Annual Report
September 2021
2
ANNUAL REPORT 2021 |HIGHLIGHTS | LOCATIONGOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | ABOUT US
01
About Us
Gooch & Housego is a leading photonics technology
business headquartered in the UK with state of the
art production facilities in the UK, USA and China.
A world leader in its field, the company researches,
designs, engineers and manufactures advanced
photonic systems, components and instrumentation
for applications in the Aerospace & Defence, Industrial,
Life Sciences and Scientific Research sectors.
Our purpose is to use our photonic engineering and
manufacturing expertise to deliver new innovative
products and services that will help to change the
world with photonics.
STRATEGIC REPORT
02 Investment Case
04 Our 2021 Highlights
08 Our Markets
10 Our Products and Capabilities
12 Chairman’s Statement
14 Our Business Model
16 Our Key Performance Indicators (KPIs)
18 Chief Executive Officer’s Statement
22 Our Strategy
24 Operations Review
30 Financial Review
34 ESG Report
43 S172 Statement
46 Risk Management
GOVERNANCE
50 Board of Directors
52 Corporate Governance
58 Directors’ Report
61 Audit Committee Report
64 Nomination Committee Report
65 Remuneration Committee Report
FINANCIAL STATEMENTS
73 Independent Auditors’ Report
80 Group Income Statement
81 Group Statement of Comprehensive
Income
82 Group Balance Sheet
83 Group Statement of Changes in Equity
84 Group Cash Flow Statement
85 Notes to the Group Cash Flow
Statement
87 Notes to the Group Financial
Statements
114 Company Balance Sheet
115 Company Statement of Changes
in Equity
116 Company Cash Flow Statement
117 Notes to the Company Cash Flow
Statement
118 Notes to the Company Financial
Statements
SHAREHOLDER INFORMATION
128 Company information
129 Notice of Annual General Meeting
GOOCH & HOUSEGO PLC
02
STRATEGIC REPORT | INVESTMENT CASE
Investment Case
Leading products
and technology
Gooch & Housego’s products and capabilities
are recognised as market leading. By pushing
the boundaries of photonics innovation in
wavelength, speed, power and intensity, we
are making today’s limits tomorrow’s baseline.
State of the art facilities
and a cost-effective
supply chain
We have invested in our production facilities
so that we can supply high levels of quality
and precision that few of our competitors can
match. Our in house production is supported
by a cost-effective supply chain with
which we work closely to help drive
continuous improvement.
Diversified
revenues
Financial
strength
Our products and capabilities are
supplied to the industrial, aerospace
and defence and life sciences/
biophotonics markets providing natural
protection against individual market
cyclicality. The nature of the quality
and compliance hurdles inherent in
a large proportion of our markets
makes them highly defensible.
We are profitable, cash generative
and growing, with significant
financial resources meaning
we can invest to further
strengthen our
competitive advantage.
Attractive
markets
In each of our chosen markets the use of photonic
technologies is increasingly used to provide
faster, more precise and reliable solutions.
Our ability to present photonic solutions
as part of a system or module gives us
an advantage in many of our target
markets. We are well placed in markets
that have attractive long-term
growth characteristics.
Well established
customer positions
Our engineers work closely with our
customers as trusted partners for the
development of their next generation
systems, securing us long term programme
positions and recurring revenues.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | INVESTMENT CASE
03
£124.1m
REVENUE
£2.6m
NET DEBT
EXCLUDING LEASES
£12.6m
ADJUSTED PROFIT
BEFORE TAX
£97.8m
ORDER BOOK
48
NEW PRODUCTS
LAUNCHED
GOOCH & HOUSEGO PLC 04
STRATEGIC REPORT | OUR 2021 HIGHLIGHTS
Our 2021 Highlights
Strategic
Financial
• Revenue of £124.1m, up by 1.6% or 6.4%
excluding foreign exchange.
• New products contributed a record £18.1m
of revenue in FY2021 (FY2020: £16.9m).
• Adjusted profit before tax of £12.6m, up
29.4%. Reported PBT £4.7m, down 13.2%.
• Strong cash flow over the year leading to
further debt reduction. Net debt, excluding
IFRS16, of £2.6m places G&H in a strong
position to pursue strategic goals.
• Return of progressive dividend policy with
a proposed full year dividend of 12.2p.
• Year end order book of £97.8m, up 5.6%,
or 8.6% excluding foreign exchange.
Industrial and medical lasers are
demonstrating a sustained recovery, while
telecommunications and medical diagnostics
continue to perform at a high level.
• Trading reflected strong and improving
end markets and initial benefits from our
manufacturing streamlining programme,
more than offsetting currency headwinds
and some supply chain issues.
• Industrial laser demand continues to be
strong, driven by 5G rollout, use of new
more flexible materials in microelectronic
manufacturing and high worldwide
demand for semiconductors.
• Medical lasers continue to grow as elective
surgery recovers. Medical Diagnostics
remain at previous high levels.
• Ambitious manufacturing streamlining
programme is largely complete, reducing
manufacturing sites from 12 to 9.
• Previously announced annual profit benefit
of £1.75m is on track starting FY2022.
• Continued investment in R&D delivering
strong returns with a record new product
revenue contribution.
• G&H remains committed to long term
goals of further diversification into A&D
and life sciences and moving up the value
chain. We intend to pursue these policies
vigorously through internal investment
and where appropriate, acquisitions.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR 2021 HIGHLIGHTS
05
REVENUE (£M)
£124.1m
2021
2020
2019
2018
NET DEBT EXCLUDING LEASES (£M)
£2.6m
£124.1m
£122.1m
£129.1m
£124.9m
2021
2020
2019
2018
£2.6m
£6.5m
£14.3m
£10.6m
ADJUSTED PROFIT BEFORE TAX (£M)
NET DEBT (£M)
£12.6m
2021
2020
2019
2018
£12.6m
£9.8m
£15.0m
£18.8m
£9.2m
2021
2020
2019
2018
Includes lease liabilities from FY2020
£9.2m
£10.6m
£14.7m
£14.3m
STATUTORY PROFIT BEFORE TAX (£M)
ORDER BOOK (£M)
£4.7m
2021
2020
2019
2018
£4.7m
£5.4m
£6.0m
£10.1m
£97.8m
2021
2020
2019
2018
£97.8m
£92.4m
£94.4m
£96.1m
ADJUSTED BASIC EARNINGS PER SHARE (PENCE)
TOTAL DIVIDEND PER SHARE (PENCE)
41.0p
2021
2020
2019
2018
41.0p
30.5p
46.8p
57.2p
12.2p
–
2021
2020
2019
2018
12.2p
11.5p
11.3p
BASIC EARNINGS PER SHARE (PENCE)
13.6p
2021
2020
2019
2018
13.6p
15.1p
15.1p
29.3p
* Adjusted figures exclude the amortisation of acquired intangible
assets, 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.
GOOCH & HOUSEGO PLC 06
STRATEGIC REPORT | OUR 2021 HIGHLIGHTS
Our 2021 Highlights
Mark Webster, Chief Executive Officer, commented:
Trading during the year reflected a sustained recovery in the industrial and
medical laser markets and a robust performance from telecommunications
and medical diagnostics. An increasingly productive R&D group delivered
record levels of new product revenue during the year.
There was some drag on the Group’s overall performance due to currency
headwinds, self-isolation requirements and supply chain issues in parts of
the business as we emerge from the pandemic. It was, however, a far
better business environment than last year and we expect further
improvement in the future.
Our restructuring programme is enhancing the Group’s margins and
enabling us to better respond to our customers’ needs. We are committed
to vigorously pursuing our long term strategic goals and will continue to
invest in R&D and where appropriate, acquisitions.
The Board remains confident that G&H is well positioned to deliver further
progress in FY2022 and substantial long-term growth.”
For further information please contact:
Gooch & Housego PLC
Mark Webster
Chris Jewell
Investec Bank PLC
(Nomad & Broker)
Christopher Baird
David Anderson
Buchanan
Mark Court
Sophie Wills
01460 256440
020 7597 5970
g&h@buchanan.uk.com
020 7466 5000
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR 2021 HIGHLIGHTS
07
GOOCH & HOUSEGO PLC 08
STRATEGIC REPORT | OUR MARKETS
Our Markets
Changing the world with photonics
Photonics is the study and design of systems that depend on the transmission,
modulation or amplification of streams of photons, the basic unit of light.
Thanks to significant size, weight and power advantages photonics is increasingly
substituting electronics only packages and is transforming the fields of
manufacturing, aerospace, communications and medicine.
We enable leading organisations all over the world to deliver tailored, innovative
solutions to meet precise requirements.
With our leading edge photonic applications G&H is helping to change the world
with photonics.
Regional
revenues
£45.9m
NORTH AMERICA
£54.7m
EUROPE
£23.5m
REST OF WORLD
INDUSTRIAL
G&H is recognised as a leading provider of advanced optics, fibre optics,
acousto-optics, and electro-optics for demanding applications in industrial
lasers, semiconductor equipment, fibre-optic subsea networks, and optical
sensing and metrology.
G&H’s industrial optics were an enabling technology when lasers first
appeared in electronics micro processing applications, and we have helped
lasers become the near universal tool they are today for cutting, drilling,
trimming, and surface treatment of any kind. Our acousto-optic modulators,
Q-switches, electro-optic Pockels cells, RF drivers, and precision optics
continue to set the standard for accuracy, size, and power.
G&H is supporting industrial laser OEMs as they target opportunities in
new applications, such as the processing of composites and nanomaterials,
UV and ultra-short-pulse lasing, and additive manufacturing. In the field of
semiconductor manufacturing and electronics assembly, G&H’s products
allow tighter control, faster production speed, and improve precision.
G&H’s industrial fibre-optic products are the preferred solution for the
ever-growing global demand for bandwidth. As electronic commerce and
communications expand around the world, G&H optical expertise will continue
to optimise the footprint, reliability, and bandwidth density of the fibre-optic
components on which subsea networks rely.
G&H is helping drive the rapid adoption of lidar across multiple industrial and
energy sectors ranging from proximity sensing along oil and gas pipelines to
profiling air currents around wind turbines. With an industry-leading portfolio
of fibre-coupled modulators, pump lasers, and sensing modules, G&H is a
recognised leader in the field.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR MARKETS
09
Nagoya
MD Shanghai
Keene
PO
+S
Cleveland
EO
PO
+S
Ashford
St Asaph
OSIH
MD
Torquay
FO
Paris
Munich
HQ
AO
Ilminster
PO
+S
FO
FO
Boston
FOMD
Virginia
Fremont
AO
PO
+S
Moorpark
KEY
Manufacturing locations
AO: Acousto-optics
EO: Electro-optics
FO:
Fibre optics
PO+S: Precision optics and systems
MD: Medical devices
HQ: Headquarters
OSIH: Optical Systems Innovation Hub
Sales offices
LIFE SCIENCES
For seven decades, G&H’s innovative approach to optical
component design has been key in advancing the performance
and reliability of life science instrumentation for medical
microscopy, diagnostic imaging, and laser surgery. We are
recognized as a leading provider of advanced optics, fibre optics,
acousto-optics, and Pockels cells, targeting medical research,
diagnostic imaging, and laser surgery applications worldwide.
Today our products are enabling new advances on the cutting
edge of medical optics such as digital pathology and the imaging
of active neurons with laser-scanning confocal microscopes.
We supplement our life science product offerings by providing
end to end design and manufacturing services for medical
devices, in-vitro diagnostics and laboratory instruments.
Together with our customers we create and deliver breakthrough
technologies for the healthcare and life science industries.
AEROSPACE & DEFENCE
In harsh aerospace and defence environments there are no
second chances. Mission-critical technology demands
uncompromising precision and absolute reliability. G&H
delivers proven optical solutions for aerospace, space, and
defence platforms, including ruggedised commercial photonic
components, build-to-print products, and full-scale development
of customised solutions. G&H’s precision optical components
and advanced lens assemblies enable optimal field of view and
resolution for short, mid and longwave infrared imagers, making
them critical elements in aerospace and defence platforms used
for intelligence, surveillance, and reconnaissance missions.
G&H is at the forefront of satellite to satellite and satellite to
ground fibre optic and signal processing communication.
Space-qualified optical components, lens assemblies, and
subsystems from G&H deliver consistently excellent connectivity
and bandwidth for intra-satellite and satellite-to-ground
communications. Our expertise in fibre optics and photonic
signal processing is also increasingly used to enhance the
sensing capabilities for systems monitoring earth and space
environmental conditions.
G&H is a leading designer and manufacturer of precision optical
components, pump lasers, and fibre-optic couplers for inertial
navigation systems used in avionics and defence. Whether the
application calls for a ring laser gyroscope for airborne or
maritime navigation or a fibre-optic gyro to guide the flight of a
missile or UAV, G&H offers proven expertise in the development
of both legacy and emerging inertial platforms.
GOOCH & HOUSEGO PLC
10
STRATEGIC REPORT | OUR PRODUCTS AND CAPABILITIES
Our Products and
Capabilities
Wide-reaching applications
GOOCH & HOUSEGO IS AT THE FOREFRONT OF PHOTONICS TECHNOLOGY
Our expertise in optical systems, subsystems and components extends from research
through the development of prototypes to volume manufacturing and is a catalyst for
innovation and effective manufacturing in the aerospace and defence, industrial and
telecom, and life sciences/biophotonics sectors.
Acousto-Optics
Electro-Optics
G&H has been a leader in acousto-optic (AO) device design and
manufacturing for over 35 years, bringing together some of
the best minds and technologies in the field to create a
comprehensive suite of high-quality products backed by
premier service and reliability.
Utilising proprietary crystal growth, fabrication, and polishing
techniques, G&H produces a wide range of electro-optic
devices including Pockels cells which are used extensively
in medical lasers for skin and other treatments leading to
effective procedures for patients with less discomfort and
faster recovery times.
We hold our manufacturing sites to exacting standards, from
the in-house growth of our own specialist crystals, such as
tellurium dioxide (TeO2) to polishing, antireflection coating,
fabrication and testing of devices. G&H’s acousto-optic devices
are found at the heart of multiple laser systems used across a
broad range of industrial applications allowing those lasers to
be controlled with unmatched optical power handling,
performance delivered consistently over time and in volume.
France’s Centre Commissariat à Energie Atomique and the
National Ignition Facility in the US both selected G&H as their
primary supplier of large aperture Pockels cells for their high
fluence lasers in their inertial confinement fusion programs.
These laser systems are effectively the most powerful in
existence as they seek to generate energy from nuclear fusion.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR PRODUCTS AND CAPABILITIES
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We enable leading organisations
all over the world to deliver tailored,
innovative solutions to meet
precise requirements.”
Fibre Optics
Precision Optics
G&H’s line of active and passive fibre optic components and
modules offer the performance and reliability required for
some of the most demanding and challenging applications in
the world. Our designs have been qualified and deployed in
space applications and are widely used in terrestrial and
submarine telecommunications systems.
We support customers through all aspects of system
development, lending our expertise in integration of end-to-
end fibre optic systems and design for harsh environments.
G&H’s products support the transmission between continents
of terabits of data through subsea data cables as well as
allowing wind turbines to operate safely and efficiently by
using our fibre based sensing products to detect the direction
and speed of the wind. G&H products are flying in space
allowing satellite to satellite and satellite to ground
communication as well as on board optical sensing.
G&H manufactures precision optical components and
assemblies for applications in research, industry and defence.
Our custom lenses and housed subassemblies find application
in transmission and imaging. We create high quality, custom
optics for volume OEM applications and unique optics for
research. Our ring laser gyro mirrors are used by every
commercial airline in the world.
G&H has supplied super-polished optics to NASA’s Mars
Curiosity mission and to international synchrotron
experiments. From multiple chambers in both the UK and the
US we offer a full range of thin film optical coating capabilities.
Our expertise in coating has been supported by investment in
custom built, ultra-clean, high repeatability chambers to meet
customers’ evolving needs for environmentally-stable optical
coatings. Our engineers are continuously researching the
performance characteristics of new coating materials and
integrating the results into our modelling software to optimise
the designs for customers’ applications.
GOOCH & HOUSEGO PLC
12
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
Chairman’s Statement
Changing the world with photonics
A year of
development
and growth
Across all of the markets
that we serve we are well
positioned to benefit
from the increasing use of
photonic technologies to
solve our customers’ most
complex needs.”
GROUP OVERVIEW
I have been delighted with the trading performance of the
Group in the year. Nearly all of our markets have now returned
to growth as economies emerge from the pandemic confirming
the long-term strong growth prospects of the Group. Across all
of the markets that we serve we are well positioned to benefit
from the increasing use of our photonic technologies and
systems capabilities to solve our customers’ most technically
challenging needs.
The consistent pursuit of our strategic objectives has been a
key enabler of the Group’s performance in 2021. Our focus on
markets with strong growth drivers as well as our proven track
record of supporting our customers with the development of
their most sophisticated products has underpinned the Group’s
return to growth.
Our programme to streamline our manufacturing facilities is
progressing well. The significant investment in our Ilminster
precision optics centre of excellence is now substantially
complete allowing that site to absorb production activities from
our Glenrothes, Scotland and St Asaph, Wales sites. This project,
together with the consolidation of our Baltimore, MD and
Boston, MA facilities is helping us deliver margin enhancement,
but also means we are able to offer a broader, more compelling
range of products and capabilities. Our customers are
increasingly looking to us to provide them with more advanced,
integrated designs consistent with our strategic objectives.
THE ENVIRONMENT AND OUR COMMUNITIES
The Board recognises how important the environment is to all of
our stakeholders. We firmly believe that photonic technologies
are a key enabler in the migration to a more sustainable world.
But we are also focused on our own impact on the environment.
We now track carbon emissions as one of our key performance
indicators and have a programme in place to achieve year-on-
year reductions. As part of that programme we installed solar
panels at our Ilminster facility which, along with the existing
solar panels fitted at our Torquay facility, means that we are
now generating approximately 600 kWp of electricity from
solar sources. We will extend that capability in the current
financial year by installing solar panels at our Ashford facility.
We also recognise the importance of supporting the
communities in which we operate. As well as providing high
quality, skilled jobs we encourage our employees to support
local charities often matching with Company monies the
amounts they raise.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | CHAIRMAN’S STATEMENT
13
29.4%
UNDERLYING PROFIT GROWTH
8.6%
ORDER BOOK GROWTH
Governance
highlights
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 52 to 57.
THE BOARD
Peter Bordui left the Board in February 2021 after nine years of
service. We are extremely grateful for the direction and insights
he provided through what was a period of great strategic and
operational progress for G&H.
We were very pleased to be able to welcome Jim Haynes to the
Board. Jim brings to the Group extensive experience from his
distinguished executive career in the photonics industry where
he held a range of senior leadership roles in engineering and
operations, most recently Executive Vice President,
Operations, at Oclaro/Lumentum.
As a Board we take our governance responsibilities very
seriously. Our approach to our wide range of responsibilities is
set out in the Corporate Governance section of this report on
pages 52 to 57.
DIVIDEND
Given the strength of the business recovery in the year and the
positive outlook for the coming trading period, the Board is
proposing a final dividend of 7.7 pence per share for approval
at the Company’s Annual General Meeting on 23 February
2022, giving a total of 12.2 pence for the year. Payment of the
dividend will be made on 25 February 2022, to shareholders
on the register as at 21 January 2022.
PEOPLE
Our people are our most important asset. Their skills and
experience are key to ensuring the long-term sustainability
of our business. Our employees have shown great commitment
to the business not only by adapting over the last 18 months
to the new working practices required by COVID-19 but also
in delivering the manufacturing facility streamlining projects.
Their positive attitude has impressed the Board and we offer
our appreciation and thanks for our employees’ hard work
and dedication through the year.
OUTLOOK
Looking forward, the Board is very optimistic for G&H. We
are well positioned in our growth markets. Our restructuring
programmes are enhancing the Group’s margins and making
it better able to respond to our customers’ needs. Whilst the
business is facing some near term challenges in recruiting to
support our growth, and there are some constraints in our
supply chains, we have no doubt we can build on the strong
foundations of our technical expertise, our longstanding
customer relationships and the skills and dedication of our
people to deliver substantial future growth.
Gary Bullard
Chairman
30 November 2021
GOOCH & HOUSEGO PLC 14
STRATEGIC REPORT | OUR BUSINESS MODEL
Our Business Model
With our world class photonics
components and systems capabilities
we provide our customers with more
precise, reliable and cost effective
solutions for their most
demanding needs.
We work with our customers to
understand their needs, design
products and systems that meet those
needs and then supply those products
and services to them either from our
own facilities or from our supply chain.
Our purpose is to use photonic
technologies to develop products
that support a cleaner, healthier
and more sustainable world.
Attractive growth
markets
Unique range of skills
and resources
Further deployment of laser-based manufacturing driven
by new 5G technologies.
State of the art manufacturing facilities supported by a high
quality cost effective supply chain.
Increasing needs to share data globally and instantaneously
fuels demand for our hi-reliability fibre optic telecoms products
used to transmit data between continents.
We are pioneers in crystal growth techniques and the supply
of specialist crystalline materials.
Growing demand for improved healthcare, especially
for early-stage diagnostics.
A focus on defence spending on precise, targeted systems that
depend upon our precision optics and
fibre sub-systems.
Increasing global demand for clean, wind generated energy
drives demand for our fibre optic sensing modules.
We offer a complete design, engineering and
manufacturing service.
Our engineering teams working in partnership with our
customers design and produce some of the most complex
photonic subassemblies and systems.
Underpinned by:
Governance
Risk management
The Board is accountable to our shareholders and is
committed to the highest standards of corporate governance.
To this end, the company has adopted the UK Corporate
Governance Code (2018).
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.
See our Corporate Governance Report on page 52.
See our Risk Management Report on page 46.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR BUSINESS MODEL
15
We supply the three markets –
Industrial, Aerospace & Defence
and Life Sciences from our three
capability areas – Acousto/Electro
Optics, Fibre Optics and Precision
Optics and Systems.
We operate from nine
manufacturing locations
in UK, USA and China.
We are building a long term
sustainable business by positioning
ourselves in attractive growth
markets and deploying our unique
range of skills and resources.
Competitive
advantage
Stakeholder
value creation
Industry wide reputation for innovation and continuous
improvement in the field of photonics.
Our customers – we work closely with our customers to solve
their mostly technically challenging system requirements.
Certified manufacturing facilities and a cost-effective
supply chain.
Demonstrated ability to work in high product quality and
compliance markets such as A&D and life sciences.
Close customer relationships.
Our suppliers – we are investing our resources and expertise to
help our consolidated group of suppliers to produce as efficiently
as possible with consistent and repeatable product quality.
Our employees – we invest in our employees to ensure they have
the skills and capabilities needed to operate in our industry
leading operations.
Sustained investment in R&D, enabling us to bring new
products and applications to the market.
Effective and prioritised deployment of capital.
Our communities – we bring high quality jobs to the communities
in which we operate. We work closely with schools and
universities to inspire the next generation of engineers and to
push forward the boundary of photonics.
Our shareholders – through our progressive dividend policy and
long term share price progression we aim to offer an attractive
investment proposition for our shareholders.
Sustainability
Financial position
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.
We are profitable, cash generative and operate across a range
of markets providing natural protection against individual
market cyclicality. At September 2021, we had $35m of
undrawn committed facilities and $20m of undrawn
uncommitted funding facilities meaning that we are able to
invest to support the further profitable growth of the business.
See our ESG Report on page 34.
See our Financial Statements from page 73
GOOCH & HOUSEGO PLC
16
STRATEGIC REPORT | OUR KEY PERFORMANCE INDICATORS
Our Key Performance
Indicators (KPIs)
KPI and Description
Performance
Why this is important
2021 Performance
Organic revenue growth (%)
The percentage change in revenue in the current year compared to the prior year,
excluding the effects of foreign exchange.
Adjusted operating margin (%)
Adjusted operating profit as a percentage of revenue.
R&D investment as a % of revenue
R&D investment as a % of revenue.
Adjusted operating cash flow
Cash flow from operating activities adjusted for non-underlying cash flows.
Safety performance
Any accident resulting in time off work.
Carbon dioxide equivalent (tonnes)
The total amount emitted in tonnes for Scope 1 and Scope 2 (carbon dioxide equivalent),
with further details on the calculation method out in the ESG Report.
2021:
2020:
2019:
6.4%
(5.4%)
(8.0%)
2021:
10.8%
2020: 9.2%
12.6%
2019:
2021:
6.4%
2020: 6.5%
6.0%
2019:
2021: £21.9m
2020: £22.5m
2019: £13.1m
2021:
2020:
2019:
8
11
16
5,414
2021:
2020: 5,852
We are focussed on long-term organic revenue growth
Organic revenue was 6.4% higher, excluding foreign exchange,
as a means to create value. This metric reflects both the
reflecting good recovery in our markets with only our
health of our target markets and our success in gaining
commercial aerospace markets still affected by the pandemic.
an increasing market share with our customers.
Adjusted operating profit margin measures our ability over
The adjusted operating margin was higher at 10.8%
time to generate value from our products and capabilities.
reflecting recovering volumes and the initial benefits
It is impacted by our actions to both increase revenue and
of our site restructuring programme.
optimise our cost base.
Our R&D investment enables us to introduce new products
We continue to invest in line with historical levels. In the year
to the market supporting our objective of increasing
we released another 48 products to the market and revenues
revenue and keeping us ahead of our competitors.
from products contributed £18.1m of revenue in the year.
This measure is directly related to our strategic priority
of focussed R&D investment.
The KPI measures the cash generated by the Group’s
Working capital levels were tightly controlled despite
trading activities. It measures the cash generated to
the 6.4% growth in business volumes in the year. £6.2m
fund investment in the business either through new
was reinvested in new equipment and business systems
assets or to acquire other businesses.
in the year.
We are committed to the wellbeing of our employees.
We were pleased with the further reduction achieved
This KPI measures our performance in raising the safety
compared to the prior year. Our objective is to achieve
standards in our facilities and also underpins our
year on year reductions ultimately achieving no lost
operational performance.
time incidents.
This metric measures our achievement against our objective
During the year we have installed solar panels on our
to reduce our carbon emission over time and reduce the
Ilminster facility and will be installing them on our Ashford
impact we have on the environment.
facility in the coming financial year. G&H is now generating
approximately 600 kWp of electricity from clean
solar sources every year.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR KEY PERFORMANCE INDICATORS
17
KPI and Description
Performance
Why this is important
2021 Performance
Organic revenue growth (%)
The percentage change in revenue in the current year compared to the prior year,
excluding the effects of foreign exchange.
Adjusted operating margin (%)
Adjusted operating profit as a percentage of revenue.
R&D investment as a % of revenue
R&D investment as a % of revenue.
We are focussed on long-term organic revenue growth
as a means to create value. This metric reflects both the
health of our target markets and our success in gaining
an increasing market share with our customers.
Organic revenue was 6.4% higher, excluding foreign exchange,
reflecting good recovery in our markets with only our
commercial aerospace markets still affected by the pandemic.
Adjusted operating profit margin measures our ability over
time to generate value from our products and capabilities.
