INTERIM RESULTS HALF YEAR ENDED 31 MARCH 2019 CEO: Mark Webster / - - PowerPoint PPT Presentation

INTERIM RESULTS

HALF YEAR ENDED 31 MARCH 2019

CEO: Mark Webster / CFO: Andrew Boteler

PAGE 2 Interim Announcement June 2019

• Revenue growth of 7.4% compared to same period last year. This was despite a challenging industrial laser

market, due to cyclical downturn and continued US/ China trade dispute. Excluding foreign exchange, an increase

• f 4.1%
• Anticipate non- industrial laser business will be in line with our expectations. Increase in industrial laser orders

since last update, but we are now assuming that industrial laser business will not return to ‘normal’ levels in FY 2019 and instead we will only supply known/ high certainty orders

• Given revised industrial laser outlook, Board’s expectations for Group’s adjusted PBT for FY 2019 now reduced by

circa £3.5- 4.0 million

• Demand for high reliability fibre couplers to benefit from investment made in H1 and show step change in H2.

Anticipate a three fold increase in demand over next three years

• Life science business has more than doubled compared to H1 last year, due to organic growth across all three life

science areas and successful acquisition of ITL

• Record half year order book of £93.2 million, as at 31 March 2019, an increase of 10.0% compared with the same

period last year. Excluding foreign exchange, an increase of 5.3%.

• Interim dividend increased to 4.3p (2018: 4.2p) reflecting the Board’s longer term confidence in the business,

whilst acknowledging challenging industrial laser trading conditions

“We remain confident in the potential of the industrial laser sector and our other markets to provide attractive long term growth”. Mark Webster, CEO

Key highlights

Operational & Financial

PAGE 3 Interim Announcement June 2019 20 40 60 80 100 120 140

Revenue £’m

2 4 6 8 10 12 14 16 18 20

Adjusted PBT £’m

Financial Overview

Financial Track Record

H1 H2

Key points:

• The business has

delivered profitable growth over a nine year period.

• 15% CAGR in

revenues since FY2009.

• 22% CAGR in adjusted

PBT since FY2009.

• 24% CAGR in

dividends since FY2010.

2 4 6 8 10 12

Dividends pps

• 15
• 10
• 5

5 10 15 20

Net Debt / Cash £’m

Final Interim

PAGE 4 Interim Announcement June 2019

• Revenue growth of 7.4% yoy or 4.1% excluding

foreign exchange.

• H1 impacted by a 14.4% reduction in core

industrial laser and semi-conductor market, which was partially offset by a 126% increase in the Life Sciences / Biophotonics market due to

• rganic growth and successful acquisition of ITL
• Gross margin reduced to 33.8%, from 39.1% in

the prior year due to a mix effect & lower volume in our industrial laser market.

• Adjusted operating profit margin reduced to

10.1%, from 12.9% in the prior year

• Invested £4.0 million in R&D (FY 2018 £4.1

million). This represented 6.8% of revenue

• Adjusted effective tax rate was 24.4% (FY 2018:

24.2%)

• Adjusted basic earnings per share down 23.7%

Financial headlines

Summary Income Statement

Period Ended 31 March 2019 £’000 2018 £’000 % Change Revenue 59,708 55,608 7.4% Gross profit 20,196 21,722 (7.0%) Adjusted operating profit 6,054 7,148 (15.3%) Adjusted operating profit % 10.1% 12.9% Adjusted profit before tax 5,410 7,009 (22.8%) Adjusted basic earnings per share (p.p.s) 16.4 21.5 (23.7%)

“The diversification strategy of the business means that G&H has delivered in testing H1 market conditions, with anticipated improvement in H2 across all three main business sectors” Andy Boteler, CFO

PAGE 5 Interim Announcement June 2019

• £2.4 million growth in working capital

following the acquisition of ITL & GFO. On a ‘like for like’ basis working capital reduced by £1.1 million.

• As expected the year end receivables

position has largely unwound and is £5.8 million lower as at 31 March 2019.

• Final instalments of the Kent Periscopes &

StingRay acquisition earn-outs of £2.1 million & $3.3 million respectively, paid in cash from existing debt facilities in the

• period. This represents 84% and 83% of the

maximum potential respectively.

