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Gooch & Housego pulls dividend on Covid uncertainty

03 Jun 2020

UK optics firm looks to control cash but says all of its US facilities are now back up and running.

UK-headquartered optical component and subsystem maker Gooch & Housego (G&H) has decided not to pay an interim shareholder dividend for its latest trading period, after its profits fell by half.

For the six months ending March 31, G&H posted sales of £57.5 million, down from £59.7 million a year ago.

That dip reflected in part the initial impact of the Covid-19 pandemic in Asia, but also the ongoing downturn in the industrial laser sector. G&H is a key provider of acousto-optic components that are used extensively in pulsed laser systems.

The reduced demand saw G&H post a net profit of £2.7 million for the six-month period, down from £5.4 million a year ago, after adjustments for restructuring and other factors are taken into account.

Vital service
Commenting on the more recent Covid-19 impact in the company’s interim report, CEO Mark Webster said: “In general Japan, South Korea, and parts of China saw improved demand, but there was some order book push out in the US and Europe. Western companies are now starting to reopen sites that were closed.”

He added that in the US, most of the company’s product lines were considered to be vital for essential services and national security - enabling them to remain open despite the various “stay at home” orders that were implemented as the pandemic began to impact the US.

And while G&H was forced to close its sites in Fremont, California, and Cleveland, Ohio, back in March, both those facilities are back open and said to be operating at close to full capacity as local lockdowns have relaxed.

“All UK sites remained open, but Torquay operated at reduced capacity in order to meet social distancing guidelines,” added Webster. “Work is being carried out to enable a return to full capacity at the site by the end of fiscal year 2020 [i.e. September].”

Orders from Asia recovering
Commenting on trends beyond the pandemic’s impact, G&H noted that although demand in industrial laser markets remains subdued, orders for its fiber-optic modules and high-reliability fiber couplers were strong.

“We have started to see recent recovery in the levels of orders from our Asian customers as that market reopens following lockdown,” the firm reported. “However, in Europe and North America customers remain slow to commit to significant new orders, though we note that customer facilities are now starting to reopen.”

The industrial sector accounts for around half of G&H’s business. The other half - which is generated by applications in life sciences, aerospace, and defense - is said to have remained robust despite the Covid-19 emergency.

G&H said its life sciences business delivered revenue growth of 5 per cent in the latest period, while the aerospace and defense division is expected to become more profitable in the second half of the current financial year, which ends in September.

Streamlining measures and UK support
Aside from the decision to pull the interim dividend, G&H’s management has implemented what are described as “measured” cost reductions, with a view to enabling it to retain critical capabilities on a return to more normal trading conditions.

“Good progress has been made on the streamlining of our manufacturing base,” Webster reported. On that front, G&H is establishing an acousto-optic “hub” at its Fremont facility, which will combine capability previously hosted at its Ilminster headquarters.

“Fremont will assume responsibility as the global acousto-optic design authority and lead the Group’s AO technological roadmap,” stated the firm.

“In support of this approach we are in the process of outsourcing a large proportion of our acousto-optic manufacturing with established contract manufacturers who have facilities in South East Asia,” it explained.

“They will manufacture a significant portion of the Group’s acousto-optic Q-switches and other critical industrial laser components, which are currently manufactured at Ilminster and Fremont. These plans will enable us to consolidate design, engineering and R&D resources and to continue to provide high-quality, cost-competitive products to the industrial laser market.”

G&H’s precision optics activities are also being consolidated, with expertise from the company’s Glenrothes location being transferred to Ilminster. As a result, the site in Scotland will close.

Both of those “hub” initiatives are expected to be completed by September 2021, adds the firm.

In parallel with the ongoing strategic streamlining activities, G&H says it has taken advantage of both the UK government’s coronavirus job retention scheme, and tax deferment arrangements.

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