It is impacted by our actions to both increase revenue and
optimise our cost base.
The adjusted operating margin was higher at 10.8%
reflecting recovering volumes and the initial benefits
of our site restructuring programme.
Our R&D investment enables us to introduce new products
to the market supporting our objective of increasing
revenue and keeping us ahead of our competitors.
This measure is directly related to our strategic priority
of focussed R&D investment.
We continue to invest in line with historical levels. In the year
we released another 48 products to the market and revenues
from products contributed £18.1m of revenue in the year.
Adjusted operating cash flow
Cash flow from operating activities adjusted for non-underlying cash flows.
The KPI measures the cash generated by the Group’s
trading activities. It measures the cash generated to
fund investment in the business either through new
assets or to acquire other businesses.
Working capital levels were tightly controlled despite
the 6.4% growth in business volumes in the year. £6.2m
was reinvested in new equipment and business systems
in the year.
Safety performance
Any accident resulting in time off work.
We are committed to the wellbeing of our employees.
This KPI measures our performance in raising the safety
standards in our facilities and also underpins our
operational performance.
We were pleased with the further reduction achieved
compared to the prior year. Our objective is to achieve
year on year reductions ultimately achieving no lost
time incidents.
Carbon dioxide equivalent (tonnes)
The total amount emitted in tonnes for Scope 1 and Scope 2 (carbon dioxide equivalent),
with further details on the calculation method out in the ESG Report.
This metric measures our achievement against our objective
to reduce our carbon emission over time and reduce the
impact we have on the environment.
During the year we have installed solar panels on our
Ilminster facility and will be installing them on our Ashford
facility in the coming financial year. G&H is now generating
approximately 600 kWp of electricity from clean
solar sources every year.
2021:
6.4%
2020:
(5.4%)
2019:
(8.0%)
2021:
10.8%
2020: 9.2%
2019:
12.6%
2021:
6.4%
2020: 6.5%
2019:
6.0%
2021: £21.9m
2020: £22.5m
2019: £13.1m
2021:
2020:
2019:
8
11
16
2021:
5,414
2020: 5,852
GOOCH & HOUSEGO PLC
18
STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S STATEMENT
Chief Executive Officer’s
Statement
Strong and improving end market demand
FY2021 PERFORMANCE
During the financial year 2021 G&H achieved revenue of
£124.1m, representing an increase of 1.6% over previous year
(FY2020: £122.1m), or excluding the impact of foreign exchange
an increase of 6.4%. Adjusted profit before tax was £12.6m,
an increase of 29.4% over last year (FY2020: £9.8m).
This reflected a strong and improving end market demand
and initial benefits from our manufacturing streamlining
programme, more than offsetting currency headwinds and
some supply chain constraints. Overall, it was a far better
business environment than last year, and we expect further
improvement in the future.
Industrial laser demand continues to be strong, especially the
semiconductor market, where there are a range of exciting
growth opportunities for G&H technologies. Hi-reliability fibre
couplers delivered a good performance, with greater usage in
space satellites complementing the undersea cable business.
We completed a number of significant deliveries to our aerospace
and defence customers. Life sciences performed well across
the board. Medical diagnostics remained at previous high
levels, with a product designed to improve respiratory function
and oxygen uptake, as part of a ventilator system, performing
particularly well. Orders for our specialist medical laser
products have been strong as the market recovers from the
low levels of elective surgery during the pandemic.
Our ambitious manufacturing streamlining programme has
continued throughout FY2021, with further site consolidation
and outsourcing of established products. The previously
announced profit benefit of this programme is on track to be
delivered in FY2022.
We have continued to invest in an active R&D portfolio and are
working closely with many of our customers on their next
generation products. New products contributed a record
£18.1m of revenue in FY2021 (FY2020: £16.9m).
The Group delivered strong cash flow over the year and has
further reduced its level of borrowings. Net debt, excluding
lease liabilities, was £2.6m at the year end, which places G&H
in a strong position to pursue our strategic goals.
Our ambitious manufacturing
streamlining programme is on
track to deliver its expected
profit benefits.”
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S STATEMENT
19
Trading reflected a strong and
improving end market and initial
benefits of our manufacturing
streamlining, more than offsetting
currency headwinds and some
supply chain issues. We continue to
invest in leading edge R&D and new
products delivered record revenue.
There remains substantial long term
growth potential for our photonic
technologies and system capabilities
in all our target sectors.”
G&H has a robust order book. As at 30 September 2021 it
stood at £97.8m (30 September 2020: £92.4m), 5.6% higher
than the same period previous year or 8.6% excluding foreign
exchange. The strength of the order book provides the Group
with good momentum as it enters the new financial year.
Industrial and medical lasers are demonstrating a sustained
recovery, while telecommunications and medical diagnostics
continue to perform at a high level.
STRATEGIC GOALS
Our long-term strategic goals of diversification and moving up
the value chain have stood us in good stead during a challenging
period. As the business environment is now showing significant
improvement, we intend to pursue them with renewed vigour
through internal investment and where appropriate, acquisitions.
Aerospace and defence (A&D) and life sciences provide a
counterbalance to the exposure of the industrial laser business
to the economic cycle. These sectors both have high product
quality and compliance barriers to entry and tend to value
systems over components. As they move towards greater use
of photonics, G&H is increasingly well placed to serve these
customers with our photonic technologies and enhanced
systems capabilities.
Our aim is to provide a broadly equal split between the three
sectors, industrials, A&D and life sciences. In FY2021 A&D
represented 33.1% of our revenue and life sciences 22.1%.
This represents considerable progress over the last few years,
in particular with life sciences, which has benefited from
organic growth in the traditional G&H areas of optical coherence
tomography (OCT) and medical lasers and the acquisition of ITL.
Systems, subsystems and modules represent 33.2% of
revenue. We have substantially improved our software,
firmware, electronic and mechanical engineering capability,
in large part through the acquisition of ITL. Its facility in
Ashford, Kent has provided a platform for the creation of
a systems engineering hub.
GOOCH & HOUSEGO PLC
20
STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S STATEMENT
The strength of the order book
provides the Group with good
momentum as it enters the
new financial year.”
STREAMLINING OF G&H’S MANUFACTURING BASE
Our streamlining programme has progressed well during FY2021.
At the beginning of the financial year, we had 12 manufacturing
sites and now have nine. We moved our Baltimore, MD production
to our Boston, MA site creating a single US fibre facility. In the
UK we have moved our Glenrothes, Scotland and St Asaph,
Wales manufacturing to Ilminster, Somerset, creating a UK
precision optics (PO) hub. Our world leading optical systems
engineering team has been relocated to an innovation hub in
St Asaph and they remain focused on target development
projects. Outsourcing of our Ilminster AO production to a
South-East Asian contract manufacturer is well advanced and
the final product transfers are expected to be completed soon.
This has been achieved at a time when travel, especially to Asia,
has been challenging and the results are a tribute to the
tenacity of the G&H teams involved in delivering these projects.
The previously announced FY2022 profit benefit of £1.75m is
on track to be delivered.
We will continue to assess future opportunities for
consolidation of our operations.
RESEARCH AND DEVELOPMENT (R&D)
Our global R&D team has reaped considerable benefit from
concentrating our resources on fewer, higher return projects
that the Group has identified as offering the best growth
potential for our photonic technologies and system capabilities.
During FY2021 we introduced 48 new products and delivered
record new product revenue.
G&H continues to work closely with our industrial laser
partners to develop their next generation products. There
is especially strong activity with lasers that are used to
manufacture semiconductors. Our industrial laser development
activity ranges from ‘state of the art’ extreme ultra-violet
(EUV’) lithography lasers used for nanoelectronics, redesigned
market leading germanium AO modulators and specialist AO
deflectors, through to providing critical components for the
next generation designs of established products.
G&H’s ‘laser engine’ technology is gaining real traction in
directional sensing for wind turbines and security and defence
applications. Our partner company is now selling their directional
sensing unit for wind turbines into the large Chinese market.
Unmanned aerial vehicles (UAVs) represent significant growth
potential for G&H. We have expertise in the design, engineering
and manufacturing of bespoke complex optical arrays in the IR
spectrum for UAV imaging and communication systems. This
area has been a source of multiple new products and systems
in FY2021. We are currently working on ‘thermal overlay’ of our
traditional optical sighting systems for armoured vehicles.
This will be the first new product to come out of our innovation
hub in St Asaph.
In November 2020, in collaboration with NEC Corporation and
JAXA (Japan Aerospace Exploration Agency), G&H fibre optic
photonics and systems were at the heart of the successful
launch of a satellite laser communication system. To our
knowledge this is the first system of its type, and the aim is to
demonstrate that laser communications can be a viable
solution for future high speed and scalable space
communications. This success has raised the profile of the
teams based in Torquay and Boston, MA that developed the
system and has led to further contracts in this area.
OCT is a non-invasive laser-based technology that delivers
cross sectional diagnostic images. G&H is the market leader
in supplying the technology for retinal scanning, which our
customers deploy in opticians’ offices. We are working with
our partners on developing the next generation systems.
The same technology is being applied to cancer and
cardiovascular disease diagnosis. Our most recent
cardiovascular diagnostic collaboration is now undertaking
medical registration trials in the USA.
The acquisition of ITL brought a burgeoning medical
diagnostics business and enhanced system capability. In
addition to developing the next generation of existing products
the R&D team at ITL are working on a range of novel medical
diagnostics systems and the Group has expanded to meet the
demands of our customers. We have three collaborations with
Chinese medical diagnostics companies through our facility in
Shanghai. We believe this has the potential to be a source of
substantial growth as the Chinese Government is backing the
development of a ‘home grown’ medical diagnostics industry.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S STATEMENT
21
The Board remains confident that
G&H is well positioned to deliver
further progress in FY2022 and
substantial long-term growth.”
CORPORATE RESPONSIBILITY
We are proud of the way the organisation has responded to the
challenges of the pandemic and have worked hard to ensure all
our sites are fully COVID compliant. The health and safety of
our staff, customers and suppliers remains our priority.
The Board is accountable to its shareholders and is committed
to the highest standards of corporate governance. To this end
the Company has adopted the UK Corporate Governance Code
(2018). In order to ensure the Company is meeting the most up
to date standards, regular reviews of policy are held by the
relevant committees of the Board of Directors.
G&H is committed to providing equal employment opportunities
for all and aims to improve diversity at all levels of the
organisation. Our recruitment partners have been instructed to
ensure that they include women in all shortlist applications and
we are actively engaged with encouraging women in engineering.
In FY2021 there was some drag on performance due to currency
headwinds, self-isolation and supply chain issues in parts of
our business. It is possible that we may still see these factors
affect performance in the near term. Mitigating actions have
been taken by management in each of these areas.
G&H is committed to conducting our business in an
environmentally responsible and sustainable manner. We are
consolidating our manufacturing facilities, and introducing other
initiatives aimed at reducing our environmental footprint, such
as the introduction of solar power at our three UK sites. The
Executive Directors have specific environmental management
and carbon reduction goals in their remuneration metrics.
OUTLOOK
The business environment improved markedly over the
pandemic-affected 2020. We believe there will be further
improvement in the next financial year and over the longer term.
FY2021 saw strong demand for industrial and medical lasers,
telecommunications and medical diagnostics. The drivers of a
sustained recovery in industrial lasers remain in place, as new
technologies such as 5G roll out, along with greater use of new
more flexible materials in microelectronic manufacturing and
strong worldwide demand for semiconductors. We expect this
demand led growth to continue in these sectors. Our year end
order book is robust and 8.6% higher than the same time last
year, excluding the impact of foreign exchange.
A&D sub-sectors of space satellite communications, optical
arrays for gimbals on UAVs, and targeting and sighting systems
all performed well in the last financial year. G&H supplies laser
based navigational products for commercial and military
aircraft. Our internal forecasts expect that the commercial
aspect of this business will start to return to growth in 2023.
G&H’s plans to streamline our manufacturing operations have
been largely completed during FY2021 and we are on track to
deliver the previously announced FY2022 profit improvements.
The benefits of having our US fibre optic capability housed on
a single site and our UK precision optics (PO) production on
one site should start to positively impact performance. Ilminster
has throughout its history been a mixed AO and PO site and
the efficiency and capacity improvements we envisage as the
exclusively PO site embraces its new role should enable an
enhanced offering to its predominately A&D customers.
New products are becoming an increasingly important part of
our portfolio, as we continue to deliver record new product
sales from an increasingly productive R&D group. We remain
committed to invest in those areas identified as having the
greatest potential. There continues to be substantial long term
growth potential for our photonic technologies and system
capabilities in all our target sectors.
G&H remains committed to our long-term strategic goals of
further diversification and moving up the value chain. We intend
to vigorously pursue these goals through internal investment
and where appropriate, acquisitions. The Board remains
confident that G&H is well positioned to deliver further progress
in FY2022 and substantial long-term growth.
Mark Webster
Chief Executive Officer
30 November 2021
GOOCH & HOUSEGO PLC
22
STRATEGIC REPORT | OUR STRATEGY
Our
Strategy
Focussed
R&D
investment
At Gooch & Housego, we create sustainable
value by leveraging our products and capabilities
to diversify into new markets. We are focussed
on moving up the value chain, generating a
greater proportion of the Group’s revenues
from subassemblies and systems. We are
delivering this strategy by focussing on three
strategic priorities:
• Focussed R&D investment
• Operational excellence
• Value enhancing acquisitions
Priorities
• Our R&D teams have market leading skills in
photonic technologies and system capabilities.
• Our customers recognise this and we have
important collaborative relationships with
many OEM customers. We work with
them to help them design their next
generation systems.
• This close working relationship allows us to
identify opportunities to support our customers
in new adjacent markets.
• We have developed clear technology roadmaps
in each of our three market sectors.
• These road maps focus on areas where we
see clear customer demand enabling us to
optimise returns from our R&D investment.
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.
• Our capital allocation policy ensures we invest
to equip our facilities with the latest
capabilities to secure new business and
enhance our margins.
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 subassemblies and systems.
• We create value by realising synergies in
the areas of complementary technologies,
customer access, operational and supply
chain leverage and the application of best
practice business processes.
Our strategy is transforming
G&H in to a high value,
sustainable business.”
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | OUR STRATEGY
23
Progress
Link to KPIs (Page 16)
Future priorities
• Spend on R&D totalled £7.9m.
• Revenue from new products totalled £18.1M and
• Adjusted operating
profit margin
there were 48 new products released to the market.
• R&D investment
• Revenue from new
products
• Acousto-optic: New materials and designs
(α-BBO, GaAs, sapphire, Ge AOM) for micro/
macro-machining.
• Electro-optic: New materials to access more
wavelengths (e.g. MIR) and apps (heat signature
tracking, autonomous bots).
• Fibre optic: Co-integration of photonics/
electronics, miniaturising fibre optics for A&D,
new devices for high-spec OCT.
• Precision optic systems: Multi-band and single
aperture systems for turrets and vehicles, low
SWAP, more complex designs.
• Precision optics: Continue expanding our
capabilities: large windows, new materials
and coatings.
• Life sciences: More point of care, user interface
and apps development, AI, machine learning,
cyber security of patient data.
• We are making good progress on our site
• Organic revenue
growth
• We will continue to invest in delivering a pipeline of new
products and capabilities for high growth segments in the
Industrial, Aerospace & Defense and Life Science markets.
• Our key R&D projects will result in new products in the
following areas being released to the market in the
coming two years:
o “State of the art” extreme ultra-violet (EUV)
lithography lasers used for nano electronics.
o Market leading Germanium AO modulators for use
in semiconductor manufacturing.
o Laser engine technology used in directional sensing
for wind turbines and infrastructure asset protection.
o IR optical arrays for UAV imaging and
communication systems.
o Thermal overlay of our traditional optical sighting
systems for armoured vehicles.
o Laser-based satellite communication.
o OCT technologies used in cancer and cardiovascular
disease detection.
• We are expanding our medical diagnostic R&D group
to work on a range of novel diagnostic systems.
• We will complete our site consolidation programme
and bring it to a successful conclusion in FY2022.
consolidation programme which are reducing
our footprint and our fixed cost base.
• Production has now been transferred from our
Glenrothes and Baltimore facilities and those
two sites have closed.
• We have also completed the transfer of
production from our St Asaph site to Ilminster
enabling us to relocate our R&D team there
to a newly equipped facility.
• We have substantially completed the transfer
of the production of acousto-optic products
from Ilminster to our Asian contract
manufacturing partner.
• Our real time operations dashboard has been
fully developed and deployed to our site
operations managers.
• Following the conclusion of the earn-out
associated with our acquisition of the ITL
business we have accelerated the integration
of the business with the rest of the G&H Group.
• This includes the integration of products from
across the Group to provide high value offerings
to our customers.
• The ITL business has continued to grow its order
book which now stands at a record level.
• We are continuing to look for further acquisition
opportunities which could extend the Group’s
technology and market reach. The financial
strength of the Group means that it is well
placed to quickly execute on these opportunities
as they arise.
• Adjusted operating
profit margin
• We will develop a new low cost Asian supply source
for our high reliability fibre couplers in FY2022.
• Adjusted operating
• We will further build upon the strong relationship we
cash flow
• Safety performance
• CO2 equivalent
(tonnes)
have established with our Asian contract
manufacturing partner and deploy our supply chain
processes designed to reduce risk and develop more
collaborative working relationships with a smaller
number of key suppliers.
• With additional G&H supplier quality engineers we will
complete an expanded programme of improvement
reviews with our higher value and higher risk suppliers
in FY2022.
• Adjusted operating
profit margin
• Adjusted operating
cash flow
• We will look to generate value creation
opportunities, both from revenue and
operational cost base synergies.
• We will continue the further development
and execution of our acquisition pipeline.
• We are establishing new contacts with
sell-side advisors to ensure we are kept
informed of acquisition opportunities that
may be a match to our acquisition criteria.
GOOCH & HOUSEGO PLC 24
STRATEGIC REPORT | OPERATIONS REVIEW
Operations Review
Industrial
MARKET DRIVERS
• Post pandemic recovery in the
industrial laser market.
• Roll out of 5G, new more flexible
materials in microelectronic
manufacturing and greater
worldwide demand for
semiconductors.
• Next generation products such
as EUV lithography lasers for
nanoelectronics and new design
germanium modulators.
• Increasing investment in
continental connectivity of
data centres.
• Greater use of our hi-reliability
fibre optic technology in space
satellites.
• Increased investment in
wind farms and border and
infrastructure asset protection,
both using a version of our ‘laser
engine’ sensing technology.
PERFORMANCE
Overall, sales of products into our industrial markets grew by
1.4% (7.2% excluding foreign exchange) compared to the prior
year. We saw strong and sustained growth in our industrial
laser and semiconductor revenues thanks to the recovery of
the global economy from the effects of the pandemic. Our
Asian markets led the recovery from the beginning of the
calendar year but this was then supported in the second half
of the trading period by demand from our US and European
markets. The roll out of new technologies such as 5G, along
with greater use of new materials in microelectronic
manufacturing, are fuelling demand. We secured important
new programme positions for our recently developed
germanium acousto-optic modulator product, which will lead
to recurring revenues for many years to come. This product is
integrated in to the heart of the most advanced and efficient
laser systems currently being developed by our OEM
customers for use in semiconductor manufacturing. The
movement of our Ilminster AO Q-switch production to a South
East Asian manufacturer will enable us to more effectively
compete in the increasingly price sensitive China market.
Our sensing modules generally form part of large
infrastructure projects and there were some end customer
programme delays that impacted on our revenues in this
subsector during the period. Nevertheless, the underlying
trend remains in our favour with photonics sensing products
increasingly seen as the way to protect and improve the
efficiency of infrastructure assets. For example, G&H products
are used extensively to improve the performance of wind
turbines used for clean energy generation and the focus on
switching to energy created from renewable sources provides
G&H with sustainable underpinning demand for its products
in this area.
Volumes for our hi-reliability fibre couplers used in undersea
cable networks remained at the raised level seen in FY2020.
There is strong demand thanks to a sustained market drive for
the transmission of more and more data for both business and
personal consumption and the greater use of the same
technology in space satellites.
REVENUE
£55.6m
2021
2020
£55.6m
£54.8m
ORGANIC,
CONSTANT
CURRENCY
REVENUE
GROWTH
7.2%
2021
2020
7.2%
9.9%
ADJUSTED
OPERATING
PROFIT
£7.1m
2021
2020
£7.1m
£4.1m
OPERATING
PROFIT
£4.5m
2021
2020
£4.5m
£3.2m
ADJUSTED
OPERATING
PROFIT MARGIN
12.7%
2021
2020
12.7%
7.5%
PERCENTAGE
OF REVENUE
44.8%
2021
2020
44.8%
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC44.9% ANNUAL REPORT 2021 | STRATEGIC REPORT | OPERATIONS REVIEW
25
APPLICATIONS
Industrial lasers for materials processing applications. G&H
supplies Q-switches and other acousto-optic, electro-optic
and fibre optic products.
GROWTH STRATEGY
• To work in collaboration with our customers to invest in R&D
and process engineering in order to develop products that
meet their most demanding needs.
Semiconductor for lithography and test and measurement
applications.
Metrology for laser-based, high-precision, non-contact
measurement systems.
Optical communications specifically for high reliability and
high performance applications.
Remote sensing for applications including asset protection,
perimeter security, strain, temperature and pressure sensing.
Scientific research the largest proportion being nuclear fusion
research and energy – laser technology is being used to
recreate the conditions found in the core of the sun.
• To bring to the market new products and to ensure that we
remain at the cutting edge of technology in this important
area. During FY2021 G&H introduced six new products in
industrials generating £5.1m of revenue. We also completed
important milestones on 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 technically challenging design
and engineering input incorporating a range of our products.
Those markets may require 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. During the
year we added to our Asian sales team so as to be able to
exploit the growing market demand we see in that region.
• To continue to focus our energies and investment on making
the transition from a components supplier to a manufacturer of
subassemblies, instruments and systems, where appropriate.
• To maintain the strong relationships we have with our
customers’ development teams to ensure we are their
preferred choice for supporting them in developing their
next generation products.
GOOCH & HOUSEGO PLC 26
STRATEGIC REPORT | OPERATIONS REVIEW
Operations Review
A&D
MARKET DRIVERS
• A&D markets require high
product quality, reliability
and high performance in harsh
environments, which plays
to G&H’s strengths.
• A&D is transitioning to photonic
components and systems across
a broad range of sub-sectors to
secure size, weight, power and
reliability benefits.
PERFORMANCE
Our A&D revenues declined by 0.7% during FY2021, compared
with the equivalent period last year, but grew 4.3% excluding
foreign exchange. In the UK we completed deliveries of optical
sensor systems on several significant vehicles programmes
working closely with the overall vehicle manufacturers. Future
UK and European vehicle sustainment programmes which
include the upgrade of the vehicles’ optical sensor suite
provide G&H with the prospect of significant future programme
business in this area. We believe the investment we have made
in prototyping vehicle based multi-wave band sensor systems
positions G&H well to be selected on these programmes.
4.3%
• IR optical arrays deliver targeting,
range finding, navigation and
surveillance capabilities for the
growing UAV market.
The launch of a G&H enabled satellite laser-based
communication system was completed in November 2020. To
the best of our knowledge this is the first of its type and this
‘proof of principle’ should provide the basis for further business
in standard and constellation satellites and near space UAVs.
• Similar capability combined
with photonic sensor suites are
now being used across a range
of remotely controlled A&D
systems for land, sea and air.
• Space satellite systems
developed by G&H have the
ability to be deployed across
a range of standard satellite,
constellation satellite and near
space UAV systems.
• Optical systems used in armoured
vehicles are being developed with
additional digital capability.
• Direct energy capability will utilise
optical and laser expertise.
• Emerging inertial navigation
platforms.
In the US our deliveries of gimballed optical systems for a
multi-year unmanned air vehicle contract came to an end and
although new programme positions were agreed for secure
communication systems using photonics technologies, these will
only move in to volume production in the coming financial years.
In the US we secured further business for our IR optical arrays
used in the gimbals on UAVs for targeting, range finding and
surveillance. They will come on stream with volume production
in the near term.
Our Boston, MA facility transitioned two significant programmes
from development to the volume production phase and we
expect orders for further production volumes to be secured
in the coming financial year.
G&H has a market leading position in supplying laser based
navigational systems for military and commercial aircraft.
Our internal forecasts do not expect the commercial aspect
of this business to return to growth until FY2023. This
business improved across FY2021 and we are maintaining
this important capability at our Moorpark, CA facility.
REVENUE
£41.1m
2021
2020
£41.1m
£41.4m
ORGANIC,
CONSTANT
CURRENCY
REVENUE
GROWTH
4.3%
2021
2020 (6.1%)
ADJUSTED
OPERATING
PROFIT
£3.1m
2021
2020
£3.1m
£2.8m
OPERATING
PROFIT
£0.6m
2021
2020
£0.6m
£1.5m
ADJUSTED
OPERATING
PROFIT MARGIN
12.7%
2021
2020
7.6%
6.8%
Percentage
of Revenue
33.1%
2021
2020
33.1%
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC33.9% ANNUAL REPORT 2021 | STRATEGIC REPORT | OPERATIONS REVIEW
27
APPLICATIONS
Target designation and range finding used on both land-based
and airborne systems.
Guidance and navigation components for ring laser gyroscope
and fibre optic gyroscope inertial navigation systems.
GROWTH STRATEGY
• To continue to invest to move up the value chain from being
a components supplier to a subsystems 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.
Countermeasures for ground-based systems and airborne
platforms.
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.
Periscopes and sighting systems for land based armoured
fighting vehicles.
Opto-mechanical subsystems for unmanned aerial vehicles.
• Further upgrading of our 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 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 FY2021
G&H introduced 33 new products and generated £9.4m of
revenue from new products that addressed the A&D market
including space satellite laser based communication systems,
new sighting systems and IR lens assemblies for UAVs.
GOOCH & HOUSEGO PLC 28
STRATEGIC REPORT | OPERATIONS REVIEW
Operations Review
Life Sciences
MARKET DRIVERS
• Strong post pandemic recovery in
laser enabled aesthetic procedures
to tackle the pent-up demand
caused by the COVID-19 response.
• A larger, more affluent worldwide
middle class influenced by social
media and eager to access
cosmetic and aesthetic
procedures.
• A strong, government driven
programme within China to
develop an indigenous life
sciences sector, reducing its
dependency upon Western
equipment and technologies.
• A growing aging population
demanding a shift towards
early diagnosis supports
demand for our capabilities.
• More point of care and
personalised medicine
drives demand for volume
diagnostic products.
• New applications for optical
coherence technologies.
FINANCIAL PERFORMANCE
Our life sciences/biophotonics revenue grew by 5.9% in the
year to 30 September 2021, compared with the prior year.
When measured at constant currency this represents growth
of 8.1%. Medical diagnostic demand remained at the high
levels seen in the second half of FY2020. The continued strong
performance of a product designed to improve respiratory
function as part of a ventilator system has been a key factor.
