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Goodwin PLC (GDWN)

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Thursday 13 August, 2020

Goodwin PLC

Final Results

RNS Number : 9852V
Goodwin PLC
13 August 2020
 

PRELIMINARY ANNOUNCEMENT

 

Goodwin PLC today announces its preliminary results for the year ended 30th April 2020.

 

CHAIRMAN'S STATEMENT

The pre-tax profit for the Group for the twelve month period ending 30th April 2020, was £12.1 million (2019: £16.4 million), a decrease of 26% on a revenue of £145 million (2019: £127 million) which is 14% up on the figures reported for the same period last financial year. The Directors propose a reduced dividend of 81.71p (2019: 96.21p). As with the majority of companies around the world, Covid-19 has stalled our progress in the last quarter of the financial year, and we have seen a slower start to the new financial year than we would have expected without the pandemic. Despite this and the disruption due to trade frictions between the USA and China, the underlying progression of the business remains robust and resilient.

 

At the time of writing, the Group's current workload stands at £183 million which is 11% ahead of  last year's Group record figure of £165 million (2019: £165 million, 2018: £82 million, 2017: £76 million). Whilst the current workload figure contains the first element of the supply agreement announced to the Stock Exchange on 22nd June 2020, this supply agreement for the manufacture and machining of storage boxes to assist with nuclear waste clean-up accounts for less than 2% of the £183 million and excludes the amount of orders that are expected to be placed in the future once the mobilisation phase is complete. Armed with this workload, the Group retains a high degree of confidence in the future versus the looming uncertainty for many businesses this coming year.

 

Within the Mechanical Engineering Division, margins continue to be squeezed on our petrochemical work and this is likely to persist during the current financial year given the low oil price. In order to counteract this I am able to give the assurance that our diligently fostered and growing workload contains substantial amounts of non-petrochemical work commanding respectable margins in areas such as national defence capability and projects of national importance.  The critical nature of this ongoing work was highlighted by 'key worker' notices being issued to certain of the Group's operations immediately upon the onset of the pandemic. Whilst these projects are in their infancy, they will start to ramp up over the next 6 to 12 months.

 

Goodwin Steel Castings has had another difficult year. This is largely attributable to the performance of two contracts where we are currently in dispute with our customers. Any favourable resolution will be booked in the current financial year once resolved. Going forward the casting of nuclear waste containment boxes in relation to Goodwin International's supply agreement will provide a significant base load for our foundry. However, with projects of this nature they take time to get mobilised, so in this current financial year it is unlikely this contract alone will be transformational, but it will be beneficial in future years. This with their other work for shipbuilding components in specialist alloys for the USA, that only a few alloy steel foundries in the world are qualified to produce, along with specialist nuclear power generation application castings means that our foundry has transitioned away from what used to be business reliant on the petrochemical industries.  The business key market re-alignment is still transitional, but the Directors can see that with the markets it is addressing and the projects it is working on that there is a long term, bright and profitable future for Goodwin Steel Castings. 

 

Similarly Easat Radar Systems is now focusing on complete radar system supply contracts, with a product suite and offering that is competitive internationally. Two complete systems will be sent to Thailand during this year, and there is a requirement for significant airport infrastructure in developing countries over the coming years, which our competitive product offering is tailored to meet. Over the past twelve months, Easat completed a substantial amount of business, such that it reduced its unacceptable working capital investment by some £4 million which has helped with the Group cash flow.

 

The Refractory Engineering Division achieved operating profits of £7 million in the year, (2019: £8 million), representing 47% of the Group's operating profit despite its customers' consumer products being affected most by Covid-19 in the last quarter. Moving forward, although the construction and industrial customers' activity is returning, uncertainty remains with regard to the medium term outlook especially for our customers' luxury products, for which they use our investment powders, waxes and silicone rubbers.

 

During the financial year, the Group successfully acquired the globally recognised Castaldo silicone rubber and wax division, including the trade name and associated trademarks.  For the past 75 years Castaldo has been at the centre of the worldwide jewellery casting industry and this acquisition will further increase the Group's global market share within the moulding rubber and injection wax business by aligning higher value complementary sales activities with the existing business activities. By utilising the distribution network and global presence within our Refractory Engineering Division it is forecast that significant revenue growth can be achieved over and above the Castaldo division sales levels seen pre-acquisition. The manufacturing of the product lines is being relocated to Thailand which will also increase the gross margin of the acquired product lines.

 

Post year end the Group has also seized the opportunity to purchase a 2.5 acre manufacturing site and mineral processing assets for £770,000 that is complementary to our existing minerals processing business that is running at near full capacity.  The purchase was concluded within seven days, and the Directors believe that the site was acquired at substantially less than its true market value. In addition, we believe that within a few months we will be able to start to generate profits by utilising the assets acquired.

 

Across both Divisions, our intangibles have grown in recent years due to multiple product development activities and acquisitions. A number of these major activities will be completed and taken to market within the current financial year leaving us with products that can be sold for many years to come; many of these new products are covered by international patent protection. This is not to say that there will be no new product development programmes as activities here have just been scaled back, focusing as always on areas that we anticipate may yield good future prospects. 

 

In line with the Group's strategy the Board has worked hard to control its working capital and ensure a safe level of gearing. This is transparently seen at an operational level delivering strong cash generation in the year of £22.5 million, up £7.6 million from the previous year.  As a result of a reduced level of investment in the year, I am pleased to report the Group's net debt stands at a modest £19 million, equating to a gearing percentage of 18% versus 20% last year. 

