ANNUAL REPORT SEPTEMBER 2020
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
Our Strategy
Financial and Operating Review
Sustainability Report
Principal Risks and Uncertainties
S172 Statement
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 2020 | 1
HIGHLIGHTS
Revenue
(£m)
122.1
(5.5%)
2019 129.1
Adjusted profit
before tax*
(£m)
9.8
(35.1%)
2019 15.0
Adjusted basic
earnings per share*
(pence)
30.5
(34.8%)
2019 46.8
Statutory profit
before tax
(£m)
5.4
(9.4%)
2019 6.0
2020
2019
2018
2017
2016
122.1
129.1
124.9
112.0
86.1
2020
9.8
2019
15.0
2018
18.8
2017
16.1
2016
14.2
2020
30.5
2019
2018
2017
46.8
57.2
49.4
2016
42.5
2020
5.4
2019
6.0
2018
2017
2016
10.1
12.6
10.1
Basic earnings
per share
(pence)
15.1
–
2019 15.1
Total dividend
per share
(pence)
–
(11.5p)
2019 11.5
Net debt
excluding IFRS16
(£m)
6.5
(£7.8m)
2019 14.3
Net debt
(£m)
14.7
(£0.4m)
2019 14.3
2020
2019
2018
2017
2016
15.1
15.1
29.3
36.4
29.1
2020
–
2019
2018
2017
2016
11.5
11.3
10.2
9.0
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
(6.5)
(14.3)
(10.6)
14.9
11.7
(14.7)
(14.3)
(10.6)
14.9
11.7
* 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, settlement of lease litigation, interest thereon and interest on deferred consideration, together with the related tax impact.
2 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLCHIGHLIGHTS HIGHLIGHTS
Operating & Strategic Key Points
• Trading reflected a challenging global economic environment due to
the COVID-19 pandemic.
• G&H is proud of the way our staff responded.
• Management actions contributed to a stronger second half.
These included ensuring all of our manufacturing sites in USA, UK
and China were able to operate at full capacity, compliant with all
relevant regulations and guidelines.
• Overall demand for our technologies and capabilities was robust.
Medical diagnostics saw strong demand, whilst Industrial lasers were
below ‘normalised’ levels.
• New products contributed record revenue of £16.9m during FY2020
(FY2019: £13.5m). We continued to invest in our high priority R&D targets.
• G&H’s plans to streamline our manufacturing are progressing well and
on track to deliver previously announced profitability.
• There remains substantial long term growth potential for our photonic
technologies and system capabilities in all of our target sectors.
Financial Key Points
• Revenue of £122.1m, down by 5.5%.
• Adjusted profit before tax of £9.8m, down 35.1%, reflecting temporary
disruption to G&H’s manufacturing sites and lower demand in some
subsectors due to the COVID-19 pandemic.
• Improved net debt excluding IFRS16 of £6.5m, reflecting active
cash management.
• Year end order book of £92.4m, 0.8% higher than the same time
last year on a constant currency basis. Reflecting strong demand
for fibre optics, hi-reliability fibre couplers and our A&D and Life
Science capabilities. Industrial laser demand at below ‘normalised’
levels. Improved demand for medical diagnostics, in particular
ventilator systems.
ANNUAL REPORT 2020 | 3
GOOCH & HOUSEGO PLCHIGHLIGHTS HIGHLIGHTS
Fremont AO
Moorpark
PO/S
Keene
PO/S
Cleveland
EO
PO/S
FO
Boston
FO Baltimore
PO/S Virginia
PO/S
St. Asaph
FO
Torquay
PO/S Ashford
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
32.5%
£39.7m
2019
£34.7m 31.9%
$ USD
63.1%
£77.1m
2019
£81.0m 62.7%
€ EUR
4.4%
£5.3m
2019
£7.0m 5.4%
4 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
HIGHLIGHTS HIGHLIGHTS
Mark Webster, Chief Executive Officer, commented
“Our priority during the ongoing COVID-19 pandemic remains the health and safety
of our staff, customers and suppliers. We are very proud of the way our staff have
responded to this unprecedented challenge.
“FY2020 profits were affected by temporary disruption to manufacturing and lower
demand in some subsectors due to the COVID-19 pandemic. We have continued to
invest in our high priority R&D targets, been able to maintain a strong balance sheet
and have improved our liquidity levels.
“Our order book is robust and there remains considerable long term potential for
our photonic technologies and system capabilities in all of our target sectors.
“The challenge of the pandemic has validated our long term strategic goals of
diversification and moving up the value chain. We intend to vigorously pursue
these goals through internal investment and where appropriate, acquisitions.”
Aerospace
& Defence
(£millions)
41.4
33.9%
Industrial
& Telecom
(£millions)
54.8
44.9%
Life Sciences
& Biophotonics
(£millions)
25.9
21.2%
REVENUE
BY SECTOR
HISTORICAL REVENUE BY SECTOR
(£ millions)
Industrial
2020
2019
2018
2017
2016
Aerospace
& Defence
2020
2019
2018
2017
2016
54.8
60.9
72.9
64.3
54.3
Life
Sciences
41.4
2020
44.2
2019
25.9
24.1
40.8
34.9
2018
2017
11.2
9.6
2016
7.9
20.0
ANNUAL REPORT 2020 | 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 utilise
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 2020
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
© Crown copyright 2001
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
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 7
SECTORS AND APPLICATIONS
OUR SECTORS AND APPLICATIONS
Image courtesy of NASA/Unsplash
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.
Image courtesy of NASA/Unsplash
Image courtesy of NASA/Unsplash
8 | ANNUAL REPORT 2020
Image courtesy of ESA
Image courtesy of NASA/JPL-CALTECH
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.
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 9
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
Strategic Development
In 2020 we continued to execute our strategic objectives despite
the unprecedented challenges created by the pandemic for the
majority of the financial year. The year’s trading also demonstrated
the benefits of the Group’s ongoing strategy of further diversification
into the Aerospace & Defence and Life Sciences markets, reducing
its dependency upon its traditional Industrial markets and making
G&H a more balanced and resilient business.
Our sustained investment in R&D and the close relationships we
have built with our customers supporting them with their next
generation product developments means we are well placed to
benefit from the long-term structural growth drivers in our
markets. Our photonic technologies and applications are providing
our customers with new solutions to their needs. In 2020 we
made continued progress in repositioning the Group to provide
more complex sub-assemblies and systems. These give more
predictable and longer term revenue streams and the opportunity
for enhanced returns.
Operational Improvement
During the year the business has remained focused on its operating
costs to provide our customers with competitive offerings and our
investors with enhanced returns. The project announced in March
2020 to migrate the manufacture of many of the Acousto-Optic
products produced at our Ilminster site to our Asian contract
manufacturing partner, the creation of an Acousto-Optic design
and engineering centre in Fremont, CA, allowing the creation a UK
Precision Optics Centre of Excellence at our Ilminster site, and the
subsequent closure of our Glenrothes facility remains on track to
deliver on time and with the expected returns.
Our Response To The Pandemic
G&H’s primary concern during the ongoing pandemic remains the
health and safety of our staff, customers and suppliers.
Progress on our established strategic and operational objectives was
achieved alongside our employees having to respond from the
second quarter of the financial year with great commitment and
agility to the developing pandemic. New policies and procedures
were implemented to allow the Group to operate effectively whilst
strictly complying with best practice guidelines. Additional training
was provided to our managers to help them lead their teams in the
new and unfamiliar circumstance of many team members working
from home. Some physical changes have had to be made to our
facilities to support enhanced social distancing. All of these measures
mean the Group is now well placed to withstand the continuing
operational disruption that the pandemic continues to bring.
Trading Performance
The effects of the pandemic were felt most keenly in our Industrial
markets which were already impacted by cyclical downturn and the
effect of cross border trade disputes. Our Aerospace & Defence
market proved to be more resilient with the exception of some
of our commercial aircraft programmes. Life Sciences delivered
growth supported by strong trading from our recently acquired ITL
business. Thanks to swift adjustments to the cost base the Group
continued to be profitable and cash generative despite the impact
of the pandemic. Order intake recovered well in the latter part of
the financial year and we enter the new trading period with an
order book 0.8% higher in constant currency than at September
2019 which provides an important underpin to the Group’s
revenues for FY2021.
Dividends
In light of the increased global economic uncertainty and in
accordance with the Board’s priority of conserving cash and
managing the Group in a prudent manner through that uncertainty,
a dividend will not be declared in respect of FY2020.
The Board will review its position for the current financial year with
the intention of reinstating its long term progressive dividend policy
as soon as it is appropriate to do so.
The Board
In December 2019 we were shocked and saddened by the death
of our Audit Committee Chairman, David Bauernfeind. Since joining
the Board in 2017, David had provided invaluable support to the
business and his significant contribution to G&H is sadly missed.
In May 2020 we welcomed Louise Evans to the Board in the role of
Non-Executive Director and Chair of the Audit Committee. She brings
extensive experience from her strategic leadership roles in both
listed and privately owned technical engineering groups. Louise
has substantial expertise in the areas of financial management
and M&A as well as the implementation of internal control and risk
management frameworks. We are enjoying working with her.
Looking Ahead
Whilst the macroeconomic environment remains uncertain we enter
the new financial year with a solid order book, cutting edge products
and technologies and an increasingly competitive cost base. Our
strategy is making G&H a better, more balanced business, and
subject to the macroeconomic background, I am confident the
Group is well positioned to deliver material progress in FY2021
and indeed beyond.
The hard work of our employees ensured we were able to keep our
facilities open for the majority of time and able to support our
customers’ programmes. I am very proud of their achievement and
on behalf of the Board I would like to thank all our people for their
hard work and dedication in what has been a very challenging year.
Gary Bullard
Chairman
1 December 2020
“Delivering the strategy in the face of
operational and market challenges.”
10 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 11
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
FY2020 Performance
During the financial year 2020 G&H achieved revenue of £122.1m,
representing a decrease of 5.5% over previous year or excluding
foreign exchange, a decline of 5.4%. Adjusted profit before tax
was £9.8m, a decline of 35.1%.
Overall demand for our technologies and capabilities was robust.
There was an improved level of demand for medical diagnostics.
Industrial lasers, the part of our portfolio most exposed to the
wider economy, was below ‘normalised’ levels.
Trading reflected a challenging economic environment due to the
COVID-19 pandemic.
Our primary concern during the ongoing pandemic remains the
health and safety of our staff, customers and suppliers. Wherever
possible our employees are working from home and for those that
need to work at our manufacturing sites we have implemented a
range of new health and safety measures to ensure that we
rigorously meet social distancing and cleanliness requirements
and all other relevant guidelines and regulations.
In the second quarter of the financial year two of our six US sites
were temporarily shut down, due to state wide ‘stay at home’
orders. All of our five sites in the UK remained open, though Torquay,
our largest site operated at reduced capacity in order to comply
with social distancing regulations.
We are very proud of the way that our staff responded to these
unprecedented challenges.
In the latter part of the year G&H returned to full manufacturing
capacity at all of our sites in the UK, USA and China. Action taken
to reduce the Group’s cost base and headcount had a positive
impact on our second half performance.
Throughout the financial year we have closely controlled the cash
resources of the business. As a result, the Group remains in a sound
financial position with a strong balance sheet. Liquidity levels
improved during the period, supported by a $10m (£7.7m)
extension to the Group’s revolving credit facility, secured in April
2020, taking the total to $50m (£38.7m).
The year end order book reflects strong demand for fibre optics,
hi-reliability fibre couplers for undersea cables and our A&D and
life science capabilities. Demand improved for medical diagnostic
equipment, in particular for ventilator systems. Industrial laser
demand remains at below ‘normalised’ levels, though there has
been a sustained improvement in the semiconductor subsector.
Industrial laser demand will return to longer term growth through
technical innovation in end market applications such as 5G, AI and
new laser-based manufacturing techniques, though the exact
timings are hard to predict.
Our long term strategic commitment to diversification and moving
up the value chain has been validated by the COVID-19 pandemic
and has been instrumental in partially offsetting its impact. The
Group has continued to invest in the business during the financial
year, in line with these long term strategic goals.
New products from R&D contributed record revenues in FY2020
of £16.9m (FY2019: £13.5m). 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 aerospace and defence programmes, space
satellite communications, laser surgery and medical diagnostics.
In line with our strategic commitment to improving manufacturing
efficiency, customer service and capacity we have continued to
move forward with streamlining our manufacturing, as announced
in March 2020. This is on schedule and in line to complete by the
end of the calendar year 2021, with the expected improvement in
profitability unchanged.
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 system capabilities.
Aerospace & Defence (“A&D”) and life sciences provide a counter
balance to the industrial laser business. These sectors both have
high quality and compliance barriers to entry and as markets move
towards greater use of photonic technologies, G&H is increasingly
well placed to serve customers in these markets.
G&H has entered the new financial year with a solid order book.
As at 30 September 2020 it stood at £92.4m (30 September
2019: £94.4m), 2.2% lower than the same period previous year,
or an increase of 0.8%, excluding the impact of foreign exchange.
Our aim remains to achieve a broadly equal split between the
three market sectors. In FY2020 A&D represented 33.9%
(FY2019: 34.2%) of G&H’s revenue and life sciences 21.2%
“Trading reflected a challenging global economic environment due to the COVID-19 pandemic.
G&H is very proud of the way our staff responded. Management actions contributed to a stronger
second half. These included ensuring all of our manufacturing sites were now able to operate at
full capacity and are compliant with all new health and safety rules and regulations. Overall demand
for our technologies and capabilities was robust and showed the benefit of a diversified portfolio.
We have been able to improve on our already strong financial position, while still investing in our
high priority R&D targets. There remains considerable long term potential for our photonic
technologies and system capabilities in all of our target sectors.”
12 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC CHIEF EXECUTIVE OFFICER’S STATEMENT
STRATEGIC REPORT
(FY2019: 18.7%), which represents considerable progress over
the last few years.
G&H will continue to pursue our twin strategic objectives through
internal investment and where appropriate, acquisitions.
Acquisitions
ITL is a UK based specialist in the design, development and
manufacture of high quality medical devices. This acquisition has
been a significant factor in G&H more than doubling the size of its
life science business over the last two years. ITL’s portfolio consists
entirely of systems based products and that systems capability
enables G&H to present an enhanced offering of photonic systems
to our customers that will form a durable platform for further
growth in the life science sector.
ITL was acquired in August 2018. Its performance has exceeded
expectations and it has fully achieved its second year earn-out
payment for the year ended 30 September 2020.
Research and Development (“R&D”)
There has been continued benefit from concentrating our R&D
resources on fewer higher return projects that the Group has
identified as offering the highest growth potential for our photonic
technologies and system capabilities. During FY2020 we introduced
40 new products and delivered record new product revenue.
G&H continues to work with our industrial laser and industrial
laser system partners on the latest ultrafast precision lasers. We
recently signed a multi-year partnership contract in order to develop
the next generation of extreme UV lithography lasers that will be
used in the production of atomic level nanoelectronics.
We have capitalised on our expertise in lasers to provide solutions
for ‘harsh environment’ sensing. The ‘laser engine’ technology
developed for wind detection in wind turbines and oil pipeline
security is now being utilised in development of a wider range of
security applications.
Unmanned aerial vehicles (“UAVs”) have a variety of commercial
and military uses. Our expertise in the design, engineering and
manufacturing of bespoke complex optical arrays in the IR
spectrum for the UAVs’ imaging and communication systems
represents a rich vein of opportunity for the Group.
G&H’s laser based satellite communication system has passed
rigorous pre-flight tests for commercial satellites and will be
launched in the near future. We continue to work on European
and UK space agency funded work, as well other commercial
programmes. There is substantial opportunity to expand similar
technology into small satellite constellations and near space UAVs.
We have a number of ongoing A&D programmes in the US and
Europe which operate under high level security or confidentiality
restrictions. At our Boston, MA site we have built on the leading
edge development work for existing programmes enabling us to
acquire further contracts.
Streamlining of G&H’s Manufacturing Base
As part of our move towards improving manufacturing efficiency,
customer service and capacity, we announced in March 2020 that
we will streamline our manufacturing operations.
In the first instance this will be achieved by outsourcing Acousto
Optic (AO) Q-switch manufacturing to a contract manufacturer in
Asia and creating an AO engineering and design hub at our
Fremont, CA site. Secondly, we are establishing a UK Precision
Optic (PO) hub for the UK in Ilminster, Somerset by moving our
specialist PO manufacturing from Glenrothes, Scotland and then
closing the site. The restructuring remains on track to complete by
the end of the calendar year 2021 and the expected financial
benefits are unchanged.
Our manufacturing sites are organised within three manufacturing
centres based around technical areas of excellence. Each
manufacturing centre is led by an experienced manufacturing
head whose role is to ensure best practice is shared, there is
process harmonisation and optimal allocation of resource.
We are in year two of a three year programme of upgrading and
harmonising our financial and business systems, which are
designed to support and enable improved performance in the
manufacturing and commercial functions. This project is on track
and has already delivered tangible benefits.
Markets and Applications
Industrial
44.9% of FY2020 Group Revenue
The industrial division services a diverse range of industrial
applications aligned to our world class photonic technologies. It splits
into four distinct areas, industrial lasers, optical communications,
‘harsh environment’ sensing and scientific research.
Our industrial division declined by £6.0m or 9.9% compared with
the previous year.
Industrial lasers went through a cyclical downturn in FY2019 on the
back of a strong FY2018. As the area of our business most exposed to
the wider economy there was no return to demand growth in FY2020
due to the COVID-19 pandemic. In the latter part of the year demand
has picked up in certain subsectors, most notably semiconductors.
Longer term technological progress in end market applications will
drive demand growth in the high innovation, higher margin section of
the market. We are actively engaged with our industrial laser partners
in developing the next generation of precision lasers. Outsourcing
lower innovation products to a contract manufacturer in the Far
East will enable us to compete more effectively in this subsector.
Hi-reliability fibre couplers for undersea cables are undergoing a
multi-year growth phase driven by the well capitalised ‘Silicon
Valley’ companies laying their own undersea cable networks. G&H
has continued to invest in improving capacity for this section of
business as we believe there will be good growth dynamics for the
foreseeable future.
Our ITL business has a range of leading edge medical diagnostic R&D
collaborations. By combining G&H’s core photonic technologies
with ITL’s system capabilities we have been able to work on new
types of opportunities for our medical diagnostic customers.
‘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 and
other related areas.
ANNUAL REPORT 2020 | 13
GOOCH & HOUSEGO PLC STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S STATEMENT
Scientific research includes 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 its European
equivalent, Commissariat a l’energie atomique et aux energies
alternatives(“CEA“) in Bordeaux, France. G&H is a primary supplier
to these facilities and this represents a profitable and prestigious
part of our industrial business.
Aerospace & Defence
33.9% of FY2020 Group Revenue
G&H is able to bring together a wide range of photonic capabilities
that very much represent the “direction of travel” in this sector.
These include target designation, range finding, ring laser and
fibre optic gyroscopic navigational systems, infra-red and RF counter
measures, periscopes and sighting systems for armoured vehicles,
opto-mechanical sub-systems for UAVs and space satellite
communication systems.
Delivering product quality, reliability and high performance in
harsh environments is essential in the A&D arena and this very
much plays to G&H’s strengths. Our customers include the main
tier one US and European A&D companies.
A&D revenue declined by £2.8m or 6.4% compared with the
previous year.
During FY2020 we were able to continue to deliver on a number of
high profile US contracts and win further business from existing
and new contracts. Our revenues in the UK suffered from contract
phasing issues. Though all of our tier one A&D customers
continued to operate, the effect of working from home meant
that many of the demanding, ‘high hurdle’ quality, compliance and
supply chain aspects inherent in this sector took longer to navigate
than usual and slowed down the business momentum in this sector.
G&H has exited FY2020 with a record A&D order book in the US
and a much improved order book in the UK and Europe as a result
of the determined work by our teams throughout the year in order
to take advantage of good underlying demand for our capabilities.
We expect to have our laser based satellite communication system
in space during FY2021, having passed all of the rigorous pre-flight
operating tests. The use of fibre optic lasers to transmit information
means satellite communication systems are more efficient, robust
and substantially lighter. We believe this will lead to further
utilisation of our technology in small satellite constellations and
near space UAVs.
Life Sciences/Biophotonics
21.2% of FY2020 Group Revenue
Life Science revenues grew by £1.8m or 7.6% compared with the
previous year.
Our medical diagnostic system business grew strongly during the
year and benefited from increased demand for our products as a
result of the COVID-19 pandemic. This was particularly true for a
product manufactured by ITL which is designed to improve
respiratory function and oxygen uptake, as part of a ventilator
system for patients in critical care. It is available globally, but has
greatest traction in the US.
14 | ANNUAL REPORT 2020
G&H’s principal photonic applications in life sciences are optical
coherence tomography (“OCT”), laser surgery and laser microscopy.
OCT is widely used in ophthalmology for 3D retinal scanning and
G&H has a market leading position in this area. Similar technology
is also applied to cardiovascular and cancer disease detection
systems for US based medical diagnostic companies.
In contrast to our medical diagnostic business there was a
reduction in the number of non COVID-19 medical procedures.
This resulted in lower OCT business and a sharp reduction in the
number of procedures using medical lasers, in particular for
cosmetic procedures. In the latter part of the year demand for our
OCT diagnostics and critical components for medical lasers started
to demonstrate a return to demand growth.
Outlook
In the short term, there is significant global economic uncertainty
due to the COVID-19 pandemic, but G&H’s order book remains
robust and a testament to the benefits of a diversified portfolio.
During FY2020 a number of management actions have enabled
the Group to build in greater resilience to our business. All of our
manufacturing sites in the US, UK and China are open, able to
operate at full capacity and are compliant with all national and local
health and safety requirements. Our manufacturing site at Torquay
is now able to operate at full capacity while complying with social
distancing regulations due to infrastructure and process
improvements undertaken since the start of the pandemic. G&H’s
six US sites are now all classified as fully or mainly exempt, as they
produce products deemed essential or vital for national security.
