, and 2% thereafter
• 9.2% 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.
The Board has taken the decision to impair the goodwill relating to the Boston cash generating unit. This goodwill arose on the acquisition
of EM4, now referred to as G&H Boston, in January 2011 for consideration of $11.6 million and, prior to the impairment, the carrying value
of the associated goodwill was £5.1m. Over the last eight years this acquisition has played a vital role in G&H’s diversification strategy, by
providing the systems and critical mass needed for the Company to become a credible player in the A&D market. The duplication of
Boston’s technology in our Torquay facility has also been a key factor in allowing G&H to address the European space market. However, on
a stand-alone basis, Boston has struggled to grow its engineering services business. Whilst recent contract awards for this business are
encouraging signs for the future the Board, nevertheless, feels it is appropriate to make an impairment of £2.6m to the carrying value of
Boston. An increase in the discount rate to 10.5%, or a reduction in average annual EBITDA in 2020 – 2025 of 15% would reduce the
headroom on the impairment calculation to zero.
ANNUAL REPORT 2019 | 69
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
As part of its annual review of the carrying value of goodwill, the Board has also taken the decision to impair the goodwill of the Gould Fiber
Optic business (“Baltimore”). The Baltimore business was acquired in September 2018 for a consideration of $16.4m including a contingent
element of $3.4m and, prior to the impairment, the carrying value of the associated goodwill was £9.2m. Whilst the acquisition has helped
provide the Group with further access to the US A&D market the business has not generated the profitable growth required to support the
payment of the contingent consideration. The lower than expected performance has also meant that an impairment charge of £3.6m has
been recognised in relation to the carrying value of that site’s goodwill. Further impairment charges arise if the business’s results fall short of
these forecasts. An increase in the discount rate of 0.5%, or a 5% reduction in forecast EBITDA, would trigger a further impairment of £0.6m.
The Moorpark goodwill was impaired in the year ended 30 September 2018. The remaining goodwill continues to be supported based on
management’s latest forecasts. An increase in the discount rate of 0.5% or a 5% reduction in forecast EBITDA would lead to an
impairment of £0.5m and £0.7m respectively.
18. Inventories
Raw materials
Work in progress
Finished goods
2019
£’000
12,271
13,204
7,838
33,313
2018
£’000
9,043
11,725
5,142
25,910
The cost of inventories recognised as an expense and included in cost of revenue amounted to £82.9m (2018: £74.8m).
The movement in the inventories provision is as follows:
At 1 October
Acquired
Increase in/(utilisation of) in provision
Exchange rate movement
At 30 September
The 2018 inventory balance has been restated. For further details, see note 2 to the financial statements.
2019
£’000
5,730
–
375
131
2018
£’000
5,260
868
(459)
61
6,236
5,730
70 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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
FINANCIAL STATEMENTS
2019
£’000
31,089
928
1
1,172
33,190
2019
£’000
12,324
19,227
1,460
179
2018
£’000
32,231
1,344
484
969
35,028
2018
£’000
14,172
19,370
1,245
241
33,190
35,028
2019
£’000
2018
£’000
20,756
23,190
7,334
3,471
6,980
2,453
31,561
32,623
(472)
(392)
31,089
32,231
2019
£’000
392
–
–
66
14
472
2018
£’000
379
7
(113)
117
2
392
ANNUAL REPORT 2019 | 71
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
20. Cash and Cash Equivalents
Cash at bank and on hand
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
2019
£’000
17,512
2018
£’000
19,433
2019
£’000
10,045
1,040
1
11,582
22,668
2018
£’000
9,188
864
484
14,726
25,262
2019
£’000
2018
£’000
62
15
77
61
14
75
31,719
29,947
3
17
31,722
29,964
31,799
30,039
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.
G&H’s primary lending bank is NatWest Bank. The Group’s facilities comprise a $40m dollar revolving credit facility and a $20m flexible
acquisition facility. At 30 September 2019, the balance drawn on the revolving credit facility was $39m (2018: $39m) and on the flexible
acquisition facility nil (2018: nil).
