GOODWIN PLC — Interim / Quarterly Report 2018

Dec 18, 2018

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RNS Number : 8183K

Goodwin PLC

18 December 2018

GOODWIN PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the half year ended 31st October 2018

CHAIRMAN'S STATEMENT

I am pleased to report that the pre-tax profit for the Group for the six month period ending 31st October 2018 was £7.8 million (2017 £6.1 million) an increase of 28% from a revenue of £67.5 million, which increased by 9%.

The current work load as at 31st October 2018 stands at £99 million, as compared to £84 million twelve months ago. The Group order book continues to improve not only in quantity but also in quality of earnings, both on the Mechanical Engineering side of the business and the Refractory Engineering side. The oil and gas order input is stable and the increase on the Mechanical Engineering side of the business relates to the new markets this division has been targeting, such as naval shipbuilding and nuclear waste reprocessing.

The order backlog represents about eight months of activity at current activity levels. Prior to the end of the first half of the calendar year 2019 the Group expects to win some substantial orders that will allow the Group activity level to take a step forward.

We recently replaced an existing Barclays' long term (5 year) banking agreement by moving to HSBC.  HSBC is now one of our two main bankers along with Lloyds. The package was on better terms.

Our Group employee numbers have started growing again and this is complemented by another group of 25 apprentices having started in September 2018. Our best weapon in times of shortage of skilled labour has always been to train our own people through our own in-house apprenticeship schemes.

J. W. Goodwin
Chairman	18th December 2018

Management report

Financial Highlights

	Unaudited      Half Year to	Unaudited       Half Year to	Audited           Year Ended
	31st October	31st October	30th April
	2018	2017	2018
	£'m	£'m	£'m
Consolidated Results
Revenue	67.5	61.9	124.8
Operating profit	7.8	6.4	13.6
Profit before tax	7.8	6.1	13.3
Profit after tax	5.7	4.5	9.4
Capital Expenditure	5.7	4.0	9.4
Earnings per share - basic	74.90p	58.38p	118.11p
Earnings per share  - diluted	73.44p	58.38p	118.11p

Turnover

Sales revenue of £67,548,000 for the half year represents a 9% increase from the £61,893,000 achieved during the same period last year.

Profit Before Tax

Profit before tax for the six months of £7,804,000 is up 28% from the £6,108,000 achieved for the same six month period last year.

Key performance indicators

The key performance indicators for the business are listed below:

	Unaudited      Half Year to	Unaudited       Half Year to	Audited           Year Ended
	31st October	31st October	30th April
	2018	2017	2018
Gross profit as a % of turnover	29.5	27.7	28.6
Profit before tax (in £ millions)	7.8	6.1	13.3
Gearing % (excluding deferred consideration)	12.0	29.4	10.8
Depreciation (in £ millions)	2.8	2.6	5.2
Amortisation (in £ millions)	0.5	0.6	1.1
Equity-settled share-based provision (in £ millions)	0.5	0.5	1.0
Non cash charges (in £ millions)	3.8	3.7	7.3
Profit before tax (in £ millions)	7.8	6.1	13.3
Other income (in £ millions)	-	(1.6)	(1.6)
Trading profit (in £ millions)	7.8	4.5	11.7

Alternative performance measures mentioned above are defined in note 29 on page 68 of the Group Annual accounts to 30th April 2018.

2019/20 Outlook

The Group activity and profitability levels are expected to increase over the next twelve months associated with the increased work load. Whilst the Group's pre-tax profitability in the first six months of the current financial year increased by 28% as stated in this half year's Chairman's Statement, the trading profit in this period actually increased by 73% compared to the same period last financial year.  This was a reflection of improving quality of orders, whereas last year there was a £1.6 million gain from selling the first Indian factory land site which we had purchased in 2003.

Whilst we have an increased work load, we expect the second half year pre-tax profits of this financial year to be similar to the first half of this financial year as it will take about six months to ramp up the activity levels and take the new work through first piece sample approvals. However, subject to significant new business being won, we expect 2019 / 2020 to be busier and more profitable than the current financial year.

Our activities in India continue to grow in this buoyant large economy and, to accommodate further growth of our pump and investment casting powder manufacturing activities there, we have in this first half of the year purchased 2.6 more acres of land adjacent to our 4 acre site to accommodate the further anticipated growth over the next three years.

Risks and Uncertainties

The Group, mainly through its centralised management structure, makes best endeavours to have in place internal control procedures to identify and manage the key risks and uncertainties affecting the Group. We would refer you to page 11 of the Group Annual Accounts to 30th April 2018 which describes the principal risks and uncertainties, and to note 20 (page 58) which describes in detail the key financial risks and uncertainties affecting the business such as credit risk and foreign exchange risk.

