Gooch & Housego PLC Annual Report 2022

FY2022 Annual Report · Gooch & Housego PLC

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A BETTER WORLD WITH PHOTONICS

Annual Report
September 2022

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
113 Company Balance Sheet
114 Company Statement of Changes in Equity
115 Company Cash Flow Statement
116 Notes to the Company Cash Flow Statement
117 Notes to the Company Financial Statements

Shareholder Information
128 Company information
129 Notice of Annual General Meeting

Contents

Strategic Report
02 Investment Case
04 Highlights
08 Our Locations
10 Our Markets
12 Our Products and Capabilities
14 Chairman’s Statement
16 Our Business Model
18 Our Key Performance Indicators
20 Chief Executive Officer’s Statement
26 Our Strategy
28 Operations Review
34 Financial Review
38 ESG Report
47 S172 Statement
50 Principal Risk and Uncertainties

Governance
54 Board of Directors
56 Corporate Governance
59 Directors’ Report
62 Audit Committee Report
65 Nomination Committee Report
66 Remuneration Committee Report

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC2 STRATEGIC REPORT

Investment Case

Leading Products
and Technology

Gooch & Housego’s products and
capabilities are recognised as market
leading. Through continuous innovation
we are making today’s limits
tomorrow’s baseline.

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.

Diversified Revenues

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.

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.

Financial Strength

We have 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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

£124.8m

Revenue

£8.1m

Adjusted profit
before tax

£147.7m

Order book

£12.8m

Net debt
excluding leases

New products
launched

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC4

STRATEGIC REPORT

Highlights

Revenue (£m)

£124.8m

2022
2021
2020
2019

Basic (loss)/earnings per share (Pence)

(8.0p)

£124.8m
£124.1m
£122.1m

£129.1m

8.0p

2022
2021
2020
2019

13.6p

15.1p
15.1p

Adjusted profit before tax (£m)*

Total dividend per share (pence)

£8.1m

2022
2021
2020
2019

£8.1m

£12.6m

£9.8m

£15.0m

12.6p

2022
2021
2020
2019

–

Adjusted basic earnings per share (pence)*

Net debt excluding IFRS16 (£m)

12.6p

12.2p

11.5p

£12.8m

£14.3m

£12.8m

2022
2021
2020
2019

£2.6m

£6.5m

Net debt £m

£19.1m

2022
2021
2020
2019

£19.1m

£9.2m

£14.7m
£14.3m

* adjusted figures exclude the amortisation of acquired
intangible assets, impairment of goodwill and acquired
intangible assets, non-underlying items being
restructuring costs, and CEO succession costs, together
with the related tax impact. A reconciliation of adjusted
figures to reported figures is shown on page 28.

27.2p

2022
2021
2020
2019

27.2p

30.5p

41.0p

46.8p

Statutory (loss)/profit before tax (£m)

(£2.3m)

2022
2021
2020
2019

£4.7m

£5.4m

£6.0m

Order book (£m)

£147.7m

2022
2021
2020
2019

£147.7m

£97.8m

£92.4m
£94.4m

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Key
Points

Order book

Revenue

Record order book of
£147.7m up 51% (35.3%
excluding foreign exchange)
underpinned by strong
end market demand.

Overall revenue unchanged
with growth in both industrial
and life sciences offset by
decline in aerospace and
defence.

Profit

Adjusted profit before tax
declined to £8.1m. Investment
made to increase capacity but
challenges with recruitment,
operations and supply chain
constrained output.

Non-underlying charges

Non-underlying charges of
£10.4m, including £6.7m
impairment charge against
goodwill and other intangible
assets, driven by increase in
the Group’s cost of capital.
Reported loss before tax for
the year of £2.3m.

Recovery

Debt

Outlook

Despite implementing price
increases during the year,
input cost inflation continues
to impact the business with
some lag in recovery.

Net debt increased
to £19.1m, reflecting
inventory investment
to alleviate supply
chain shortages.

FY2023 outlook targeting
revenue and adjusted PBT
growth, though at a lower
level than previously
assumed, through accelerated
R&D investment focused on
key growth markets and the
addition of further capacity to
service strong demand.

Dividend

CEO

Full year FY2022 dividend
increased to 12.6p, reflecting
strength in order book and
medium-term positive
outlook for the business.

New CEO appointed
and a review of the Group’s
strategy has begun, with
outcomes expected to be
communicated with the half
year results.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC6 STRATEGIC REPORT

Highlights

Charlie Peppiatt, Chief Executive
Officer, commented:

While mindful of the
uncertain macroeconomic
and geopolitical landscape,
G&H is positioned for growth
with a robust order pipeline
across all our end markets.

“I am confident we will
generate growth in our
financial and operational
performance in 2023 as we
re-establish the foundations
and direction to progress to
become a resilient and agile
higher margin business
over the coming years.”

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
STRATEGIC REPORT

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC8 STRATEGIC REPORT

Our Locations
A Better World With Photonics

KEY

Manufacturing locations

AO: Acousto-optics
CO: Crystal optics
EO: Electro-optics
FO: Fibre optics
MD: Medical devices
OS: Optical systems
PO: Precision optics
HQ: Headquarters

Sales offices

Fremont

Moorpark

Ashford

St Asaph

Torquay

FO
FO

Boston

Ilminster

Paris

Munich

Cleveland

Keene

FO
MD

Virginia

Nagoya

Shanghai

Our Purpose

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
the shift from electronics to
photonics is accelerating,
transforming the fields of
manufacturing, aerospace,
communications and
medicine.

Through close customer
relationships we enable
leading organisations all over
the world to deliver tailored,
innovative solutions to meet
precise requirements.

At G&H we are using our
skills and capabilities
to make a better world
with photonics.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

Cleveland

Keene

St Asaph

Torquay

Boston

Ilminster

Virginia

Ashford

Paris

Munich

Fremont

Moorpark

Nagoya

Shanghai

STRATEGIC REPORT

Regional
revenues

£47.3m
North America

£54.6m
Europe

£22.9m
Rest of World

An International
Group

10
Manufacturing
locations

903
Employees*

* As at 30 September 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

STRATEGIC REPORT

Our Markets
A Better World With Photonics

Industrial

Percentage
of Revenue

51.7%

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’s components are at the heart of today’s most advanced
semiconductor manufacturing equipment, maximising
throughput and yield. Our products operate in the extreme ultra
violet range helping to focus lasers on to a target to create
plasma. Incredibly high powers and short durations are required
for this process. Our germanium acousto-optical modulators
(Ge AOMs) provide solutions to these challenges by enabling
power stabilization, precise and stable beam positioning, and
extremely short pulse duration.

G&H’s family of high-reliability fibre couplers are the preferred
solution for use in subsea data cables. This market is driven by
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-based optical
sensing 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.

Aerospace and Defence
Our leadership in supporting mission-critical applications with
high-performance optical components, modules, and
subassemblies has established G&H as a preferred supplier for
leading aerospace and defence (A&D) contractors around the
globe. Our technology and expertise in optical design and
manufacture have helped advance programs and missions in
several key application areas.

Unmanned aerial vehicles (UAVs) and other airborne platforms
gather more image data more quickly during ever-longer flight
times. 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 A&D platforms used for intelligence, surveillance, and
reconnaissance (ISR) missions. Our SWIR lens assemblies are
also used in monitoring directed energy weapons performance.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Aerospace and Defence

Life Sciences

Percentage
of Revenue

24.5%

Percentage
of Revenue

23.8%

The speed and precision that photonics technology enables is
instrumental for the directed energy systems employed in
drone and missile defence. With decades of close collaboration
with prime defence contractors and avionics manufacturers,
G&H brings the exacting design and manufacturing expertise
required for the fibre optics, electro-optic modulators, and
sights and windows that help ensure directed energy systems
perform reliably.

Life Sciences
G&H’s optical component designs have helped advanced the
performance and reliability of life science instrumentation for
medical microscopy, diagnostic imaging, and laser surgery.
We are recognised as a leading provider of advanced optics,
fibre optics, acousto-optics, and Pockels cells, targeting
medical research, diagnostic imaging, and laser surgery
applications worldwide.

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 lasers 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.

We work with leading laser system OEMs and medical equipment
manufacturers to optimise patient outcomes in a broad range
of surgical applications, including prostate surgery; scar
correction and treatment of cataracts. Our optics provide
surgical lasers with the precision and reliability needed for
cardiovascular procedures.

G&H is also a key supplier in the growing market for non-
invasive aesthetic laser treatments and therapies. From tattoo
removal to skin rejuvenation, our products enable higher
optical power and precision for the most effective procedures.

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
developing new life saving medical technology and instruments.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC12 STRATEGIC REPORT

Our Products and Capabilities
Leading Photonics Technology

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 A&D, 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.

Many of our acousto-optic and electro-optic products are
manufactured using our own in-house grown materials such as
beta-barium borate (BBO), cadmium selenide (CdSe), cadmium
sulfide, (CdS), potassium dihydrogen phosphate (KDP), and
potassium dideuterium phosphate (KD*P). All are fabricated
on a made-to-order basis in-house using advanced orienting,
sawing, grinding, and lapping technologies.

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.

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, and performance delivered consistently over
time and in volume.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

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, whether that be in space applications or in terrestrial
and submarine telecommunications systems.

We support customers through all aspects of system
development, lending our expertise in the 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’s optical amplifiers
are at the heart of new systems that are allowing satellite-to-
satellite, and satellite-to-ground communication as well as
on-board optical sensing. These products will increasingly
replace traditional radio frequency-based space
communication systems.

G&H manufactures precision optical components and
assemblies for applications in A&D, medical systems and
research. Our knowledge of optical and mechanical properties
of materials, combined with the ability to handle all aspects of
component manufacture, ensures the highest quality products
with precise optical finishes. Our custom lenses and housed
subassemblies find application in transmission and imaging.
Our ring laser gyro mirrors are used by every commercial
airline in the world. G&H has supplied superpolished optics
to NASA’s Mars Curiosity mission.

The extent of vertical integration throughout our manufacturing
processes allows us to provide dependable design advice and
improves the quality of our finished products through unified
standards and reduced component handling between
manufacturing steps. 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC14 STRATEGIC REPORT

Chairman’s Statement

Strong market demand
and further investment in
our productive capacity”

Group Overview
I have been pleased with the strength in demand for the Group’s products and services
across all three of our markets. That demand has pushed the Group’s order book to
record levels and reflects the hard work of our engineering and sales team in building
close and mutually productive relationships with our customers. Our customers trust
us to support them in the development of their most sophisticated, next generation
products across all of the markets that we serve. We are well positioned to benefit
from the increasing use of our photonic technologies to solve their most technically
challenging needs.

Whilst the Group has experienced significant headwinds in the year to 30 September
2022 from supply chain issues and labour shortages, we have continued to invest to
establish firm foundations upon which to deliver future growth in our productive
capacity, both in-house and with our supply chain partners.

Our ambitious programme to streamline our manufacturing facilities is now starting
to deliver. The significant investment we have made in our Precision Optics centre of
excellence in Ilminster means that we are now able to offer our customers a broader
range of capabilities and the ability to provide them with more advanced, integrated
design consistent with our strategic objective of securing more subsystem and
system business. At the same time the establishment of a fibre optics hub at our
Boston MA facility is reducing overheads and allows us to secure longer term order
book visibility for that site. I am delighted with the performance of our Asian contract
manufacturing partner. They have assumed the manufacture of many of the acousto-
optic products formerly made in our Ilminster facility and in the final months of the
financial year have achieved an impressive ramp in product output as they migrate
from initial qualification build into full-scale volume production. We intend to build
upon this relationship by migrating further mature products in the future.

The Environment and our Communities
We are proud of the contribution that photonic technologies and our products are
making in the migration to a more sustainable and healthier world. We are also
focused on our own impact on the environment. We track carbon emissions as one of
our key performance indicators and have achieved a very impressive 27.2% reduction
in our emissions in the year, thanks to the investments we have made in solar energy
generation at all of our UK manufacturing sites and our policy of progressively
switching to purchasing energy from renewable sources. We have a programme in
place to achieve year-on-year reductions in our energy usage and emissions in
support of our target to be net zero on Scope 1 and 2 emissions by 2035.

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 G&H monies the amounts they raise.

The Board
After ten years with G&H, firstly as a non-executive director and then for the last
eight years as CEO, Mark Webster retired at the end of the financial year. Mark led the
Group’s transformation and expansion into new market opportunities, especially in
the life sciences and A&D sectors, and more recently navigated the business through
challenging international economic times including the COVID pandemic.

We were delighted to appoint Charlie Peppiatt as CEO to succeed Mark. Charlie brings
a wealth of experience from his career in global hi-tech businesses supplying into the
medical, industrial and A&D sectors, most recently at TT Electronics plc and before

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
STRATEGIC REPORT

Outlook
Looking ahead, the prospects for G&H are good. We are well
positioned in our growth markets. Our restructuring programmes
have reduced the Group’s cost base. Whilst the business faced
some significant challenges during the year from supply chain
issues and the very competitive labour markets in both the
UK and US, in the latter stage of the year we have succeeded
in adding significant additional capacity and that ongoing
investment will bear fruit in the coming years. In FY2023, we
are targeting growth in revenues and adjusted profit before
tax, though at a lower level than previously assumed.

Our technology and products are world class, our customer
positions are strong and with the support of our skilled and
talented employees I am confident we will be able to deliver
upon our financial growth targets.

Gary Bullard
Chairman
6 December 2022

that at Stadium Group plc and Laird plc. I believe Charlie is
uniquely qualified to lead the Group in exploiting the significant
opportunities arising from the continued growth of the
photonics sector.

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 56 to 58.

Dividend
Given the strength of the Group’s order book and the long-term
positive outlook for the business, the Board is proposing a final
dividend of 7.9 pence per share for approval at the Company’s
Annual General Meeting on 22 February 2023, giving a total of
12.6 pence for the year. Payment of the dividend will be made
on 24 February 2023, to shareholders on the register as at
20 January 2023.

People
I would like to thank our employees for their commitment to
the business. The Group has undertaken significant change as
a result of its manufacturing facility streamlining projects only
made possible by our employees’ hard work and dedication.
At the same time, the constraints we have seen in the year from
the very competitive labour markets and further supply chain
shortages put extra pressures on our teams. I am also pleased
we have been able to welcome so many new recruits to the G&H
team due to the strength of the Group’s order book and our
work to increase our productive capacity. We are proud to be
able to provide high quality employment opportunities to people
at all stages in their career in the locations in which we operate.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
16 STRATEGIC REPORT

Our Business Model

Our Business

World Class

Attractive Growth Markets

Our world class photonics components and systems
capabilities allow us to differentiate ourselves and provide
our customers with more precise, reliable and cost-effective
solutions that meet their most demanding needs.

Strategic supply considerations driving the build of new
on-shore semiconductor and other laser-based
manufacturing facilities.

We have long-standing close relationships with our
customers. We work with them to understand their
needs, and then design products and systems that
meet those needs.

We will use our photonic skills and capabilities to develop
products that support a cleaner, healthier and more
sustainable world.

We supply the three markets – industrial, A&D and life
sciences from our three capability areas: Acousto/Electro-
Optics, Fibre Optics, and Precision Optics and Systems.

We operate from ten manufacturing locations in the UK,
USA and China.

By positioning ourselves in attractive growth markets and
deploying our unique range of skills and resources we are
developing a sustainable business model.

Increasing needs to share data globally and instantaneously
fuels demand for our high-reliability fibre-optic telecoms
products used to transmit data between continents.

The migration of space-based communication systems away
from traditional radio frequency systems towards laser-based
solutions.

Growing demand for improved healthcare, especially for early-
stage diagnostics and for laser enabled cosmetic procedures.

The continued focus of on defence spending on precise,
targeted systems that depend upon our precision-optics and
fibre subsystems with directed energy systems emerging as
the next precise, low cost defence systems.

Increasing global demand for clean, wind generated energy
drives demand for our fibre-optic sensing modules.

Unique Range of Skills
and Resources

State-of-the-art manufacturing facilities supported by a high
quality, cost effective supply chain.

We are pioneers in crystal growth techniques and the supply
of specialist crystalline materials.

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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Underpinned by:

Competitive Advantage

Sustainability

Industry wide reputation for innovation and continuous
improvement in the field of photonics protected with
patented technology.

State-of-the-art manufacturing facilities supported by
a low-cost contract manufacturing partner.

An established capability to work in high product quality and
compliance markets such as A&D and life sciences as well as
on programmes requiring high level security accreditations.

Close and long-standing customer relationships supported
by a business development organisation that supports
inter-group collaboration and cross selling.

A talented team of engineers, continually developing new IP.

Effective and prioritised deployment of capital.

At G&H we work to create a long-term sustainable business
for the benefit of all of our stakeholders, support the
communities in which we operate and minimise the Group’s
impact on the environment. We are working diligently
towards our target of being net neutral on scope 1 and 2
emissions by 2035. We have processes in place to ensure
we maintain our high standards of business conduct.

See our ESG report on page 38.

Financial Position

We operate across a range of markets providing
natural protection against individual market cyclicality.
At 30 September 2022, we had $18.7m of undrawn
committed facilities and $30m of undrawn uncommitted
funding facilities meaning that we are able to invest to
support the further profitable growth of the business.

Stakeholder Value Creation

See our financial statements from page 80.

Our customers – using our expertise we work closely with
our customers to solve their mostly technically challenging
system requirements.

Governance

Our suppliers – we deploy our own 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 from apprentice
level through to our most experienced engineers to ensure
they have the skills and capabilities needed to operate in our
industry leading operations.

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.

The Board is accountable to our shareholders and
is committed to the highest standards of corporate
governance. To this end, the Group has adopted the
UK Corporate Governance Code (2018).

See our Corporate Governance Report on page 56.

Risk Management

See our Risk Management Report on page 50.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC18 STRATEGIC REPORT

Our Key Performance Indicators
(KPIs)

KPI and Description

Why this is important

Organic revenue growth (%)

The percentage change in revenue in the current year
compared to the prior year, excluding the effects of
foreign exchange

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.

Adjusted operating
margin (%)

Adjusted operating profit as a percentage of revenue

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.

R&D investment as
a % of revenue

R&D investment as a % of revenue

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.

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.

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.

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. We are focused on
making G&H a sustainable business and have a target to
be net zero on scope 1 and 2 emissions by 2035.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Performance

2022

2021

2020

2019

(3.7%)

6.4%

(5.4%)

(8.0%)

Organic revenue was 3.7% lower, excluding foreign
exchange, reflecting a significant decline in our revenues
from our higher margin A&D markets. This was driven by
deliveries on a number of programmes completing prior
to the ramp up of volumes from new programme wins.

2022

7.1%

2021

2020

2019

10.8%

9.2%

12.6%

The adjusted operating margin fell to 7.1% reflecting
lower volumes especially in some of our higher margin
A&D programmes. Despite lower volumes we continued
to invest to deliver our record order book.

The net impact of inflation was also a factor in the reduction.

2022

2021

2020

2019

7.4%

6.4%

6.5%

6.0%

We increased our investment levels in the year. In the
year we released another 54 products to the market
and revenues from products contributed £17.9m of
revenue in the year.

2022

2021

2020

2019

£6.6m

£21.9m

£22.5m

£13.1m

We invested in increased levels of safety stock in the
year to protect ourselves from supply chain shortages.
We increased our investment in new equipment and
systems in the year to £8.6m.

2022

2021

2020

2019

Our safety performance remains significantly better
than the industry average. Our objective is to ultimately
achieve no lost time incidents. We are enhancing our
near miss reporting to support this.

2022

2021

2020

3,942

5,414

5,852

Solar panels on our Ilminster and Ashford facilities
became operational in the financial year. All of our
purchased electricity in the UK is from renewable
sources. All of our sites are following specific action
plans that will reduce their energy consumption.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC20 STRATEGIC REPORT

Chief Executive Officer’s
Statement

Introduction
I am delighted to have joined G&H in September 2022 at such
an important time in the Group’s development. In my first few
weeks with the business I have been able to visit all of our
principal locations and have been struck by the dedication,
motivation and deep technical skills of our teams. It is clear
that G&H products are recognised by our customers for their
superior technical capability and quality which few other
companies can match. However, I am also conscious that our
operational delivery to those customers over the last year has
not met the high standards we aspire to and I will be focused
on ensuring we quickly resolve the operational constraints that
have impacted the business during FY2022.

I intend to complete a review of the Group’s strategy over the
coming months and will provide further details once that has
been concluded. Already I can see that the business is well
positioned in a number of growth markets with superior products
and capabilities meaning we should be able to secure a growing
share of those attractive end markets. The Group’s production
facilities are well invested with advanced hi-tech equipment
and the business has established productive relationships with
its existing customers, as well as positive engagements with
many new customers, as we seek to collaboratively develop the
next generation of photonic products.

I am proud that G&H products are playing a part in building a
better more sustainable world. Many of our products contribute
directly to the reduction of energy consumption and the more
efficient use of materials. In our own facilities we are also
making great strides in reducing our impact on the environment.
In FY2022 we achieved a 27.2% reduction in our emissions as
we work towards our goal of being net neutral on our Scope 1
and 2 emissions by 2035.

Business Performance
During the financial year 2022 G&H achieved revenue of
£124.8m, representing an increase of 0.6% over the previous
year (FY2021: £124.1m), or excluding the impact of foreign
exchange a reduction of 3.7%. Adjusted profit before tax was
£8.1m, a reduction of 35.4% over last year (FY2021: £12.6m).
At the same time, and in common with many other businesses
in our sector, we saw high levels of customer demand which
increased the Group’s order book to £147.7m, an increase of
51% or 35.3% at constant currency.

This weaker trading performance was the result of significant
headwinds in our production facilities as they attempted to
increase output from a new footprint to our industrial and
medical laser markets where demand was very strong and
which provided the opportunity to offset programme driven
reductions in our A&D facing businesses. In the first half of the
year our manufacturing facilities were materially impacted by
COVID absences while the very tight labour markets in both

While mindful of the increasingly
uncertain macroeconomic and
geopolitical landscape, G&H
remains well positioned for
growth with a robust pipeline
across all our end markets.”

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
STRATEGIC REPORT

We anticipate higher production in
FY2023 and a refocus on pricing to offset
inflation as we convert our record order
book. The business will invest to ensure
G&H can capitalise on the accelerating
deployment of photonics technologies
into continuously expanding areas of
the industrial, life sciences and A&D
markets underpinning the future
growth potential of the Group.”

the UK and US meant that we were unable to make the
necessary increases to our in-house production teams. At the
same time, we experienced a number of supply chain shortages
especially in the area of electronic components.

However, in the second half of the year we were able to achieve
better success in adding to our production teams thanks to
increased flexibility and innovation in the ways in which we
sought to attract new recruits to the business.

Nevertheless, due to the constraints on output, the programme
of investment in both our operations and R&D functions, input
cost inflation and the conclusion in the prior year of a number
of profitable A&D programmes meant that the Group’s overall
margins declined. The continued competitive nature of hiring,
training and retaining the required level of staff in key technical
and production positions remains a challenge in the current
labour market and this is expected to continue into the first
half of 2023. At the same time our supply chain remains
unpredictable and whilst we have generally been successful in
passing on the effects of input cost inflation to our customers we
remain very alert to the impact of the continuing current high
inflation environment that our businesses are operating in.

Our Markets
Industrial demand continues to be strong, especially the
semiconductor and industrial laser markets, where underlying
market growth was complemented by very good uptake of new
G&H products launched in those market areas. Demand for our
high-reliability fibre couplers remained robust, with the use of
those products in the growing satellite communications market
complementing the long-standing undersea cable business.

Life sciences performed resiliently and we saw significant
growth in demand for our products used in medical lasers with
particularly strong growth for devices that support aesthetic
procedures in the Asian market. We are currently adding
productive capacity in our Cleveland facility to help address
this growing need. At the same time demand for our medical
diagnostic products was broadly stable compared with the
prior year.