• £1.5 million received in respect of the sale
• f the Orlando facility freehold property,

following the closure of this site in 2018.

• Net debt position of £14.5 million, up from

£10.6 million, after £3.9 million on acquisitions and £3.6 million on capex.

Financial headlines

Cash Flow

Period Ended 31 March 2019 £’000 2018 £’000 Net cash flow from operating activities 4,401 (495) Cash flow from investing activities Acquisition of subsidiary (3,906) (4,414) Purchase of property, plant and equipment & intangibles (3,590) (3,661) Sale of property plant and equipment 1,480

• Interest received

9 7 (6,007) (8,068) Cash flow from financing activities Movement in borrowings (37) (3) Proceeds from issuance of share capital

• Interest paid

(518) (111) Dividends paid to ordinary shareholders (1,733) (1,608) (2,288) (1,722) Net decrease in cash and cash equivalents (3,894) (10,285) Exchange gains / (losses) 27 (87) Cash and cash equivalents 15,566 16,053

PAGE 6 Interim Announcement June 2019

Financials (50% of revenue)

Industrial

:

Industrial Lasers Optical Comms Metrology Remote Sensing Semi- conductor Scientific Research HY19 HY18 Reported growth

Revenue £29.6m £32.5m (8.8%) Adjusted

• perating

profit £2.2m £4.6m (52.5%) % margin 7.3% 14.1% (680bp)

• Business in our industrial market polarised between subsectors.
• Cyclical downturn in microelectronics and semi conductor markets and continued impact of the US/ China trade
• dispute. This subsector is down by 14.4 %, albeit compared to historically high performance in previous year.
• Impact of technical innovation in industrial manufacturing, 5G, folding phones etc, coupled with our market leading

position in critical components for industrial lasers means we expect industrial lasers to drive growth for G&H for the foreseeable future.

• Laser engines in wind turbines, pipeline security and other sensing markets showing good progress
• Strong demand for fibre optics generally and hi- reliability fibre couplers for undersea cables specifically. Significant

fibre coupler orders have been placed and expect to see ramp up in H2 and into FY 2020 and 2021.

• Profit margin was hit by lower overhead absorption and an adverse product mix

PAGE 7 Interim Announcement June 2019

Financials (31% of revenue)

Aerospace & Defence

:

Target Designation & Range Finding Guidance & Navigation Counter- measures Space Photonics Periscopes & Sighting Systems Opto- mechanical sub systems HY19 HY18 Reported growth

Revenue £18.4m £18.1m 1.7% Adjusted

• perating

profit £1.2m £2.1m (42.0%) % margin 6.5% 11.4% (490bp)

• Revenue grew 1.7% during the first six months of FY2019, compared to the equivalent period last year.
• Programme delays to key US defence programmes impacting revenue and profit in H1, partially offset by growth in

navigation components.

• Significant US defence contracts and orders in latter part of H1/ beginning of H2
• H1 profit and margin fell due to volume impact
• The company is well positioned to exploit the longer term aerospace & defence market dynamics which are favourable

for our photonic and fibre optic technologies

• Significant programmes in space satellite and UAV communications systems, UAV and armoured vehicle imaging

systems and direct energy weapons

PAGE 8 Interim Announcement June 2019

Financials (19% of revenue)

Life Sciences/Biophotonics

:

Industrial lasers Optical Coherence Tomography (OCT) Laser Surgery Microscopy Systems HY19 HY18 Reported growth

Revenue £11.7m £5.0m 132.2% Adjusted

• perating

profit £2.0m £0.3m 550.0% % margin 17.2% 6.1% 1,110bp

• More than doubled revenue growth compared to H1 last year. Driven by organic growth across all three main legacy

sectors and the successful acquisition of ITL in August 2018.