In the financial year our ITL business secured important new
programme positions with customers seeking our expertise to
productionise medical diagnostic product concepts. In line with
our established business model, we expect to secure recurring
production revenues from these programmes once the initial
work to develop producible product has been completed. We
have expanded the medical diagnostics R&D group to meet the
demand. The enhanced software, firmware, electronic and
mechanical engineering capability enables further systems
business within and outside G&H’s life science business sector.
OCT systems and components delivered growth during the
period. Demand for our specialist medical laser products, which
was adversely affected by the pandemic induced reduction in
elective procedures during FY 2020, has started to demonstrate
a marked improvement in performance. Medical lasers using
our components are able to provide new cosmetic procedures
to patients, for example to significantly clear acne scarring.
Overall these two sub-sectors were up 27% in the year,
excluding foreign exchange.
REVENUE
£27.4m
£27.4m
2021
2020 £25.9m
ORGANIC,
CONSTANT
CURRENCY
REVENUE
GROWTH
8.1%
2021
2020
8.1%
7.7%
ADJUSTED
OPERATING
PROFIT
£4.2m
2021
2020
£4.2m
£4.7m
OPERATING
PROFIT
£3.5m
2021
2020
£3.5m
£4.4m
ADJUSTED
OPERATING
PROFIT MARGIN
15.5%
2021
2020
15.5%
18.0%
PERCENTAGE
OF REVENUE
22.1%
22.1%
2021
2020
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC21.2% ANNUAL REPORT 2021 | STRATEGIC REPORT | OPERATIONS REVIEW
29
APPLICATIONS
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.
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.
Microscopy: Modern, laser-based techniques are
revolutionising the field of microscopy.
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.
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 FY2021 G&H introduced nine new products and
generated £3.6m of revenue from 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 our systems capability 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 and has the
financial resources to execute on that strategy as it develops.
GOOCH & HOUSEGO PLC 30
STRATEGIC REPORT | FINANCIAL REVIEW
Financial Review
Good recovery in volumes and benefits from the site
consolidation programme starting to be secured.
REVENUE
£124.1m
2020: £122.1m
ADJUSTED PROFIT
BEFORE TAX
£12.6m
2020: £9.8m
PROFIT
BEFORE TAX
£5.4m
2020: £6.3m
ADJUSTED EARNINGS
PER SHARE
41.0 pence
2020: 30.5 pence
BASIC EARNINGS
PER SHARE
13.6 pence
2020: 15.1 pence
ADJUSTED OPERATING
CASHFLOW
£21.9m
2020: £22.5m
NET
DEBT
£9.2m
2020: £14.7m
NET DEBT EXCLUDING
LEASE LIABILITIES
£2.6m
2020: £6.5m
DIVIDEND
12.2 pence
2020: nil
OVERVIEW OF THE YEAR
Having demonstrated its resilience during the pandemic the
Group’s trading recovered well in FY2021. Group revenue for
the year totalled £124.1m. This represents growth of 1.6% over
the previous year, or 6.4% excluding foreign exchange.
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.
We were pleased with the Group cash performance in the year
with working capital levels reducing by £0.5m despite the
increase in volumes of 6.4% compared to the prior year. At the
same time investment in our production facilities continued with
total capital investments of £6.2m made in the year. Our net
debt excluding lease liabilities fell from £6.5m at the end of the
prior year to £2.6m representing leverage of just 0.1x meaning
we are well placed to execute on our acquisition strategy.
We have seen sustained growth from our Industrial markets
and revenues from our life sciences products and services
remained at the high levels seen in the previous financial year.
In our A&D sector deliveries to a number of important defence
programmes grew, more than offsetting reduced demand from
our commercial aerospace customers.
Our order book stood at £97.8m at the end of the financial year
and intake exceeded revenue by 9% in the second half of the
year providing good visibility for future revenue growth.
The Group’s adjusted profit before tax increased to £12.6m
(2020: £9.8m) representing a margin of 10.2% (2020: 8.0%).
After the impact of adjusting items, including restructuring
costs and amortisation charges for acquired intangible assets
the Group’s full year statutory profit before tax was £4.7m
compared with £5.4m 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
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | FINANCIAL REVIEW
31
Revenue from our
semiconductor
and industrial laser
recovered strongly.”
OPERATING PROFIT
The Group’s statutory operating profit was £5.4m (2020: £6.3m)
after a charge for items excluded from adjusted operating profit
of £7.9m (2020: £4.4m) including £5.9m (2020: £2.6m) in
respect of the Group’s manufacturing footprint consolidation
programme and £2.1m in respect of the amortisation of
intangible assets arising on business combinations (2020:
£2.7m). Adjusted operating profit was £13.3m (2020: £11.2m)
with the increase the result of improving volumes and the initial
financial benefits of the Group’s restructuring programme.
A reconciliation between adjusted profit and statutory profit
is shown below.
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.
REVENUE
Year ended 30 September
£’000
%
£’000
%
2021
2020
Industrial
A&D
Life Sciences/
Biophotonics
Group Revenue
55,552
44.8% 54,811
44.9%
41,089
33.1% 41,390
33.9%
27,433
22.1% 25,894
21.2%
124,074
100.0% 122,095
100.0%
Revenue for the year totalled £124.1m. Revenues from our
semiconductor and industrial laser markets recovered
strongly from the end of the first financial quarter. Demand for
hi-reliability fibre couplers also grew albeit more slowly from
the higher prior year comparative. These were partly offset by
reductions in revenues to sensing markets where customer
programme slowdowns impacted revenues.
In A&D significant optical system deliveries for armoured
vehicles were completed on a number of customer
programmes more than offsetting low levels of demand from
our commercial aerospace customers.
Our life sciences/biophotonics business delivered year-on-
year growth of 5.9% (8.1% at constant currency). Our medical
diagnostics business grew further despite strong prior year
comparators and there was a pleasing return of demand for our
component used in skin medical laser treatments which had
been impacted by the pandemic slowdown in the previous year.
RECONCILIATION OF ADJUSTED PERFORMANCE MEASURES
Year ended 30 September
Operating
profit
Net finance
costs
Profit
before Tax
Taxation
Earnings
per share
Operating
cash flow
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
pence
2020
pence
2021
£’000
2020
£’000
Reported
5,401 6,334
(721)
(942) 4,680 5,392 (1,276)
(1,610)
13.6p
15.1p 16,822 21,561
Amortisation of acquired intangible assets
2,081 2,676
Restructuring and site closure
5,860
2,609
Settlement of lease dispute
Interest on deferred consideration
Tax charge arising from restatement of
UK Deferred tax at 25%
–
–
–
(410)
–
–
–
–
–
–
–
– 2,081 2,676
(460)
(397)
6.5p
9.1p
–
–
–
5,860
2,609
(1,151)
(392)
18.8p
8.9p
5,102
1,360
(818)
303
–
–
(1,228)
303
–
–
–
–
–
519
271
–
–
–
–
(3.8p)
1.2p
2.1p
–
–
–
–
(410)
–
–
Adjustment
13,342 11,209
(721) (1,457) 12,621 9,752 (2,368) (2,128)
41.0p
30.5p 21,924 22,511
GOOCH & HOUSEGO PLC
32
STRATEGIC REPORT | FINANCIAL REVIEW
Our disciplined approach to working
capital management meant that we
were able to deliver a strong cash
performance in the year.”
NET FINANCE COSTS
The net underlying interest expense of £0.7m (2020: £1.5m)
reduced by £0.8m. The reduction was the result of repayments
made during the year by the Group against its credit facilities,
detailed further below.
TAX
The tax charge for the year was £1.3m (2020: £1.6m) with an
underlying tax charge of £2.4m (2020: £2.1m) after excluding
a credit on non-underlying items of £1.1m. This resulted in an
underlying effective tax rate of 18.8% (2020: 21.8%). The
reduction in the rate was largely due to adjustments in respect
of prior year balances arising from enhanced capital
allowances. 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.
EARNINGS PER SHARE
Basic adjusted earnings per share increased by 34.4% to 41.0p
(2020: 30.5p), reflecting the increased profitability in the year.
Basic earnings per share reduced 9.9% to 13.6p (2020: 15.1p).
This reduction was due to the non-recurring items incurred in the
year in relation to the Group’s site rationalisation programme.
CASH GENERATION
Cash flow generated from operating activities was £16.8m,
down from £21.6m in the prior year. This reduction was due
to the non-underlying costs incurred in relation to the site
rationalisation programme in the year amounting to £5.1m.
Adjusted cashflow generated from operating activities, which
excluded these non-underlying costs, was £21.9m (2020:
£22.5m). This was the result of improved profitability,
supported by disciplined working capital management. In total
working capital reduced by £0.5m in the year despite the 6.4%
increase in business volumes compared to the prior year.
Cashflows for tangible and intangible fixed asset additions
totalled £6.2m (2020: £6.4m). The final earn out payment for
the Group’s acquisition of the ITL business was made in the
period. The payment of £3.25m represented that business
achieving at its maximum level. The payment of an interim
dividend in the year totalled £1.1m. The Group’s strong cash
generation allowed the repayment of $19.2m (£14.1m) of
borrowings and the Group closed the year with net debt of
£9.2m (2020: £14.7m) or £2.6m (2020: £6.5m) when lease
liabilities are excluded.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | FINANCIAL REVIEW
33
The Group’s leverage stands
at just 0.1x. We have access
to $55m of funding facilities
to support the further
growth of the business.”
The Group’s leverage is expressed in terms of its net debt/
adjusted EBITDA ratio. Under the Group’s credit facility the
figure for net debt used in this ratio excludes IFRS 16 lease
liabilities and other IFRS 16 impacts. The Group’s main financial
covenants in its bank facilities states that net debt must be
below 2.5 times adjusted EBITDA, and adjusted EBITDA is
required to cover interest charges, excluding interest on pension
schemes, by at least 4.5 times. At 30 September 2021 net
debt/adjusted EBITDA was 0.1 times (30 September 2020: 0.4
times). Interest cover at 30 September 2021 was 34.2 times
(30 September 2020: 10.8 times).
The Group maintains sufficient available committed
borrowings to meet any forecast funding requirements.
FINANCIAL RISK MANAGEMENT
The Group’s main financial risks relate to funding and liquidity,
interest rate fluctuations and currency exposures. The Group
uses financial instruments to manage financial risks arising
from underlying business activities.
FOREIGN CURRENCY
The Group’s policy is to reduce or eliminate, whenever practical
foreign currency transaction risk. The Group hedges expected
foreign currency cash flows wherever possible. Further details
of the Group’s foreign exchange risk management is set out in
note 5 of the Group Financial Statements.
The following are the average and closing rates of the foreign
currencies that have the most impact on the translation of the
Group’s Income Statement and Balance Sheet into GBP.
Income Statement
USD/GBP
Euro/GBP
Balance Sheet
USD/GBP
Euro/GBP
Average rate
2021
2020
1.37
1.15
1.28
1.14
Closing rate
2021
2020
1.35
1.16
1.29
1.10
BALANCE SHEET
The Group’s total equity at the end of the year was £114.3m, an
increase of £0.9m over the prior year. This comprised an
increase of £2.3m from retained earnings, a £0.7m increase to
reserves in relation to share schemes and a net reduction of
£2.1m arising from foreign exchange and hedging movements.
During the year, additions to property, plant and equipment
amounted to £5.4m (2020: £5.4m) and to intangible assets
£0.8m (2020: £1.3m).
DIVIDEND POLICY
The Board has a progressive dividend policy. In determining
the level of dividend the Board considers not only the adjusted
earnings cover, but also looks to the future expected underlying
growth of the business and its capital and other investment
requirements. The Group’s balance sheet position and its
expected future cash generation are also considered. The Board
also takes in to consideration the Group’s Principal Risks, which
are set out on pages 46 to 49. The Group’s ability to pay a
dividend is impacted by the distributable reserves available in
the parent Company, which operates as a holding company,
primarily deriving its net income from dividends paid by its
subsidiary companies. At 30 September 2021, Gooch & Housego
PLC had sufficient distributable reserves to pay dividends for
the foreseeable future. The parent Company Balance Sheet is
set out on page 114.
Given the strength of the business recovery in the year and the
positive outlook for the coming trading period the Board is
proposing a final dividend of 7.7 pence per share, giving a total
of 12.2 pence per share for the year when combined with the
4.5 pence per share paid as an interim dividend in July 2021.
FUNDING AND LIQUIDITY
The Group’s operations are funded through a combination of
retained profits, equity and borrowings. Borrowings are raised
at Group-level from the Group’s banking partner and lent to the
subsidiaries. At 30 September 2021 the Group had available
undrawn committed and uncommitted facilities of $55.2 m.
The Group’s borrowings are in the form of a US$ denominated
Revolving Credit Facility (RCF). The RCF matures in April 2023.
A further summary of the Group’s borrowings and maturities
are set out in note 24 of the Group Financial Statements.
GOOCH & HOUSEGO PLC
34
STRATEGIC REPORT | ESG REPORT
ESG Report
At G&H the Board is 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.
Environment
Social
Governance
Reducing energy consumption
Engaging with our people
Corporate governance framework
Sourcing from cleaner,
more sustainable sources
Developing our people
Business integrity
Ensuring the well-being of our people
Managing our supply chain
Promoting equality and diversity
Supporting our communities
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | ESG REPORT
35
G&H is proud that many of
our products are supporting
the cleaner, more efficient
generation and use of energy.”
ENVIRONMENT
It is clear sustained action is required to address
climate change and manufacturing businesses
have a responsibility to mitigate their impacts.
G&H take this seriously and is proud that many
of our products are supporting the cleaner, more
efficient generation and use of energy across a
range of applications. We are also working to
ensure the environmental impact of our own sites
and manufacturing processes are reduced as
much as possible. Our investments in solar panels
and voltage optimisation systems are already
lowering our greenhouse gas emissions. Our
Executive management team have developed
a plan with the objective of delivering annual
reductions in the energy used by the Group and
therefore its carbon equivalent emissions.
During the year we took the opportunity to visit
other companies within our sector to see how
they were approaching this. These visits
confirmed the approach we were taking of using
the structure of ISO 50001 – energy management
systems - to help us identify where the greatest
reductions in energy use could be achieved was
the right one.
We have integrated the reporting of our impact
on the environment within our Health and Safety
function. This enables an already established
infrastructure and management system to be
used. This includes monthly data analysis and
reporting, quarterly reviews with the Group’s
senior executives and by All Hands briefing
sessions. Environmental matters also represent
a standing topic area in our quarterly internal
newsletter – G&H Informed.
G&H aims whenever practically possible, across
our locations to:
• Minimise the use of natural resources.
• Improve our energy efficiency.
• Minimise the generation of waste whilst
implementing and promoting recycling.
• Consider the environmental impact relevant to
our business decisions.
• Minimise pollution and promote greener
transport options.
• Inform and encourage our employees to act in
an environmentally responsible manner.
Specifically we are investing to reduce our
emissions as follows:
• Our Torquay facility has a 297 kWp solar PV
system installed which provides ~25% of the
site’s electricity needs along with a Voltage
Optimisation System.
• Ilminster facility has just installed a 302 kWp
solar PV system and Voltage Optimisation
System.
• Our facility in Ashford will be fitting a 150 kWp
solar PV system in late 2021.
As a result of these investments, we will have the
capacity to generate approximately 750 kWp of
electricity from solar sources.
GOOCH & HOUSEGO PLC
36
STRATEGIC REPORT | ESG REPORT
Solar panels being installed
on our Ilminster facility
9%
REDUCTION IN
OUR CARBON
INTENSITY MEASURE
43%
OF GROUP ENERGY
PURCHASED FROM
RENEWABLE SOURCES
600kWp
ANNUAL ENERGY
PRODUCTION CAPACITY
FROM SOLAR ENERGY
We are also reducing our impact on the
environment through our recycling
programmes including:
• Use of waste electrical and electronic
equipment (WEEE) containers to promote
electronic waste recycling.
• Removing plastic vending machine cups
and replacing them with alternative
reusable materials.
• Recycling of packaging materials where
practicable for product shipments.
• Provision of recycle bins, signage and
campaigns.
• Minimising the use of paper wherever possible,
through electronic data transfer.
• Where printing is used, reusing any single
sided sheets.
• Ensuring that all green and natural waste is
disposed of according to industry standards
using approved contractors.
• Keeping energy usage low, by using low energy
lighting and ensuring computers are shut down
after work.
• Avoiding unnecessary travel by making use of
digital platforms.
• Purchasing products made with recycled
materials where possible.
• Working with suppliers who promote sound
environmental practices where possible.
• Recycling equipment that is no longer of use to
the company by donating items such as
computers and printers to the local community.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | ESG REPORT
37
ENERGY USE AND CARBON DIOXIDE EMISSIONS
In reporting our carbon dioxide emissions, we have followed the 2021 HM
Government Environmental Reporting Guidelines. We have also followed the
Greenhouse Gas (GHG) Reporting Protocol and the Streamlined Energy and
Carbon Reporting (SECR) guidelines. 2020 Conversion factors have been
used for October 2020 to May 2021 inclusively, and 2021 Conversion factors
used for June 2021 to September 2021 inclusively. In the US eGrid 2018
Conversion factors have been used for October 2020 to February 2021
inclusively, and eGrid 2019 Conversion factors used for March 2021 to
September 2021 inclusively.
We have selected as our primary intensity measure carbon dioxide emissions
per £1m of revenue for our global scope 1 and scope 2 GHG emissions
(expressed in tonnes of carbon dioxide equivalent). We are using an
operational control boundary for direct GHG emissions. For scope 1
emissions we include our total owned and leased vehicles’ direct emissions
impact. By far the largest element of our energy usage is our scope 2
purchased electricity. Our reported data is collected from metered sources.
Emissions from activities which the company own or control
including combustion of fuel and operation of facilities
(Scope 1)/tCO2e
Emissions from electricity, heat, steam and cooling purchase for
own use (Scope 2)/tCO2e
Current reporting year
FY 2021
Comparison reporting year
FY 2020
United
Kingdom
Rest of
World
Total
United
Kingdom
Rest of
World
Total
254
362
616
656
258
914
1,090
3,708
4,798
1,152
3,786
4,938
Total gross Scope 1 and Scope 2 emissions/tCO2e
Energy consumption used to calculate above emissions:/MWh
Tonnes of carbon dioxide equivalent per £1 million of revenue
1,344
5,468
20.4
4,070
10,977
70.0
5,414
16,445
43.6
1,808
5,760
28.00
4,044
10,826
70.2
5,852
16,586
47.9
Scope
Reported
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, vehicles.
Report includes:
• Emissions from combustion of gas and fuel for
transport purposes.
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.
Report includes:
• Emissions from purchased electricity.
The Group achieved a 9.0% reduction in its intensity measure of tCO2
emissions per £1m of revenue. The closure of our Glenrothes facility in
December 2020 and improvements made to some of our sites’ heating,
ventilation and cooling meant that we were able to reduce the volume of
refrigerants used.
Whilst it is not fully reflected in the emissions data shown above we have also
made significant progress in increasing the proportion of the Group’s
electricity that is purchased from renewable sources. At the beginning of the
financial year 18% of our purchased electricity came from renewable sources
but by the end of the financial year that had increased to 43%.
GOOCH & HOUSEGO PLC
38
STRATEGIC REPORT | ESG REPORT
Unity
Customer focus
Passion
Precision
SOCIAL
ENGAGING WITH OUR PEOPLE
Our people are critical to ensuring the long-term sustainability of
our business and to achieving the Group’s strategic objectives.
We believe it is important for our employees to feel connected
to and engaged with the over-arching vision of the Group
which is that we are “Changing the World with Photonics”.
We provide our employees with a clear roadmap of how we
intend to deliver our vision through our world class engineering
and manufacturing solutions.
Through participative workshops our employees discuss the
Values we have set that guide everyone in G&H in the way we
perform our respective roles. These are:
• Unity – working ever-more together between project teams,
sites and functions from across the Group. This is essential
to winning new business and servicing our customers with
increasingly complex, higher value products which integrate
a range of technologies and require expertise drawn from
across G&H.
• Customer Focus – prioritising our actions to continually
improve our offering and service to our external customers.
We also focus on supporting and respecting our ‘internal
customers’.
• Passion –this is about all our employees recognising and
believing that ‘my job can make a difference’ and acting
on this on a daily basis.
• Precision – which recognises the value of quality and a
‘right first time’ approach and which underpins the Group’s
commitment to excellence and continuous improvement.
From these Values, we have developed a suite of Behaviours
which provide a further framework for our employees on how
they can put the Values in to practice in their daily work.
Through participative workshops employees are encouraged
to discuss our Vision, Mission and Values and the underpinning
Behaviours so that they can have a real connection to them in
their day to day work and understand how they can contribute
to the achievement of the Group’s objectives.
We also survey all employees each year to provide feedback
on levels of engagement and to get their feedback on what
they think could be done better. We use this feedback to build
a rolling set of improvement actions.
In response to employee feedback, we were delighted to be
able to launch two new all employee share schemes during
the year. These were a Sharesave Scheme for UK staff and
an Employee Stock Purchase Plan in the US which will help
to build further employee engagement with the Group.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | ESG REPORT
39
We have a range of well-developed operating policies and
procedures in place. These include executive leadership on
quarterly reviews in the US and UK, which incorporate key
performance indicators and mitigating action plans where
necessary. This data which we benchmark with other firms in
our industry sectors confirms improving trends and best in
class performance levels. This is further supported by the
Group’s work towards achieving ISO45001 – Health and Safety
Management - accreditation which includes a regular internal
assessment process.
Throughout the pandemic we have continued to ensure that
our facilities are safe through regular audits. We offered flu
vaccinations to all employees before the Covid-19 vaccinations
were made available. A Group policy on coronavirus vaccinations
helps to educate and support employees. We have provided
paid time off to receive the vaccinations during working time if
required. The Group also established paid leave arrangements
above statutory requirements to encourage employees to
follow self-isolation and quarantine rules in order to protect the
general safety and well-being of work-colleagues.
The Board recognises the continuing commitment of the
Group’s employees through the coronavirus pandemic as they
responded with great dedication to the challenges. The Group
did not participate in the UK’s Coronavirus Job Retention
scheme during FY2021 and there were no job losses as a
direct consequence of the pandemic.
We understand the value of supporting employees through
mental health challenges. We have trained in house mental
health first aiders, partnering with the charity MIND.
This was followed up by training sessions for our managers to
help them identify and manage mental health issues in their
teams. The Group also makes available to our employees
external employee assistance programs (EAP) through which
employees can access third party advice on good practice
health and well-being.
We recognise it is essential to keep our people informed on
business developments and on the factors affecting the Group.
We do this through regular briefings, including recorded video
updates from the CEO, “all-hands” site meetings as well as
internal announcements. Works councils or employee
consultation groups, comprised of management and elected
employee representatives operate at the majority of G&H UK
sites where the management can listen to representatives’
views and take them into account when making decisions.
This year, we also launched a global employee newsletter –
“G&H Informed” – which is published quarterly in electronic
form or available in hard copy to ensure the widest possible
readership. This aims to share stories and business updates
across the Group and we encourage colleagues to contribute
to future editions.
Finally, 2021 saw the launch of a new series of thought
leadership articles – “G&H Insight” - which offer insight and
opinion on emerging trends, our markets and the future of the
photonics industry and showing how we are truly changing the
world with photonics. These are published on the company’s
website and are also made available to our people to help
them feel proud to be part of G&H.
DEVELOPING OUR PEOPLE
The Group recognises that it is essential to develop the skills
and capabilities of its employees, and to attract and retain the
best talent available in the regions in which it operates.
The Group operates an online performance management and
appraisal system which provides opportunity for individual
discussions on training needs and career planning. The Group
also operates a talent management and succession planning
process from which the Executive Management Team formulate
action plans, and review progress. The Board also reviews this
process annually ensuring that effective plans are in place.
Given the geographic spread of the Group we recognise the
challenge of delivering training content to our employees
in a consistent and timely manner. To address this we have
launched an online learning platform through which a series
training programmes cover the areas of cyber security, Export
legislation awareness and Global Data Protection Regulations.
ENSURING THE WELL-BEING OF OUR PEOPLE
The health, safety and wellbeing of our employees across the
Group is of paramount importance, and we work hard to ensure
all our people are safe, whether they are working from home,
working in our premises or working with our customers.
GOOCH & HOUSEGO PLC 40
STRATEGIC REPORT | ESG REPORT
We recognise the pandemic has changed the
employment landscape significantly and that
many of our employees and potential new hires
now have different expectations on how and
where they carry out their jobs. Consequently, the
company has implemented for many of our
business support roles a hybrid work from home/
office policy where employees can choose how
they do their jobs in a way that works best for
them. Within that more flexible framework we do
however believe in the importance of employees
continuing to have regular on-site attendance in
order to enable effective team-working and
develop working relationships.
We value long term employment with the company
and have operated a long-service recognition
scheme across the Group for several years.
The average length of service across the Group
is 7.9 years, compared to 9.3 last year.
The loss of key personnel is identified by the
Board as a risk within its ongoing Business Risk
Assessment process. Voluntary labour turnover
was 12% across the Group in FY2021, compared
to 11% in prior year.
PROMOTING EQUALITY AND DIVERSITY
The Board is committed to providing equal
employment opportunities for all employees and
applicants for employment.
Diversity is embraced at G&H. We seek to recruit,
hire, develop and retain the best talent. Our
employees have diverse backgrounds, skills, and
ideas that collectively contribute to our success.
The Company operates to national standards of
diversity in employment, including an Affirmative
Action Program (AAP) in the United States which
is designed to attract, retain and develop a
diverse pool of talent.
As part of our talent and succession planning
process, the Board and Executive management
team monitor the representation of women and
ethnic minorities at different levels and across
different functions within our “talent pools”.
In support of this objective, recruitment partners
have now been instructed to include female
candidates in all shortlist submissions. This
will 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 recognition of International Women in
Engineering Day in June 2021, G&H hosted a
virtual round table with women in engineering
and related disciplines from across the Group.
They spoke openly and engagingly about the
challenges they have faced and how they have
overcome them, the support they have found both
at G&H and elsewhere in their lives, the obstacles
remaining in the wider industry, and the future
they believe women engineers – and the girls
aspiring to become them – have a right to attain.
As a result of this event an internal support
network has been created that meets regularly.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC Supporting our Communities
We look to support and work with the local
communities in which we operate.
The Group supports and develops students
and apprentices, especially in the field of
engineering and technology. Support for young
students by providing work experience and
undergraduates and interns with summer
placements has been restricted this year due
to the coronavirus pandemic.
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.
We actively support local charities in the
communities in which we operate.
That includes encouraging and supporting our
people to take part in giving their time or raising
money for charitable and community activities
where they live and work. To support this each of
our site leads has been allocated company money
to use to donate to local charities preferably in
the form of a “match” for amounts raised by our
employees. As a result, we know we are supporting
those causes that are important to our people.
