GOODWIN PLC

Earnings Release • Aug 22, 2019

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RNS Number : 8476J

Goodwin PLC

22 August 2019

PRELIMINARY ANNOUNCEMENT

Goodwin PLC today announces its preliminary results for the year ended 30th April 2019.

CHAIRMAN'S STATEMENT

I am pleased to report a like-for-like 11% increase in pre tax profits to £14.7 million (2018: £13.3 million), as detailed in note 3 of the Accounts to be published shortly. Revenue of £127 million (2018: £125 million) is up 1.8% on the figures reported for the same period in the last financial year.  The Directors propose an increased dividend of 96.21p (2018: 83.473p), a 15.3% increase.

Furthermore, I am also delighted to confirm that we have seen a significant rise in the level of sales order input within our Mechanical Engineering Division. Whilst some individual elements would not be notifiable the aggregation is significant for the Group. With this exceptional input, I am able to confirm that, at the time of writing, the Group order input since the start of the new financial year stands at £93 million and the total forward order book stands at a record £165 million (July 2018: £85 million), a 94% increase from this time last year, with yet more large long-term contracts, that we have been targeting over the past few years, still to be placed.

Due to contractual requirements the Company cannot divulge all successes in relation to the significant increase in order intake. However we can confirm that several orders have multi-year delivery requirements and the Board foresees little risk in executing them, as they utilise the respective companies' core strengths within Goodwin Steel Castings and Goodwin International.

Of particular note in the Mechanical Engineering Division, Goodwin Steel Castings has undergone major change, not only in returning to profitability in the year but also completing its extensive upgrade programme that gives it increased weight capability (casting up to 35 tonnes net weight castings in impact-resistant carbon, stainless and duplex stainless steels) and puts it in a unique global position. With the work that they have gone out and won internationally to date, which is now starting to be delivered, they will never again be as reliant on the petrochemical industry. One such multi-million dollar order Goodwin Steel Castings has received is for cast and machined radiation shielding containment vessels for the USA nuclear decommissioning market.

Easat Radar Systems reported a loss due to lack of throughput and excessive work in progress (WIP) over the year, combined with contract delays whilst working to finalise an off-the-shelf radar system for a major customer. The final documentation approvals for this are all but complete now, which should allow for a reduction in approximately £5 million of WIP this current year as radar systems are shipped.

Over the past decade, Goodwin International has worked closely with world leading valve stockist, RP Valves, who have stocked and re-sold Goodwin dual plate valves. We are pleased to announce that RP Valves has placed a multi-million pound order for axial valves with Goodwin International.  By RP Valves ordering premium specification product in bulk at their risk, only selling single items to customers when they have a requirement, it will increase Goodwin's overall axial valve sales in the future as this will lead to Goodwin product being utilised for MRO (Maintenance, Repair and Operational) work, which seldom happens for axial valves, normally due to the project based nature of the business.

Utilising a beneficial twenty year fixed borrowing rate of 1.89%, that was available as a result of the European economic conditions during the year, Noreva took the opportunity to stop renting and purchased the 1.85 acre site that the company is situated on in Mönchengladbach, Germany.

Our Refractory Engineering Division has maintained the significant increase in market share in the investment casting powder sector that it gained last financial year when its major competitor Kerr ceased manufacture. Whilst operating profits in April 2019 have risen only 7.2% compared to April 2018, we will start to see sales within the new financial year of the "Silica Free" investment powder technology, for which a patent application was filed in April 2019, with early adopters likely to be the more western countries. This new technology will enable the division to further grow its global market share and help further increase its gross margins in years to come.

The global awareness of the risks of lithium battery fires and requirement for a solution continues to grow. Within the year, Dupré Minerals has put in place a manufacturing agreement with a French company that will manufacture AVD fire extinguishers for Europe.

During the financial year, Goodwin PLC signed an agreement to purchase a 26% minority interest in Jewelry Plaster (Thailand), converting it into a 75% owned subsidiary. We also acquired a further 24% equity in Ultratec (China) and in SRS QD (China) making these 75% owned subsidiaries. We would like to thank our departing Thai equity partner for his efforts in growing these overseas subsidiaries.