 

Following a productive ten year relationship with Lloyds Bank PLC, and with our five year facility set to mature in December 2020, we put the facilities out for competitive tender. On a like-for-like basis in terms of available facility and once all costs in relation to the facility had been evaluated Lloyds were no longer as competitive in relation to other offers we received. I can confirm that the Board has now signed a new facility agreement with Santander UK plc for the same quantum but on improved terms, including a higher proportion that will be committed for a five year period.  In addition, a £10 million revolving credit facility (RCF) set to expire in October 2020 is also in the final stages of being renegotiated ultimately providing the Group with long term facilities totalling over £50 million, in addition to the £30 million secured as an additional committed credit line through the Bank of England Covid Corporate Financing Facility (CCFF), which was taken out as an insurance policy should any possible extreme Covid-19 event occur and is repayable in April 2021.

 

Auditor rotation is now mandated by regulation meaning that the year ended 30th April, 2020 will be KPMG's last year performing the Group audit having worked with us for the prior 56 years (Peat, Marwick, Mitchell & Co. in the earlier years).  The Board would like to express its gratitude for the work performed over this period.  Following a competitive tender process, the Audit Committee and the Board propose that RSM UK Group LLP be appointed as the new Group auditor, commencing responsibility for auditing the Group for the financial year beginning 1st May 2020.

 

Despite my optimism, at the time of writing, it is necessary that we remain acutely aware of the external environment with Covid-19, as until an effective vaccination programme is rolled out, the likelihood of more flare-ups and lockdowns across the globe seems inevitable. However, with the Group's underpinnings, in terms of its order book, its cash flow and excellent workforce, from a business point of view Covid-19 will likely be nothing more than a bump in the road of the Group's progression when we look back at it in a few years' time.

 

Since the start of the pandemic our workforce has been outstanding. The Group immediately set out a policy to protect its employees, and they in turn have responded and looked after the Group's interests. This has involved working in many cases even harder in order to achieve the same outcomes due to the restrictive and new working practices that were necessarily imposed for everyone's wellbeing. 

 

The Board is once again indebted to our Directors, managers and employees around the world for their efforts in keeping the Group operational during this difficult Covid-19 period and for their devotion to the Group's long-term performance. Had the Group not kept on manufacturing over the four month period between March and the end of June, the Group's profitability and cash flow would have deteriorated substantially. We have all been working in uncharted territory because of this, and I am immensely proud of how every single employee within the Group has adapted and worked within this challenging new environment.

 

 

13th August, 2020

T.J.W. Goodwin

 

Chairman

 

Alternative performance measures mentioned above are defined in Note 7.

 

OBJECTIVES, STRATEGY AND BUSINESS MODEL

 

The Group's main OBJECTIVE is to have a sustainable long-term engineering based business with good potential for profitable growth while providing a fair return to our shareholders.

The Board's STRATEGY to achieve this is:

· to supply a range of technically advanced products to growth markets in the mechanical engineering and refractory engineering segments in which we have built up a global reputation for engineering excellence, quality, efficiency, reliability, price and delivery;

· to manufacture advanced technical products profitably, efficiently and economically;

· to maintain an ongoing programme of investment in plant, facilities, sales and marketing, research and development with a view to increasing efficiency, reducing costs, increasing performance, delivering better products for our customers, expanding our global customer base and keeping us at the forefront of technology within our markets, whilst at all times taking appropriate steps to ensure the health and safety of our employees and customers;

· to control our working capital and investment programme to ensure a safe level of gearing;

· to maintain a strong capital base to retain investor, customer, creditor and market confidence and so help sustain future development of the business;

· to support a local presence and a local workforce in order to stay close to our customers;

· to invest in training and development of skills for the Group's future.

· to manage the environmental and social impacts of our business to support its long-term sustainability.

 

BUSINESS MODEL

The Group's focus is on manufacturing within two sectors, mechanical engineering and refractory engineering, and through this division of our manufacturing activities, our overseas business facilities and our global sales and marketing activities, the Group benefits from market diversity. Further details of our business and products are shown on our website www.goodwin.co.uk

 

Mechanical Engineering

The Group specialises in supplying industrial goods, generally on a project basis, more often than not involving the complementary skillset of other group companies to deliver the requirement. The projects normally involve international procurement, high integrity castings, forgings or wrought high alloy steels, precision CNC machining, complex welding and fabrication, and other operations as are required. In addition to specialist projects the group, manufactures and sells a wide range of dual plate check valves, axial nozzle check valves and axial piston control and isolation valves to serve the oil, petrochemical, gas, liquefied natural gas (LNG), mining, nuclear power generation, nuclear waste treatment and water markets.

 

We generate value by creating leading edge technology designs, globally sourcing the best quality raw material at good prices, manufacturing in highly efficient facilities using up to date technology to provide very reliable products to the required specification, at competitive prices and with timely deliveries.

 

Our mechanical engineering markets also include high alloy castings, machining and general engineering products which typically form part of large construction projects such as power generation plants, oil refineries, chemical plants, nuclear waste treatment plants, high integrity offshore structural components and bridges. The Group through its foundry, Goodwin Steel Castings, has the capability to pour high performance alloy castings up to 35 tonnes, radiograph  and also finish CNC machine and fabricate them at the foundry's sister company, Goodwin International. This capability is targeting the defence industry and nuclear decommissioning, the oil and gas industry, as well as large, global projects requiring high integrity machined castings. 

 

Goodwin International, the largest company in the mechanical engineering division, not only designs and manufactures dual plate check valves, axial nozzle check valves and axial piston control and isolation valves but also undertakes specialised CNC machining and fabrication work for nuclear decommissioning projects. Goodwin International also has a division that is focussed on manufacturing / machining high precision, high integrity components for naval marine vessels. Noreva GmbH also designs, manufactures and sells axial nozzle check valves. Both Goodwin International and Noreva purchase the majority of the value of their sand mould castings from Goodwin Steel Castings for their ranges of check valves and this vertical integration gives rise to competitive benefits, increased efficiencies and timely deliveries.