Volumes in our aerospace and defence (A&D) markets declined
significantly as a result of a number of programmes being
completed in late FY2021 and early FY2022, most significantly
for the supply of sighting systems for armoured vehicles. Whilst
the business has been successful in securing a number of new
programme wins, most notably the upgrade of the optical
sensor suite for UK’s Challenger platform, those programmes
have not yet migrated into volume production. At the same time
programme volumes supplied from our Boston site declined,
but this business finished the year with an order book some
58% higher than the same time last year and is therefore
substantially covered for its coming year revenues.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
22 STRATEGIC REPORT

The transfer of our acousto-optic products from our Ilminster
facility to our Asian contract manufacturing partner is now
complete and despite some delay this supplier achieved a
significant ramp up in output in the final quarter of the year. We
are now qualifying that same partner for the manufacture of
high-reliability fibre couplers and expect them to complete that
to become a third source for the manufacture of this growing
product line in the coming financial year. We are looking at
further opportunities to outsource several other established
products in the future.

We have continued to invest in our technology roadmaps and
are working closely with many of our customers on their next
generation products. New products contributed £17.9m of
revenue in FY2022 (FY2021: £18.1m).

The Group took deliberate steps to invest in higher levels of
inventory as a risk reduction exercise given the difficult supply
chain environment we continue to face and we expect these
safety stock levels to be maintained during the coming financial
year. Consequently, the Group’s net debt increased to £12.8m,
excluding lease liabilities, or £19.1m when lease liabilities are
added. Our leverage as measured for our banking covenant
stands at just 0.7x, which places G&H in a strong position to
pursue our strategic goals.

Strategic Goals
The Group’s medium-term strategic goal of diversifying into
the A&D and life science markets has demonstrated
considerable success over the past few years with around half
of the Group’s revenues now coming from those two markets,
counter-balancing our exposure to the more cyclical segments
of certain parts of the industrial market. Those two markets
also have specific regulatory and compliance barriers to entry
that make them attractive to G&H.

We use our research and development resources to help us
secure a greater proportion of our business from subassemblies
and systems. In order to do so we are increasingly focusing our
engineering skills from across the Group to demonstrate our
ability to develop more complex designs. For example, by
combining the hardware and firmware capabilities of our optical
systems design team in St Asaph with the electronics and
software skills of our Ashford engineering team we are able to
offer next generation multi-band sights incorporating laser range
finding and advanced image overlay for use in next generation
optical systems for military vehicles. Our continuing investment
in state-of-the-art equipment to manufacture and coat
precision optics means that we are able to offer our customers
an expanded range of services and in turn we are being invited
to tender for more complex, innovative optical assemblies by
both existing and new customers.

We have and will continue to substantially improve our

software, firmware, electronic and mechanical engineering
capabilities. This was in large part initiated through the
acquisition of Integrated Technologies Limited (ITL) and its
facility in Ashford, Kent has provided a platform for the
creation of a systems engineering hub.

Moving up the value chain through greater vertical integration
by expanding our modules, subsystems and full photonics
solutions offering represents a significant opportunity for the
Group. We will continue to substantially improve our software,
firmware, electronic and mechanical engineering capabilities
through our innovation hubs.

Nevertheless, I intend to undertake a review of the Group’s
strategy over the coming months to ensure that the business
is focused in the right product development areas and
aligned to customer-led growth drivers. I also intend to review
investment levels to assess this is at the level required to
develop higher margin product lines in a timely manner to
support the business’ growth aspirations.

Our Operations
The Group has continued to record low levels of lost time
accidents and below the average for our sector. Across all our
sites we remain focused on ensuring that G&H is a safe,
engaging, diverse and inclusive place to work.

During the year we have operated in very competitive labour
markets working hard to both retain and, where required, add
to our production teams. For much of the year we found that our
recruitment activities were only sufficient to replace attrition but
in the second half of the financial year we started to achieve
net increases in our production team strength. We have further
roles to fill to meet required output levels and have hired
specialist inhouse recruiters to help us expedite this critical task.

During the year John Andzulis joined the business as our new
Chief Operating Officer. John has a wealth of industry knowledge
having held senior operational leadership roles for Ametek,
Novanta, Thermo Fisher Scientific and Rochester Precision
Optics. Under John’s leadership our Operations team have been
focused on establishing the operational capabilities needed to
improve our on-time delivery performance, drive continuous
improvement activities to increase efficiency and achieve the
growth in overall capacity required to enable us to deliver our
record order book and meet future growth requirements.

We have invested to help ensure our Asian contract
manufacturing partner executes on the growing volumes we
are transferring to them. We currently have four team
members permanently located at their facility assisting them
with new product qualification, scheduling the output of our
products being manufactured there and the quality of the
product delivered on our behalf to customers. We have also

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

added to our team of supplier quality engineers who are
charged with executing upon a risk-based audit programme of
our supply chain which over time will help to reduce supply
chain risks across our portfolio.

Research and Development (R&D)
G&H continues to work closely within the photonics ecosystem
and with a number of key partners to develop their next
generation products. During FY2022 we introduced 54 new
products and delivered £17.9m of revenue.

Some of our principal areas of new business opportunities are:

• Leading photonic components and modules for extreme

ultra-violet (EUV) lithography equipment in semiconductor
fabrication and other advanced microelectronics processing.

• Fibre-optic modules and subsystems for lidar sensing in wind

energy.

• Fibre-optic and opto-mechanical subsystems for

next-generation space to ground satellite communication.

• Biomedical imaging systems for cancer and cardiovascular

disease detection.

• Photonics system solutions for ophthalmology scanning

equipment.

• Optical components for gimbals in UAV military platforms.

• Multi-band periscopes and sighting systems for armoured

vehicles.

Corporate Responsibility
The Board is accountable to its shareholders and is committed
to the highest standards of corporate governance. To this end
the Group has adopted the UK Corporate Governance Code
(2018). In order to ensure the Group is meeting the most up to
date standards regular reviews of policy are held by the
relevant committees of the Board of Directors. During the year
the Board undertook a self-assessment to identify opportunities
for improvement and incorporate a greater focus on ESG.

G&H is committed to creating a safe, engaging, diverse and
inclusive place to work for the Group’s employees and all
stakeholders. We continue to establish a culture that proactively
works towards reducing harm and promotes equality, diversity
and inclusion across the Group. The Group remains focused on
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 female candidates in all shortlist applications and we
are actively engaged with encouraging International Women in

Engineering. We are currently recruiting for a new non-executive
director from a female only short list.

G&H is committed to conducting our business in an
environmentally responsible and sustainable manner. With the
appointment of our new non-executive director we intend to
establish an ESG subcommittee of the Board responsible for
monitoring the Group’s achievement against its ESG targets. We
are investing in order to generate our electricity in a sustainable
manner and to reduce our overall energy usage. Each of our
sites has an energy reduction plan that it is working to. In the
year we reduced our Scope 1 and 2 carbon emissions by 27.2%,
a major step forward in achieving our target of being net neutral
on this measure by 2035. The executive directors and senior
leadership team now have specific environmental management
and carbon reduction goals in their remuneration schemes.

Outlook
The demand fundamentals across all three of our primary
markets in FY2022 was strong and this has continued into the
start of the new financial year.

In A&D we secured significant new programme wins and we can
see that the conflict in Ukraine has reinforced the continuing
importance of armoured systems in modern warfare. We are
starting to receive opportunities from programmes that will
replenish equipment provided to Ukraine.

In life sciences our medical diagnostics business was broadly
flat as volumes on elective surgery treatments and cancer care
products compensated for declines in ventilator systems which
had benefited from the pandemic. In the medical laser market
demand was strong for our components used in aesthetic
procedures responding to significantly growing demand,
especially from Asia.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC24 STRATEGIC REPORT

We saw a sustained recovery in the demand for specialist
industrial lasers, as new technologies to support the 5G
infrastructure and Internet of Things applications continue to
expand, along with the greater use of new more flexible
materials in microelectronic manufacturing and strong
worldwide requirements for advanced semiconductors
continue to drive growth.

Strategic geopolitical tensions between East and West has
accelerated the selective re-shoring of strategically important
capabilities such as semiconductor production which in turn is
fuelling the demand for the fit out of new hi-tech semiconductor
factories. We expect this demand driver to remain in place
through the medium-term providing G&H with further growth
opportunities as well as offering some offset should end
consumer demand in the more traditional industrial equipment
market start to soften.

These factors all contributed to the Group’s order book rising
to a record level of £147.7m at the end of the year, an increase
of 35.3% on a constant currency basis. Despite the strength of
the order book which remains well above historic levels across
the business and provides excellent visibility for 2023, we still
face some significant operational headwinds in the near term.
The labour markets in both the UK and US remain highly
competitive leading to ongoing supply side challenges that
continue to frustrate the recruitment of the required talent,
especially in certain technical positions.

Whilst price increases have been passed onto customers in
FY2022 to address the input cost increases, cost inflation
continues to impact the business. Due to the nature of the
ongoing inflation dynamics there is some lag in recovery and
prices need to be under constant review to recover these costs.

While mindful of the uncertain macroeconomic and geopolitical
landscape, G&H remains well positioned for growth with a
robust pipeline across all our end markets. We anticipate higher
production in 2023 and a refocus on pricing to offset inflation
as we convert our record order book. The business will invest to
ensure G&H can capitalise on the accelerating deployment of
photonics technologies into continuously expanding areas of
the industrial, life sciences and A&D markets underpinning the
future growth potential of the Group. As a result, in FY2023 we
are targeting growth in revenues and adjusted PBT, though at
a lower level than previously assumed.

I am confident we will generate growth in our financial and
operational performance in 2023 as we re-establish the
foundations and direction to progress to become a resilient
and agile higher margin business over the coming years.

Charlie Peppiatt
Chief Executive Officer
6 December 2022

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC26 STRATEGIC REPORT

Our Strategy

At Gooch & Housego, we create sustainable value by leveraging our products and
capabilities to diversify into new markets. We are focused 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:

• Focused R&D investment
• Operational excellence
• Value enhancing acquisitions

Priorities

Progress

Focused R&D Investment

• Spend on R&D totalled £9.2m.

• Revenue from new products totalled £17.9m and there were 54 new products

• Our R&D teams have market leading skills in photonic

released to the market.

technologies and system capabilities.

• Acousto-optic: New materials and designs (α-BBO, GaAs, sapphire, Ge AOM) for

• 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.

micro/macro-machining.

• Electro-optic: New materials to access more wavelengths (e.g. mid-infrared (MIR))

and apps (heat signature tracking, autonomous bots).

• Fibre optic: Prototypes of high power amplifies for space communications, higher
contrast ratio fibre Q-switches, miniaturising fibre optics for A&D, new devices for
high-spec OCT.

• Precision-optic systems: Multi-band and single aperture systems for turrets and

• We have developed clear technology roadmaps in each

vehicles, low SWAP, more complex designs.

of our three market sectors.

• Precision optics: new coated large mirror and window assemblies for directed

• These road maps focus on areas where we see clear

energy systems, new faster focused optical assemblies.

customer demand enabling us to optimise returns from
our R&D investment.

• Life Sciences: more point of care, user interface and apps development, AI,

machine learning, cyber security of patient data.

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.

• After a very challenging first half of the financial year we are being successful
in recruiting additional staff for our production facilities to service increasing
demand.

• Our Asian contract manufacturing partner has ramped up to volume production
of the acousto-optic products transferred to them and is well advanced on its
qualification programme to build high-reliability fibre couplers.

• We have completed an expanded programme of supply quality inspection using

our team of supply quality engineers. We have four G&H staff permanently located
at our contract manufacturing partner’s premises.

• All three of our UK factories are now generating clean energy from their roof
based solar panels. The electricity they still need to purchase all comes from
renewable sources.

• Under the leadership of our newly appointed Chief Operating Officer we are
putting increased focus on the daily progress of product build through our
factories to ensure any bottlenecks and delays are immediately dealt with.

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.

• We have utilised the electronics and system level skills of our ITL engineering
team to assist in development activities on some of our A&D programmes.

• Our ITL team have identified opportunities for the greater cross sell of optics and

medical laser products into some of the medical diagnostic instruments to provide
high value offerings to our customers.

• We refreshed our acquisition pipeline and were active in discussions with a

number of companies in the year that we felt would be good additions to the G&H
Group but were unable to reach price agreement with them. We remain in close
contact with them.

• We have established a network of third-party advisors that notify us of potential

acquisitions that match our acquisition criteria.

• The financial strength of the Group means that it remains well placed to quickly

execute on opportunities as they arise.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Link to
KPIs

• Adjusted operating

profit margin

• R&D investment

Future
Priorities

• We will continue to invest in delivering a pipeline
of new products and capabilities for high growth
segments in the sensing, semiconductor, A&D and
life sciences 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:
° High-volume and industrialised Germanium
acousto-optic modulators for use in
semiconductor fabrication and advanced
microelectronics processing.

° UV optics and acousto-optic deflectors for laser

tools in semiconductor manufacturing.

° Leading photonic components and modules for

extreme ultra-violet (EUV) lithography
lasers in semiconductor fabrication.

° Fibre-optic modules and subsystems for

fibre sensing in wind turbines and infrastructure
asset protection.

° Fibre-optic and opto-mechanical subsystems
for next-generation space to ground satellite
communication.

° Biomedical imaging subsystems for cancer and

cardiovascular disease detection.

° Visible and IR optical systems for imaging and

communication in UAV and satellites.

° Optical components for gimbals in military

aerospace platforms.

° Multi-band periscopes and sighting systems for

armoured vehicles.

• We are expanding our Life Science R&D group to work
on a range of novel analytics and diagnostics systems.

• Organic revenue growth

• We will complete the staff recruitment and asset investments needed to

• Adjusted operating

profit margin

• Adjusted operating

cash flow

• Safety performance

• CO2 equivalent (tonnes)

support the further ramp in production capacity required to satisfy the record
order book of the business.

• We will transition our Asian contract manufacturing partner to volume

production of our high-reliability fibre couplers in FY2023 establishing a new
low-cost supply source.

• We will assess our more mature products for potential outsource to our

contract manufacturing partner to both reduce the cost of manufacture and
to release capacity within our own in-house production teams.

• We will seek new suppliers to act as a second source where we currently have

sole source dependencies, to reduce the risk in our supply chain.

• We will execute on the energy reduction action plans we have put in place in

each of our sites.

• Adjusted operating

• We will look to generate value creation opportunities, both from revenue and

profit margin

operational cost base synergies.

• Adjusted operating

• We will continue the further development and execution of our acquisition

cash flow

pipeline.

• We will work with sell-side advisors to ensure we are kept informed of

acquisition opportunities that may be a match to our acquisition criteria.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC28 STRATEGIC REPORT

Operations Review
Industrial

Market Drivers
• National security considerations driving in-country
investment in semiconductor and other electronics
manufacturing facilities.

• New more flexible materials in microelectronic

manufacturing.

• Next generation products such as EUV lithography lasers for
nanoelectronics and new design germanium modulators.

• Increasing investment in continental connectivity of data

centres to satisfy growing internet use.

• Greater use of our high-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
16.2% (10.5% excluding foreign exchange) compared to the
prior year. We saw further growth in our industrial laser and
semiconductor revenues thanks to the continuing investment in
additional semiconductor facilities, partially driven by growing
concerns about dependence upon supply from some Asian
sources. The roll out of new technologies such as 5G, along with
greater use of new materials in microelectronic manufacturing,
continue to provide underpinning demand. Demand for our
recently developed germanium acousto-optic modulator product
is very strong. Having completed all development activities on
this product we are now focused on ramping our build capacity.
The outsourcing of ‘runner’ AO Q-switch production to our
South East Asian manufacturing partner has proven successful
with them significantly increasing their output in the final
quarter of the financial year. This is enabling us to more
effectively compete in the increasingly price sensitive Asian
Q-switch market. We are now in the process of outsourcing
some fibre-optic products to supplement the acousto-optic
products already transferred.

Revenue from our sensing markets declined marginally during
the year as a result of the status of the end customer
programmes. 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. We expect the increased
deployment of wind turbines in the US to generate clean energy
to act as the next significant growth driver for our sensing
modules used in this application. In early FY2023 we have
received further significant orders for our sensing modules used
in infrastructure protection and this provides good early visibility
to support the expected revenue growth in this area in FY2023.

Volumes for our high-reliability fibre couplers used in undersea
cable networks remained at the raised level seen in FY2021.
There is strong demand due 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. Our strong customer relationship
with the principal fibre laying companies mean that we are well
placed to maintain or increase our share of a growing market
and the technology demonstration completed with NEC/JAXA
established our credibility as a supplier of modules for
laser-based space communication systems.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

£64.6m

£8.4m

Revenue

Adjusted Operating
Profit

£7.3m

Operating Profit

51.7%

Percentage
of Revenue

2022
2021

£64.6m

£55.6m

2022
2021

£8.4m

£7.1m

2022
2021

£7.3m

£4.5m

2022
2021

51.7%

44.8%

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.

• To bring to the market new products and to ensure that we
remain at the cutting edge of technology in this important
area. During FY2022 G&H introduced six new products in
industrials generating £7.9m of revenue. We have
transitioned into production on a multi-year contract with
a laser system company supplying the next generation of
extreme UV lithography lasers for production of atomic
level nanoelectronics.

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 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC30 STRATEGIC REPORT

Operations Review
Aerospace and Defence

Market Drivers
• A&D is transitioning to photonic components and systems
across a broad range of sub-sectors to secure size, weight,
power and reliability benefits.

• IR optical arrays deliver targeting, range finding, navigation
and surveillance capabilities for the growing UAV market.

• 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.

• Directed energy systems require optical and laser expertise

where G&H excel.

Performance
Our A&D revenues declined by 25.6% during FY2022,
compared with the equivalent period last year, and 29.0% on a
constant currency basis. In the prior year we completed
deliveries of optical sensor systems on several significant
vehicles programmes and our new contract wins have not yet
migrated to the volume production phase. However our order
book for our A&D business is strong, increasing 41.4% on a
constant currency basis during FY2022. We have secured a
significant position on the UK MoD’s Challenger upgrade
programme as well as important new programme wins for our
Boston business.

We are also opening new customer positions for our gimballed
optical arrays from our Keene, NH business in both Europe and
Asia. At the same time the Ukraine conflict is driving an
increase in quoting activity as European nations look to
replenish military vehicle stocks being supplied to the
Ukrainian armed forces.

After recording significant programme revenues in FY2021 on
the NEC/JAXA laser-based communication programme, work
has continued with that customer but at a lower level. The
focus with that customer is now on high power optical amplifiers.
We are also working with another partner on amplifiers for laser
transmitters/receivers that would be integrated in to unmanned
aerial vehicles (UAVs) providing optical communications both
with other UAVs and with the ground. Whilst these projects are
currently still at prototyping stage we are positioning ourselves
strongly with a number of customer primes in a market space
that is expected to develop significantly in the coming few years.

Our teams are also closely engaged on the development of
directed energy systems with a number of prime contractor
customers. G&H’s expertise in coating the large optics that are
positioned at the heart of these systems means that we are
well positioned to secure recurring production revenues once
development activities are complete.

In the commercial aerospace market we have seen some
recovery in volumes following the lows of FY2020 and FY2021.
We believe as we increase our capacity at our Moorpark, CA
facility we will be able to secure a larger share of the
available market.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

£30.6m

Revenue

£(2.7m)

Adjusted Operating
(Loss)/Profit

£(3.4m)

24.5%

Operating
(Loss)/Profit

Percentage
of Revenue

2022
2021

£30.6m

£41.1m

2022
2021

£(2.7m)

£3.1m

2022
2021

£(3.4m)

£0.6m

2022
2021

24.5%

33.1%

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 growing market for laser-based space communications.

Periscopes and sighting systems for land based armoured
fighting vehicles.

Opto-mechanical subsystems for unmanned aerial and
ground vehicles.

Directed energy systems for military platform and
infrastructure defence applications.

Further upgrading of our manufacturing processes and
engineering in order to meet the needs of our customers.
The continued investments made in new surface polishing and
coating equipment for our Precision Optics centres 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 FY2022
G&H introduced thirty-nine new products and generated £6.3m
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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC32 STRATEGIC REPORT

Operations Review
Life Sciences/Biophotonics

Market Drivers
• Strong growth in laser enabled aesthetic procedures

especially from Asia.

• 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 rather than later, more serious treatment of
undetected conditions.

• More point of care and personalised medicine drives demand

for volume diagnostic products.

• New applications for optical coherence technologies.

Performance
Our life sciences/biophotonics revenue grew by 8.2% in the
year to 30 September 2022, compared with the prior year. When
measured at constant currency this represents growth of 5.3%.
Medical diagnostic demand remained broadly flat compared to
the levels seen in FY2021 with new customer programmes
compensating for a reduction in volumes of the product
designed to improve respiratory function as part of a ventilator
system which had benefited particularly from the pandemic.

Our ITL business which serves this medical diagnostic market
secured important new orders from customers seeking our
expertise to productionise medical diagnostic product concepts.
In line with our established business model, we expect a number
of these programmes to migrate to recurring production
revenues once the initial work to develop producible product
has been completed. We have expanded the medical
diagnostics R&D group to meet the demand and we are
exploiting the electronic and mechanical engineering capability
of the ITL team to support other development activities in
G&H’s A&D business sector.

Through ITL’s small sister company in the US we are seeking to
secure additional revenues from the large North American
medical diagnostic market. We have recently opened a new
larger facility for that team which will mean we can better serve
incremental demand from ITL’s North American customers
who frequently prefer product made in the USA.

Demand for our specialist medical laser products, was very
strong in the year both from our established US and European
markets but also more significantly from Asia. Medical lasers
using our components are able to provide new cosmetic
procedures to patients, for example to significantly clear acne
scarring. Volumes increased by just over 10% in the year,
excluding foreign exchange and we project future strong
growth in FY2023 in this area, supported by additional capacity
that we are bringing on line in our Cleveland, OH facility.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

£29.7m

Revenue

£4.0m

Adjusted Operating
Profit

£3.7m

Operating Profit

23.8%

Percentage
of Revenue

2022
2021

£29.7m

£27.4m

2022
2021

£4.0m

£4.2m

2022
2021

£3.7m

£3.5m

2022
2021

23.8%

22.1%

Applications
Optical coherence tomography (OCT) primarily used in retinal
imaging for the diagnosis of glaucoma and macular degeneration,
but also now used in the detection of 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.

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 FY2022 G&H introduced nine new products and
generated £3.7m 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.

Microscopy: Modern, laser-based techniques are
revolutionising the field of microscopy.

Medical diagnostic instruments: 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.

• To invest in new business development and engineering

resources located in our ITL North American facility to secure
a greater share of the large North American medical
diagnostic market.

• 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC34 STRATEGIC REPORT

Financial Review

Revenue

£124.8m

2021: £124.1m

Adjusted Profit
Before Tax

£8.1m

2021: £12.6m

(Loss)/Profit
Before Tax

(£2.3m)

2021: £4.7m

Adjusted Earnings
Per Share

Basic (Losses)/Earnings
Per Share

Adjusted Operating
Cashflow

27.2p

2021: 41.0p

Net
Debt

£19.1m

2021: £9.2m

(8.0)p

2021: 13.6 p

Net Debt Excluding
Lease Liabilities

£12.8m

2021: £2.6m

£6.6m

2021: £21.9m

Dividend

12.6p

2021: 12.2p

Overview of the Year
Despite strong levels of demand seen during the year across all
three of our market segments, the Group encountered significant
constraints in putting in place the capacity needed to deliver on
this record order book, especially in the first half of the financial
year. COVID absences continued to impact our facilities and
there was further tightness in many areas of our supply chain
which meant that we were frequently unable to deliver to our
customers on time and in full. As a result, the Group was unable
to offset from those areas of the business seeing significantly
increasing orders the declines it experienced elsewhere from
some programmes, especially in its A&D markets, coming to an
end. Consequently, whilst revenues increased on the prior year
by 0.6%, on a constant currency basis they declined by 3.7%.

In the second half of the financial year the actions put in place
to increase capacity meant that revenue grew by 21.6% on a
constant currency basis providing a solid platform for further
revenue growth in FY2023.

We saw further 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
revenues declined compared to the prior year given the phasing
of programme deliveries, especially our deliveries of sighting
systems on to armoured vehicles programmes. However, the
year saw the business secure some significant new programmes
in this area most notably in connection with the MoD’s
Challenger upgrade programme.

Our order book stood at £147.7m at the end of the financial
year and intake exceeded revenue by 20.5% in the second half
of the year providing good visibility for future revenue growth.

The decline in A&D volumes combined with our continuing
investment meant that the Group’s adjusted profit before tax
reduced to £8.1m (2021: £12.6m) representing a margin of 6.5%
(2021: 10.2%). Adjusted profit before tax is a key alternative
performance measure by which the Board evaluates the
Group’s performance as it better represents the underlying
trading of the Group with restructuring costs and amortisation
and impairment charges associated with acquired intangible
assets excluded from this measure.