Our current working capital as a percentage of revenue is the same as the Group average has been for the last 10 years, resulting in modest gearing of 20% (2018: 11%), despite the high work in progress values within Easat.

We continue to retain, train and develop our employees, with a new cohort of 25 apprentices starting in the Goodwin Engineering Training Centre later this year. The Training Centre is now on the UK register of Learning Providers as well as being approved by the necessary exam boards. With these accreditations in place, the apprenticeship levy on the Group's UK wage bill can now start to be offset against its running costs.  We recognise the importance of nurturing talent and bringing highly capable people either through or into the business, as with record low unemployment levels in the UK, we are continuing with our strategy to ensure that we have the right people with the right skill sets to competently execute the work as we grow.

The Board would like to thank John Goodwin and Richard Goodwin, following their retirement from the Board, for their achievement in leading the Company over the past twenty-seven years as Chairman and Managing Director respectively. Over this period the Group's annual pre tax profits increased thirty-three fold and benefitted from the addition of seventeen new subsidiaries, fifteen of which are overseas and the majority of which are located in high growth developing countries. Over the three year period ending 30th April, 2019, the overseas companies have contributed in excess of 50% of pre tax profits, thus emphasising their importance to the Group, from what were small beginnings. The Board is pleased that John and Richard's extensive knowledge will not be lost to the Group as they remain members of the Audit Committee.

Due to the diversity of the business and the global reach, the Board has decided to split the role of Managing Director between Mechanical Engineering and Refractory Engineering, such that appropriate focus and energy can be applied to continue growing these two important but quite different divisions.

Matthew, Simon and I are pleased to have the opportunity to serve as the new Mechanical Engineering Division Managing Director, Refractory Engineering Division Managing Director and Chairman, working with the rest of the Board and Senior Management to carry on driving the Company forwards, for the benefit of all stakeholders. 

The Board is once again indebted to our employees and former members of the Board for their devotion to the Group's long-term performance.  It is as a result of their outstanding work ethic that the Group has never before been in such a favourable position.

22 August, 2019	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.

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, the Group benefits from market diversity. Further details of our business and products are shown on our website www.goodwin.co.uk/2019

Mechanical Engineering

The Group designs, 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) 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, 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 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, China, 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 waxes and silicon rubber 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 six other investment powder manufacturing companies located in China, India, Thailand and Brazil which sell the casting powders directly and through distributors to the jewellery casting industry.

These companies are vertically integrated with another of our UK companies, Hoben International, which manufactures cristobalite, which it sells to the seven casting powder manufacturing companies as well as producing ground silica that also goes into casting powders. 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 casting industry.

GOODWIN PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

for the year ended 30th April, 2019

		2019	2018
		£'000	£'000
CONTINUING OPERATIONS
Revenue		127,046	124,811
Cost of sales		(86,414)	(89,143)
GROSS PROFIT		40,632	35,668
Other income		-	1,602
Distribution expenses		(3,016)	(3,359)
Administrative expenses		(21,205)	(20,331)
OPERATING PROFIT		16,411	13,580
Financial expenses		(234)	(590)
Share of profit of associate companies		233	310
PROFIT BEFORE TAXATION		16,410	13,300
Tax on profit		(3,963)	(3,865)
PROFIT AFTER TAXATION		12,447	9,435
ATTRIBUTABLE TO:
Equity holders of the parent		11,505	8,504
Non-controlling interests		942	931
PROFIT FOR THE YEAR		12,447	9,435
BASIC EARNINGS PER ORDINARY SHARE		159.79p	118.11p
DILUTED EARNINGS PER ORDINARY SHARE		149.65p	118.11p