 

At Goodwin Pumps India we manufacture a superior range of submersible slurry pumps for end users in India, Brazil, Australia and Africa. Easat Radar Systems (Easat) and its subsidiary, NRPL, design and build bespoke high-performance radar antenna systems for the global market of major defence contractors, civil aviation authorities and border security agencies. Easat has a sister company, Easat Radar Systems India, that also manufactures, sells and maintains radar systems for air traffic control.  We create value on these by innovative design, assembly and testing in our own facilities using bought in or engineered in-house components.

 

Refractory Engineering 

Within the Refractory Engineering Division, Goodwin Refractory Services (GRS) primarily generates value from designing, manufacturing and selling investment casting powders and waxes to the jewellery casting industry. GRS also manufactures and sells investment casting powders to the tyre mould and aerospace industries. The Refractory Engineering Division has five other investment powder manufacturing companies located in China, India and Thailand which sell the casting powders directly and through distributors to the jewellery casting industry and also directly to tyre mould and aerospace industries.

 

These companies are vertically integrated with another of our UK companies, Hoben International, which manufactures cristobalite, which it sells to the six casting powder manufacturing companies as well as producing ground silica that also goes into casting powders and other UK uses of silica such as wind turbine blade manufacture. Hoben International now also manufactures different grades of perlite.

 

The other UK refractory company is Dupré Minerals which focuses on producing exfoliated vermiculite that is used in insulation, brake linings and fire protection products, including technical textiles that can withstand exposure to high temperatures and for lithium battery fire extinguishers. Dupré also sells consumable refractories to the shell moulding precision casting industry. Dupre has designed, patented and is now selling a range of fire extinguishers and an extinguishing agent for lithium battery fires that utilises a vermiculite dispersion as the fire extinguishing agent.

 

 

 

GOODWIN PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

for the year ended 30th April, 2020

 

 



2020

2019



£'000

£'000

CONTINUING OPERATIONS




Revenue


144,512

127,046

Cost of sales


(109,743)

(86,414)



 

 

GROSS PROFIT


34,769

40,632

Other income


690

-

Distribution expenses


(2,792)

(3,016)

Administrative expenses


(19,809)

(21,205)



 

 

OPERATING PROFIT


12,858

16,411

Financial expenses


(809)

(234)

Share of profit of associate companies


66

233



 

 

PROFIT BEFORE TAXATION


12,115

16,410

Tax on profit


(3,775)

(3,963)



 

 

PROFIT AFTER TAXATION


8,340

12,447



 

 

ATTRIBUTABLE TO:




Equity holders of the parent


7,866

11,505

Non-controlling interests


474

942



 

 

PROFIT FOR THE YEAR


8,340

12,447



 

 





BASIC EARNINGS PER ORDINARY SHARE


107.93p

159.79p



 

 

DILUTED EARNINGS PER ORDINARY SHARE


103.31p

149.65p



 

 

 

GOODWIN PLC

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th April, 2020

 


2020

2019


£'000

£'000

PROFIT FOR THE YEAR

8,340

12,447




OTHER COMPREHENSIVE EXPENSE



ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS:



Foreign exchange translation differences

(1,007)

(383)

Goodwill arising from purchase of non-controlling interest in subsidiaries

(72)

(772)

Effective portion of changes in fair value of cash flow hedges

(355)

(644)

Change in fair value of cash flow hedges transferred to profit or loss

522

180

Effective portion of changes in fair value of cost of hedging

(843)

(489)

Change in fair value of cost of hedging transferred to profit or loss

395

49

Tax credit on items that may be reclassified subsequently to profit or loss

77

154


 

 

OTHER COMPREHENSIVE EXPENSE FOR THE YEAR, NET OF INCOME TAX

(1,283)

(1,905)


 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

7,057

10,542


 

 

ATTRIBUTABLE TO:



Equity holders of the parent

6,587

9,528

Non-controlling interests

470

1,014


 

 


7,057

10,542


 

 

 

GOODWIN PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30th April, 2020

 

 


Share capital

Translation reserve

Share-based payments reserve

Cash flow hedge reserve

Cost of hedging reserve

Retained earnings

Total attributable to equity holders of the parent

Non-controlling interests

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

YEAR ENDED 30TH APRIL, 2020










Balance at 1st May, 2019

720

1,044

4,991

(573)

(426)

99,409

105,165

4,126

109,291

Total comprehensive income:










Profit

-

-

-

-

-

7,866

7,866

474

8,340

Other comprehensive income:










Foreign exchange translation differences

-

(964)

-

-

-

-

(964)

(43)

(1,007)

Goodwill arising from purchase of NCI interest in subsidiaries

-

-

-

-

-

(72)

(72)

-

(72)

Net movements on cash flow hedges

-

-

-

74

(317)

-

(243)

39

(204)


 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

-

(964)

-

74

(317)

7,794

6,587

470

7,057

Issue of shares

16

-

-

-

-

-

16

-

16

Tax on equity-settled share-based payment transactions

-

-

253

-

-

-

253

-

253

Dividends paid

-

-

-

-

-

(6,927)

(6,927)

-

(6,927)

Acquisition of NCI without a change in control

-

-

-

-

-

-

-

(11)

(11)

Disposal of subsidiary

-

(77)

-

-

-

-

(77)

-

(77)

Reclassification


358

-

-

-

(358)

-

-

-


 

 

 

 

 

 

 

 

 

BALANCE AT 30TH APRIL, 2020

736

361

5,244

(499)

(743)

99,918

105,017

4,585

109,602


 

 

 

 

 

 

 

 

 

 

GOODWIN PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

for the year ended 30th April, 2020

 