G&H’s plan to streamline its manufacturing is on track and will
deliver the improvements in profitability outlined in the March
2020 announcement. Our cost base and headcount has been
reduced and is now in line with the demands of the current working
environment. Going forwards, we will continue to review further
improvements to the Group’s operations.
The Company remains in a sound financial positon, with a strong
balance sheet having improved its liquidity levels through FY2020
and into the start of the current financial year.
New products delivered a record contribution in FY2020 and we will
continue to invest in those areas identified as delivering the highest
return for our photonic technologies and system capabilities. There
remains substantial long term growth potential for our photonic
technologies and system capabilities in all of our target sectors.
Our commitment to our strategic objectives of diversification and
moving up the value chain has been validated and will provide a
robust platform for future growth. G&H intends to continue to
vigorously pursue this policy through internal investment and
where appropriate, further acquisitions.
Subject to the short term global economic environment, the Board
remains confident that G&H is well positioned to deliver material
progress in FY2021 and substantial long term growth.
Mark Webster
Chief Executive Officer
1 December 2020
GOOCH & HOUSEGO PLC STRATEGIC REPORT
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 15
STRATEGIC REPORT
MARKET OVERVIEW
Industrial
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. Whilst the market has recently experienced a cyclical
downturn, extended by the COVID-19 pandemic, the move towards
5G, AI and new laser enabled production techniques provides
strong long term growth drivers for this market.
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 in recent years and this
has continued during the current year.
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 2020
Financial Performance
• Our overall Industrial business reduced by 9.9% in both absolute
and constant currency terms during the year, with revenues of
£54.8m, compared with £60.9m last year.
• This reduction was driven by continuing below ‘normalised’ demand
for critical components used in industrial lasers for microelectronics
although there was sustained recovery in the period from the
semiconductor manufacturing market. The cyclic downturn was
exacerbated and extended by continuing trade tensions
between the US and China and then the COVID-19 pandemic.
• In contrast, demand for fibre optic products and hi-reliability fibre
couplers used in undersea networks has continued to be strong.
The investment we had made in the second half of FY2019 and
the first months of FY2020 supported the ramp up in deliveries
achieved in the year. This was affected by our Torquay facility
operating at reduced capacity for part of the year, due to COVID-19
restrictions. Our Torquay site is now operating at full capacity.
• Our industrial business has also seen continuing growth in the
sensing market securing new contracts for directional sensing for
wind farms and in support of border security.
• Adjusted operating profit for the Industrial business was lower
at £4.1m, compared with £9.0m last year, reflecting the reduced
revenue especially for relatively higher margin industrial laser
products.
Growth Strategy
• To continue to invest in R&D and process engineering in order to
develop our existing portfolio.
• To bring to the market new products and to ensure that we remain
at the cutting edge of technology in this important area. During
FY2020 G&H introduced a new laser engine product deployed in
wind sensing applications and new Pockels cells products. We
also signed a multi-year contract with a laser system company
to develop the next generation of Extreme UV lithography lasers
for production of atomic level nanoelectronics.
• 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
sub-assemblies, 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
STRATEGIC REPORT
Percentage
of Revenue
44.9%
2019 47.1%
Revenue
(£millions)
54.8
-9.9%
2019 60.9
Adjusted
Operating Profit
(£millions)
4.1
-54.2%
2019 9.0
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 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 £41.4m, a reduction of 6.4% on last year,
primarily as a result of production deliveries concluding on several
periscope and sighting systems programmes prior to newly
secured contracts entering their production delivery phase.
Though all of our tier one A&D customers continued to operate,
the effect of working from home meant that many of the ‘high
hurdle’ quality, compliance and supply chains demands in this
sector took far longer to navigate than usual, due to the
COVID-19 pandemic. This slowed down some of the business
momentum during the period. Excluding foreign exchange our
A&D sector declined by 6.1%.
• This sector secured some important new contracts, especially our
Boston site, which exited the financial year with a record order
book. This reinforces our belief that this division represents a
growth opportunity for G&H, as optical technologies continue to
be increasingly deployed in this market.
• Operating margins in this sector reduced a little from 8.0% in the
prior year to 6.8%. This was due to the lower revenue.
Growth Strategy
• To continue to focus investment on moving from being a
components supplier to a sub-systems provider. Our customers
are changing their business models and are looking for further
outsourcing opportunities to 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 needs of our customers. The investments
made in new surface polishing machines for our newly formed UK
Precision Optics centre of excellence in Ilminster are evidence of
our intent to secure further market share in this sector.
• 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 FY2020
G&H introduced 30 new products that addressed its A&D market
including space satellite laser based communication systems,
new sighting systems and IR lens assemblies for UAVs to address
our customers’ needs.
18 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC STRATEGIC REPORT
Image courtesy of ESA
Percentage
of Revenue
33.9%
2019 34.2%
Revenue
(£millions)
41.4
-6.4%
2019 44.2
Adjusted
Operating Profit
(£millions)
2.8
-20.6%
2019 3.5
2019 9.0
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 19
STRATEGIC REPORT
MARKET OVERVIEW
Life Sciences / 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.
The growth strategy for Life Sciences / Biophotonics is to fully
exploit our photonic technologies, such as OCT, add adjacent
technologies such as OCT endoscopy, minimally invasive surgery
and robotic surgery and use our enhanced systems capability,
through ITL to move up the value chain with our customers.
As with our A&D customers, typically multi-national medical
diagnostic companies are receptive to our technologies being
presented as systems or sub-systems.
Financial Performance
• In FY2020 Life Sciences / Biophotonics revenue was £25.9m,
up 7.6% compared with the prior year or 7.7% excluding foreign
exchange. This was driven by our ITL business which again
exceeded expectations, delivering revenues of £16.4m due
to very strong ramp up in volume of products supplied into
an end customer’s respirator programme.
• In contrast, outside of medical diagnostics there was a global
decline in non-COVID-19 medical procedures. This resulted in lower
demand for our OCT products and specialist components used in
medical lasers for surgery. In the latter part of the year these
subsectors started to return to a more familiar growth profile.
• Operating margins in this sector were 18.0% compared with
21.1% in the prior year reflecting changes in the product mix
year on year.
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 FY2020
G&H introduced seven new products that address its Life
Sciences / Biophotonics market, especially in the medical
instrumentation 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.
• 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 continues to seek acquisition opportunities.
20 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
STRATEGIC REPORT
Percentage
of Revenue
21.2%
2019 18.7%
Revenue
(£millions)
25.9
+7.6%
2019 24.1
Adjusted
Operating Profit
(£millions)
4.7
-8.5%
2019 5.1
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 21
Where it was appropriate to do so, action was taken during the year
to reduce our operating costs where there was market softness.
We have also continued to develop our business systems and
reporting to allow our manufacturing managers to access better,
more detailed manufacturing data in real time supporting more
rapid operational decision making.
Value Enhancing Acquisitions
G&H uses targeted, complementary acquisitions to accelerate our
strategy through accessing new adjacent markets and combining
products of acquired businesses with those of our existing Group to
offer our customers a larger range of sub-assemblies and systems.
During the year our ITL acquisition continued to perform ahead of
expectations. Through its significant systems level R&D capabilities
it has been able to secure important new programme positions
with large Life Science OEMs. Synergy opportunities have been
identified combining our traditional photonic products with ITL’s
systems expertise and we expect this to generate important new
programme wins in the near future. We will use ITL’s presence in
the Chinese market as a means to target new customers and
programmes in that territory for G&H as a whole.
We continue to develop our acquisition pipeline and review
acquisition opportunities that would add complementary capabilities
and market access. Whilst the pandemic has required us to delay
progressing any acquisition targets to completion we are well
prepared to do so once restrictions are lifted. Our good cash
conversion during the year together with the expanded debt
facilities secured in April 2020 mean that the Group has
significant funding available to pursue future acquisitions.
STRATEGIC REPORT
OUR STRATEGY
G&H has two fundamental strategic objectives:
• To diversify in to new markets and
• To secure a greater proportion of the Group’s revenues from
sub-assemblies and systems.
We have identified three strategic priorities to support the
achievement of these objectives:
• R&D investment
• Operational excellence
• Value enhancing acquisitions
R&D Investment
At G&H our R&D teams have market leading skills in photonic
technologies. Our customers recognise this and we have established
important collaborative relationships with many OEM customers
who look to G&H’s expertise to assist them in designing and
developing the next generation of photonic based products.
Through this close working relationship we are able to participate
in early stage design discussion and identify opportunities to
support our customers in new adjacent markets.
We have developed clear technology roadmaps in each of our three
market areas – Industrial, Aerospace & Defence and Life Sciences.
These roadmaps are customer focussed, that is we concentrate our
development activities where we can see a clear customer demand.
In this way we maximise the return from our R&D investment and
are often able to secure customer or research establishment
funding to support our own investments.
During the financial year our R&D spend totalled £8.0m or 6.5%
of revenue. 40 new products/systems transitioned to be revenue
generative in the year. These covered all three of our markets and
included important new systems and subsystem products. Many are
helping us build new positions in important adjacent sub-markets
such as space communications and lung disease diagnostic
equipment. New development funding was secured from Innovate
UK to work as part of a consortium on the commercialisation of
quantum technology and we secured customer funding to assist
in the development of Extreme UV based industrial lasers.
Operational Excellence
We have state of the art manufacturing facilities located in the UK,
the USA and China. We deliver robust and reliable products to our
customers frequently to the most demanding quality standards.
This is supported where appropriate by strategic long term
relationships with our third-party suppliers.
During the year we announced that we would outsource the
manufacture of many of our Acousto- Optic products to our Asian
contract manufacturing partner. This will allow us to continue to
offer cost competitive products to our customers and make further
focussed investment in our newly create UK precision optics
centre of excellence at Ilminster. The project to transfer production
activities to Ilminster from our Glenrothes facility is progressing
well and production at that facility will cease at the end of this
calendar year reducing the fixed cost base of G&H.
New investments were made to equip the Ilminster facility with
state of the art precision optic cutting and polishing machines that
will allow us to access new adjacent markets that require larger
optics based upon sophisticated, harder to work materials.
22 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC FINANCIAL AND OPERATING REVIEW
Overview
The Group’s trading performance in the year reflected the impact
of the pandemic on demand in our Industrial and Commercial
Aerospace markets and some temporary closures of our facilities.
Revenue and underlying profit before tax for the year were, however,
marginally ahead of management’s revised expectations following
the advent of the pandemic, reflecting a faster than expected
recovery to full operational capacity in the second half of the year.
Group revenue for the year totalled £122.1m. This represents a
reduction of £7.0m, or 5.5% over the previous year. On a constant
currency basis, revenues declined by 5.4%.
The Group’s adjusted profit before tax amounted to £9.8m (2019:
£15.0m) and represented a margin of 8.0% (2019: 11.6%). Statutory
profit before tax was £5.4m compared with £6.0m in the prior year.
Adjusted profit before tax is a key alternative performance measure
by which the Board evaluates the Group’s performance as it better
represents the underlying trading of the Group with restructuring
costs, acquisition and disposal items excluded from this measure.
Further details of alternative performance measures are provided
later in this review.
Cash performance for the year was good with the business
generating £21.6m of cashflow from operating activities. In April
2020 the Group entered in to an agreement to increase its revolving
credit facility from $40m (£31.0m) to $50m (£38.7m), extending
the maturity date out from August 2021 to April 2023.
Revenue
2020
2019
Year ended 30 September
Industrial
A&D
Life Sciences/Biophotonics
Group Revenue
£’000
% £’000
54,811 44.9% 60,854
41,390 33.9% 44,203
21.2% 24,076
25,894
100% 129,133
122,095
%
47.1%
34.2%
18.7%
100%
Revenue for the year totalled £122.1m, compared with £129.1m in
the prior year. In the first quarter of the trading year our Industrial
business segment was impacted by the ongoing weaker demand in
its end markets and then from the second quarter by the COVID-19
pandemic. Industrial revenue declined by 9.9%, in both absolute
and constant currency terms, from £60.9m last year to £54.8m
this year. However the sector’s H2 revenues grew compared to
the first six months of the year supported by the continuing ramp
up in revenues from its telecoms markets.
In A&D important milestones were achieved on US development
programmes allowing progression to the production stage of the
contracts but overall revenues declined year on year by 6.4% (6.1%
at constant currency) from £44.2m to £41.4m primarily due to the
completion of programme deliveries to customers of our St Asaph
facilities prior to new programmes reaching their production phase
in the second half of FY2021.
Our Life Sciences/Biophotonics business delivered year-on-year
growth of 7.6% (7.7% at constant currency). Our ITL business
saw strong demand for components used in respirator systems
more than offsetting a downturn in the medical laser market as a
result of the pandemic. Life Sciences / Biophotonics revenue
increased in absolute terms from £24.1m to £25.9m.
STRATEGIC REPORT
Operating Costs
In response to the challenging trading conditions we took a number of
actions to reduce the Group’s cost base. Group headcount decreased
from 984 at 30 September 2019 to 902 at 30 September 2020.
Headcount reductions were partially attributable to the restructuring
project described later in this review, but other reductions were
made to adjust to reduced trading volumes. Labour costs were
also mitigated as some employees were furloughed, primarily at
our Torquay site which temporarily ran at reduced capacity. There
are currently no employees furloughed and Torquay is back
operating at full capacity. Actions were also put in place to reduce
discretionary spend such as travel and exhibitions which also
contributed to the decrease in operating costs.
Research & Development (R&D)
The Group continued to invest for the future with R&D spend at
6.5% of revenue, which was in line with prior year. R&D spend in the
period was £8.0m. There were 40 new products released in FY2020,
together with five new patents granted. Important developments
were completed in the fields of space satellite communications
and sighting systems for armoured vehicles. The Group capitalised
£0.5m of development expenditure in the year (2019: £0.7m).
Alternative Performance Measures
Alternative performance measures are presented in these financial
statements as management believe they provide investors with a
means of evaluating the performance of the Group on a consistent
basis. These alternative performance measures exclude the impact
of non-underlying items on the Group’s financial results. The
Group’s alternative performance measures and their reconciliation
to IFRS measures are shown in the table below. In addition to the
measure shown in the table below, the Group presents Adjusted
Profit Before Tax which is Adjusted Operating Profit less Adjusted
net Finance Costs.
Non-Underlying Items
Statutory operating profit was £6.3m (2019: £8.4m) and statutory
profit before tax was £5.4m (2019: £6.0m). Non-underlying items are
presented separately as the Directors believe that they require
separate disclosure on account of their nature and size in order
to provide a clear and consistent presentation of the Group’s
underlying business performance.
Adjusted operating profit declined by 31% to £11.2m (2019: £16.3m)
and adjusted profit before tax by 35% to £9.8m (2019: £15.0m)
after excluding net charges of £4.4m (2019: £9.1m) in respect of
non-underlying items. These comprised restructuring and site
closure costs of £2.6m (FY2019: £1.0m), charges in respect of
acquisitions and the amortisation of acquired intangible assets of
£2.7m (2019: £9.9m) and a non-underlying credit of £1.2m (2019:
£nil) in respect of a legal judgement in our favour associated with
the lease of our Fremont facility.
The restructuring costs incurred in the year related to expenses
arising from the project to establish the Ilminster facility as our UK
Precision Optics Centre of Excellence and the resultant closure of
our Glenrothes facility. This project is described more fully in the
Operations section of this review. The costs recorded in the period
principally comprised redundancy costs and the write downs of
both tangible fixed assets and inventories of products which will
be discontinued at the completion of the project.
ANNUAL REPORT 2020 | 23
GOOCH & HOUSEGO PLC STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
In March 2020 long running litigation with the landlord of our
Fremont facility was finally concluded and G&H was awarded a total
of $3.6m (£2.8m) comprising damages, reimbursement of our costs
and interest arising from the landlord’s non-performance in respect
of the lease and this amount was received in full in June 2020.
Reconciliation of Adjusted Performance Measures
The reimbursement of costs and interest received of £1.2m was
treated as a non- underlying credit in the income statement whilst
the damages element of the award was credited against the right
of use asset held on the balance sheet.
Year ended 30 September
Reported
Amortisation of acquired intangible assets
Restructuring and site closure
Settlement of lease dispute
Impairment of goodwill
Adjustment to accrued contingent
consideration
Interest on deferred consideration
Adjusted
Operating profit
2020
2019
£’000
6,334
2,676
2,609
(410)
–
–
£’000
8,408
3,690
973
–
6,258
(3,075)
Net finance costs
Taxation
Earnings per share
2020
£’000
(942)
–
–
(818)
–
–
2019
£’000
(2,456)
–
–
–
–
–
2020
£’000
(1,610)
(397)
(392)
271
–
–
2019
£’000
(2,191)
(676)
(206)
–
(921)
662
2020
pence
15.1p
9.1p
8.9p
(3.8p)
–
–
2019
pence
15.1p
12.1p
3.0p
–
21.4p
(9.7p)
–
11,209
–
16,254
303
(1,457)
1,218
(1,238)
–
(2,128)
–
(3,332)
1.2p
30.5p
4.9p
46.8p
Additions to tangible and intangible fixed assets totalled £6.8m
(2019: £7.5m), equivalent to 1.08 times owned asset depreciation
and amortisation (2019: 1.43 times). The most significant
additions were new state of the art precision optic cutting and
polishing equipment located in our newly formed UK centre of
excellence in Ilminster. We made further investments in our IT
system with our Keene, St Asaph and Baltimore businesses now
migrated on to the Group’s core ERP systems.
For the full year there was a £4.7m inflow from working capital
(2019: £6.6m outflow). Within working capital, inventory decreased
to £30.6m from £33.3m at the beginning of the year reflecting
lower business volumes and our continuing work to improve our
demand forecasts on which our manufacturing build plan is based.
Trade and other receivables at year end were £26.3m, a reduction
of £6.9m compared with the prior year. The reduction was due to
the lower trading levels and a continued strong focus on collections,
although we are experiencing continued pressure from many of
our larger customers for extended payment terms.
Net interest (excluding IFRS 16 interest and interest received on
the legal settlement) and tax paid reduced to £2.2m from £2.4m
in the prior year.
IFRS 16 Leases
The Group implemented IFRS 16 leases with effect from 1 October
2019. On adoption of the standard the Group recognised right of
use assets of £9.6m and a lease liability of £9.4m. The impact on
the income statement in the year has been to increase underlying
operating profit by £0.3m and interest expense by £0.4m.
Interest
The net underlying interest expense of £1.5m (2019: £1.2m)
increased by £0.2m. This was largely due to the adoption of
IFRS16 from 1 October 2019 which added £0.4m to the Group’s
interest charge.
Tax and Earnings Per Share
The tax charge for the year was £1.6m (2019: £2.2m) with an
underlying tax charge of £2.1m (2019: £3.3m) after excluding a credit
on items excluded from underlying profit of £0.5m. This resulted in
an underlying effective tax rate of 21.8% (2019: 22.2%), a marginal
reduction on the prior year as we were able to increase the utilisation
of historical tax losses in our US operations. 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.
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
2020
11,209
(1,457)
9,752
(2,128)
7,624
2019
16,254
(1,238)
15,016
(3,332)
11,684
2020
6,334
(942)
5,392
(1,610)
3,782
2019
8,408
(2,456)
5,952
(2,191)
3,761
per share (p)
30.5p
46.8p
15.1p
15.1p
Basic underlying earnings per share decreased to 30.5p (2019:
46.8p).
Balance Sheet
The Group’s total equity at the end of the year was £113.4m, an
increase of £0.5m over the prior year. This comprised an increase of
£2.0m from retained earnings, a £0.3m increase from adjustments
to reserves for long term incentives and a net reduction of £1.8m
from foreign exchange and other movements.
24 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
FINANCIAL AND OPERATING REVIEW
Cash and Net Debt
Cash balances at 30 September 2020 were £19.7m, compared with
£17.5m in the prior year. Net cash flows from operating activities
totalled £20.4m, compared with £11.6m last year, supported by the
lower levels of working capital year-on-year. During the year net debt
excluding lease liabilities decreased by £7.8m to £6.5m, of which
£1.2m was as a result of exchange rate movement on the Group’s
US$ denominated borrowings. IFRS 16 lease liabilities added a
further £8.2m bringing the Group’s reported net debt to £14.7m at
the year end.
As at 30 September 2020, available undrawn committed and
uncommitted debt facilities totalled $36m (£27.9m).
Movement in Net Debt
All amounts in £m
Gross
Cash
Bank
borrowings
Net Debt
Exc
IFRS16
Lease
Liabilities
At 1 October 2019
Adoption of IFRS16
Operating cash flows
Debt repayments
Lease repayments
Acquisitions
(deferred consideration)
Net capital expenditure
Working capital
Interest, tax and
dividends
Legal dispute
17.5
–
16.8
(4.3)
(1.6)
(4.8)
(6.4)
4.7
(3.4)
1.6
settlement
–
Non cash movements
Exchange movements
(0.4)
At 30 September 2020 19.7
(31.8)
–
–
4.3
_
–
–
–
–
–
0.1
1.2
(26.2)
(14.3)
–
16.8
–
(1.6)
(4.8)
(6.4)
4.7
(3.4)
1.6
0.1
0.8
(6.5)
Net
Debt
(14.3)
(9.4)
16.8
–
–
(4.8)
(6.4)
4.7
(3.4)
1.6
–
(9.4)
–
–
1.6
–
–
–
–
–
(0.8)
0.4
(8.2)
(0.7)
1.2
(14.7)
Funding and Liquidity
In April 2020 the Group entered into an agreement to increase its
revolving credit facility from $40m (£31.0m) to $50m (£38.7m),
taking the maturity date out from August 2021 to April 2023.
Borrowings from the Group’s revolving credit facility are drawn at
the Group level and lent to the operating subsidiaries.
The main financial covenants in the revolving credit facility restrict net
debt to below 2.5 times underlying EBITDA, and EBITDA is required to
cover net interest costs (excluding IFRS 16 interest) by 4.5 times. As at
30 September 2020, net debt : underlying EBITDA was 0.4 (2019: 0.6)
and interest cover was 10.8 (2019: 15.4).
The rationale for preparing the financial statements on a going
concern basis is set out below.