GOODWIN PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30th April, 2019

	2019	2018
	£'000	£'000
PROFIT FOR THE YEAR	12,447	9,435
OTHER COMPREHENSIVE (EXPENSE) / INCOME
ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS:
Foreign exchange translation differences	(383)	(152)
Goodwill arising from purchase of non-controlling interest in subsidiaries	(772)	-
Effective portion of changes in fair value of cash flow hedges	(644)	(294)
Change in fair value of cash flow hedges transferred to profit or loss	180	5,108
Effective portion of changes in fair value of cost of hedging	(489)	-
Change in fair value of cost of hedging transferred to profit or loss	49	-
Tax credit / (charge) on items that may be reclassified subsequently to profit or loss	154	(818)
OTHER COMPREHENSIVE (EXPENSE) / INCOME FOR THE YEAR, NET OF INCOME TAX	(1,905)	3,844
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	10,542	13,279
ATTRIBUTABLE TO:
Equity holders of the parent	9,528	12,245
Non-controlling interests	1,014	1,034
	10,542	13,279

GOODWIN PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30th April, 2019

	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 STATEMENT OF CHANGES IN EQUITY (continued)

for the year ended 30th April, 2019

	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, 2018
Balance at 1st May, 2017	720	2,154	601	(4,240)	-	90,201	89,436	4,225	93,661
Total comprehensive income:
Profit	-	-	-	-	-	8,504	8,504	931	9,435
Other comprehensive income:
Foreign exchange translation differences	-	(275)	-	-	-	-	(275)	123	(152)
Net movements on cash flow hedges	-	-	-	4,016	-	-	4,016	(20)	3,996
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	-	(275)	-	4,016	-	8,504	12,245	1,034	13,279
Equity-settled share-based payment transactions	-	-	1,024	-	-	-	1,024	-	1,024
Dividends paid	-	-	-	-	-	(3,137)	(3,137)	-	(3,137)
BALANCE AT 30TH APRIL, 2018	720	1,879	1,625	(224)	-	95,568	99,568	5,259	104,827

GOODWIN PLC

CONSOLIDATED BALANCE SHEET

at 30th April, 2019

		2019	2018
		£'000	£'000
NON-CURRENT ASSETS
Property, plant and equipment		74,106	69,154
Investment in associates		739	1,963
Intangible assets		22,354	21,138
Other financial assets at amortised cost		505	728
		97,704	92,983
CURRENT ASSETS
Inventories		50,524	28,850
Contract assets		3,698	6,046
Trade receivables and other financial assets		24,964	20,053
Other receivables		2,715	1,861
Derivative financial assets		195	364
Cash and cash equivalents		9,640	7,485
		91,736	64,659
TOTAL ASSETS		189,440	157,642
CURRENT LIABILITIES
Interest-bearing loans and borrowings		10,198	12,468
Contract liabilities		18,002	212
Trade payables and other financial liabilities		20,570	17,858
Other payables		4,771	8,821
Deferred consideration		204	500
Derivative financial liabilities		1,693	1,535
Liabilities for current tax		2,356	1,174
Warranty provision		261	184
		58,055	42,752
NON-CURRENT LIABILITIES
Interest-bearing loans and borrowings		20,486	5,775
Warranty provision		232	329
Deferred tax liabilities		1,376	3,959
		22,094	10,063
TOTAL LIABILITIES		80,149	52,815
NET ASSETS		109,291	104,827
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
Share capital		720	720
Translation reserve		1,044	1,879
Share-based payments reserve		4,991	1,625
Cash flow hedge reserve		(573)	(224)
Cost of hedging reserve		(426)	-
Retained earnings		99,409	95,568
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		105,165	99,568
NON-CONTROLLING INTERESTS		4,126	5,259
TOTAL EQUITY		109,291	104,827