Share capital

Translation reserve

Share-based payments reserve

Cash flow hedge reserve

Cost of hedging reserve

Retained earnings

Total attributable to equity holders of the parent

Non-controlling interests

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

YEAR ENDED 30TH APRIL, 2019










Balance at 1st May, 2018

720

1,879

1,625

(224)

-

95,568

99,568

5,259

104,827

Adjustment on initial application of IFRS 9 (net of tax)

-

-

-

52

(52)

-

-

-

-

Adjustment on initial application of IFRS 15 (net of tax)






(684)

(684)

(350)

(1,034)


 

 

 

 

 

 

 

 

 

ADJUSTED BALANCE AT 1ST MAY, 2018

720

1,879

1,625

(172)

(52)

94,884

98,884

4,909

103,793


 

 

 

 

 

 

 

 

 

Total comprehensive income:










Profit

-

-

-

-

-

11,505

11,505

942

12,447

Other comprehensive income:










Foreign exchange translation differences

-

(430)

-

-

-

-

(430)

47

(383)

Goodwill arising from purchase of NCI interest in subsidiaries

-

(180)

-

-

-

(592)

(772)

-

(772)

Net movements on cash flow hedges

-

-

-

(401)

(374)

-

(775)

25

(750)


 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

-

(610)

-

(401)

(374)

10,913

9,528

1,014

10,542

Equity-settled share-based payment transactions

-

-

1,220

-

-

-

1,220

-

1,220

Tax on equity-settled share-based payment transactions

-

-

2,146

-

-

-

2,146

-

2,146

Dividends paid

-

-

-

-

-

(6,126)

(6,126)

(451)

(6,577)

Acquisition of NCI without a change in control

-

-

-

-

-

-

-

(1,750)

(1,750)

Disposal of equity investments

-

(225)

-

-

-

-

(225)

-

(225)

Acquisition of subsidiary with NCI

-


-

-

-

-

-

142

142

Capital contribution

-

-

-

-

-

(262)

(262)

262

-


 

 

 

 

 

 

 

 

 

BALANCE AT 30TH APRIL, 2019

720

1,044

4,991

(573)

(426)

99,409

105,165

4,126

109,291


 

 

 

 

 

 

 

 

 

 

GOODWIN PLC

CONSOLIDATED BALANCE SHEET

at 30th April, 2020

 

 

 

 


2020

2019



£'000

£'000

NON-CURRENT ASSETS




Property, plant and equipment


69,626

74,106

Right-of-use assets


5,343

-

Investment in associates


816

739

Intangible assets


24,695

22,354

Derivative financial assets


749

-

Other financial assets at amortised cost


252

505



 

 



101,481

97,704



 

 

CURRENT ASSETS




Inventories


44,887

50,524

Contract assets


6,558

3,698

Trade receivables and other financial assets


24,486

24,964

Other receivables


4,566

2,715

Derivative financial assets


456

195

Cash and cash equivalents


9,840

9,640



 

 



90,793

91,736



 

 

TOTAL ASSETS


192,274

189,440



 

 

CURRENT LIABILITIES




Bank overdrafts and interest-bearing loans


13,141

9,259

Lease liabilities


1,483

939

Contract liabilities


18,965

18,002

Trade payables and other financial liabilities


23,485

20,570

Other payables


3,298

4,771

Deferred consideration


-

204

Derivative financial liabilities


1,071

1,693

Liabilities for current tax


1,873

2,356

Warranty provision


160

261



 

 



63,476

58,055



 

 

NON-CURRENT LIABILITIES




Interest-bearing loans


14,260

19,322

Lease liabilities


1,339

1,164

Derivative financial liabilities


202

-

Warranty provision


324

232

Deferred tax liabilities


3,071

1,376



 

 



19,196

22,094



 

 

TOTAL LIABILITIES


82,672

80,149



 

 

NET ASSETS


109,602

109,291



 

 

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT



Share capital


736

720

Translation reserve


361

1,044

Share-based payments reserve


5,244

4,991

Cash flow hedge reserve


(499)

(573)

Cost of hedging reserve


(743)

(426)

Retained earnings


99,918

99,409



 

 

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

105,017

105,165

NON-CONTROLLING INTERESTS


4,585

4,126



 

 

TOTAL EQUITY


109,602

109,291

 

GOODWIN PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30th April, 2020

 


2020

2020

2019

2019


£'000

£'000

£'000

£'000

CASH FLOW FROM OPERATING ACTIVTIES





Profit from continuing operations after tax


8,340


12,447

Adjustments for:





Depreciation of property, plant and equipment


5,874


5,571

Depreciation of right of use assets


827


248

Amortisation and impairment of intangible assets


1,328


1,312

Financial expenses


809


234

Foreign exchange losses

 


203


66

Loss on sale of property, plant and equipment


52


13

Profit on disposal of subsidiary


(172)


-

Share of profit of associate companies


(66)


(233)

Equity-settled share-based provision


-


1,220

Tax expense


3,775


3,963



 


 

OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL AND PROVISIONS


20,970


24,841

Decrease / (increase) in inventories


4,748


(11,816)

(Increase) / decrease in contract assets


(2,863)


1,361

Decrease / (increase) in trade and other receivables


(2,549)


(4,288)

Increase in contract liabilities


874


3,401

Increase in trade and other payables


2,310


1,965

Increase in unhedged derivative balances


(980)


(579)



 


 

CASH GENERATED FROM OPERATIONS


22,510


14,885

Interest paid


(747)


(524)

Interest element of finance lease obligations


(41)


(64)

Interest element of operating lease obligations


(56)


-

Corporation tax paid


(2,493)


(3,093)



 


 

NET CASH FROM OPERATING ACTIVITIES


19,173


11,204






CASH FLOW FROM INVESTING ACTIVITIES





Proceeds from sale of property, plant and equipment

139


142


Acquisition of property, plant and equipment

(6,062)