Operations
As announced in March 2020, the Group has launched a significant
restructuring project to streamline its Acousto-Optic (AO) and
Precision Optic (PO) manufacturing facilities. An AO hub is being
created at our Fremont, California site which combines the AO
capabilities of our Fremont and Ilminster facilities. Fremont will lead
the Group’s AO technology roadmap. In support of this approach
we entered in to an agreement to outsource much of our AO
manufacturing currently undertaken by our Ilminster facility to an
STRATEGIC REPORT
established contract manufacturer in South East Asia. These
plans enable us to consolidate design, engineering and R&D
resources and to continue to provide high quality, cost competitive
products to the industrial laser market.
As part of this same project the Group is establishing a single UK PO
hub at our Ilminster facility fashioned from our two current PO sites
at Ilminster and Glenrothes. As part of this plan we are transferring
Glenrothes PO manufacturing resources and capabilities into
Ilminster and the Glenrothes site will be closed at the end of the
current calendar year. The project is expected to be fully complete by
the end of 2021 financial year. The total investment is expected to
be c. £5m across FY2020 and FY2021 and the one off income
statement impact has been excluded from adjusted profit before
tax. Total non-underlying charges on the project in FY2020 were
£2.4m. Savings are expected to build over time, and to achieve a
positive benefit in the second half of FY2021 and an annualised
benefit of c. £1.25 m by FY2022.
We have now completed the roll out of our Syspro ERP/MRP system
to all of the Group’s sites with the exception of ITL which had
recently upgraded to an Epicor system shortly prior to the acquisition
of the business by the Group in 2018. We have developed a suite
of business reports based upon data warehousing which has
significantly enhanced the quality of information available to the
management team.
COVID-19 Pandemic
As a result of the pandemic we implemented a range of measures
to keep our employees safe, to continue to support our customers’
programmes and to protect the financial position of the business.
In the early stages of the pandemic whilst many of our customers’
facilities were partially or fully closed and we were in the process
of making alterations to some of our facilities approximately
20% of our employees worked reduced hours. In the UK we
utilised the Government’s Coronavirus Job Retention Scheme and
received a total of £0.4m in furlough grants. In the US we received
an amount of $1.4m (£1.1m)under the Government’s Paycheck
Protection Programme.
In accordance with FRC & ESMA best practice guidance we have not
separately identified the impact of the pandemic on the Group’s
trading performance for the year. Instead we have included all
costs incurred and support received within the reported underlying
financial results of the business.
The Group’s cash flows were temporarily supported by the UK
Government’s scheme allowing businesses to defer sales and
payroll tax payments, however, all amounts owing were fully paid
by the end of the financial year.
The cashflow of the Group has been resilient during the pandemic. We
have not experienced any deterioration in our collections performance
nor has there been any increase in our expected credit loss.
Order Book
As at 30 September 2020, the Group order book stood at £92.4m,
compared with £94.4m at the end of the 2019 financial year.
Excluding foreign exchange the order book was 0.8% higher. The
book to bill ratio for the business as a whole was 1.01 (six month
rolling average) as at 30 September 2020 (2019: 0.98). This reflects
an improving order intake trend in the latter stages of the year.
ANNUAL REPORT 2020 | 25
GOOCH & HOUSEGO PLC
Net debt analysis
Net debt (£m)
2020
14.7
2019
14.3
2018
10.6
In order to balance business risk with the investment needs of the
Company, management closely monitors and manages net debt.
Excluding the impact of the new lease standard, IFRS16, net debt
reduced by £7.8m in the year thanks to a reduction in the Group’s
working capital levels and the benefit of favourable exchange rate
movement on the Group US$ denominated borrowing. This
represents a Net Debt : Adjusted EBITDA ratio of c.0.4. Lease
liabilities added a further £8.2m within the total reported net
debt of £14.7m.
Earnings per share (EPS)
Adjusted diluted EPS (pence)
2020
30.2p
2019
46.7p
2018
56.5p
As a result of the continuing challenging trading environment in
the industrial laser sector and then the impact of the pandemic
on the Group’s markets adjusted diluted EPS fell 35.3%, from
46.7p to 30.2p.
The effect of adopting IFRS16 in the year was to reduce profit
before tax by £0.1m and to reduce adjusted diluted earnings
per share by 0.3p.
STRATEGIC REPORT
FINANCIAL AND OPERATING REVIEW
Staff
The Group workforce decreased from 984 at 30 September 2019
to 902 at the end of September 2020. The reduction reflects the
action the business has taken to adjust to the lower levels of market
demand following the onset of the pandemic and initial releases of
staff from our Glenrothes site as part of the restructuring programme.
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
2020
(5.5)%
(5.4)%
2019
3%
–
2018
12%
16%
The Board is focused on driving long term revenue growth by
investing both organically and through acquisitions. The Group’s
revenue measured at constant exchange rate declined by 5.4%
year-on-year reflecting the impact of the pandemic on our
Industrial and Aerospace & Defence sector partially offset by the
growth delivered by our Life Sciences/Biophotonics sector.
Target market revenue
A&D (£m)
Life Sciences (£m)
2020
41.4
25.9
2019
44.2
24.1
2018
40.8
11.2
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
sub-assemblies, modules and systems in response to the trend for
our larger customers to outsource increasingly complex parts of
their business. Measured on a constant currency basis Life Sciences
revenues grew 7.7% thanks to strong demand for products from our
medical diagnostics business which more than offset the impact of
the pandemic on revenues for our medical laser products. In A&D
revenues declined by 6.1% on a constant currency basis reflecting
the completion of deliveries on some material programmes prior to
the ramp up of deliveries on new secured programmes. Our A&D
order book at 30 September is strong and provides a good underpin
for revenue growth in the coming year.
26 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC SUSTAINABILITY REPORT
STRATEGIC REPORT
At G&H we are focussed on creating a long term sustainable business for the benefit of all of our
stakeholders. We aim to support the communities in which we operate and minimise the Group’s
impact on the environment. We are determined to maintain our high standards of business
conduct as we know our reputation is key in ensuring our long term success.
A Sustainable Business Model
Our strategy is delivering sustainable value by positioning the
business in attractive growth markets where our innovative, state
of the art products provide our customers with solutions to some
of their most challenging needs.
In each of our chosen markets photonic solutions are at the heart of
more efficient and more capable product solutions. In our industrial
markets the need for improved manufacturing efficiency as well as
the continued reduction in components sizes drives the continued
demand for automation and robotics where our products play a
critical role at the heart of the sensing and control capabilities of
a broad suite of industrial lasers. Our laser based modules provide
remote sensing capabilities reducing costs for the end customer
and maximising efficiency, for example in the control of wind
powered generators.
In our medical markets we see a growing demand for healthcare
globally. Ageing populations and growing incomes support this
trend. There is a clear growth in demand for preventative care where
our design and manufacturing capabilities are well positioned.
Increasing disposable income also provide long term support for
the growth in cosmetic procedures creating long term sustainable
demand for our Pockels cells products used within cosmetic lasers.
In our A&D markets there are a number of structural growth drivers.
The demand for increased precision is driving sustained demand
for our fibre and ring laser gyro products used in guidance systems
whilst our precision optics are used in the harshest environments
to ensure precision in military application in land, sea and air weapon
systems. We are working with our partners in the development of
directed energy weapon systems. Whilst the commercial aerospace
market is experiencing softness as a result of the pandemic our
fibre based products provide the capability for reducing the weight
and power demand of the platform compared to more traditional
systems and sub systems. In space, our laser based communication
systems provide significant weight and efficiency benefits for
satellite systems.
OUR PEOPLE
Our people are our most important asset. Their skills and
experience are key to ensuring the long term sustainability of our
business. The Board recognises that only by fully engaging with
our workforce will we achieve our strategic objectives.
Developing and Retaining Our Talent
It is essential that we develop the skills and capabilities of our
employees, and to attract and retain the best talent available in
the regions in which we operate.
which the Executive Management Team assess the outcomes,
formulate actions plans and review progress. The Board are kept
informed of the results.
The loss of key personnel is identified by the Board as a key risk and
is set out in further detail in the Principal Risks and Uncertainties
schedule below. Voluntary labour turnover was 11% across the
Group in FY2020.
Communicating With Our Employees
The Group recognises the importance of communication and
involvement to engage and motivate employees to support and
help deliver the company’s objectives.
Keeping employees informed on matters relating to their
employment, on business developments and on the financial and
economic factors affecting the Group is essential in maintaining good
working relationships. This is achieved through briefings from the
Chief Executive Officer and other members of the executive team,
“all-hands” meetings held at our sites, internal announcements, the
Group’s website and the distribution of preliminary and interim
announcements and press releases. Works councils or employee
consultation groups, comprised of management and elected
employee representatives operate at the majority of our UK sites.
These allow managers to listen to representatives’ views and take
them into account when making decisions.
The Group also operates a global survey of all its employees each
year to gauge opinion and feedback on a variety of topics, from which
action plans are developed to address areas for improvement. The
Group also uses pulse surveys, for example, to get feedback on
home-working during the coronavirus pandemic.
Health & Safety
The Group is committed to Health & Safety throughout its operations
and has mature operating policies and procedures in place. These
include executive level involvement in regular reviews, which
incorporate key performance indicators and mitigating action
plans where necessary. This data along with benchmarking within
industry sectors confirms improving trends and best in class
performance levels. This is further supported by the Group’s work
towards achieving ISO45001 accreditation which includes a
regular internal assessment process.
The Group recognises the value of supporting employees through
mental health challenges. In FY2020 in the UK G&H partnered
with MIND to train 10 mental health first aiders at the Ilminster
site. Leaders have been trained in how to identify and manage
mental health issues in their teams and further training and
education programmes on this matter are scheduled.
The Group operates an online performance management and
appraisal system which also provides opportunity for individual
discussions on training needs and career planning. This is supported
by a talent management and succession planning process from
The Group provides for external employee assistance programs
(“EAP”) for employees along with access to third party advice on
good practice health & well-being.
ANNUAL REPORT 2020 | 27
GOOCH & HOUSEGO PLC STRATEGIC REPORT
SUSTAINABILITY REPORT
Our Employment Policies
Employment policies throughout the Group have been established to
comply with relevant local legislation and codes of practice relating to
all aspects of employment including equal opportunities and Health
& Safety. The Board is committed to providing equal employment
opportunities for all employees and applicants for employment and
aims to improve the representation of women at all levels, notably
in leadership positions that (excluding the directors) are currently
90% male (88% including the Directors). In support of this
objective, recruitment partners have now been instructed to
include female candidates in their shortlist submissions.
Human Rights
98% of the Group’s employees are based within the major advanced
economies of the UK, USA, France, Germany and Japan, which have
strong legislation governing human rights. The Group complies fully
with applicable legislation in these areas, and the other countries in
which it operates, to ensure the rights of every person (whether
employees, suppliers, clients or stakeholders) are respected. We
uphold employment policies and practices which support and
promote diversity and equal opportunities to make sure all employees
are treated with dignity and respect, and all staff are provided
with a safe, secure and healthy environment in which to work.
Modern Slavery
The Group is committed to acting ethically and with integrity in all
our business dealings and relationships, and implementing and
enforcing effective systems and controls to ensure modern slavery
in all its forms (including human trafficking, forced labour and child
labour), is not taking place anywhere in our Group businesses or in
any of our supply chains. The Group has published a Group-wide
Modern Slavery Policy and a statement on the steps taken to
prevent slavery, which is available on the Group’s website.
Whistleblowing
We have a whistleblowing policy which encourages open and
honest communication where incidents of non-compliance are
seen in our business. Whistleblowing issues are reported directly
to management, and any significant issues, should they arise, are
reported to the Audit Committee. In each instance, cases are
investigated in detail and appropriate action taken.
Our People Response to the Pandemic
Through the ongoing pandemic our priority is the health and safety
of our employees. We have ensured that our facilities are safe, in
many cases implementing operational changes in advance of them
being required by government.
At the same time, the Board recognises the commitment of the
Group’s employees demonstrated through the coronavirus pandemic
as they responded with great agility and dedication to the new
ways of working required.
At the peak of the pandemic, 191 employees were either furloughed
under the UK’s Coronavirus Job Retention Scheme, or equivalent in
the US. Nevertheless, all sites continued to remain operational in
some capacity, in compliance with social distancing and hygiene
rules. Home working was implemented shortly prior to the UK
“lockdown” and where possible, employees continue to work from
home. Detailed COVID-19 safe working policies and practices that
incorporated feedback from our employees about their experiences
28 | ANNUAL REPORT 2020
of workings through the initial stages of the pandemic have been
developed, implemented and regularly audited.
The workforce responded well during this period, including the
adoption of new working patterns to enable social distancing
practices to be implemented successfully. Site management teams
have worked hard to implement safe working and the Group
invested significantly in internal communications to keep employees
informed and engaged in these times.
OUR COMMUNITIES
We look to support and work with the local communities in which
we operate.
Working With Our Communities
The Group supports and develops students and apprentices,
especially in the field of engineering and technology.
We continue to provide young students with work experience and
undergraduates and interns with summer placements as well as
operating formalised apprentice programmes.
The Group has long-standing relationships with several universities
in UK, including Herriot Watt Edinburgh, Strathclyde, Glasgow,
Exeter and University College London with whom we work on
collaborative projects as well as providing letters of support to
academic research projects.
Ethics
G&H holds ethical standards at the forefront of everything we do.
We do not tolerate practices which contravene international
standards. Regulatory demands upon us vary around the world;
however, we have established a core compliance team to ensure
the Group fully adheres to legislative and regulatory requirements
whilst adapting to local needs.
The Environment
We are committed to conducting our business in an environmentally
responsible, sustainable manner. The Group fully complies with
local and national regulatory requirements in respect of the
environment relating to its use, storage, handling and disposal of
materials, chemicals, and certain waste products. We carefully
monitor compliance with these requirements through regular audits.
We are working on optimising our cost base and environmental
impact by reducing our footprint. In the year we announced the
consolidation of our UK precision optics capabilities which will
result in the closure of our Glenrothes facility in December 2020,
improving the efficiency of the Group.
The Group is responding to increasing environmental compliance
regulations and standards, as well as specific customer compliance
requirements. Where these regulations and standards have an
impact on the material composition of our products entering specific
markets, i.e. RoHS, REACH, Conflict Minerals, the Group has engaged
with third party specialists to support our full compliance with
these standards.
We are working hard to reduce the Group’s impact on the
environment. FY2020 has seen a number of initiatives introduced
GOOCH & HOUSEGO PLC SUSTAINABILITY REPORT
STRATEGIC REPORT
along with SECR (Streamlined Energy & Carbon Reporting). These
have included piloted introduction of Voltage Optimization and PV
Solar installations, which form the basis for a wider deployment.
Equivalent (“CO2e”) per £0.1m of revenue. This is the first year
we have reported this measure and will establish a baseline for
future improvements.
Our products support the generation of cleaner, cheaper energy.
Our LIDAR laser modules are used to improve the efficiency of wind
farms and many of our products are designed to help our customers’
products reduce their power consumption. We provide our
customers with a range of products used in laboratory analysis,
minimally invasive procedures and medical diagnostic equipment
all of which help to improve wellbeing.
Our Emissions Report
We have followed the 2019 HM Government Environmental
Reporting Guidelines. We have also used the GHG Reporting
Protocol – in line with the 2020 UK Government’s Conversion
Factors for Company Reporting.
Intensity Measurement
We have chosen to adopt as our intensity measurement ratio
the total gross emissions in metric tonnes Carbon Dioxide
Measures Taken to Improve Energy Efficiency
Within the UK, the Group has commenced a transition to LED
lighting. One of our manufacturing sites has also installed a 297kWp
Solar PV system along with Voltage Optimisation equipment.
Further consideration of a potential 300+kWp Solar PV is being
explored for FY2021.
Due to recent homeworking guidelines the Company has embraced
video conferencing technology for many of the day-to-day
meetings and this has significantly reduced the need for travel
between sites.
Greenhouse Gas Emissions
Emissions from activities which the company
own or control including combustion of fuel &
operation of facilities (Scope 1) / tCO2e
Emissions from purchase of electricity, heat,
steam and cooling purchased for own use
(Scope 2, location-based) / tCO2e
Total gross Scope 1 & Scope 2 emissions /
tCO2e
Energy consumption used to calculate above
emissions: /kWh
Intensity ratio: tCO2e (gross Scope 1 + 2)
– /£100,000 revenue
Definitions
Scope
Scope 1 – direct GHG emissions
Includes emissions from activities owned or controlled by G&H that
release omissions into the atmosphere. Examples include emissions
from combustion in owned or controlled boilers and vehicles.
Scope 2 – energy indirect emissions
Includes emissions from G&H’s own consumption of purchased
electricity, steam, heat and cooling. These are a consequence of the
company’s activities but are from sources not owned/controlled.
Scope 3 – other indirect emissions (voluntary)
Emissions that are as a consequence of the company’s actions but the
source is not owned or controlled, and which are not classed as scope 2
emissions. For example business travel in private cars.
UK and offshore
Current reporting year FY2020
Global
(excluding UK and offshore)
656
1,152
1,808
258
3,786
4,044
Total
914
4,938
5,852
5,760,010
10,825,581
16,585,591
2.80
7.02
4.79
Reported
Includes emissions from combustion of gas and fuel for transport
purposes.
Includes emissions from purchased electricity.
Includes emissions from business travel in rental or employee-owned
vehicles where the company is responsible for purchasing the fuel.
ANNUAL REPORT 2020 | 29
GOOCH & HOUSEGO PLC STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
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.
Change from
FY2019
Risk
Competition
Mitigation
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. We also seek to stay ahead of our competition by
bringing new, technologically superior products to the market.
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 40 new
products during FY2020.
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. During FY2020 we announced as part
of the streamlining of our Acousto Optic and Precision Optic
manufacturing the closure of our Glenrothes facility which
will drive significant overhead reduction for the Group. The
business will be transferred to Ilminster, which will become our
Precisions Optics hub in the UK. Going forward we will consider
further site consolidation in order to optimise our cost base.
These actions will enable the Group to remain cost competitive
in the market place.
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 factories in the US are now all classified as fully or mainly
exempt due to their products being essential or vital for
national security.
New policies and procedures have been implemented across
all our sites in the US, UK and China to ensure our business can
continue to operate effectively whilst rigorously complying
with all relevant regulation and guidelines.
Additional training has been provided to managers to assist
them in managing team members working from home.
Infrastructure and process changes have been made to our
facilities to support enhanced social distancing and other
health and safety requirements.
The above measures will support the Group in mitigating
the impact of a second wave.
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.
COVID-19
During FY20, the business responded well to the challenges
presented by the pandemic. Two of our US sites temporarily
shut and our Torquay facility operated at reduced capacity for
part of the year. All are now open and operating at full capacity
and compliant with all relevant health and safety regulations.
Our other sites were able to remain fully open throughout.
However, until a cure or vaccine is developed, the virus will
present risk. Subsequent waves of cases could lead to further
restrictions and / or staff absences which could affect our
ability to produce. Furthermore, additional waves may have
an effect on demand for our products and services which in
turn could affect our revenue and profitability.
30 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC PRINCIPAL RISKS AND UNCERTAINTIES
STRATEGIC REPORT
Change from
FY2019
Risk
Mitigation
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.
This is particularly important as we progress our strategy
of operational consolidation.
Global economic trends
Adverse changes in the major markets in which the Group
operates can have a significant impact on the Group’s
performance.
Global trade tariffs levied by the US and China could affect our
sales and margins into certain markets.
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. Regular employee surveys are conducted.
In response to employee feedback we intend to implement
an all employee share scheme during FY2021.
Succession planning is reviewed by the senior management
team on a regular basis.
Through our strategy 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 robust order book going into FY2021.
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. Our
supply chain strategy in which we seek to make greater use of
lower cost Asian contract manufacturers also reduces the
Group’s exposure to US/China tariffs.
Brexit
Brexit could affect the group’s financial position, supply chain
and people.
Our Brexit steering group continues to monitor the evolving
impact of Brexit and oversees our response.
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.
We have assessed that our supply chain is not materially
exposed to supply from the EU and have ensured the business
is carrying adequate inventory where it makes sense to do so.
The majority of our terms with customers are for delivery
ex-works. Therefore our exposure to incremental tariffs is
also limited.
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.
Employee training programmes and regular communication
have been put in place to warn employees of the risk of
cyber-crime.
The strategic report has been approved by the Board of Directors and signed on its behalf by:
Mark Webster
Chief Executive Officer
1 December 2020
ANNUAL REPORT 2020 | 31
GOOCH & HOUSEGO PLC STRATEGIC REPORT
S172 STATEMENT
The Companies Act 2006 (the “Act”), as amended by the Companies
(Miscellaneous Reporting) Regulations 2018, now requires
companies to include a “Section 172(1) Statement” in the Strategic
Report describing how directors have had regard to the matters
set out in Section 172 (1) (a) to (f) of the Act when performing their
duties. Section 172 of the Act requires Directors of a company to
act in a way they consider, in good faith, would most be most likely
to promote the success of the company for the benefit of its
members as a whole, and in doing so have regard (amongst other
matters) to the:
• Likely consequences of any decision in the long-term;
• Interests of the Company’s employees;
• Need to foster the Company’s business relationships with
suppliers, customers and others;
• Impact of the Company’s operations on the community and
environment;
• Company’s reputation for high standards of business conduct;
Examples of How We Engage With Our Stakeholders
Customers
Our customers depend on us to supply our products on time and
to the required quality. We also support them in the development
of their next generation products. Our customers expect us to
operate in a responsible manner maintaining the highest standard
of business ethics.
The Board is regularly updated on the timeliness and quality
of product deliveries to our customers as well as developments
with targeted customers and new customer wins. Our sales
and engineering teams engage with our customers and solicit
feedback which is used to inform our technology roadmaps.
There are regular exchanges with our customers on their new
programmes especially through engineer to engineer interactions
so that we can better understand their emerging needs.
and
• Need to act fairly as between members of the Company.
We worked hard to ensure our factories could continue to operate
and supply our customers even at the height of the pandemic.
The Directors’ duties under Section 172 are embedded in all of the
decisions that the Board and its Committees make, together with
a range of other factors, including alignment with our strategy
and our values. Accordingly, information on how s172 matters
have been considered during the year are detailed throughout
this Annual Report.