During the year we redefined the cash generating units (CGUs) to
which the Group’s goodwill and other assets are allocated and
their recoverable amounts assessed by references to those CGUs’
future forecast cashflows. This change arose as a result of the
transition of our Operations team from a technology-based
model to a regionally based model. Many of the Group’s support
functions also operate on a regional rather than capability-based
model. The CGUs identified for the financial year were, therefore,
our UK sites, our US sites and our ITL sites given the different
nature of our ITL business from the remainder of the Group.

The non-underlying charges excluded from our adjusted profit
before tax totalled £10.4m. The most significant item related to
an impairment charge of £6.7m taken in respect of goodwill
and acquired intangible asset balances held within our UK Cash

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

The Group’s debt facilities
have been extended to
2027 on favourable terms.”

Generating Unit. This was driven by an increase in the discount
rate applied to future expected cashflows as a result of recent
increases in both the costs of borrowing and the assessment
of market risk. Had the discount rate applied remained the
same as the prior year, no impairment charge would have been
recorded. Further details of alternative performance measures
are provided later in this review. After the impact of adjusting
items the Group’s full year statutory loss before tax was £2.3m
compared with a profit of £4.7m in the prior year.

During the year we have taken steps to invest further amounts
in our strategic safety stocks in order to better protect our
production programmes from the pressures we are currently
seeing in our global supply chains. Given the increased trading
volumes in the final quarter of the financial year our receivable
balance also increased compared to the prior year end and this
has supported strong cash collections in the first period of
trading of the new financial year. Whilst there was some offset
from payables across the year, the Group invested a further
£10.0m in working capital in the financial year (FY2021:
reduction of £0.5m). Investment in our production facilities
continued with total capital investments of £8.6m made in the
year (FY2021: £6.2m). Our net debt excluding lease liabilities
totalled £12.8m (2021: £2.6m) representing leverage of just
0.7x meaning we remain well placed from our debt facilities to
fund our acquisition strategy. We expect the Group’s net debt
levels to reduce across FY2023.

Revenue

Year ended 30 September

£’000

2022

2021

Industrial

A&D

Life Sciences/
Biophotonics

Group Revenue

64,553

51.7% 55,552

44.8%

30,553

24.5% 41,089

33.1%

29,696

23.8% 27,433

22.1%

124,802

100.0% 124,074

100.0%

Revenue for the year totalled £124.8m. Revenues from our
semiconductor and industrial laser markets delivered further
strong growth. Demand for high-reliability fibre couplers also
continued to grow. These were partly offset by minor reductions
in revenues to our sensing markets, although recent programme
wins mean we are well placed to grow our revenues in this
market in the coming financial year.

Our life sciences/biophotonics business delivered year-on-year
growth of 8.2% (5.3% at constant currency). Our medical
diagnostics business declined slightly as COVID driven demand
for our respirator product declined. This was more than offset
by strong demand for our products used in medical lasers
especially for cosmetic applications.

In A&D significant optical system deliveries on several armoured
vehicle programmes completed in the previous financial year

whilst significant deliveries on our newly won programmes do not
commence until the coming financial years. At the same time
our work with NEC/JAXA on laser-based space communication
technologies completed in 2021 and whilst we are now active in
quoting in to new programmes that will build upon the
technology that has now been proven as a result of that work
revenues were not recurring in FY2022.

Operating Profit
Adjusted operating profit was £8.8m compared with £13.3m in
the prior year. Gross margins declined by £2.3m. As noted above,
the principal drivers of the reduction were the completion of
deliveries in the prior year on a number of armoured vehicles
programmes and the consequent decline in revenues in A&D in
FY2022. The teams responsible for delivering these programmes
which require significant engineering and contract
management resource are retained in the business and have
been instrumental in securing significant new contract wins in
FY2022 that will deliver revenue in the coming trading periods.

In FY2021 we also completed our final work on the JAXA/NEC
space communications programme. Whilst laser-based space
communications is an important future growth market for G&H
and we are involved in prospecting for future programmes with
our retained engineering teams, revenues in this area declined
in the period.

At the same time the investments we are making in our Precision
Optics centre of excellence in Ilminster are continuing. This
comprises further state-of-the-art equipment enabling the site
to secure more complex optical assembly work from our
customers. The integration of product lines from the Glenrothes
and St Asaph sites into our Ilminster facility and the consequent
extension of lead times offered to customers mean that the
fruits of this investment have not yet been seen in incremental
revenue. However, the output of the Ilminster site is now
increasing and we are confident that incremental business
will follow as our offered lead times reduce.

The continuing investment in the business was also evident in
our spend on research and development activities. This
increased by £1m, or £0.7m on a constant currency basis. The
majority of this increase was in our US A&D business where we
see good further growth opportunities. The investment helped
in securing a 58% increase in the order book of our Boston
business. The Group’s further investment in its productive
capacity resulted in an increase in its total headcount from 869
at September 2021 to 901 at September 2022.

The Group’s statutory operating loss was £1.6m (2021: profit
£5.4m) after a charge for items excluded from adjusted
operating profit of £10.4m (2021: £7.9m) including £1.2m
(2021: £5.9m) in respect of the Group’s manufacturing
footprint consolidation programme, costs related to the CEO

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

36 STRATEGIC REPORT

Sustained investment is being
made to satisfy record levels of
demand from our customers.”

succession of £0.6m, and £8.6m in respect of the amortisation
and impairment of intangible assets arising on business
acquisitions (2021: £2.1m).

The Group recorded an impairment charge of £6.7m on the
carrying value of its goodwill and other acquired intangible
assets held in respect of its UK CGU. This was as a consequence
of an increase in the Group’s weighted average cost of capital
which has been driven higher by increased costs of borrowing
in the market.

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.

A reconciliation between adjusted profit and statutory profit
is shown below.

Reconciliation of Adjusted Performance Measures

Year ended 30 September

Operating
(loss)/profit

Net finance
costs

Profit
before tax

Taxation

(Losses)/
Earnings per share

Operating
cash flow

2022
£’000

2021
£’000

2022
£’000

2021
£’000

2022
£’000

2021
£’000

2022
£’000

2021
£’000

2022
pence

2021
pence

2022
£’000

2021
£’000

Reported

(1,557) 5,401

(717)

(721)

(2,274) 4,680

264 (1,276)

(8.0p)

13.6p 6,084 16,822

Amortisation of acquired intangible assets

1,903 2,081

Impairment of goodwill and intangible assets

6,726 –

Restructuring and site closure

1,179

5,860

CEO succession

Deferred tax on goodwill

Tax charge arising from restatement of
UK Deferred tax at 25%

613 –

– –

1,903 2,081

(412)

(460)

6.0p

6.5p

6,726 –

(288) –

25.7p –

– –

–

1,179

5,860

(235)

(1,151)

3.8p

18.8p

526

5,102

613 –

– –

(87) –

(695) –

2.0p –

(2.8p) –

127

519

0.5p

2.1p

– –

Adjusted

8,864 13,342

(717)

(721) 8,147 12,621 (1,326) (2,368) 27.2p

41.0p 6,610 21,924

Net Finance Costs
The net underlying interest expense was £0.7m (2021: £0.7m)
reflecting similar levels of average borrowing between the
two years.

Tax
The tax credit for the year was £0.3m (2021: charge £1.3m)
with an underlying tax charge of £1.3m (2021: £2.4m) after
excluding a credit on non-underlying items of £1.6m. This
resulted in an underlying effective tax rate of 16.3% (2021:
18.8%). The reduction in the rate was largely due to the release
of certain provisions held in respect of uncertain items in the
prior year. 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 reduced by 33.7% to 27.2p
(2021: 41.0p), reflecting reduced trading volumes in the year.
Basic earnings per share reduced to a loss of (8.0p) (2021:
13.6p gain). This reduction was due to the impairment charge
recorded against some of the Group’s goodwill balances as well
as the reduced trading volumes.

Cash Generation
Cash flow generated from operating activities was £6.1m,
down from £16.8m in the prior year. During the year the Group
invested £10.0m in additional working capital. This included a
further £5.6m of inventory to help protect the Group’s
production programmes from the current supply chain tightness
and a further £4.4m in the net receivables/payable position
reflecting the higher levels of trading in the final quarter of
FY2022 compared to the same time last year. Cash flows for
tangible and intangible fixed asset additions totalled £8.6m
(2021: £6.2m). The Group continued to invest in production
equipment as well as an upgrade to its ERP systems and a new
Customer Relationship Management system to help with a more
coordinated approach to our engagement with customers
across our global sales team. The payment of dividends in the
year totalled £3.1m. The investment in working capital levels
together with the further additions to the Group’s business
systems and production equipment meant drawings against
the Group’s debt facility increased by $6.4m to $21.3m and the
Group closed the year with net debt of £19.1m (2021: £9.2m),
or £12.8m (2021: £2.6m) when lease liabilities are excluded.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

STRATEGIC REPORT

net debt/adjusted EBITDA was 0.7 times (30 September 2021:
0.1). Interest cover at 30 September 2022 was 24.6 times (30
September 2021: 34.2 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 principal currency
exposure is the USD. The Group hedges expected foreign
currency cash flows wherever possible. Further details of the
Group’s foreign exchange risk management are set out in note
29 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

2022

2021

1.28

1.18

1.37

1.15

Closing rate

1.12

1.14

1.35

1.16

The Group’s revenue is more sensitive to exchange rate
movements than its profit. A one cent change in the average
Dollar exchange rate would have a £0.7m effect on revenue but
less than £0.1m effect on profit. The Group’s results are not
significantly affected by movements in the Euro exchange rate.

Balance Sheet
The Group’s total equity at the end of the year was £118.5m,
an increase of £4.3m over the prior year. This comprised a
decrease of £5.1m from retained earnings, a £0.7m increase to
reserves in relation to share schemes and a net increase of
£8.6m arising from foreign exchange and hedging movements.

During the year, additions to property, plant and equipment
amounted to £6.7m (2021: £5.4m) and to intangible assets
£1.9m (2021: £0.8m).

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 50 to 53. 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 2022, Gooch &
Housego PLC had sufficient distributable reserves to pay
dividends for the foreseeable future. The parent Company
Balance Sheet is set out on page 113.

Given the strength of the Group’s order book and the positive
outlook for the forthcoming trading period the Board is proposing
a final dividend of 7.9 pence per share (FY2021: 7.7p), giving a
total of 12.6 pence per share (FY2021: 12.2p) for the year when
combined with the 4.7 pence per share paid as an interim
dividend in July 2022 (FY2021: 4.5p).

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 2022 the Group had available
undrawn committed and uncommitted facilities of $48.7m.
The Group’s borrowings are in the form of a US$ denominated
Revolving Credit Facility (RCF). The RCF matures in March 2027.
A further summary of the Group’s borrowings and maturities
are set out in note 23 of the Group Financial Statements.

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 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

38 STRATEGIC REPORT

ESG Report

The G&H Board is focused 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 wellbeing of our people

Managing our supply chain

Promoting equality and diversity

Supporting our communities

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

STRATEGIC REPORT

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 have invested 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.

• Our Ilminster facility has a 302 kWp solar PV system

and Voltage Optimisation System.

• Our Ashford facility has a 150 kWp solar PV system

and Voltage Optimisation System.

As a result of these investments, we have the capacity
to generate approximately 750 kWp of electricity from
solar sources.

Environment
We want to support the journey to addressing climate change
and we are working hard to mitigate our own impact on the
environment.

G&H 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 and in the UK all of
our purchased electricity now comes from clean, renewable
sources. 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 and are pleased to report that we are targeting net
zero Scope 1 and 2 emissions by 2035.

We continue to maintain links with other companies within our
sector and seek to learn from them regarding initiatives to
reduce energy consumption. We continue to use the structure
of ISO 50001 – energy management systems – to help us
identify where the greatest reductions in energy use can be
achieved. We are also making good progress at our Ilminster
and Torquay sites in implementing the requirement of
ISO14001 – Environmental Management and expect those two
sites to receive full accreditation in FY2023.

The COVID pandemic had the effect of permanently changing
some of our ways of working and many of these complement
our drive to reduce our impact on the environment. A more
flexible approach to home working and the greater use of
video conferencing to keep our teams connected while working
remotely all contribute in helping to reduce our impact on
the environment.

Our Health & Safety function which is responsible for the
coordination of our actions in the area of environmental
management now has additional resource to support a
consistent approach to the roll out of our Health, Safety and
Environmental policies across the Group and prepare the
business for the wider deployment of ISO 14001 – Environmental
Management – in the coming year. In FY2023 we are also
starting to record our monthly waste metrics and from that
data formulate a reduction plan at each of our sites. The focus
on standardisation 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
40 STRATEGIC REPORT

During FY2022 we conducted internal energy audits at each of our
sites. These audits resulted in a series of actions whereby the site
will not only reduce its energy usage over time but also reduce its
impact on the environment in the near term through the following:

• LED lighting where not already installed.

• Alternative forms of heating.

• The introduction of heat recovery from manufacturing equipment.

• Installing battery systems to harness excess energy generated

from our Solar PV systems.

• Upgrade to equipment with improved energy efficiency.

The sites progress on these energy reduction actions is reviewed
by the executive management team quarterly and is supported
where required with financial investment, for example in LED
lighting where not already installed. 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 Group
by donating items such as computers and printers to the
local community.

27.5%

Reduction in
our carbon
intensity measure

63%

Of group energy purchased
from renewable sources

750kWp

Annual energy production
capacity from solar energy

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Energy Use and Carbon Dioxide Emissions
In reporting our carbon dioxide emissions, we have followed the HM Government
Environmental Reporting Guidelines. We have also followed the Greenhouse Gas
(GHG) Reporting Protocol and the Streamlined Energy and Carbon Reporting (SECR)
guidelines. 2021 Conversion factors have been used for October 2021 to May 2022
inclusively, and 2022 Conversion factors used for June 2022 to September 2022
inclusively. In the US eGrid 2019 Conversion factors have been used for October 2021
to January 2022 inclusively, and eGrid 2020 Conversion factors used for February
2022 to September 2022 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 US
scope 2 purchased electricity. Our reported data is collected from metered sources.

Emissions from activities which the group 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

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

Current reporting year
FY 2022

Comparison reporting year
FY 2021

United
Kingdom

Rest of
World

Total

United
Kingdom

Rest of
World

Total

161

–

161

5,126

2.8

269

430

254

362

616

3,511

3,780

11,940

55.7

3,511

3,941

17,066

31.6

1,090

1,344

5,468

20.4

3,708

4,070

10,977

70.0

4,798

5,414

16,445

43.6

Scope

Reported

Scope 1 – direct GHG emissions

Includes emissions from activities owned or controlled
by G&H that release emissions 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 group’s activities
but are from sources not owned/controlled.

Report includes:
• Emissions from purchased electricity.

The Group achieved a 27.5% reduction in its intensity measure of tCO2 emissions
per £1m of revenue. The installation of solar panels on the roofs of our Ilminster and
Ashford facilities together with the transition of all of our UK sites to purchase their
remaining electricity needs from renewable sources were the principal reasons for
the reduction.

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 43% of our
purchased electricity came from renewable sources but by the end of the financial
year that had increased to 63%.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

42 STRATEGIC REPORT

Task Force on Climate-related Financial Disclosures
We have made significant progress during the financial year in
implementing the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD) in each of the
four thematic areas of governance, strategy, risk management
and targets and metrics. We find the TCFD framework provides
helpful structure in supporting the Group’s integration of
climate-related considerations into our business
considerations and enabling our external communication of
how we are managing identified risks and taking advantage of
climate related opportunities.

Governance
The Board has ultimate accountability for climate-related
issues. It formally reviews climate and environmental risks and
opportunities as part of its Group Risk Review meetings.
Climate-related opportunities are also formally discussed by
the Board as part of its review of the Group’s strategic planning
process.

An update on key environmental and sustainability metrics is
provided at each Board meeting and in depth reviews are
undertaken on at least an annual basis.

Oversight of and decision-making on our environmental
strategy, including addressing risk and identifying Group
opportunities is provided through our regular, scheduled
Executive Management Team meetings which are chaired by
our CEO.

We believe our strategy is resilient to the impact of climate
change. G&H products contribute to a more sustainable world.
Our business model and key photonic capabilities with the size,
weight and power advantages they bring position us to benefit
from the opportunities presented by the global transition to a
low-carbon economy.

During FY2023 we intend to undertake a more detailed
assessment of both physical (climatic impact of higher average
temperatures of 2 degree C warming on our physical
operations) and transition (changes in technology, markets,
policy, regulation, and consumer sentiment resulting from the
transition to a low-carbon economy) risks to our business model

Risk Management
As part of our overall governance and risk management
processes climate-related risks are identified, assessed and
managed.

Our risk assessment, including those related to climate-related
matters, is informed by bottom-up assessments made at a site
and global function level.

Targets and Metrics
The Group reports and discloses its Scope 1 and 2 GHG
emissions as a KPI and has done so since 2021 (see page 18).

The Group has set a target to achieve Net Zero Scope 1 and 2
emissions by 2035 and will invest appropriately to achieve it.

From 2023 the Executive Directors’ short term and long-term
incentive programmes will include measures related to
progress on the Group’s ESG agenda, including climate
related measures.

Each of our sites has prepared an environmental action plan
with deliverables aligned with the Group’s overall
environmental strategy and support the achievement of our
objective to be Net Zero on Scope 1 and 2 emissions by 2035.

Strategy
At G&H we recognise sustainability, climate change and the
environment as a principal risk for the Group in reputation
terms in the event that we fail to appropriately manage the
environmental impact of our operations and our products and
relationships with our stakeholders deteriorate as a result (see
Principal Risks & Uncertainties on page 50).

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

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 work hard to ensure our employees feel connected to and
engaged with the over-arching vision of the Group which is
“A Better World with Photonics”. We strongly believe that
photonics products have a central role to play in building a
more sustainable, healthier world and our business is at the
heart of that transformation.

During the year we have reviewed and refreshed the Values
that we believe are core to enabling us to succeed in our
mission of delivering world class engineering and
manufacturing solutions. Those Values are:

• Customer Focus – delivering excellence to our customers

both internal and external.

• Integrity – we do the right thing. Hard on the issue, fair on the

person and kind to the planet.

• Action – understanding that ‘it is what we do that makes a
difference’. Demonstrating self-motivation, initiative and
determination to achieve this.

• Unity – working together across teams and sites, in the spirit

of collaboration towards a common purpose.

• Precision – in our engineering and our 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 into 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 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 “all-hands” site
meetings as well as internal announcements. Charlie Peppiatt
has visited all of the Group’s principal locations in his first four
weeks with G&H and held face to face meetings with the site
teams. Work councils or employee consultation groups,
comprised of management and elected employee
representatives now operate at all of the G&H UK sites where
the management can listen to representatives’ views and take
them into account when making decisions.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC44 STRATEGIC REPORT

Jim Haynes has been appointed as G&H’s non-executive director
with responsibility for the Board’s engagement with the
workforce. During FY2022, he met with HR representatives at
a number of sites, and now acts as a conduit for employees to
raise matters directly with a Board member if they wish to do so.

misses” so that corrective action can be put in place to prevent
future work place accidents occurring. Our health and safety data
which we benchmark with other firms in our industry sectors
confirms improving trends and best in class performance levels.

We continue to produce 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.

We also publish a 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 Group’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.

As part of our continuous improvement strategy all G&H UK
sites have introduced a new on-boarding programme to
provide additional support structures during an employee’s
first six months with the business. This programme is being
implemented across our US sites in FY2023.

The Group operates an online performance management and
appraisal system which provides opportunity for individual
discussions on training needs and career planning. This year the
system has been updated and relaunched with our managers
receiving further training on the setting of SMART objectives and
how to complete an effective staff appraisal. The Group also
operates a talent management and succession planning process
which has now been updated and incorporated into our online
appraisal system and 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 use an
online learning platform through which a series of training
programmes covering the areas of cyber security, export
legislation awareness and Global Data Protection Regulations
are available.

Ensuring the Wellbeing 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.

We have a range of well-developed operating policies and
procedures in place. These include executive leadership quarterly
reviews in the US and UK, which incorporate key performance
indicators and mitigating action plans where necessary. This
includes a recent initiative to increase the reporting of “near

We understand the value of supporting employees through
mental health challenges. We have trained in-house mental
health first aiders and have continued our active partnering
with the mental health charity MIND.

This is supported by regular refresher training 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 wellbeing.

In the UK we have launched a new health cash plan for our
employees which provides financial reimbursement for costs
associated with everyday healthcare and wellbeing solutions.
This supplements the existing US health insurance schemes
which G&H provides to its employees.

In a very competitive labour market we have tried hard to offer
flexible working arrangements wherever possible as a means
of attracting talent to the Group. Consequently, for many of our
business support roles we offer 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 Group and have
operated a long-service recognition scheme across the Group
for several years. This is in addition to our employee
recognition scheme which rewards employees for significant
contribution to the business.

The average length of service across the Group is 8.3 years,
compared to 7.9 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 10% across the Group in
FY2022, compared to 12% in the 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 Group 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. Through the implementation
of enhanced family-friendly policies, including flexible working
policies we are enhancing our employment offering to our

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

WORKFORCE
(AS AT 30 SEPTEMBER 2022)

Gender distribution

2022: 73.0%
2021: 72.4%

2022: 27.0%
2021: 27.6%

people. Our early year career Apprenticeship (UK) and Internship
(US) programmes have been successful in drawing more talent in to
the Group.

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 are 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 83% male (5 of 6) (83% including the Directors
(10 of 12)). The Group is in the process of recruiting another female
non-executive director to provide further diversity in the composition
of our Board.

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.

2022

2021

6.3

7.9

Average Service (years)

The Group has long-standing relationships with several universities
in the 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 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.

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 56.

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 and the Board. In each instance,
cases are investigated in detail and appropriate action taken.

USA

WORKFORCE
(AS AT 30 SEPTEMBER 2022)

Gender distribution

2022: 68.0%
2021: 68.9%

2022: 32.0%
2021: 31.1 %

Average Service (years)

2022

2021

8.1

8.6

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLCManaging 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
and Anti-Bribery to ensure the supplier adheres to our policies.
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.

STRATEGIC REPORT

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 Group-wide Modern Slavery
Policy and a statement on the steps taken to prevent slavery,
which is available on the Group’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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022S172 Statement

STRATEGIC REPORT

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,
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;

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 terms 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 56.

• Need to foster the company’s business relationships with

suppliers, customers and others;

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 in the ESG Report.

• 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.

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 Group’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:

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLCShareholders
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.

During the year we have hosted a number of visits from
analysts and prospective investors so that we can better
articulate the unique skills and capabilities that the Group has
and its growth potential.

During the year the Chairman consulted widely with Investors
on the appointment of Charlie Peppiatt as our new CEO. In turn
Charlie has met with many of the principal shareholders of the
Group to ensure he has a clear understanding of their views.

Our shareholders have also made it clear how important
Environmental, Social and Governance issues are to them.
As a result of this feedback, the short and long term incentive
schemes for the Executive Directors have been changed.
Half of the personal objective element of their bonus 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 and have put in place
actions that will result in the Group being net neutral on its
Scope 1 and 2 carbon emissions by 2035.

We have also consulted with shareholders on certain
remuneration matters during the course of the year. Further
information is given in the Directors’ Remuneration Report.

During the year, feedback from shareholders was taken into
account when the Board proposed its dividends.

48 STRATEGIC REPORT

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.

The Board is regularly updated on the work of our engineering
teams on out technology roadmaps in which we are frequently
working very closely with our customers’ teams. We invested
£9.2m in R&D focusing on those areas where we see the
opportunity to support our customers’ next generation
product development.

The Board is regularly updated on the timeliness and quality of
product deliveries to our customers. As our order book has
grown and we have struggled during the financial year to add
productive capacity we are very aware that our on-time delivery
performance to our customers has in some cases fallen below
the high standard that we aspire to. We have put in place a series
of measures including increasing our holdings of inventory and
making ourselves more attractive as an employer to assist with
our recruitment of new employees. As a result of these measures
our output is increasing and our on-time performance to our
customers is improving. We maintain regular contact with our
customers to keep them informed of this progress.