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. We are in the early stages of reviewing
options for renewing these facilities.
Maturity Profile of Bank and Other Borrowings
Within one year
Between one and five years
72 | ANNUAL REPORT 2019
2019
£’000
77
31,722
31,799
2018
£’000
75
29,964
30,039
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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
Reclassified
Exchange movements
At 30 September
FINANCIAL STATEMENTS
2019
£’000
988
–
(135)
383
7
2018
£’000
888
50
–
46
4
1,243
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 to the income statement
Acquired
Arising on acquired intangible assets
Debited directly to equity
Exchange movements
Net liability at 30 September
2019
£’000
2018
£’000
(4,378)
(3,235)
218
–
–
(453)
(257)
383
67
(1,231)
(268)
(94)
(4,870)
(4,378)
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
Other timing differences
Deferred tax balance at 30 September
2019
£’000
2018
£’000
548
–
991
–
587
453
888
16
1,539
1,944
(4,116)
(2,265)
(28)
(6,409)
(4,870)
(3,641)
(2,681)
–
(6,322)
(4,378)
Overseas tax losses of £4.1m (2018: £3.8m) and UK tax losses of £0.8m (2018: £0.8m) are available to offset against future profits of the
Group. The Group has not recognised a deferred income tax asset of £0.9m (2018: £0.8m) 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.
ANNUAL REPORT 2019 | 73
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
25. Called Up Share Capital
Issued and fully paid
At 1 October
Shares issued and fully paid
At 30 September
2019
Number
2018
Number
2019
£’000
2018
£’000
24,907,831
24,514,561
4,982
4,903
131,241
393,270
26
79
25,039,072
24,907,831
5,008
4,982
During the year 98,486 shares (2018: 227,403 shares) were allotted under share option schemes, plus 32,755 shares were issued as part
of the deferred consideration of the Kent Periscopes business.
26. Reserves
At 1 October 2018
Restatement (note 2)
At 1 October 2018 as restated
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 2019
Share premium
account
£’000
15,530
–
15,530
–
–
470
–
–
–
Merger
reserve
£’000
7,262
–
7,262
–
–
–
–
–
–
16,000
7,262
Cumulative
translation reserve
£’000
Retained
earnings
£’000
7,231
–
7,231
–
–
–
–
–
2,549
9,780
72,842
1,171
74,013
3,761
(2,849)
(19)
191
(304)
–
74,793
74 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 seven 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 2019 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
8 Jan 2019
21 Dec 2017
10 Mar 2017
99,228
30%
0.76%
1,010,655
96,123
29%
0.56%
914,164
133,146
26%
0.9%
784,041
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2019
2018
Number
342,267
99,228
(98,486)
(91,098)
251,911
–
Weighted average
exercise price
–
–
–
–
–
–
Number
486,008
96,123
(227,403)
(12,461)
342,267
–
Weighted average
exercise price
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 786.0p per option (2018: 589.0p per option). For the options
exercised, the average market price was 1,254p per share (2018: 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
exercise price
0.0p
Number of share options
2019
251,911
2018
342,267
The total charge for the year relating to share options was £191,000 (2018: £675,000), all of which related to equity-settled share based
payment transactions.
ANNUAL REPORT 2019 | 75
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2019
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
2019
£’000
1,891
3,766
5,657
2018
£’000
1,804
4,319
6,123
29. Financial Instruments
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 Dollars
Euro
Yen
Financial assets
Financial liabilities
2019
£’000
8,274
8,650
500
88
2018
£’000
4,927
12,202
2,233
71
2019
£’000
281
2018
£’000
356
31,518
29,683
–
–
–
–
17,512
19,433
31,799
30,039
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.
2019
£’000
1,715
2018
£’000
325
31. Related Party Transactions
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.