ANNUAL REPORT 2021 | STRATEGIC REPORT | ESG REPORT
41
UK
WORKFORCE
(AS AT 30 SEPTEMBER 2021)
GENDER DISTRIBUTION
2021: 72.4%
2020: 72.3%
2021: 27.6%
2020: 27.7%
AVERAGE SERVICE (YEARS)
2021
2020
7.9
9.3
USA
WORKFORCE
(AS AT 30 SEPTEMBER 2021)
GENDER DISTRIBUTION
2021: 68.9%
2020: 66.4%
2021: 31.1%
2020: 33.6%
AVERAGE SERVICE (YEARS)
2021
2020
8.6
9.7
GOOCH & HOUSEGO PLC 42
STRATEGIC REPORT | ESG REPORT
GOVERNANCE
CORPORATE GOVERNANCE
The Board is committing to maintaining the highest standards
of Corporate Governance. We conduct our business activities
honestly and with integrity. For more information on the Group
Corporate Governance Framework see page 52.
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.
HUMAN RIGHTS
97% 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 have in place
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,
regardless of where in the world they are located.
MODERN SLAVERY
We make sure 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 Company-wide Modern
Slavery Policy and a statement on the steps taken to prevent
slavery, which is available on the Company’s website. We
review the policy, risk assessments and actions arising on an
annual basis. The Group is also continuing to strengthen its
supplier quality engineering resources which will enable more
field-based audits which will include “on the ground” audit of
suppliers’ procedures in this matter.
COMPLIANCE WITH REGULATIONS AND STANDARDS
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. We support this
with online training tools through which we make sure our
employees know what is expected of them.
MANAGING OUR SUPPLY CHAIN
We expect high standards from our suppliers. We achieve this
through clear contractual commitments placed upon them
covering areas such as Modern Slavery, Safe working practices,
Conflict Minerals and Anti Bribery. We then back this up with a
programme of supplier site visits to audit our suppliers’
compliance. For much of the year we were forced to substitute
physical site audits with virtual reviews. However for the
coming year we expect to be able to attend at our suppliers
facilities and have recently recruited additional resource in this
important area to ensure we can achieve a good level of
coverage of our suppliers. We undertake annual risk
assessments of our suppliers and the outcome of that process
determines the supplier audit undertaken.
In return we believe in paying our suppliers promptly in
accordance with the terms agreed with them. This helps ensure
we build a robust and sustainable supply chain able to benefit
from our continued growth.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | S172 STATEMENT
43
S172 Statement
Our stakeholders are key to the long term sustainability of our
business. The importance of open and meaningful engagement
with all our stakeholders is fully embraced by our Board
members and is encouraged through all levels of the Group.
The Board has identified its key stakeholders to determine its
engagement activities during the year and to review the
information flow to and from the Board within the organisation.
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; and
• Need to act fairly as between members of the company.
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.
LONG TERM CONSEQUENCES OF BOARD DECISIONS
G&H has a strategy that is designed to deliver profitable growth
on a multi-year basis. For example, our approach to partnering
with customers on their next generation product development
allows us to build long term and mutually beneficial
relationships which will live for many years. Our technology
road maps will deliver benefits potentially many years in the
future meaning that we are investing now for the future benefit
of the Group. Consequently, long-term decision making is a
natural part of the Board’s approach.
The Group maintains a risk register, which the senior leadership
team keep updated along with a series of associated action
plans. These are presented to the board on an annual basis.
STANDARDS OF BUSINESS CONDUCT
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 page 52.
The Group has in place specific polices to ensure all Group
employees operate in an honest and ethical way. Details of
these can be found on page 38.
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.
MANAGING OUR STAKEHOLDER ENGAGEMENTS
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.
Some of those engagements are undertaken directly by the
Board and some by the Group’s senior managers and reported
back to the Board. Our key stakeholders and examples of our
engagements with them during the year and actions which
arose, are set out below:
GOOCH & HOUSEGO PLC 44
STRATEGIC REPORT | S172 STATEMENT
ENGAGEMENT
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.
During the year we took the opportunity to get feedback from
our employees on the personal behaviours they thought would
be appropriate to underpin the Group’s Mission and Values.
As a result of those engagements we have been able to build
a series of behaviours tailored for each site that are built in to
our employee appraisal and development systems.
The Board is regularly updated on the work of our engineering
teams on our technology roadmaps in which we are frequently
working very closely with our customers’ teams. We invested
£7.9m in R&D focussing on those areas where we see the
opportunity to support our customers’ next generation
product development.
The Board took the decision to appoint Jim Haynes as the
non-executive director with responsibility for workforce
engagement during the year. This will be an important step
in strengthening the linkage between the Board and the
wider workforce.
The Board is regularly updated on the timeliness and quality of
product deliveries to our customers. This has been particularly
the case as we complete a series of complex product transfers
from our closing manufacturing sites and establish those
product lines either at other G&H facilities or with our contract
manufacturing partners. The Board has considered the effect
of these transfers on customers during these regular updates.
As a result of those engagements we made changes to the
timing at which we transferred particular product lines so as
to minimise any disruption to our customers’ programmes.
We also changed the destination of where certain products
were transferred.
Our technology roadmap is regularly updated so as to best
reflect the latest feedback we are getting from our customers
about their emerging product needs. For example, we are
accelerating the development of certain prototype armoured
vehicle sighting systems to match emerging programme
requirements.
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. During
the year we have started to publish a new quarterly newsletter
for our teams – G&H Informed and the CEO has provided a
number of video updates for employees to compensate for the
fact that site visits have not been possible due to the pandemic.
The Board monitors the Group’s response to feedback received
from employee surveys.
As a result of these interactions, we have received valuable
feedback from our employees about how they believe we
should respond to the evolving COVID-19 situation especially
as it relates to customers and suppliers visiting our sites.
More details of our engagement with our employees and the
results of those engagements are set out in the ESG 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.
Based upon feedback from shareholders at our 2021 Annual
General Meeting Brian Phillipson, Chair of the Remuneration
Committee together with the Chairman consulted on the
remuneration structures that shareholders felt were appropriate
for the Executive Directors and the Senior Management Team.
As a result the Group remuneration strategy was adjusted
(see more details in the Remuneration Committee Report).
Our shareholders have also made it clear how important
Environmental, Social and Governance issues are to them.
As a result of this feedback, the Annual Bonus structure for
the Executive Directors has been changed such that half of
their personal annual objectives will now be dependent upon
continued development of the Group’s policies in this area.
Furthermore, we have established our carbon emissions as
a KPI for the Group.
During the year, feedback from shareholders was taken into
account when the Board proposed its dividends.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | S172 STATEMENT
45
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 FY2021 we operated a supplier risk assessment
process which has assisted the Group in prioritising which
suppliers require further support to improve their
performance. Additional roles were recruited in our supply
chain team to accelerate our work in this area.
During the year we continued to work hard with our Asian
contract manufacturer. The risk in this area increased during the
year and is reflected in our Principal Risks section accordingly.
We undertook training of their employees so that they were
ready to start building some of the product lines that we had
built in house for a number of years. We also invested in new
IT systems that allow us to share delivery and product quality
information with this supplier. Thanks to this investment our
supplier has already been qualified by a number of our
customers to supply product to them and production deliveries
have commenced. We also now have two G&H employees based
at our contract manufacturing partner’s premises in Thailand
to help them ramp up their production processes.
The Group has also 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. G&H offer a range of employment
opportunities for apprentices and we work closely with
educational establishments. During the year we established
a new scheme whereby our site general managers were each
allocated funding to support local charities. We asked them to
focus on those charities that their site employees care about
and so they frequently spend these funds in the form of a
match for amounts raised by our employees themselves.
We were particularly pleased to be able to support MIND,
the mental health charity. More detail on our activities in
these areas is given in our ESG Report.
Where to find
out more
Employees – Pages 38 to 41
Investors – Page 52
Environment – Pages 35 to 37
Society – Page 41
Long Term Success – Pages 22 to 23
GOOCH & HOUSEGO PLC 46
STRATEGIC REPORT | RISK MANAGEMENT
Risk Management
The Group has a process for the identification and management
of risk as part of the governance structure implemented by the
Board. Management of risk and maintenance of systems and
processes to manage those risks is the responsibility of the
Board of Directors. In managing and mitigating risk, a
comprehensive and robust system of controls and risk
management processes has been implemented. The Board’s
role in the risk management process comprises:
• Promoting a culture of integrity throughout the business;
• Making risk management a core part of the business;
• Setting the appetite for risk;
• Identifying the key risks and ensuring they are effectively
communicated and managed; and
• Establishing overall policies for risk management and control.
The Group maintains a comprehensive risk register which is
approved annually by the Board. The group functional heads and
leadership team all have input into the risk identification process.
The register clearly identifies who in the organisation has
responsibility for the day-to-day management of the identified
risks, and has a timeline for any required mitigating actions.
5
Reporting
1
Identify
internal and
external
risks
G&H Risk
Management
Framework
2
Assess
and quantify
risks
4
Monitor
effectiveness
of mitigation
plans
The risks are ranked according to their likelihood of affecting
the business and the estimated impact they may have. Risks
are identified across four key areas: strategic risk, operational
risk, commercial risk and financial risk.
This year, the risk register was presented to, and approved
by, the Board in September 2021. As part of the risk register
approval, the Board also considered emerging risks which
may not yet qualify as principal risks. Climate change risk was
identified as one such risk. While the Board does not currently
consider climate change to present a significant risk to the
Group’s operations in the medium term, we remain cognisant
of developments in this area. The Group’s work during the year
to reduce its carbon emissions is set out in our ESG Report.
The assessment of key risks during the year has identified that
while there have been some significant changes in the external
environment, the Group has remained robust and resilient with
mitigating activities undertaken. This is reflected in the table
of principal risks. The Board has long been conscious of our
ESG agenda and is cognisant of the increasing risk that a
negative perception of our ESG profile could affect our ability
to attract new talent to the business, build relationships with
our customers, positively impact the communities in which we
operate, and attract investment from potential shareholders.
In response we have added a new risk in relation to this, and
further detail of our activity in this area can be found in our
ESG Report.
The Audit Committee has responsibility for reviewing the
effectiveness of the risk management framework and internal
controls and ensures that the Group is in compliance with
relevant regulations and laws. Although the Group does not
have an internal audit function, the function of internal control
is carried out by the Group Finance team. Its responsibility is to
monitor compliance and conduct or, where appropriate,
commission specific reviews. The Audit Committee has
reviewed the work undertaken by Group Finance in relation to
the roll-out of a new control framework during the year.
The significant risks identified in the Group’s risk register are
set out in the following table:
3
Manage
and mitigate
risks
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | STRATEGIC REPORT | RISK MANAGEMENT
47
PRINCIPAL RISKS AND UNCERTAINTIES
Change
from FY20
Risk
Mitigation
Competition
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/or profitability.
This is a key area of focus for the G&H management team. Fundamental to
mitigating the threat from our competitors is the maintenance of 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 48 new products
during FY2021.
The Group also has a series of cost reduction projects in place. During
FY2021 we closed our production facilities in Glenrothes, Scotland, St
Asaph, Wales and Baltimore, Maryland. We are establishing Ilminster as
our Precisions Optics hub in the UK and utilising a contract manufacturer
for our AO products previously manufactured in Ilminster. These actions
are significantly reducing our fixed overhead base and enabling more
agile manufacturing going forward, thereby helping to sustain our cost
competitiveness in the market.
Our business development teams maintain a strong presence in the
marketplace and attend key trade shows which enables them to monitor
competitor activity and respond accordingly.
Retention of key personnel
The Group recognises the importance of
retaining and developing its highly skilled
management team and workforce in
order to achieve its strategic objectives.
This is particularly important when travel
is restricted due to the pandemic, and
when we are implementing an ambitious
restructuring programme.
Our people are at the heart of our business. We have put in place
development and reward schemes to encourage individuals to play
a long term role in the future development of the Group.
During FY2021, we implemented all-employee share schemes in both the
UK and the US. These schemes were introduced in response to employee
feedback and will help to ensure staff feel invested in the business.
Regular employee surveys are conducted and action plans are developed
to address any identified improvement areas.
Our HR teams review local market conditions on an ongoing basis
and take appropriate action where necessary.
Succession planning is reviewed by the senior management team
on a regular basis.
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.
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 a robust order book going into FY2022.
Our US/China tariff steering group continually monitors progress and takes
mitigating action where necessary. Our supply chain strategy in which we
seek to make greater use of lower cost Asian contract manufacturers is
reducing the Group’s exposure to US/China tariffs.
GOOCH & HOUSEGO PLC
48
STRATEGIC REPORT | RISK MANAGEMENT
Change
from FY20
Risk
Mitigation
Outsourcing to contract manufacturer
We are currently transferring manufacture
of a number of our AO products to an Asian
contract manufacturing partner. This is a
significant undertaking, particularly at a
time when travel between the UK and Asia
has been restricted due to the pandemic.
From the outset, we have had a robust transfer plan in place. We have a
Steering Committee who are responsible for the transfer, and they have
regular meetings to monitor progress and take corrective action where
necessary. We now have staff located at our contract manufacturing partner’s
facility working with them to embed processes and transfer knowledge.
A delay in the transfer, or a failure by
the contract manufacturer to deliver
as expected, could have an adverse
effect on G&H.
Supply chain
Current global shortages in certain
commodities such as electronic
components could have an effect on
our ability to manufacture products.
We utilise a number of sole source
suppliers in the business, and certain
of our suppliers are based in higher
risk regions. An interruption in supply
could have an adverse effect on our
manufacturing operations.
Our newly appointed Asian Supply Chain Director will Chair monthly
meetings with the contract manufacturer, with detailed action plans to
support improved quality, delivery and cost effectiveness.
Our Executive Leadership team are regularly reviewing progress.
Our supply chain team are regularly monitoring the availability of key
components, and seek to put in place long term agreements with critical
suppliers to ensure continuity of supply. Buffer stocks are held where
necessary, although these would not be sufficient in the event of a
protracted delay in supply.
Our engineering teams work to identify and qualify alternative sources
of supply to mitigate risk where this is possible.
We have a supplier audit programme in place to identify risk, and we work
with our suppliers to mitigate those risks identified.
Sustainability, climate change and the environment
Our operations may not be judged by
our stakeholders as sustainable.
Failure to appropriately manage the
environmental impact of our operations
and products and / or reputational
damage on our relationship with
stakeholders would have a significant
adverse effect on the business.
Our ESG agenda is closely monitored by the Board.
Key actions have been identified and individuals in the Group have clear
responsibility for managing and progressing those actions.
Engagement with our stakeholders to obtain feedback on their concerns
in this area, and on their views on our progress.
Acquisition and integration strategy
Growth by acquisition is a key aspect
of our strategy to augment our organic
growth. The business faces a number
of risks associated with its acquisition
strategy. There is a risk that the expected
benefits of an acquisition or the
post-acquisition performance of the
acquired business are below expectation
at the time terms were agreed.
Thorough financial, legal and commercial due diligence would be completed
prior to finalising any proposed acquisition. This would be expected to
identify any key risks inherent in the deals so that appropriate valuation
adjustments could be made.
Integration planning is reviewed as part of each acquisition and project
managed post transaction.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | STRATEGIC REPORT | RISK MANAGEMENT
49
Change
from FY20
Risk
Mitigation
Pandemic
During FY2021, the business continued to
respond well to the challenges presented
by the pandemic. All of our sites were
able to remain fully open during the year
and continued to comply with all relevant
health and safety regulations. We did,
however, have a number of staff
self-isolating during the second half of
the year, affecting production in our
Ilminster and Torquay facilities.
Despite the success of the vaccine
roll-out, further waves of the virus and
any associated restrictions could affect
the business in the future.
There is also a risk that new strains of the
virus may require different types of
measures to be put in place.
Policies and procedures implemented across all our sites in the US, UK
and China remain in place where appropriate to ensure our business can
continue to operate effectively whilst rigorously complying with all
relevant regulation and guidelines.
Our factories in the US are all classified as fully or significantly exempt
from stay at home orders due to their products being essential or vital for
national security.
Infrastructure and process changes have been made to our facilities to
support enhanced social distancing and other health and safety requirements.
The approach the Group has applied to responding to changing government
requirements and assessing industry best practice provides a template for
responding to different measures that may be necessary for new strains in
the future.
The above measures will support the Group in mitigating the impact of
further waves of the current and future pandemics, should they occur.
Information and cyber security
There is a risk of loss of digital
intellectual property/data or our ability
to operate systems due to internal
failure or external attack.
Clear ownership of cyber risk and IT controls.
Data is appropriately stored and backed up with IT system recovery plans
in place. These plans are regularly tested.
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
30 November 2021
GOOCH & HOUSEGO PLC
50
GOVERNANCE | BOARD OF DIRECTORS
Board of Directors
Executive Directors
Non-Executive Directors
Mark Webster
Chief Executive Officer
Chris Jewell
Chief Financial Officer
Gary Bullard
Non-Executive Chairman
Appointed January 2015
Appointed September 2019
Appointed 21 February 2018
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 of Abcam PLC
Mark holds an honours degree in
Chemistry from the University of Durham.
Relevant skills and experience
• Strategy/ Growth
• Leadership and Management
• Operational Excellence
• Supply Chain
• International Business
• Restructuring
• Transformation
• Investor relations
• M&A / Integration
• Manufacturing
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.
Chris holds master’s degrees from
Cambridge University and the London
School of Economics. He is a Fellow of
the Institute of Chartered Accountants
in England and Wales.
Relevant skills and experience
• Strategy/ Growth
• Leadership and Management
• Financial Management
• International Business
• Restructuring
• Transformation
• M&A / Financing
• Equity and Debt Capital Markets
• Investor Relations
• Risk Management
• Aerospace & Defence Sector
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.
Current external appointments
• Non-executive director of Spirent
Communications PLC
• Non-executive Chair of AFC Energy PLC
• Chairman of Recycling Technologies PLC
Relevant skills and experience
• Strategy/ Growth
• M&A / Financing
• International Business
• Investor Relations
• Manufacturing
• Corporate Governance
• Talent and Succession
• Remuneration Policy Setting
• Technology
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | GOVERNANCE | BOARD OF DIRECTORS
51
Brian Phillipson
Non-Executive Director
Louise Evans
Non-Executive Director
Jim Haynes
Non-Executive Director
Appointed 1 September 2015
Appointed 11 May 2020
Appointed 12 February 2021
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.
Current external appointments
• Deputy CTO, Lilium GmbH
Relevant skills and experience
• Strategy/ Growth
• International Business
• Aerospace & Defence Sector
• Manufacturing/ Engineering
• Project Management
• Engineering and Technology
• Operations / Supply Chain
• Remuneration Policy Setting
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.
Current external appointments
• Non-executive director and Audit
Committee Chair of AB Dynamics PLC
• Audit Committee Chair of the
International Foundation for Aids
to Navigation
• Non-executive director of SCB
Brokers SA
Relevant skills and experience
• Strategy/ Growth
• Financial Management
• Risk Management
• Audit and Internal Control
• M&A / Financing
• International Business
• Operations / Supply Chain
• Governance
Jim has over 35 years’ experience in the
Optoelectronics industry, where he has
held senior management positions in
operations, engineering and business.
Jim has worked for Nortel Networks,
Agility Communications and Oclaro PLC,
where he was COO. He was also a
Non-Executive Director at Andor PLC,
and is currently an advisor at
Rockley Photonics.
Relevant skills and experience
• Strategy/ Growth
• Engineering
• Manufacturing Excellence
• International Business
• Operations / Supply Chain
• Product Technology
• Inventory Management
• Outsourcing
GOOCH & HOUSEGO PLC
52
GOVERNANCE | CORPORATE GOVERNANCE
Corporate Governance
Corporate Governance Framework
Board of Directors
Nomination
Committee
Chair
Gary Bullard
Members
Mark Webster
Brian Phillipson
Louise Evans
Jim Haynes
Audit
Committee
Chair
Louise Evans
Members
Brian Phillipson
Jim Haynes
Remuneration
Committee
Chair
Brian Phillipson
Members
Gary Bullard
Louise Evans
Jim Haynes
Workforce
Engagement
NED
Jim Haynes
Chief Executive Officer
Executive
Leadership Team
Manufacturing
Centre Leadership
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | GOVERNANCE | CORPORATE GOVERNANCE
53
OUR GOVERNANCE FRAMEWORK
Description
Roles
The Board of Directors (the ‘Board’)
The Board is responsible to the Company’s
shareholders for the long term success of the
Company. This includes the business’s strategy,
performance, investment and standards of
conduct, as well as ensuring the Company
acts in the best interests of its stakeholders.
The Board is also responsible for corporate
governance and its activities in this area are
explained below.
Chair
The Chair is responsible for leading the
Board and ensuring it is operating effectively
with the appropriate focus on strategy.
Chief Executive
Responsible for day to day leadership of the
business and the overall strategic direction
of the Group.
• Set the Group’s strategy
• Approve the annual budget and monitor performance against it
• Promote a culture based on sound ethical values and behaviours
• Ensure effective communication with the Group’s stakeholders
• Approve significant agreements
• Undertake risk management activities to ensure identified risks are
adequately mitigated. This includes establishing and maintaining an
appropriate control environment across the Group
• Approve appointments to the Board
• Approve Executive remuneration and group-wide remuneration policies
• Ensure the Board is operating effectively and has the right balance of
skills, diversity and experience
• Set the agenda for, and frequency of, board meetings
• Lead an annual performance appraisal of the Chief Executive Officer
• Lead by example, promoting the highest standards of integrity
throughout the business.
• Support and coach the other Non-Executive Directors to ensure an
effective working relationship
• Overall responsibility to the Board for Business performance in
accordance with the agreed strategy
• Lead on overall strategic recommendations to the board
• Developing an organisation which is effective and efficient in achieving
the Group’s strategic aims
• Oversee the application of the Group’s policies and
governance procedures
• Communicate effectively with the Group’s stakeholders
Executive Leadership Team
Responsible for implementing the strategy
and delivering results.
• Lead the site teams to deliver the strategy – Monitor performance
of the business and propose actions to the Chief Executive Officer
• Manage risk
• Ensure effective deployment of the Group’s resources
GOOCH & HOUSEGO PLC
54
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.
The Board of Gooch & Housego PLC reviewed its corporate
governance procedures at its July 2021 meeting. Following
this meeting, a number of actions were taken and the Board
consider the Company to have fully complied with the Code
during the year ended 30 September 2021.
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 50 to 51 and are also available on our website;
www.gandh.com. In addition to these Directors, Peter Bordui
served as a non-executive director until his retirement on
24 February 2021.
The Executive Directors have rolling service contracts that are
subject to either six or 12 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 relationships
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.
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55
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.
Brian Phillipson was appointed as the Senior Independent
Director following the retirement of Peter Bordui in the year
ended 30 September 2021. 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 Brian 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
Non-executive Directors
Gary Bullard
Peter Bordui
Brian Phillipson
Louise Evans
Jim Haynes
9/9
9/9
9/9
4/4
9/9
9/9
5/5
(Retired 24 February 2021)
(Appointed 12 February 2021)
ROLES AND RESPONSIBILITIES
There is a documented clear division of responsibilities between
the Chairman and the Chief Executive Officer to ensure that
there is a balance of power and authority between leadership
of the Board and executive leadership.
All Directors are entitled to seek independent, professional
advice at the Company’s expense in order to discharge their
responsibilities as Directors. Gooch & Housego PLC maintains
appropriate directors’ and officers’ insurance cover.
BOARD ACTIVITIES
Day to day responsibility for the running of the Company is
delegated to executive management. However, there are a
number of matters where, because of their importance to the
Group, it is not considered appropriate to do this. The Board
therefore has a documented schedule of matters reserved for its
decision. This schedule is available on the Company’s web site.
There are typically eight board meetings a year, although an
additional meeting was held in FY2021. 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 FY2021, the majority
of board meetings were held by video conference due to the
pandemic, but we were able to hold face-to-face meetings in
Ilminster in July and Ashford in September after the UK
restrictions were eased. We expect to hold a meeting at one
of our US sites in FY2022 if appropriate given the pandemic
induced restrictions.
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.
GOOCH & HOUSEGO PLC
56
GOVERNANCE | CORPORATE GOVERNANCE
MAINTAINING A DIALOGUE WITH SHAREHOLDERS
The Chairman ensures that the Board maintains an appropriate
dialogue with shareholders. During FY2021, the Chairman met
with a number of major shareholders in order to receive
feedback on their key focus areas and to enable a two-way
dialogue on matters of importance to the Board and
shareholders. The Chairman and the Chair of the Remuneration
Committee also met a number of shareholders during the
remuneration consultation exercise undertaken in response to
the 2021 AGM voting.
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 considered these options during the year and felt it
appropriate to appoint a designated non-executive director.
After consideration of the individual skillsets of the non-
executive directors, the Board felt that Jim Haynes was the
most appropriately qualified individual to take on this role and
he was duly appointed as our non-executive director with
responsibility for engagement with the workforce. This
appointment was made at our July 2021 meeting, following
which Jim has worked with our global HR teams to agree the
scope of his involvement in connection with this role. This will
see him attending a number of employee focus groups in
FY2022, as well as attending all-employee presentations where
possible. He will act as a conduit between the workforce and the
Board. A key first step in this process will be the all-employee
survey which we expect to complete early in calendar 2022.
The Board reviews the organisation’s culture to ensure it is
aligned with the Group’s strategy. Following the review in the
year, it was agreed to launch the Group’s Mission, Vision, Values
and Behaviours to further strengthen the Group’s culture in
support of its strategic aim. Further information on our work in
this regard is given in the ESG Report.
Other 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 September
2021, and was led by the Senior Independent Director Brian
Phillipson using a formal structured questionnaire. A number
of themes came out of this review in relation to which the
Chairman has taken specific actions to address in FY2022.
The key themes were board succession, stakeholder
communications, and the need for more informal time together
among the Non-Executive Directors. We will provide an update
on these areas in the FY2022 Annual Report.
The Senior Independent Director leads an annual appraisal of
the Chairman’s performance. This review took place during
August and September 2021, using a formal questionnaire.
Brian Phillipson collated the feedback received and presented
initially to the Chairman and then to the Board. The Chairman
summarised the actions arising therefrom at the September
2021 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.
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57
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. Due to the pandemic driven travel
restrictions, we have not been able to arrange senior finance
staff site visits in the year, but we have maintained a remote
review of controls. We have also rolled out a new control
framework and intend to arrange site visits in FY2022 to ensure
the controls are operating in line with this new framework.
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.
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. This year, the risk register was
presented and approved at the September 2021 meeting.
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.
GOOCH & HOUSEGO PLC
58
GOVERNANCE | DIRECTORS’ REPORT
Directors’ Report
The Directors present their report together with the audited
consolidated financial statements for the year ended 30
September 2021. The Directors who held office during the year
are shown on pages 50 and 51. In addition to these Directors,
Peter Bordui served as a non-executive director until his
retirement on 24 February 2021.
A review of the development and performance of the Group
during the year and its future prospects is set out in the
Financial Highlights and in the Financial 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 in the Operations Review.
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.
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 16.
All balances not immediately required for group operations are
placed on short-term deposit with leading international highly
rated financial institutions.