The Board understands the importance of effectively engaging with
the Company’s key stakeholders, in order to better understand their
views and interests, and to better consider the potential impact of
the Directors’ decisions on them.
The Board is aware that the interests of stakeholders may not
always align with each other and that it may not always be
possible to provide a positive outcome for all stakeholders from
a given decision.
The Board strives to follow best corporate governance practice
and has a governance framework in place that allows it to make
reasoned and informed decisions. Further information on how the
Board and its Committees operate can be found in the Corporate
Governance Report on pages 36 to 37 of this Annual Report.
The identification and assessment of risk is an integral part of the
Board’s decision making process, particularly when it comes to
considering the longer-term consequences and the sustainability
of the Company’s business model and strategy. The Group
maintains a risk register, which the senior leadership team keep
updated, and which is presented to the board on an annual basis.
We invested £8m in R&D focussing on those areas where we see the
opportunity to support our customers’ next generation product
developments. Our manufacturing centres are sharing best practices
across the Group to improve our manufacturing processes.
Employees
Our people play a crucial role in helping us pursue our strategic goals.
We engage and support them to achieve their full potential. There
are regular internal communications from the management team
and feedback from employee representative groups. Employee
surveys are undertaken every year.
The Health and Safety of our employees is of the highest importance
to us. More details of our engagement with our employees and the
results of those engagements are set out in the Sustainability Report.
Shareholders
We maintain strong relationships with shareholders ensuring they
understand our strategy, progress and performance and that we
understand how they view our business. We engage with our
shareholders through Investor Roadshows led by the Chief Executive
Officer and Chief Financial Officer.
The Group’s brokers provide independent feedback to the Board on
shareholder opinions and their views on our meetings with investors.
Regular trading updates are provided as well as the Annual Report.
The Chair of the Remuneration Committee has engaged with our
largest shareholders regarding proposed changes to our Directors
Remuneration arrangements.
Information provided at analysts’ meetings and financial press
releases are made available on the Group’s website.
Feedback received from shareholders has informed the Board’s
discussions and decisions on Group strategy.
32 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC STRATEGIC REPORT
S172 STATEMENT
Suppliers
The supply of goods and services to our operations is critical to our
overall success. We regularly review the performance of our suppliers
and work with them to implement improvement programmes. In
FY2020 a new supplier risk assessment process was developed
which has assisted the Group in prioritising which suppliers require
further support to improve their performance. We are investing
further in our in house team that work with our suppliers to make
them more efficient.
During the year we entered in to a significant new agreement with
an Asian contract manufacturer. Under that agreement we plan to
outsource a large volume of acousto-optics products that were
previously manufactured in house. We intend to build further on this
relationship in the future. In support of this development we are
investing in new systems that will allow us to share delivery and
product quality information with this supplier.
The Group has established a comprehensive set of policies covering
the areas of business ethics. We require our suppliers to operate to
the same high standards and these are set out in our Supplier Code
of Conduct which they are required to adhere to.
Communities and the Environment
G&H aspires to be a responsible citizen within our communities,
offering local recruitment, supporting educational institutions
and the local economy. We also look to minimise our impact
on the environment. G&H offer a range of employment
opportunities for apprentices and we work closely with
educational establishments. We are investing to reduce
greenhouse gas emissions and have photovoltaic panels
fitted to the roof of our largest facility to generate our
own electricity. More detail on our activities in these
areas is given in our Sustainability Report.
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 33
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.
34 | ANNUAL REPORT 2020
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.
Peter will be retiring following the
forthcoming AGM.
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 is currently
CTO of Munich based Lilium GmbH.
Brian holds an MA (Hons) in Engineering
from Cambridge University and is a Fellow
of the Royal Academy of Engineering.
Brian is Chairman of the Remuneration
Committee and a member of the Audit
and Nomination Committees.
Louise Evans (Appointed 11 May 2020)
Louise has wide financial leadership
experience, having held Group Finance
Director roles at Braemar Shipping Services
plc and Williams Grand Prix Holdings plc. She
has also held senior positions at RPS Group
plc and Reynard Motorsport. She qualified as
a Chartered Accountant whilst working with
Ernst & Young.
Louise is a non-executive director and Audit
Committee chair of AB Dynamics plc and the
International Foundation for Aids to
Navigation and is a non-executive director
of SCB Brokers SA.
Louise holds a bachelor’s degree in
Management Science from the University
of Wales and is a Fellow of the Institute of
Chartered Accountants in England & Wales.
Louise is Chair of the Audit Committee
and a member of the Remuneration and
Nomination Committees of the G&H board.
ANNUAL REPORT 2020 | 35
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 (2018). The Code
is available to download at www.frc.org.uk. This is the first year to
which the 2018 Code was applicable. In order to ensure compliance
with the revised code we have made a number of changes. Our
pension contribution level for Executive Directors was brought in line
with the wider UK workforce in FY2019, and we have also introduced
a two year holding period for shares vesting under the LTIP.
Gooch & Housego PLC has complied with the Code during the year
ended 30 September 2020.
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 pages 34 to 35 and
are also available on our website; www.goochandhousego.com.
The Executive Directors have rolling service contracts that are
subject to either six or twelve months’ notice. The Chairman and
non-executive Directors do not have contracts of service. The
terms of appointment of the Directors are available for inspection
during business hours at the registered office of Gooch &
Housego PLC and are also 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 understands and recognises the
benefits that diversity can bring, and our recruitment partners are
briefed on our requirements in this regard.
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
36 | ANNUAL REPORT 2020
where, because of their importance to the Group, it is not considered
appropriate to do this. The Board therefore has a documented
schedule of matters reserved for its decision. This schedule is
available on the Company’s web site.
There are typically 8 board meetings a year. At least once annually,
the Board meets at one of 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 FY2020, this was not possible due to
COVID-19 travel restrictions, so a number of board meetings were
conducted by video conference. We expect to hold a meeting at one
of our US sites in FY2021 if the current travel restrictions are lifted.
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
intermediary for the non-executive directors, where necessary.
The Board believes that Peter has the appropriate experience,
knowledge and independence to continue this role.
The Board is responsible for setting the Group’s strategy. The
board calendar includes two multi-day strategy sessions per year.
At these sessions, members of the leadership team present
updates on strategic progress to the board in advance of wider
discussions which form the basis of our ongoing strategy. Further
details of our strategy can be found in the Strategic Report.
Board meeting attendance is presented in the following table.
Executive Directors
Mark Webster
Chris Jewell
Alex Warnock
Non-executive Directors
Gary Bullard
Peter Bordui
Brian Phillipson
Louise Evans
8/8
8/8
1/1
8/8
8/8
8/8
3/3
(Resigned 8 November 2019)
(Appointed 11 May 2020)
GOOCH & HOUSEGO PLC CORPORATE GOVERNANCE
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.
Engagement With the Workforce
The Code suggests a number of ways in which the board should
ensure engagement with the workforce. These include one or a
combination of the following: a director appointed from the
workforce; a formal workforce advisory panel; and a designated
non-executive director.
The board is satisfied that the level of engagement with the workforce
is appropriate absent one of the above specific recommendations.
The ways in which we ensure appropriate engagement with our
workforce are set out in the Strategic Report. These activities
enable the Board to gauge the Group’s culture and to make changes
where necessary to ensure it is aligned with our strategy.
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 2019, and was led by the Senior
Independent Director, Peter Bordui. One of the key themes coming
out of this review was the need for greater gender diversity on the
Board. Progress has been made in this area during FY2021 and the
board remains cognisant of the benefits diversity can bring.
The Senior Independent Director leads an annual appraisal of the
Chairman’s performance. This review took place during August and
September 2020. 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
and the actions arising at the September 2020 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.
A framework of delegated authorities is in place that details the
structure of delegation below Board level and includes matters
reserved for the Board.
GOVERNANCE
Board Committees
The Board has established a number of committees to assist in
the discharge of its duties. The formal terms of reference for the
principal committees can be found on the Company’s web site.
The Board has three formally constituted committees, the Audit
committee, the Remuneration committee and the Nomination
committee. A report on the activities of each committee follows
later in this report.
Accountability
The Directors acknowledge that they are responsible for the Group’s
system of internal financial control. The system can provide only
reasonable, and not absolute, assurance against material
misstatements and losses.
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. We recruited a new member of the Group finance
team early in FY20. Our intention was for a proportion of this
person’s time to be spent visiting sites in a quasi-internal audit role.
However, due to the travel restrictions brought about by COVID-19,
we have not progressed this as far as had been intended. As soon as
travel restrictions are lifted, we expect regular site visits to resume.
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.
No director is involved in deciding his or her own remuneration.
ANNUAL REPORT 2020 | 37
GOOCH & HOUSEGO PLC GOVERNANCE
DIRECTORS’ REPORT
The Directors present their report together with the audited
consolidated financial statements for the year ended 30 September
2020. The Directors who held office during the year are shown on
pages 34 and 35.
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. 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. An analysis of the segmental information by
market sector is given on in the Market Overview.
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, the Company also entered into contracts to
sell US Dollars at specific rates in the future. Further details are
given in Note 5 to the financial statements.
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.
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 26 of
the Financial and Operating Review.
Dividends
During the year ended 30 September 2020 a final dividend of 7.2p
per share was paid for the previous financial year. No interim dividend
was paid for the half year ended 31 March 2020 (2019: 4.3p).
For the year ended 30 September 2020, the Directors have not
proposed a final dividend.
Substantial Shareholdings
As at 13 November 2020, 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
Black Rock Inc
Canaccord Genuity Wealth Management
Franklin Resources
Bangarra Group
Charles Stanley Group
Number % holding
13.41%
9.73%
7.55%
7.22%
6.18%
5.97%
4.23%
3.37%
3.09%
3,358,811
2,435,451
1,891,230
1,808,354
1,548,464
1,493,858
1,060,000
845,063
773,092
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.
Monthly cash management reporting and forecasting is in place to
facilitate management of this currency risk. The operations of
group treasury take place at head office.
All balances not immediately required for group operations are
placed on short-term deposit with leading international highly
rated financial institutions.
38 | ANNUAL REPORT 2020
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.
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
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 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 company
and of the profit or loss of the group and company for that period.
In preparing the 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 company will
continue in business.
The directors are also responsible for safeguarding the assets of
the group and company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
GOOCH & HOUSEGO PLC DIRECTORS’ REPORT
GOVERNANCE
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the group and company and
enable them to ensure that the financial statements comply with
the Companies Act 2006.
The directors are responsible for the maintenance and integrity of
the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ Confirmations
The directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group and
parent company’s performance, business model and strategy.
In the case of each director in office at the date the Directors’
Report is approved:
• so far as the director is aware, there is no relevant audit
information of which the group and company’s auditors are
unaware; and
• they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit
information and to establish that the group and parent
company’s auditors are aware of that information.
Stakeholder Engagement
The ways in which we have engaged with our stakeholders in the
year are set out in our S172 Statement and our Sustainability Report.
Going Concern
The Directors have reviewed the budget for FY2021 and the
projections for FY2022 developed as part of the annual strategic
plan update. They have assessed the future funding requirements
of the Group and compared them with available borrowing facilities.
Details of the financial and liquidity positions of the Group are
given on page 25.
financial statements. For this reason they continue to adopt the
going concern basis in preparing the financial statements.
Viability Statement
The directors have also assessed the viability and long term prospects
of the Group for the period to September 2023 taking into account
the Group’s current position and the potential impact of the principal
risk and uncertainties set out on pages 30 to 31 of this Report.
Business planning processes within G&H require the preparation
of detailed financial plans as part of an annual review and update
of the Group’s three year strategic 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 three year horizon.
The Group’s strategy is key to understanding its prospects. Further
details of the strategy can be found in the Strategic Report. By
focussing on diversification in to attractive adjacent markets with
our sub assembly and systems capabilities, thereby reducing the
Group’s dependency upon the industrial laser market and by
creating differentiated products and capabilities through our R&D
investment we are making the Group sustainable for the long term.
The Group’s geographical and sector diversification helps to reduce
the impact of many of the risks that the Group faces. Furthermore
the Group’s revenue is not overly concentrated with any particular
customers or markets.
We have determined that the period to September 2023 represents
an appropriate period over which to provide the viability statement
as this aligns with the business cycle and order intake trends of
the Group.
As described above we have stress tested the Group’s financial
projections for the period covered by the viability statement, testing
it for the severe but plausible risks that the business faces including,
in the near term, the continuing impact of the pandemic. This
assessment confirmed that the Group would continue to be able
to operate even if a number of the risks occurred simultaneously.
At 30 September 2020 the Group has a strong balance sheet with
net current assets of £52.4m. The Group’s cash and undrawn
available facilities totalled £32.1m.
Based upon these assessments the Directors confirm that at the
time of approving the financial statements, there is a reasonable
expectation that the Group will have adequate resources to
continue in operation over the period to September 2023.
Approved and signed on behalf of the Board of Directors by:
Mark Webster
Director
1 December 2020
The Directors have reviewed severe but plausible scenarios that
estimate the potential impact of the principal risks that the Group
faces (see pages 30 to 31 of this report) on the financial forecasts.
These include the impact of a second wave pandemic and the
resultant reduced demand in certain of the Group’s markets, most
notably commercial aerospace and the industrial laser market driven
by softness in consumer end market demand. This assessment
covered not only the coming 12 month period but also for the
period to September 2023 in order to support the Viability
Statement given below.
We have compared the downside risk adjusted cash projections
against the Group’s available cash and borrowing facilities and have
been able to conclude that the Group would continue to be able to
operate even if a number of the risks occurred simultaneously.
As a result of the assessments undertaken the Directors are satisfied
that the Group has adequate resources to continue in operational
existence for at least 12 months from the date of approval of the
ANNUAL REPORT 2020 | 39
GOOCH & HOUSEGO PLC GOVERNANCE
AUDIT COMMITTEE REPORT
Membership
The Audit Committee is chaired by Louise Evans, a Chartered
Accountant with significant recent experience in senior finance roles,
and who the Board are therefore satisfied has recent and relevant
experience. The Committee comprises Louise Evans, 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
Louise Evans
Dr Peter Bordui
Brian Phillipson
2/2
3/3
3/3
(Appointed 11 May 2020)
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 website
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
Impact of COVID-19
Conclusion
The Committee considered the impact of the
pandemic on the financial statements of the Group, in
particular the estimates used to arrive at the valuations
of the Group’s assets at the balance sheet date and
its financial position.
The Committee reviewed management’s risk assessment of the impact of the pandemic
on the business. It also carefully reviewed future cashflow projections used to confirm
management’s going concern assessment and the longer term viability of the Group.
The Committee concluded that these projections adequately reflected the impact of
the pandemic on the Group’s operations and future expected cash flows.
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 has reviewed the change to the CGUs in the year which now follow our
manufacturing centre structure (with the exception of Ashford, which has not yet been
aligned to a manufacturing centre) This change has been planned for some time and
reflects the recent reorganisation of the business.
The Committee is satisfied that the carrying value of goodwill is supported based on the
value in use calculations prepared by management, taking into consideration the impact
of the pandemic.
The Committee has reviewed the sensitivity disclosures in note 19 and concluded that
they are appropriate.
40 | ANNUAL REPORT 2020
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.
The Committee reviewed the level of inventory at the year end, which has decreased
in the year.
Non-Underlying Items
The Committee considered the appropriateness of
the measure of adjusted profits, quality of earnings,
and the classification and transparency of items
separately disclosed as non-underlying items.
Financial Systems
Financial Policies and Controls
Fair, Balanced Understandable and
Comprehensive Reporting
The Committee was satisfied that the provisions made adequately reflected the risk
of impairment.
The Committee was satisfied that the presentation of adjusted 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 Committee was satisfied the FRC’s guidance discouraging companies from excluding
charges and credits associated with the pandemic from alternative performance measures
had been followed.
We recruited a new member of the group finance team earlier in FY2020. As reported
last year, it was intended that this individual would support a programme of site visits
to review the financial controls environment. However, due to the travel restrictions
brought about by COVID-19, this has not been possible during FY2020. Our current
intention is to introduce the reviews as soon as travel restrictions are lifted.
The Committee reviewed the work that is underway to refresh and harmonise the financial
policies and controls in place across the Group. It is intended in the coming year, once the
travel restrictions imposed by the pandemic ease, that Group Finance personnel will make
regular site visits to review compliance with these newly issued policies and controls.
The Committee was updated on the work that is being undertaken to develop the Group’s
financial reporting systems. The Group is developing a suite of financial reports populated
from a data warehouse that is regularly refreshed from the sites’ ERP systems. In this way
the Group management teams are able to access financial and operational information in a
faster, more reliable manner. It is expected that this project will conclude during FY2021
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
Louise Evans
Chairman of the Audit Committee
1 December 2020
ANNUAL REPORT 2020 | 41
GOOCH & HOUSEGO PLC
Membership and Attendance at Meetings Held in FY2020
Non-executive Directors
Dr Peter Bordui
Gary Bullard
4/4
4/4
3/4
0/0
4/4
(Appointed 11 May 2020)
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.
Louise Evans
Executive Directors
Mark Webster
• Considers succession planning for Directors and other senior
executives and in doing this considers diversity, experience,
knowledge and skills.
Approval
Areas of focus for the Nomination Committee during FY20
• Appointment of a new Chair of the Audit Committee following
the tragic loss of David Bauernfeind in December 2019.
Peter Bordui
Chairman of the Nomination Committee
1 December 2020
• Succession planning for other members of the Board
Advisors
During FY20, the Committee appointed Warren Partners, an
external search agency, to assist with the identification of
suitable candidates for the role of Chair of the Audit Committee.
Appointment Process
As part of the appointments process, the Committee determined
the selection criteria for the Audit Committee Chair role. The
Committee worked with Warren Partners who drew up a list of
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 Louise Evans who joined the board on 11 May 2020.
Changes in the Coming Year
Having served a tenure of nine years with G&H, Peter Bordui will
retire following the forthcoming AGM. We have commenced a search
for a replacement for Peter, who will stand down when a suitable
replacement is identified and appointed.
42 | ANNUAL REPORT 2020
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.
The Committee has been advised by FIT Remuneration
Consultants on certain matters during the year.
Attendance at meetings held in FY2020
Brian Phillipson (Chairman)
Gary Bullard
Dr Peter Bordui
Louise Evans
2/2
2/2
2/2
1/1
(Appointed 11 May 2020)
Introduction
It is an objective of the Group to attract and retain high calibre
Directors and employees and reward them in a way which
encourages the creation of value for shareholders.
The members of the Remuneration Committee monitor market
reports on key aspects of Executive Director remuneration for AIM
Companies. The last formal review of our schemes was in FY2017,
conducted with input from FIT Remuneration Consultants. The
Committee has sought advice from FIT on a number of matters
since then, and this, combined with information received by the
Committee on market practice, mean the Board is satisfied that in
normal circumstances our combination of salary, bonus and annual
long term incentive schemes provides a good mix of incentives
and rewards in both the short, medium and long terms. Therefore
in FY2020 no changes to our overall remuneration schemes were
considered to be necessary, which we believe drive behaviours
that are consistent with our company values and strategy.
However all extant awards under our share schemes are now
significantly under water, because of adverse market movements
including in particular that due to due to COVID-19. In addition, the
targets for annual bonuses have not been achieved in the last two
years. As our LTIP scheme is based on a three year vesting period
followed by two year holding obligations, the loss of value of awards
from the last three years has effectively opened up a significant
gap between our annual salary and bonus, and what is effectively
a five year LTIP.
The company is currently part way through a significant programme
of integration and consolidation. Due to COVID- 19 we are also
faced with severe restrictions on travel and on face-to-face
meetings, and in progressing this programme are therefore highly
reliant on the existing management’s knowledge of our sites, our
people and our businesses. Any new recruitment would be difficult
in itself but it would be particularly difficult for any new recruit to
become familiar with our businesses given the ongoing restrictions
to travel. In what we see is therefore a critical time to ensure our
Executive Directors and senior management team are retained
and motivated, the loss in value of recent LTIP awards and the gap
of five years to realising value from new awards has caused us to
consider whether some additional action might be appropriate to
address management retention.
We have therefore consulted our major shareholders to discuss
options and have concluded that the most appropriate action is
to grant a one-time award of options which would have a reduced
vesting period to the normal annual LTIP grant.
The Remuneration Committee has reviewed the remuneration of
the senior management team directly below board level during
the year. A particular aim was to ensure there was an appropriate
alignment with remuneration of Directors and the Management.
The Committee is satisfied that this is the case.
The Committee values all feedback from shareholders and hopes
to receive your support at the forthcoming AGM.
ANNUAL REPORT 2020 | 43
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Remuneration Policy Table
The table below summarises our policy for FY2020 and the planned changes for FY2021:
Element of
remuneration
Purpose and link to
strategy
FY2020 Policy and approach
Opportunity
FY2021 Policy and approach
• 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.
Base salary increases
are applied in line with
the outcome of the
annual review.
The Remuneration Committee
approved a 1.5% increase to
the Executive Directors’ salaries
effective from 1 April 2021.
This is in line with the increase
given to the wider workforce.
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.
• Where the company considers it
appropriate and necessary, larger
increases may be awarded in
exceptional circumstances.
• Awarded annually.
• Based on broad 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.
Maximum of 100%
of base salary.
Pension
Provide employees
with market
competitive pension
scheme.
• 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.
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 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.
Exceptional
“one-off”
LTIP awards
for FY2021
Awarded to address
the loss of retention
incentives arising
from loss of value
of extant LTIPs
• N/A
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.
CEO: 80% of basic
salary
CFO: 90% of basic
salary
44 | ANNUAL REPORT 2020
FY2021 proposal:
• 15% payable for hitting 90% of
target EPS, 37.5% for achieving
target EPS and 60% for 110%
of target EPS.
• 5% payable for 90% of
budgeted operating cash flow,
12.5% for achieving target
and 20% for 110% of target
operating cash flow.
• No change to the personal
objective element.
No changes proposed.
No changes proposed to the
normal annual grants.
One off award including windfall
clawback provisions should recent
LTIPs vest.