76 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC COMPANY BALANCE SHEET
As at 30 September 2019
Note
£’000
£’000
£’000
£’000
2019
2018
FINANCIAL STATEMENTS
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
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
5
6
7
9
8
3,812
3,116
6,928
10
(12,365)
9
11
51,411
5,491
1,598
153
58,653
–
–
–
–
(5,437)
–
(2,947)
50,269
5,008
16,000
4,591
24,670
50,269
3,934
2,605
6,539
(9,692)
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
The Company’s profit after tax for the year ended 30 September 2019 was £3,663,000 (2018: £4,157,000)
The financial statements on pages 77 to 88, were approved by the Board of Directors on 3 December 2019 and signed on its behalf by:
Mark Webster
Director
Chris Jewell
Director
ANNUAL REPORT 2019 | 77
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2019
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
At 30 September 2018
At 1 October 2018
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
11
Note
Called up
Share capital
£’000
Share premium
account
£’000
4,903
15,530
–
–
–
79
–
–
79
–
–
–
–
–
–
–
Merger
Reserve
£’000
1,969
–
–
–
2,622
–
–
Retained
earnings
£’000
21,622
4,157
4,157
(2,647)
(45)
675
237
2,622
(1,780)
4,982
4,982
15,530
15,530
4,591
4,591
–
–
–
26
–
–
26
–
–
–
470
–
–
470
–
–
–
–
–
–
–
23,999
23,999
3,663
3,663
(2,849)
(2,849)
(19)
191
(315)
477
191
(315)
(2,992)
(2,496)
Total
equity
£’000
44,024
4,157
4,157
(2,647)
2,656
675
237
921
49,102
49,102
3,663
3,663
At 30 September 2019
5,008
16,000
4,591
24,670
50,269
78 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC
COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2019
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
Proceeds on disposal 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 increase/(decrease) in cash
Cash at beginning of the year
Cash at the end of the year
FINANCIAL STATEMENTS
2019
£’000
2018
£’000
1,433
2,374
–
–
1,433
2,374
(2,086)
(12,602)
(178)
1,477
(617)
6
(41)
–
(896)
7
(1,398)
(13,532)
3,325
(2,849)
476
511
2,605
3,116
6,112
(2,647)
3,465
(7,693)
10,298
2,605
ANNUAL REPORT 2019 | 79
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2019
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
- Profit on disposal of property, plant and equipment
- Finance income
- Finance expense
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
2019
£’000
3,980
2018
£’000
4,116
(3,325)
(6,112)
29
495
191
(761)
(6)
719
51
504
675
–
(7)
–
(2,658)
(4,889)
1,318
(1,207)
111
2,455
692
3,147
1,433
2,374
At 1 Oct 2018
Cash flow
At 30 Sep 2019
£’000
2,605
2,605
£’000
511
511
£’000
3,116
3,116
80 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 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 2019, 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.
Adoption of new standards
The accounting policies have been consistently applied over the period reported.
There have been no new standards, amendments or interpretations issued and made effective for the financial year ended 30
September 2019 that have had a material impact on the financial statements of the company.
The company does not have any leases so there will be no effect of adopting IFRS16 in the year ending 30 September 2020.
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.
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%
• Plant and machinery
10-20%
10-33%
• Fixtures, fittings and computers
• Capitalised software and licences 25-33%
Straight line
Straight line
Straight line
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.
ANNUAL REPORT 2019 | 81
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
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” on the previous page, 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.
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 £3,663,000 (2018: £4,157,000 profit).
Fees payable to the Company auditors for the statutory audit for the year amounted to £16,000 (2018: £16,000).
82 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 12 (2018: 13), all of whom were administrative.
Directors’ remuneration
Directors’ remuneration
Medical and other insurances
Directors’ pension scheme contributions
FINANCIAL STATEMENTS
2019
£’000
2,713
304
35
191
70
2018
£’000
2,611
304
30
675
43
3,313
3,663
2019
£’000
977
32
19
2018
£’000
1,432
37
20
1,028
1,489
The aggregate emoluments of the highest paid Director including gain on exercise of share options were £709,000 (2018: £1,801,000).
Further information is included in the Remuneration Committee report on page 39.
The aggregate gain on Directors’ share option exercises in the year was £834,000 (2018: £2,628,000).