GOODWIN PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30th April, 2019

	2019	2019	2018	2018
	£'000	£'000	£'000	£'000
CASH FLOW FROM OPERATING ACTIVTIES
Profit from continuing operations after tax		12,447		9,435
Adjustments for:
Depreciation		5,819		5,243
Amortisation of intangible assets		1,312		1,138
Financial expenses		234		590
Foreign exchange losses		66		277
Loss / (profit) on sale of property, plant and equipment		13		(1,568)
Share of profit of associate companies		(233)		(310)
Equity-settled share-based provision		1,220		1,024
Tax expense		3,963		3,865
OPERATING PROFIT BEFORE CHANGES IN WORKING CAPITAL AND PROVISIONS		24,841		19,694
(Increase) / decrease in inventories		(11,816)		8,801
Decrease / (increase) in contract assets		1,361		(6,046)
(Increase) / decrease in trade and other receivables		(4,288)		3,421
Increase in contract liabilities		3,452		212
Increase in trade and other payables (excluding advance payments from customers)		1,965		2,001
(Increase) / decrease in unhedged derivative balances		(579)		5,249
(Decrease) / Increase in advance payments from customers		(51)		2,224
CASH GENERATED FROM OPERATIONS		14,885		35,556
Interest paid		(524)		(665)
Corporation tax paid		(3,093)		(3,703)
Interest element of finance lease obligations		(64)		(89)
NET CASH FROM OPERATING ACTIVITIES		11,204		31,099
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment	142		1,888
Acquisition of property, plant and equipment	(11,451)		(9,010)
Additional investment in existing subsidiaries	(2,668)		-
Acquisition of controlling interest in associates net of    cash acquired	(425)		-
Acquisition of intangible assets	(315)		(378)
Development expenditure capitalised	(1,500)		(3,334)
Dividends received from associate companies	1,254		441
NET CASH OUTFLOW FROM INVESTING ACTIVITIES		(14,963)		(10,393)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital element of finance lease obligations	(911)		(865)
Proceeds from new finance leases	424		-
Dividends paid	(6,126)		(3,137)
Dividends paid to non-controlling interests	(451)		-
Net proceeds from / (repayment of) loans and committed facilities	8,337		(12,044)
NET CASH INFLOW / (OUTFLOW) FROM FINANCING ACTIVITIES		1,273		(16,046)
NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS		(2,486)		4,660
Cash and cash equivalents at beginning of year		2,900		(1,483)
Effect of exchange rate fluctuations on cash held		79		(277)
CASH AND CASH EQUIVALENTS AT END OF YEAR		493		2,900

PRINCIPAL RISKS AND UNCERTAINTIES

The Group's operations expose it to a variety of risks and uncertainties. These risks are no different to previous years and they are not expected to change substantially in the foreseeable future. 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. The key risks are discussed below.

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, 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 and silicone rubber.  

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 27 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, and interest rate swaps.

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 in the Accounts to be published shortly.

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 2019

In 2019 the following amendments had been endorsed by the EU, became effective and were, therefore, mandated to be adopted by the Group:

·    IFRS 9 - Financial Instruments (effective for annual periods beginning on or after 1st January, 2018)

·    IFRS 15 - Revenue from Contracts with Customers (effective for annual periods beginning on or after 1st January, 2018)

·    IFRS 15 - Clarifications (effective for annual periods beginning on or after 1st January, 2018)

·    Annual Improvements to IFRSs - 2014-2016 Cycle - minor amendments to IFRS 1 and IAS 28 (effective for annual periods beginning on or after 1st January, 2018)

·    Amendments to IFRS 2 - Classification and Measurement of Share-based Payment Transactions (effective for annual periods beginning on or after 1st January, 2018)

·    IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration (effective for annual periods beginning on or after 1st January, 2018)

The adoption of IFRS 9 and IFRS 15 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, 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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 2019 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

The Group has applied IFRS 15 initially at 1st May 2018; the financial statements for the year to 30 April, 2018 have not been restated but are presented, as previously reported, under IAS 18, IAS 11 and related interpretations.  IFRS 9 has also been applied initially at 1st May, 2018.  Prior periods have not been restated in accordance with the classification and measurement requirements of IFRS 9, because the Group has applied the exemption outlined in paragraph 7.2.15 of IFRS 9.