Awards will vest after two years
and our normal holding provisions
will apply.
Awards will vest in full for
compound EPS growth of
21% per annum
GOOCH & HOUSEGO PLC REMUNERATION COMMITTEE REPORT
GOVERNANCE
Directors’ Remuneration
2020
Basic pay
Executive
M Webster
C Jewell
A Warnock*
Non-executive
G Bullard
Dr P Bordui
B Phillipson
L Evans**
D Bauernfeind***
£’000
350
259
41
80
44
44
18
14
850
2019
Basic pay
Executive
M Webster
C Jewell****
A Boteler*****
A Warnock
Non-executive
G Bullard
Dr P Bordui
B Phillipson
D Bauernfeind
£’000
342
16
168
247
78
42
42
42
977
Performance
related bonus
£’000
Benefits
in kind
£’000
Pension
contribution
£’000
Subtotal
2020
£’000
LTIPs
exercised
£’000
Total
2020
£’000
–
–
–
–
–
–
–
–
–
14
5
–
–
–
–
–
–
19
–
10
2
–
–
–
–
–
12
364
274
43
80
44
44
18
14
881
–
–
–
–
–
–
–
–
–
Performance
related bonus
£’000
Benefits
in kind
£’000
Pension
contribution
£’000
Subtotal
2019
£’000
LTIPs
exercised
£’000
–
–
–
–
–
–
–
–
–
14
1
8
9
–
–
–
–
32
–
1
8
10
–
–
–
–
19
356
18
184
266
78
42
42
42
353
–
218
263
–
–
–
–
364
274
43
80
44
44
18
14
881
Total
2019
£’000
709
18
402
529
78
42
42
42
The above disclosure has been audited.
Alex Warnock resigned on 11 November 2019
*
**
Louise Evans was appointed on 11 May 2020
*** David Bauernfeind deceased on 26 December 2019
**** Chris Jewell was appointed on 9 September 2019
***** Andrew Boteler resigned on 14 June 2019
1,028
834
1,862
ANNUAL REPORT 2020 | 45
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 FY20.
Benefits
Executive Directors receive private health insurance, life assurance
and long term disability insurance.
2020 Performance Related Bonuses
Bonuses in 2020 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
% Payable
at maximum
performance
Performance
outcome
% Bonus
awarded
EPS target (adjusted diluted)
53.5p
Adjusted operating cash flow target
£21.5m
58.9p
£21.5m
60%
20%
30.2p
£22.5m
–
20% (see below)
Directors’ Pension Arrangements
During FY2019, the rate of Company pension contributions for new
executive directors was reduced from 10% to 6%. This brought
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.
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 (2019: 1). 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.
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.
The EPS target for the year was not achieved. Whilst the cash flow
target was achieved, the Directors have waived their entitlement
to this element of the bonus in recognition of the challenging year
faced by the business.
Personal strategic objectives, which accounted for 20% of the
bonus opportunity, were set at the start of the year. These were
subject to review and approval by the Remuneration Committee.
They are focussed on a range of activities which are key to
enabling our strategic objectives.
Details of the objectives set are summarised in the table below:
Mark Webster, CEO
• Achieve quarterly turnover at or above phased budget levels.
• Implement the next phase of organisational change to support the
FY20 business plan and progress organisational change to meet
longer term growth objectives.
• Deliver necessary changes to business systems and processes.
• Develop strategies for the manufacturing centres, business units
and research and development function.
Chris Jewell, CFO
• Achieve quarterly turnover at or above phased budget levels.
• Introduce a new suite of financial reporting metrics aligned to the
structure of the business.
• Finance reports to be fully automated utilising the company’s
systems.
• Introduce a formal programme of controls reviews for each site.
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.
46 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC GOVERNANCE
REMUNERATION COMMITTEE REPORT
Long Term Incentive Plan
There were no exercises under the Long Term Incentive Scheme
by the Directors in the year ended 30 September 2020.
The details of exercises in the year ended 30 September 2019
are summarised below.
2019
Scheme
Number of
Share Options
No.
Director
M Webster
A Boteler
A Warnock
LTIP
LTIP
LTIP
28,437
17,601
21,240
Market
Price
p
1,240
1,240
1,240
Exercise
Price
p
0.0
0.0
0.0
Exercise
Date
28/03/19
28/03/19
28/03/19
Total
Gain
£’000
353
218
263
Director Shareholdings
The Directors’ beneficial interests in the issued ordinary share
capital of the Company were as follows:
Number of shares at
30 September 2020
% of salary as at
30 September 2020
Number of shares at
30 September 2019
% of salary as at
30 September 2019
Executive Directors
Mark Webster
Chris Jewell
Non-executive Directors
Gary Bullard
Dr Peter Bordui
Brian Phillipson
Louise Evans
36,366
1,278
10,535
–
1,954
473
113%
5%
N/A
–
N/A
N/A
36,366
1,278
7,024
–
1,954
–
137%
6%
N/A
–
N/A
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 2020 | 47
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
Date of
grant
10.03.2017
21.12.2017
08.01.2019
13.01.2020
C Jewell
13.01.2020
A Warnock
A Warnock
A Warnock
10.03.2017
21.12.2017
08.01.2019
– Number of ordinary shares under option –
At
Awarded
Exercised
Lapsed
At
01.10.2019
in year
in year
30.09.2020
Expiry
Date
34,606
24,145
26,676
–
–
25,674
16,698
18,301
–
–
–
29,942
37,867
–
–
–
–
–
–
–
–
–
–
–
(34,606)
–
26.03.2021
–
–
–
–
(25,674)
(16,968)
(18,301)
24,145
26,676
29,942
21.12.2021
08.01.2023
13.01.2024
37,867
13.01.2024
–
–
–
26.03.2021
21.12.2021
08.01.2023
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 2020, £303,000 (2019:
£191,000) 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
£17,000 (2019: credit £106,000) in respect of employer’s national
insurance contributions, based on a year end share price of
£10.00 (2019: £11.88).
Brian Phillipson
Chairman of the Remuneration Committee
1 December 2020
48 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
Report on the audit of the financial statements
X
FINANCIAL STATEMENTS
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 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 2020 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 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 2020; the Group Income Statement and Group
Statement of Comprehensive Income, the Group and Gompany
Cash Flow Statements, and the Group and Gompany Statements
of Changes in Equity for the year then ended; and the Notes to
the Group and Company Financial Statements, which include a
description of the significant accounting policies.
ANNUAL REPORT 2020 | 49
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
X
Our Audit Approach
Overview
Materiality
• Overall group materiality: £533,000 (2019: £525,000), based on 5% of the last 3 years’
(2020, 2019, 2018) average consolidated profit before tax, after adding back any
impairment of goodwill, less the release of any accrued contingent consideration
and adding interest on discounted deferred consideration in the applicable years.
• Overall company materiality: £300,000 (2019: £49,000), based on 1% of net assets
(restricted by group materiality).
Audit Scope
• 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 two operating units in the UK (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 Group level in respect of 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 within the remaining sixteen reporting units. In particular,
additional detailed testing was performed on revenue at one reporting unit in the
US, EM4 Inc., and one in the UK, Gooch & Housego (UK) Limited.
• Taken together, these seven reporting units (post consolidation entries) account for
Key audit
matters
70% of Group’s revenue.
Key Audit Matters
• Goodwill impairment assessment (Group).
• Risk of fraud in revenue recognition, particularly in respect of long-term contract
accounting (Integrated Technologies Limited, EM4 Inc and Gooch & Housego (Ohio)
LLC) (Group).
• Impact of the outbreak of COVID-19 on the Financial Statements (Group and Company)
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.
50 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLCMaterialityAudit scope 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
FINANCIAL STATEMENTS
Goodwill impairment assessment (Group).
At 30 September 2020, the Consolidated
Statement of Financial Position includes £37.7
million of goodwill (2019: £38.9 million).
In accordance with the requirements of IFRS,
management has performed impairment reviews
in relation to the goodwill held in the Group’s
cash generating units (CGUs). Management has
prepared value in use calculations for each of
the CGUs using the board approved strategic
plan. The impairment reviews include significant
estimates and judgements in respect of future
growth rates and cash flows, and the discount
rate employed.
We obtained the relevant CGU cash flow forecasts supporting management’s calculation of value
in use and evaluated the appropriateness of key assumptions. We assessed the methodology
used by management in performing the assessments and challenged key inputs.
Our procedures included:
• Verifying the accuracy of the underlying calculations in the model and agreeing the cash
flow forecasts to the strategic plan approved by the Board;
• Evaluating the appropriateness of forecast cash flows by understanding management’s process
for forecasting, examining the support for forecast cash flows and assessing CGU specific cash
flow assumptions.
• Evaluating the appropriateness of the projected revenue growth rates used, both over the
short-term to 2023 and over the longer-term, including assessing the assumptions on the
expected impact of Covid-19 on trading;
• Consideration of prior year and current performance in comparison to historic projected results;
• Considering the impact of a range of sensitivities to assess the impact of reasonably
possible changes in key assumptions compared to those used by management;
• Evaluating the appropriateness of the discount rate used, which included comparing the
rate used to a range provided by our valuation experts;
• Evaluating other key inputs to the cash flows, including capital expenditure; and
• Reviewing the appropriateness of management’s disclosures in the Financial Statements.
Based on our audit work, we are satisfied that the assumptions in the value in use model are
reasonable. We have concluded that the disclosures in the Financial Statements in respect of
key assumptions and sensitivities that would result in further impairment are appropriate.
Based upon our audit work, we concur with the assessment performed. We consider that the
carrying value of the goodwill balance is fairly stated based on materiality and that the
disclosures in the Financial Statements are appropriate.
Risk of fraud in revenue recognition,
particularly in respect of long-term contract
accounting (Group)
We determined that the most likely risk of fraud
in revenue recognition would be due to an
overstatement of revenue, particularly in respect of
posting journals to revenue and the judgements
surrounding long-term contract accounting,
rather than normal transactional point-in-time
revenue recognition.
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 £5.5m (2019: £5.8m) was generated
by the Group from long-term contracts in the year,
and we have focussed our audit work in this area.
We performed testing over journals posted in the year using Computer Aided Audit Techniques
(“CAATs”) by specifically identifying any unusual journal combinations impacting revenue and
testing these 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 prices and identification of performance obligations. We tested
management’s assessment by reviewing a sample of contracts with customers to determine
the impact of IFRS 15 and if management’s assessment was appropriate.
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 that had been recognised
in the period.
From our testing performed we did not identify any material misstatements in revenue
recognition.
Impact of the outbreak of Covid-19 on the
Financial Statements (Group and Company)
We audited management’s assessment of the impact of Covid-19. We considered and critically
assessed:
In March 2020 the global pandemic from the
outbreak of Covid-19 became significant and is
causing widespread disruption to financial
markets and normal patterns of business activity
across the world, including the UK.
The pandemic had the most significant impact on
the Industrial sector, however the impact was
felt across the Group with some short-term site
closures and reduced employee hours.
Disclosure of the risk to the Group and Company
of Covid-19 and management’s conclusions on
going concern have been included within the
relevant sections of the Annual Report.
• The timing of the development of the outbreak across the world and in the UK; and
• How the Financial Statements and business operations of the Group and Company might be
impacted by the pandemic and related disruption.
In forming our conclusions over going concern, we evaluated whether management’s going
concern assessment considered appropriate impacts arising from Covid-19. Our procedures in
respect of going concern included:
• We reviewed and challenged management’s going concern assessment, based upon the
bottom-up full year 2021 budget and strategic forecast to September 2023, to ensure the
impacts of Covid-19 have been appropriately considered and reflected; and
• We have challenged the key assumptions in this assessment, including the availability of
sufficient cash resources and compliance with future banking covenants.
Based on the work performed, we are satisfied that the matter has been appropriately evaluated
and reflected in the Financial Statements and concur with management’s assessment that
the impact of COVID-19 has not had a significant impact on the going concern assessment.
We also assessed the adequacy of disclosures related to Covid-19 included in the Financial
Statements and consider these to be appropriate.
ANNUAL REPORT 2020 | 51
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
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:
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 two
operating units in the UK (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 Group level in
respect of 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 within the remaining
sixteen reporting units. In particular, additional detailed testing
was performed on revenue at two reporting units, one in the US
(EM4 Inc), and one in the UK (Gooch & Housego (UK) Limited).
• Taken together, these seven reporting units (post consolidation
entries) account for 70% of Group’s revenue.
Overall materiality
£533,000 (2019: £525,000).
Group Financial Statements
How we determined it 5% of the last 3 years’ (2020 ,2019, 2018) average
consolidated profit before tax, after adding back any
impairment of goodwill, less the release of any accrued
contingent consideration and adding interest on
discounted deferred consideration in the applicable years.
Company Financial Statements
£300,000 (2019: £49,000).
1% of net assets (restricted by Group materiality).
Rationale for
benchmark applied
Based on the benchmarks used in the Annual Report and
Financial Statements 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.
We determined our materiality based on total assets,
which is more applicable than a performance-related
measure as the Company is primarily an investment
holding Company for the Group and does not have any
revenues as a result.
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 £232,000 and
£400,000. 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 £26,650 (Group
audit) (2019: £26,000) and £15,000 (Company audit) (2019: £2,450)
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.
52 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
FINANCIAL STATEMENTS
Reporting on Other Information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic Report and Directors’ Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, 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 2020 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’ 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 39 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 39 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’ 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 39, 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 page 40 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.
ANNUAL REPORT 2020 | 53
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
to the Members of Gooch & Housego PLC
Other Required Reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
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 company financial statements are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Jason Clarke (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
1 December 2020
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 38, 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.
54 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC GROUP INCOME STATEMENT
For the year ended 30 September 2020
30 September 2020
30 September 2019
Note
Underlying
Non-
Total
Underlying
Non-
Total
FINANCIAL STATEMENTS
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
£’000
7
122,095
underlying
(see note 14)
£’000
–
–
–
–
–
£’000
122,095
(82,845)
39,250
(7,924)
(7,440)
£’000
129,133
(84,231)
44,902
(7,074)
(8,545)
underlying
(see note 14)
£’000
–
–
–
–
–
£’000
129,133
(84,231)
44,902
(7,074)
(8,545)
(4,875)
(18,634)
(13,298)
(8,228)
(21,526)
–
1,082
269
382
651
(4,875)
818
(303)
(4,360)
6,334
834
(1,776)
5,392
16,254
(7,846)
21
(1,259)
15,016
–
(1,218)
(9,064)
8,408
21
(2,477)
5,952
(82,845)
39,250
(7,924)
(7,440)
(13,759)
1,082
11,209
16
(1,473)
9,752
(2,128)
518
(1,610)
(3,332)
1,141
(2,191)
7,624
(3,842)
3,782
11,684
(7,923)
30.5p
30.2p
(15.4p)
(15.2p)
15.1p
15.0p
46.8p
46.7p
(31.7p)
(31.7p)
3,761
15.1p
15.0p
9
11
12
12
13
16
16
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2020
Profit for the year
Other comprehensive income / (expense) – items that may be reclassified
subsequently to profit or loss
Gains on cash flow hedges
Currency translation differences
Other comprehensive (expense) / income for the year net of tax
Total comprehensive income for the year attributable to the shareholders of
Gooch & Housego PLC
Note
28
28
2020
£’000
3,782
333
(2,105)
(1,772)
2,010
2019
£’000
3,761
–
2,549
2,549
6,310
GOOCH & HOUSEGO PLC
ANNUAL REPORT 2020 | 55
FINANCIAL STATEMENTS
GROUP BALANCE SHEET
For the year ended 30 September 2020
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Income tax liabilities
Deferred consideration
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
Provision for other liabilities and charges
Deferred income tax liabilities
Deferred consideration
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Merger reserve
Cumulative translation reserve
Hedging reserve
Retained earnings
Total equity
Note
17
18
19
26
20
21
22
23
24
24
24
24
25
26
27
28
28
28
28
28
2020
£’000
38,741
6,742
54,624
1,432
101,539
30,580
26,298
19,734
76,612
2019
£’000
39,621
–
58,598
1,539
99,758
33,313
33,190
17,512
84,015
(17,971)
(22,668)
(64)
(1,832)
(1,120)
(3,250)
(77)
–
(1,114)
(4,750)
(24,237)
(28,609)
52,375
55,406
(26,211)
(6,364)
(1,692)
(6,294)
–
(40,561)
(31,722)
–
(1,243)
(6,409)
(2,947)
(42,321)
113,353
112,843
5,008
16,000
7,262
7,675
333
77,075
113,353
5,008
16,000
7,262
9,780
–
74,793
112,843
The financial statements for Gooch & Housego PLC, registered number 00526832, on pages 55 to 84 were approved by the Board of
Directors on 1 December 2020 and signed on its behalf by:
Mark Webster
Director
Chris Jewell
Director
56 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2020
Note
Called up
share
capital
£’000
Share
premium
account
£’000
4,982
15,530
Merger
reserve
Retained
Earnings
Hedging
reserve
£’000
7,262
–
–
–
–
–
–
–
–
£’000
74,013
3,761
–
3,761
(2,849)
(19)
191
(304)
(2,981)
–
–
–
–
26
–
–
26
–
–
–
–
470
–
–
470
FINANCIAL STATEMENTS
Cumulative
translation
reserve
£’000
Total
equity
£’000
7,231
109,018
–
2,549
2,549
–
–
–
–
–
3,761
2,549
6,310
(2,849)
477
191
(304)
(2,485)
9,780
112,843
9,780
112,843
£’000
–
–
–
–
–
–
–
–
–
–
–
–
5,008
16,000
7,262
74,793
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,782
–
333
(2,105)
–
3,782
(1,772)
3,782
333
(2,105)
2,010
(1,803)
303
(1,500)
–
–
–
–
–
–
(1,803)
303
(1,500)
At 1 October 2018
Profit for the financial year
Other comprehensive expense for the year
Total comprehensive income for the year
Dividends
Shares issued
15
27
Fair value of employee services
Tax debit relating to share option schemes
Total contributions by and distributions
to owners of the parent recognised directly
in equity
At 1 October 2019
Profit for the financial year
Other comprehensive income / (expense)
for the year
Total comprehensive income / (expense)
for the year
Dividends
15
Fair value of employee services
Total contributions by and distributions
to owners of the parent recognised directly
in equity
At 30 September 2019
5,008
16,000
7,262
74,793
At 30 September 2020
5,008
16,000
7,262
77,075
333
7,675
113,353
ANNUAL REPORT 2020 | 57
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
GROUP CASH FLOW STATEMENT
For the year ended 30 September 2020
Cash flows from operating activities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of property, plant and equipment
Sale of property, plant and equipment
Purchase of intangible assets
Interest received
Interest paid
Legal dispute settlement
Net cash used in investing activities
Cash flows from financing activities
Drawdown of borrowings
Repayment of borrowings
Principal elements of lease repayments
Dividends paid to ordinary shareholders
Net cash used by financing activities
Net increase / (decrease) in cash
Cash at beginning of the year
Exchange (losses) / gains on cash
Cash at the end of the year
2020
£’000
21,561
(1,119)
20,442
(4,750)
(5,495)
353
(1,291)
846
(1,399)
1,580
2019
£’000
12,967
(1,321)
11,646
(3,940)
(5,792)
1,480
(1,620)
21
(1,116)
–
(10,156)
(10,967)
8,346
(12,610)
(1,583)
(1,803)
(7,650)
2,636
17,512
(414)
19,734
–
(60)
(14)
(2,849)
(2,923)
(2,244)
19,433
323
17,512
58 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTES TO THE GROUP CASH FLOW STATEMENT
For the year ended 30 September 2020
Reconciliation of cash generated from operations
Profit before income tax
Adjustments for:
– Amortisation of acquired intangible assets
– Amortisation of other intangible assets
– Profit on disposal of property, plant and equipment
– 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
FINANCIAL STATEMENTS
2020
£’000
5,392
2,676
984
(27)
–
–
6,901
303
(315)
(834)
1,776
11,464
2,042
6,812
(4,149)
4,705
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)
Cash generated from operating activities
21,561
12,967
Reconciliation of net cash inflow / (outflow) to movements in net debt
Increase / (decrease) in cash in the year
Drawdown of borrowings
Repayment of borrowings
Changes in net cash resulting from cash flows
Adoption of IFRS16 Leases
New leases
Translation differences
Non cash movements
Movement in net debt in the year
Net debt at 1 October
Net debt at 30 September
Analysis of net debt
2020
£’000
2,636
(8,346)
14,193
8,483
(9,429)
(766)
1,165
97
(450)
(14,287)
(14,737)
At 1 Oct
2019
£’000
Adoption of
IFRS16
£’000
Cash at bank and in hand
17,512
Debt due within 1 year
(62)
Debt due after 1 year
(31,719)
–
–
–
Finance leases
Net debt
(18)
(14,287)
(9,429)
(9,429)
Cash flow
£’000
2,636
60
4,204
1,583
8,483
New
leases
£’000
–
–
–
(766)
(766)
Exchange
movement
£’000
Non cash
movement
£’000
(414)
–
1,145
434
1,165
–
(62)
159
–
97
2019
£’000
(2,244)
–
74
(2,170)
–
–
(1,511)
–
(3,681)
(10,606)
(14,287)
At 30 Sep
2020
£’000
19,734
(64)
(26,211)
(8,196)
(14,737)
The non-cash movements in the above tables include debt arrangement fees and movements between amounts due within one year and
after one year due to the lapse of time.
ANNUAL REPORT 2020 | 59
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
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 97.
The consolidated financial statements of the Group for the year
ended 30 September 2020 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 92.
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 2020, and with
those parts of the Companies Act 2006 applicable to companies
preparing financial statements in accordance with IFRS. The
financial statements have been prepared on a going concern basis.
3. Application of IFRS
Adoption of new standards
The following two new standard standards were effective for the
financial year ended 30 September 2020:
IFRS16 leases
IFRS 16 provides a single lease accounting model, requiring lessees
to recognise assets and liabilities for all leases unless.