(11,451)


Additional investment in existing subsidiaries

(83)


(2,668)


Acquisition of controlling interest in associates net of cash acquired

-


(425)


Acquisition of intangible assets

(1,855)


(315)


Development expenditure capitalised

(1,105)


(1,500)


Dividends received from associate companies

-


1,254



 


 


NET CASH OUTFLOW FROM INVESTING ACTIVITIES


(8,966)


(14,963)






CASH FLOWS FROM FINANCING ACTIVITIES





Payment of capital element of finance lease liabilities

(954)


(911)


Payment of capital element of operating lease liabilities

(509)


-


Issue of shares

16


-


Proceeds from new finance leases

102


424


Dividends paid

(6,927)


(6,126)


Dividends paid to non-controlling interests

-


(451)


Net proceeds from loans and committed facilities

7,556


8,337



 


 


NET CASH (OUTFLOW) / INFLOW FROM FINANCING ACTIVITIES


(716)


1,273



 


 

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS


9,491


(2,486)

Cash and cash equivalents at beginning of year


493


2,900

Effect of exchange rate fluctuations on cash held


(535)


79



 


 

CASH AND CASH EQUIVALENTS AT END OF YEAR

9,449


493



 


 

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The Group's operations expose it to a variety of risks and uncertainties.  The Directors confirm that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.  And whilst the risk of a health crisis and black swan events are not new risks, Covid-19 has been identified as a new principal risk to the Group, as discussed below.

 

Covid-19 risk:   The Covid-19 pandemic has already had an unprecedented bearing on businesses and economic activity across the world. The Group very early on (1st March, 2020),  in advance of any UK government guidelines coming out, developed a policy of paying any employee or one whose household member exhibiting Covid-19  symptoms to isolate at home for 14 days and at the same time set up all manufacturing and office working activities such that 2 metre social distancing was maintained. Hand sanitisers and warning labels were positioned by all opening doors and many had, where possible, self-disinfecting handles fitted. Daily reporting by location was introduced with any persons, who came into contact with a symptomatic person, being mandated to take two weeks paid isolation. Amongst our UK work force of 775 people we had 7 confirmed cases of Covid-19 two of whom were hospitalised but both have recovered and are now back at work.

In the UK all factories have continuously run since the 6th January, 2020 and, as has been seen, dispatch and revenue levels increased for the year ending 30th April, 2020. Three overseas factories in China and India were subject to mandatory lockdown for 6 to 8 weeks, but these factories are all now back up and running.

The enduring principal risk of Covid-19 is that consumption of jewellery in the retail shops has been very much affected world- wide with our sales volumes of our investment jewellery casting powders being down in all parts of the world. With retail shops and airports now starting to reopen there is evidence that the drop in luxury goods being purchased from our customers is starting to recover, but it is difficult to predict the 12 month effect to 30th April, 2021.

The workload in our Mechanical Engineering companies is good and we expect them to remain busy through to the end of April 2021, as mentioned in the Chairman's Statement, much of this work is for naval vessels, and for nuclear waste reprocessing along with delivering four radar systems and large valves for the potable water industry.

 

Market risk: The Group provides a range of products and services, and there is a risk that the demand for these products and services will vary from time to time because of competitor action or economic cycles or international trade friction or even wars.  As shown in note 1 to the financial statements to be published shortly, the Group operates across a range of geographical regions, and its turnover is split across the UK, Europe, USA, the Pacific Basin and the Rest of the World.

This spread reduces risk in any one territory.  Similarly, the Group operates in both mechanical engineering and refractory engineering sectors, mitigating the risk of a downturn in any one product area as was seen over the past three financial years. 

 

The potential risk of the loss of any key customer is limited as, typically, no single customer accounts for more than 10% of turnover.

 

As described in the Business Model, the Group generates significant sales not only from the worldwide energy markets but also from naval marine applications, military ship building, vermiculite and perlite to the insulating and fire prevention industry and the jewellery consumer market that our investment casting powder companies indirectly supply through the supply of investment casting moulding powders, waxes, silicone rubber and air traffic control systems. 

 

Technical risk: The Group develops and launches new products as part of its strategy to enhance the long-term value of the Group. Such development projects carry business risks, including reputational risk, abortive expenditure and potential customer claims which may have a material impact on the Group. The potential risk here is seen as manageable given the Group is developing products in areas in which it is knowledgeable and new products are tested prior to their release into the market.

 

Product failure/Contractual risk: The risks that the Group supplies products that fail or are not manufactured to specification are risks that all manufacturing companies are exposed to but we try to minimise these risks through the use of highly skilled personnel operating within robust quality control system environments, using third party accreditations where appropriate. With regard to the risk of failure in relation to  new products coming on line, the additional risks here are minimised at the research and development stage, where prototype testing and the deployment of a robust closed loop product performance quality control system provides feed back to the design department for the products we manufacture and sell. The risk of not meeting safety expectations, or causing significant adverse impacts to customers or the environment, is countered by the combination of the controls mentioned within this section and the purchase of product liability insurance. The risk of product obsolescence is countered by research and development investment.

 

Supply chain and equipment risk: Failure of a major supplier or essential item of equipment presents a constant risk of disruption to the manufacturing in progress.  Where reasonably possible, management mitigates and controls the risk with the use of dual sourcing, continual maintenance programmes, and by carrying adequate levels of stocks and spares to reduce any disruption.

 

Health and safety: The Group's operations involve the typical health and safety hazards inherent in manufacturing and business operations. The Group is subject to numerous laws and regulations relating to health and safety around the world. Hazards are managed by carrying out risk assessments and introducing appropriate controls, as well as attending safety training courses.