The number of Directors who are accruing retirement benefits under a money purchase pension scheme is 1 (2018: 2).
4. Dividends
Final 2018 dividend paid in 2019: 7.1p per share. (Final 2017 dividend paid in 2018: 6.5p per share)
2019 Interim dividend paid: 4.3p per share (2018: 4.2p)
2019
£’000
1,772
1,077
2,849
2018
£’000
1,608
1,039
2,647
The Directors propose a final dividend of 7.2p per share making the total dividend paid and proposed in respect of the 2019 financial year
11.5p (2018: 11.3p). Should the final dividend be approved at the Company Annual General Meeting, cut-off dates for payment are:
- Record date
28 February 2020
24 January 2020
- Payment date
5. Investments
Cost and net book value at 1 October
Additions
Cost and net book value at 30 September
2019
£’000
51,045
366
51,411
2018
£’000
28,811
22,234
51,045
ANNUAL REPORT 2019 | 83
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
The subsidiary companies at 30 September 2019, 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
St Asaph, LL17 0LJ
vehicle 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
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
G&H (Property) Holdings
100% Dowlish Ford, Ilminster, Somerset, TA19 0PF
Property holding company
Nagoya, Japan
functions
Limited*
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)
100% 676 Alpha Drive, Highland Heights, OH44143, USA Non-trading company
Inc.
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 Holding 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.
*these investments are held directly by Gooch & Housego PLC
84 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
6. Property, Plant and Equipment
FINANCIAL STATEMENTS
Cost or valuation
At 1 October 2017
Additions
At 30 September 2018
Additions
Disposals
At 30 September 2019
Accumulated depreciation
At 1 October2017
Charge for the year
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Net book value
At 1 October 2017
At 30 September 2018
At 30 September 2019
7. Intangible Assets
Cost or valuation
At 1 October 2017
Additions
At 30 September 2018
Additions
Disposals
At 30 September 2019
Accumulated amortisation
At 1 October2017
Charge for the year
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Net book value
At 1 October 2017
At 30 September 2018
At 30 September 2019
Freehold land
and buildings
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
Computer
equipment
£’000
6,183
14
6,197
–
(1,064)
5,133
1,355
109
1,464
98
(348)
1,214
4,828
4,733
3,919
3,987
–
3,987
–
–
1,392
–
1,392
–
–
3,987
1,392
2,320
265
2,585
265
–
2,850
1,667
1,402
1,137
890
93
983
93
–
1,076
502
409
316
603
27
630
61
(381)
310
496
37
533
39
(381)
191
107
97
119
Total
£’000
12,165
41
12,206
61
(1,445)
10,822
5,061
504
5,565
495
(729)
5,331
7,104
6,641
5,491
Assets in the
Computer
Other
Total
course of
software
construction
£’000
£’000
£’000
£’000
–
842
842
630
–
1,216
–
1,216
94
–
1,472
1,310
–
–
–
–
–
–
–
842
1,472
1,204
12
1,216
9
–
1,225
12
–
85
465
54
519
11
(207)
323
430
39
469
20
(207)
282
35
50
41
1,681
896
2,577
735
(207)
3,105
1,634
51
1,685
29
(207)
1,507
47
892
1,598
ANNUAL REPORT 2019 | 85
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
8. Other Receivables
Prepayments and accrued income
Group tax relief receivable
9. Deferred Tax
The movement in the deferred tax asset during the year was as follows:
At 1 October
Credited to the income statement
(Credited)/debited 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
2019
£’000
125
3,687
3,812
2018
£’000
119
3,815
3,934
2019
£’000
655
(187)
(315)
153
2019
£’000
55
–
98
153
2018
£’000
732
(102)
25
655
2018
£’000
(11)
453
213
655
Factors affecting the future tax charge
UK tax losses of £0.8m (2018: £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 19% rate from 1 April 2020 with a lower rate of 17%. To date, no further changes have been announced.