DIVIDENDS
During the year ended 30 September 2021 no final dividend
was paid for the previous financial year. An interim dividend of
4.5p was paid for the half year ended 31 March 2021 (2020: nil).
For the year ended 30 September 2021, the Directors have
proposed a final dividend of 7.7p per share (2020: nil).
SUBSTANTIAL SHAREHOLDINGS
As at 15 November 2021, the following shareholders had
notified the Company that they held an interest in 3% or more
of its issued ordinary share capital:
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.
Shareholder
Octopus Investments
Invesco
Investec Group
abdrn plc
Canaccord Genuity Group Inc
BlackRock Inc
Bangarra Group
Charles Stanley Group
Number
% holding
3,195,995
2,895,161
1,870,263
1,661,046
1,639,263
1,447,634
1,053,497
872,919
12.76%
11.56%
7.47%
6.63%
6.55%
5.78%
4.21%
3.49%
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.
Further information on financial risk 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 and invested £7.9m in R&D in
the year ended 30 September 2021 (2020: £8.0m). 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | GOVERNANCE | DIRECTORS’ REPORT
59
EMPLOYEES
Our employment policies are designed to provide equal
opportunities irrespective of race, religion, gender, age,
disability or sexual orientation. We give full and fair consideration
to applications for employment from people with disabilities,
where suitable for the specific vacancy. Employees who become
disabled while with the Company are given every opportunity
to continue their employment by adjusting their working
conditions, or through retraining for other positions. They are
also given opportunities to continue training and gain promotion
in the same way as any of our employees.
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.
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 financial
statements, 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:
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
• so far as the director is aware, there is no relevant audit
information of which the group and company’s auditors are
unaware; and
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group and company financial statements in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
• 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.
Under company law, 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 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 international accounting standards
in conformity with the requirements of the Companies Act
2006 have been followed, 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.
STAKEHOLDER ENGAGEMENT
The ways in which we have engaged with our stakeholders in
the year are set out in our S172 Statement and our ESG Report.
GOING CONCERN
The Directors have reviewed the budget for FY2022 and the
projections for FY2023 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 33.
At 30 September 2021 the Group has a strong balance sheet
with net current assets of £43.4m. The Group’s cash and
undrawn available facilities totalled £34.5m.
The Directors have reviewed severe but plausible scenarios
that estimate the potential impact of the principal risks that
the Group faces (see pages 46 to 49 of this report) on the
financial forecasts. These include the impact of a possible
recession and/or further waves of the 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.
They also included the effect of erosion of sales prices due to
competition, the potential impact of a cyber-attack and a
reduction in forecast revenue to illustrate the potential effect
GOOCH & HOUSEGO PLC 60
GOVERNANCE | DIRECTORS’ REPORT
of a loss of key personnel or inability to hire for a key role. This
assessment covered not only the coming 12 month period but
also for the period to September 2024 in order to support the
Viability Statement given below.
We have determined that the period to September 2024
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.
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 2024.
Approved and signed on behalf of the Board of Directors by:
Mark Webster
Director
30 November 2021
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 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 2024
taking into account the Group’s current position and the
potential impact of the principal risk and uncertainties set out
on pages 46 to 49 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | GOVERNANCE | AUDIT COMMITTEE REPORT
61
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,
Brian Phillipson and Jim Haynes 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
Jim Haynes
3/3
1/1
3/3
2/2
(Appointed 12 February 2021)
At the invitation of the Committee, representatives of the
external auditors, PwC LLP, attended meetings together with the
Chairman, Chief Executive Officer, Chief Financial Officer, and the
Company Secretary. The Committee also seeks to meet regularly
with the external auditor without the Executive Directors in
attendance. In the year, the Committee met twice with
representatives from PwC LLP without others being present.
RESPONSIBILITIES
The role and responsibilities of the Committee are set out in its
terms of reference, which are available on the Company’s web
site and from the Company Secretary on request. The terms of
reference are reviewed annually by the Committee.
The principal responsibilities of the Committee are:
• Reviewing the effectiveness of the Company’s financial
reporting, internal control policies and procedures for the
identification, assessment and reporting of risk;
• Advising the Board on whether the Committee believes the
Annual Report taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company’s performance,
business model and strategy;
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; and
• 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 areas of focus considered by the Committee during
the year were as follows:
(Retired 24 February 2021)
• Considering and making recommendations to the Board as
GOOCH & HOUSEGO PLC
62
GOVERNANCE | AUDIT COMMITTEE REPORT
Area of focus
Conclusion
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.
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.
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 remains satisfied that the manufacturing centres continue to form
the most appropriate basis for the CGUs (with the exception of Ashford, which has
not yet been aligned to a manufacturing centre).
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.
Inventories
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.
The Committee was satisfied that the provisions made adequately reflected the
risk of impairment.
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.
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.
Financial Systems, Policies and Controls
The Committee has reviewed the
financial control framework.
The Committee reviewed the work that is underway to refresh and harmonise the
financial policies and controls in place across the Group. Group finance have rolled
out a new, detailed, control framework during FY2021. It is our intention, travel
restrictions permitting, to commence a programme of internal audit site visits in
FY2022 in order to ensure that the new framework is being applied and to
determine any further improvements which may need to be made.
Fair, balanced understandable and comprehensive reporting
The Committee has reviewed the
Annual Report.
The Committee has reviewed the Annual Report and is comfortable that it provides
a fair, balanced and understandable review of the year ended 30 September 2021.
As part of this review, the Committee has considered the alternative performance
measures presented, and the degree of prominence given thereto in relation to
statutory measures. The Committee has also considered the ESG disclosures and
other reports to ensure that a fair review has been given.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | GOVERNANCE | AUDIT COMMITTEE REPORT
63
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.
As a result of the FRC’s Revised Ethical Standard 2019, auditors
of AIM listed businesses such as G&H are no longer able to
provide, with the exception of a very limited list of activities,
non-audit services to those businesses. Accordingly, during
FY2021, G&H tendered the provision of taxation advisory
services which were previously provided by PwC LLP. After
a formal tender process involving four firms, Grant Thornton
were appointed to provide our global taxation services.
We believe the independence of the auditors has been enhanced
by this change, and the auditors continue to be 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.
The Audit Committee is cognisant of the length of tenure of
PwCs LLP as auditors to the Group, and it is therefore our
current intention to tender the audit service following
the completion of the financial statements for the
year ended 30 September 2023.
Approval
Louise Evans
Chair of the Audit Committee
30 November 2021
GOOCH & HOUSEGO PLC
64
GOVERNANCE | NOMINATION COMMITTEE REPORT
Nomination Committee
Report
The Nomination Committee, which consists of the Chief
Executive Officer and all four Non-Executive Directors, is
responsible for the composition of the Board.
ROLE OF THE COMMITTEE
• Reviews the composition of the Board and its committees.
• Identifies and recommends for Board approval suitable
candidates to be appointed to the Board.
• Considers succession planning for Directors and other senior
executives and in doing this considers diversity, experience,
knowledge and skills.
• Considers the gender balance of those in senior
management and their direct reports.
AREAS OF FOCUS FOR THE NOMINATION COMMITTEE
DURING FY2021
• Appointment of a new Non-Executive Director following the
retirement of Peter Bordui at the AGM in February 2021.
• The Committee held two formal meetings in the year, but
there were a number of informal meetings and
communications by email during the recruitment process.
• Succession planning for other members of the Board.
• Diversity in the senior management team. Further details in
this regard can be found in our Corporate Governance Report.
ADVISORS
During FY2021, the Committee appointed Korn Ferry, an
external search agency, to assist with the identification of
suitable candidates for the role of Non-Executive Director.
APPOINTMENT PROCESS
As part of the appointment process, the Committee
determined the selection criteria for the vacant Non-Executive
director 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 Jim Haynes who joined the board on 12
February 2021.
MEMBERSHIP AND ATTENDANCE AT MEETINGS
HELD IN FY2021
(Resigned 24 February 2021)
(Appointed 12 February 2021)
Non-executive Directors
Dr Peter Bordui
Gary Bullard
Brian Phillipson
Louise Evans
Jim Haynes
Executive Directors
Mark Webster
Approval
1/1
2/2
2/2
2/2
1/1
2/2
Gary Bullard
Chairman of the Nomination Committee
30 November 2021
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | GOVERNANCE | REMUNERATION COMMITTEE REPORT
65
Remuneration Committee
Report
INTRODUCTION
The Committee continues to base our remuneration policy on
high standards of external regulation and expectations, and the
needs of the business. As in previous years, we have reviewed
our policy during the year and introduced a number of relatively
small changes as detailed below.
The Group’s trading recovered well in FY2021, with an increase in
adjusted profit before tax of 29.4% and adjusted basic earnings
per share of 34.4%. The Group’s cash flow was strong leading
to a significant reduction in net debt from £14.7m to £9.2m.
This strong performance, combined with excellent progress on
the Directors’ personal objectives, meant that the bonus award
for the Executive Directors was close to the maximum level.
Further detail is set out later in this report.
In FY2020, we were faced by concerns over senior staff retention
as the COVID pandemic struck and the value of unvested LTIPs
very significantly reduced. At that time, we were in the midst of
a substantial cost reduction programme including site
rationalisations and closures, work and equipment relocations,
and significant outsourcing to South East Asia. The pandemic
meant we were faced with severe restrictions on travel and on
face-to-face meetings, and in progressing this rationalisation
programme we were therefore highly reliant on existing
management’s knowledge of our sites, our people and our
businesses. Any new recruitment would have been difficult in
itself but it would have been particularly difficult for any new
recruit to become familiar with our businesses given the
ongoing restrictions to travel. At a critical time for the Group it
was very important that our Executive Directors and senior
management team were retained and motivated. We therefore
proposed a one-time award of LTIP options which had a shorter
vesting period (two years) than the normal annual LTIP grants
(three years) to enhance the retention incentives for our
management team. This decision was taken in response to a
unique set of circumstances created by the pandemic and our
programme of significant integration and consolidation. Prior
to finalising the details of this one-time award we consulted
with our major shareholders and sought to reflect the feedback
received in the final proposal. We therefore were confident that
we had the support of the majority of our shareholders for the
exceptional award.
At the Annual General Meeting in February 2021, although
most shareholders did support the Board’s recommendations,
two resolutions were passed with fewer than 80% of votes in
favour: Resolution 2 (to receive and approve the Remuneration
Committee Report) and Resolution 6 (to re-elect Brian
Phillipson, Chair of the Remuneration Committee). In accordance
with the provisions of the 2018 UK Corporate Governance
Code, following the AGM, the Board therefore re-engaged with
a wider group of major shareholders to better understand
shareholders’ views in relation to these resolutions. The
Committee received limited further feedback as a result of this
exercise but was able to confirm to our shareholders the one-off
nature of the “exceptional” LTIP award.
The Remuneration Committee also felt it appropriate to
undertake a broader review of our Remuneration Framework
during FY2021. The consultation exercise referred to above
provided a good opportunity for Brian Phillipson,
Remuneration Committee Chair, and Gary Bullard, Chairman,
to seek feedback from our shareholders on our remuneration
policies more broadly. After collating the feedback received,
and discussing with our remuneration advisors, we have
confirmed the general suitability of our remuneration policies
but have also decided to make a number of specific changes
which we believe help keep our policies in line with best market
practice. These are summarised below:
EXECUTIVE DIRECTOR COMPANY PENSION
CONTRIBUTIONS
Mark Webster has been contractually entitled to employer
pension contributions of 10% of basic salary since his
appointment. Subsequent to his appointment, the UK
Corporate Governance Code changed and now advises that
Executive Directors should not be entitled to higher
contributions than those available to the wider workforce.
Accordingly, we will reduce Mark Webster’s pension
contributions (which he sacrifices for an increase in salary)
from 10% to 6% with effect from 1 October 2022.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
(ESG) MATTERS
The Board recognises the increasing importance of ESG
matters to our employees, shareholders and broader society
and is therefore changing the Executive Bonus scheme such
that half of the personal objective element is based on ESG
targets for FY2022. The remuneration committee discussed
whether it would be appropriate to introduce ESG targets to
the vesting criteria for the FY2022 LTIP grant, but due to the
difficulty in setting meaningful and realistic medium term
targets at this stage, decided to defer such a step this year.
However, it is our intention in the coming year to develop a
longer term ESG plan and in particular specific sustainability/
GOOCH & HOUSEGO PLC OPERATION OF THE REMUNERATION COMMITTEE
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 while also
fully meeting the expectations of shareholders and
governance standards.
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. Due to the shareholder consultation regarding the
AGM voting, an additional formal meeting was held in FY2021.
The Committee has been advised by FIT Remuneration
Consultants (“FIT”) on certain matters during the year.
The Committee is satisfied that FIT have no conflicts of
interest with G&H or its Directors.
Attendance at meetings held in FY2021
Brian Phillipson (Chairman)
Gary Bullard
Louise Evans
Jim Haynes
Dr Peter Bordui
4/4
4/4
4/4
3/3
1/1
(Appointed 12 February 2021)
(Resigned 24 February 2021)
66
GOVERNANCE | REMUNERATION COMMITTEE REPORT
carbon reduction targets, and to link this with the LTIP
programme with effect from FY2023. Since taking this
decision, we have noted the proposed Treasury Rules
announced at COP26 in this regard, and our planning in the
coming year will appropriately recognise this development.
DIRECTOR SHAREHOLDING REQUIREMENTS
The Remuneration Committee has undertaken a review of
market practice with respect to Executive Director shareholding
requirements. Following this review, we have implemented an
increase in the Chief Executive Officer’s holding requirement to
200% of salary. The Chief Executive Officer will be required to
increase his holding to this level through shares vested under
the LTIP in relation to grants made after 30 September 2021.
The new requirement will not be applied retrospectively.
The Committee felt it appropriate to leave the shareholding
requirement applicable to the Chief Financial Officer unchanged
at 100% of salary.
POST CESSATION HOLDING REQUIREMENT
The Remuneration Committee has introduced a requirement
for Executive Directors to hold shares with a value of 100% of
salary for a period of one year post cessation of employment at
G&H. This requirement will apply to shares vested under the
LTIP in respect of awards granted after 30 September 2021. It
will not apply to shares already held by Directors, those
purchased by Directors or any shares which may vest under
extant LTIP awards.
Following the consultation process undertaken in the year, and
the changes outlined above, the Board is satisfied that 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. Furthermore, we believe our
remuneration framework is effective in driving behaviours that
are consistent with our company values and strategy and is fully
in line with external governance requirements and expectations.
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 senior
management. The Committee is satisfied that this is the case.
The Remuneration Committee has also encouraged the
introduction of an all-employee share scheme, and is
encouraged by the initial take-up, despite the timing of the
launch being against the backdrop of the pandemic.
The Committee values all feedback from shareholders and
hopes to receive your support at the forthcoming AGM.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | GOVERNANCE | REMUNERATION COMMITTEE REPORT
67
REMUNERATION POLICY TABLE
The table below summarises our policy for FY2021 and the planned changes for FY2022:
Purpose and link
to strategy
FY2021
Policy and approach
Opportunity
FY2022
Policy and Approach
Element of
remuneration
Base
Salary
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
Annual
Bonus
Incentivise
achievement of
short-term financial
targets that the
Committee considers
to be critical drivers
of business growth
• Reviewed annually with
changes effective from 1
January if applicable
• Consideration given to
individual and company
performance
Base salary
increases are
applied in
line with the
outcome of the
annual review
The Remuneration Committee
approved a 2.5% increase
to the Executive Directors’
salaries effective from 1
January 2022. This is in line
with the increase given to the
wider workforce.
• General pay increases
across the wider workforce
are also taken into
consideration
• Where the company
considers it appropriate
and necessary, larger
increases may be
awarded in exceptional
circumstances
• Awarded annually
• Based on broad
performance measures
• 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.
• 0-20% of bonus payable
for achievement of
personal objectives
linked to operational
performance and major
initiatives.
Maximum
of 100% of
base salary
FY2022 proposal:
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.
0-10% payable for
achievement of personal
objectives.
0-10% for achievement of
specific ESG targets.
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
No changes proposed for FY22
but in FY23, all Directors will
be entitled only to employer
contributions equal to 6% of
salary.
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GOVERNANCE | REMUNERATION COMMITTEE REPORT
Element of
remuneration
Purpose and link
to strategy
FY2021
Policy and approach
Opportunity
FY2022
Policy and Approach
Long Term
Incentive
Plan (LTIP)
Incentivise executive
performance over the
longer term.
Performance measures
linked to the long-term
strategy of the business
and the creation of
shareholder value over
the longer term.
• Awards vest after
three years subject to
achievement of targets,
and are then subject to a
two year holding period.
• 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.
• 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.
Awarded to address
the loss of retention
incentives arising
from loss of value of
extant LTIPs.
Exceptional
“one-off”
LTIP
awards for
FY2021
No changes proposed for
FY2022. For FY2023,
the Committee intends to
introduce a new LTIP target
linked to a long term ESG
strategy to be developed
in the coming year.
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 were an
exceptional case
may arise (e.g.
on recruitment).
CEO: 80% of
basic salary.
CFO: 90% of
basic salary.
This was a one-off award
disclosed in FY2020 and
granted in FY2021 which
will not be repeated.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | GOVERNANCE | REMUNERATION COMMITTEE REPORT
69
DIRECTORS’ REMUNERATION
2021
Executive
M Webster
C Jewell
Non-executive
G Bullard
B Phillipson
L Evans
J Haynes 1
Dr P Bordui 2
2020
Executive
M Webster
C Jewell
A Warnock 3
Non-executive
G Bullard
Dr P Bordui
B Phillipson
L Evans 4
D Bauernfeind 5
Basic
pay
£000
353
262
81
45
45
25
21
Performance
Related Bonus
£000
312
239
–
–
–
–
–
832
551
Benefits
in kind
£000
Pension
contribution
£000
Sub-total
2021
£000
LTIP
£000
14
8
–
–
–
–
–
22
–
10
–
–
–
–
–
10
679
519
81
45
45
25
21
1,415
–
–
–
–
–
–
–
–
Basic
pay
£000
Performance
Related Bonus
£000
Benefits
in kind
£000
Pension
contribution
£000
Sub-total
2020
£000
LTIP
£000
350
259
41
80
44
44
18
14
850
–
–
–
–
–
–
–
–
–
14
5
–
–
–
–
–
–
19
–
10
2
–
–
–
–
–
12
364
274
43
80
44
44
18
14
881
–
–
–
–
–
–
–
–
–
Total
2021
£000
679
519
81
45
45
25
21
1,415
Total
2020
£000
364
274
43
80
44
44
18
14
881
The above disclosure has been audited.
1 Jim Haynes was appointed on 12 February 2021
2 Peter Bordui retired on 24 February 2021
3 Alex Warnock resigned on 11 November 2019
4 Louise Evans was appointed on 11 May 2020
5 David Bauernfeind deceased on 26 December 2019
GOOCH & HOUSEGO PLC
70
GOVERNANCE | REMUNERATION COMMITTEE REPORT
REMUNERATION
Executive Directors are paid a basic salary together with annual bonus payments
based on the achievement of Group profitability, cash and personal operational
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 further payments were made in FY2021 or FY2020.
BENEFITS
Executive Directors receive private health insurance, life assurance and long-term
disability insurance.
2021 PERFORMANCE RELATED BONUSES
Bonuses in 2021 were based 60% on EPS, 20% on operating cash flow and 20% on
personal strategic objectives. Details of the performance achieved against the EPS
and cash flow targets are shown in the table below:
Financial targets
Performance
required to trigger
bonus payment
Performance
required
at maximum
% payable
at maximum
performance
Performance
outcome
EPS target (adjusted diluted)
Adjusted operating cash flow target
31.4p
£20.2m
38.4p
£22.2m
60%
20%
40.5p
£21.9m
%
bonus
awarded
60%
19%
The EPS target for the year was exceeded by more than 10% reflecting a strong
recovery in the Group’s profitability during the year. This element of the bonus was
therefore fully achieved. The adjusted operating cash flow target was exceeded,
reflecting the strong results, but not by as much as 10% required to trigger full payment.
This element of the bonus therefore paid out at 19% (out of a maximum of 20%).
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
Chris Jewell, CFO
• Ensure health and safety of the company’s employees and stakeholders
• Complete the FY21 finance function organisational changes agreed
remains the key priority for the Group during the pandemic.
with the Board.
• Implementation of manufacturing footprint and outsourcing strategy.
• Implement next stage of the financial and business systems project.
• Achieve inventory turn targets set by the Board.
• Implement a common suite of financial controls across the Group.
• Implement next stage of the financial and business systems project.
• Complete the appointment of new tax advisors for the Group.
• Achieve inventory turns targets set by the Board.
The view of the Remuneration Committee is that excellent progress was made against
the objectives set. Following due discussion at the October 2021 Remuneration
Committee meeting, the Committee approved achievement levels of 17% and 18%
out of the maximum 20% for this element of the bonus for Mark Webster and Chris
Jewell respectively.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | GOVERNANCE | REMUNERATION COMMITTEE REPORT
71
DIRECTORS’ PENSION ARRANGEMENTS
During FY2019, the rate of Company pension contributions for new executive directors was
reduced from 10% to 6%. This brought the company’s policy in line with the UK Corporate
Governance Code 2018 which recommends that contribution rates for executive directors,
or payments in lieu thereof, should be aligned with those available to the workforce.
As referred to above, all Executive Directors will be entitled to a pension contribution of
6% of salary with effect from 1 October 2022, removing the one outstanding anomaly.
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 (2020: 1). Mark Webster is currently 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. The Chief Executive Officer’s
contract is subject to twelve months’ notice and the Chief Financial Officer’s contract
is subject to six months’ notice. The Chairman and non-executive Directors do not
have contracts of service.
MALUS AND CLAWBACK
Both the Long Term Incentive Plan and Annual Bonus scheme have malus and clawback
clauses. These clauses permit the Remuneration Committee to reduce or cancel
amounts due under these schemes at any time prior to payment or up to three years
after payment if specific circumstances apply. These circumstances include the
Director being dismissed for gross misconduct, the results of the Group being materially
misstated, an error being identified in the performance conditions for the payments,
or if the Remuneration Committee believe there to be circumstances giving rise to a
reputational risk arising for the Company.
LONG TERM INCENTIVE PLAN
There were no exercises under the Long Term Incentive Scheme by the Directors in
either the year ended 30 September 2020 or 30 September 2021.
DIRECTOR SHAREHOLDINGS
The Directors’ beneficial interests in the issued ordinary share capital of the Company
were as follows:
Executive Directors
Mark Webster
Chris Jewell
Non-executive Directors
Gary Bullard
Brian Phillipson
Louise Evans
Jim Haynes
Number of shares at
30 September 2021
% of salary
As at 30 September
2021
Number of shares at
30 September 2020
% of salary
As at 30 September 2020
36,366
1,278
11,572
1,954
473
-
140%
6%
N/A
N/A
N/A
N/A
36,366
1,278
10,535
1,954
473
-
113%
5%
N/A
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.
GOOCH & HOUSEGO PLC
72
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 Directors and 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
vesting shares in relation to all extant awards, after sales to satisfy tax obligations,
50% must be held for a further year and 50% must be held for a further two years.
The exercise price of all awards is nil.
Date of
grant
At
01.10.2020
Awarded
in year
Exercised
in year
Lapsed
At
30.09.2021
Number of ordinary shares under option
21.12.2017
08.01.2019
13.01.2020
07.01.2021
07.01.2021
13.01.2020
07.01.2021
07.01.2021
24,145
26,676
29,942
–
–
37,867
–
–
–
–
–
32,835
21,890
–
22,839
18,686
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,145
26,676
29,942
32,835
21,890
37,867
22,839
18,686
Expiry
Date
21.12.2021
08.01.2023
13.01.2024
07.01.2025
07.01.2024
13.01.2024
07.01.2025
07.01.2024
Executive
M Webster
M Webster
M Webster
M Webster
M Webster
C Jewell
C Jewell
C Jewell
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.
THE GOOCH & HOUSEGO PLC SAVE AS YOU EARN SCHEME
The Gooch & Housego PLC Save As You Earn Scheme was established in February
2021 and is open to all UK employees. The scheme allows participants to save up to
a maximum of £100 per month over the three year vesting period. Participants
commit to a fixed monthly savings amount at the start of the savings period and
are granted options at a 10% discount to the market price of Gooch & Housego PLC
shares on the date of commencement of the vesting period. During the year ended
30 September 2021, both Mark Webster and Chris Jewell signed up to the scheme
and were granted 310 options.
Date of
grant
At
01.10.2020
Awarded
in year
Exercised
in year
Lapsed
At
30.09.2021
Expiry
Date
Number of ordinary shares under option
Executive
M Webster
26.03.2021
C Jewell
26.03.2021
–
–
310
310
–
–
–
–
310
310
26.03.2025
26.03.2025
The Group also established an all-US employee share scheme during the year, the
Gooch & Housego PLC Employee Stock Purchase Plan. The Remuneration Committee
reviewed the level of subscription to the two all-employee share schemes in the year.
During the year ended 30 September 2021, £735,000 (2020: £303,000) was
charged to the income statement in respect of the IFRS 2 share based payments
charge on all share option schemes and a debit of £25,000 (2020: credit £17,000)
in respect of employer’s national insurance contributions, based on a year end share
price of £12.60 (2020: £10.00).
Brian Phillipson
Chairman of the Remuneration Committee
30 November 2021
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
73
Independent Auditors’
Report
to the members of Gooch & Housego PLC
Report on the audit of the 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 2021 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
accounting standards in conformity with the requirements 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 2021; the Group Income Statement and Group
Statement of Comprehensive Income, the Group and Company
Cash Flow Statements, and the Group and Company Statements
of Changes in Equity for the year then ended; and the notes to
the Financial Statements, which include a description of the
significant accounting policies.
GOOCH & HOUSEGO PLC 74
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
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.
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.
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),
which was a key audit matter last year, is no longer included
because of the level of estimation required in the these
long-term contracts now being unlikely to result in a material
impact within the Group. Otherwise, the key audit matters
below are consistent with last year.
OUR AUDIT APPROACH
OVERVIEW
Audit scope
• The UK audit team performed an audit of the complete
financial information of three operating units in the USA
(Gooch & Housego (Palo Alto) LLC, EM4 Inc and Gooch &
Housego (Ohio) LLC)) and four operating units in the UK
(Integrated Technologies Limited, Gooch & Housego (Torquay)
Limited, Gooch & Housego (UK) Limited and Kent Periscopes
Limited) as well at 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.
• Specified procedures were also performed by the UK audit
team on certain other balances and transactions within the
remaining thirteen reporting units, along with analytical
procedures on all of the remaining reporting units.
• Taken together, these eight reporting units (post
consolidation entries) account for 82% of the
Group’s revenue.
Key audit matters
• Goodwill impairment assessment (group).
• Impact of COVID-19 on the financial statements
(group and company).
Materiality
• Overall group materiality: £1,239,000 (2020: £533,000)
based on 1% of total revenue.
