G&H defense sales up as order book hits record high

G&H (Gooch & Housego), the London-listed producer of optics and photonics products used across a broad applications base, has reported a solid increase in sales - driven largely by strong momentum in its aerospace and defense (A&D) business unit.

At £81.9 million, total sales for the six months ending March 31 were up 16 per cent on the same period last year, with the A&D department contributing £35.6 million to that total as divisional sales jumped more than 50 per cent.

It means that A&D is now comfortably the firm’s largest contributor to sales, with G&H’s industrial unit reporting £30.3 million - largely flat with the prior year - and its medical division £16 million, down 8 per cent.

CEO Charlie Peppiatt cited record demand from defense customers in both Europe and the US as the key trend impacting the firm, alongside encouraging signs from the industrial laser and semiconductor industries.

“The record order book growth in the period demonstrates the increased confidence our customers have in G&H to provide them with their most complex photonics and optical systems requirements,” he said, as total orders rose to £167 million.

Supply security

In a presentation to investment analysts, Peppiatt highlighted synergies achieved from recent acquisitions Artemis, Phoenix Optical, and Global Photonics as a key reason for the improvement, alongside increased demand for infrared lens systems and optical assemblies used in laser directed energy weapons, air defense, counter-drone systems, and ring laser gyroscopes.

“Customers are increasingly prioritising security of supply, regional manufacturing capability and vertically integrated optical fabrication, areas where G&H’s strengthened UK, European and US footprint provides a differentiated proposition,” Peppiatt reported, adding that restrictions on germanium supply remain an issue.

Outside of defense, the semiconductor market is now showing strengthening signs of a recovery, with increased order intake from the semiconductor processing, sensing, and advanced microelectronics markets, the CEO added - although the precise scale and timing of that recovery remains uncertain.

G&H did experience some issues within its medical unit, as a previously announced decision to “end-of-life” the majority of its Pockels cells product lines for medical laser applications stimulated strong short-term demand through “last-time buy” activity that coincided with material supply constraints and production yield challenges at the firm’s US facility in Cleveland.

“Management has taken action to qualify alternative material sources and improve in-house production performance,” G&H said. “Production increased through the second quarter and is expected to continue to recover in the second half.”

The improving sales picture enabled G&H to post an adjusted pre-tax profit of £5.8 million for the latest period, up from £5.1 million a year ago.

Despite the increased demand, Peppiatt and his executive team have maintained their prior financial outlook of profitable growth for the year, mindful of geopolitical and macroeconomic uncertainty and its impact on the supply of germanium in particular.

In response to the latest update, G&H’s stock price dropped in value by 15 per cent to trade at around 920p on the London Stock Exchange. However, that valuation still represents a rise of 80 per cent since this time last year.