86 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
10. Trade and Other Payables
Trade payables
Amounts owed to Group undertakings
Taxation and Social Security
Accruals and deferred income
Deferred consideration payable
FINANCIAL STATEMENTS
2019
£’000
377
5,506
1,045
687
4,750
12,365
2018
£’000
686
4,165
518
2,186
2,137
9,692
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
2019
Number
2018
Number
2019
£’000
2018
£’000
24,907,831
24,514,561
4,982
4,903
131,241
393,270
26
79
25,039,072
24,907,831
5,008
4,982
During the year 98,486 shares (2018: 227,403 shares) were allotted under share option schemes, plus 32,755 shares were issued as
part of the deferred consideration of the Kent Periscopes business.
ANNUAL REPORT 2019 | 87
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2019
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 seven 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 2019 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
8 Jan 2019
21 Dec 2017
10 Mar 2017
99,228
30%
0.76%
1,010,655
96,123
29%
0.56%
914,164
133,146
26%
0.9%
784,041
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2019
2018
Number
342,267
99,228
(98,486)
(91,098)
251,911
–
Weighted average
exercise price
–
–
–
–
–
–
Number
486,008
96,123
(227,403)
(12,461)
342,267
–
Weighted average
exercise price
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 786.0p (2018: 589.0p). For the options exercised, the average market
price was 1,254.0p 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
exercise price
0.0p
Number of share options
2019
251,911
2018
342,267
The total charge for the year relating to share options was £191,000 (2018: £675,000), all of which related to equity-settled share based
payment transactions.
13. Related Party Disclosures
The company recharges certain costs and provides financing to its subsidiaries in the ordinary course of business. The closing balances
due from and to the subsidiary companies are shown in notes 8 and 10 respectively.
No other material contracts or arrangements have been entered into during the year, nor existed at the end of the year, in which a
director or key manager had a material interest.
88 | ANNUAL REPORT 2019
GOOCH & HOUSEGO PLC 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
Expected Financial Calendar
Annual General Meeting
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
2 Glass Wharf
Bristol
BS2 0FR
Registrars
Link Asset Services
65 Gresham Street
London
EC2V 7NQ
SHAREHOLDER INFORMATION
Company Secretary and
Registered Office
COMPANY SECRETARY
Gareth J Crowe
REGISTERED OFFICE
Dowlish Ford
Ilminster
Somerset
TA19 0PF
United Kingdom
COMPANY NUMBER
00526832
19 February 2020
Payment date for final dividend for the year ended 30 September 2019 to shareholders on the register at close of
28 February 2020
business 24 January 2020.
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 2020
June 2020
30 September 2020
December 2020
For further information please contact:
Gooch & Housego PLC
Mark Webster/Chris Jewell
Investec Bank plc (Nomad & Broker)
Chris Baird/Patrick Robb/David Anderson
Buchanan
Mark Court/Charlotte Slater
01460 256440
020 7597 5970
020 7466 5000
ANNUAL REPORT 2019 | 89
GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
Form of proxy
You will not receive a form of proxy for the 2020 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 0391. Calls cost 12p per minute plus your
phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0391. 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 19 February 2020 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 2019 together with the
Directors’ Report and Auditors’ Report thereon.
To receive and approve the Remuneration Committee Report
set out on pages 37 to 42 (excluding page 38) of the Annual
Report and Financial Statements for the financial year ended
30 September 2019.
3
To declare a final dividend, as recommended by the Directors,
of 7.2 pence per ordinary share for the financial year ended 30
September 2019.
4 To re-elect Gary Bullard as a Director.
be £1,669,271 (representing approximately one third of the
total ordinary share capital of the Company in issue at 3
December 2019). 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:
13 (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 12
above as if section 561 of the Act did not apply to such
allotment, provided that the power hereby conferred shall
be limited to:
5 To re-elect Mark Webster as a Director.
(i) the allotment of equity securities in connection with an
6 To elect Chris Jewell as a Director.
7 To re-elect Peter Bordui as a Director.
8 To re-elect Brian Phillipson as a Director.
9 To re-elect David Bauernfeind as a Director.
10 To re-appoint Messrs PricewaterhouseCoopers LLP as
Auditors.
11 To authorise the Directors to fix the remuneration of the
Auditors.