Judging the future relationship of the major currency pairs of the US Dollar, Sterling and the Euro continues to be a challenge.

Report on Expected Developments

This report describes the expected developments of the Group during the year ended 30th April 2019. The report may contain forward-looking 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 to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Going concern

Within the 30th April 2018 Chairman's Statement reference was made to an improvement in cash flow of £17 million and a gearing level of 11% as at the year end. Despite the increased dividend payment of £6 million and a further £5.7 million of capital expenditure during the first half of this financial year, the net debt as reported in note 12 has deteriorated only by a modest £946,000. There are essentially two aspects to the cash management performance in the first half of this financial year:

1)   The continued focus on controlling our investment in working capital.

2)   The increased levels of profitability. As can be seen from the first half year results, the post-tax profits at £5.7 million are significantly ahead of the £4.5 million reported for the same period last year and also pro-rata as against the post-tax profit figure for the year to 30th April 2018. Adding back the Group's non-cash charges of £3.8 million (October 2017 £3.7 million, year to 30th April 2018 £7.3 million) gives a feel for the cash-generating potential of the Group.

The Group's bank facilities, in terms of quantum, are materially unchanged from those reported within the full year accounts. We would refer you in particular to Note 20.b) on page 59 of those accounts where you can see that our unutilised facilities are significant. During December 2018, a 5-year revolving credit facility for £10 million expired (along with a bond line and an FX line). The Company has successfully negotiated the like-for-like replacement of these facilities with a new 5-year agreement on improved terms. The practical impact is that £5 million of debt under the old facility is shown as a current liability repayable within one year in these accounts for the period ended 31st October 2018. Any outstanding amount related to these new facilities will be reported as a non-current liability for the financial year ended 30th April 2019.

Given the profitability of the Group, the modest gearing levels and the bank facilities available to it, the Directors have concluded that drawing up the accounts on a going concern basis is appropriate.

Responsibility statement of the Directors in respect of the half-yearly financial report

The Directors confirm to the best of their knowledge that 1) this condensed set of financial statements has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that 2) the Interim Management Report and condensed financial statements include a fair review of the information required by Disclosure and Transparency Rules 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year) and 4.2.8R (being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last Annual Report that could do so).

J. W. Goodwin
Chairman	18th December 2018

Condensed Consolidated Statement of Profit or Loss

for the half year to 31st October 2018

	Unaudited	Unaudited	Audited
	Half Year to	Half Year to	Year Ended
	31st October	31st October	30th April
	2018	2017	2018
	£'000	£'000	£'000
Continuing operations
Revenue	67,548	61,893	124,811
Cost of sales	(47,608)	(44,758)	(89,143)
Gross profit	19,940	17,135	35,668
Other income	-	1,602	1,602
Distribution expenses	(1,564)	(1,881)	(3,359)
Administrative expenses	(10,539)	(10,494)	(20,331)
Operating profit	7,837	6,362	13,580
Financial expenses	(303)	(419)	(590)
Share of profit of associate companies	270	165	310
Profit before taxation	7,804	6,108	13,300
Tax on profit	(2,076)	(1,656)	(3,865)
Profit after taxation	5,728	4,452	9,435
Attributable to:
Equity holders of the parent	5,393	4,203	8,504
Non-controlling interests	335	249	931
Profit for the period	5,728	4,452	9,435
Basic earnings per ordinary share (Note 11)	74.90p	58.38p	118.11p
Diluted earnings per ordinary share (Note 11)	73.44p	58.38p	118.11p

Condensed Consolidated Statement of Comprehensive Income

for the half year to 31st October 2018

	Unaudited	Unaudited	Audited
	Half Year to	Half Year to	Year Ended
	31st October	31st October	30th April
	2018	2017	2018
	£'000	£'000	£'000
Profit for the period	5,728	4,452	9,435
Other comprehensive income / (expense)
Items that are or may be reclassified subsequently to the income statement
Foreign exchange translation differences	(259)	258	(152)
Effective portion of changes in fair value of cash flow hedges	(3,023)	(196)	(294)
Change in fair value of cash flow hedges transferred to the income statement	-	932	5,108
Hedging forward points adjustment	595	-	-
Tax on items that are or may be reclassified subsequently to the income statement	413	(125)	(818)
Other comprehensive income / (expense) for the period, net of income tax	(2,274)	869	3,844
Total comprehensive income for the period	3,454	5,321	13,279
Attributable to:
Equity holders of the parent	3,183	5,151	12,245
Non-controlling interests	271	170	1,034
	3,454	5,321	13,279