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	2019	2018	2019	2018	2019	2018
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External sales	82,375	80,661	44,671	44,150	127,046	124,811
Inter-segment sales	21,714	18,839	8,726	8,354	30,440	27,193
Total revenue	104,089	99,500	53,397	52,504	157,486	152,004
Reconciliation to consolidated revenue:
Inter-segment sales					(30,440)	(27,193)
Consolidated revenue for the year					127,046	124,811

	Mechanical Engineering		Refractory Engineering		Sub Total
Year ended 30th April	2019	2018	2019	2018	2019	2018
	£'000	£'000	£'000	£'000	£'000	£'000
Profits
Operating profit  including share of associates	11,932	8,282	8,070	7,528	20,002	15,810
Other income	-	-	-	1,602	-	1,602
Total	11,932	8,282	8,070	9,130	20,002	17,412
% of  total operating profit  including share of associates	60%	48%	40%	52%	100%	100%
Group centre					(2,138)	(2,498)
LTIP - non cash provision					(1,220)	(1,024)
Group finance expenses					(234)	(590)
Consolidated profit before tax for the year					16,410	13,300
Tax					(3,963)	(3,865)
Consolidated profit after tax for the year					12,447	9,435

	Segmental total assets		Segmental total liabilities		Segmental net assets
Year ended 30th April	2019	2018	2019	2018	2019	2018
	£'000	£'000	£'000	£'000	£'000	£'000
Segmental net assets
Mechanical Engineering	97,862	79,835	72,520	50,113	25,342	29,722
Refractory Engineering	43,950	39,534	25,541	19,905	18,409	19,629
Subtotal reportable segment	141,812	119,369	98,061	70,018	43,751	49,351
Goodwin PLC net assets					81,249	66,715
Elimination of Goodwin PLC investments					(25,374)	(20,950)
Goodwill					9,665	9,711
Consolidated total net  assets					109,291	104,827

Segmental property, plant and equipment (PPE) capital expenditure

					2019	2018
					£'000	£'000
Goodwin PLC					3,602	6,880
Mechanical Engineering					6,461	2,176
Refractory Engineering					616	360
					10,679	9,416

Segmental depreciation, amortisation and impairment

					2019	2018
					£'000	£'000
Goodwin PLC					2,367	2,144
Mechanical Engineering					3,175	2,629
Refractory Engineering					1,589	1,608
					7,131	6,381

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.

The Group's revenue is derived from contracts with customers.  The nature and effect, on the Group's financial statements, of applying IFRS15 for the first time are outlined in note 3 of the Accounts to be published shortly.

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

Geographical market

	Year ended 30th April, 2019				Year ended 30th April, 2018
		Mechanical Engineering	Refractory Engineering	Total	Mechanical Engineering	Refractory Engineering	Total
		£'000	£'000	£'000	£'000	£'000	£'000
UK		16,877	11,057	27,934	16,346	11,483	27,829
Rest of Europe		16,282	7,923	24,205	23,147	8,099	31,246
USA		8,017	83	8,100	3,623	119	3,742
Pacific Basin		12,848	16,108	28,956	8,207	14,845	23,052
Rest of World		28,351	9,500	37,851	29,338	9,604	38,942
Total		82,375	44,671	127,046	80,661	44,150	124,811

Product lines

	Year ended 30th April, 2019				Year ended 30th April, 2018
		Mechanical Engineering	Refractory Engineering	Total	Mechanical Engineering	Refractory Engineering	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Standard products and consumables		7,785	44,671	52,456	5,962	44,150	50,112
Minimum period contracts		4,996	-	4,996	6,133	-	6,133
Bespoke products - over time		34,538	-	34,538	21,278	-	21,278
Bespoke products - point in time		35,056	-	35,056	47,288	-	47,288
Total		82,375	44,671	127,046	80,661	44,150	124,811

Note 2

Intangible Assets

During the year, the Group added to its portfolio of intangible assets. The main additions are £432,000 on the development of a new valve range by Goodwin International, £148,000 on refractory development projects in Goodwin Refractory Services, and £920,000 on the development of radar equipment within Easat Radar Systems and NRPL Aero. 

Note 3

Changes in significant accounting policies

IFRS 15 Revenue from contracts with customers

With effect from the 1st May, 2018, the Group, as is required by law, has adopted the revised revenue accounting standard, IFRS 15 Revenue from Contracts with Customers that has replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. IFRS 15 in certain instances, and as outlined within the revenue section of note 1 of the Accounts to be published shortly, materially departs from the way revenue and profits have previously been recognised by the Group.