On adoption of IFRS16, the group recognised lease liabilities in
relation to leases which had previously been classified as operating
leases under the principles of IAS17 “Leases”. These liabilities were
measured at the present value of the remaining lease payments,
discounted using the lessee’s incremental borrowing rate as of 1
October 2019. The weighted average lessee’s incremental borrowing
rate applied to the lease liabilities on 1 October 2019 was 3.33%.
The group applied the modified retrospective approach to transition.
The effect of adopting the standard was to increase liabilities (and
net debt) by £9.4m at 1 October 2019. Right of use assets of £9.6m
were recognised on adoption of the new standard whilst £0.2m
previously held in other receivables relating to lease deposits was
eliminated on adoption of the new Standard.
The standard had the effect of reducing profit before tax by £0.1m.
This comprised an increase in depreciation on right of use assets
of £1.6m and an increase in interest on lease liabilities of £0.4m.
These were partially offset by lease rental payments of £1.9m no
longer being recognised in the income statement.
There was no initial deferred tax effect on adoption of IFRS16.
Timing differences arising on IFRS16 in the year ended 30
September 2020 gave rise to a deferred tax asset of £0.4m.
60 | ANNUAL REPORT 2020
In applying IFRS16 for the first time, the Group has used the
following practical expedients permitted by the standard:
• accounting for operating leases with a remaining term of less
than 12 months as at 1 October 2019 as short-term leases; and
• using hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
• application of the exemption for leases of low value assets.
Measurement of lease liabilities
Operating lease commitments disclosed as at 30
September 2019
Add: adjustments as a result of different treatment of
extension and termination options
(Less): discounted using the lessee’s incremental
borrowing rate at the date of initial application
Add: finance lease liabilities recognised as at 30
September 2019
(Less): short term leases not recognised as a liability
(Less): low value leases not recognised as a liability
Lease liability recognised as at 1 October 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
£’000
5,657
5,366
(1,359)
18
(245)
(8)
9,429
1,482
7,947
New Standards and Interpretations not yet adopted
The following standard and amendments will apply to the Group
for the first time in the year ending 30 September 2021. None are
expected to have a material effect on the financial statements.
• Definition of Material – amendments to IAS 1 and IAS 8
• Definition of a Business – amendments to IFRS3
• Interest Rate Benchmark Reform – amendments to IFRS9,
IAS 39 and IFRS7
• Revised Conceptual Framework for Financial Reporting
• Annual Improvements to IFRS Standards 2018 – 2020 Cycle
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,
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
FINANCIAL STATEMENTS
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
asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies
adopted by the Group.
Subsidiary audit exemptions
Gooch & Housego (UK) Limited, Gooch & Housego (Torquay) Limited,
Spanoptic Limited, Kent Periscopes Limited, G&H US Holdings Limited,
G&H Property Holdings Limited, Integrated Technologies Limited,
Integrated Technologies (Holdings) Limited, VITL Limited and ORF
Limited are exempt from the requirement to file audited financial
statements by virtue of Section 479A of the Companies Act 2006.
Segment reporting
A business segment is a grouping of operations engaged in
providing products or services that are subject to risks and
returns that are different from those of other business segments.
A market segment is engaged in providing products or services
within a particular economic environment that are subject to risks
and returns which are different from those of segments operating
in other economic environments.
The chief operating decision maker in determining a business or
operating segment is the Board of Directors.
Foreign currency translation
a. Functional and presentation currency
The consolidated financial statements are presented in Pounds
Sterling, which is the Group’s presentation currency. Items included
in the financial statements of each of the Group’s subsidiaries are
measured using the currency of the primary economic environment
in which the entity operates (the “functional currency”).
b. Transactions and balances
Foreign currency transactions are translated into an entity’s functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at balance
sheet exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
c. Subsidiaries
The results and financial position of subsidiaries that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the rate on the dates of the transactions); and
• all resulting exchange differences are recognised in other
comprehensive income and as a separate component of equity.
On consolidation, exchange differences arising from the translation
of the net investment in foreign operations, and of borrowings
and other currency instruments designated as hedges of such
investments, are taken to shareholders’ equity. When a foreign
operation is partially disposed of or sold, exchange differences
that were recorded in equity are recognised in the income
statement as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
No depreciation is charged on freehold land or capital work in
progress. Certain plant used in the manufacturing process which
is constructed from precious metals is not depreciated.
Depreciation on other assets is calculated to allocate their cost
over their estimated useful lives, as follows:
• Freehold buildings
• 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.
ANNUAL REPORT 2020 | 61
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
b. Patents, Trademarks and Licenses
Internally incurred costs associated with the filing and perfection
of patents and trademarks are capitalised and carried at cost less
accumulated amortisation. Amortisation is calculated using the
straight line method to allocate the cost over their useful
economic lives and are charged to Research and Development
in the income statement.
Acquired patents, trademarks and licences are shown at historical
cost. Patents, trademarks and licences have a finite useful life and
are carried at cost less accumulated amortisation. Amortisation is
calculated using the straight line method to allocate the cost over
their useful economic lives.
c. Computer software
Costs associated with developing or maintaining computer
software programmes are recognised as an expense as incurred.
Costs that are directly associated with the development of
identifiable and unique software products controlled by the
Group, and that will probably generate economic benefits
exceeding costs beyond one year, are capitalised and recognised
as intangible assets. Costs include the software development
employee costs and an appropriate portion of relevant overheads.
Acquired computer software and licences are capitalised on the
basis of the costs incurred to acquire and bring to use the specific
software.
Capitalised software costs are amortised using the straight line
method over their estimated useful lives of up to 5 years and
charged to Administration in the income statement.
d. Research and development
Expenditure on research activities, undertaken with the prospect
of gaining new scientific or technical knowledge and
understanding, is recognised as an expense as incurred.
Development costs incurred after the point at which the
commercial and technical feasibility of the product have been
proven, and the decision to complete the development has
been taken and resources made available, are capitalised.
The expenditure capitalised includes the cost of materials,
direct labour and an appropriate proportion of overheads.
Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses. Development
costs are amortised using the straight line method over their
estimated useful life lives, which is typically 5 years, and are
charged to Research and Development in the income statement.
e. Acquired intangibles
Other acquired intangible assets are stated at fair value less
accumulated amortisation and impairment losses.
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.
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 for expected credit losses.
The group applies the IFRS9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables have been
grouped based on shared credit risk characteristics and the days
past due. The expected loss rates are based on the payment profiles
of sales over a period of 24 months prior to the reporting date and
the corresponding historical credit losses experienced within this
period. The historical loss rates are adjusted to reflect current and
forward looking information on macroeconomic factors affecting
the ability of the customers to settle the receivables.
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.
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
Trade payables
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
62 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
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.
Derivatives and hedging activities
The Group transacts derivative financial instruments to manage
the underlying exposure to foreign exchange risk. The Group does
not transact derivative financial instruments for trading purposes.
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.
The hedges entered into during FY2020 have been assessed as
effective and therefore the Group has applied hedge accounting.
Accordingly, movements in the fair value of the hedges have been
recorded in reserves.
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.
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.
ANNUAL REPORT 2020 | 63
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
At each balance sheet date, for awards with non-market vesting
conditions, the entity revises its estimates of the number of options
that are expected to vest. It recognises the impact of the revision
to original estimates, if any, in the income statement, with a
corresponding adjustment to equity. The fair value of the options
under the Gooch & Housego 2013 Long Term Incentive Plan are
determined by using the Monte Carlo option pricing model.
The proceeds received net of any directly attributable transaction
costs are credited to share capital (nominal value) and share
premium when the options are exercised.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated.
The Group monitors and assesses its warranty provision requirement
on a continuing basis. The provision for other liabilities and charges
provides for the anticipated cost of repair and rectification of
products under warranty, based on historical repair and replacement
costs. In addition the Directors will also assess expected changes
in future costs based on current information.
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
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term leases
(defined as leases with a lease term of twelve months or less) and
leases of low value assets. For these leases, the Group recognises the
lease payments as an operating expense on a straight-line basis
over the term of the lease unless another systematic basis is more
representative of the time pattern in which economic benefits
from the leased assets are consumed.
The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the lessee’s incremental borrowing
rate is used, being the rate that the lessee would have to pay to
borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions.
Lease payments included in the measurement of the lease liability
comprise:
• fixed lease payments (including in substance fixed payments),
less any lease incentives;
• variable lease payments that depend on an index or rate, initially
measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual
value guarantees;
• the exercise price of purchase options, if the lessee is
reasonably certain to exercise the options; and
64 | ANNUAL REPORT 2020
• payments of penalties for terminating the lease, if the lease
term reflects the exercise of an option to terminate the lease.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability and by
reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding
adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a change in the assessment
of exercise of a purchase option, in which case the lease liability
is remeasured by discounting the revised lease payments using
a revised discount rate;
• the lease payments change due to changes in an index or rate
or a change in expected payment under a guaranteed residual
value, in which case the lease liability is remeasured by
discounting the revised lease payments using the initial
discount rate (unless the lease payments change is due to a
change in a floating interest rate, in which case a revised
discount rate is used);
• a lease contract is modified, and the lease modification is not
accounted for as a separate lease, in which case the lease liability
is remeasured by discounting the revised lease payments using
a revised discount rate. The Group did not make any such
adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement day less any lease incentives received and
any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle
and remove a leased asset, restore the site on which it is located
or restore the underlying asset to the condition required by the
terms and conditions of the lease, a provision is recognised and
measured under IAS 37. The costs are included in the related
right-of-use asset.
Right-of-use assets are depreciated over the shorter period of
lease term and useful life of the underlying asset.
Variable rents that do not depend on an index or rate are not included
in the measurement of the lease liability and the right-of-use asset.
The related payments are recognised as an expense in the period in
which the event or condition that triggers those payments occurs
and are included in the line “Other operating expenses” in the
Income Statement.
For short-term leases (leases with a term of twelve months or less)
and leases of low-value assets, the Group has opted to recognise
a lease expense on a straight-line basis as permitted by IFRS 16.
This expense is presented within operating expenses in the
Income Statement.
As a practical expedient, IFRS 16 permits a lessee not to separate
non-lease components, and instead account for any lease and
associated non-lease components as a single arrangement. The
Group has not used this practical expedient.
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
FINANCIAL STATEMENTS
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.
Approach to transition
The Group has applied IFRS 16 using the modified retrospective
approach, without restatement of the comparative information.
In respect of those leases the Group previously treated as
operating leases, the Group has elected to measure its right-of-
use assets arising from property leases using the approach set
out in IFRS 16.C8(b)(ii), whereby right-of-use assets are set equal
to the lease liability, adjusted for prepaid or accrued lease
payments, including unamortised lease incentives. The Group’s
weighted average incremental borrowing rate applied to lease
liabilities as at 1 October 2019 is 3.33%.
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. For revenue recognised
over time the Group recognises revenue on a basis that depicts
the Group’s performance in transferring control of the goods and
services to the customer, having assessed the nature of the
promised goods or service.
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.
ANNUAL REPORT 2020 | 65
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
5. Financial Risk Management
Capital risk management
Management considers capital as equity, as shown in the Group
balance sheet, excluding net debt.
Foreign exchange risk arises from
• future commercial transactions;
• recognised assets and liabilities; and
• net investments in foreign operations.
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.
The criteria against which the Group’s capital needs are assessed
include, but are not limited to,
• availability of and cost of debt financing;
• ability to raise equity financing at an acceptable share price; and
• ratio of debt to equity.
Financial risks
The Group’s activities expose it to a variety of financial risks:
market risk (including foreign exchange risk and cash flow interest
rate risk), credit risk and liquidity risk.
The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential
adverse effects on the Group’s financial performance. Where
considered appropriate, the Company will use derivative financial
instruments to hedge risk exposures. During the year ended 30
September 2020, the company has entered into contracts to sell US
Dollars and buy UK Sterling at fixed rates at specific dates in the
future. At 30 September 2020, the Company had contracts to sell
$7m in the period to 30 September 2021. The fair value of these
contracts, of £0.3m, has been included within receivables on the
balance sheet. No such arrangements were in place during the
year ended 30 September 2019.
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.
66 | ANNUAL REPORT 2020
During the year the Group has entered into contracts to hedge
foreign exchange risk as disclosed above.
The Group has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.
Currency exposure arising from the net assets of the Group’s
foreign operations is managed primarily through borrowings
denominated in the relevant foreign currencies.
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 2019, with all other variables constant, post
tax profits for the year would have been £105,000 higher (2019:
£145,000 lower) as a result of the translation in US Dollars.
Equity is more sensitive to movement in the US Dollar exchange
rate as a significant amount of the Group’s net assets are held in
the Group’s US subsidiaries. If the US Dollar weakened by 10%
against Pound Sterling with all other variables held constant,
the net assets of the Group would be £3,751,000 lower (2019:
£2,747,000 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 £4,584,000 higher (2019:
£2,747,000 higher).
b. Cash flow interest rate risk
The Group has cash balances of £19.7m which are held in interest
bearing current accounts. The Group’s income and operating
cash flows are substantially independent of changes in market
interest rates.
The Group’s interest rate risk arises from its revolving credit
facility. A 1% increase in the cost of borrowing would have
resulted in an annualised increase in interest expense of
£337,000 (2019: £306,000).
Borrowings issued at variable interest rates expose the Group to
cash flow interest rate risk. During 2019 and 2020, the Group’s
borrowings at variable interest rates were denominated in Pound
Sterling and US Dollars as detailed in Note 24.
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.
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
FINANCIAL STATEMENTS
The Group is exposed to concentration of credit risk. The Group’s
top ten customers in 2020 accounted for 29% of the Group’s
revenue (2019: 25%). No individual customer made up more than
6% of revenue in either the current or prior year.
The Group’s trade receivables are analysed in note 21.
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 $50m (£38.7m) of which $34m (£26.3m) is drawn and
an uncommitted flexible acquisition facility of $20m (£15.5m)
which is undrawn. Both are available until 16 April 2023. These are
analysed in Notes 24 and 30.
The Group aims to ensure that there are sufficient funds or credit
lines available to supplement cash flows generated from trading
to meet known obligations in the next twelve months.
6. Critical Accounting Estimates and Judgments
The preparation of financial statements in accordance with
International Financial Reporting Standards (IFRS) requires the
Directors to make critical accounting estimates and judgments
that affect the amounts reported in the financial statements
and accompanying notes. These estimates and judgments are
continually evaluated and are based on historical experiences
and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. The
resulting accounting estimates will on occasions fail to equal
actual results.
The estimates and assumptions that have significant risk of
causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined below.
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 19.
Inventory provision
The Group continually monitors and assesses the provision for old
and slow moving inventory. Factors considered by the Directors
include the expected future usage and the potential obsolescence
and deterioration of the inventory.
The provision for inventory obsolescence amounts to 19.1% of the
gross inventory value (2019: 15.8%). The Directors are satisfied
that this provision is appropriate. An increase in the provision
amounting to 1% of the gross inventory value would increase the
provision by £0.4m.
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. These estimates are based on regularly updated
forecasts, but do have a degree of estimation uncertainty.
Revenue recognised under long term contracts in the year ended
30 September 2020 amounted to £5.5m. Accordingly a difference
in the percentage of completion estimates of 1% would have an
impact of £0.1m on revenue.
Critical accounting judgements
Non-underlying items
Transactions are classified as non-underlying where in the opinion
of the Directors 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.
ANNUAL REPORT 2020 | 67
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
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 2020
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
Operating profit
Operating profit margin %
Add back non-underlying items and amortisation
of acquired intangibles
Adjusted operating profit
Adjusted profit margin %
Finance costs
Profit before income tax expense
For the year ended 30 September 2019
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-underlying items, amortisation of acquired
intangible assets and goodwill impairment
Adjusted operating profit
Adjusted profit margin %
Finance costs
Profit before income tax expense
41,390
–
41,390
(37,295)
4,095
9.9%
(2,554)
1,541
–
1,541
3.7%
1,258
2,799
6.8%
(128)
1,413
27,578
(1,684)
25,894
60,280
(5,469)
54,811
(20,543)
(48,004)
5,351
20.7%
(964)
4,387
–
4,387
16.9%
263
4,650
18.0%
(32)
4,355
6,807
12.4%
(3,636)
3,171
–
3,171
5.8%
935
4,106
7.5%
(189)
2,982
–
–
–
642
642
–
(731)
(89)
(2,676)
(2,765)
–
2,419
(346)
–
(593)
(3,358)
129,248
(7,153)
122,095
(105,200)
16,895
13.8%
(7,885)
9,010
(2,676)
6,334
5.2%
4,875
11,209
9.2%
(942)
5,392
Aerospace
& Defence
£’000
Life Sciences/
Biophotonics
£’000
Industrial
Corporate
Total
£’000
£’000
£’000
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
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
68 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
Management have added back the amortisation of intangibles, impairment of goodwill, restructuring costs, site closure costs, charge / release
in respect of contingent consideration, amounts received in respect of litigation associated with a property lease 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 long term contracts
Revenue from sale of products
Total revenue
Analysis of net assets by location:
United Kingdom
USA
Continental Europe
Asia Pacific
2020
£’000
5,512
116,583
122,095
2019
£’000
5,888
123,245
129,133
2020
Assets
£’000
89,807
86,824
738
782
2020
Liabilities
£’000
(41,676)
(22,999)
(52)
(71)
2020
Net Assets
£’000
48,131
63,825
686
711
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
178,151
(64,798)
113,353
183,773
(70,930)
112,843
For the year to 30 September 2020 non-current asset additions were £5.1m (2019: £5.8m) for the UK and USA £3.1m (2019: £1.7m). There
were no additions to non-current assets in respect of Europe (2019: £nil) or the Asia Pacific region (2019: £nil). The value of non-current
assets in the USA was £44.7m (2019: £58.3m) and in the United Kingdom £39.3m (2019: £41.4m). There were no non-current assets in
Europe or 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
2020
£’000
33,994
45,554
24,101
18,446
2019
£’000
32,054
50,097
25,816
21,166
122,095
129,133
Note
10
2020
£’000
47,387
2,042
52,885
3,968
6,901
2,676
984
–
–
9
(1,082)
2019
£’000
45,294
(6,646)
58,707
11,928
4,548
3,690
672
6,258
(3,075)
(651)
115,761
120,725
ANNUAL REPORT 2020 | 69
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
9. Other Income and Expenses
Grants receivable
Amounts claimed under the RDEC
Other income / (expense)
2020
£’000
561
315
206
1,082
2019
£’000
622
350
(321)
651
Other income relates to sales of certain materials used in production which need to be reprocessed periodically. 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
Pension costs
2020
£’000
2019
£’000
42,912
48,950
3,725
303
3,328
2,617
4,077
191
3,314
2,175
52,885
58,707
The employee benefit expense shown above for FY2020 is shown net of UK Government Job Retention Scheme income of £0.4m and
similar income in the US of £1.1m.
The average number of employees during the year was:
Manufacturing
Sales, finance and administration
Key management compensation
Salaries and other short-term benefits
Share based payments
Other pension costs
2020
Number
2019
Number
668
279
947
2020
£’000
5,408
303
331
696
268
964
2019
£’000
6,880
191
313
6,042
7,384
Key management comprise the Executive Board and the senior operational staff.
Directors’ remuneration, including the highest paid Director, has been included on page 45 of the Remuneration Committee Report.
These disclosures have been audited.
70 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
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
Net losses / (gains) on foreign exchange
Operating lease rentals
Impairment of goodwill
Credit in relation to accrued contingent consideration on acquisitions
12. Finance Income and Costs
Finance income comprises:
– Settlement of legal dispute
– Bank interest
Finance costs comprise:
– Bank interest
– Lease interest
– Interest on discounted deferred consideration
FINANCIAL STATEMENTS
2020
£’000
48
137
131
5
496
74
–
–
2019
£’000
46
128
130
7
(322)
2,479
6,258
(3,075)
2020
£’000
2019
£’000
818
16
834
–
21
21
(1,114)
(1,258)
(359)
(303)
(1,776)
(1)
(1,218)
(2,477)
ANNUAL REPORT 2020 | 71
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
13. Income Tax Expense
Analysis of tax charge in the year
Current taxation
UK Corporation tax
Overseas tax
Adjustments in respect of prior year tax charge
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior years
Change to UK tax rate
Total deferred tax
Income tax expense per income statement
2020
£’000
1,089
631
(199)
1,521
2019
£’000
1,756
653
–
2,409
(255)
(218)
199
145
89
–
–
(218)
1,610
2,191
The taxation expense for the year is higher (2019: higher) than the standard rate of corporation tax in the UK. An explanation of the
differences is detailed below:
Profit before income tax expense
Profit at the effective standard rate of tax of 19.0% for the year (2019: 19.0%)
Utilisation of losses
Permanent differences
Adjustments in respect of foreign tax rates
Effect of UK rate change on deferred tax balances
Other timing differences
Total tax expense
2020
£’000
5,392
1,024
(194)
369
331
145
(65)
1,610
2019
£’000
5,952
1,131
(106)
721
376
–
69
2,191
Factors affecting the future tax charge
Overseas tax losses of £9.6m (2019: £10.5m) and UK tax losses of £0.8m (2019: £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.
A reduction to the UK corporation tax rate (reducing the rate to 17%) was planned to come into effect from 1 April 2020, as per legislation
enacted in 2016. During the year, a reversal of these plans and maintenance of the current UK 19% rate was announced in the UK Budget
2020, and this change was substantively enacted on 17 March 2020. Following these change, UK deferred tax balances in the closing
position have been measured at 19%, resulting in a £0.1m charge to the Group income statement.
72 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
14. Non-underlying items
Included within administration expenses
Amortisation of acquired intangible assets
Restructuring costs
Property litigation settlement
Goodwill impairment
Adjustment to deferred consideration
Included within other income and expense
Site closure costs
Included within net finance costs
Interest awarded in property litigation settlement
Unwind of discount on deferred consideration
FINANCIAL STATEMENTS
2020
£’000
2019
£’000
2,676
2,609
(410)
–
–
4,875
3,690
1,355
–
6,258
(3,075)
8,228
–
–
(382)
(382)
(818)
303
(515)
–
1,218
1,218
The restructuring costs incurred in the year related to expenses arising from the project to establish the Ilminster facility as our UK Precision
Optics Centre of Excellence and the resultant closure of our Glenrothes facility. The costs recorded in the period principally comprised
redundancy costs and the write downs of both property, plant and equipment and inventories of products which will be discontinued at
the completion of the project.