Our technology roadmaps are regularly refreshed and we are
agile in adapting our development of new products and systems
for the market to reflect our customers evolving needs. For
example, the conflict in the Ukraine and the increased focus
from some of our customers for replenishment product means
that we have accelerated production of prototypes for use on
next generation military vehicles.

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. Our new CEO visited each of the Group’s principal sites
in his first four weeks with the business and held face to face
meetings with the teams.

Our Values and the Behaviours that we expect from our
employees to support them are regularly reviewed and
refreshed. During the year we took the opportunity to update
them adding the Values of ‘Integrity’ and ‘Action’ in place of
‘Passion’ as it was felt they better represented what is required
for the long-term success of the business.

Jim Haynes, one of the Group’s non-executive directors, is the
Board member with responsibility for workforce engagement.
Jim has held a number of meetings with employee groups
during the year and the feedback from those sessions is used to
make improvements to the sites ways of working as required.

More details of our engagement with our employees and the
results of those engagements are set out in the ESG Report.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022Suppliers
The supply of goods and services to our operations is critical to
our overall success. We review the performance of our
suppliers on a monthly basis and work with them to implement
improvement programmes. During FY2022 we enhanced our
supplier risk assessment process which is used by the Group in
prioritising which suppliers require further support to improve
their performance. We have also added further resource in to
our Supplier Quality Engineer team to increase the number of
suppliers that we physically visit and audit each year.

We now have four G&H team members permanently located
in our Asian contract manufacturing partner’s facility to
ensure we work closely together. We continue to transfer the
production of more products to them including now some of
our fibre-based products. The investment we have made has
helped them to significantly increase their output, especially
in the final quarter of the financial year and we intend to build
further on this relationship in the future. Our two business
systems are well integrated meaning that we can share product
quality and delivery information real time.

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.

STRATEGIC REPORT

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. Our site general
managers each have funding allocated to them 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. More detail on our activities in these
areas is given in our ESG Report.

Where to find
out more

Employees – ESG Report
Investors – Corporate Governance Report
Environment – ESG Report
Society – ESG Report
Long Term Success – Strategic Report

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC50 STRATEGIC REPORT

Principal Risk and Uncertainties

This year, the risk register was presented to, and approved by,
the Board in March 2022 and September 2022. As part of the
risk register approval, the Board also considered emerging
risks which may not yet qualify as principal risks.

The assessment of key risks during the year has identified new
risks in respect of the current high inflationary global
environment and its potential impact on the Group, and
production capacity management. Two key risks identified in the
prior year are no longer included; the effect of the pandemic,
which appears to have abated, and the risk related to the
outsourcing to our Asian contract manufacturing partner,
which is now substantially complete. The Board is satisfied that
the mitigating actions taken in response to the identified risks
are appropriate and will keep this under review. 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.

The Audit Committee has responsibility for reviewing the
effectiveness of the risk management framework and internal
controls and ensures that the Group complies 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 following represent the significant risks identified in the
Group’s risk register.

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 at least 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. 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.

Reporting

Identify
internal and
external
risks

G&H Risk
Management
Framework

Assess
and quantify
risks

Monitor
effectiveness
of mitigation
plans

Manage
and mitigate
risks

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022STRATEGIC REPORT

Change
from FY21

Risk

Mitigation

Production Capacity Management

NEW RISK

One of our key challenges in FY22 was
matching output to demand. We
experienced difficulties due to availability
of labour in a number of our sites, which
affected our ability to recruit to ramp up
production. We also continued to
experience staff absences due to COVID,
particularly in the first half of the financial
year. Whilst we have now seen some of
these challenges abate, we consider this to
be our most significant risk in relation to
achieving our FY23 targets.

A number of key appointments were made in FY22, including a Chief Operating
Officer and new site Directors for two of our sites. The recent streamlining of
the business, with three site closures completed, has reduced complexity.

We have developed a recruitment and retention strategy for all sites and
have added in-house recruiters to our HR teams where most additional
labour is required.

We are monitoring output from our manufacturing partners overseas closely,
and now have a number of staff based full-time in Asia to help with this.

Our sales and operations planning processes are continually being refined to
ensure we are operating as effectively as possible given our demand profile.

Staff Recruitment and Retention

The Group recognises the importance of
retaining and developing its workforce in
order to achieve its strategic objectives.

This is particularly important now when
there is significant competition in global
labour markets

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. We have also
introduced a new on-boarding process for new employees to help new
starters to settle into their new roles.

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.

NEW RISK

Inflation

FY22 has seen high levels of inflation
across the globe. If this inflation persists,
it will continue to have an effect on the
Group’s cost base through increased
staff costs, material costs and overheads,
including power costs.

Our sales team is working to pass on input price increases to customers
where necessary by increasing sales prices.

Our global supply chain team is closely monitoring purchase price variances
to identify price increases from suppliers. The team is focused on achieving
savings.

Our electricity prices in the UK are fixed through to April 2025, which
provides significant mitigation against the risk of higher utility prices driven
by the current uncertain geo-political climate. We also have solar panels
installed on all three of our UK facilities, which reduces our demand.

In the US, our electricity prices are not fixed, but inflation levels there have
not been at the levels seen in the UK. The Group’s gas usage is relatively
insignificant, and not therefore a significant risk.

Order Intake and Global Economic Trends

There is a risk of recession affecting
demand for our products, particularly in the
industrial market.

We have invested in additional capacity in
our Precision Optics businesses, and we
now need to ensure the capacity is utilised
by securing orders.

Orderbook coverage is regularly reviewed in detail.

There are scheduled meetings between our site operations teams and our
business development staff to identify any current unsold capacity.

Continuous improvement initiatives to reduce factory lead times and open
new business opportunities.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

52 STRATEGIC REPORT

Change
from FY21

Risk

Mitigation

Security of materials supply

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 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.

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 54 new products
during FY2022.

The Group also has a continuous improvement plan in place which targets
increased efficiency and lower waste, ultimately aimed at margin
improvement. This, combined with our manufacturing footprint strategy, is
enabling more agile manufacturing, 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.

M&A Strategy

M&A remains a key part of our growth
strategy and we have an in-house team
who identify and review opportunities in
this regard with assistance from an
external consultant where required. There
is a risk that we may not be able to identify
the right acquisition target to enable the
Group’s growth strategy. There is also risk
attached to the performance of
acquisitions that may be completed, and
how they are integrated into the Group.

Regular meetings are held internally to review opportunities
which present themselves and those which are identified by our
in-house team.

Acquisition targets would be subject to full legal, financial,
operational and commercial due diligence prior to acquisition.

G&H has significant experience of integrating acquisitions and
would devote the appropriate resource following any completed
transactions.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

STRATEGIC REPORT

Change
from FY21

Risk

Mitigation

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.

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:

Charlie Peppiatt,
Chief Executive Officer
6 December 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

54 GOVERNANCE

Board of Directors
Executive

Non-Executive

Charlie Peppiatt
Chief Executive Officer

Chris Jewell
Chief Financial Officer

Gary Bullard
Non-Executive Chairman

Appointed 14 September 2022

Appointed 9 September 2019

Appointed 21 February 2018

Charlie joined Gooch & Housego PLC in
September 2022 from TT Electronics PLC
where he was Executive Vice-President
since 2018 when TT acquired Stadium
Group PLC. Charlie was CEO at Stadium,
an AIM listed company, from 2013 until
its acquisition by TT. Previously he was
Vice President of Global Operations
for Laird PLC, a FTSE 250 electronics
company. Charlie has held senior roles
globally in hi-tech businesses supplying
into the medical, telecoms, industrial
and A&D sectors.

Chris has 25 years’ experience working
in senior finance roles in international
engineering and manufacturing
businesses, operating in Europe, North
America and Asia. Prior to joining Gooch
& Housego PLC Chris was Group Director
of Financial Control at TT Electronics
PLC, Senior Vice President of Finance
at Cobham PLC and Finance Director of
MBDA UK. He qualified as a Chartered
Accountant whilst working with Ernst &
Young.

Gary previously held senior management
positions, including sales and marketing
roles, at IBM and BT Group PLC and was
a non-executive director of Chloride
Group PLC and Rotork PLC. Gary most
recently held the position of President of
Logica UK until October 2012 and was a
member of the Executive Committee of
Logica PLC.

Gary is a non-executive director of Spirent
Communications PLC and non-executive
Chair of AFC Energy PLC.

Relevant skills and experience
• Strategy/ Growth
• Leadership and Management
• Operational Excellence
• Supply Chain
• International Business
• Restructuring
• Transformation
• Investor relations
• M&A/Integration
• Manufacturing

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.

Gary is Chair of the Nomination
Committee and a member of the
Remuneration Committee of the
G&H Board.

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 and Defence Sector

Relevant skills and experience
• Strategy/ Growth
• M&A/Financing
• International Business
• Investor Relations
• Manufacturing
• Corporate Governance
• Talent and Succession
• Remuneration Policy Setting
• Technology

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

GOVERNANCE

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.

Brian has also undertaken a number of
interim/consultancy roles and is
currently Deputy CTO of Munich based
Lilium GmbH.

Brian holds an MA (Hons) in Engineering
from Cambridge University and is a Fellow
of the Royal Academy of Engineering.

Brian is the Senior Independent Director.
He is also Chairman of the Remuneration
Committee and a member of the Audit
and Nomination Committees of the
G&H Board.

Relevant skills and experience
• Strategy/ Growth
• International Business
• Aerospace and 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.

Louise is a non-executive director and
Audit Committee chair of AB Dynamics
PLC and the International Foundation for
Aids to Navigation.

Louise holds a bachelor’s degree
in Management Science from the
University of Wales and is a Fellow of the
Institute of Chartered Accountants in
England and Wales.

Louise is Chair of the Audit Committee
and a member of the Remuneration
and Nomination Committees of
the G&H board.

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 Silicon Photonics
start up, Rockley Photonics.

Jim holds a Bachelor’s Degree in Material
Science from the University of Wales.

Jim is a member of the Audit,
Remuneration and Nominations
Committees of the G&H board. Jim
is also the Non-Executive Director
with responsibility for the Board’s
engagement with the workforce.

Relevant skills and experience
• Strategy/ Growth
• Engineering
• Manufacturing Excellence
• International Business
• Operations/Supply Chain
• Product Technology
• Inventory Management
• Outsourcing

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

56 GOVERNANCE

Corporate Governance

Corporate Governance Framework

Board of Directors

Nomination
Committee
Chair Gary Bullard

Members Charlie Peppiatt
Brian Phillipson
Louise Evans
Jim Haynes

Audit
Committee
Chair Louise Evans

Members Brian Phillipson

Jim Haynes

Remuneration
Committee
Chair Brian Phillipson

Workforce
Engagement NED
Jim Haynes

Members Gary Bullard
Louise Evans
Jim Haynes

Chief Executive Officer

Executive Leadership Team

Manufacturing Centre Leadership

Introduction
The Board is accountable to shareholders and is committed to
the highest standards of corporate governance. To this end, the
Group has adopted the UK Corporate Governance Code (2018).
The Code is available to download at www.frc.org.uk.

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.

The Board of Gooch & Housego PLC reviewed its corporate
governance procedures at its September 2022 meeting.
Following the actions taken to ensure full compliance with the
Code in the year ending 30 September 2021, no further actions
were required this year and the Board consider the Group to
have fully complied with the Code during the year ended 30
September 2022.

How we Govern the Group
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 Group’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 54 to 55 and are also available on our website;
www.gandh.com. In addition to these Directors, Mark Webster
served as an executive director until his retirement on 13
September 2022. An executive search is underway for the
recruitment of a fifth, female non-executive director, who we
expect to be appointed in the first half of FY2023.

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 understands and
recognises the benefits that diversity can bring, and our
recruitment partners are briefed on our requirements in
this regard.

Roles and Responsibilities
There is a documented clear division of responsibilities
between the Chairman and the Chief Executive Officer to
ensure that there is a balance of power and authority between
leadership of the Board and executive leadership.

All Directors are entitled to seek independent, professional
advice at the Group’s expense in order to discharge their
responsibilities as Directors. Gooch & Housego PLC maintains
appropriate directors’ and officers’ insurance cover.

External Roles for Directors
The Board reviews the Directors’ external commitments on an
annual basis to ensure they are sufficiently available to enable
them to discharge their responsibilities, particularly if there were
exceptional circumstances that might require additional time
at short notice. The Board is cognisant that the Chairman, Gary
Bullard currently has three non-executive roles, two of which

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

are as Chairman (including G&H). He has assessed his time
commitments and confirmed to the Board that they do not hinder
his ability to discharge his responsibilities as Chairman of G&H.
Gary attended all of the scheduled Gooch & Housego PLC
board meetings during the year and has no other external
commitments other than his Board roles.

Board Activities
Day to day responsibility for the running of the Group 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 Group’s web site.

There are typically eight routine board meetings a year, with
additional meetings held as necessary to consider specific
matters. In FY2022, the Board met twice at the Group’s
Ilminster facility, once at the Torquay facility and once at the
Cleveland, Ohio facility. The remaining meetings were either
held in London or by videoconference. As part of the Board
meeting in Cleveland during the year, the non-executive
Directors also visited our facilities in Boston and Keene. This
gave them a valuable opportunity to gain a deeper
understanding of the Group’s sites and to meet local staff.

Meetings between the non-executive directors, without the
executive directors present are scheduled in the Board’s
annual programme. These meetings are encouraged by the
Chairman and provide the non-executive directors with a forum
in which to share experiences and to discuss wider business
topics, fostering debate in Board and committee meetings and
strengthening working relationships.

The Board has established a procedure for Directors, if deemed
necessary, to take independent professional advice at the
Group’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 manner to allow
Directors to be properly briefed in advance of meetings.

In accordance with best practice, the Chairman addresses the
developmental needs of the Board as a whole, with a view to
further developing its effectiveness as a team, and ensures
that each Director refreshes and updates his or her individuals
skills, knowledge and expertise.

A formal, comprehensive and tailored induction is given to all
non-executive directors following their appointment, including
access to external training courses, visits to key locations
within the Group and meetings with members of the senior
management team.

Brian Phillipson is the Senior Independent Director. His role
includes providing a sounding board for the Chairman and
acting as an intermediary for the non-executive directors, where
necessary. The Board believes that 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.

GOVERNANCE

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

Charlie Peppiatt

1/1

(Appointed 14 September 2022)

Mark Webster

8/8 (Retired as a Director on 13 September 2022 and
ceased employment on 30 September 2022)

Chris Jewell

8/8

Non-executive Directors

Gary Bullard

8/8

Brian Phillipson 8/8

Louise Evans

Jim Haynes

8/8

Maintaining a Dialogue with Shareholders
The Chairman ensures that the Board maintains an appropriate
dialogue with shareholders. During FY2022, the Chairman met
with a number of major shareholders to discuss the Chief
Executive Officer succession plan, and since Charlie’s
appointment, the Chairman has attended further shareholder
meetings to introduce Charlie. Brian Phillipson has also
consulted with major shareholders on certain remuneration
matters during the year.

The Chief Executive Officer and the Chief Financial Officer
regularly meet with institutional investors to discuss strategic
issues and to make presentations on the Group’s results.

In addition to the full and half year results, the Group publishes
Regulatory News Service announcements through the London
Stock Exchange.

The Group’s web site contains an archive of information on the
Group’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 Group, 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.

Jim Haynes was appointed as designated non-executive director
in July 2021. During FY2022, he met with the employee Council
group at our Torquay site, and met with local HR representatives
at our facilities in Boston, Keene and Cleveland. These initial
meetings enabled Jim to make staff aware of his new role and
that they had a direct line of communication to the Board if it
were required. Jim fed back the key themes arising from these
meetings to the Board meetings during the year. During the
coming financial year, Jim will build on this role and attend
meetings in Ilminster, and if possible other sites.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC58 GOVERNANCE

The Board reviews the organisation’s culture to ensure it is
aligned with the Group’s strategy. The Group’s Mission, Vision,
Values and Behaviours have now been refreshed and re-launched
and 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
2022, and was led by the Senior Independent Director Brian
Phillipson, using a formal structured questionnaire. A number
of actions came out of this review, but because of the recent
change of CEO which will naturally change the Board dynamic,
it was agreed to revisit the review around the FY23 half year
when a few more meetings of the new Board have taken place.

In response to the appraisal carried out in FY2021, the Board
held its July meeting at our Cleveland facility in the US. This
also enabled the Non-Executive Directors to visit our facilities
in Boston and Keene to gain a better understanding of those
businesses and also enable them to spend more informal time
together outside of Board meetings.

The Senior Independent Director leads an annual appraisal of
the Chairman’s performance. This review took place during
September 2022, using a formal questionnaire. Brian Phillipson
collated the feedback received and presented initially to the
Chairman and then to the Board.

The Board focuses on formulation of strategy, management of
effective business controls and review of business performance.
The Board is specifically responsible for the approval of annual
and interim results and interim management statements,
acquisitions and disposals, major capital expenditure, borrowings,
director and company secretary appointments and removals,
any material litigation, strategic forecasting and major
development projects.

A framework of delegated authorities is in place that details the
structure of delegation below Board level and includes matters
reserved for the Board.

Board Committees
The Board has established a number of committees to assist in
the discharge of its duties. The formal terms of reference for
the principal committees can be found on the Group’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.

A search for an additional non-executive Director is underway

and we expect to make the appointment in the first half of
FY2023. We intend to establish an ESG Committee of the
Board in FY2023, which will be chaired by the newly
appointed Director.

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
reviewed at the March 2022 meeting following which a number
of changes were agreed. The risk register was duly updated,
presented and approved at the September 2022 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 Group’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 Group’s performance, business
model and strategy.

The Group does not have an internal audit department. As
reported last year an updated control framework was rolled out
in the year ended 30 September 2021. This year, finance staff
independent of the site being visited, have performed detailed
testing against this framework. The results of this work were
summarised and presented to the Audit Committee in
September 2022.

Annual budgets and strategic plans are prepared for each
business unit. 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 Group 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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022Directors’ Report

GOVERNANCE

The Directors present their report together with the audited
consolidated financial statements for the year ended 30
September 2022. The Directors who held office during the year
and up to the date of this report are shown on pages 54 to 55.
In addition, Mark Webster served as an Executive Director until
his retirement on 13 September 2022.

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.

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.

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 18.

Dividends
During the year ended 30 September 2022 a final dividend of
7.7p per share was paid for the previous financial year. An
interim dividend of 4.7p was paid for the half year ended 31
March 2022 (2021: 4.5p).

All balances not immediately required for group operations are
placed on short-term deposit with leading international highly
rated financial institutions.

At a transactional level, the Group seeks to offset its exposure
to foreign exchange movements by contracting with significant
supply partners in US Dollars and undertakes regular financial
reviews to assess whether it would be appropriate for the
Group to enter into currency hedging contracts to mitigate the
currency risk. During the year, the Group also entered into
contracts to sell US Dollars at specific rates in the future.
Further details are given in Note 29 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.

For the year ended 30 September 2022, the Directors have
proposed a final dividend of 7.9p per share (2021: 7.7p).

Further information on financial risk is given in note 29 to the
financial statements.

Substantial Shareholdings
As at 15 November 2022, the following shareholders had
notified the Company that they held an interest in 3% or more
of its issued ordinary share capital:

Shareholder

Octopus Investments

Invesco

Investec Group

abdrn plc

Canaccord Genuity Group Inc

BlackRock Inc

Fidelity Worldwide Investment

Charles Stanley Group

Bangarra Group

Number

% holding

3,095,334

3,003,853

1,645,478

1,515,615

1,500,023

1,353,187

942,722

902,754

833,601

12.36%

12.00%

6.57%

6.05%

5.99%

5.40%

3.76%

3.61%

3.33%

Save for these interests, the Directors have not been notified
that any person is directly or indirectly interested in 3% or
more of the issued ordinary share capital of the Company.

Treasury Policies
The Group’s treasury policies are designed to manage financial
risk to the Group that arises from operating in a number of
foreign currencies and to maximise interest income on cash
deposits, whilst maintaining the security of these deposits. As
an international group of companies, the main exposure is in
respect of foreign currency risk on the trading transactions

Research and Development
The Group has a continuing commitment to a high level of
research and development and invested £9.2m in R&D in the
year ended 30 September 2022 (2021: £7.9m). 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.

Statement of Employment of Disabled Persons
We aim to create a work environment that allows equal
opportunities so our people are employed fairly, safely and in
compliance with applicable employment laws and regulation.
We respect each person for who they are and what they can
contribute, regardless of disability, physical or mental health,
age, race, origin, gender, sexual orientation, political views,
religion, marital status or any other legally protected status.

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 Group also purchased and maintained throughout
the financial year Directors’ and Officers’ liability insurance in
respect of itself and its Directors.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

audit information and to establish that the group and parent
company’s auditors are aware of that information.

Stakeholder Engagement
The ways in which we have engaged with our stakeholders in
the year are set out in our S172 Statement and our ESG Report.

Going Concern
The Directors have reviewed the current financial forecasts
for FY2023 and FY2024. They have assessed the future
funding requirements of the Group and compared them
with available borrowing facilities. They have also reviewed
forecast performance against our banking covenants. Details
of the financial and liquidity positions of the Group are given
on page 37.

At 30 September 2022 the Group has a strong balance sheet
with net current assets of £53.5m. The Group’s cash and
undrawn committed and uncommitted facilities totalled £43.7m.

The Directors have reviewed severe but plausible scenarios that
estimate the potential impact of the principal risks that the
Group faces (see pages 50 to 53 of this report) on the financial
forecasts. These include the impact of a possible recession 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 impact of delays to our production ramp up,
the impact of inflation on input costs which cannot be passed
on to customers, the potential impact of a cyber-attack and a
reduction in forecast revenue to illustrate the potential effect of
a loss of key personnel or inability to hire for a key role. The
model also considered the loss of revenue and profit associated
with a closure of one of our sites due to a legal non-compliance
issue. This assessment covered not only the coming 12 month
period but also for the period to September 2025 in order to
support the Viability Statement given below.

We have compared the downside risk adjusted cash projections
and covenant performance 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.

60 GOVERNANCE

Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.

Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group and Company financial statements in
accordance with UK-adopted international accounting standards.

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 UK-adopted International Accounting

Standards 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.

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 Group’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:

• so far as the director is aware, there is no relevant audit

information of which the group and company’s auditors are
unaware; and

• they have taken all the steps that they ought to have taken as
a director in order to make themselves aware of any relevant

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022GOVERNANCE

Viability Statement
The directors have also assessed the viability and long-term
prospects of the Group for the period to September 2025
taking into account the Group’s current position and the
potential impact of the principal risk and uncertainties set out
on pages 50 to 53 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 focusing on diversification in to attractive adjacent
markets with our sub assembly and systems capabilities,
thereby reducing the Group’s dependency upon the industrial
laser market and by creating differentiated products and
capabilities through our R&D investment we are making the
Group sustainable for the long term. The Group’s geographical
and sector diversification helps to reduce the impact of many
of the risks that the Group faces. Furthermore, the Group’s
revenue is not overly concentrated with any particular
customers or markets.

We have determined that the period to September 2025
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. 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 2025.

Approved and signed on behalf of the Board of Directors by:

Charlie Peppiatt
Director
6 December 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
62 GOVERNANCE

Audit Committee Report

Membership
The Audit Committee is chaired by Louise Evans, a Chartered
Accountant with significant recent experience in senior finance
roles, and who the Board are therefore satisfied has recent and
relevant experience. The Committee comprises Louise Evans,
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

Brian Phillipson

Jim Haynes

3/3

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. During 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 Group’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 Group’s financial reporting,
internal control policies and procedures for the identification,
assessment and reporting of risk;

• Internal controls testing and verification;

• 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 Group’s performance, business
model and strategy;

• Considering and making recommendations to the Board as to
the appointment, reappointment or removal of the external
auditors and the approval of their remuneration and terms of
engagement;

• Assessing the external auditors’ independence and objectivity

and the effectiveness of the audit process;

• Reviewing the policy on the engagement of the external

auditors to supply non-audit services.

Financial Reporting
During the year, the Audit Committee reviewed the
appropriateness of the Group’s interim and full year financial
statements, including the consideration of significant financial
reporting judgements made by management taking into
account reports from management and the external auditors.
The main areas of focus considered by the Committee during
the year were as follows:

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
GOVERNANCE

Area of focus

Conclusion

Going Concern

The Committee reviewed management’s
going concern assessment and
viability statements.