12 THAT the Directors of the Company be, and they are hereby,
generally and unconditionally authorised in accordance with
section 551 of the Companies Act 2006 (the “Act”), in
substitution for any existing authority to the extent unused,
to exercise all the powers of the Company to allot shares in the
Company or grant rights to subscribe for or to convert any
security into shares in the Company on, and subject to, such
terms as the Directors may determine. The authority hereby
conferred shall, subject to section 551 of the Act, be for a
period commencing on the date of the passing of this
Resolution and expiring at the conclusion of the next Annual
General Meeting of the Company or 19 May 2021 (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
90 | ANNUAL REPORT 2019
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 £250,391 (representing approximately 5 per
cent. of the total ordinary share capital of the Company in
issue at 3 December 2019); and
(b) THAT the Directors of the Company be authorised in
addition to any authority granted under Resolution 13(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 £250,391 (representing
approximately 5 per cent. of the total ordinary share capital
of the Company in issue at 3 December 2019); and
GOOCH & HOUSEGO PLC
NOTICE OF ANNUAL GENERAL MEETING
SHAREHOLDER INFORMATION
(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.
(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;
The powers hereby conferred in this Resolution 13 shall expire
at the conclusion of the next Annual General Meeting of the
Company or 19 May 2021 (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.
14 THAT the Company be and is hereby generally and
unconditionally authorised for the purposes of section 701 of
the Companies Act 2006 (the “Act”) to make one or more
market purchases (within the meaning of section 693(4) of
the Act) of fully paid ordinary shares of £0.20 each in the
capital of the Company on such terms and in such manner as
the Directors may determine, provided that:
(a) the maximum aggregate number of ordinary shares hereby
authorised to be purchased is 2,503,907 (representing
approximately 10 per cent. of the total ordinary share capital of
the Company in issue at 3 December 2019);
(b) the minimum price (exclusive of expenses) which may be
paid for each ordinary share is 20 pence per share;
(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 19 May 2021
(whichever is the earlier); and
(e) the Company may, pursuant to the authority hereby
conferred, enter into a contract to purchase ordinary shares
which would, will or might be executed wholly or partly after
the expiry of such authority and the Company may make a
purchase of ordinary shares in pursuance of such contract as if
the authority conferred hereby had not expired.
By order of the Board
Gareth J Crowe
Company Secretary
3 December 2019
Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF
Registered Number: 526832
ANNUAL REPORT 2019 | 91
GOOCH & HOUSEGO PLC
SHAREHOLDER INFORMATION
NOTES
1 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 0391 from the UK (calls
cost 12p per minute plus network extras) or +44371 664 0391
from outside the UK (calls chargeable at the applicable international
rate) and returning it in accordance with note 5 below.
2 Resolution 2 is an advisory vote only. The Remuneration Committee
Report is set out on pages 37 to 43 of the Annual Report and
Financial Statements for the financial year ended 30 September
2019. Pages 37, 39, 40, 41 and 42 of the Remuneration
Committee Report set out the pay and benefits received by each
of the directors for the year ended 30 September 2019. The
Company’s policy on remuneration and potential pay outs to
directors in the future, which is set out on page 38 of the Annual
Report and Financial Statements for the financial year ended
30 September 2019, is specifically excluded from this Resolution.
3 Resolutions 1 to 12 (inclusive) are proposed as Ordinary Resolutions.
This means that for those resolutions to be passed, more than
half of the votes cast on such resolutions must be in favour of
such resolutions. Resolutions 13 and 14 are proposed as Special
Resolutions. This means that for those resolutions to be passed,
at least three-quarters of the votes cast on such resolutions must
be in favour of such resolutions.
4 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
5,6 and 7.
5 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.
6 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,
92 | ANNUAL REPORT 2019
the member will need to appoint someone other than the
Chairman and give them the relevant instructions directly.
7 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
17 February 2020. 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 17 February 2020.
8 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.
9 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 17 February 2020 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.
10 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
GOOCH & HOUSEGO PLC >|
Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@gandh.com
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