Restructuring costs incurred in the year ended 30 September 2019 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.
In the year ended 30 September 2019, the Board took the decision to impair the goodwill relating to the Boston and Baltimore cash
generating units by £2.6m and £3.6m respectively. See note 19 for further details.
Site closure costs in FY19 related to the profit generated on sale of the Group’s Orlando facility (£0.8m), partially offset by the costs
associated with the closure of the Madison office (£0.4m).
In March 2020 long running litigation with the landlord of our Fremont facility was finally concluded. G&H was awarded a total of $3.6m
(£2.8m) comprising damages, reimbursement of our costs and interest arising from the landlord’s non-performance in respect of the lease
and this amount was received in June 2020. The reimbursement of costs and interest received of £1.2m were treated as a non-underlying credit
in the income statement whilst the damages element of the award were credited against the right of use asset held on the balance sheet.
The credit in respect of accrued contingent consideration recorded in FY2019 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 in FY2019, the full amount of the deferred consideration
in respect of Gould Fiber Optics was written back (£2.6m).
15. Dividends
Final 2019 dividend paid in 2020: 7.2p per share (Final 2018 dividend paid in 2019: 7.1p per share)
2020 Interim dividend nil (2019: 4.3p)
2020
£’000
1,803
–
1,803
2019
£’000
1,772
1,077
2,849
The Directors have not proposed a final dividend making the total dividend paid and proposed in respect of the 2020 financial year nil
(2019: 11.5p).
ANNUAL REPORT 2020 | 73
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
16. Earnings Per Share
The calculation of earnings per 20p Ordinary Share is based on the profit for the year using as a divisor the weighted average number of
Ordinary Shares in issue during the year. The weighted average number of shares for the year ended 30 September is given below:
Number of shares used for basic earnings per share
Dilutive shares
Number of shares used for dilutive earnings per share
A reconciliation of the earnings used in the earnings per share calculation is set out below:
2020
Number
2019
Number
25,039,519
24,936,438
174,664
141,696
25,214,183
25,078,134
Basic earnings per share
Amortisation of acquired intangible assets (net of tax)
Goodwill impairment (net of tax)
Release of accrued contingent consideration (net of tax)
Site closure costs (net of tax)
Restructuring costs (net of tax)
Interest on deferred consideration
Property litigation settlement (net of tax)
Total adjustments net of income tax expense
Adjusted basic earnings per share
Basic diluted earnings per share
Adjusted diluted earnings per share
2020
2019
£’000
pence per share
£’000
pence per share
3,782
2,279
–
–
–
2,218
303
(958)
3,842
7,624
3,782
7,624
15.1p
9.1p
–
–
–
8.9p
1.2p
(3.8p)
15.4p
30.5p
15.0p
30.2p
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
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.
74 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC At 30 September 2019
3,588
9,642
17,040
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
17. Property, Plant and Equipment
FINANCIAL STATEMENTS
Freehold
land and
buildings
£’000
Leasehold
property
Plant and
machinery
£’000
£’000
Fixtures,
fittings and
computers
£’000
Motor
vehicles
Total
£’000
£’000
Capital work
in progress
£’000
2,704
1,232
–
(375)
27
Cost or valuation
At 1 October 2018
Additions
Disposals
Reclassification
Exchange rate differences
Additions
Disposals
Reclassification
Exchange rate differences
At 30 September 2020
Accumulated depreciation
At 1 October 2018
Charge for the year
Disposals
Exchange rate differences
At 30 September 2019
Charge for the year
Disposals
Exchange rate differences
At 30 September 2020
Net book value
At 1 October2018
At 30 September 2019
At 30 September 2020
919
–
(3,076)
24
1,455
–
–
–
–
–
–
–
–
–
2,704
3,588
1,455
10,676
15,743
25
(1,064)
–
5
609
(214)
17
885
45
(444)
–
(4)
137
–
1,776
(749)
35,243
3,350
(1,464)
299
903
38,331
4,064
(8)
1,300
(767)
3,948
656
(813)
59
61
3,911
241
(109)
–
(83)
9,239
18,204
42,920
3,960
1,993
202
(348)
5
1,852
459
(292)
(4)
2,015
8,683
7,790
7,224
3,492
1,020
(16)
216
4,712
1,098
–
(229)
5,581
21,864
2,858
(1,449)
482
23,755
3,206
(6)
(405)
2,663
463
(588)
47
2,585
489
(108)
(36)
26,550
2,930
32
37,108
12,251
12,328
12,623
13,379
14,576
16,370
1,285
1,326
1,030
18
13
39
38,320
39,621
38,741
51
–
(8)
–
1
44
28
–
–
(1)
71
33
5
(8)
1
31
1
–
–
68,365
5,872
(3,563)
–
1,882
72,556
5,434
(561)
–
(1,580)
75,849
30,045
4,548
(2,409)
751
32,935
5,253
(406)
(674)
At 30 September 2019, plant and machinery purchased under a hire purchase or finance lease agreement had a cost of £77,000 and net
book value of £16,000.
No interest was capitalised in the year (2019: £Nil).
ANNUAL REPORT 2020 | 75
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
18. Right of Use Assets
Cost
On transition to IFRS16 – At 1 October 2019
Additions
Adjustments
Exchange rate differences
At 30 September 2020
Accumulated depreciation
On transition to IFRS16 – At 1 October 2019
Charge for the year
Exchange rate differences
At 30 September 2020
Net book value
At 30 September 2019
At 30 September 2020
Fixtures and
fittings
£’000
Motor
vehicles
£’000
Land and
buildings
£’000
Plant and
machinery
£’000
Total
£’000
34
–
–
(1)
33
–
10
–
10
–
23
36
9
–
–
45
–
18
–
18
–
27
9,438
800
(1,609)
(416)
8,213
–
1,591
(19)
1,572
–
6,641
84
–
–
(4)
80
–
29
–
29
–
51
9,592
809
(1,609)
(421)
8,371
–
1,648
(19)
1,629
–
6,742
The adjustment to land and buildings right of use assets of £1.6m relates to the damages received following the resolution of our
legal dispute with the landlord of our Fremont, CA facility.
19. Intangible Assets
Cost or valuation
At 1 October 2018
Additions
Disposals
Exchange rate differences
At 30 September 2019
Additions
Disposals
Transfers
Exchange rate differences
At 30 September 2020
Accumulated amortisation
and impairment
At 1 October 2018
Charge for the year
Disposals
Exchange rate differences
–
–
1,641
54,956
–
–
–
(1,362)
53,594
9,748
6,258
–
–
At 30 September 2019
16,006
Charge for the year
Disposals
–
–
Exchange rate differences
At 30 September 2020
(153)
15,853
Net book value
At 1 October 2018
At 30 September 2019
At 30 September 2020
76 | ANNUAL REPORT 2020
43,567
38,950
37,741
Goodwill
£’000
Acquired customer
relationships and order books
£’000
Acquired
brands
£’000
Capitalised R&D,
Patents and licences
£’000
Software and
other intangibles
£’000
Total
£’000
53,315
30,450
–
–
983
31,433
–
–
–
(788)
30,645
15,481
3,252
–
582
19,316
2,238
–
(527)
21,027
14,969
12,117
9,618
4,174
–
–
85
4,259
–
–
–
(72)
4,187
551
438
–
18
1,006
438
–
(20)
1,424
3,263
3,253
2,763
4,146
776
(276)
29
4,675
664
(363)
18
(19)
4,975
1,647
562
–
1
2,210
539
(259)
36
2,526
2,499
2,465
2,449
2,748
94,833
844
(136)
10
3,466
659
–
30
(9)
4,146
1,672
110
(136)
7
1,653
445
–
(5)
1,620
(412)
2,748
98,789
1,323
(363)
48
(2,250)
97,547
29,099
10,620
(136)
608
40,191
3,660
(259)
(669)
2,093
42,923
1,076
1,813
2,053
65,734
58,598
54,624
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
During the year, management have revised the cash generating units (CGUs) to better align them with the way the group is organised
following the recent restructuring of the sites into manufacturing centres. Our Ashford site, acquired in 2018, has not yet been included
in a manufacturing centre and therefore continues to constitute a separate cash generating unit.
Goodwill is allocated to the manufacturing centres as follows: Acousto-Optics £3.9m, Precision Optics & Systems £14.2m and Fibre-Optics
£9.4m. The goodwill relating to the Ashford site is £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 strategic
plan projections approved by the Board. For the purposes of the impairment review, the following key assumptions were made in respect
of the cash flows beyond the duration of the strategic plan:
Cash Generating Unit
Acousto-Optics
Precision Optics & Systems
Fibre Optics
Ashford ITL
Average annual
growth in revenue
from FY2021 to FY2030
4.3%
3.3%
7.4%
1.0%
Pre Tax
Discount Rate
11.8%
11.8%
11.8%
11.8%
The projected gross profit margin and average growth is based on past performance and the Directors’ expectations for the
foreseeable future.
Management have performed various sensitivities on the value in use calculations which underpin the goodwill valuations. These include
increases to the discount rates and reductions to the planned growth rates, the effect of which is summarised below:
Cash Generating Unit
Present value of CGU
Acousto-Optics
Precision Optics & Systems
Fibre Optics
Ashford ITL
£74.5m
£60.0m
£77.7m
£28.5m
Effect on value in use of
an increase of 1% in the
discount rate
(£10.0m)
Effect of a 1% reduction in
growth per annum from
FY2020 to FY2023
(£2.3m)
Effect on value in use of a
reduction in growth from
2024 onwards from 3% to 1%
(£10.0m)
(£7.8m)
(£10.5m)
(£3.5m)
(£2.5m)
(£2.6m)
(£1.3m)
(£9.6m)
(£12.8m)
(£5.8m)
Neither of the above sensitivities give rise to an impairment, and therefore the directors are satisfied that the carrying values
remain appropriate.
The Directors also performed the goodwill impairment analysis using the old basis with the sites as the CGUs. This did not indicate any
impairment had arisen.
In the year ended 30 September 2019, the Board took the decision to impair the goodwill relating to the Boston and Baltimore cash
generating units by £2.6m and £3.6m respectively. The rationale for those impairments is set out below:
The Boston 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 in FY2019, the carrying value of the associated goodwill was £5.1m. 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, in FY2019 Boston struggled to grow its engineering services business. Whilst recent contract awards
for this business were encouraging, the Board, nevertheless, felt it appropriate to make an impairment of £2.6m to the carrying value of
Boston in FY2019.
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 in FY2019, the carrying value of the associated goodwill was £9.2m. Whilst the acquisition helped provide the Group with
further access to the US A&D market the business did not generate the profitable growth required to support the payment of the contingent
consideration. The lower than expected performance in FY2019 also meant that an impairment charge of £3.6m was recognised in
relation to the carrying value of that site’s goodwill in FY2019.
ANNUAL REPORT 2020 | 77
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
20. Inventories
Raw materials
Work in progress
Finished goods
2020
£’000
13,350
11,810
5,420
30,580
The cost of inventories recognised as an expense and included in cost of revenue amounted to £82.8m (2019: £84.2m).
The movement in the inventories provision is as follows:
At 1 October
Increase in in provision
Exchange rate movement
At 30 September
21. Trade and Other Receivables
Trade receivables
Other receivables
Contract assets
Derivative financial instruments
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
78 | ANNUAL REPORT 2020
2019
£’000
12,271
13,204
7,838
33,313
2019
£’000
5,730
375
131
6,236
2019
£’000
29,107
928
1,982
–
1
2020
£’000
6,236
1,132
(142)
7,226
2020
£’000
23,106
801
938
333
87
1,033
26,298
1,172
33,190
2020
£’000
9,257
15,525
1,355
161
2019
£’000
12,324
19,227
1,460
179
26,298
33,190
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
The ageing of trade receivables and contract assets by due date is as follows:
Current
1 to 3 months
Over 3 months
Less provision for impairment
Net trade receivables and contract assets
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
Release of provision
Increase in provision
Exchange rate movement
At 30 September
FINANCIAL STATEMENTS
2020
£’000
2019
£’000
17,240
20,756
6,059
1,135
7,334
3,471
24,434
31,561
(390)
(472)
24,044
31,089
2020
£’000
472
(99)
22
(5)
390
2019
£’000
392
–
66
14
472
The provision for expected credit loss amounts to 1% of current balances, 2% of balances in the 1 – 3 month category, and 25% of
balances greater than 3 months old.
22. Cash and Cash Equivalents
Cash at bank and on hand
2020
£’000
19,734
2019
£’000
17,512
ANNUAL REPORT 2020 | 79
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
23. Trade and Other Payables
Trade payables
Contract liabilities
Other taxation and social security
Grant funding held in trust account
Accruals
24. Borrowings
Current:
Bank borrowings
Leases
Non-current:
Bank borrowings
Leases
Total borrowings
2020
£’000
5,476
121
1,242
420
10,712
17,971
2020
£’000
64
1,832
1,896
26,211
6,364
32,575
2019
£’000
10,045
–
1,040
1
11,582
22,668
2019
£’000
62
15
77
31,719
3
31,722
34,471
31,799
The carrying values of the bank borrowings andleases are not materially different from their fair values and are included as part of the
fair value disclosure for all financial instruments in Note 30.
G&H’s primary lending bank is NatWest Bank. The Group’s facilities comprise a $50m (£38.7m) dollar revolving credit facility and a $20m
(£15.5m) flexible acquisition facility. At 30 September 2020, the balance drawn on the revolving credit facility was $34m (£26.3m) (2019:
$39m (£31.7m)) and on the flexible acquisition facility nil (2019: nil).
The facilities above are committed until 6 April 2023 and attract an interest rate of between 1.4% and 1.9% above US LIBOR dependent
upon the Company’s leverage ratio, payable on rollover dates, typically quarterly.
The Group’s banking facilities are secured on certain of its assets including land and buildings, property plant and equipment and inventory.
Maturity Profile of Bank and Other Borrowings
Within one year
Between one and five years
Maturity Profile of Lease Liabilities
Within one year
Between one and five years
After five years
80 | ANNUAL REPORT 2020
2020
£’000
64
26,211
26,275
2020
£’000
1,832
4,467
1,897
8,196
2019
£’000
62
31,719
31,781
2019
£’000
15
3
–
18
GOOCH & HOUSEGO PLC NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
25. 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
Utilised during year
Increase in year
Reclassified from other creditors
Exchange movements
At 30 September
FINANCIAL STATEMENTS
2020
£’000
1,243
(72)
83
444
(6)
2019
£’000
988
(135)
383
–
7
1,692
1,243
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. The Company offers warranty periods ranging up to 10 years on
some of its products.
26. Deferred Tax Assets and Liabilities
The movements in the Group’s deferred tax assets and liabilities during the year are as follows:
At 1 October
(Charged) / credited to the income statement
Debited directly to equity
Exchange movements
Net liability at 30 September
2020
£’000
2019
£’000
(4,870)
(4,378)
(89)
–
97
218
(453)
(257)
(4,862)
(4,870)
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
IFRS16 Leases
Provisions
Deferred income tax liabilities
Property, plant and equipment
Intangible assets
Other timing differences
Deferred tax balance at 30 September
2020
£’000
139
406
887
1,432
(4,151)
(2,133)
(10)
(6,294)
(4,862)
2019
£’000
548
–
991
1,539
(4,116)
(2,265)
(28)
(6,409)
(4,870)
Overseas tax losses of £9.6m (2019: £10.5m) and UK tax losses of £0.8m (2019: £0.8m) are available to offset against future profits of
the Group. The Group has not recognised a deferred income tax asset of £2.2m (2019: £2.4m) in respect of these losses due to
uncertainty as to whether they will 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 2020 | 81
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
27. Called Up Share Capital
Issued and fully paid ordinary shares of 20p each
At 1 October
Shares issued and fully paid
At 30 September
2020
Number
2019
Number
2020
£’000
2019
£’000
25,039,072
24,907,831
5,008
4,982
1,847
131,241
–
26
25,040,919
25,039,072
5,008
5,008
During the year 1,847 shares (2019: 98,486 shares) were allotted under share option schemes. In 2019, 32,755 shares were issued as part
of the deferred consideration for the Kent Periscopes business.
28. Reserves
At 1 October 2019
Profit for the financial year
Dividends paid
Fair value of share options
Tax debit relating to share options
Currency hedge fair value
Currency translation differences
Share premium
account
£’000
16,000
Merger
reserve
£’000
7,262
–
–
–
–
–
–
–
–
–
–
–
–
At 30 September 2020
16,000
7,262
Cumulative
translation reserve
£’000
Hedging
reserve
£’000
9,780
–
–
–
–
–
(2,105)
7,675
–
–
–
–
–
333
–
333
Retained
earnings
£’000
74,793
3,782
(1,803)
303
–
–
–
77,075
82 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
29. 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 Total Shareholder Return performance criteria and Earnings
Per Share financial performance, these grants will vest upon publication of the results of the Company three years after the grant date.
There have been 8 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 2020 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
A reconciliation of total share option movements is shown below:
13 Jan 2020
133,159
30%
0.76%
569,331
Grant date
8 Jan 2019
99,228
30%
0.76%
1,010,655
21 Dec 2017
96,123
29%
0.56%
914,164
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2020
2019
Number
251,911
133,159
–
(137,801)
247,269
–
Weighted average
exercise price
–
–
–
–
–
–
Number
342,267
99,228
(98,486)
(91,098)
251,911
–
Weighted average
exercise price
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 742.0p per option (2019: 786.0p per option). For the options exercised
in the year ended 30 September 2019, the average market price was 1,254p 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
2020
247,269
2019
251,911
The total charge for the year relating to share options was £303,000 (2019: £191,000), all of which related to equity-settled share based
payment transactions.
ANNUAL REPORT 2020 | 83
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 September 2020
30. 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
2020
£’000
9,675
8,720
1,466
206
2019
£’000
8,274
8,650
500
88
2020
£’000
515
2019
£’000
281
33,956
31,518
–
–
–
–
20,067
17,512
34,471
31,799
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 24. The financial assets include cash at bank and derivative financial instruments but exclude short-term receivables,
prepayments and other receivables. The financial liabilities includes bank borrowings and leases. Other short-term payables are excluded
from this disclosure.
Cash and bank borrowings are stated at amortised cost. Derivative financial instruments, being currency contracts, are valued at level 2
fair values based on the present value of future cash flows based on the forward exchange rates at the balance sheet date. Lease liabilities
are held at fair value based on discounted cash flows using a current borrowing rate.
31. Commitments
Capital commitments – authorised and contracted but not provided for
All capital commitments relate to property, plant and equipment.
2020
£’000
256
2019
£’000
1,715
The future aggregate minimum lease payments under non-cancellable operating leases as at 30 September 2019 were as follows:
Within one year
Between one to five years
2020
£’000
–
–
–
2019
£’000
1,891
3,766
5,657
32. 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.
84 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC COMPANY BALANCE SHEET
As at 30 September 2020
Note
£’000
£’000
£’000
£’000
2020
2019
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 assets / (liabilities)
Non-current liabilities
Deferred income tax liabilities
Deferred consideration
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Merger reserve
Hedging reserve
Retained earnings
At 1 October
Profit for the year
Other changes in retained earnings
Total equity
5
6
7
9
8
51,411
4,589
1,842
205
58,047
8,047
1,986
10,033
3,812
3,116
6,928
10
(5,722)
(12,365)
9
11
4,311
(204)
–
62,154
5,008
16,000
4,591
333
24,670
13,052
(1,500)
36,222
62,154
51,411
5,491
1,598
153
58,653
(5,437)
–
(2,947)
50,269
5,008
16,000
4,591
–
23,999
3,663
(2,992)
24,670
50,269
The financial statements on pages 85 to 96, were approved by the Board of Directors on 1 December 2020 and signed on its behalf by:
Mark Webster
Director
Chris Jewell
Director
ANNUAL REPORT 2020 | 85
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2020
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
At 30 September 2019
At 1 October 2019
Profit for the financial year
Total comprehensive income for the year
Dividends
Fair value of employee services
Gain on cash flow hedge
Total contributions by and distributions to owners
of the parent recognised directly in equity
Note
Called
up Share
capital
£’000
Share
premium
account
£’000
4,982
15,530
Merger
Reserve
Hedging
Reserve
Retained
earnings
Total
equity
–
–
–
26
–
–
26
–
–
–
470
–
–
470
£’000
4,591
–
–
–
–
–
–
–
5,008
16,000
4,591
5,008
16,000
4,591
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
333
333
£’000
23,999
3,663
3,663
£’000
49,102
3,663
3,663
(2,849)
(2,849)
(19)
191
(315)
477
191
(315)
(2,992)
(2,496)
24,670
50,269
24,670
13,052
13,052
50,269
13,052
13,052
(1,803)
(1,803)
303
–
303
333
(1,500)
(1,167)
4
4
At 30 September 2020
5,008
16,000
4,591
333
36,222
62,154
86 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC
COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2020
Cash flows from operating activities
Cash (used in) / generated from operations
Income tax paid
Net cash (used in) / 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 (decrease) / increase in cash
Cash at beginning of the year
Cash at the end of the year
FINANCIAL STATEMENTS
2020
£’000
2019
£’000
(8,465)
1,433
(85)
–
(8,550)
1,433
(4,750)
(2,086)
(15)
350
–
184
(178)
1,477
(617)
6
(4,231)
(1,398)
13,454
(1,803)
11,651
(1,130)
3,116
1,986
3,325
(2,849)
476
511
2,605
3,116
ANNUAL REPORT 2020 | 87
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY CASH FLOW STATEMENT
For the year ended 30 September 2020
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
- Loss / (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 (used in) / generated from operating activities
Analysis of net cash
Cash at bank and in hand
Net cash
2020
£’000
12,881
2019
£’000
3,980
(13,454)
(3,325)
336
508
303
124
(184)
303
29
495
191
(761)
(6)
719
(12,064)
(2,658)
94
(9,376)
(9,282)
1,318
(1,207)
111
(8,465)
1,433
At 1 Oct 2019
Cash flow
At 30 Sep 2020
£’000
3,116
3,116
£’000
(1,130)
(1,130)
£’000
1,986
1,986
88 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
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 2020, 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 2020 that have had a material impact on the financial statements of the Company.