• Overall company materiality: £300,000 (2020: £300,000)
based on 0.5% of net assets.
• Performance materiality: £929,250 (group) and
£225,000 (company).
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
75
Key Audit Matter
How our audit addressed the key audit matter
Goodwill impairment
assessment (Group)
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 testing included the following procedures:
At 30 September 2021, the Consolidated
Statement of Financial Position includes £36.7
million of goodwill (2020: £37.7 million). In
accordance with International Accounting
Standards, 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.
Impact of COVID-19
on the financial
statements
(Group and Company)
In March 2020 the global pandemic became
significant and is continuing to cause widespread
disruption to financial markets and normal
patterns of business activity across the world,
including the UK. 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.
• Held discussions with management to assess their judgements and estimates in
relation to the impairment assessment at the year end;
• We have agreed the impairment model to the 3 year strategic plan and tested the
mathematical accuracy of the model;
• We have assessed whether the forecast Revenues and EBITDA margins are
reasonable by comparing them to historical trends and by considering the accuracy
of management’s historical forecasting;
• We have assessed forecasts against order book details and pipeline analysis from
the 3 year strategic plans;
• We have held challenge meetings with Sales and Marketing teams to consider key
assumptions in the 3 year plan in order to assess the reasonableness of the growth
assumptions;
• We have considered plausible downside sensitivities to confirm that there is still
appropriate headroom under different scenarios;
• We have also assessed the reasonableness of the assumed long-term growth rate
in light of external forecasts for the markets in which the Group operates; and
• We have used our in-house valuation experts to consider the appropriateness of the
discount rate used to wider market and sector comparatives.
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 the 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.
We audited management’s assessment of the impact of COVID-19, which consisted of
the following audit procedures:
• Performed a risk assessment to consider the impact of the pandemic on the financial
statements;
• Held discussions with management to understand, in qualitative and quantitative
terms, the impact of COVID-19 on the Group’s operations;
• Considered the impact COVID-19 has had on areas such as the impairment of goodwill
(referred to above), recoverability of debtors, and going concern; in each case we
performed certain additional procedures to validate explanations given and to explore
potential estimation uncertainties where relevant and to explore any indicators of
additional risk over recoverability; and
• Read management’s disclosures in the Annual report and financial statements.
Based on the audit 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.
GOOCH & HOUSEGO PLC
76
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
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 team performed an audit of the complete financial
information of three operating units in the USA (Gooch &
Housego (Palo Alto) LLC, EM4 Inc and Gooch & Housego (Ohio)
LLC)) and four operating units in the UK (Integrated Technologies
Limited, Gooch & Housego (Torquay) Limited, Gooch &
Housego (UK) Limited and Kent Periscopes Limited) as well as
the Parent company based in the UK (Gooch & Housego PLC).
remaining thirteen reporting units, along with analytical
procedures on all of the remaining reporting units.
Taken together, these eight reporting units (post consolidation
entries) account for 82% of the Group’s revenue.
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.
Additional procedures were also performed at Group level in
respect of centralised processes and functions, including the
audit of consolidation journals.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Specified procedures were also performed by the UK audit
team on certain other balances and transactions within the
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
Group financial statements
Company financial statements
£1,239,000 (2020: £533,000).
£300,000 (2020: £300,000).
1% of total revenue.
0.5% of net assets.
Overall materiality in the current year has been based on 1%
of the Group’s forecasted revenue. This is a change from the
previous year where the benchmark used was adjusted profit
before tax. This change allows for a more consistent year on
year benchmark figure moving forward, which is not impacted
by the ongoing restructuring which has continued into FY21.
We have also considered this change in relation to other similar
sized AIM listed entities in similar industries, and performed a
benchmarking assessment to ensure its appropriateness.
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 £225,000 and £700,000.
We use performance materiality to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality.
Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to
£929,250 for the group financial statements and £225,000
for the company financial statements.
In determining the performance materiality, we considered a
number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness of
controls – and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with those charged with governance that we would
report to them misstatements identified during our audit
above £61,500 (group audit) (2020: £26,650) and £15,000
(company audit) (2020: £15,000) as well as misstatements
below those amounts that, in our view, warranted reporting for
qualitative reasons.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
77
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the directors’ assessment of the group’s and
the company’s ability to continue to adopt the going concern
basis of accounting included:
• Evaluation of management’s going concern assessment.
• Evaluation of the Group’s forecast financial performance,
liquidity and covenant compliance over the going concern
period including an evaluation of the impact of COVID-19 on
the financial outlook of the Group.
• Evaluation of stress testing performed by management in
their downside scenario and consideration of whether the
stresses applied are appropriate for assessing going concern.
• Validation of the terms of the current banking facilities.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group’s and the company’s ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the group’s
and the company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied
the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’
statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
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 our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain
opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 30 September 2021 is
consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and
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.
GOOCH & HOUSEGO PLC 78
FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
CORPORATE GOVERNANCE STATEMENT
ISAs (UK) require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the company’s
compliance with the provisions of the UK Corporate Governance
Code, which the Listing Rules of the Financial Conduct Authority
specify for review by auditors of premium listed companies.
Our additional responsibilities with respect to the corporate
governance statement as other information are described in
the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to
in relation to:
• The directors’ confirmation that they have carried out a
robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being
managed or mitigated;
• The directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the group’s and
company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the
group’s and company’s prospects, the period this assessment
covers and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the group was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of
the UK Corporate Governance Code; and considering whether
the statement is consistent with the financial statements and
our knowledge and understanding of the group and company
and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with
the financial statements and our knowledge obtained during
the audit:
• The directors’ statement that they consider the Annual
Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to
assess the group’s and company’s position, performance,
business model and strategy;
• The section of the Annual Report that describes the review
of effectiveness of risk management and internal control
systems; and
• The section of the Annual Report describing the work of the
audit committee.
We have nothing to report in respect of our responsibility to
report when the directors’ statement relating to the company’s
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified
under the Listing Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities, the directors are responsible for the
preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a
true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | INDEPENDENT AUDITORS’ REPORT
79
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities,
including fraud, is detailed below.
Based on our understanding of the group and industry, we
identified that the principal risks of non-compliance with laws
and regulations related to those with a direct impact on the
financial statements such as financial reporting regulations,
taxation legislation and the Companies Act 2006, and we
considered the extent to which non-compliance might have
a material effect on the financial statements. We evaluated
management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of
override of controls), and determined that the principal risks were
related to posting unusual journal entries to increase revenue
and profits or the manipulation of accounting estimates which
could be subject to management bias. Audit procedures
performed by the engagement team included:
• Confirmation and enquiry of management and those charged
with governance over compliance with laws and regulations,
including consideration of actual or potential litigation and
claims
• Reading board minutes for evidence of breaches of
regulations and reading any relevant correspondence
• Evaluation of management’s controls designed to prevent
and detect irregularities, in particular the whistleblowing
policy and employee code of conduct
• Challenging assumptions and judgements made by
management in their significant accounting estimates
Our audit testing might include testing complete populations
of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a
limited number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
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.
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 obtained 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
• Identifying and testing journal entries, in particular journal
law are not made; or
entries posted with unexpected account combinations
• Designing audit procedures to incorporate unpredictability
the accounting records and returns.
around the nature, timing or extent of our testing
• the company financial statements are not in agreement with
• Reviewing financial statement disclosures and testing to
supporting documentation to assess compliance with
applicable laws and regulations
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
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
Bristol
30 November 2021
GOOCH & HOUSEGO PLC 80
FINANCIAL STATEMENTS | GROUP INCOME STATEMENT
Group Income Statement
For the year ended 30 September 2021
Total
Underlying
Revenue
Cost of revenue
Gross profit
Research and development
Sales and Marketing
Administration
Other income
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
7
9
7
12
12
13
16
16
£’000
124,074
(82,753)
41,321
(8,147)
(8,342)
(12,294)
804
13,342
1
(722)
12,621
(2,368)
10,253
41.0p
40.5p
30 September 2021
Non-underlying
(Note 14)
£’000
–
–
–
–
–
(7,941)
–
(7,941)
–
–
(7,941)
1,092
(6,849)
(27.4p)
(27.0p)
Total
Underlying
£’000
124,074
(82,753)
41,321
(8,147)
(8,342)
(20,235)
804
5,401
1
(722)
4,680
(1,276)
3,404
13.6p
13.5p
£’000
122,095
(82,845)
39,250
(7,924)
(7,440)
(13,759)
1,082
11,209
16
(1,473)
9,752
(2,128)
7,624
30.5p
30.2p
30 September 2020
Non-underlying
(Note 14)
£’000
–
–
–
–
–
(4,875)
–
(4,875)
818
(303)
(4,360)
518
(3,842)
(15.4p)
(15.2p)
Total
£’000
122,095
(82,845)
39,250
(7,924)
(7,440)
(18,634)
1,082
6,334
834
(1,776)
5,392
(1,610)
3,782
15.1p
15.0p
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | GROUP STATEMENT OF COMPREHENSIVE INCOME
81
Group Statement of
Comprehensive Income
For the year ended 30 September 2021
Profit for the year
Other comprehensive (expense)/ income – items that may be
reclassified subsequently to profit or loss
(Losses)/ gains on cash flow hedges
Currency translation differences
Other comprehensive expense for the year net of tax
Total comprehensive income for the year attributable to the
shareholders of Gooch & Housego PLC
Note
28
28
2021
£000
3,404
(468)
(1,621)
(2,089)
1,315
2020
£000
3,782
333
(2,105)
(1,772)
2,010
GOOCH & HOUSEGO PLC
82
FINANCIAL STATEMENTS | GROUP BALANCE SHEET
Group Balance Sheet
For the year ended 30 September 2021
Note
17
18
19
26
20
21
22
23
24
24
24
24
25
26
27
28
28
28
28
28
2021
£000
37,945
5,230
50,835
1,883
95,893
28,150
28,310
8,352
64,812
(19,324)
(65)
(1,588)
(481)
–
(21,458)
43,354
(10,903)
(5,039)
(1,447)
(7,582)
(24,971)
114,276
5,008
16,000
7,262
6,054
(135)
80,087
114,276
2020
£000
38,741
6,742
54,624
1,432
101,539
30,580
26,298
19,734
76,612
(17,971)
(64)
(1,832)
(1,120)
(3,250)
(24,237)
52,375
(26,211)
(6,364)
(1,692)
(6,294)
(40,561)
113,353
5,008
16,000
7,262
7,675
333
77,075
113,353
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
Net assets
Shareholders’ equity
Called up share capital
Share premium account
Merger reserve
Cumulative translation reserve
Hedging reserve
Retained earnings
Total equity
The financial statements for Gooch & Housego PLC, registered
number 00526832, on pages 80 to 113 were approved by the
Board of Directors on 30 November 2021 and signed on its
behalf by:
Mark Webster
Director
Chris Jewell
Director
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | GROUP STATEMENT OF CHANGES IN EQUITY
83
Group Statement of
Changes in Equity
For the year ended 30 September 2021
Note Called up share
capital
£000
5,008
–
–
–
–
–
–
Share
premium
account
£000
16,000
Merger
reserve
£000
7,262
–
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
Hedging
reserve
£000
74,793
3,782
–
£000
–
–
333
Cumulative
translation
reserve
£’000
9,780
–
(2,105)
Total
equity
£000
112,843
3,782
(1,772)
3,782
333
(2,105)
2,010
(1,803)
303
(1,500)
–
–
–
–
–
–
(1,803)
303
(1,500)
5,008
16,000
7,262
77,075
333
7,675
113,353
5,008
16,000
7,262
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77,075
3,404
–
3,404
(1,127)
735
(392)
333
–
(468)
(468)
–
–
–
7,675
–
(1,621)
(1,621)
–
–
–
113,353
3,404
(2,089)
1,315
(1,127)
735
(392)
5,008
16,000
7,262
80,087
(135)
6,054
114,276
At 1 October 2019
Profit for the financial year
Other comprehensive
income/ (expense) for
the year
Total comprehensive
income/ (expense) for
the year
Dividends
Share based payments
Total contributions by and
distributions to owners
of the parent recognised
directly in equity
At 30 September 2020
At 1 October 2020
Profit for the financial year
Other comprehensive
expense for the year
Total comprehensive
income/ (expense) for
the year
Dividends
Share based payments
Total contributions by and
distributions to owners
of the parent recognised
directly in equity
At 30 September 2021
15
15
GOOCH & HOUSEGO PLC
84
FINANCIAL STATEMENTS | GROUP CASH FLOW STATEMENT
Group Cash Flow
Statement
For the year ended 30 September 2021
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 payments
Dividends paid to ordinary shareholders
Net cash used by financing activities
Net (decrease)/ increase in cash
Cash at beginning of the year
Exchange losses on cash
Cash at the end of the year
2021
£000
16,822
(575)
16,247
(3,250)
(5,399)
38
(844)
1
(505)
–
(9,959)
–
(14,093)
(2,047)
(1,127)
(17,267)
(10,979)
19,734
(403)
8,352
2020
£000
21,561
(1,119)
20,442
(4,750)
(5,495)
353
(1,291)
846
(1,399)
1,580
(10,156)
8,346
(12,610)
(1,583)
(1,803)
(7,650)
2,636
17,512
(414)
19,734
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP CASH FLOW STATEMENT
85
Notes to the Group
Cash Flow Statement
For the year ended 30 September 2021
Reconciliation of cash generated from operations
Profit before income tax
Adjustments for:
- Amortisation of acquired intangible assets
- Amortisation of other intangible assets
- Loss / (profit) on disposal of property, plant and equipment
- 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
2021
£000
4,680
2,081
1,275
95
7,030
735
(280)
(1)
722
11,657
1,888
(2,655)
1,252
485
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
Cash generated from operating activities
16,822
21,561
Reconciliation of net cash (outflow)/ inflow to movements in net debt
(Decrease)/ increase 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
2021
£000
(10,979)
–
16,140
5,161
–
(510)
1,236
(393)
5,494
(14,737)
(9,243)
2020
£000
2,636
(8,346)
14,193
8,483
(9,429)
(766)
1,165
97
(450)
(14,287)
(14,737)
GOOCH & HOUSEGO PLC
86
FINANCIAL STATEMENTS | NOTES TO THE GROUP CASH FLOW STATEMENT
Notes to the Group
Cash Flow Statement Continued
For the year ended 30 September 2021
Analysis of net debt
Cash at bank and in hand
Debt due within 1 year
Debt due after 1 year
Leases
Net debt
At 1 Oct 2020
Cash flow
New leases
Exchange movement
Non-cash movement
At 30 Sep 2021
£000
19,734
(64)
(26,211)
(8,196)
(14,737)
£000
(10,979)
14,093
-
2,047
5,161
£’000
-
-
-
(510)
(510)
£000
(403)
-
1,284
355
1,236
£’000
-
(14,094)
14,024
(323)
(393)
£000
8,352
(65)
(10,903)
(6,627)
(9,243)
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 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
87
Notes to the Group
Financial Statements
For the year ended 30 September 2021
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 128.
The consolidated financial statements of the Group for the
year ended 30 September 2021 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 121.
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 accounting standards in conformity with the
requirements of the Companies Act 2006 (‘IFRS’) and the
applicable legal requirements of the Companies Act 2006.
The financial statements have been prepared on a going
concern basis. The Directors have reviewed the budget for
FY2022 and the projections for FY2023 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 33.
illustrate the potential effect of a loss of key personnel or
inability to hire for a key role. This assessment covered not
only the coming 12 month period but also for the period to
September 2024 in order to support the Viability Statement
given on page 60.
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 financial statements. For this reason they
continue to adopt the going concern basis in preparing the
financial statements.
3. APPLICATION OF IFRS
Adoption of new standards
The following amended standards and interpretations were
effective for the financial year ended 30 September 2021,
however, they have not had a material impact on our
consolidated financial statements:
• Definition of Material (Amendments to IAS 1 and IAS 8),
effective from 1 January 2020;
• Definition of a Business (Amendments to IFRS 3), effective
from 1 January 2020;
• Interest Rate Benchmark Reform (Phase 1) (Amendments to
IFRS 9, IAS 39 and IFRS 7), effective from 1 January 2020;
At 30 September 2021 the Group has a strong balance sheet
with net current assets of £43.4m. The Group’s cash and
undrawn available facilities totalled £34.5m.
• Amendments to References to the Conceptual Framework in
IFRS Standards, effective 1 January 2020; and
• Covid-19 – Related Rent Concession (Amendment to IFRS 16),
effective from 1 June 2020 and endorsed by the EU on 9
October 2020.
The Directors have reviewed severe but plausible scenarios that
estimate the potential impact of the principal risks that the Group
faces (see pages 46 to 49 of this report) on the financial
forecasts. These include the impact of a possible recession
and/or further waves of the 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. They also included the
effect of erosion of sales prices due to competition, the potential
impact of a cyber-attack and a reduction in forecast revenue to
GOOCH & HOUSEGO PLC 88
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
The following other amended standards and interpretations
have been issued but were not mandatory for the financial year
ended 30 September 2021. These are not expected to have a
material impact on the consolidated financial statements.
Integrated Technologies Limited (01300238), Integrated
Technologies (Holdings) Limited (02635933), VITL Limited
(08473871) and ORF Limited (01873862) are exempt from the
requirement to file audited financial statements by virtue of
Section 479A of the Companies Act 2006.
• Interest Rate Benchmark Reform (Phase 2) (Amendments to
IFRS 9, IAS 39 IFRS 7 IFRS 4 and IFRS 16), effective from 1
January 2021 (endorsed by the UK).
4. ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have
been consistently applied to all of the years presented, unless
otherwise stated.
Consolidation
Subsidiaries are entities that are directly or indirectly
controlled by the Group. Control exists where the Group has
the power to govern the financial and operating policies of the
entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or
convertible are taken into account.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of a business
combination is measured as the fair value of the assets given,
equity instruments issued, the fair value of contingent or
deferred consideration and liabilities incurred or assumed at the
date of exchange. Costs directly attributable to the business
combination are charged to the income statement. The excess
of the costs of a business combination over the fair value of the
identifiable net assets acquired is recorded as goodwill. If the
cost of a business combination is less than the fair value of the
net assets of the subsidiary acquired, the difference is
recognised directly in the income statement. Should the fair
value of contingent or deferred consideration vary from the
actual value on settlement date, the difference is recognised
directly in the income statement.
Where deferred consideration is payable in cash, the amount is
discounted to present value at the date of acquisition, using
the Group’s weighted average cost of capital. The financing
charge which arises on the discounted consideration between
the acquisition date and the date of payment is included within
finance costs and treated as a non-underlying item.
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;
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.
• 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
Subsidiary audit exemptions
Gooch & Housego (UK) Limited (05890426), Gooch & Housego
(Torquay) Limited (04381203), Spanoptic Limited (SC192283),
Kent Periscopes Limited (05417618), G&H US Holdings Limited
(06382710), G&H Property Holdings Limited (04649035),
• all resulting exchange differences are recognised in other
comprehensive income and as a separate component of equity.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
89
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.
For the purpose of impairment testing a CGU is defined as
either a business segment or an operating entity, as appropriate.
Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
b. Patents, Trademarks and Licenses
Internally incurred costs associated with the filing and
perfection of patents and trademarks are capitalised and
carried at cost less accumulated amortisation. Amortisation is
calculated using the straight line method to allocate the cost
over their useful economic lives and are charged to Research
and Development in the income statement.
Acquired patents, trademarks and licences are shown at
historical cost. Patents, trademarks and licences have a finite
useful life and are carried at cost less accumulated amortisation.
Amortisation is calculated using the straight line method to
allocate the cost over their useful economic lives.
Depreciation on other assets is calculated to allocate their cost
over their estimated useful lives, as follows:
c. Computer software
Costs associated with developing or maintaining computer
software programmes are recognised as an expense as incurred.
• Freehold buildings
2-3% Straight-line
• Leasehold property
over term of lease Straight-line
• Plant and machinery
10-20% Straight-line
• Fixtures, fittings and computers
10-33% Straight-line
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.
• Motor vehicles
25% Reducing balance
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date. Where an
asset’s carrying amount is greater than its estimated recoverable
amount, the asset’s carrying amount is written down immediately
to its recoverable amount. The recoverable amount is the higher
of an asset’s fair value less costs to sell or an asset’s value in use.
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.
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.
GOOCH & HOUSEGO PLC 90
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
e. Acquired intangibles
Other acquired intangible assets are stated at fair value less
accumulated amortisation and impairment losses.
The useful life of each of these assets is assessed based on the
differing natures of each of the intangible assets acquired.
Amortisation is charged on a straight-line basis over the
estimated useful life of the assets acquired and charged to
administration in the Income Statement.
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.
• Customer relationships
up to 10 years
• Brand names
up to 10 years
• Acquired patents, trademarks and licences up to 3 years
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.
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.
Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated
at amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in
the income statement over the period of the borrowings using
the effective interest method.
Borrowing costs which are directly attributable to the
acquisition, construction or production of a qualifying asset are
capitalised as part of the cost of that asset.
Borrowing costs are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
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 FY2021 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
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91
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 which
are all accounted for as equity-settled 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 and the Gooch & Housego Employee
Stock Purchase Plan are determined by using the Monte Carlo
option pricing model. The fair value of options under the Gooch
& Housego Save As You Earn Scheme are determined by using
the Black-Scholes 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.
GOOCH & HOUSEGO PLC 92
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
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.
Lease payments included in the measurement of the lease
liability comprise:
• fixed lease payments (including in substance fixed payments),
less any lease incentives;
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. These may
include, but are not restricted to: restructuring costs,
adjustments to the fair value of acquisition related items such
as contingent consideration, acquired intangible asset
amortisation and other items due to their significance, size or
nature, and the related taxation.
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.
• 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
• 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 the costs are
included in the related lease liability.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
93
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.
A contract asset is recognised when the Group’s right to
consideration is conditional on something other than the
passage of time, for example the completion of future
performance obligations under the terms of the contract with
the customer. In some instances, the Group receives payments
from customers based on a billing schedule, as established in
the contract, which may not match the pattern of performance
under the contract. In this instance, a contract asset or contract
liability is recognised depending on the phasing of payment in
relation to the performance.
Interest income
Interest income is recognised on a time-proportion basis using
the effective interest method.
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.
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.
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.
5. FINANCIAL RISK MANAGEMENT
Capital risk management
Management considers capital as equity, as shown in the
Group balance sheet, excluding net debt.
The Group’s objectives when managing capital are to
safeguard the Group’s ability
• to continue as a going concern,
• to provide returns for shareholders and benefits for other
stakeholders and
• to maintain an optimal capital structure to reduce the cost
of capital.
The Board is satisfied that these objectives have been met
during the year. Actions taken during the year to achieve these
objectives are outlined in the Chief Executive Officer’s Review.
In order to maintain or adjust the capital structure, the Group may
• adjust the amount of dividends paid to shareholders,
• return capital to shareholders,
• issue new shares,
• sell assets to reduce debt; and
• vary the level of debt financing.
While the Group’s debt to equity ratio is consistently monitored,
changes in the Group’s need for capital and the selection of the
source and funding of capital are assessed against a number of
criteria which may have a direct effect on the Group debt to
equity ratio.
GOOCH & HOUSEGO PLC 94
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
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 2021, 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 2021, the
Company had contracts to sell $5.5m in the period to 30
September 2022. The fair value of these contracts, of negative
£0.1m, has been included within payables on the balance sheet
(2020: contracts to sell $7m in the period to 30 September
2021 with a fair value of £0.3m).
i. Market risk
a. Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures,
primarily with respect to the US Dollar.
Foreign exchange risk arises from
• future commercial transactions;
• recognised assets and liabilities; and
• net investments in foreign operations.
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 2020, with all other variables constant, post
tax profits for the year would have been £84,000 higher (2020:
£105,000 higher) 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
£4,617,000 lower (2020: £3,751,000 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
£5,643,000 higher (2020: £4,584,000 higher).
b. Cash flow interest rate risk
The Group has cash balances of £8.4m, a proportion of 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 the Group’s bank
borrowings would have resulted in an annualised increase
in interest expense of £182,000 (2020: £337,000).
Borrowings issued at variable interest rates expose the Group
to cash flow interest rate risk. During 2020 and 2021, 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.
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.
The Group is exposed to concentration of credit risk. The Group’s
top ten customers in 2021 accounted for 29% of the Group’s
revenue (2020: 29%). 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
95
The provision for inventory obsolescence amounts to 20.6% of
the gross inventory value (2020: 19.1%). The Directors are
satisfied that this provision is appropriate. An increase in the
provision amounting to 2% of the gross inventory value would
increase the provision by £0.8m.
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.
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 (£37.1m) of which $14.8m (£11.0m) is drawn
and an uncommitted flexible acquisition facility of $20m
(£14.8m) 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 appropriate 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.
GOOCH & HOUSEGO PLC 96
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
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 year ended 30 September 2021
Revenue
Total revenue
Inter and intra-division
External revenue
Divisional expenses
EBITDA¹
EBITDA %
Depreciation and amortisation
Operating profit before amortisation of acquired
intangible assets
Amortisation of acquired intangible assets
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 year ended 30 September 2020
Revenue
Total revenue
Inter and intra-division
External revenue
Divisional expenses
EBITDA¹
EBITDA %
Depreciation and amortisation
Operating profit before amortisation of acquired
intangible assets
Amortisation of acquired intangible assets
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
Aerospace &
Defence
£000
Life Sciences/
Bio-photonics
Industrial
Corporate
£000
£000
£000
43,619
(2,530)
41,089
(37,656)
3,433
8.4%
(2,877)
556
–
556
1.4%
2,581
3,137
7.6%
(144)
412
30,546
(3,113)
27,433
(22,367)
5,066
18.5%
(1,561)
3,505
–
3,505
12.8%
738
4,243
15.5%
(36)
3,469
59,598
(4,046)
55,552
(48,180)
7,372
13.3%
(2,856)
4,516
–
4,516
8.1%
2,541
7,057
12.7%
(152)
4,364
–
–
–
(84)
(84)
–
(1,011)
(1,095)
(2,081)
(3,176)
–
2,081
(1,095)
–
(389)
(3,565)
Aerospace &
Defence
£000
Life Sciences/
Bio-photonics
Industrial
Corporate
£000
£000
£000
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
(20,543)
5,351
20.7%
(964)
4,387
–
4,387
16.9%
263
4,650
18.0%
(32)
4,355
60,280
(5,469)
54,811
(48,004)
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)
¹EBITDA = Earnings before interest, tax, depreciation and amortisation
Total
£000
133,763
(9,689)
124,074
(108,287)
15,787
12.7%
(8,305)
7,482
(2,081)
5,401
4.4%
7,941
13,342
10.8%
(721)
4,680
Total
£000
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
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
97
7. SEGMENTAL ANALYSIS (CONTINUED)
Management have added back the amortisation of acquired intangibles, restructuring
costs, site closure costs and amounts received in respect of litigation associated with a
property lease 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.