The Committee reviewed management’s funding forecasts and the stress testing that had
been performed on them, based upon the Group’s principal risks and uncertainties. The
Committee concluded that it was appropriate that the financial statements were prepared
on a going concern basis and that a viability statement confirming that there is a reasonable
expectation that the Group will have adequate resources to continue in operation over the
period to September 2025 could be included in the Annual Report.

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 has reviewed the rationale for the change of CGUs from a technology basis
to a geographical basis in the year, and is satisfied that the change is appropriate and
reflective of the way in which management runs the business.

The Committee has reviewed the value in use calculations prepared by management with a
particular focus on the UK cash generating unit. Having satisfied itself that the assumptions
made in the model were appropriate and reasonable, the Committee agreed that the
impairment charge of £6.7m was necessary and is satisfied that the remaining carrying
values of the CGUs are supported.

The Committee has reviewed the sensitivity disclosures in note 18 and concluded that
they are appropriate.

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.

Inventories

The Committee considered the procedures in place to monitor both the stage of completion
and the outturn profitability of long term contracts within the Group. It also reviewed the
procedures in place for the correct segregation of costs between contracts.

After careful consideration the Committee concluded that the judgements and estimates
made in this regard were reasonable.

The Committee reviewed management’s
estimates in relation to inventory valuation
and obsolescence.

The Committee reviewed the level of inventory at the year end, which has
increased in the year, noting the additional safety stocks being held due to
current supply chain challenges.

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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
64

GOVERNANCE

Area of focus

Conclusion

Financial Systems, Policies and Controls

The Committee reviewed the results of the internal controls testing conducted during the
year. The Committee noted the areas requiring improvement identified by the testing and
were satisfied that an appropriate plan is in place to do so.

Fair, balanced understandable and comprehensive reporting

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 2022.

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.

External Auditors
Under its terms of reference, the Committee is responsible for
assessing the scope, fee, objectivity and effectiveness of
external audits and for making a recommendation to the Board
regarding the appointment, reappointment or removal of the
auditors on an annual basis.

The Group appointed Grant Thornton to provide its global tax
services during the year ended 30 September 2021 in
response to the FRC’s Revised Ethical Standard 2019 which
prevents auditors of AIM listed businesses such as G&H from
providing non-audit services to those businesses.

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
PwC 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

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

Louise Evans
Chair of the Audit Committee
6 December 2022

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
Nomination Committee Report

GOVERNANCE

The Nomination Committee, which consists of the Chairman,
all Non-Executive Directors and the Chief Executive Officer, is
responsible for the composition of the Board, and other senior
management matters.

Role of the Committee
• Reviews the composition of the Board and its committees.

• Considers succession planning for Directors and other senior
executives and in doing this considers diversity, experience,
knowledge and skills.

• Identifies and recommends for Board approval suitable

candidates to be appointed to the Board.

• Considers the gender balance of those in senior management

and their direct reports.

Areas of Focus for the Nomination Committee During FY2022
• Appointment of a new Chief Operating Officer based in the USA.

• Appointment of a new Chief Executive Officer following the

retirement of Mark Webster in September 2022.

• The Nomination Committee has reviewed Board level diversity
and succession, and decided to recruit a female Non-Executive
Director. It is planned that she will join the Remuneration
Committee on appointment and take over as Chair of the
Committee on Brian Phillipson’s departure from the Board,
expected in 2024.

• 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.

Appointment Processes
The Committee determined that a priority was to appoint a Chief
Operating Officer (COO) to oversee the group’s manufacturing
and supply chain activities. Ideally this role would be based in
the USA, given the majority of our manufacturing locations are
based there, and the planned retirement of some of our more
senior USA based management. As part of the appointments
process, the Committee determined the selection criteria for
the COO role and worked with Korn Ferry, an external search
agency, who drew up a diverse list of candidates from a range
of industries and backgrounds for initial appraisal by the
Committee. From this, a shortlist of suitable candidates were
interviewed and John Andzulis was appointed, based in Boston.
The former COO had been an Executive Director and the Board
is keeping this option under review but at the current time the
best option is to have the COO as a regular Board attendee
rather than as an Executive Director.

The Committee were also aware that the Chief Executive
Officer (CEO), Mark Webster, was considering retirement after
ten years with the group, and eight as CEO. The Committee
determined that we should start this process after the COO
appointment had been completed and with a view to enabling
an orderly and effective handover on Mark’s retirement. Korn
Ferry were appointed and the Committee worked with them to
determine the selection criteria for the CEO role. Korn Ferry
drew up a diverse list of suitable candidates for interview by
the Board and approval by our Nominated Advisor, Investec.
Following this, the Committee recommended to the Board,
which duly approved, the appointment of Charlie Peppiatt who
joined the board on 14 September 2022.

The Committee determined that with only a single female
representative on the Board, we did not have sufficient diversity
and determined that we should appoint an additional female
Non-Executive Director as soon as one could be identified, ideally
by the next AGM. The Committee was also cognisant that Brian
Phillipson would reach 9 years of service during 2024 and
after this time would no longer be regarded as independent or
able to serve as Remuneration Committee Chair. This new
Non-Executive Director would therefore be selected with a
view to her becoming the next Remuneration Committee Chair,
including allowing time for her to serve for a year as a
Remuneration Committee member as is recommended under
good governance principles. Warren Partners have been
selected to conduct the search and have drawn up a specification.
At the time of writing this report they are drawing up a shortlist
of suitable female candidates, specifically ensuring they are
also from a range of ethnic backgrounds.

Membership and Attendance at Meetings Held in FY2022

Non-executive Directors

Gary Bullard

Brian Phillipson

Louise Evans

Jim Haynes

Executive Directors

Charlie Peppiatt

Mark Webster

2/2

1/1

1/2

(Appointed 14 September 2022)

(Resigned 13 September 2022)

Approval

Gary Bullard
Chairman of the Nomination Committee
6 December 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC66 GOVERNANCE

Remuneration Committee
Report

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 of the non–executive directors.

Although not a member of the committee, the Chief Executive
Officer submits a report outlining proposals and is usually
invited 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, as has been the case this year, with the CEO change
and recent shareholder consultations.

The Committee is being advised by FIT Remuneration
Consultants LLP in relation to this to ensure that our new
scheme reflects best and market practice. We will also take
account of feedback received from shareholders.

We committed last year to add ESG targets to our LTIP scheme
and accordingly are proposing to introduce ESG targets
making up 10% of our LTIP award value effective for grants
made in January 2023 and thereafter. The ESG targets agreed
by the Committee are as follows:

• Achievement to our plan to achieve Net Zero on Scope 1 and

2 emissions as disclosed earlier in this Annual Report;

• Achieving specific shorter-term targets for emission

reductions over the next three years;

• Ensuring that G&H is a safe, engaging, diverse and inclusive

place of work for the Group’s employees and all stakeholders,
to the satisfaction of the Board; and

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.

• Maintaining full compliance with the UK Corporate

Governance Code.

Achievement of all of these targets will be required for full
vesting of this element of the award.

Attendance at meetings held in FY2022

Brian Phillipson (Chairman)

Gary Bullard

Louise Evans

Jim Haynes

3/3

Introduction
The Group had a challenging year in FY2022 with adjusted
profit before tax down 35.4% on FY2021 due to a combination
of factors as outlined earlier in the Annual Report. This meant
that none of the financial elements of the Executive Directors’
short or long term incentive plans were achieved, although as
set out below, good progress was made in respect of the CFO’s
personal objectives element of the annual bonus award.

The Committee continues to base our remuneration policy on
high standards of external regulation and expectations, and the
needs of the business. We have reviewed our policy during the
year and in November 2022 undertook a consultation with our
major shareholders representing over 60% of our total
ownership on certain items set out below. The shareholders
who responded were supportive of the proposals.

Gooch & Housego Long Term Incentive Plan
As the Gooch & Housego Long Term Incentive Plan (LTIP),
adopted in April 2013, is nearing the end of its ten-year life, a new
LTIP will be adopted in the year ending 30 September 2023.

The Committee has again considered adoption of relative
rather than absolute TSR vesting targets, which we know would
be welcomed by some but not all investors. However, the
Committee has concluded that the difficulties in identifying a
suitable peer group, combined with current market volatility,
would make such a change difficult for the January 2023
awards. However, we will consider this issue further as part of
the design of our new scheme next year but note that we have
reduced the significance of TSR from 60% to 50% via
introduction of the ESG targets. The 15% annual growth target
for full vesting of this element of the award remains.

EPS will continue to form the basis for the target over the
remaining 40% of the 2023 LTIPs and the annual growth
target of 15% remains for full vesting.

Executive Director Salary Review
The Committee reviewed the remuneration package of the Chief
Financial Officer during the year. Since joining the Group, Chris
Jewell has delivered a number of very significant achievements
and established himself as a key member of the Board. Noting
Chris’ performance in the role, and noting that it has been over
three years since his appointment, the Committee has agreed
to move his package to market levels (based on an analysis of
CFOs in businesses of a similar size and complexity). This has
resulted in an increase to his base salary of 7.5%, taking his
basic pay to £285,000, with effect from 1 January 2023, and his

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022GOVERNANCE

annual LTIP entitlement from 110% of salary to 120% of salary,
which is in line with the Chief Executive Officer’s entitlement.
Major shareholders were consulted in the changes and those
which responded confirmed support.

FY2022 Executive Bonus
In respect of the annual bonus for FY2022, while the EPS and
cash flow targets were missed, the Committee assessed
performance against personal targets for Chris Jewell at 17%
out of 20% of his bonus potential, based on achievement of the
agreed targets excepting only that for inventory turns, where
pressures during the year had driven lower levels than targeted.
The Committee discussed at length whether it was appropriate
to pay this bonus given the financial results for the year.
However, the Committee believes that the bonus was designed
to encourage a specific focus on non-financial process and
system improvements and should therefore reward Chris’
achievements. The Committee decided to award Chris his
earned bonus, net of tax, for the purchase of Gooch & Housego
ordinary shares, which will be subject to the same holding
restrictions as a vested LTIP award and this will provide some
element of retention incentive by contributing towards his
minimum shareholding requirements. As Mark Webster retired
as a Director on 13 September 2022, he was deemed not to be
eligible for a bonus in the year ended 30 September 2022.

Other key areas of focus for the Remuneration Committee
during the year were as follows:

Chief Executive Officer Succession
The Committee approved Charlie Peppiatt’s remuneration
package prior to his appointment as Chief Executive Officer on
14 September 2022 in line with our remuneration policy. His
base salary is £385,000 and he is entitled to 6% employer
pension contribution, which is in line with the general workforce
scheme. He is also entitled to a car allowance of £10,000 per
annum, and is eligible to receive an annual performance
related bonus of up to 100% of basic salary. In addition to this,
he will receive annual long-term incentive grants equivalent to
120% of basic salary. In his first year, Charlie will be granted an
additional LTIP award of 100% of salary which recognises him
sacrificing the opportunity of awards from his previous
employer and alternative employment opportunities he was
considering before agreeing to join G&H. This takes his initial
LTIP grant to a total of 220% of salary.

The Board is convinced that Charlie brings to the Group the
skills we need for the challenges and opportunities we face.
The remuneration package was benchmarked against several
industry surveys and will not be subject to further review until
January 2024. Our decisions also considered the level of
remuneration from Charlie’s previous employer, and his level
of previous experience having already served as a listed
company CEO. The Committee is comfortable that the agreed
remuneration package is consistent with 2022/2023 salary
levels for AIM companies of our size and complexity.

Mark Webster retired from the Board on 13 September 2022
and ceased employment on 30 September 2022. He was paid
an amount equal to one year’s salary and pension contributions
of £366,000 in lieu of his notice period in October 2022. The
Committee and the Board decided that this was appropriate and

did provide the opportunity for us to engage the skills of the
new CEO without delay, and to achieve a ‘clean’ handover at the
start of our new fiscal year. In accordance with our good leaver
provisions, Mark will retain his LTIP awards, which will vest at
the normal time, subject to time pro-rating and the extent to
which the performance conditions are met. Mark’s SAYE
options lapsed upon retirement and his contributions to this
scheme were refunded.

Remuneration and Retention of the Wider Workforce
The Committee has reviewed the remuneration policies
applicable to the wider workforce and is cognisant that current
high levels of inflation in both the UK and the US tend to affect
our lower paid employees more severely than those on higher
incomes. The Committee also noted the difficulty we have
experienced in recruiting and retaining staff in our production
facilities during the year.

During FY2022 we implemented adjustments to increase pay
rates for our lower paid factory-based employees especially in
our Fremont, Moorpark and Boston facilities, with increases for
the lowest paid operators of up to 13%. In October 2022, we
made one-off cost of living payments to approximately 80% of
the global workforce (excluding 20% who are relatively higher
paid). These were typically £500 or $650 for US employees.

The Group has budgeted for an average wage bill increase of
5.2% for FY2023, and salary increases will take effect from
January 2023. This follows increases in January 2022 which
were generally around 3%, but in some sites were up to 5.25%
where local market conditions necessitated this. We have also
increased starting salaries in some sites for new recruits. By
comparison, the Jan 2021 increases were typically 1.5% - 2%.

The Committee has reviewed the remuneration of the senior
management team in the year, including the level of their
awards under the LTIP. A key aim of this review continues to
be ensuring there is an appropriate alignment between the
remuneration of Directors and that of the senior management
team. The Committee is satisfied that this is the case.

We have also sought to address retention concerns by seeking
opportunities to tie employees into the longer-term growth of
the business. We have all employee share schemes in the UK
and the US, and have extended our LTIP programme beyond
the senior leadership to include many of the senior
management team.

The Committee 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 Group values and strategy and is fully in line with
external governance requirements and expectations.

The Committee values all feedback from shareholders and
hopes to receive your support at the forthcoming AGM.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC68 GOVERNANCE

Remuneration Policy Table
The table below summarises our policy for FY2022 and the planned changes for FY2023:

Element of
remuneration

Purpose and link
to strategy

FY2022
Policy and approach

Opportunity

FY2023
Policy and approach

Base salary increases
are applied in line
with the outcome of
the annual review

The Remuneration Committee
approved a 7.5% increase to
Chris Jewell’s salary effective
from 1 January 2023, as set out
earlier in this report.

Due the recent appointment
of Charlie Peppiatt, the first
review of his salary will take
effect from 1 January 2024.

Maximum of 100% of
base salary

No change proposed for
FY2023.

Base
Salary

Takes into account
experience and
personal contribution
to the Group’s strategy

Attracts and retains
executives of the
quality required to
deliver the Group’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 Group performance

• General pay increases across the

wider workforce are also taken into
consideration

• Where the Group considers it

appropriate and necessary, larger
increases may be awarded in
exceptional circumstances

• Awarded annually

• Based on broad performance

measures

• Up to 60% payable for exceeding
target EPS by 10%. Nil if not met

• 20% of bonus payable for achieving
target operating cash flow. Nil if not
met.

• Up to 20% of bonus payable for

achievement of personal objectives
of which half are linked to ESG
metrics.

Pension Provide employees

with market
competitive
pension scheme

• Defined contribution personal

pension plan

6% of base salary
from 1 October 2023.

• Group contributed 10% of salary
for Directors appointed prior to
1 October 2018. For Directors
appointed thereafter, the Group
contributes 6% of salary.

The Committee keeps
the benefit policy and
benefit levels under
regular review

Following the retirement of
Mark Webster and the
appointment of Charlie Peppiatt
as CEO, all Executive Directors
are now entitled to employer
pension contributions equal to
6% of salary, which is in line
with the wider workforce.

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 Group over
a period of 5 years.

• Awards may vest pro rata following

retirement.

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
where an exceptional
case may arise (e.g.
on recruitment).

FY2023 awards will have the
TSR element of the vesting
criteria reduced from 60%
to 50%. This will enable the
introduction of ESG targets
accounting for 10% of the
vesting criteria. EPS targets
will continue to account for
remaining 40% of the targets.

The Remuneration Committee
approved an increase in the
CFO’s annual award entitlement
to 120% of salary for FY23, and
a one-off recruitment award of
100% for the new CEO.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022GOVERNANCE

Directors’ Remuneration (Audited)

2022

Basic pay

Performance
Related Bonus

£’000

Benefits
in kind

£’000

Pension
contribution

£’000

Sub-total
2022

£’000

Total fixed
remuneration

Total variable
remuneration

£’000

Executive
M Webster1
C Jewell
C Peppiatt2

Non-executive

G Bullard

B Phillipson

L Evans

J Haynes

2021

Executive

M Webster

C Jewell

Non-executive

G Bullard

B Phillipson

L Evans
J Haynes 3
Dr P Bordui 4

345

268

858

–

358

332

935

358

289

892

–

Basic pay

£’000

Performance
Related Bonus

£’000

Benefits
in kind

£’000

Pension
contribution

£’000

Sub-total
2021

£’000

Total fixed
remuneration

Total variable
remuneration

£’000

353

262

832

312

239

–

551

–

679

519

1,415

367

280

864

312

239

–

551

The above disclosure has been audited.

1 Mark Webster retired as Director of the Company on 13 September 2022, but
remained in employment until 30 September 2022. The table above includes
his remuneration for the period to 13 September 2022.

2 Charlie Peppiatt was appointed on 14 September 2022.

3 Jim Haynes was appointed on 12 February 2021.

4 Peter Bordui retired on 24 February 2021.

Compensation of loss of office
Mark Webster was paid compensation for loss of office equivalent to one year’s base
salary and company pension contributions of £366,000 in October 2022.

Remuneration
Executive Directors are paid a base salary together with annual bonus payments based
on the achievement of Group profitability, cash and personal operational and ESG
related 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 Board as well as the Audit, Nomination and Remuneration committees.
Further payments may be made in respect of additional services provided at the
request of the Group. No such further payments were made in FY2022 or FY2021.

Benefits (Audited)
Executive Directors receive private health insurance, life assurance and long-term
disability insurance.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
70 GOVERNANCE

2022 Performance-related Bonuses (Audited)
Bonuses in 2022 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

43.5p

£20.1m

47.9p

£20.1m

60%

20%

29.6p

£6.6m

%
bonus
awarded

–

Neither the EPS target nor the cash flow target were met during the year.

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 focused 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

• Define and implement the first stage of the Group’s ESG

policies and activities plan.

• Implement planned organisational changes due to retirements,

promotions and strategic manufacturing changes.

• Deliver on identified budget opportunities including putting
in place the appropriate engineering, design and operational
resources. This includes specific product opportunities,
capacity initiatives including outsourcing and site profit
improvement plans.

• Renew the Group’s credit facility, reflecting the preferred
capital structure of the Group to assist it to deliver on its
strategic objectives.

• Increase inventory turns.

• Implement an internal audit programme for the Group.

The view of the Remuneration Committee is that good progress was made against
the objectives set. Specifically the Committee noted that while the targeted inventory
turns had not been achieved, the other objectives had been delivered fully. Following
due discussion at the October 2022 Remuneration Committee meeting and after
consultation with the Company’s major shareholders, the Committee approved
achievement levels of 17% out of the maximum 20% of the bonus for Chris. The
after-tax amount of the bonus will be paid to Chris for the purchase of Gooch & Housego
ordinary shares in December 2022 and these shares will be subject to the same
holding provisions as would apply to vested LTIP awards.

As Mark Webster retired as a Director on 13 September 2022 and ceased employment
on 30 September 2022, he was deemed not to be eligible for a bonus in the year
ended 30 September 2022.

Directors’ Pension Arrangements (Audited)
The rate of Group pension contributions for executive directors appointed after 1
October 2019 is 6%. The policy is therefore in line with the UK Corporate Governance
Code 2018 which recommends that contribution rates for executive directors, or
payments in lieu thereof, should be aligned with those available to the workforce.

During the year the Group 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 (2021: 1). Mark Webster was entitled to Group
pension contributions of 10% of his basic salary, although he sacrificed this entitlement
for an increase in salary of the same amount. Charlie Peppiatt is currently entitled to
Group pension contributions of 6% of his basic salary, although he sacrificed this
entitlement for an increase in salary of the same amount. Chris Jewell is entitled to
Group 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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
GOVERNANCE

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 Group.

Long Term Incentive Plan (Audited)
There were no exercises under the Long Term Incentive Plan by the Directors in
either the year ended 30 September 2021 or 30 September 2022.

Director Shareholdings (Audited)
The Directors’ beneficial interests in the issued ordinary share capital of the
Company were as follows:

Executive Directors

Charlie Peppiatt

Chris Jewell

Mark Webster*

Non-executive Directors

Gary Bullard

Brian Phillipson

Louise Evans

Jim Haynes

Number of shares at
30 September 2022

% of salary
As at 30 September 2022

Number of shares at
30 September 2021

% of salary
As at 30 September 2021

–

1,278

N/A

22,567

3,460

473

–

N/A

–

N/A

1,278

36,366

11,572

1,954

473

–

N/A

140%

N/A

* Mark Webster retired as a Director on 13 September 2022.

Shareholding Guidelines
Executive Directors are required to maintain a qualifying interest in the ordinary
shares of the Company. The Chief Executive Officer and the Chief Financial Officer
are required to hold 200% and 100% of salary respectively in G&H shares, a holding
which will be built up through shares vesting under the LTIP over time. The Directors
are not now permitted to sell shares vesting under the LTIP unless the specified
shareholding has been achieved, other than sale of shares to satisfy tax obligations.

Executive Directors are required 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 does not
apply to shares already held by Executive Directors on appointment, any shares
vesting in relation to the LTIP granted prior to 30 September 2021, or those
purchased by Directors.

It should be noted that the shares purchased via the Bonus scheme for Chris Jewell
this year will not be considered to be a personal purchase and therefore will not be
excepted from the holding requirements.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
72 GOVERNANCE

The Gooch & Housego 2013 Long Term Incentive Plan (Audited)
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 Group 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

01.10.2021

Awarded

in year

Exercised

in year

Lapsed

30.09.2022

Number of ordinary shares under option

08.01.2019

13.01.2020

07.01.2021

13.01.2020

07.01.2021

03.01.2022

26,676

29,942

32,835

21,890

–

35,021

37,867

22,839

18,686

–

24,360

–

(26,676)

–

(12,622)

–

29,942

32,835

21,890

35,021

25,245

22,839

18,686

24,360

Expiry

Date

08.01.2023

13.01.2024

07.01.2025

07.01.2024

13.01.2025

13.01.2024

07.01.2025

07.01.2024

13.01.2025

Executive

M Webster

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.

As noted above, the current LTIP scheme does not permit further grants after April 2023
and therefore a new scheme will be defined during 2023. FIT is currently assisting with
the drafting of the new scheme which the Committee aims to finalise by September 2023.

The Gooch & Housego PLC Save As You Earn Scheme (Audited)
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. There were no grants of options under the
SAYE scheme during the year ended 30 September 2022.

Date of

grant

01.10.2021

Awarded

in year

Exercised

in year

Lapsed

30.09.2022

Expiry

Date

Number of ordinary shares under option

Executive

M Webster

26.03.2021

C Jewell

26.03.2021

310

–

(310)

–

26.03.2025

–

310

26.03.2025

During the year ended 30 September 2022, £743,000 (2021: £735,000) was charged to
the income statement in respect of the IFRS 2 share-based payments charge on all share
option schemes and a credit of £17,000 (2021: debit £25,000) in respect of employer’s
national insurance contributions, based on a year end share price of £5.75 (2021: £12.60).

Brian Phillipson
Chairman of the Remuneration Committee
6 December 2022

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
Independent Auditors’ Report
to the Members of Gooch & Housego PLC

FINANCIAL STATEMENTS

Report on the audit of the financial statements

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 2022 and of the
Group’s loss and the Group’s and Company’s cash flows for
the year then ended;

• have been properly prepared in accordance with UK-adopted

international accounting standards; 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 2022; 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.

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 other listed entities of public
interest, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.

To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard
were not provided.

We have provided no non-audit services to the Company or its
controlled undertakings in the period under audit.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLCKey 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.

Investments impairment assessment (Company) is a new key
audit matter this year. Impact of COVID-19 on the financial
statements (Group and Company), which was a key audit
matter last year, is no longer included because of the notable
impacts being mainly endured in the prior financial year, with
all sites re-opening following the last lock-down and trading
continuously through this year. Otherwise, the key audit
matters below are consistent with last year.