In terms of the current year, the impact of the new Standard has been to increase the reported revenue by £10.3 million and profit before taxation by £1.7 million, and therefore, if the Group were still reporting under IAS 18 and IAS 11, the reported revenue would have been £117 million. The pre tax profits £14.7 million discussed in the Chairman's Statement are on a like-for-like basis.

The following table summarises the impacts of adopting IFRS 15 on the Group's statement of profit or loss for the year ended 30th April, 2019 for each of the line items affected. There was no impact on NCI.

Impact on the consolidated statement of profit or loss

	As reported	Adjustments	Without the adoption of IFRS 15
Continuing operations	£'000	£'000	£'000
Revenue	127,046	(10,254)	116,792
Cost of sales	(86,414)	8,572	(77,842)
Gross profit	40,632	(1,682)	38,950
Distribution expenses	(3,016)	-	(3,016)
Administrative expenses	(21,205)	-	(21,205)
Operating profit	16,411	(1,682)	14,729
Financial expenses	(234)	-	(234)
Share of profit of associate companies	233	-	233
Profit before taxation	16,410	(1,682)	14,728
Tax on profit	(3,963)	333	(3,630)
Profit after taxation	12,447	(1,349)	11,098
Attributable to:
Equity holders of the parent	11,505	(1,067)	10,438
Non-controlling interests	942	(282)	660
Profit for the period	12,447	(1,349)	11,098

Note 4

Dividends

The Directors propose the payment of an ordinary dividend of 96.21p per share (2018: ordinary dividend of 83.473p).  If approved by shareholders, the ordinary dividend will be paid on 4th October, 2019 to shareholders on the register at the close of business on 6th September, 2019.

Note 5

Earnings per share

The earnings per ordinary share has been calculated on profit for the year attributable to ordinary shareholders of £11,505,000 (2018: £8,504,000) and by reference to the 7,200,000 ordinary shares in issue throughout both years.

There is a share option scheme in place for the Directors of the Company under the Company's Equity Long Term Investment 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.  In total, 489,600 share options vested on 1st May, 2019.  The effect of the potentially dilutive ordinary shares is 488,056 (2018: Nil) and the weighted average number of ordinary shares used to calculate the diluted earnings per share is 7,688,056 (2018: 7,200,000).

Note 6

Annual General Meeting

The Annual General Meeting will be held at 10.30 a.m. on 2nd October, 2019 at Crewe Hall, Weston Road, Crewe, Cheshire CW1 6UZ.

Note 7

Alternative performance measures

Measure	2019	2018
Gross profit (£'000)	40,632	35,668
Revenue (£'000)	127,046	124,811
Gross profit as percentage of revenue (%)	32.0	28.6
Operating profit (£'000)	16,411	13,580
Capital employed (£'000)	126,413	110,826
Return on capital employed (%)	13.0	12.3
Net debt (£'000)	21,248	11,258
Deferred consideration	204	500
Net debt excluding deferred consideration (£'000)	21,044	10,758
Net assets attributable to equity holders of the parent(£'000	105,165	99,568
Gearing (%)	20.0	10.8
Net profit attributable to equity holders of the parent (£'000)	11,505	8,504
Net assets attributable to equity holders of the parent(£'000)	105,165	99,568
Return on investment (%)	10.9	8.5
Revenue (£'000)	127,046	124,811
Average number of employees	1,082	1,042
Sales per employee (£'000)	117	120
Annual post tax profit (£'000)	12,447	9,435
Depreciation (£'000)	5,819	5,243
Amortisation (£'000)	1,312	1,138
Annual post tax profit before depreciation and amortisation (£'000)	19,578	15,816
Annual post tax profit (£'000) - without the adoption of IFRS 15	11,098	9,435
Depreciation (£'000)	5,819	5,243
Amortisation (£'000)	1,312	1,138
Annual post tax profit + depreciation + Amortisation - like for like (£'000)	18,229	15,816

END

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