• Margin grew significantly due to improved volume performance and margin profile of ITL’s system business
• The acquisition of ITL should effectively double our life science business and their enhanced systems capability will

enhance our product offering to our medical diagnostics customers

• Further investments made in high return R&D programmes for OCT medical diagnostics, laser surgery, microscopy and

systems

• In addition to our traditional areas we see further opportunity for our photonic and fibre optic technologies in robotic

surgery, minimally invasive surgery and OCT related endoscopy

PAGE 9 Interim Announcement June 2019

Acquisitions

ITL, acquired on 8 August 2018 £14 million upfront, with £8 million earn out Effectively doubles life science business, with 100% systems products Enhanced systems capability enables G&H to wrap up photonics technology in a more compelling package for our customers Running ahead of expectations Gould Fiber Optics, acquired on 6 September 2018 $13 million upfront with $3.4 million earn out Combination with G&H creates an unrivalled fused fibre global leader Enhanced access to tier 1 US A&D companies Running behind expectations As anticipated need to upgrade manufacturing processes before we can take full advantage Kent Periscopes, acquired 2016, final tranche of payout paid November 2018, 84% of potential StingRay Optics, acquired 2017, final tranche of payout paid February 2019, 83% of potential

PAGE 10 Interim Announcement June 2019

Our Strategy

Remains the twin pillars of diversification & moving up the value chain

Diversify

Exploit high-growth opportunities for our photonics technologies across our three key market sectors to provide balance and reduce exposure to cyclicality Aim to establish ‘critical mass’ in life sciences and further strengthen our position in A&D, through investment in R&D and further strategic acquisitions Exploit near/ medium term opportunities in:

• Precision lasers and laser systems
• Optical sensing in harsh environments
• Space satellite communications
• Opto-mechanical systems for UAVs
• Optical systems for armoured vehicles
• Laser surgery
• OCT medical diagnostics
• Laser Microscopy
• Medical diagnostic systems

Move up the value chain

• Generate growth by adding value for our customers through enhanced

design, engineering, systems and service capability

• Leverage excellence in components to become a systems or solutions

provider

• Transition from component supplier to critical partner

PAGE 11 Interim Announcement June 2019

Key messages and outlook

• Revenue growth despite challenging industrial laser sector, due to cyclical downturn and continued

US/ China trade dispute

• Anticipate that non- industrial laser business will meet expectations, but now forecasting industrial

lasers will not return to ‘normal’ in FY 2019 and instead we will only supply known/ high certainty

• rders
• As result Board’s expectations for Group adjusted PBT reduced by £3.5- 4.0 million
• Significant technical innovation in microelectronics and industrial laser manufacturing will drive growth

for G&H into the foreseeable future

• Record half year order book of £93.2 million, 10.0% ahead of same time previous year
• Demand for hi- reliability fibre couplers to triple over the next three years, driven by Silicon valley

companies and technology advances which favour our products

• Continued to make substantial investments in fibre optic manufacturing capacity, high return R&D

projects, which delivered 24 new products and revenue of £5.0 million

• Made structural cost savings during FY 2019 which will deliver full year impact in FY 2020
• Substantial progress towards our strategic goals of diversification and moving up the value chain. Life

sciences more than doubled in H1 2019 and sub- systems, systems now represent 31.7% of revenue compared to 22.4% in H1 2018

• Well positioned to make strategic acquisitions as and when the right opportunities become available
• Board remains confident that industrial lasers and the other target markets for our photonic

technologies will continue to deliver attractive long term growth

Appendices

PAGE 13 Interim Announcement June 2019

G&H photonics – part of our everyday lives

You probably use G&H photonics every time you use the internet or make a transatlantic phone call Your smartphone or tablet was manufactured and tested using G&H photonic components: -

• Lasers containing G&H acousto- and electro-optics are used in virtually every step in the manufacturing process
• Lithography systems containing G&H precision optics and acousto-optics are used in semiconductor and PCB manufacture
• Wafers, masks and boards are inspected with laser scanners incorporating G&H acousto-optics
• Displays are measured using G&H instruments

When you travel on holiday or business the airliner you are flying in will be guided by a ring laser gyroscope that probably incorporates G&H optical components When you use a sat nav in your car you are relying on GPS satellites that incorporate G&H lasers and fibre-optic components When you have your eyes tested you will be examined with instruments made possible by G&H fibre-optic modules and precision optical components If you have laser surgery it is likely that G&H photonics are an integral part of the surgical system

PAGE 14 Interim Announcement June 2019

Key Customers

PAGE 15 Interim Announcement June 2019

Investor Timetable

• 4 June 2019 – Interim Announcement
• 8 October 2019 – Full Year Trading Update
• 3 December 2019 – Preliminary Announcement