Release Date: December 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gooch & Housego PLC (STU:GPL, Financial) reported a strong performance in the second half of the year, with revenues from continuing operations increasing by 0.7% to GBP136 million.
- The company completed the acquisition of Phoenix Optical, which is expected to expand and accelerate its reach into the UK and European aerospace and defense markets.
- The group's order book remains healthy, particularly in the aerospace and defense sector, with a post-year-end increase.
- Gooch & Housego PLC (STU:GPL) achieved a reduction of 14.3% in carbon intensity, continuing its commitment to environmental sustainability.
- The company is making positive progress in its strategic priorities, including operational efficiency, customer experience, and technology development, with a focus on becoming a more customer-focused business.
Negative Points
- Adjusted operating profit from continuing operations decreased by 13% to GBP10.5 million due to organic constant currency revenue decline and continued investment.
- The industrial segment faced challenging market conditions, with sales falling 9.7% on an organic constant currency basis due to customer destocking.
- The divestment of the EM4 business resulted in a loss of GBP9.6 million, impacting overall financial performance.
- The semiconductor market recovery is delayed, impacting demand for industrial lasers, with a bounce-back not expected until the second half of 2025.
- Operating margins remain under pressure, with the company still working towards achieving mid-teen operating margins in the next few years.
Q & A Highlights
Q: Could you give us a flavor of how big the undersea opportunity and the A&D opportunity could be?
A: The high-reliability submarine market is expected to grow at high single-digit rates. Gooch & Housego aims to outperform this by moving up the value chain with more integrated modules. In A&D, the fundamentals are strong, and there is potential for high single- to double-digit growth, particularly in laser protection and other measures.
Q: How is working capital playing out this year, and do you see inventory reducing as your order book normalizes?
A: The second half showed good performance, particularly in receivables. While larger customers often seek extended payment terms, the focus remains on improving inventory management. The expectation is that working capital flow-through should be limited despite revenue growth.
Q: Are you still confident in achieving mid-teens operating margins in the next three years?
A: The strategy includes several building blocks like volume, outsourcing, productivity, new products, and portfolio adjustments to achieve mid-teen returns by 2026-2027. The actions being taken support this direction.
Q: Can you provide an update on the industrial lasers market and the competitive landscape?
A: The current threat is not from being designed out of platforms but from softer demand. Engagement with industrial customers is positive, and work is ongoing on next-generation products. The competitive landscape is being assessed, especially in light of changes in North American administration and tariffs.
Q: What is the target for outsourcing revenues, and how is progress being made?
A: The target is for 25% of group revenues to come from contract manufacturing partners. Significant progress has been made in qualifying products for these channels, with expectations for growth as markets recover.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