 

Acquisitions: The Group's growth plan over recent years has included a number of acquisitions. There is the risk that these, or future acquisitions, fail to provide the planned value. This risk is mitigated through financial and technical due diligence during the acquisition process and the Group's inherent knowledge of the markets they operate in.

 

Financial risk: The principal financial risks faced by the Group are changes in market prices (interest rates, foreign exchange rates and commodity prices). Detailed information on the financial risk management objectives and policies is set out in note 28 to the financial statements to be published shortly. The Group has in place risk management policies that seek to limit the adverse effects on the financial performance of the Group by using various instruments and techniques, including credit insurance, stage payments, forward foreign exchange contracts, secured and unsecured credit lines.

 

Regulatory compliance: The Group's operations are subject to a wide range of laws and regulations. Both within Goodwin PLC and its subsidiaries, the Directors and Senior Managers within the companies make best endeavours to ensure we comply with the relevant laws and regulations.

 

Assessment of principal risks: Changes and likely impact: As part of the Board's risk management and control of principal risks, areas of monitoring and expert advice undertaken are reported upon by the Audit Committee on pages 25 to 27. 

 

The Board's assessment of the impact of Brexit on the Group

Brexit is not seen as a significant issue to the Group.  We envisage minimal overall effect in the long-term within our trading companies, as the majority of our trade has little direct interaction within Europe.  A significant proportion of our reported revenue to Europe, as set out within note 4 to the financial statements to be published shortly, relates to bespoke capital contracts that typically are installed into projects not within the EU, despite the customer being resident in the EU.  Our UK imports are not required on a just in time basis nor are they reliant on EU suppliers. Raw materials are primarily sourced from vendors outside of the EU due to cost-effectiveness, with EU suppliers being a dual source for the supply of critical items. 

 

The Brexit related sensitivity or scenario testing has not indicated that there are any impairment, viability or going concern issues.

 

Furthermore, the Group remains focused on and has a growing proportion of its workload consisting of the supply of niche UK-based capabilities into long-term, strategically critical programmes located in the UK and the US where both countries remain committed to playing a key role in domestic and global security.

 

Nonetheless, the Board continually monitors and assesses the potential risks of Brexit, by regularly consulting on the matter with the Group's management, suppliers, customers and reviewing and considering the diverse opinions, written by many commentators.

 

FORWARD-LOOKING STATEMENTS

 

The Group Strategic Report contains forward-looking type statements and information based on current expectations, and assumptions and forecasts made by the Group. These expectations and assumptions are subject to various known and unknown risks, uncertainties and other factors, which could lead to substantial differences between the actual future results, financial performance and the estimates and historical results given in this report. Many of these factors are outside the Group's control. The Group accepts no liability to publicly revise or update these forward-looking statements or adjust them for future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

Responsibility statement of the Directors in respect of the Directors Report and Accounts

 

We confirm that to the best of our knowledge:

 

• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

 

• the Group Strategic Report includes a fair review of the development and performance of the business and the position of the Issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

We consider the Directors' Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

Board of Directors:

 

T. J. W. Goodwin, Chairman

M. S. Goodwin, Managing Director, Mechanical Engineering Division

S. R. Goodwin, Managing Director, Refractory Engineering Division

J. Connolly, Director

S. C. Birks, Director

B. R. E. Goodwin, Director

J.  E. Kelly, Non-Executive Director

 

Accounting policies

Goodwin PLC (the "Company") is incorporated in England and Wales.

 

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group") and equity account the Group's interest in associates. 

 

The Group's financial statements have been approved by the Directors and prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU).

 

The Accounting Policies are included in Note 1 of the Accounts to be published shortly.

 

New IFRS standards and interpretations adopted during 2020

 

In 2020   the following amendments had been endorsed by the EU, became effective and were, therefore, mandated to be adopted by the Group:

· IFRS 16 - Leases (effective for annual periods beginning on or after 1st January, 2019)

· Amendments to IFRS 9 - Prepayment Features with Negative Compensation (effective for annual periods beginning on or after 1st January, 2019)

· IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments (effective for annual periods beginning on or after 1st January, 2019)

· Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures (effective for annual periods beginning on or after 1st January, 2019)

· Annual Improvements to IFRSs - 2015-2017 Cycle - minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (effective for annual periods beginning on or after 1st January, 2019)

 

The adoption of IFRS 16 is discussed in Note 3 of the Accounts to be published shortly.  The implementation of all the other standards and amendments has not had a material impact on the Group's financial statements.

 

The financial information previously set out does not constitute the Company's statutory accounts for the years ended 30th April, 2012 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The auditors have reported on those accounts; their report was:

 

i.   unqualified;

ii.   did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

iii.   did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

Copies of the 2020 accounts are expected to be posted to shareholders within the next 10 days and will also be available on the Company's website: www.goodwin.co.uk and from the Company's Registered Office:  Ivy House Foundry, Hanley, Stoke-on-Trent ST1 3NR.

 

Note 1

 

Segmental Information

 

Products and services from which reportable segments derive their revenues

 

For the purposes of management reporting to the chief operating decision maker, the Board of Directors, the Group is organised into two reportable operating divisions: mechanical engineering and refractory engineering. Segment assets and liabilities include items directly attributable to segments as well as those that can be allocated on a reasonable basis. In accordance with the requirements of IFRS 8 the Group's reportable segments, based on information reported to the Group's Board of Directors for the purposes of resource allocation and assessment of segment performance are as follows:

· Mechanical Engineering  - casting, valve, antenna and pump manufacture and general engineering

· Refractory Engineering  - powder manufacture and mineral processing

 

Information regarding the Group's operating segments is reported below.  Associates are included in Refractory Engineering.