74 FINANCIAL STATEMENTS

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, Gooch & Housego (California) LLC
and Gooch & Housego (Ohio) LLC and three operating units in
the UK (Integrated Technologies Limited, Gooch & Housego
(Torquay) Limited and Gooch & Housego (UK) Limited) as well
as the 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 fourteen reporting units, along with analytical
procedures on all of the remaining reporting units.

• Taken together, these seven reporting units (post

consolidation entries) account for 85% of Group’s revenue.

Key audit matters
• Goodwill impairment assessment (Group)

• Investments impairment assessment (Company)

Materiality
• Overall Group materiality: £1,248,000 (2021: £1,239,000)

based on 1% of total revenue.

• Overall Company materiality: £376,000 (2021: £300,000)
based on 1% of total assets restricted by Group scoping.

• Performance materiality: £936,000 (2021: £929,250)
(Group) and £282,000 (2021: £225,000) (Company).

The scope of our audit
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

Key audit matter

How our audit addressed the key audit matter

Goodwill impairment assessment (Group)

At 30 September 2022, the Consolidated
Statement of Financial Position includes £35.6
million of goodwill (2021: £36.7 million).
In accordance with International Accounting
Standards (IAS36 – Impairment of Assets),
management has performed impairment
reviews in relation to the goodwill held in the
Group’s cash generating units (CGUs). During
the year management redefined the CGUs to
which the goodwill and other assets are
allocated following the transition from a
technology based model to a regional based
model. Management has considered the
recoverable amount of each of the CGUs
including the preparation of 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.
The Group recorded an impairment charge of
£6.7m on the carrying value of its goodwill and
other acquired intangible assets held in respect
of the UK CGU. This was as a consequence of
an increase in the Group’s weighted average
cost of capital which has been driven higher by
increased costs of borrowing in the market as
well as the weaker financial performance of
that CGU in the financial year.

We obtained managements’ assessment of recoverable amount of each CGU, including cash
flow forecasts supporting management’s calculation of value in use and assessed the
appropriateness of key assumptions. We considered the methodology used by management
in performing the assessments and challenged key inputs. We have performed an
assessment of managements redefinition of the CGUs to confirm the appropriateness of the
change. Our testing included the following procedures:

• We have obtained evidence behind the forecasts in order to challenge the key judgements
and estimates, including the redefinition of the CGUs used in relation to the impairment
assessment;

• 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 external third party market data, historical trends and by considering
the accuracy of management’s historic forecasting;

• We have compared revenue forecasts against current order books and pipeline analysis,

including verifying a sample of orders to customer purchase orders;

• We have considered plausible downside sensitivities to assess if 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 market studies relevant to the Group; and

• We have used our in-house valuation experts to consider the appropriateness of the

discount rate used compared to wider market and sector benchmarks.

Based on our audit work, we are satisfied that the assumptions in the value in use model are
reasonable and the impairment charge recorded is 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.

Investments impairment assessment (Company)

We obtained the relevant subsidiary’s cash flow forecasts supporting management’s
assessments and evaluated the appropriateness of key assumptions, including the
procedures set out in the Goodwill impairment assessment (Group).

We assessed the methodology used by management in performing the assessments and
challenged and evaluated key inputs. Based on this work, we concur with the assessment
performed and with the impairment charge recognised. We consider the carrying value of
the investment balance to be fairly stated.

At 30 September 2022, the Company’s
Statement of Financial Position included
£35.7m of investments in subsidiaries (2021:
£51.6m).In accordance with the requirements
of IFRS (IAS36 – Impairment of Assets),
management has performed an analysis
comparing the carrying amount of the
investments with the recoverable amount.
As a result of this exercise, an impairment
of £16.2m has been recognised in relation to
investments in entities that have been subject
to corporate restructuring. For the entities
impaired there are no future cash flows to
consider hence an impairment charge has
been recognised to write the carrying value
down to nil.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC76 FINANCIAL STATEMENTS

How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the 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, Gooch & Housego (California) LLC
and Gooch & Housego (Ohio) LLC and three operating units
in the UK (Integrated Technologies Limited, Gooch & Housego
(Torquay) Limited, Gooch & Housego (UK) Limited) as well as
the 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.

remaining fourteen reporting units, along with analytical
procedures on all of the remaining reporting units.

Taken together, these seven reporting units (post consolidation
entries) account for 85% of Group’s revenue.

The Company consists of one reporting unit which was subject
to a full scope audit.

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.

Specified procedures were also performed by the UK audit
team on certain other balances and transactions within the

Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:

Overall
materiality

How we
determined it

Rationale for
benchmark
applied

Financial statements – Group

Financial statements – Company

£1,248,000 (2021: £1,239,000).

£376,000 (2021: £300,000).

1% of total revenue.

1% of total assets.

Overall materiality in the current year has been based on
1% of the Group’s revenue. This is in line with the prior
year and is considered the most appropriate benchmark.
We have also considered this benchmark 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. We have restricted this as part of our
Group scoping exercise.

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 £376,000 and £966,000.

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% (2021: 75%) of overall materiality,
amounting to £936,000 (2021: £929,250) for the Group
financial statements and £282,000 (2021: £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 £62,000 (Group audit) (2021: £61,500) and £19,000
(Company audit) (2021: £15,000) as well as misstatements
below those amounts that, in our view, warranted reporting for
qualitative reasons.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

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 and

related disclosure in the financial statements.

• Evaluation of the Group’s forecast financial performance,

liquidity and covenant compliance over the going
concern period.

• 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 2022 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC78 FINANCIAL STATEMENTS

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:

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.

• 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.

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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

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; and

We have no exceptions to report arising from this responsibility.

• 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.

Jason Clarke
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff

6 December 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC80 FINANCIAL STATEMENTS

Group Income Statement
For the year ended 30 September 2022

Total

Underlying

Total

Underlying

Revenue

Cost of revenue

Gross profit

Research and development

Sales and marketing expenses

Administration expenses

Impairment of goodwill and
acquired intangible assets

Other income

Operating profit

Finance income

Finance costs

Profit before income
tax expense

Income tax expense

Profit/(loss) for the year

Basic earnings per share

Diluted earnings per share

£’000

124,802

(85,741)

39,061

(9,181)

(8,697)

(12,879)

–

560

8,864

–

(717)

8,147

(1,326)

6,821

27.2p

27.0p

30 September 2022

Non-underlying
(Note 13)

£’000

–

(3,695)

(6,726)

£’000

124,802

(85,741)

39,061

(9,181)

(8,697)

(16,574)

(6,726)

–

560

(10,421)

–

(10,421)

1,590

(8,831)

(35.2p)

(35.0p)

(1,557)

–

(717)

(2,274)

264

(2,010)

(8.0p)

30 September 2021

Non-underlying
(Note 13)

£’000

–

(7,941)

–

(7,941)

–

(7,941)

1,092

(6,849)

(27.4p)

(27.0p)

Total

£’000

124,074

(82,753)

41,321

(8,147)

(8,342)

(20,235)

–

804

5,401

(722)

4,680

(1,276)

3,404

13.6p

13.5p

£’000

124,074

(82,753)

41,321

(8,147)

(8,342)

(12,294)

–

804

13,342

(722)

12,621

(2,368)

10,253

41.0p

40.5p

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

Group Statement of
Comprehensive Income
For the year ended 30 September 2022

(Loss)/profit for the year

Other comprehensive (expense)/ income – items that may be
reclassified subsequently to profit or loss

Losses on cash flow hedges

Currency translation differences

Other comprehensive income/(expense) for the year net of tax

Total comprehensive income for the year attributable to the
shareholders of Gooch & Housego PLC

Note

2022

£’000

(2,010)

(1,137)

9,774

8,637

6,627

2021

£’000

3,404

(468)

(1,621)

(2,089)

1,315

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

82 FINANCIAL STATEMENTS

Group Balance Sheet
For the year ended 30 September 2022

Note

2022

£’000

42,447

5,063

47,939

1,969

97,418

37,073

35,598

5,999

78,670

(22,765)

(64)

(1,732)

(578)

(25,139)

53,531

(18,730)

(4,539)

(848)

(8,291)

(32,408)

118,541

5,008

16,000

7,262

15,828

(1,272)

75,715

118,541

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

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

Net current assets

Non-current liabilities

Borrowings

Lease liabilities

Provision for other liabilities and charges

Deferred income tax liabilities

Net assets

Shareholders’ equity

Capital and reserves
attributable to equity shareholders

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 112 were approved by the
Board of Directors on 6 December 2022 and signed on its
behalf by:

Charlie Peppiatt
Director

Chris Jewell
Director

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

Group Statement of
Changes in Equity
For the year ended 30 September 2022

Note Called up share

capital

£’000

5,008

–

Share
premium
account
£’000

16,000

Merger
reserve

£’000

7,262

–

Retained
earnings

Hedging
reserve

£’000

77,075

3,404

–

3,404

(1,127)

735

(392)

£’000

333

–

(468)

–

Cumulative
translation
reserve
£’000

7,675

–

(1,621)

–

Total
equity

£’000

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

5,008

16,000

7,262

–

80,087

(2,010)

–

(135)

–

(1,137)

6,054

–

9,774

114,276

(2,010)

8,637

(2,010)

(1,137)

9,774

6,627

(3,105)

743

(2,362)

–

(3,105)

743

(2,362)

5,008

16,000

7,262

75,715

(1,272)

15,828

118,541

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

At 1 October 2021

Loss for the financial year

Other comprehensive
(expense)/income for

the year

Total comprehensive
(expense)/income for

the year

Dividends

Share-based payments

Total contributions by and
distributions to owners

of the parent recognised
directly in equity

At 30 September 2022

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

84 FINANCIAL STATEMENTS

Group Cash Flow Statement
For the year ended 30 September 2022

Cash flows from operating activities

Cash generated from operations

Income tax repaid/(paid)

Net cash generated from operating activities

Cash flows from investing activities

Acquisition of subsidiaries, net of cash acquired

Purchase of property, plant and equipment

Sale of property, plant and equipment

Purchase of intangible assets

Interest received

Interest paid

Net cash used in investing activities

Cash flows from financing activities

Drawdown of borrowings

Repayment of borrowings

Principal elements of lease payments

Dividends paid to ordinary shareholders

Net cash generated from/(used by) financing activities

Net decrease in cash

Cash at beginning of the year

Exchange gains/(losses) on cash

Cash at the end of the year

2022

£’000

6,084

456

6,540

–

(6,669)

–

(1,899)

–

(717)

(9,285)

6,300

(1,312)

(1,584)

(3,105)

299

(2,446)

8,352

5,999

2021

£’000

16,822

(575)

16,247

(3,250)

(5,399)

(844)

(505)

(9,959)

–

(14,093)

(2,047)

(1,127)

(17,267)

(10,979)

19,734

(403)

8,352

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

Notes to the Group Cash Flow
Statement
For the year ended 30 September 2022

Reconciliation of cash generated from operations

(Loss)/profit before income tax

Adjustments for:

- Amortisation of acquired intangible assets

- Amortisation of other intangible assets

- Impairment of intangible assets

- Loss on disposal of property, plant and equipment

- Write back of lease creditor on early termination of lease

- 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

2022

£’000

(2,274)

1,903

1,438

6,726

(96)

7,102

743

(200)

–

717

18,404

(5,557)

(5,707)

1,218

(10,046)

2021

£’000

4,680

2,081

1,275

–

7,030

735

(280)

(1)

722

11,657

1,888

(2,655)

1,252

485

Cash generated from operating activities

6,084

16,822

Reconciliation of net cash outflow to movement in net debt

Decrease in cash in the year

Drawdown of borrowings

Repayment of borrowings

Changes in net cash resulting from cash flows

New leases

Translation differences

Non cash movements

Movement in net debt in the year

Net debt at 1 October

Net debt at 30 September

2022

£’000

(2,446)

(6,300)

3,144

(5,602)

(25)

(4,031)

(165)

(9,823)

(9,243)

(19,066)

2021

£’000

(10,979)

–

16,140

5,161

(510)

1,236

(393)

5,494

(14,737)

(9,243)

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

86 FINANCIAL STATEMENTS

Notes to the Group Cash Flow
Statement Continued
For the year ended 30 September 2022

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 2021

Cash flow

New leases

Exchange movement

Non-cash movement

At 30 Sep 2022

£’000

8,352

(65)

(10,903)

(6,627)

(9,243)

£’000

(2,446)

1,312

(6,300)

1,832

(5,602)

£’000

(25)

£’000

(2,999)

(1,125)

(4,031)

£’000

(1,311)

1,472

(326)

(165)

£’000

5,999

(64)

(18,730)

(6,271)

(19,066)

At 1 Oct 2020

Cash flow

New leases

Exchange movement

Non-cash movement

At 30 Sep 2021

Cash at bank and in hand

Debt due within 1 year

Debt due after 1 year

Leases

Net debt

£’000

19,734

(64)

(26,211)

(8,196)

(14,737)

£’000

(10,979)

14,093

2,047

5,161

£’000

(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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

Notes to the Group Financial
Statements
For the year ended 30 September 2022

1. General information
Gooch & Housego PLC (the Company) is a public limited
company limited by shares 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 2022 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 120.

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 UK
adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.

Going concern
The financial statements have been prepared on a going
concern basis.

The Directors have reviewed the current financial forecasts for
FY2023 and FY2024. They have assessed the future funding
requirements and covenant performance of the Group and
compared them with available borrowing facilities. Details of
the financial and liquidity positions of the Group are given on
page 29.

to hire for a key role. This assessment covered not only the coming
12 month period but also for the period to September 2025 in
order to support the Viability Statement given on page 61.

We have compared the downside risk adjusted cash and
banking covenant projections and 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 2022,
however, they have not had a material impact on our
consolidated financial statements:

• Amendments to IFRS 7, IFRS 4, and IFRS 16 – Interest rate

benchmark reform – Phase 2 impacts on IFRS9, IAS39, IFRS7,
IFRS4 and IFRS16, effective for accounting periods on or after
1 January 2021.

• Amendments to IFRS 4 Insurance Contracts – deferral of IFRS

9 (effective 1 January 2021)

• Amendment to IFRS 16, ‘Leases’ – Covid-19 related rent

concessions Extension of the practical expedient (effective 1
April 2021).

None of the amendments to the above standards had a
material impact on the Financial Statements.

At 30 September 2022 the Group has a strong balance sheet
with net current assets of £53.5m. The Group’s cash and
undrawn available facilities totalled £49.7m.

The following other amended standards and interpretations
have been issued but were not mandatory for the financial year
ended 30 September 2022. These are not expected to have a
material impact on the consolidated financial statements.

• The Companies (Strategic Report) (Climate – related Financial

Disclosure) Regulations 2022 (SI 2022/31), effective for
accounting periods beginning on or after 6 April 2022.

• Amendments to IAS 1 – Presentation of Financial Statements

on Classification of Liabilities (effective 1 January 2023).

Work will continue in the new financial year to assess the
impact of the new standards and interpretations on the
Group’s Financial Statements.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC88 FINANCIAL STATEMENTS

4. Accounting policies
The principal accounting policies adopted in the preparation of
the financial statements are set out below. The policies have
been consistently applied to all of the years presented, unless
otherwise stated.

Consolidation
Subsidiaries are entities that are directly or indirectly controlled
by the Group. Control exists where the Group has the power to
govern the financial and operating policies of the entity so as
to obtain benefits from its activities. In assessing control,
potential voting rights that are currently exercisable or
convertible are taken into account.

The purchase method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of a business
combination is measured as the fair value of the assets given,
equity instruments issued, the fair value of contingent or
deferred consideration and liabilities incurred or assumed at the
date of exchange. Costs directly attributable to the business
combination are charged to the income statement. The excess
of the costs of a business combination over the fair value of the
identifiable net assets acquired is recorded as goodwill. If the
cost of a business combination is less than the fair value of the
net assets of the subsidiary acquired, the difference is
recognised directly in the income statement. Should the fair
value of contingent or deferred consideration vary from the
actual value on settlement date, the difference is recognised
directly in the income statement.

Where deferred consideration is payable in cash, the amount is
discounted to present value at the date of acquisition, using
the Group’s weighted average cost of capital. The financing
charge which arises on the discounted consideration between
the acquisition date and the date of payment is included within
finance costs and treated as a non-underlying item.

Transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses
are also eliminated but considered an impairment indicator of
the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the
policies adopted by the Group.

Subsidiary audit exemptions
Gooch & Housego (UK) Limited (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),
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. As part of this
process, the Company has provided statutory guarantees
to these subsidiaries.

Segment reporting
A business segment is a grouping of operations engaged in
providing products or services that are subject to risks and
returns that are different from those of other business
segments. A market segment is engaged in providing products
or services within a particular economic environment that are
subject to risks and returns which are different from those of
segments operating in other economic environments.

The chief operating decision maker in determining a business
or operating segment is the Board of Directors.

Foreign currency translation
a. Functional and presentation currency
The consolidated financial statements are presented in Pounds
Sterling, which is the Group’s presentation currency. Items
included in the financial statements of each of the Group’s
subsidiaries are measured using the currency of the primary
economic environment in which the entity operates (the
‘functional currency’).

b. Transactions and balances
Foreign currency transactions are translated into an entity’s
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from
the translation at balance sheet exchange rates of monetary
assets and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred in
equity as qualifying cash flow hedges and qualifying net
investment hedges.

c. Subsidiaries
The results and financial position of subsidiaries that have a
functional currency different from the presentation currency
are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are

translated at the closing rate at the date of that balance sheet;

• income and expenses for each income statement are

translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
income and expenses are translated at the rate on the dates
of the transactions); and

• all resulting exchange differences are recognised in other

comprehensive income and as a separate component of equity.

On consolidation, exchange differences arising from the
translation of the net investment in foreign operations, and of
borrowings and other currency instruments designated as
hedges of such investments, are taken to shareholders’ equity.
When a foreign operation is partially disposed of or sold,
exchange differences that were recorded in equity are recognised
in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

Property, plant and equipment
Property, plant and equipment is stated at historical cost less
depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.

No depreciation is charged on freehold land or capital work in
progress. Certain plant used in the manufacturing process
which is constructed from precious metals is not depreciated.

Depreciation on other assets is calculated to allocate their cost
over their estimated useful lives, as follows:

• Freehold buildings

2-3% Straight-line

• Leasehold property

over term of lease Straight-line

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 of 5 – 10 years.

c. Computer software
Costs associated with developing or maintaining computer
software programmes are recognised as an expense as incurred.

Costs that are directly associated with the development of
identifiable and unique software products controlled by the
Group, and that will probably generate economic benefits
exceeding costs beyond one year, are capitalised and
recognised as intangible assets. Costs include the software
development employee costs and an appropriate portion of
relevant overheads.

• Plant and machinery

6-20% Straight-line

• Fixtures, fittings and computers

6-33% Straight-line

Acquired computer software and licences are capitalised on
the basis of the costs incurred to acquire and bring to use the
specific software.

• 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.

For the purpose of impairment testing a CGU is defined as
either a business segment or an operating entity, as appropriate.
Further information is given in note 18.

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 of 5 – 10 years and are charged
to Research and Development in the income statement.

Capitalised software costs are amortised using the straight line
method over their estimated useful lives of up to 5 years and
charged to Administration in the income statement.

d. Research and development
Expenditure on research activities, undertaken with the
prospect of gaining new scientific or technical knowledge and
understanding, is recognised as an expense as incurred.

Development costs incurred after the point at which the
commercial and technical feasibility of the product have been
proven, and the decision to complete the development has
been taken and resources made available, are capitalised. The
expenditure capitalised includes the cost of materials, direct
labour and an appropriate proportion of overheads.

Capitalised development expenditure is stated at cost
less accumulated amortisation and impairment losses.
Development costs are amortised using the straight line
method over their estimated useful life lives, which is typically
5 years, and are charged to Research and Development in the
income statement.

e. Acquired intangibles
Other acquired intangible assets are stated at fair value less
accumulated amortisation and impairment losses.

The useful life of each of these assets is assessed based on the
differing natures of each of the intangible assets acquired.
Amortisation is charged on a straight-line basis over the
estimated useful life of the assets acquired and charged to
administration in the Income Statement.

• Customer relationships

up to 10 years

• Brand names

up to 10 years

• Acquired patents, trademarks and licences up to 3 years

Acquired patents, trademarks and licences are shown at
historical cost. Patents, trademarks and licences have a finite

Government grants
Government grants are accounted for on an accruals basis.
Grants are credited to the income statement over the life of the

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

90 FINANCIAL STATEMENTS

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 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 FY2022 have been assessed
as effective and therefore the Group has applied hedge
accounting. Accordingly, movements in the fair value of the
hedges have been recorded in reserves.

Current and deferred income tax
Income tax on the profit or loss for the year comprises current
and deferred tax.

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.

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.

To measure the expected credit losses, trade receivables have
been grouped based on shared credit risk characteristics and
the days past due. The expected loss rates are based on the
payment profiles of sales over a period of 24 months prior to
the reporting date and the corresponding historical credit
losses experienced within this period. The historical loss rates
are adjusted to reflect current and forward-looking information
on macroeconomic factors affecting the ability of the
customers to settle the receivables.

Cash and cash equivalents
Cash and cash equivalents for the purpose of the cash flow
statement includes cash in hand and deposits held on call with
banks with original maturities of three months or less.

Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.

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.

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

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

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

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.

this is treated as a cash-settled transaction. A provision is
made, calculated using the fair value of the Group’s shares at
the balance sheet date, pro-rated over the vesting period of
the options.

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 Group 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 Group’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 Group’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.

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.

Provisions
Provisions are recognised when the Group has a present legal
or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.

The Group monitors and assesses its warranty provision
requirement on a continuing basis. The provision for other
liabilities and charges provides for the anticipated cost of
repair and rectification of products under warranty, based on
historical repair and replacement costs. In addition the
Directors will also assess expected changes in future costs
based on current information.

Non underlying items
Transactions are classified as non-underlying where they
relate to an event that falls outside the ordinary activities of
the business and where individually or in aggregate they have
a material impact on the financial statements. 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 or impairment 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 12
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.

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,

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

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC92 FINANCIAL STATEMENTS

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.

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.

Lease payments included in the measurement of the lease
liability comprise:

• fixed lease payments (including in substance fixed payments),

less any lease incentives;

• variable lease payments that depend on an index or rate, initially
measured using the index or rate at the commencement date;

• the amount expected to be payable by the lessee under

residual value guarantees;

• the exercise price of purchase options, if the lessee is

reasonably certain to exercise the options; and

• 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.

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

For short-term leases (leases with a term of 12 months or less)
and leases of low-value assets, the Group has opted to
recognise a lease expense on a straight-line basis as permitted
by IFRS 16. This expense is presented within operating
expenses in the Income Statement.

As a practical expedient, IFRS 16 permits a lessee not to
separate non-lease components, and instead account for any
lease and associated non-lease components as a single
arrangement. The Group has not used this practical expedient.

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, for long term contracts, over time as appropriate.
For revenue recognised over time the Group recognises
revenue on a basis that depicts the Group’s performance in
transferring control of the goods and services to the customer,
having assessed the nature of the promised goods or service.

A contract asset is recognised when the Group’s right to
consideration is conditional on something other than the
passage of time, for example the completion of future
performance obligations under the terms of the contract with
the customer. In some instances, the Group receives payments
from customers based on a billing schedule, as established in
the contract, which may not match the pattern of performance
under the contract. In this instance, a contract asset or contract
liability is recognised depending on the phasing of payment in
relation to the performance.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

Inventory provision
The Group continually monitors and assesses the provision
for old and slow moving inventory. Factors considered by the
Directors include the expected future usage and the potential
obsolescence and deterioration of the Inventory.

The provision for inventory obsolescence amounts to 17.3% of
the gross inventory value (2021: 20.6%). 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 £0.9m.

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.

Interest income
Interest income is recognised on a time-proportion basis using
the effective interest method.

Dividend distribution
Dividend distributions to the Company’s shareholders are
recognised as a liability in the Group’s financial statements in
the period in which the dividends are approved by the
Company’s shareholders.

Earnings per share
Basic earnings per share is calculated by dividing:

• the profit attributable to the owners of the Company, excluding

any costs of servicing equity other than ordinary shares;

• by the weighted average number of ordinary shares

outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the year and
excluding treasury shares.

Diluted earnings per share adjusted the figures used in the
determination of basic earnings per share to consider:

• the after-income tax effect of interest and other financing

costs associated with dilutive potential ordinary shares; and

• the weighted average number of additional ordinary shares
that would have been outstanding, assuming the conversion
of all dilutive potential ordinary shares.