The Company does not have any leases so there was 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.
Derivatives and hedging activities
The Company transacts derivative financial instruments to manage the underlying exposure to foreign exchange risk. The Company does
not transact derivative financial instruments for trading purposes.
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 Company documents the relationship between the hedging instrument and the hedged item and, on a periodic basis,
assesses whether the hedge is effective.
The hedges entered into during FY2020 have been assessed as effective and therefore the Company has applied hedge accounting.
Accordingly, movements in the fair value of the hedges have been recorded in reserves.
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.
ANNUAL REPORT 2020 | 89
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
Property, plant and equipment and intangible assets
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:
2-3%
• Freehold buildings
10-20%
• Plant and machinery
• Fixtures, fittings and computers
10-33%
• 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.
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 Company 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 Company 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 Company’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.
90 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
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 £13,052,000 (2019: £3,663,000 profit).
Fees payable to the Company auditors for the statutory audit for the year amounted to £16,000 (2019: £16,000).
3. Employee Benefit Expense
Wages and salaries
Social security costs
Medical and other insurances
Share based payments
Other pension costs
The average number of employees during the year was 12 (2019: 12), all of whom were administrative.
Directors’ remuneration
Directors’ remuneration
Medical and other insurances
Directors’ pension scheme contributions
2020
£’000
2,151
180
37
303
57
2019
£’000
2,713
304
35
191
70
2,728
3,313
2020
£’000
850
19
12
881
2019
£’000
977
32
19
1,028
The aggregate emoluments of the highest paid Director including gain on exercise of share options were £364,000 (2019: £709,000).
Further information is included in the Remuneration Committee report on page 45.
The aggregate gain on Directors’ share option exercises in the year was nil (2019: £834,000).
The number of Directors who are accruing retirement benefits under a money purchase pension scheme is 1 (2019: 1).
4. Dividends
Final 2019 dividend paid in 2020: 7.2p per share. (Final 2018 dividend paid in 2019: 7.1p per share)
2020 Interim dividend paid: nil per share (2019: 4.3p)
2020
£’000
1,803
–
1,803
2019
£’000
1,772
1,077
2,849
The Directors have not proposed a final dividend for the financial year ended 30 September 2020, making the dividend for the full year nil
(2019: 11.5p).
ANNUAL REPORT 2020 | 91
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
5. Investments
Cost and net book value at 1 October
Additions
Cost and net book value at 30 September
2020
£’000
51,411
–
2019
£’000
51,045
366
51,411
51,411
The subsidiary companies at 30 September 2020, 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
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
Non-trading
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*
ITL (Virginia) Inc.
100% Viking House, Ellingham Way, Ashford, TN23 6NF Non-trading company
100% Viking House, Ellingham Way, Ashford, TN23 6NF Holding company
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
92 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
6. Property, Plant and Equipment
FINANCIAL STATEMENTS
Cost or valuation
At 1 October 2018
Additions
Disposals
At 30 September 2019
Additions
Disposals
At 30 September 2020
Accumulated depreciation
At 1 October 2018
Charge for the year
Disposals
At 30 September 2019
Charge for the year
Disposals
At 30 September 2020
Net book value
At 1 October 2018
At 30 September 2019
At 30 September 2020
7. Intangible Assets
Cost or valuation
At 1 October 2018
Additions
Disposals
At 30 September 2019
Additions
Disposals
At 30 September 2020
Accumulated amortisation
At 1 October 2018
Charge for the year
Disposals
At 30 September 2019
Charge for the year
Disposals
At 30 September 2020
Net book value
At 1 October 2018
At 30 September 2019
At 30 September 2020
Freehold land
and buildings
£’000
Plant and
machinery
£’000
Fixtures and
fittings
£’000
Computer
equipment
£’000
6,197
–
(1,064)
5,133
–
(701)
4,432
1,464
98
(348)
1,214
89
(292)
1,011
4,733
3,919
3,421
3,987
1,392
–
–
–
–
3,987
1,392
–
–
–
–
3,987
1,392
2,585
265
–
2,850
266
–
3,116
1,402
1,137
871
983
93
–
1,076
93
–
1,169
409
316
223
630
61
(381)
310
15
(95)
230
533
39
(381)
191
60
(95)
156
97
119
74
Total
£’000
12,206
61
(1,445)
10,822
15
(796)
10,041
5,565
495
(729)
5,331
508
(387)
5,452
6,641
5,491
4,589
Systems
Computer
Other
Total
software
£’000
£’000
£’000
£’000
842
630
–
1,472
580
–
2,052
–
–
–
–
294
–
294
842
1,472
1,758
1,216
94
–
1,310
–
–
1,310
1,216
9
–
1,225
20
–
1,245
–
85
65
519
11
(207)
323
–
(259)
64
469
20
(207)
282
22
(259)
45
50
41
19
2,577
735
(207)
3,105
580
(259)
3,426
1,685
29
(207)
1,507
336
(259)
1,584
892
1,598
1,842
ANNUAL REPORT 2020 | 93
GOOCH & HOUSEGO PLC
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
8. Other Receivables
Prepayments and accrued income
Derivative financial instruments
Intercompany receivables
9. Deferred Tax
The movement in the deferred tax assets and liabilities during the year was as follows:
At 1 October
Credited to the income statement
Credited directly to reserves
At 30 September
The deferred tax provided for in the financial statements can be analysed as follows:
Property, plant and equipment
Intangible assets
Other timing differences
2020
£’000
32
333
7,682
8,047
2020
£’000
153
(152)
–
1
2020
£’000
90
(154)
65
1
2019
£’000
125
–
3,687
3,812
2019
£’000
655
(187)
(315)
153
2019
£’000
55
–
98
153
Factors affecting the future tax charge
UK tax losses of £0.8m (2019: £0.8m) are available against future profits of the Company. The utilisation of these losses is not
sufficiently certain to recognise a deferred tax asset.
94 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
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
2020
£’000
93
1,269
320
790
3,250
5,722
2019
£’000
377
5,506
1,045
687
4,750
12,365
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
2020
Number
2019
Number
2020
£’000
2019
£’000
25,039,072
24,907,831
5,008
4,982
1,847
131,241
–
26
25,040,919
25,039,072
5,008
5,008
During the year 1,847 shares (2019: 98,486 shares) were allotted under share option schemes. In 2019, 32,755 shares were issued as
part of the deferred consideration for the Kent Periscopes business.
ANNUAL REPORT 2020 | 95
GOOCH & HOUSEGO PLC FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 September 2020
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 eight 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 2020 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
A reconciliation of total share option movements is shown below:
13 Jan 2020
133,159
30%
0.76%
569,331
Grant date
8 Jan 2019
99,228
30%
0.76%
1,010,655
21 Dec 2017
96,123
29%
0.56%
914,164
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2020
2019
Number
251,911
133,159
–
(137,801)
247,269
–
Weighted average
exercise price
–
–
–
–
–
–
Number
342,267
99,228
(98,486)
(91,098)
251,911
–
Weighted average
exercise price
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 742.0p (2019: 786.0p). For the options exercised in the year ended
30 September 2019, 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
2020
247,269
2019
251,911
The total charge for the year relating to share options was £303,000 (2019: £191,000), 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.
96 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC COMPANY INFORMATION
Nominated Adviser and Broker
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
2 Glass Wharf
Bristol
BS2 0FR
Registrars
Link Asset Services
65 Gresham Street
London
EC2V 7NQ
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
Interim Results announcement
Financial Year End
Preliminary announcement of results for the year ending 30 September 2021
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
24 February 2021
June 2021
30 September 2021
December 2021
For further information please contact:
Gooch & Housego PLC
Mark Webster/Chris Jewell
01460 256440
Investec Bank plc (Nomad & Broker)
Christopher Baird/Patrick Robb/David Anderson
020 7597 5970
Buchanan
Mark Court/Sophie Wills/Charlotte Slater
020 7466 5000
ANNUAL REPORT 2020 | 97
GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
COVID-19 UPDATE
In light of the ongoing COVID-19 pandemic and the current legislation and guidance issued by
the UK Government, the AGM will run as a closed meeting and shareholders will not be permitted
to attend in person. This change is a matter of regret for the Board, who value the interaction
with shareholders at AGMs.
Shareholders are invited to submit in advance any questions on either (i) the formal business of
the meeting or (ii) matters they would have asked at the Company’s usual post-meeting Q&A.
Questions should be sent to AGM@gandh.com. Responses will be published on the Company’s
website as soon as practicable after the AGM.
You will not receive a form of proxy for the 2021 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. Should you require assistance please contact our registrar
Link Asset Services on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. 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.
11 THAT the rules of Gooch & Housego Employee Stock Purchase
Plan (“US Plan”), the principal terms of which are summarised
in the Appendix to this Notice of Annual General Meeting, be
approved and the Directors of the Company be authorised to
do all such acts and things they consider necessary or
expedient to implement and give effect to the US Plan.
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 24 May
2022 (whichever is the earlier) unless reviewed, varied or
revoked by the Company in General Meeting and the maximum
nominal amount of shares which may be allotted pursuant to
such authority shall be £1,669,395 (representing approximately
one third of the total ordinary share capital of the Company in
issue at 1 December 2020). 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.
Notice is hereby given that the Annual General Meeting of the
Company will be held at Dowlish Ford, Ilminster, Somerset, TA19 0PF
on 24 February 2021 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 2020 together with the
Directors’ Report and Auditors’ Report thereon.
To receive and approve the Remuneration Committee Report
set out on pages 43 to 48 (excluding page 44) of the Annual
Report and Financial Statements for the financial year ended
30 September 2020.
3
To re-elect Gary Bullard as a Director.
4 To re-elect Mark Webster as a Director.
5 To re-elect Chris Jewell as a Director.
6 To re-elect Brian Phillipson as a Director.
7 To elect Louise Evans as a Director.
8
To re-appoint Messrs PricewaterhouseCoopers LLP as Auditors.
9
To authorise the Directors to fix the remuneration of the Auditors.
10 THAT the rules of Gooch & Housego Sharesave Plan (“UK
Plan”), the principal terms of which are summarised in the
Appendix to this Notice of Annual General Meeting, be
approved and the Directors of the Company be authorised
to do all such acts and things they consider necessary or
expedient to implement and give effect to the UK Plan.
98 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC NOTICE OF ANNUAL GENERAL MEETING
SHAREHOLDER INFORMATION
14 THAT the Company be and is hereby generally and
unconditionally authorised for the purposes of section 701 of
the Companies Act 2006 (the “Act”) to make one or more
market purchases (within the meaning of section 693(4) of
the Act) of fully paid ordinary shares of £0.20 each in the
capital of the Company on such terms and in such manner as
the Directors may determine, provided that:
(a) the maximum aggregate number of ordinary shares hereby
authorised to be purchased is 2,504,092 (representing
approximately 10 per cent. of the total ordinary share capital
of the Company in issue at 1 December 2020);
(b) the minimum price (exclusive of expenses) which may be
paid for each ordinary share is 20 pence per share;
(c) the maximum price (exclusive of expenses) which may be
paid for each ordinary share shall not be more than 5 per cent.
above the average of the middle market quotations for an
ordinary share as derived from the AIM section of the London
Stock Exchange Daily Official List for the five business days
immediately preceding the date on which the ordinary share
is contracted to be purchased;
(d) unless previously renewed, varied or revoked, the authority
hereby conferred shall expire at the conclusion of the next
Annual General Meeting of the Company or 24 May 2022
(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
1 December 2020
Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF
Registered Number: 526832
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:
(i) the allotment of equity securities in connection with an offer
of securities, open for acceptance for a period fixed by the
Directors, by way of rights to the holders of ordinary shares in
proportion (as nearly as may be) to the respective numbers of
ordinary shares held by them on a record date fixed by the
Directors and subject to such exclusions or other arrangements
as the Directors may deem necessary or expedient to deal
with legal or practical problems under the laws of any
overseas territory or the requirements of any regulatory
body or any stock exchange in any territory or in connection
with fractional elements or otherwise howsoever; and
(ii) otherwise than pursuant to sub-paragraph (i) above, the
allotment of equity securities up to an aggregate nominal
amount of £250,409 (representing approximately 5 per cent.
of the total ordinary share capital of the Company in issue at
1 December 2020); 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 12 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 £250,409 (representing approximately
5 per cent. of the total ordinary share capital of the Company
in issue at 1 December 2020); and
(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.
The powers hereby conferred in this Resolution 13 shall expire
at the conclusion of the next Annual General Meeting of the
Company or 24 May 2022 (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.
ANNUAL REPORT 2020 | 99
GOOCH & HOUSEGO PLC
SHAREHOLDER INFORMATION
NOTES
1 A member 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. A proxy need not be a member of the Company
but must attend the meeting for the member’s vote to be
counted. If a member appoints more than one proxy to attend
the meeting, each proxy must be appointed to exercise the
rights attached to a different share or shares held by the
member. However, shareholders are reminded that no physical
meeting is being held and, as such, we urge shareholders to
appoint the Chair of the meeting as their proxy in order to
ensure that their vote is cast.
2 Resolution 2 is an advisory vote only. The Remuneration
Committee Report is set out on pages 43 to 48 of the Annual
Report and Financial Statements for the financial year ended
30 September 2020. Pages 43, 45, 46, 47 and 48 of the
Remuneration Committee Report set out the pay and benefits
received by each of the directors for the year ended 30
September 2020. The Company’s policy on remuneration and
potential pay outs to directors in the future, which is set out
on page 44 of the Annual Report and Financial Statements
for the financial year ended 30 September 2020, is specifically
excluded from this Resolution.
3 Resolutions 1 to 12 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 Shareholders are entitled to appoint another person as a proxy
to exercise all or part of their rights to attend and to speak and
vote on their behalf at the meeting. A shareholder may appoint
more than one proxy in relation to the meeting provided that
each proxy is appointed to exercise the rights attached to a
different ordinary share or ordinary shares held by that
shareholder. A proxy need not be a shareholder of the
Company. However, please see Note 1 above.
5 In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted.
Seniority is determined by the order in which the names
of the joint holders appear in the Company’s Register of
Members in respect of the joint holding (the first named
being the most senior).
6 A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against the
resolution. If no voting indication is given, your proxy will vote or
abstain from voting at his or her discretion. Your proxy will vote
(or abstain from voting) as he or she thinks fit in relation to any
other matter which is put before the meeting.
100 | ANNUAL REPORT 2020
7 You can vote either:
• by logging on to www.signalshares.com and following
the instructions;
• in the case of CREST members, by utilising the CREST
electronic proxy appointment service in accordance with the
procedures set out below.
• You may also request a hard copy form of proxy directly from
the registrars, Link Asset Services.
If you need help with voting online, please contact our
Registrars, Link Asset Services, on 0371 664 0300 (Calls
are charged at the standard geographic rate and will vary
by provider. Calls outside the United Kingdom will be charged
at the applicable international rate) or email Link at
enquiries@linkgroup.co.uk
8 For an electronic proxy appointment to be valid, the
appointment must be received by the Company’s Registrar,
Link Asset Services, no later than 11.00am on 22 February 2021.
9 Only those members registered on the register of members
of the Company at close of business on 22 February 2021
(or, if the meeting is adjourned, 48 hours before the time of
the adjourned meeting) shall be entitled to attend and vote at
the meeting in respect of the number of shares registered in
their name at that time. Changes to the register of members
after the relevant deadline shall be disregarded in determining
the rights of any person to attend and vote at the meeting.
However, please see Note 1 above.
10 CREST members who wish to appoint a proxy or proxies
through the CREST electronic proxy appointment service may
do so for the meeting and any adjournment(s) thereof by
using the procedures described in the CREST Manual. CREST
personal members or other CREST sponsored members, and
those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting
service provider(s), who will be able to take the appropriate
action on their behalf.
11 In order for a proxy appointment or instruction made using
the CREST service to be valid, the appropriate CREST message
(a CREST Proxy Instruction) must be properly authenticated
in accordance with Euroclear UK & Ireland Limited’s
specifications and must contain the information required for
such instruction, as described in the CREST Manual (available
via www.euroclear.com/CREST). The message, regardless of
whether it constitutes the appointment of a proxy, or is an
amendment to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be
received by the issuer’s agent (ID RA10) by the latest time(s)
for receipt of proxy appointments specified in Notes 2 and 3
above. For this purpose, the time of receipt will be taken to
be the time (as determined by the time stamp applied to the
message by the CREST Application Host) from which the
issuer’s agent is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. After this time,
any change of instructions to proxies appointed through
CREST should be communicated to the appointee through
other means.
GOOCH & HOUSEGO PLC
NOTES
12 CREST members and, where applicable, their CREST sponsors
or voting service providers should note that Euroclear UK &
Ireland Limited does not make available special procedures in
CREST for any particular messages. Normal system timings
and limitations will therefore apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a
CREST personal member or sponsored member or has
appointed a voting service provider(s), to procure that his
CREST sponsor or voting service provider(s) take(s)) such
action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service providers
are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system
and timings (www.euroclear.com/CREST).
13 The Company may treat as invalid a CREST Proxy Instruction
in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001 (as amended).
14 Any electronic address provided either in this Notice or in any
related documents may not be used to communicate with the
Company for any purposes other than those expressly stated.
SHAREHOLDER INFORMATION
ANNUAL REPORT 2020 | 101
GOOCH & HOUSEGO PLC SHAREHOLDER INFORMATION
APPENDIX TO NOTICE OF ANNUAL GENERAL MEETING
Gooch & Housego employee share plans
Shareholders are asked to approve the adoption of two new
employee share plans:
(i) the UK Sharesave Plan (“UK Plan”); and
(ii) the US Employee Stock Purchase Plan (“US Plan”),
(each a “Plan” and together, the “Plans”).
Terms applying to both Plans
Overall Plan limits
Options granted under the Plans may be satisfied with new issue
shares, a transfer of treasury shares or shares purchased in the
market. The aggregate number of shares issued or issuable under
the Plans and any other all-employees’ share plan adopted by the
company, cannot exceed 10% of the issued share capital of the
company in any 10-year rolling period.
These limits do not include rights to shares which have been
released, lapsed or that have otherwise become incapable of
exercise or vesting. Treasury shares will count as new issue
shares while required by institutional investor guidelines.
Grant of options
The Board may grant options at any time provided that neither the
date on which the option price is determined nor the date of grant
is in a closed dealing period.
Adjustments
If there is a variation in the company’s share capital (such as a
rights issue), the Board may make an adjustment to the number,
type and nominal value of shares over which options are granted
or the option price, so that the underlying economic value of the
options remains unchanged.
Amendments
The Board may amend the rules of the Plans as it considers
appropriate, subject to any relevant legislation and provided the
amendment does not materially disadvantage participants.
Other option features
Options cannot be granted more than ten years after the date the
Plans are approved by shareholders. Options are not transferable
except on death. Options are not pensionable.
The UK Plan
General
The UK Plan is an all-employee share option plan under which
eligible employees may apply for options (whenever invitations
are issued) to acquire ordinary shares in the company in the
future at a price determined shortly before an invitation is issued.
The option price may be set at a discount to the market value
of a share at that time. Employees are required to save monthly
through a contractual savings arrangement over a period of
either three or five years. At the end of the savings period, the
employee may exercise their options using the savings
contributions or have the savings repaid.
Eligibility
All UK resident employees and executive directors of all group
companies who have been employed for a minimum period
(which may not exceed five years) are entitled to participate
in the UK Plan.
Employee contributions
Participants must enter into a savings contract with a nominated
savings carrier under which they agree to make monthly savings
contributions of a fixed amount within statutory limits (currently
of up to a maximum of £500 per month). The maximum number
of shares over which a participant is granted an option will be the
number of shares that can be acquired, at the option price, with
the monthly savings made plus any bonus payable on maturity of
the savings contract.
Option price
The exercise price of options may not be less than 80% of the
market value of a share on the dealing day(s) immediately prior to
the date of invitation, in accordance with accepted HMRC practice.
Exercise
Provided a participant has remained in employment, options may
normally only be exercised during the six-month period following
the maturity of the related savings contract, after which the
option will normally lapse. The company will arrange for delivery
of the shares to a participant within 30 days following the
exercise of the option.
Leavers
A participant who ceases to be an employee in certain circumstances
(for example death, injury, disability, redundancy, retirement, a sale
of the company in which they work or a takeover of that company),
may exercise their options within six months after leaving
(12 months in the case of death). If a participant leaves for any
other reason, their options will lapse on the leaving date.
Corporate events
If there is a change of control of the company or other significant
corporate event, options may be exercised during the period
starting up to 20 days before and ending six months after the
relevant event.
102 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC APPENDIX TO NOTICE OF ANNUAL GENERAL MEETING
SHAREHOLDER INFORMATION
The US Plan
The US Plan will be operated for employees employed and
resident in the USA and the rules are intended to qualify the US
Plan under the US Internal Revenue Code of 1986, section 423
– a tax favourable US stock purchase regime. Any new shares
issued under the US Plan will count towards the individual and
overall Plan limits outlined above.
The US Plan will operate in a similar manner to the UK Plan but
with the following main differences:
- the exercise price must not be less than the lower of 85% of
the market value of a share at the start of the savings period
and 85% of the market value of a share at the end of the
savings period;
- in order to comply with the requirements under the Code section
423, options may not be exercised more than 27 months from
the date of grant and so it is envisaged that employees will
be offered savings arrangements with shorter-term saving
arrangements (e.g. two years) with options becoming
exercisable at the end of the savings arrangements; and
- in addition to the individual limits outlined above, no participant
in US Plan may purchase more than $25,000 of shares in any
calendar year (based upon the fair market value of the shares
on the grant date and purchase dates).
ANNUAL REPORT 2020 | 103
GOOCH & HOUSEGO PLC David Bauernfeind
1968-2019
104 | ANNUAL REPORT 2020
GOOCH & HOUSEGO PLC >|
Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@gandh.com
gandh.com