 

Revenue


Mechanical

Engineering

Refractory

Engineering

 

Sub Total

Year ended 30th April

2020

2019

2020

2019

2020

2019


£'000

£'000

£'000

£'000

£'000

£'000

Revenue







External sales

100,078

82,375

44,434

44,671

144,512

127,046

Inter-segment sales

25,821

21,714

8,361

8,726

34,182

30,440


 

 

 

 

 

 

Total revenue

125,899

104,089

52,795

53,397

178,694

157,486


 

 

 

 



Reconciliation to consolidated revenue:







Inter-segment sales





(34,182)

(30,440)






 

 

Consolidated revenue for the year





144,512

127,406






 

 


Mechanical

Engineering

Refractory

Engineering

 

Sub Total

Year ended 30th April

2020

2019

2020

2019

2020

2019


£'000

£'000

£'000

£'000

£'000

£'000

Profits







Operating profit  including share of associates

8,065

11,932

7,034

8,070

15,099

20,002


 

 

 

 










% of  total operating profit  including share of associates

53%

60%

47%

40%

100%

100%








Group centre





(2,175)

(2,138)

LTIP - non cash provision





-

(1,220)

Group finance expenses





(809)

(234)






 

 

Consolidated profit before tax for the year





12,115

16,410

Tax





(3,775)

(3,963)






 

 

Consolidated profit after tax for the year



8,340

12,447






 

 

 

 


Segmental total assets

Segmental total liabilities

Segmental net assets

Year ended 30th April

2020

2019

2020

2019

2020

2019


£'000

£'000

£'000

£'000

£'000

£'000

Segmental net assets







Mechanical Engineering

95,193

97,862

72,207

72,520

22,986

25,342

Refractory Engineering

41,962

43,950

22,850

25,541

19,112

18,409


 

 

 

 

 

 

Sub total reportable segment

137,155

141,812

95,057

98,061

42,098

43,751


 

 

 

 



Goodwin PLC net assets





83,415

81,249

Elimination of Goodwin PLC investments




(25,801)

(25,374)

Goodwill





9,890

9,665






 

 

Consolidated total net assets




109,602

109,291






 

 

Segmental property, plant and equipment (PPE) capital expenditure






2020

2019






£'000

£'000








Goodwin PLC





2,824

3,602

Mechanical Engineering





2,511

6,461

Refractory Engineering





633

616






 

 






5,968

10,679






 

 

Segmental depreciation, amortisation and impairment






2020

2019






£'000

£'000








Goodwin PLC





3,642

2,367

Mechanical Engineering





2,466

3,175

Refractory Engineering





1,921

1,589






 

 






8,029

7,131






 

 

 

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Board of Directors monitors the tangible and financial assets attributable to each segment.  All assets and liabilities are allocated to reportable segments with the exception of those held by the parent Company, Goodwin PLC, and those held as consolidation adjustments.

 

Geographical segments

The Group operates in the following principal locations.

 

In presenting the information on geographical segments, revenue is based on the location of its customers and assets on the location of the assets.


Year ended 30th April, 2020

Year ended 30th April, 2019


Revenue

Operational net assets

Non-current assets

PPE Capital expenditure

Revenue

Operational net assets

Non-current assets

PPE Capital expenditure


£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

UK

39,609

76,467

84,198

5,148

27,934

74,780

80,300

6,044

Rest of Europe

20,004

8,346

3,439

173

24,205

7,035

3,605

2,300

USA

12,749

-

-

-

8,100

-

-

-

Pacific Basin

34,844

13,513

7,132

81

28,956

14,779

6,855

84

Rest of World

37,306

11,276

6,712

566

37,851

12,697

6,944

2,251


 

 

 

 

 

 

 

 

Total

144,512

109,602

101,481

5,968

127,046

109,291

97,704

10,679


 

 

 

 

 

 

 

 

 

Of the £20,004,000 (April 2019: £24,205,000) sales to the rest of Europe, £5,975,000 (April 2019: £6,721,000), relate to the German-domiciled subsidiary, Noreva GmbH.

 

The following tables provide an analysis of revenue by geographical market and by product line.

 

Geographical market


Year ended 30th April, 2020

Year ended 30th April, 2019

 


Mechanical Engineering

Refractory Engineering

Total

Mechanical Engineering

Refractory Engineering

Total


£'000

£'000

£'000

£'000

£'000

£'000

UK

29,187

10,422

39,609

16,877

11,057

27,934

Rest of Europe

13,088

6,916

20,004

16,282

7,923

24,205

USA

12,664

85

12,749

8,017

83

8,100

Pacific Basin

16,361

18,483

34,844

12,848

16,108

28,956

Rest of World

28,778

8,528

37,306

28,351

9,500

37,851


 

 

 

 

 

 

Total

100,078

44,434

144,512

82,375

44,671

127,046


 

 

 

 

 

 

 

Product lines


Year ended 30th April, 2020

Year ended 30th April, 2019

 


Mechanical Engineering

Refractory Engineering

Total

Mechanical Engineering

Refractory Engineering

Total


£'000

£'000

£'000

£'000

£'000

£'000

Standard products and consumables

9,545

44,434

53,979

7,785

44,671

52,456

Minimum period contracts

4,143

-

4,143

4,996

-

4,996

Bespoke products - over time

60,963

-

60,963

34,538

-

34,538

Bespoke products - point in time

25,427

-

25,427

35,056

-

35,056


 

 

 

 

 

 

Total

100,078

44,434

144,512

82,375

44,671

127,046


 

 

 

 

 

 

 

Note 2

 

Intangible Assets

 

During the year, the Group added to its portfolio of intangible assets.