5. 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 18.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC94 FINANCIAL STATEMENTS

6. Segmental analysis
The Group’s segmental reporting reflects the information that management uses
within the business. The business is divided into three market sectors, being aerospace
and defence, life sciences/biophotonics and industrial, together with the Corporate
cost centre.

The industrial business segment primarily comprises the industrial laser market for
use in the semiconductor and microelectronic industries, but also includes other
industrial applications such as metrology, telecommunications and scientific research.
Further information can be found in our Operations Review on pages 28 to 33.

For year ended 30 September 2022

£’000

Aerospace and
Defence

Life Sciences /
Biophotonics

Industrial

Corporate

Revenue

Total revenue

Inter and intra-division

External revenue

Divisional expenses

EBITDA¹

EBITDA %

Depreciation and amortisation

Operating (loss)/profit before amortisation of
acquired intangible assets

Amortisation of acquired intangible assets

Operating (loss)/profit

Operating (loss)/profit margin %

Add back non-underlying items and amortisation of
acquired intangibles

Adjusted operating (loss)/profit

Adjusted (loss)/profit margin %

Finance costs

(Loss)/Profit before income tax expense

32,992

(2,439)

30,553

(31,220)

(667)

(2.2%)

(2,745)

(3,412)

–

(3,412)

(11.2%)

746

(2,666)

(8.7%)

(113)

(3,525)

33,190

(3,494)

29,696

(24,640)

5,056

17.0%

(1,378)

3,678

–

3,678

12.4%

273

3,951

13.3%

(56)

3,622

69,316

(4,763)

64,553

(53,437)

11,116

17.2%

(3,803)

7,313

–

7,313

11.3%

1,093

8,406

13.0%

(130)

7,183

–

107

–

(614)

(507)

(8,629)

(9,136)

–

8,309

(827)

–

(418)

(9,554)

For year ended 30 September 2021

£’000

Aerospace and
Defence

Life Sciences /
Biophotonics

Industrial

Corporate

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

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

¹EBITDA = Earnings before interest, tax, depreciation and amortisation

Management have added back the amortisation and impairment of acquired intangibles
and goodwill, restructuring costs, site closure costs and CEO succession costs 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.

–

(84)

–

(1,011)

(1,095)

(2,081)

(3,176)

–

2,081

(1,095)

–

(389)

(3,565)

Total

£’000

135,498

(10,696)

124,802

(109,190)

15,612

12.5%

(8,540)

7,072

(8,629)

(1,557)

(1.2%)

10,421

8,864

7.1%

(717)

(2,274)

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

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
Analysis of revenue by type:

Revenue from long term contracts

Revenue from sale of products

Total revenue

Analysis of net assets by location:

FINANCIAL STATEMENTS

2022

£’000

7,281

117,521

124,802

2021

£’000

4,322

119,752

124,074

United Kingdom

USA

Continental Europe

Asia Pacific

2022

Assets

£’000

72,870

101,574

488

1,156

176,088

2022

Liabilities

£’000

(33,909)

(23,472)

(52)

(114)

(57,547)

2022

Net Assets

£’000

38,961

78,102

436

1,042

118,541

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

For the year to 30 September 2022 non-current asset additions were £5.5m (2021:
£4.3m) for the UK and for the USA £3.3m (2021: £2.5m). There were no additions to
non-current assets in respect of Europe (2021: £nil) or the Asia Pacific region (2021:
£nil). The value of non-current assets in the USA was £56.4m (2021: £48.1m) and in
the United Kingdom £41.5m (2021: £47.8m). 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
.

7. 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

Impairment of goodwill and other intangible assets

Net gains on foreign exchange

2022

£’000

27,848

47,267

26,749

22,938

124,802

2022

£’000

45,520

3,996

54,368

6,506

5,839

1,263

1,903

1,438

6,726

(640)

126,919

Note

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)

119,477

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

96 FINANCIAL STATEMENTS

8. Other income

Grants receivable

Amounts claimed under the RDEC

Other (expense)/income

Other income relates to sales of certain materials used in production which need to
be reprocessed periodically.

9. Employee benefit expense

Wages and salaries

Social security costs

Share based payment charge

Medical and other insurance

Other 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

2022

£’000

363

197

–

560

2021

£’000

420

280

104

804

2022

£’000

43,377

4,200

743

3,638

2,410

54,368

2022

Number

635

254

889

2022

£’000

4,936

743

267

5,946

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

Key management comprise the Executive Board and the management layer
reporting directly to the Executive Directors.

Directors’ remuneration, including the highest paid Director, has been included
on page 69 of the Remuneration Committee Report. These disclosures have
been audited.

10. 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 their associates for other services:

- audit of the Company’s subsidiaries pursuant to legislation

- taxation compliance services

- taxation advisory services

2022

£’000

174

–

226

2021

£’000

156

111

408

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

2022

£’000

–

(469)

(248)

(717)

2022

£’000

399

(3)

(678)

(282)

(422)

313

127

(264)

2022

£’000

(2,274)

(432)

1,105

(32)

127

(365)

(695)

(264)

2021

£’000

(430)

(292)

(722)

2021

£’000

722

292

(807)

207

549

519

1,069

1,276

2021

£’000

4,680

889

140

519

(60)

(258)

–

1,276

11. Finance income and costs

Finance income comprises:

- Bank interest

Finance costs comprise:

- Bank interest

- Lease interest

12. Income tax expense

Analysis of tax (credit)/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 (income)/expense per income statement

The taxation (income)/expense for the year is lower (2021: higher) than the standard
rate of corporation tax in the UK. An explanation of the differences is detailed below:

(Loss)/profit before income tax expense

(Loss)/profit at the standard rate of tax of 19.0% for the year (2021: 19.0%)

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

Release of deferred tax liability in relation to goodwill

Total tax (income)/expense

Factors affecting the future tax charge
Overseas tax losses of £11.1m (2021: £9.2m) and UK tax losses of £nil (2021: £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.

In the Spring budget 2021, the Government announced that from 1 April 2023, the
corporation tax rate will increase to 25%. This change was substantively enacted on
24 May 2021; as such deferred tax liabilities and assets have been recalculated and
recorded at the rate they are expected to unwind.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

98 FINANCIAL STATEMENTS

13. Non-underlying items

Included within administration expenses

Amortisation of acquired intangible assets

Impairment of goodwill and acquired intangible assets

Restructuring costs

Other

Included within taxation

Tax effect of the non-underlying items above

Restatement of UK deferred tax balances at 25%

Release of deferred tax on goodwill

2022

£’000

1,903

6,726

1,179

613

10,421

2022

£’000

(1,022)

127

(695)

(1,590)

2021

£’000

2,081

–

5,860

–

7,941

2021

£’000

(1,611)

519

–

(1,092)

Restructuring costs incurred in the year ended 30 September 2022 relate to the
ongoing streamlining of our manufacturing operations and outsourcing 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.

Restructuring costs incurred in the year ended 30 September 2021 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.

Other non-underlying items relate to costs associated with the chief executive officer
succession and principally included payment in lieu of notice and accelerated IFRS 2 costs.

The UK corporation tax rate will increase to 25% with effect from 1 April 2023. Deferred
tax balances expected to reverse after that date were restated at 25% in the year ended
30 September 2021, giving rise to an income statement charge of £0.5m. During the year
ended 30 September 2022, a further charge of £0.1m was incurred in relation to the tax
rate differential between current and deferred tax on timing differences arising in the year.

14. Dividends

Final 2021 dividend: 7.7p per share (Final 2020 dividend paid in 2021: nil)

2022 Interim dividend of 4.7p per share (2020: 4.5p per share)

The Directors have proposed a final dividend of 7.9p per share making the total dividend
paid and proposed in respect of the 2022 financial year 12.6p. (2021: 12.2 p per share).

2022

£’000

1,928

1,177

3,105

2021

£’000

1,127

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

15. Earnings per share

The calculation of earnings per 20p Ordinary Share is based on the profit for the year
using as a divisor the weighted average number of Ordinary Shares in issue during
the year. The weighted average number of shares for the year ended 30 September
is given below:

Number of shares used for basic earnings per share

Number of 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:

2022

25,040,919

211,603

2021

25,040,919

239,603

25,252,522

25,280,522

Basic (losses)/earnings per share

Amortisation of acquired intangible assets (net of tax)

Impairment of goodwill and intangible assets (net of tax)

Restructuring costs (net of tax)

Other non-underlying items (net of tax)

Release of deferred tax on goodwill

UK deferred tax rate change

Total adjustments net of income tax expense

Adjusted basic earnings per share

Basic diluted (losses)/earnings per share

Adjusted diluted earnings per share

£’000

(2,010)

1,491

6,438

944

526

(695)

127

8,831

6,821

(2,010)

6,821

2022

pence per share

(8.0p)

6.0p

25.7p

3.8p

2.0p

(2.8p)

0.5p

35.2p

27.2p

(8.0p)

27.0p

£’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

Basic and diluted (losses)/earnings per share before amortisation and other adjustments
has been shown because, in the opinion of the Directors, it provides a useful measure of
the trading performance of the Group.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

100 FINANCIAL STATEMENTS

16.Property, plant and equipment

Capital work in
progress

Freehold land
and buildings

£’000

Leasehold
property

£’000

Plant and
machinery

£’000

Cost or valuation

At 1 October 2020

Additions

Disposals

Reclassification

Exchange rate differences

At 30 September 2021

Additions

Disposals

Reclassification

Exchange rate differences

At 30 September 2022

Accumulated depreciation

At 1 October 2020

Charge for the year

Disposals

Exchange rate differences

At 30 September 2021

Charge for the year

Disposals

Reclassification

Exchange rate differences

At 30 September 2022

Net book value

At 1 October 2020

At 30 September 2021

At 30 September 2022

1,455

538

–

(766)

(118)

1,109

4,050

–

(2,389)

205

2,975

–

1,455

1,109

2,975

9,239

–

(3)

9,236

–

112

165

9,513

2,015

385

–

2,400

408

–

112

162

3,082

7,224

6,836

6,431

18,204

1,202

(65)

(653)

18,708

411

(24)

913

3,274

23,282

5,581

1,087

(50)

(186)

6,432

1,282

(22)

1,317

9,082

12,623

12,276

14,200

42,920

3,248

(2,089)

722

(611)

44,190

1,444

(227)

822

3,825

50,054

26,550

3,362

(2,030)

(375)

27,507

3,606

(173)

(528)

2,333

32,745

16,370

16,683

17,309

No interest was capitalised in the year (2021: £Nil).

Fixtures, fittings
and computers

£’000

3,960

411

(287)

(22)

4,086

764

(59)

542

299

5,632

2,930

454

(264)

(33)

3,087

532

(44)

343

216

4,134

1,030

999

1,498

Motor
vehicles

£’000

–

(12)

–

102

–

(1)

–

Total

£’000

75,849

5,423

(2,441)

–

(1,419)

77,412

6,669

(310)

–

7,787

91,558

37,108

5,298

(2,344)

(595)

39,467

5,839

(239)

–

(4,044)

49,111

38,741

37,945

42,447

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

101

17. Right of use assets

Cost

At 1 October 2020

Additions

Adjustments

Exchange rate differences

At 30 September 2021

Additions

Disposals

Exchange rate differences

At 30 September 2022

Accumulated depreciation

At 1 October 2020

Charge for the year

Exchange rate differences

At 30 September 2021

Charge for the year

Disposals

Exchange rate differences

At 30 September 2022

Net book value

At 1 October 2020

At 30 September 2021

At 30 September 2022

18. Intangible assets

Cost

At 1 October 2020

Additions

Disposals

Transfers

Exchange rate differences

At 30 September 2021

Additions

Disposals

Exchange rate differences

At 30 September 2022

Accumulated amortisation and impairment

At 1 October 2020

Charge for the year

Disposals

Exchange rate differences

At 30 September 2021

Charge for the year

Impairment charge

Disposals

Exchange rate differences

At 30 September 2022

Net book value

At 1 October 2020

At 30 September 2021

At 30 September 2022

Fixtures and
fittings

£’000

Motor
Vehicles

£’000

Land and
Buildings

£’000

Plant and
machinery

£’000

–

(1)

(9)

–

(9)

–

8,213

481

(312)

8,403

188

(987)

1,559

9,163

1,572

1,679

(33)

3,218

1,224

(987)

671

4,126

6,641

5,185

5,037

–

(3)

–

(1)

–

Total

£’000

8,371

481

(316)

8,557

202

(996)

1,581

9,344

1,629

1,732

(34)

3,327

1,263

(996)

687

4,281

6,742

5,230

5,063

Goodwill

Acquired
customer
relationships
and order books

Acquired
brands

Capitalised
R&D, Patents
and licences

Software
and other
intangibles

Total

£’000

53,594

30,645

4,187

4,975

–

(1,278)

52,316

–

7,012

59,328

15,853

–

(255)

15,598

–

5,574

–

2,540

23,712

37,741

36,718

35,616

–

(443)

30,202

–

(12,364)

2,182

20,020

21,027

1,662

–

(203)

22,486

1,500

586

(12,364)

1,521

13,729

9,618

7,716

6,291

–

(59)

4,128

–

292

4,420

1,424

419

–

(19)

1,824

403

566

–

154

2,947

2,763

2,304

1,473

434

(139)

(18)

5,289

785

(414)

5,682

2,526

729

(110)

(5)

3,140

791

–

(414)

(3)

3,514

2,449

2,149

2,168

4,146

411

(423)

4,164

1,114

(118)

5,198

2,093

546

(419)

(4)

2,216

647

–

(118)

2,807

2,053

1,948

2,391

97,547

845

(562)

–

(1,731)

96,099

1,899

(12,896)

9,546

94,648

42,923

3,356

(529)

(486)

45,264

3,341

6,726

(12,896)

4,274

46,709

54,624

50,835

47,939

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

102 FINANCIAL STATEMENTS

During the year we redefined the cash generating units (CGUs) to which the Group’s
goodwill and other assets are allocated and their recoverable amounts assessed by
references to those CGUs future forecast cashflows. This change arose as a result of
the transition of our Operations team from a technology-based model to a regionally
based model. Many of the Group’s support functions also operate on a regional rather
than capability-based model. The CGUs identified for the financial year were therefore
our UK sites, our US sites and our ITL sites given the different nature of our ITL
business from the remainder of the Group.

Goodwill is allocated to the operating regions as follows: US £25.4m and UK £nil.
The goodwill relating to the Ashford site, which continues to constitute a separate CGU
is £10.2m.

Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses. The impairment testing requires an estimation of the recoverable
amount of the CGU, being the higher of the cash-generating unit’s fair value less costs
of disposal and its value in use. 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.

Management reviewed the discount rate for each operating region and concluded that
it was appropriate to use a consistent rate. The following key assumptions were made:

Cash Generating Unit

Average annual growth
in revenue from
FY2022 to FY2025

Average annual growth
in revenue from
FY2025 to FY2037

Growth into
perpetuity

Average operating
margin to FY2037

Pre Tax
Discount Rate

Ashford (ITL)

6.5%

9.1%

6.6%

4.1%

3.0%

2.0%

8.3%

15.7%

17.9%

15.8%

The headroom on the value in use calculations is summarised for each of the cash
generating units below:

Cash Generating Unit

Ashford (ITL)

Headroom

Nil

£43.9m

£7.2m

The Group recorded an impairment charge of £6.7m on the carrying value of its goodwill
and other acquired intangible assets held in respect of its UK sites CGU. This was as
a consequence of an increase in the Group’s weighted average cost of capital which
has been driven higher by increased costs of borrowing in the market as well as the
weaker financial performance of that CGU in the financial year.

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
FY2022 to FY2025

Effect of a 1% reduction in
growth per annum from
FY2025 to FY2037

Effect of a 1% reduction
in growth to perpetuity

Effect of a 1% reduction
in operating margin
from FY2023 – FY2025

Ashford (ITL)

(£10.6m)

(£2.6m)

(£5.0m)

(£0.4m)

(£5.3m)

(£1.7m)

(£3.0m)

(£0.7m)

(£1.6m)

(£0.4m)

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

19. Inventories

Raw materials

Work in progress

Finished goods

The cost of inventories recognised as an expense and included in cost of revenue
amounted to £49.5m (2021: £50.6m).

At 1 October

(Decrease)/increase in provision

Exchange rate movement

At 30 September

20. Trade and other receivables

Trade receivables

Other receivables

Contract assets

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.

FINANCIAL STATEMENTS

103

2022

£’000

16,231

17,517

3,325

37,073

2022

£’000

7,298

(31)

477

7,744

2022

£’000

31,608

1,220

1,708

1,062

35,598

2022

£’000

8,204

25,968

1,104

322

35,598

2022

£’000

23,417

8,910

1,543

33,870

(554)

33,316

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

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

104 FINANCIAL STATEMENTS

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.

21. Cash and cash equivalents

Cash at bank and on hand

22. Trade and other payables

Trade payables

Contract liabilities

Other taxation and social security

Derivative financial instruments

Accruals

23. Borrowings and lease liabilities

Current:

Bank borrowings

Leases

Non-current:

Bank borrowings

Leases

2022

£’000

463

(131)

184

554

2021

£’000

390

(15)

(2)

463

2022

£’000

5,999

2021

£’000

8,352

2022

£’000

7,698

1,063

1,017

1,272

11,715

22,765

2022

£’000

1,732

1,796

18,730

4,539

23,269

2021

£’000

5,306

249

521

135

13,113

19,324

2021

£’000

1,588

1,653

10,903

5,039

15,942

Total borrowings and lease liabilities

25,065

17,595

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 29.

G&H’s primary lending bank is NatWest Bank. The Group’s facilities comprise a
$40m (£35.9m) dollar revolving credit facility and a $30m (£26.9m) flexible
acquisition facility. At 30 September 2022, the balance drawn on the revolving
credit facility was $21.3m (£19.1m) (2021: $14.8m (£11.0m)) and on the flexible
acquisition facility nil (2021: nil).

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
23. Borrowings and lease liabilities (continued)

The facilities above are committed until 31 March 2027 and attract an interest rate
of between 1.6% and 2.1% above the rate specified by the bank dependent upon the
Group’s leverage ratio, payable on rollover dates.

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 11 and 17 respectively.

The total cash outflow in respect of leases in the year ended 30 September 2022
was £1.8m (2021: £2.0m)

24. Provisions 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

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 Group offers warranty periods
ranging up to 10 years on some of its products.

FINANCIAL STATEMENTS

105

2022

£’000

18,730

18,794

2022

£’000

1,944

3,500

1,555

6,999

2021

£’000

10,903

10,968

2021

£’000

1,819

4,081

1,544

7,444

2022

£’000

1,447

(832)

207

848

2021

£’000

1,692

(257)

(8)

1,447

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

106 FINANCIAL STATEMENTS

25. 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 (2021: £0.3m)

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

Deferred tax balance at 30 September

2022

£’000

(5,699)

(18)

(605)

(6,322)

2022

£’000

225

352

1,392

1,969

(6,203)

(2,088)

(8,291)

(6,322)

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)

The movement on the deferred tax balances by category is shown below:

At 1 October 2020

Credited/(charged) to income statement

Exchange movements

At 1 October 2021

(Charged)/credited to income statement

Exchange movements

At 30 September 2022

Intangible
assets

£’000

IFRS16
leases

£’000

139

157

(15)

281

(98)

225

406

–

(14)

392

(107)

352

Provisions

Property, plant
and equipment

Intangible
assets

Other timing
differences

£’000

887

348

(25)

1,210

(2)

184

1,392

£’000

(4,151)

(1,007)

159

(4,999)

(488)

(716)

(6,203)

£’000

(2,133)

(577)

127

(2,583)

677

(182)

(2,088)

£’000

(10)

–

Total

£’000

(4,862)

(1,069)

232

(5,699)

(18)

(605)

(6,322)

Overseas tax losses of £11.1m (2021: £9.2m) and UK tax losses of £nil (2021: £0.8m) are
available to offset against future profits of the Group. The Group has not recognised
a deferred income tax asset of £2.3m (2021: £2.7m) 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.

26. Called up share capital

Issued and fully paid ordinary shares of 20p each

At 1 October

Shares issued and fully paid

At 30 September

2022

Number

2021

Number

25,040,919

–

25,040,919

2022

£’000

5,008

–

5,008

2021

£’000

5,008

–

5,008

No shares were allotted under share option schemes during the year ended 30
September 2022 or 30 September 2021.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

107

Share premium
account

£’000

16,000

–

16,000

–

Merger
reserve

£’000

7,262

–

7,262

–

16,000

7,262

Cumulative
translation reserve

£’000

7,675

–

(1,621)

6,054

–

9,774

15,828

Hedging
Reserve

£’000

333

–

(468)

–

(135)

–

(1,137)

–

(1,272)

Retained
earnings

£’000

77,075

3,404

(1,127)

735

–

80,087

(2,010)

(3,105)

743

–

75,715

27. 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

At 1 October 2021

Profit for the financial year

Dividends paid

Fair value of share options

Currency hedge fair value

Currency translation differences

At 30 September 2022

28. Share options

The Group operates the Gooch & Housego 2013 Long Term Incentive Plan (the 2013
LTIP), the Gooch & Housego Save As You Earn Scheme, the Gooch & Housego ESPP
scheme and the Gooch & Housego PLC Restricted Stock Units Plan.

A reconciliation of total share option movements across these four schemes is
shown below:

Outstanding at 1 October

Awarded

Lapsed

Outstanding at 30 September

Exercisable at 30 September

2022

2021

Number

392,276

167,929

(102,690)

457,515

–

Weighted average
exercise price (£)

1.18

–

(0.76)

0.84

–

Number

247,269

215,904

(70,897)

392,276

–

Weighted average
exercise price (£)

–

2.19

0.12

1.18

–

The weighted average remaining contractual life of the options outstanding at
30 September 2022 was 1.8 years (2021: 1.4 years).

The total charge for the year relating to share options was £743,000 (2021:
£735,000), 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 Group three years after the grant date.

There have been ten grants of options under the 2013 Long Term Incentive Plan,
which will expire in 2023. 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.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

108 FINANCIAL STATEMENTS

The details of awards extant as at 30 September 2022 are summarised below:

No. of options granted

Expected volatility

Risk free rate

Option term

Fair value (£)

Exercise price

Expected dividend yield

Share price at grant date

13 Jan 2022

142,380

46%

0.76%

3 years

1,119,282

nil

1175p

Grant date

7 Jan 2021

174,781

46%

0.76%

2-3 years

1,751,334

nil

1198p

13 Jan 2020

133,159

30%

0.76%

3 years

569,331

nil

1428p

A reconciliation of LTIP option movements is shown below:

Outstanding at 1 October

Awarded

Exercised

Lapsed

Outstanding at 30 September

Exercisable at 30 September

2022

2021

Number

351,868

142,380

–

(95,931)

398,317

–

Weighted average
exercise price (£)

–

Number

247,269

174,781

–

(70,182)

351,868

–

Weighted average
exercise price (£)

–

The weighted average fair value of options granted in the year was 550.0p per option
(2021: 1004.0p per option).

The weighted average remaining contractual life of LTIP options outstanding at 30
September 2022 was 1.9 years (2021: 1.4 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the 2013 LTIP scheme was £669,000 (2021: £706,000).

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

2022

2021

Number

31,284

–

(6,587)

24,697

–

Weighted average
exercise price (£)

11.59

–

11.59

–

Number

–

31,749

(465)

31,284

–

Weighted average
exercise price (£)

–

11.59

–

There were no options granted under the Save As You Earn Scheme in the year ended
30 September 2022. The weighted average fair value of options granted in the year
ended 30 September 2021 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

2022

24,697

2021

31,284

The weighted average remaining contractual life of SAYE options outstanding at 30
September 2022 was 1.5 years (2021: 2.5 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the SAYE scheme was £20,000 (2021: £20,000).

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

109

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

2022

2021

Number

9,124

–

(172)

8,952

–

Weighted average
exercise price (£)

11.14

–

11.14

–

Number

–

9,374

(250)

9,124

–

Weighted average
exercise price (£)

–

11.14

–

There were no options granted under the Employee Stock Purchase Plan during
the year. The weighted average fair value of options granted in the year ended 30
September 2021 was 368.0p.