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
2021
Assets
£000
85,163
73,858
660
1,024
160,705
2021
Liabilities
£000
(28,240)
(18,006)
(64)
(119)
(46,429)
2021
Net Assets
£000
56,923
55,852
596
905
114,276
2020
Assets
£000
89,807
86,824
738
782
178,151
For the year to 30 September 2021 non-current asset additions were £4.3m (2020:
£5.1m) for the UK and for the USA £2.5m (2020: £3.1m). There were no additions to
non-current assets in respect of Europe (2020: £nil) or the Asia Pacific region (2020:
£nil). The value of non-current assets in the USA was £48.1m (2020: £44.7m) and in
the United Kingdom £47.8m (2020: £39.3m). 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
Total revenue
8. EXPENSES BY NATURE
Raw materials and consumables
Changes in inventory
Employee costs
Other operating charges
Depreciation on property, plant and equipment
Depreciation on right of use assets
Amortisation of acquired intangible assets
Amortisation of other intangible assets
Net (gains)/losses on foreign exchange
Other income
2021
£000
4,322
119,752
124,074
2020
Liabilities
£000
(41,676)
(22,999)
(52)
(71)
2020
£000
5,512
116,583
122,095
2020
Net Assets
£000
48,131
63,825
686
711
(64,798)
113,353
2021
£000
31,339
45,915
23,383
23,437
124,074
2021
£000
47,846
2,736
50,399
8,529
5,298
1,732
2,081
1,275
(419)
(804)
118,673
Note
10
9
2020
£000
33,994
45,554
24,101
18,446
122,095
2020
£000
47,387
2,042
52,885
3,472
5,253
1,648
2,676
984
496
(1,082)
115,761
GOOCH & HOUSEGO PLC
98
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
9. OTHER INCOME
Grants receivable
Amounts claimed under the RDEC
Other income
Other income relates to sales of certain materials used in production which need to
be reprocessed periodically.
10. EMPLOYEE BENEFIT EXPENSE
Wages and salaries
Social security costs
Share based payment charge
Medical and other insurance
Pension costs
The monthly 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
Key management comprise the Executive Board and the senior operational staff.
Directors’ remuneration, including the highest paid Director, has been included on
page 69 of the Remuneration Committee Report. These disclosures have been audited.
11. AUDITORS’ REMUNERATION
PwC’s remuneration comprised:
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
2021
£000
420
280
104
804
2020
£000
561
315
206
1,082
2021
£000
40,934
3,473
735
3,063
2,194
50,399
2021
Number
632
276
908
2021
£000
5,445
707
249
6,401
2020
£000
42,912
3,725
303
3,328
2,617
52,885
2020
Number
668
279
947
2020
£000
5,408
303
331
6,042
2021
£000
50
156
111
91
408
2020
£000
48
137
131
5
321
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
99
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
13. INCOME TAX EXPENSE
Analysis of tax charge in the year
Current taxation
UK Corporation tax
Overseas tax
Adjustments in respect of prior years
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
The taxation expense for the year is higher (2020: 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 (2020: 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
Adjustments in respect of prior years
Total tax expense
Factors affecting the future tax charge
Overseas tax losses of £9.2m (2020: £9.6m) and UK tax losses of £0.8m (2020:
£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.
During the year, an increase of the current UK tax rate of 19%, to 25% applying to
profits over £250,000 was announced in the UK Budget 2021, and this change will
be effective from 1 April 2023. Following these changes, UK deferred tax balances in
the closing position that are expected to unwind after 1 April 2023 have been
measured at 25%, resulting in a £0.5m charge to the group income statement.
2021
£000
–
1
1
(430)
(292)
–
(722)
2021
£000
722
292
(807)
207
1
549
519
1,069
1,276
2021
£000
4,680
889
–
140
46
519
(60)
(258)
1,276
2020
£000
818
16
834
(1,114)
(359)
(303)
(1,776)
2020
£000
1,089
631
(199)
1,521
(255)
199
145
89
1,610
2020
£000
5,392
1,024
(194)
369
331
145
(65)
–
1,610
GOOCH & HOUSEGO PLC
2021
£000
2,081
5,860
–
7,941
–
–
–
(1,611)
519
(1,092)
2020
£000
2,676
2,609
(410)
4,875
(818)
303
(515)
(518)
–
(518)
100
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
14. NON-UNDERLYING ITEMS
Included within administration expenses
Amortisation of acquired intangible assets
Restructuring costs
Property litigation settlement
Included within net finance costs
Interest awarded in property litigation settlement
Unwind of discount on deferred consideration
Included within taxation
Tax effect of the non-underlying items above
Restatement of UK deferred tax balances at 25%
The restructuring costs incurred in the year related to the streamlining of our
manufacturing operations and consequent closure of our Baltimore, Glenrothes
and St Asaph facilities. We are also outsourcing the production of our commodity
AO products to a contract manufacturer in Thailand. The costs incurred in the period
largely comprised staff costs, severance costs, travel costs and asset write downs at
the sites being closed.
The UK deferred tax balances on timing differences expected to reverse after
1 April 2023 have been restated at 25%. This gave rise to a non-underlying income
statement charge of £0.5m.
Restructuring costs incurred in the year ended 30 September 2020 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.
In March 2020 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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
101
15. DIVIDENDS
Final 2020 dividend: nil (Final 2019 dividend paid in 2020: 7.2p per share)
2021 Interim dividend of 4.5p (2020: nil)
The Directors have proposed a final dividend of 7.7p per share making the total
dividend paid and proposed in respect of the 2021 financial year 12.2p. (2020: nil).
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:
2021
£000
-
1,127
1,127
2020
£000
1,803
-
1,803
2021
25,040,919
239,603
25,280,522
2020
25,039,519
174,664
25,214,183
Basic earnings per share
Amortisation of acquired intangible assets (net of tax)
Restructuring costs (net of tax)
Interest on deferred consideration
Property litigation settlement (net of tax)
Restatement of UK deferred tax
Total adjustments net of income tax expense
Adjusted basic earnings per share
Basic diluted earnings per share
Adjusted diluted earnings per share
£000
3,404
1,621
4,709
–
–
519
6,849
10,253
3,404
10,253
2021
pence per share
13.6p
6.5p
18.8p
–
–
2.1p
27.4p
41.0p
13.5p
40.5p
£000
3,782
2,279
2,218
303
(958)
–
3,842
7,624
3,782
7,624
2020
pence per share
15.1p
9.1p
8.9p
1.2p
(3.8p)
–
15.4p
30.5p
15.0p
30.2p
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.
GOOCH & HOUSEGO PLC 102
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
17. PROPERTY, PLANT AND EQUIPMENT
Capital work in
progress
Freehold land
and buildings
£000
£000
Leasehold
property
£000
Plant and
machinery
£000
Cost or valuation
At 1 October 2019
Additions
Disposals
Reclassification
Exchange rate differences
At 30 September 2020
Additions
Disposals
Reclassification
Exchange rate differences
At 30 September 2021
Accumulated depreciation
At 1 October 2019
Charge for the year
Disposals
Exchange rate differences
At 30 September 2020
Charge for the year
Disposals
Exchange rate differences
At 30 September 2021
Net book value
At 1 October 2019
At 30 September 2020
At 30 September 2021
3,588
919
–
(3,076)
24
1,455
538
–
(766)
(118)
1,109
–
–
–
–
–
–
–
–
–
3,588
1,455
1,109
9,642
45
(444)
–
(4)
9,239
–
–
–
(3)
9,236
1,852
459
(292)
(4)
2,015
385
–
–
2,400
7,790
7,224
6,836
17,040
137
–
1,776
(749)
18,204
1,202
(65)
20
(653)
38,331
4,064
(8)
1,300
(767)
42,920
3,248
(2,089)
722
(611)
18,708
44,190
4,712
1,098
–
(229)
5,581
1,087
(50)
(186)
6,432
12,328
12,623
12,276
23,755
3,206
(6)
(405)
26,550
3,362
(2,030)
(375)
27,507
14,576
16,370
16,683
No interest was capitalised in the year (2020: £Nil).
Fixtures, fittings
and computers
£000
3,911
241
(109)
–
(83)
3,960
411
(287)
24
(22)
4,086
2,585
489
(108)
(36)
2,930
454
(264)
(33)
3,087
1,326
1,030
999
Motor
vehicles
£000
44
28
–
–
(1)
71
24
–
–
(12)
83
31
1
–
–
32
10
–
(1)
41
13
39
42
Total
£000
72,556
5,434
(561)
–
(1,580)
75,849
5,423
(2,441)
–
(1,419)
77,412
32,935
5,253
(406)
(674)
37,108
5,298
(2,344)
(595)
39,467
39,621
38,741
37,945
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
103
18. RIGHT OF USE ASSETS
Cost
On transition to IFRS16 – At 1 October 2019
Additions
Adjustments
Exchange rate differences
At 30 September 2020
Additions
Adjustments
Exchange rate differences
At 30 September 2021
Accumulated depreciation
On transition to IFRS16 – At 1 October 2019
Charge for the year
Exchange rate differences
At 30 September 2020
Charge for the year
Exchange rate differences
At 30 September 2021
Net book value
At 1 October 2019
At 30 September 2020
At 30 September 2021
Fixtures and
fittings
£000
Motor
Vehicles
£000
Land and
Buildings
£000
Plant and
machinery
£000
34
–
–
(1)
33
–
–
(1)
32
–
10
–
10
9
–
19
–
23
13
36
9
–
–
45
–
–
–
45
–
18
–
18
18
–
36
–
27
9
9,438
800
(1,609)
(416)
8,213
481
21
(312)
8,403
–
1,591
(19)
1,572
1,679
(33)
3,218
–
6,641
5,185
84
–
–
(4)
80
–
–
(3)
77
–
29
–
29
26
(1)
54
–
51
23
Total
£000
9,592
809
(1,609)
(421)
8,371
481
21
(316)
8,557
–
1,648
(19)
1,629
1,732
(34)
3,327
–
6,742
5,230
The adjustment to land and buildings right of use assets in FY2020 of £1.6m relates
to the damages received following the resolution of our legal dispute with the
landlord of our Fremont, CA facility.
GOOCH & HOUSEGO PLC
104
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
19. INTANGIBLE ASSETS
Cost
At 1 October 2019
Additions
Disposals
Transfers
Exchange rate differences
At 30 September 2020
Additions
Disposals
Transfers
Exchange rate differences
At 30 September 2021
Accumulated amortisation and impairment
At 1 October 2019
Charge for the year
Disposals
Exchange rate differences
At 30 September 2020
Charge for the year
Disposals
Exchange rate differences
At 30 September 2021
Net book value
At 1 October 2019
At 30 September 2020
At 30 September 2021
Goodwill
Acquired
customer
relationships
and order books
Acquired
brands
Capitalised
R&D, Patents
and licences
Software
and other
intangibles
Total
£000
£000
£000
£000
£000
£000
54,956
31,433
4,259
–
–
–
–
–
–
(1,362)
53,594
(788)
30,645
–
–
–
–
–
–
(1,278)
52,316
(443)
30,202
16,006
–
–
(153)
15,853
–
–
(255)
15,598
38,950
37,741
36,718
19,316
2,238
–
(527)
21,027
1,662
–
(203)
22,486
12,117
9,618
7,716
–
–
–
(72)
4,187
–
–
–
(59)
4,128
1,006
438
–
(20)
1,424
419
–
(19)
1,824
3,253
2,763
2,304
4,675
664
(363)
18
(19)
4,975
434
(139)
(18)
37
5,289
2,210
539
(259)
36
2,526
729
(110)
(5)
3,140
2,465
2,449
2,149
3,466
659
–
30
(9)
4,146
411
(423)
18
12
4,164
1,653
445
–
(5)
2,093
546
(419)
(4)
2,216
1,813
2,053
1,948
98,789
1,323
(363)
48
(2,250)
97,547
845
(562)
–
(1,731)
96,099
40,191
3,660
(259)
(669)
42,923
3,356
(529)
(486)
45,264
58,598
54,624
50,835
Goodwill is allocated to the manufacturing centres as follows: Acousto-Optics £3.0m,
Precision Optics & Systems £14.6m and Fibre-Optics £8.9m. The goodwill relating to
the Ashford site, which continues to constitute a separate CGU is £10.2m.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
105
19. INTANGIBLE ASSETS (CONTINUED)
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 cash flow projections based on the latest
strategic plan projections approved by the Board. The near term strategic plan is
supported by detailed customer and product analysis. In the medium term forecast
sales growth rates are based on past experience adjusted for the strategic direction and
near-term investment priorities within each CGU. The key assumptions include growth
rates in the key markets and customer demand for product lines validated by reference
to third party market growth projections. Cash flow forecasts are determined based
on historic experience of operating margins, adjusted for the impact of changes in
product mix and delivered cost-saving initiatives. The projections do not include the
benefits of any future planned restructuring or product outsourcing activity. For the
purposes of the impairment review, the following key assumptions were made:
Cash Generating Unit
Average annual growth
in revenue from
FY2021 to FY2024
Average annual growth
in revenue from
FY2024 to FY2036
Growth into
perpetuity
Pre Tax
Discount Rate
11.8%
11.8%
11.8%
11.8%
Headroom
£58.5m
£6.2m
£5.7m
£10.8m
Acousto-Optics
Precision Optics and Systems
Fibre Optics
Ashford (ITL)
7.6%
7.1%
6.7%
2.7%
3.0%
3.0%
3.0%
3.0%
2.0%
2.0%
2.0%
2.0%
The headroom on the value in use calculations is summarised for each of the cash
generating units below:
Cash Generating Unit
Acousto-Optics
Precision Optics and Systems
Fibre Optics
Ashford (ITL)
Headroom for our Precision Optics and Systems (PO&S) and Fibre Optics (FO) CGUs
stand at £6.2m and £5.7m respectively. Whilst there are risks that projected revenue
growth rates will not be achieved, including in the near term from supply chain and
labour shortages, management believe that there are good upside opportunities for
the PO&S CGU from the significant recent investments that have been made in the
Ilminster Precision Optics centre of excellence which have provided that business
with new capabilities that will be attractive to existing and new customers. In the FO
CGU there are significant upside opportunities from the sensing and telecoms
markets which are not fully recognised in the strategic plan.
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 effects of which are summarised below:
Cash Generating Unit
Effect on value in use
of an increase of 1%
in the discount rate
Effect of a 1% reduction in
growth per annum from
FY2021 to FY2024
Effect on value in use of a
reduction in growth per annum
from FY2024 to FY2036
Effect on value in use
of an increase of 1% in
growth into perpetuity
Acousto-Optics
Precision Optics and Systems
Fibre Optics
Ashford (ITL)
(£10.9m)
(£7.0m)
(£4.3m)
(£3.8m)
(£4.6m)
(£4.1m)
(£3.0m)
(£2.4m)
(£4.3m)
(£2.0m)
(£1.8m)
(£2.3m)
(£4.4m)
(£2.9m)
(£1.7m)
(£1.5m)
The Board noted that an impairment of £0.8m would arise if the discount rate were to
be increased by 1% on the Precision Optics cash generating unit. However, the Board
is comfortable that the pre-tax discount rate that has been used is appropriate. None
of the other sensitivities give rise to an impairment, and therefore the directors are
satisfied that the carrying values are supported.
GOOCH & HOUSEGO PLC 106
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
20. INVENTORIES
Raw materials
Work in progress
Finished goods
The cost of inventories recognised as an expense and included in cost of revenue
amounted to £50.6m (2020: £49.4m).
The movement in the inventories provision is as follows:
At 1 October
Increase 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
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.
2021
£000
12,191
12,576
3,383
28,150
2021
£000
7,226
198
(126)
7,298
2021
£000
24,922
813
1,618
–
–
957
28,310
2021
£000
9,234
15,653
3,208
215
28,310
2021
£000
18,567
6,921
1,515
27,003
(463)
26,540
2020
£000
13,350
11,810
5,420
30,580
2020
£000
6,236
1,132
(142)
7,226
2020
£000
23,106
801
938
333
87
1,033
26,298
2020
£000
9,257
15,525
1,355
161
26,298
2020
£000
17,240
6,059
1,135
24,434
(390)
24,044
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
107
21. TRADE AND OTHER RECEIVABLES (CONTINUED)
The movement on the provision for impairment of trade receivables and contract
assets is as follows:
At 1 October
Release of provision
Increase in provision
Exchange rate movement
At 30 September
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
23. TRADE AND OTHER PAYABLES
Trade payables
Contract liabilities
Other taxation and social security
Derivative financial instruments
Grant funding held in trust account
Accruals
2021
£000
390
(15)
90
(2)
463
2020
£000
472
(99)
22
(5)
390
2021
£000
8,352
2020
£000
19,734
2021
£000
5,306
249
521
135
–
13,113
19,324
2020
£000
5,476
121
1,242
–
420
10,712
17,971
GOOCH & HOUSEGO PLC
108
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
24. BORROWINGS AND LEASE LIABILITIES
Current:
Bank borrowings
Leases
Non-current:
Bank borrowings
Leases
2021
£000
65
1,588
1,653
10,903
5,039
15,942
2020
£000
64
1,832
1,896
26,211
6,364
32,575
Total borrowings and lease liabilities
17,595
34,471
The carrying values of the bank borrowings and leases are not materially different
from their fair values and are included as part of the fair value disclosure for all
financial instruments in note 30.
G&H’s primary lending bank is NatWest Bank. The Group’s facilities comprise a $50m
(£37.1m) dollar revolving credit facility and a $20m (£14.8m) flexible acquisition
facility. At 30 September 2021, the balance drawn on the revolving credit facility was
$14.8m (£11.0m) (2020: $34m (£26.3m)) and on the flexible acquisition facility nil
(2020: 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 borrowings
Within one year
Between one and five years
Maturity profile of lease liabilities
Within one year
Between two and five years
After five years
Details of lease interest charges and right of use assets are given
in notes 12 and 18 respectively.
2021
£000
65
10,903
10,968
2021
£000
1,819
4,081
1,544
7,444
2020
£000
64
26,211
26,275
2020
£000
2,118
5,047
2,107
9,272
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
109
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
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 to the income statement
Exchange movements
Net liability at 30 September
The current portion of the deferred tax liability is £0.3m (2020: £0.8m).
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
2021
£000
1,692
(257)
20
–
(8)
1,447
2020
£000
1,243
(72)
83
444
(6)
1,692
2021
£000
(4,862)
(1,069)
232
(5,699)
2021
£000
281
392
1,210
1,883
(4,999)
(2,583)
–
(7,582)
(5,699)
2020
£000
(4,870)
(89)
97
(4,862)
2020
£000
139
406
887
1,432
(4,151)
(2,133)
(10)
(6,294)
(4,862)
The movement on the deferred tax balances by category is shown below:
At 1 October 2020
Charged to income statement
Exchange movements
At 30 September 2021
Intangible
assets
£000
139
157
(15)
281
IFRS16
leases
£000
406
–
(14)
392
Provisions
Property, plant
and equipment
Intangible
assets
Other timing
differences
£000
887
348
(25)
1,210
£000
(4,151)
(1,007)
159
(4,999)
£000
(2,133)
(577)
127
(2,583)
£000
(10)
10
–
–
Total
£000
(4,862)
(1,069)
232
(5,699)
GOOCH & HOUSEGO PLC
110
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
26. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED)
Overseas tax losses of £9.2m (2020: £9.6m) and UK tax losses of £0.8m (2020:
£0.8m) are available to offset against future profits of the Group. The Group has
not recognised a deferred income tax asset of £2.7m (2020: £2.2m) 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.
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
2021
Number
2020
Number
25,040,919
25,039,072
–
1,847
25,040,919
25,040,919
2021
£000
5,008
–
5,008
2020
£000
5,008
–
5,008
No shares were allotted under share option schemes during the year ended
30 September 2021 (2020: 1,847 shares).
28. RESERVES
At 1 October 2020
Profit for the financial year
Dividends paid
Fair value of share options
Currency hedge fair value
Currency translation differences
At 30 September 2021
Share premium
account
£000
16,000
Merger
reserve
£000
7,262
–
–
–
–
–
–
–
–
–
–
16,000
7,262
Cumulative
translation reserve
£000
7,675
–
–
–
–
(1,621)
6,054
Hedging
Reserve
£000
333
–
–
–
(468)
–
(135)
Retained
earnings
£000
77,075
3,404
(1,127)
735
–
–
80,087
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
111
29. SHARE OPTIONS
The Company operates the Gooch & Housego 2013 Long Term Incentive Plan
(the “2013 LTIP”), the Gooch & Housego Save As You Earn Scheme and the
Gooch & Housego ESPP scheme.
A reconciliation of total share option movements across these three schemes
is shown below:
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2021
2020
Number
247,269
215,904
(70,897)
392,276
–
Weighted average
exercise price (£)
–
2.19
0.12
1.18
–
Number
251,911
133,159
(137,801)
247,269
–
Weighted average
exercise price (£)
–
–
–
–
–
The total charge for the year relating to share options was £735,000
(2020: £303,000), all of which related to equity-settled share based
payment transactions.
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 nine 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 2021 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
7 Jan 2021
174,781
46%
0.76%
1,751,334
Grant date
13 Jan 2020
133,159
30%
0.76%
569,331
A reconciliation of LTIP option movements is shown below:
Outstanding at 1 October
Awarded
Exercised
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2021
2020
Number
247,269
174,781
–
(70,182)
351,868
–
Weighted average
exercise price (£)
–
–
–
–
–
–
Number
251,911
133,159
–
(137,801)
247,269
–
The weighted average fair value of options granted in the year was 1004.0p per
option (2020: 742.0p per option).
8 Jan 2019
99,228
30%
0.76%
1,010,655
Weighted average
exercise price (£)
–
–
–
–
–
–
GOOCH & HOUSEGO PLC 112
FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
29. SHARE OPTIONS (CONTINUED)
The Gooch & Housego PLC Save As You Earn Scheme
The Gooch & Housego PLC Save As You Earn Scheme was established in February 2021
and is open to all UK employees. Under the scheme, employees choose to save a fixed
monthly amount from their net pay of between £5 and £100. At the start of the savings
period, participants are awarded options at a discount of 10% to the market value at that
date. At the end of the three year savings period, participants can either withdraw their
savings or exercise their options to acquire shares at the option price. 31,749 options
were granted under this scheme on 26 March 2021.
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
Number
–
31,749
(465)
31,284
–
2021
Weighted average
exercise price (£)
2020
Number
Weighted average
exercise price (£)
–
11.59
11.59
11.59
–
–
–
–
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 359.0p per option.
Share options outstanding at the end of the year expire one year after their respective
vesting dates and have the following exercise prices:
G&H PLC Save As You Earn Scheme
£11.59
Exercise price per share option
Number of share options
2021
31,284
2020
–
The Gooch & Housego PLC Employee Stock Purchase Plan
The Gooch & Housego PLC Employee Stock Purchase Plan was established in February
2021 and is open to all US employees. Under the Plan, participants save a fixed monthly
amount of between $5 and $135 over the two year savings period. At maturity of the
savings period, employees are able to withdraw their savings, or exercise their options at
a price equal to the lower of a 10% discount to the market price at the start of the
savings plan and a 10% discount to the market price at the end of the savings plan. 9,374
options were issued under this plan on 26 March 2021.
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
Number
–
9,374
(250)
9,124
–
2021
Weighted average
exercise price (£)
2020
Number
Weighted average
exercise price (£)
–
11.14
11.14
11.14
–
–
–
–
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 368.0p per option.
Share options outstanding at the end of the year expire one year after their respective
vesting dates and have the following exercise prices:
Employee Stock Purchase Plan
Exercise price per share option
£11.14
2021
9,124
2020
–
Number of share options
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE GROUP FINANCIAL STATEMENTS
113
30. FINANCIAL INSTRUMENTS
The Group’s financial instruments comprise bank borrowings, cash at bank, 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 leases. Other than 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
2021
£000
3,945
3,315
811
281
8,352
2020
£000
9,675
8,720
1,466
206
2021
£000
342
17,388
–
–
2020
£000
515
33,956
–
–
20,067
17,730
34,471
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, lease liabilities and derivative financial instruments. 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.
2021
£000
1,049
2020
£000
256
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.
GOOCH & HOUSEGO PLC
114
FINANCIAL STATEMENTS | COMPANY BALANCE SHEET
Company Balance Sheet
For the year ended 30 September 2021
Note
5
6
7
9
8
10
9
11
2021
£000
51,638
4,114
1,476
377
57,605
13,255
885
14,140
(3,572)
10,568
(172)
68,001
5,008
16,000
4,591
(135)
36,222
6,707
(392)
42,537
68,001
2020
£000
51,411
4,589
1,842
205
58,047
8,047
1,986
10,033
(5,722)
4,311
(204)
62,154
5,008
16,000
4,591
333
24,670
13,052
(1,500)
36,222
62,154
Non-current assets
Investments
Property, plant and equipment
Intangible assets
Deferred income tax assets
Current assets
Other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
Net current assets
Non-current liabilities
Deferred income tax liabilities
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
The financial statements on pages 114 to 127, were approved by
the Board of Directors on 30 November 2021 and signed on its
behalf by:
Mark Webster
Director
Chris Jewell
Director
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | COMPANY STATEMENT OF CHANGES IN EQUITY
115
Company Statement of
Changes in Equity
For the year ended 30 September 2021
At 1 October 2019
Profit for the financial year
Total comprehensive income for the
year
Dividends
Share based payments
Gain on cash flow hedge
Total contributions by and distributions
to owners of the parent recognised
directly in equity
At 30 September 2020
At 1 October 2020
Profit for the financial year
Total comprehensive income for the
year
Dividends
Share based payments
Loss on cash flow hedge
Total contributions by and distributions
to owners of the parent recognised
directly in equity
At 30 September 2021
Called up
Share capital
Share premium
account
Note
£000
5,008
£000
16,000
Merger
Reserve
£000
4,591
4
4
–
–
–
–
–
–
–
–
–
–
–
–
5,008
16,000
5,008
16,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,591
4,591
–
–
–
–
–
–
Hedging
Reserve
£000
–
–
–
–
333
333
333
333
–
–
–
–
(468)
(468)
Retained
earnings
£000
24,670
13,052
13,052
(1,803)
303
–
(1,500)
Total
equity
£000
50,269
13,052
13,052
(1,803)
303
333
(1,167)
36,222
62,154
36,222
6,707
6,707
(1,127)
735
–
(392)
62,154
6,707
6,707
(1,127)
735
(468)
(860)
5,008
16,000
4,591
(135)
42,537
68,001
GOOCH & HOUSEGO PLC 116
FINANCIAL STATEMENTS | COMPANY CASH FLOW STATEMENT
Company Cash Flow
Statement
For the year ended 30 September 2021
Cash flows from operating activities
Cash used in operations
Income tax paid
Net cash used in 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
Dividends received from subsidiaries
Net cash generated by investing activities
Cash flows from financing activities
Dividends paid to ordinary shareholders
Net cash used by financing activities
Net decrease in cash
Cash at beginning of the year
Cash at the end of the year
Dividends received from subsidiary companies have been classified within investing
activities to reflect the nature of these payments.