 

On 23rd December, 2019, Goodwin PLC successfully acquired the globally recognised Castaldo silicone rubber and wax division, including the intellectual property, trade name and associated trademarks.  For the past 75 years Castaldo has been at the centre of the worldwide jewellery casting industry and the recent acquisition will further increase the Group's global market share within the moulding rubber and injection wax business.

 

Note 3

 

Dividends

The Directors propose the payment of an ordinary dividend of 81.71p   per share (2019: ordinary dividend of 96.21p ).  If approved by shareholders, the ordinary dividend will be paid on 9th October, 2020 to shareholders on the register at the close of business on 11th September, 2020.

 

Note 4

 

Earnings per share

The calculation of the basic earnings per ordinary share is based on the number of ordinary shares in issue.  For all periods up to and including 30th April, 2019 this amounted to 7,200,000 shares and with effect from the 16th October 2019 this has increased to 7,363,200 shares. The weighted average number of ordinary shares in issue during the year ended 30th April, 2020 was 7,288,289.  The relevant profits attributable to ordinary shareholders were £7,866,000 ( 2019 : £11,505,000).

 

There is a share option scheme in place for the Directors of the Company under the Company's Equity Long Term Incentive Plan (LTIP), based on the Company exceeding a target growth in the total shareholder return of the Company over the period from 1st May, 2016 to 30th April, 2019 .  Under the scheme, a maximum of 489,600 share options vested at 1st May, 2019, of which 163,200 were exercised during the current period.  The total number of ordinary shares used as the denominator for the diluted earnings per share is 7,613,654 ( 2019 : 7,688,056).

 

Note 5

 

Going concern

The Directors, after having reviewed the projections and possible challenges that may lie ahead, believe that, armed at the time of writing with £74.5 million of committed facility (including £30 million CCFF funds, which are repayable within one year (see notes 28 and 31 of the financial statements to be published shortly), there is a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of these financial statements, and have continued to adopt the going concern basis in preparing the financial statements.

Furthermore, we are pleased to report that the Group has recently completed the refinancing of one of its significant facilities which was due to retire by 31st December, 2020. In terms of total debt quantum, the refinancing has given the Group the same funding availability but with proportionally more of the facility moving to committed five year funding.  The Group is also in the final stages of renegotiating a £10 million revolving credit facility which expires in October 2020.  The Directors do not see an issue in renewing these facilities.

The Directors have, as part of this going concern assessment, specifically considered the impact of Covid-19 on the Group's operations and in particular have developed a series of in-depth financial models covering at least twelve months following the approval of the financial statements.  The models show the base case (our reasonable expectation in light of Covid-19), with an alternative scenario that stress tests this base case model for severe but plausible downside outcomes.  Within the base case model, the Directors have considered the current trading conditions and assumed similar activity levels within the Mechanical Engineering Division as a result of its workload and assumed the Refractory activity levels may be reduced due to it being more exposed to the global downturn. We forecast that after 30th April 2021 activity levels will return to those seen prior to Covid-19 and growth will return.

Within our severe but plausible downside model, it is demonstrable that the Group has sufficient funds to cover the Group's and the Company's commitments during the forecast period and is forecast to be within its financial covenants.  The model also incorporates various assumptions including the assumption of a series of customer failures and the failure of a major supplier within the refractory division, the inability to achieve CV-19 cost reduction targets and the impact of further lockdowns that last three to six months in Europe, China, India and Brazil. The failure of a major supplier is modelled to result in three months of business interruption. These assumptions, whilst plausible, are considered extreme in the Board's view.

As referred to elsewhere in these financial statements, the Mechanical Engineering Division currently has a record order book and whilst we have down rated our expectations within this division within in our forecasts we would emphasise that our factories largely remained open during the height of the first phase lockdown and we are not seeing any issues regarding the suspension of works on these orders. Whilst the Refractory Engineering Division would be exposed to events such as a second lockdown, as a well-diversified Group, our severe but plausible downside model clearly demonstrates we are well set to absorb the impact of a protracted Covid-19 resolution.

Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

 

Note 6

 

Annual General Meeting

 

The Annual General Meeting will be held at 10.30 a.m. on 7th October, 2020 at Crewe Hall, Weston Road, Crewe, Cheshire CW1 6UZ.

 

Note 7

 

Alternative performance measures

 

Measure

2020

2019

Gross profit (£'000)

34,769

40,632

Revenue (£'000)

144,512

127,046


 

 

Gross profit as percentage of revenue (%)

24.1

32.0


 

 

Operating profit (£'000)

12,858

 

16,411

Capital employed (£'000)

123,834

126,413


 

 

Return on capital employed (%)

10.4

13.0


 

 

Net debt (£'000)

18,817

21,248

Deferred consideration (£'000)

-

204


 

 

Net debt excluding deferred consideration (£'000)

18,817

21,044

Net assets attributable to equity holders of the parent(£'000)

105,017

105,165

Gearing (%)

17.9

20.0

Net profit attributable to equity holders of the parent (£'000)

7,866

11,505

Net assets attributable to equity holders of the parent(£'000)

105,017

105,165


 

 

Return on investment (%)

7.5

10.9


 

 

Revenue (£'000)

144,512

127,046

Average number of employees

1,190

1,082



 

Sales per employee (£'000)

121

117


 

 

Annual post tax profit (£'000)

8,340

12,447

Depreciation owned assets (£'000)

5,874

5,571

Depreciation finance leased assets

290

248

Amortisation (£'000)

1,328

1,312


 

 

Annual post tax profit + depreciation +

amortisation (£'000)

15,832

19,578

 


 

 




Annual pre-tax profit (£'000)

12,115

16,410

Impact of IFRS 16 implementation

28

-

Impact of IFRS 15 implementation

-

(1,682)

 


 

 

Like-for-like annual pre tax profit (£'000)

12,143

14,728

 


 

 




 

 

 

END


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