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

2022

8,952

2021

9,124

Number of share options

The weighted average remaining contractual life of Employee Stock Purchase Plan
options outstanding at 30 September 2022 was 0.5 years (2021: 1.5 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the Employee Stock Purchase Plan was £9,000 (2021: £9,000).

Gooch & Housego PLC Restricted Stock Units (RSUs)
An award of restricted stock units was made to a senior US based employee who
joined the Group during the year. A total of 25,549 units were awarded on 30
May 2022, with a vesting commencement date of 14 April 2022. There are no
performance criteria attached to these RSUs, one third of which will vest on 14
April 2024 and the remaining two thirds will vest on 14 April 2025 provided the
beneficiary is still employed by G&H on those dates.

Outstanding at 1 October

Awarded

Lapsed

Outstanding at 30 September

Exercisable at 30 September

Number

–

25,549

–

25,549

–

2022

Weighted average
exercise price (£)

2021

Number

Weighted average
exercise price (£)

–

The weighted average fair value of options granted in the year was 990p 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

–

2022

25,549

2021

–

Number of share options

The weighted average remaining contractual life of Restricted Stock Units
outstanding at 30 September 2022 was 2.2 years.

The total share-based payments charge for the year ended 30 September 2022
relating to the Restricted Stock Units Plan was £45,000 (2021: nil).

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC110 FINANCIAL STATEMENTS

29. 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.

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

1,914

3,038

898

149

5,999

2020

£’000

3,945

3,315

811

281

8,352

2021

£’000

1,500

24,837

–

2020

£’000

342

17,388

–

26,337

17,730

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 23. 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.

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.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

111

In order to maintain or adjust the capital structure, the
Group may

• adjust the amount of dividends paid to shareholders;

• return capital to shareholders;

• issue new shares;

• sell assets to reduce debt; and

• vary the level of debt financing.

While the Group’s debt to equity ratio is consistently
monitored, changes in the Group’s need for capital and the
selection of the source and funding of capital are assessed
against a number of criteria which may have a direct effect on
the Group debt to equity ratio.

The Group’s capital needs include, but are not solely limited to, its

• investment in non-current assets;

• investment in working capital; and

• acquisition of businesses, technologies and other intangible

assets.

The criteria against which the Group’s capital needs are
assessed include, but are not limited to,

• availability of and cost of debt financing;

• ability to raise equity financing at an acceptable share price;

and

• ratio of debt to equity.

Financial risks
The Group’s activities expose it to a variety of financial risks:
market risk (including foreign exchange risk and cash flow
interest rate risk), credit risk and liquidity risk.

The Group’s overall risk management programme focuses on
the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
Where considered appropriate, the Group will use derivative
financial instruments to hedge risk exposures. During the year
ended 30 September 2022, the Group has entered into
contracts to sell US Dollars and buy UK Sterling at fixed rates
at specific dates in the future. At 30 September 2022, the
Group had contracts to sell $11.0m in the period to 30
September 2023. The fair value of these contracts, a liability of
£1.3m, has been included within payables on the balance sheet
(2021: contracts to sell $5.5m in the period to 30 September
2022 with a fair value of negative £0.1m).

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.

During the year the Group has entered into contracts to hedge
foreign exchange risk as disclosed above.

The Group has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.

Currency exposure arising from the net assets of the Group’s
foreign operations is managed primarily through borrowings
denominated in the relevant foreign currencies.

As a significant amount of the Group’s profit is earned by its US
subsidiaries, the Group’s profit is sensitive to movements in the
US Dollar exchange rate. If the average US Dollar exchange rate
for the year had been consistent with the closing exchange rate
at 30 September 2021, with all other variables constant, post tax
profits for the year would have been £534,000 lower (2021:
£84,000 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
£4,033,000 lower (2021: £4,617,000 lower). If the US Dollar
strengthened by 10% against Pound Sterling with all other
variables held constant, the net assets of the Group would be
£4,929,000 higher (2021: £5,643,000 higher).

b. Cash flow interest rate risk
The Group has cash balances of £6.0m, 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 £147,000 (2021: £182,000).

Borrowings issued at variable interest rates expose the Group
to cash flow interest rate risk. During 2021 and 2022, the
Group’s borrowings at variable interest rates were denominated
in Pound Sterling and US Dollars as detailed in Note 23.

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

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC112 FINANCIAL STATEMENTS

worthiness prior to trading and maintain the level of trading within agreed credit
limits. Changes to credit limits require authorisation in accordance with internal
control policies.

The Group is exposed to concentration of credit risk. The Group’s top ten customers
in 2022 accounted for 29% of the Group’s revenue (2021: 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 20.

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 Group’s facilities comprise a committed revolving credit facility of $40m
(£35.9m) of which $21.3m (£19.1m) is drawn and an uncommitted flexible acquisition
facility of $30m (£26.9m) which is undrawn. Both are available until 31 March 2027.
These are analysed in Notes 23.

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
12 months.

30. Commitments

Capital commitments - authorised and contracted but not provided for

All capital commitments relate to property, plant and equipment.

2022

£’000

2,451

2021

£’000

1,049

31. Related party transactions

No contracts or arrangements have been entered into during the year, nor existed at
the end of the year, in which a director or key manager had a material interest.

Details of key management compensation are given in note 9.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

Company Balance Sheet
As at 30 September 2022

FINANCIAL STATEMENTS

113

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

(Loss)/profit for the year

Other changes in retained earnings

Total equity

The financial statements on pages 113 to 127, were approved by the Board of
Directors on 6 December 2022 and signed on its behalf by:

Charlie Peppiatt
Director

Chris Jewell
Director

Note

2022

£’000

35,674

3,655

1,282

330

40,941

17,636

615

18,251

(3,706)

14,545

(15)

55,471

5,008

16,000

4,591

(1,272)

42,537

(9,031)

(2,362)

31,144

55,471

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

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

114 FINANCIAL STATEMENTS

Company Statement of
Changes in Equity
For the year ended 30 September 2022

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

At 1 October 2021

Loss for the financial year

Total comprehensive expense 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 2022

Called up
Share capital

Share premium
account

Note

£’000

5,008

£’000

16,000

Merger
Reserve

£’000

4,591

–

5,008

16,000

5,008

16,000

–

4,591

–

Hedging
Reserve

£’000

333

–

(468)

Retained
earnings

£’000

36,222

6,707

(1,127)

735

–

(392)

Total
equity

£’000

62,154

6,707

(1,127)

735

(468)

(860)

(135)

42,537

68,001

(135)

–

(1,137)

42,537

(9,031)

(3,105)

743

–

(2,362)

68,001

(9,031)

(3,105)

743

(1,137)

(3,499)

5,008

16,000

4,591

(1,272)

31,144

55,471

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022Company Cash Flow Statement
For the year ended 30 September 2022

FINANCIAL STATEMENTS

115

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

Purchase of intangible assets

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

2022

£’000

(2,002)

(102)

(2,104)

–

(4)

(272)

5,215

4,939

(3,105)

(270)

885

615

2021

£’000

(3,996)

(1)

(3,997)

(3,250)

(3)

(81)

7,357

4,023

(1,127)

(1,101)

1,986

885

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC116 FINANCIAL STATEMENTS

Notes to the Company Cash
Flow Statement
For the year ended 30 September 2022

Reconciliation of cash used by operations

(Loss)/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

- Impairment of investments

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

Analysis of net cash

Cash at bank and in hand

Net cash

2022

£’000

(8,891)

2021

£’000

6,348

(5,215)

(7,357)

466

462

465

16,241

12,420

(4,296)

(1,235)

(5,531)

(2,002)

447

478

508

–

(5,924)

(6,254)

1,834

(4,420)

(3,996)

At 1 Oct 2021

Cash flow

At 30 Sep 2022

£’000

885

£’000

(270)

£’000

615

At 1 Oct 2020

Cash flow

At 30 Sep 2021

£’000

1,986

£’000

(1,101)

£’000

885

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

117

Notes to the Company Financial
Statements
For the year ended 30 September 2022

1. Company accounting policies

• The Companies (Strategic Report) (Climate – related Financial

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 UK adopted
International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies
reporting under those standards. The financial statements
have been prepared on a going concern basis.

The Directors have reviewed the budget for FY2023 and the
projections for FY2024 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.

New Standards and Interpretations not yet adopted
The following amended standards and interpretations were
effective for the financial year ended 30 September 2022,
however, they have not had a material impact on our
financial statements:

• Amendments to IFRS 7, IFRS 4, and IFRS 16 – Interest rate
benchmark reform – Phase 2 (effective 1 January 2021)

• Amendments to IFRS 4 Insurance Contracts – deferral of IFRS

9 (effective 1 January 2021)

• Amendment to IFRS 16, ‘Leases’ – Covid-19 related rent

concessions Extension of the practical expedient (effective 1
April 2021).

None of the amendments to the above standards had a
material impact on the Financial Statements.

Disclosure) Regulations 2022 (SI 2022/31), effective for
accounting periods beginning on or after 6 April 2022.

• Amendments to IAS 1 – Presentation of Financial Statements

on Classification of Liabilities (effective 1 January 2023).

Work will continue in the new financial year to assess the
impact of the new standards and interpretations on the
Group’s Financial Statements.

Pension schemes
The Company operates a money purchase pension scheme for
Directors and staff. The assets of the scheme are held in
separately administered funds. Contributions are recognised
as an employee benefit expense in the income statement when
they are due. Prepaid contributions are recognised as an asset
to the extent that a cash refund or a reduction in the future
payments is available.

Share options
The Company operates a number of share option schemes. In
accordance with IFRS 2 the fair value of the employee services
received in exchange for the grant of the options is recognised
as an expense in the income statement. The total amount to be
expensed over the vesting period is determined by reference to
the fair value of the options granted, excluding the impact of any
non-market vesting conditions (for example, profitability targets).
Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest.

Employer’s National Insurance in the United Kingdom and
equivalent taxes in other jurisdictions are payable on the exercise
of certain share options. In accordance with IFRS 2, this is treated
as a cash-settled transaction. A provision is made, calculated
using the fair value of the Company’s shares at the balance
sheet date, pro-rated over the vesting period of the options.

The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value)
and share premium when the options are exercised.

Derivatives and hedging activities
The Company transacts derivative financial instruments to
manage the underlying exposure to foreign exchange risk. The

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC118 FINANCIAL STATEMENTS

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 FY2022 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.

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.

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

6-20%

Straight line

Fixtures and fittings

6-33%

Straight line

Computer equipment

25-33%

Straight line

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.

In the UK and US, the Company is entitled to a tax deduction
for amounts treated as compensation on exercise of certain
employee share options under each jurisdiction’s tax rules. As
explained under “Share options” on the previous page, a
compensation expense is recorded in the Company’s income
statement over the period from the grant date to the vesting
date of the relevant options. As there is a temporary difference
between the accounting and tax bases, a deferred income tax
asset is recorded. The deferred income tax asset arising is
calculated by comparing the estimated amount of tax
deduction to be obtained in the future (based on the Company’s
share price at the balance sheet date) with the cumulative
amount of the compensation recorded in the income
statement. If the amount of estimated future tax deduction
exceeds the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in equity.

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:

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.

Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.

Other receivables
Other receivables, which largely comprise amounts due from
subsidiary companies, are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment of expected
credit losses.

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

119

Provisions
Provisions are recognised when the Company has a present
legal or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.

Dividend distribution
Dividend distributions to the Company’s shareholders are
recognised as a liability in the Company’s financial statements
in the period in which the dividends are approved by the
Company’s shareholders.

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.

Capital risk management
Details of the ways in which the Company manages capital
risk are given in note 29 to the Group financial statements.

Critical Accounting Estimates and Judgements
Carrying value of investments
The Directors have assessed the carrying value of the
Company’s investments during the year. The assessment
requires an estimate of the recoverable amount of the
investment, which is based on forecast cash flows and is
therefore inherently uncertain. See note 5 for details of the
carrying value of investments.

2. Company profit and loss account

Directors’ remuneration and key management compensation

Directors’ remuneration

Compensation for loss of office

Medical and other insurances

Directors’ pension scheme contributions

2022

£’000

901

366

1,301

2021

£’000

1,383

–

1,415

The aggregate emoluments of the highest paid Director
including compensation for loss of office of £366,000 were
£724,000 (2021: £679,000). Further information is included in
the Remuneration Committee report on page 66.

The aggregate gain on Directors’ share option exercises in the
year was nil (2021: nil).

The number of Directors who are accruing retirement benefits
under a money purchase pension scheme is 1 (2021: 1).

4. Dividends

Final 2021 dividend paid: 7.7p per share.
(Final 2020 dividend paid in 2021:
nil per share)

2022 Interim dividend paid: 4.7p per
share (2021: 4.5p per share)

2022

£’000

1,928

1,177

3,105

2021

£’000

–

1,127

The Directors have proposed a final dividend of 7.9p (2021: 7.7p)
for the financial year ended 30 September 2022, making the
dividend for the full year 12.6p (2021: 12.2p per share).

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
loss after tax was £9,031,000 (2021: £6,707,000 profit).

5. Investments

Fees payable to the Company auditors for the statutory audit
for the year amounted to £17,500 (2021: £17,000).

3. Employee benefit expense

Wages and salaries

Compensation for loss of office

Social security costs

Medical and other insurances

Share based payments

Other pension costs

2022

£’000

2,567

366

287

465

3,811

2021

£’000

4,429

–

295

508

5,368

The average number of employees during the year was 21
(2021: 18), all of whom were administrative.

Cost and net book value at 1 October

Additions related to share based
payments for subsidiary employees

Impairment of investments

Cost and net book value at 30 September

2022

£’000

51,638

277

(16,241)

35,674

2021

£’000

51,411

227

–

51,638

The impairment charge of £16.2m related to the Company’s
investments in Spanoptic Limited and Kent Periscopes Limited.
As part of the Group’s site rationalisation, the trade and assets
of these two companies were transferred to Gooch & Housego
(UK) Limited. Following the transfers, the remaining value of
these investments was assessed by the Directors as nil, and
therefore the carrying value of the investments has been
fully impaired.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

120 FINANCIAL STATEMENTS

The subsidiary companies at 30 September 2022, 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%

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%

Registered Office

Activity

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

Non-trading company

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 Shoken Building,
3-2-3 Sakae, Nagoya, Japan

Provider of sales and customer service
functions

Dowlish Ford, Ilminster,
Somerset, TA19 0PF

676 Alpha Drive, Highland
Heights, OH44143, USA

Property 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

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. All UK subsidiaries
are exempt from the requirement to file audited financial statements by virtue of
Section 479A of the Companies Act 2006. As part of this process, the Company
has provided statutory guarantees to these subsidiaries.

GOOCH & HOUSEGO PLC ANNUAL REPORT 20226. Property, plant and equipment

FINANCIAL STATEMENTS

121

Cost or valuation

At 1 October 2020

Additions

At 30 September 2021

Additions

Disposals

At 30 September 2022

Accumulated depreciation

At 1 October 2020

Charge for the year

At 30 September 2021

Charge for the year

Disposals

At 30 September 2022

Net book value

At 1 October 2020

At 30 September 2021

At 30 September 2022

7. Intangible assets

Cost or valuation

At 1 October 2020

Additions

Disposals

At 30 September 2021

Additions

At 30 September 2022

Accumulated amortisation

At 1 October 2020

Charge for the year

Disposals

At 30 September 2021

Charge for the year

At 30 September 2022

Net book value

At 1 October 2020

At 30 September 2021

At 30 September 2022

8. Other receivables

Prepayments and accrued income

Intercompany receivables

Freehold land
and buildings

£’000

4,432

–

4,432

–

4,432

1,011

1,094

–

1,176

3,421

3,338

3,256

Plant and
machinery

£’000

Fixtures and
fittings

£’000

Computer
equipment

£’000

3,987

–

3,987

–

3,987

3,116

265

3,381

266

–

3,647

871

606

340

1,392

–

1,392

–

1,392

1,169

1,262

–

1,355

223

130

230

233

(4)

233

156

193

(3)

211

Systems

£’000

Computer
Software

£’000

Other

£’000

2,052

–

2,125

2,200

294

411

–

705

425

1,130

1,758

1,420

1,070

1,310

(414)

904

197

1,101

1,245

(414)

850

889

212

–

Total

£’000

10,041

10,044

(4)

10,044

5,452

478

5,930

462

(3)

6,389

4,589

4,114

3,655

Total

£’000

3,426

(414)

3,093

272

3,365

1,584

447

(414)

1,617

466

2,083

1,842

1,476

1,282

2022

£’000

461

17,175

17,636

2021

£’000

188

13,067

13,255

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

122 FINANCIAL STATEMENTS

9. Deferred tax

The movement in the deferred tax assets and liabilities during the year was as follows:

At 1 October

Credited to the income statement

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 2022 and 30 September 2021.

The current portion of the deferred tax asset is £0.1m (2021: £0.1m).

Factors affecting the future tax charge
UK tax losses of £nil (2021: £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

2022

£’000

205

110

315

2022

£’000

292

(15)

315

2022

£’000

449

859

1,272

1,036

3,706

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 SOFR rate applicable for the year. Non-trading amounts owed to UK group
undertakings are charged interest at rates specified in the loan agreements.

11. Called up share capital

Allotted, issued and fully paid

At 1 October

Shares issued and fully paid

At 30 September

2022

Number

2021

Number

25,040,919

–

25,040,919

2022

£’000

5,008

–

5,008

No shares were issued under share option schemes during the year ended
30 September 2022 (2021: nil shares).

2021

£’000

204

205

2021

£’000

240

(127)

205

2021

£’000

428

371

326

135

2,312

3,572

2021

£’000

5,008

–

5,008

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022

FINANCIAL STATEMENTS

123

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 29 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 Company’s financial assets and liabilities are set out below.

Pound Sterling

US Dollars

Euro

Financial assets

Financial liabilities

2022

£’000

518

615

2021

£’000

733

106

885

2022

£’000

–

1,272

–

1,272

2021

£’000

–

135

–

135

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 $11.0m in the period to 30 September
2023 (2021: contracts to sell $5.5m in the period to 30 September 2022). The fair value
of these contracts, of negative £1.3m, has been included in payables on the balance sheet
(2021: £0.1m liability)

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, the Gooch & Housego
ESPP scheme and the Gooch & Housego PLC Restricted Stock Units Plan.

A reconciliation of total share option movements across these four schemes is shown below:

Outstanding at 1 October

Awarded

Lapsed

Outstanding at 30 September

Exercisable at 30 September

2022

2021

Number

392,276

167,929

(102,690)

457,515

–

Weighted average
exercise price (£)

1.18

–

(0.76)

0.84

–

Number

247,269

215,904

(70,897)

392,276

–

Weighted average
exercise price (£)

–

2.19

0.12

1.18

–

The total charge for the year relating to share options was £465,000 (2021: £508,000),
all of which related to equity-settled share based payment transactions.

The weighted average remaining contractual life of the options outstanding at
30 September 2022 was 1.8 years (2021: 1.4 years).

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

124 FINANCIAL STATEMENTS

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 details of awards extant as at 30 September 2022 are summarised below:

No. of options granted

Expected volatility

Risk free rate

Option term

Fair value (£)

Exercise price

Expected dividend yield

Share price at grant date

13 Jan 2022

142,380

46%

0.76%

3 years

1,119,282

nil

1175p

Grant date

7 Jan 2021

174,781

46%

0.76%

2-3 years

1,751,334

nil

1198p

13 Jan 2020

133,159

30%

0.76%

3 years

569,331

nil

1428p

A reconciliation of LTIP option movements is shown below:

Outstanding at 1 October

Awarded

Lapsed

Outstanding at 30 September

Exercisable at 30 September

2022

2021

Number

351,868

142,380

(95,931)

398,317

–

Weighted average
exercise price (£)

–

Number

247,269

174,781

(70,182)

351,868

–

Weighted average
exercise price (£)

–

The weighted average fair value of options granted in the year was 550.0p per option
(2021: 1004.0p per option).

The weighted average remaining contractual life of LTIP options outstanding at
30 September 2022 was 1.9 years (2021: 1.4 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the 2013 LTIP scheme was £463,000 (2021: £506,000).

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 with 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

2022

2021

Number

31,284

–

(6,587)

24,697

–

Weighted average
exercise price (£)

11.59

–

11.59

–

Number

–

31,749

(465)

31,284

–

Weighted average
exercise price (£)

–

11.59

–

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022FINANCIAL STATEMENTS

125

There were no options granted under the Save As You Earn Scheme in the year. The
weighted average fair value of options granted in the year ended 30 September 2021
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

2022

24,697

2021

31,284

The weighted average remaining contractual life of SAYE options outstanding at 30
September 2022 was 1.5 years (2021: 2.5 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the SAYE scheme was £2,000 (2021: £2,000).

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

2022

2021

Number

9,124

–

(172)

8,952

–

Weighted average
exercise price (£)

11.14

–

11.14

–

Number

–

9,374

(250)

9,124

–

Weighted average
exercise price (£)

–

11.14

–

There were no options granted under the Employee Stock Purchase Plan during the
year. The weighted average fair value of options granted in the year ended 30
September 2021 was 368.0p.

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

2022

8,952

2021

9,124

The weighted average remaining contractual life of Employee Stock Purchase Plan
options outstanding at 30 September 2022 was 0.5 years (2021: 1.5 years).

The total share-based payments charge for the year ended 30 September 2022
relating to the Employee Stock Purchase Plan was £nil (2021: £nil).

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC

126 FINANCIAL STATEMENTS

Gooch & Housego PLC Restricted Stock Units (RSUs)
An award of restricted stock units was made to a senior US based employee who
joined the Group during the year. A total of 25,549 units were awarded on 30 May
2022, with a vesting commencement date of 14 April 2022. There are no
performance criteria attached to these RSUs, one third of which will vest on 14 April
2024 and the remaining two thirds will vest on 14 April 2025 provided the
beneficiary is still employed by G&H on those dates.

Outstanding at 1 October

Awarded

Lapsed

Outstanding at 30 September

Exercisable at 30 September

Number

–

25,549

–

25,549

–

2022

Weighted average
exercise price (£)

2021

Number

Weighted average
exercise price (£)

–

The weighted average fair value of options granted in the year was 990p 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:

Restricted stock units

Exercise price per share option

–

2022

25,549

2021

–

Number of share options

The weighted average remaining contractual life of Restricted Stock Units
outstanding at 30 September 2022 was 2.2 years.

The total share-based payments charge for the year ended 30 September 2022
relating to the Restricted Stock Units Plan was £nil (2021: £nil).

GOOCH & HOUSEGO PLC ANNUAL REPORT 2022
FINANCIAL STATEMENTS

127

2022

£’000

–

343

314

802

2022

£’000

687

638

–

1,789

537

1,560

550

–

1,312

585

7,658

2022

£’000

(362)

6,184

8,040

(140)

–

(357)

2,759

16,148

2021

£’000

–

293

286

723

2021

£’000

728

601

102

1,383

489

796

361

363

1,119

525

6,467

2021

£’000

(371)

6,199

5,855

(140)

1,786

(1,318)

(135)

799

–

12,696

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 (Ohio) LLC

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 (California) LLC

Gooch & Housego (Palo Alto) LLC

StingRay Optics LLC

Kent Periscopes Limited

Gooch & Housego (Torquay) Limited

Integrated Technologies Limited

The amounts (payable to)/receivables from subsidiary undertakings as at
30 September were:

EM4 Inc

G&H (US Holdings) Limited

Gooch & Housego (UK) Limited

Gooch & Housego (Palo Alto) LLC

Kent Periscopes Limited

Gooch & Housego (Torquay) Limited

Gooch & Housego (Deutschland) GmBH

Gooch & Housego Japan KK

G&H Holdings (Delaware) Inc.

Integrated Technologies Limited

During the year Gooch & Housego PLC received dividends of £0.2m, £0.6m, £2.7m and
£1.7m respectively from G&H (Property) Holdings Limited, Gooch & Housego (Torquay)
Limited, Kent Periscopes Limited and Integrated Technologies Limited. In the prior
year Gooch & Housego PLC received dividends of £1.5m and £5.9m respectively
from Spanoptic Limited and Integrated Technologies Limited. The total dividend
received from subsidiary undertakings during the year was £5.2m (2021: £7.4m).

No other material contracts or arrangements have been entered into during the
year, nor existed at the end of the year, in which a director or key manager had a
material interest.

ANNUAL REPORT 2022 GOOCH & HOUSEGO PLC
128 SHAREHOLDER INFORMATION