2021
£000
(3,996)
(1)
(3,997)
2020
£000
(8,465)
(85)
(8,550)
(3,250)
(4,750)
(3)
–
(81)
–
7,357
4,023
(1,127)
(1,127)
(1,101)
1,986
885
(15)
350
–
184
13,454
9,223
(1,803)
(1,803)
(1,130)
3,116
1,986
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY CASH FLOW STATEMENT
117
Notes to the Company Cash
Flow Statement
For the year ended 30 September 2021
Reconciliation of cash used by operations
Profit before income tax
Adjustments for:
- Dividends received from subsidiaries
- Amortisation of intangible assets
- Depreciation
- Share based payment obligations
- Loss 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 operating activities
Analysis of net cash
Cash at bank and in hand
Net cash
2021
£000
6,348
2020
£000
12,881
(7,357)
(13,454)
447
478
508
–
–
–
336
508
303
124
(184)
303
(5,924)
(12,064)
(6,254)
1,834
(4,420)
(3,996)
94
(9,376)
(9,282)
(8,465)
At 1 Oct 2020
Cash flow
At 30 Sep 2021
£000
1,986
1,986
£000
(1,101)
(1,101)
£000
885
885
GOOCH & HOUSEGO PLC 118
FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
Notes to the Company
Financial Statements
For the year ended 30 September 2021
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
accounting standards in conformity with the requirements
of the Companies Act 2006 (“IFRS”) and the applicable legal
requirements of the Companies Act 2006. The financial
statements have been prepared on a going concern basis.
The Directors have reviewed the budget for FY2022 and the
projections for FY2023 developed as part of the annual
strategic plan update. They have assessed the future funding
requirements of the Company and compared them with
available cash balances.
The Directors have considered the going concern review
performed for the Group financial statements in assessing
the status of the parent Company. Noting that work, and the
strength of the Company balance sheet, the Directors are
satisfied that the Company has adequate resources to continue
in operational existence for at least 12 months from the date of
approval of the financial statements. For this reason they
continue to adopt the going concern basis in preparing the
Company financial statements.
The Directors do not believe there are any critical accounting
estimates or judgements that affect the amounts reported in
the Company financial statements.
Adoption of new standards
The accounting policies have been consistently applied over
the period reported.
The following amended standards and interpretations were
effective for the financial year ended 30 September 2021,
however, they have not had a material impact on our
financial statements:
• Definition of Material (Amendments to IAS 1 and IAS 8),
effective from 1 January 2020;
• Definition of a Business (Amendments to IFRS 3), effective
from 1 January 2020;
• Interest Rate Benchmark Reform (Phase 1) (Amendments to
IFRS 9, IAS 39 and IFRS 7), effective from 1 January 2020; and
• Amendments to References to the Conceptual Framework in
IFRS Standards, effective 1 January 2020.
New Standards and Interpretations not yet adopted
The following other amended standards and interpretations
have been issued but were not mandatory for the financial year
ended 30 September 2021. These are not expected to have a
material impact on the financial statements.
• Interest Rate Benchmark Reform (Phase 2) (Amendments
to IFRS 9, IAS 39 IFRS 7 IFRS 4 and IFRS 16), effective from
1 January 2021 (endorsed by the UK).
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
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
119
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.
Intangible assets
Intangible assets include costs relating to computer systems
development, computer software and other intangible assets.
These costs are amortised over their useful economic lives
as follows:
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 FY2021 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.
Property, plant and equipment
Property, plant and equipment is stated at historical purchase
cost less accumulated depreciation. Cost includes expenditure
that is directly attributable to the acquisition of the items. No
depreciation is charged on freehold land or capital work in
progress. Depreciation on other assets is calculated to allocate
their cost over their estimated useful lives, as follows:
Freehold buildings
2-3%
Straight line
Plant and machinery
10-20%
Straight line
Fixtures, fittings and computers
10-33%
Straight line
Computer equipment
25-33%
Straight line
Computer software
5 years straight line
Systems
5 years straight line
Patents & Licences (other)
3 years straight line
Investments
Investments are stated at cost less provision for any
impairment in value. Where overseas borrowing is required to
finance the investment in overseas subsidiaries, the
investment is retranslated at the exchange rate ruling at the
balance sheet date.
Deferred tax
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, the deferred income tax is not
accounted for, if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss.
Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted by the balance
sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income
tax liability is settled.
Deferred income tax assets are recognised to the extent that
it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries, except where the timing
of the reversal of the temporary difference is controlled by the
Group and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
in other comprehensive income and equity, in which case it is
recognised in other comprehensive income and equity.
In the UK and US, the Company is entitled to a tax deduction
for amounts treated as compensation on exercise of certain
employee share options under each jurisdiction’s tax rules.
As explained under “Share options” 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
GOOCH & HOUSEGO PLC 120
FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
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.
3. EMPLOYEE BENEFIT EXPENSE
Wages and salaries
Social security costs
Medical and other insurances
Share based payments
Other pension costs
2021
£000
4,429
295
44
508
92
5,368
2020
£000
2,151
180
37
303
57
2,728
The average number of employees during the year was 18
(2020: 12), all of whom were administrative.
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.
Directors’ remuneration
Directors’ remuneration
Medical and other insurances
Directors’ pension scheme contributions
2021
£000
1,383
22
10
1,415
2020
£000
850
19
12
881
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.
The aggregate emoluments of the highest paid Director
including gain on exercise of share options were £679,000
(2020: £364,000). Further information is included in the
Remuneration Committee report on page 69.
Share capital
Ordinary shares are classified as equity.
The aggregate gain on Directors’ share option exercises in the
year was 12.2p (2020: nil).
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.
The number of Directors who are accruing retirement benefits
under a money purchase pension scheme is 1 (2020: 1).
Capital risk management
Details of the ways in which the Company manages capital risk
are given in note 5 to the group financial statements.
4. DIVIDENDS
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 £6,707,000 (2020: £13,052,000 profit).
Fees payable to the Company auditors for the statutory audit
for the year amounted to £17,000 (2020: £16,000).
Final 2020 dividend paid: nil per share.
(Final 2019 dividend paid in 2020: 7.2p
per share)
2021 Interim dividend paid: 4.5p per
share (2020: nil)
2021
£000
–
1,127
1,127
2020
£000
1,803
–
1,803
The Directors have proposed a final dividend of 7.7p for the
financial year ended 30 September 2021, making the dividend
for the full year 12.2p (2020: nil).
5. INVESTMENTS
Cost and net book value at 1 October
Additions related to share based
payments for subsidiary employees
Cost and net book value at 30
September
2021
£000
51,411
227
51,638
2020
£000
51,411
–
51,411
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
121
The subsidiary companies at 30 September 2021, all of which are wholly owned
either directly or indirectly, are listed below:
Company Name
Gooch & Housego
(UK) Limited*
% ownership of
ordinary shares
100%
Gooch & Housego (Torquay)
Limited*
Spanoptic Limited*
100%
100%
Kent Periscopes Limited*
100%
Gooch & Housego
(Deutschland) GmbH*
Gooch & Housego (Ohio)
LLC
Gooch & Housego
(California) LLC
EM4 Inc.
Gooch & Housego
(Palo Alto) LLC
StingRay Optics LLC
Gooch & Housego Japan
KK*
G&H (Property) Holdings
Limited*
G&H (US Holdings)
Limited*
G&H Holdings (Delaware)
Inc.
G&H Capital Holdings
(Florida) Inc.
Integrated Technologies
Limited
Integrated Technologies
(Holdings) Limited
ORF Limited
VITL Limited*
ITL (Virginia) Inc.
Integrated Electronic
Systems (Shanghai) Ltd
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Registered Office
Activity
Dowlish Ford, Ilminster,
Somerset, TA19 0PF
Dowlish Ford, Ilminster,
Somerset, TA19 0PF
Telford Road, Glenrothes,
KY7 4 NX
6 Ffordd Richard Davies
St Asaph, LL17 0LJ
Manufacturer of acousto-optic products and
precision optics
Manufacturer of fibre-optic products
Manufacturer of precision optics
Manufacturer of periscopes and vehicle sights
Berliner Allee 55, 22850
Norderstedt, Germany
Provider of sales and customer service
functions
676 Alpha Drive, Highland
Heights, OH44143, USA
Manufacturer of electro-optic products and
crystals
5390 Kazuko Court, Moorpark,
CA93021, USA
7 Oak Park Drive, Bedford,
MA 01730, USA
Manufacturer of precision optics
Manufacturer of fibre optics products
44247 Nobel Dr, Fremont,
CA94538, USA
Manufacturer of acousto-optic, electro-optic
and fibre optic components and systems
17A Bradco. Street, Keene,
NH 03431 USA
Designer and manufacturer of optical and
opto-mechanical subsystems
Level 4, Nikko Shiken Building,
3-2-3 Sakae, Nagoya, Japan
Provider of sales and customer service
functions
Dowlish Ford, Ilminster,
Somerset, TA19 0PF
Dowlish Ford, Ilminster,
Somerset, TA19 0PF
676 Alpha Drive, Highland
Heights, OH44143, USA
676 Alpha Drive, Highland
Heights, OH44143, USA
Property holding company
Holding company
Holding company
Non trading company
Viking House, Ellingham Way,
Ashford, TN23 6NF
Development and manufacture of high quality
medical and in-vitro diagnostic devices
Viking House, Ellingham Way,
Ashford, TN23 6NF
Viking House, Ellingham Way,
Ashford, TN23 6NF
Viking House, Ellingham Way,
Ashford, TN23 6NF
Non-trading company
Non-trading company
Holding company
305 Ashcake Rd, VA23005,
USA
Development and manufacture of high quality
medical and in-vitro diagnostic devices
T3-11 Factory Building Unit
201, 5001 Huadong Road,
Shanghai 201201 China
Development and manufacture of high quality
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
GOOCH & HOUSEGO PLC 122
FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
6. PROPERTY, PLANT AND EQUIPMENT
Cost or valuation
At 1 October 2019
Additions
Disposals
At 30 September 2020
Additions
At 30 September 2021
Accumulated depreciation
At 1 October 2019
Charge for the year
Disposals
At 30 September 2020
Charge for the year
At 30 September 2021
Net book value
At 1 October 2019
At 30 September 2020
At 30 September 2021
7. INTANGIBLE ASSETS
Cost or valuation
At 1 October 2019
Additions
Disposals
At 30 September 2020
Additions
Disposals
At 30 September 2021
Accumulated amortisation
At 1 October 2019
Charge for the year
Disposals
At 30 September 2020
Charge for the year
Disposals
At 30 September 2021
Net book value
At 1 October 2019
At 30 September 2020
At 30 September 2021
8. OTHER RECEIVABLES
Prepayments and accrued income
Derivative financial instruments
Intercompany receivables
Freehold land
and buildings
£000
5,133
–
(701)
4,432
–
4,432
1,214
89
(292)
1,011
83
1,094
3,919
3,421
3,338
Plant and
machinery
£000
3,987
–
–
3,987
–
3,987
2,850
266
–
3,116
265
3,381
1,137
871
606
Fixtures and
fittings
£000
1,392
–
–
1,392
–
1,392
1,076
93
–
1,169
93
1,262
316
223
130
Computer
equipment
£000
310
15
(95)
230
3
233
191
60
(95)
156
37
193
119
74
40
Systems
£000
Computer
Software
£000
Other
£000
1,472
580
–
2,052
73
–
2,125
–
294
–
294
411
–
705
1,472
1,758
1,420
1,310
–
–
1,310
8
(414)
904
1,225
20
–
1,245
19
(414)
850
85
65
54
323
–
(259)
64
–
–
64
282
22
(259)
45
17
–
62
41
19
2
Total
£000
10,822
15
(796)
10,041
3
10,044
5,331
508
(387)
5,452
478
5,930
5,491
4,589
4,114
Total
£000
3,105
580
(259)
3,426
81
(414)
3,093
1,507
336
(259)
1,584
447
(414)
1,617
1,598
1,842
1,476
2021
£000
188
–
13,067
13,255
2020
£000
32
333
7,682
8,047
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
123
9. DEFERRED TAX
The movement in the deferred tax assets and liabilities during the year was as follows:
At 1 October
Credited / (debited) to the income statement
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
All movements on deferred tax were recognised in the income statement in the year
ended 30 September 2021 and 30 September 2020.
The current portion of the deferred tax asset is £0.1m (2020: £0.2m).
Factors affecting the future tax charge
UK tax losses of £0.8m (2020: £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.
10. TRADE AND OTHER PAYABLES
Trade payables
Amounts owed to group undertakings
Taxation and Social Security
Derivative financial instruments
Accruals and deferred income
Deferred consideration payable
2021
£000
1
204
205
2021
£000
240
(127)
92
205
2021
£000
428
371
326
135
2,312
–
3,572
2020
£000
153
(152)
1
2020
£000
90
(154)
65
1
2020
£000
93
1,269
320
–
790
3,250
5,722
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
2021
Number
2020
£000
25,040,919
25,039,072
–
1,847
25,040,919
25,040,919
2021
Number
5,008
–
5,008
2020
£000
5,008
–
5,008
No shares were issued under share option schemes during the year ended 30
September 2021 (2020: 1,847 shares).
GOOCH & HOUSEGO PLC
124
FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
12. FINANCIAL INSTRUMENTS
The Company’s financial instruments comprise cash at bank, financial derivatives 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 to the Group financial statements.
Operations are financed through a mixture of retained profits, cash reserves, group
borrowings and 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
Financial assets
Financial liabilities
2021
£000
733
46
106
885
2020
£000
1,700
588
31
2,319
2021
£000
–
135
–
135
2020
£000
–
–
–
–
The financial assets listed in the above table are subject to floating rates of interest.
The financial assets include cash at bank and derivative financial instruments but
exclude short-term receivables, prepayments and other receivables. The financial
liabilities includes derivative financial instruments. Other short-term payables are
excluded from this disclosure.
At the year end, the Company had contracts to sell $5.5m in the period to 30
September 2022 (2020: contracts to sell $7m in the period to 30 September 2021).
The fair value of these contracts, of negative £0.1m, has been included in payables on
the balance sheet (2020: £0.3m asset).
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.
13. SHARE OPTIONS
The Company operates the Gooch & Housego 2013 Long Term Incentive Plan
(the 2013 LTIP), the Gooch & Housego Save As You Earn Scheme and the
Gooch & Housego ESPP scheme.
A reconciliation of total share option movements across these three schemes is
shown below:
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2021
2020
Number
247,269
215,904
(70,897)
392,276
–
Weighted average
exercise price (£)
–
2.19
0.12
1.18
–
Number
251,911
133,159
(137,801)
247,269
–
Weighted average
exercise price (£)
–
–
–
–
–
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
125
13. SHARE OPTIONS (CONTINUED)
The total charge for the year relating to share options was £508,000
(2020: £303,000), all of which related to equity-settled share based
payment transactions.
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 nine 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 2021 are summarised below:
No. of options granted
Expected volatility
Risk free rate
Fair value (£)
7 Jan 2021
174,781
46%
0.76%
1,751,334
Grant date
13 Jan 2020
133,159
30%
0.76%
569,331
A reconciliation of LTIP option movements is shown below:
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
2021
2020
Number
247,269
174,781
(70,182)
351,868
–
Weighted average
exercise price (£)
–
–
–
–
–
Number
251,911
133,159
(137,801)
247,269
–
8 Jan 2019
99,228
30%
0.76%
1,010,655
Weighted average
exercise price (£)
–
–
–
–
–
The weighted average fair value of options granted in the year was 1004.0p per
option (2020: 742.0p per option).
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
Exercise price per share option
0.0p
2021
351,868
2020
247,269
Number of share options
GOOCH & HOUSEGO PLC
126
FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
13. SHARE OPTIONS (CONTINUED)
The Gooch & Housego PLC Save As You Earn Scheme
The Gooch & Housego PLC Save As You Earn Scheme was established in February
2021 and is open to all UK employees. Under the scheme, employees choose to save
a fixed monthly amount from their net pay of between £5 and £100. At the start of
the savings period, participants are awarded options at a discount of 10% to the
market value at that date. At the end of the three year savings period, participants
can either withdraw their savings or exercise their options to acquire shares at the
option price. 31,749 options were granted under this scheme on 26 March 2021.
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
Number
–
31,749
(465)
31,284
–
2021
Weighted average
exercise price (£)
2020
Number
Weighted average
exercise price (£)
–
11.59
11.59
11.59
–
–
–
–
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 359.0p per option.
Share options outstanding at the end of the year expire one year after their
respective vesting dates and have the following exercise prices:
G&H PLC Save As You Earn Scheme
£11.59
Exercise price per share option
Number of share options
2021
31,284
2020
–
The Gooch & Housego PLC Employee Stock Purchase Plan
The Gooch & Housego PLC Employee Stock Purchase Plan was established in
February 2021 and is open to all US employees. Under the Plan, participants save a
fixed monthly amount of between $5 and $135 over the two year savings period. At
maturity of the savings period, employees are able to withdraw their savings, or
exercise their options at a price equal to the lower of a 10% discount to the market
price at the start of the savings plan and a 10% discount to the market price at the
end of the savings plan. 9,374 options were issued under this plan on 26 March 2021.
Outstanding at 1 October
Awarded
Lapsed
Outstanding at 30 September
Exercisable at 30 September
Number
–
9,374
(250)
9,124
–
2021
Weighted average
exercise price (£)
2020
Number
Weighted average
exercise price (£)
–
11.14
11.14
11.14
–
–
–
–
–
–
–
–
–
–
–
The weighted average fair value of options granted in the year was 368.0p per option.
Share options outstanding at the end of the year expire one year after their
respective vesting dates and have the following exercise prices:
Gooch & Housego Employee Stock Purchase Plan
£11.14
Exercise price per share option
Number of share options
2021
9,124
2020
–
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTES TO THE COMPANY FINANCIAL STATEMENTS
127
14. RELATED PARTY DISCLOSURES
The company recharges certain costs to, and is recharged certain costs by, its
subsidiary companies in the ordinary course of business. The closing balances due
from and to the subsidiary companies are shown in notes 8 and 10 respectively.
The amounts recharged to Gooch & Housego PLC by group undertakings during the
year ended 30 September were:
EM4 Inc
Gooch & Housego (UK) Limited
Kent Periscopes Limited
Gooch & Housego (Torquay) Limited
Gooch & Housego (Deutschland) GmBH
Gooch & Housego Japan KK
The amounts recharged by Gooch & Housego PLC to group undertakings during the
year ended 30 September were:
EM4 Inc
Gooch & Housego (Ohio) LLC
Spanoptic Limited
Gooch & Housego (UK) Limited
Gooch & Housego (Palo Alto) LLC
StingRay Optics LLC
Kent Periscopes Limited
Gooch & Housego (Torquay) Limited
Integrated Technologies Limited
The amounts receivable from / (payable to) subsidiary undertakings as
at 30 September were:
EM4 Inc
G&H (US Holdings) Limited
Spanoptic Limited
Gooch & Housego (UK) Limited
Gooch & Housego (Palo Alto) LLC
StingRay Optics LLC
Kent Periscopes Limited
Gooch & Housego (Torquay) Limited
Gooch & Housego (Deutschland) GmBH
Gooch & Housego Japan KK
G&H Holdings (Delaware) Inc.
During the year Gooch & Housego PLC received dividends of £1.5m and £5.9m
respectively from Spanoptic Limited and Integrated Technologies Limited. In the prior
year Gooch & Housego PLC received £1.3m from Integrated Technologies Limited,
£9.1m from G&H (US Holdings) Limited, £0.7m from Gooch & Housego (UK) Limited,
£1.2m from Gooch & Housego (Torquay) Limited, £0.7m from G&H (Property) Holdings
Limited and £0.5m from Kent Periscopes Limited. The total dividend received from
subsidiary undertakings during the year was £7.4m (2020: £13.5m).
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.
2021
£000
25
26
14
79
293
286
723
2021
£000
728
601
102
1,383
796
361
363
1,119
525
5,978
2021
£000
(371)
6,199
–
5,855
(140)
–
1,786
(1,318)
(135)
21
799
12,696
2020
£000
–
–
–
34
361
350
745
2020
£000
479
365
265
666
522
265
236
782
–
3,580
2020
£000
(401)
1,548
1,501
4,001
(179)
(1)
–
(5)
(71)
20
–
6,413
GOOCH & HOUSEGO PLC 128
FINANCIAL STATEMENTS | SHAREHOLDER INFORMATION
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
Company
Information
Nominated Adviser
and Broker
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
Legal Advisers
Burges Salmon LLP
One Glass Wharf
Temple Quay
Bristol
BS2 0ZX
Independent
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
and Statutory Auditors
2 Glass Wharf
Temple Quay
Bristol
BS2 0FR
Registrars
Link Asset Services
65 Gresham Street
London
EC2V 7NQ
Expected Financial
Calendar
Annual General Meeting
23 February 2022
Interim Results Announcement
June 2022
Financial Year End
30 September 2022
Preliminary announcement
of results for the year
ending 30 September 2022
December 2022
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTICE OF ANNUAL GENERAL MEETING
129
Notice of Annual
General Meeting
Voting
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 Group 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.
Notice is hereby given that the Annual General Meeting
of the Company will be held at Dowlish Ford, Ilminster,
Somerset, TA19 0PF on 23 February 2022 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 2021 together with
the Directors’ Report and Auditors’ Report thereon.
To receive and approve the Remuneration Committee Report
set out on pages 65 to 72 (excluding page 67 and 68) of the
Annual Report and Financial Statements for the financial
year ended 30 September 2021.
3
To declare a final dividend, as recommended by the
Directors, of 7.7p per ordinary share for the financial year
ended 30 September 2021.
4 To re-elect Gary Bullard as a Director.
5 To re-elect Mark Webster as a Director.
6 To re-elect Chris Jewell as a Director.
7 To re-elect Brian Phillipson as a Director.
8 To re-elect Louise Evans as a Director.
9 To elect Jim Haynes as a Director.
10 To re-appoint PricewaterhouseCoopers LLP as Auditors.
11
To authorise the Directors to fix the remuneration of
the Auditors.
12 THAT the Directors of the Company be, and they are hereby,
generally and unconditionally authorised in accordance
with section 551 of the Companies Act 2006 (the “Act”), in
substitution for any existing authority to the extent unused,
to exercise all the powers of the Company to allot shares in
the Company or grant rights to subscribe for or to convert
any security into shares in the Company on, and subject to,
such terms as the Directors may determine. The authority
hereby conferred shall, subject to section 551 of the Act, be
for a period commencing on the date of the passing of this
Resolution and expiring at the conclusion of the next Annual
General Meeting of the Company or 23 May 2023
(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 30 November 2021). The Directors
shall be entitled under such authority to make at any time
prior to the expiry of such authority any offer or agreement
which would or might require shares in the Company to be
allotted after the expiry of such authority and the Directors
may allot shares in pursuance of such offer or agreement
as if such authority had not expired.
To consider and, if thought fit, to pass the following resolutions
as Special Resolutions:
13 ( a) THAT the Directors of the Company be, and they are
hereby, generally and unconditionally empowered
pursuant to section 570 of the Companies Act 2006 (the
“Act”), in substitution for any existing authority to the
extent unused, to allot equity securities (as defined in
section 560 of the Act) for cash pursuant to the authority
conferred by Resolution 12 above as if section 561 of the
Act did not apply to such allotment, provided that the
power hereby conferred shall be limited to:
GOOCH & HOUSEGO PLC 130
FINANCIAL STATEMENTS | NOTICE OF ANNUAL GENERAL MEETING
Notice of Annual
General Meeting Continued
(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 30 November 2021); 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 30 November 2021); 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 23 May 2023 (whichever is the earlier), save that
the Company may before such expiry make an offer or
agreement which would or might require equity securities in
the Company to be allotted after such expiry and the Directors
may allot equity securities in pursuance of such offer or
agreement as if the power conferred hereby had not expired.
14 THAT the Company be and is hereby generally and
unconditionally authorised for the purposes of section
701 of the Companies Act 2006 (the “Act”) to make one
or more market purchases (within the meaning of section
693(4) of the Act) of fully paid ordinary shares of £0.20
each in the capital of the Company on such terms and in
such manner as the Directors may determine, provided that:
(a) the maximum aggregate number of ordinary shares
hereby authorised to be purchased is 2,504,092
(representing approximately 10 per cent. of the total ordinary
share capital of the Company in issue at 30 November 2021);
(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
23 May 2023 (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
30 November 2021
Registered Office: Dowlish Ford, Ilminster, Somerset TA19 0PF
Registered Number: 526832
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC
ANNUAL REPORT 2021 | FINANCIAL STATEMENTS | NOTICE OF ANNUAL GENERAL MEETING
131
Notes
1
2
3
4
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.
5
6
Resolution 2 is an advisory vote only. The Remuneration
Committee Report is set out on pages 65 to 72 of the Annual
Report and Financial Statements for the financial year
ended 30 September 2021. Pages 65, 66, 69, 70, 71 and 72
of the Remuneration Committee Report set out the pay and
benefits received by each of the directors for the year ended
30 September 2021. The Company’s policy on remuneration
and potential pay outs to directors in the future, which is set
out on pages 67 and 68 of the Annual Report and Financial
Statements for the financial year ended 30 September
2021, is specifically excluded from this Resolution.
Resolutions 1 to 12 (inclusive) are proposed as Ordinary
Resolutions. This means that for those resolutions to be
passed, more than half of the votes cast on such resolutions
must be in favour of such resolutions. Resolutions 13 and 14
are proposed as Special Resolutions. This means that for
those resolutions to be passed, at least three-quarters of
the votes cast on such resolutions must be in favour of
such resolutions.
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.
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).
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.
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.
Any power of attorney or other authority under which the
proxy is submitted must be returned to the Company’s
Registrars, Link Group, PXS1, Central Square, 29 Wellington
Street, Leeds, LS1 4DL. If a paper form of proxy is requested
from the registrar, it should be completed and returned to
Link Group, PXS1, Central Square, 29 Wellington Street,
Leeds, LS1 4DL to be received not less than 48 hours
before the time of the meeting.
If you need help with voting online, or require a paper proxy
form, please contact our Registrar, Link Group by email at
enquiries@linkgroup.co.uk , or you may call Link on
0371 664 0391 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. We are open between 09:00 - 17:30, Monday to Friday
excluding public holidays in England and Wales. Submission
of a Proxy vote shall not preclude a member from attending
and voting in person at the meeting in respect of which the
proxy is appointed or at any adjournment thereof.
GOOCH & HOUSEGO PLC
132
FINANCIAL STATEMENTS | NOTICE OF ANNUAL GENERAL MEETING
Notes Continued
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.
8
9
For an electronic proxy appointment to be valid, the
appointment must be received by the Company’s Registrar,
Link Group, no later than 11.00am on 21 February 2022.
Only those members registered on the register of members
of the Company at close of business on 21 February 2022
(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.
ANNUAL REPORT 2021 |GOOCH & HOUSEGO PLC Gooch & Housego PLC
Dowlish Ford, Ilminster
TA19 0PF, United Kingdom
T: +44 (0)1460 256440
E: info@gandh.com
gandh.com