Condensed Consolidated Statement of Changes in Equity

for the half year to 31st October 2018

	Share capital	Translat-ion reserve	Share-based payments reserve	Cash flow hedge reserve	Cost of hedging reserve	Retained earnings	Total attribut-able to equity holders of the parent	Non-controll-ing interests	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Half year to 31st October 2018 (Unaudited)
Balance at 1st May 2018	720	1,879	1,625	(23)	(201)	95,568	99,568	5,259	104,827
Adjustment on initial application of IFRS 15 (net of tax)	-	-	-	-	-	285	285	(56)	229
Adjusted balance at 1st May 2018	720	1,879	1,625	(23)	(201)	95,853	99,853	5,203	105,056
Total comprehensive income:
Profit	-	-	-	-		5,393	5,393	335	5,728
Other comprehensive income:
Foreign exchange translation differences	-	(211)	-	-		-	(211)	(48)	(259)
Net movements on cash flow hedges	-	-	-	(2,594)	595	-	(1,999)	(16)	(2,015)
Total comprehensive income for the period	-	(211)	-	(2,594)	595	5,393	3,183	271	3,454
Equity-settled share-based payment transactions	-	-	523	-	-	-	523	-	523
Dividends paid	-	-	-	-	-	(6,074)	(6,074)	(451)	(6,525)
Balance at 31st October 2018	720	1,668	2,148	(2,617)	394	95,172	97,485	5,023	102,508

Condensed Consolidated Statement of Changes in Equity

for the half year to 31st October 2018

	Share capital	Translat-ion reserve	Share-based payments reserve	Cash flow hedge reserve	Cost of hedging reserve	Retained earnings	Total attribut-able to equity holders of the parent	Non-controll-ing interests	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Half year to 31st October, 2017 (Unaudited)
Balance at 1st May, 2017	720	2,154	601	(4,240)	-	90,201	89,436	4,225	93,661
Total comprehensive income:
Profit	-	-	-	-	-	4,203	4,203	249	4,452
Other comprehensive income:
Foreign exchange translation differences	-	194	-	-	-	-	194	64	258
Net movements on cash flow hedges	-	-	-	754	-	-	754	(143)	611
Total comprehensive income for the period	-	194	-	754	-	4,203	5,151	170	5,321
Equity-settled share-based payment transactions	-	-	515	-	-	-	515	-	515
Dividends paid	-	-	-	-	-	(3,137)	(3,137)	-	(3,137)
Balance at 31st October 2017	720	2,348	1,116	(3,486)	-	91,267	91,965	4,395	96,360

	Share capital	Translat-ion reserve	Share-based payments reserve	Cash flow hedge reserve	Cost of hedging reserve	Retained earnings	Total attribut-able to equity holders of the parent	Non-controll-ing 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 period	-	(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 - before restatement	720	1,879	1,625	(224)	-	95,568	99,568	5,259	104,827
Adjustment on initial application of IFRS 9 (net of tax)	-	-	-	201	(201)	-	-	-		-
Adjusted balance at 1st May, 2018	720	1,879	1,625	(23)	(201)	95,568	99,568	5,259		104,827

Condensed Consolidated Statement of Financial Position

as at 31st October 2018

		Unaudited	Unaudited	Audited
		as at	as at	as at
		31st October 2018	31st October 2017	30th April   2018      (restated)
		£'000	£'000	£'000
Non-current assets
Property, plant and equipment		71,713	66,792	69,154
Investment in associates		2,290	2,229	1,963
Intangible assets		21,308	18,603	21,138
Other financial assets at amortised cost		564	-	728
		95,875	87,624	92,983
Current assets
Inventories		33,916	35,473	28,850
Contract assets		6,527	-	6,046
Trade and other receivables		24,118	29,688	21,914
Derivative financial assets		24	556	364
Cash and cash equivalents		7,577	7,813	7,485
		72,162	73,530	64,659
Total assets		168,037	161,154	157,642
Current liabilities
Bank overdrafts		3,654	9,737	4,585
Interest-bearing loans and borrowings		5,990	3,918	7,883
Contract liabilities		1,570	-	212
Payments on account		8,935	6,654	5,532
Trade and other payables		24,539	15,308	21,147
Deferred consideration		500	500	500
Liabilities for current tax		2,388	2,043	1,174
Derivative financial liabilities		4,240	2,228	1,535
Warranty provision		99	88	184
		51,915	40,476	42,752
Non-current liabilities
Interest-bearing loans and borrowings		9,637	21,198	5,775
Warranty provision		439	337	329
Deferred tax liabilities		3,538	2,783	3,959
		13,614	24,318	10,063
Total liabilities		65,529	64,794	52,815
Net assets		102,508	96,360	104,827
Equity attributable to equity holders of the parent
Share capital		720	720	720
Translation reserve		1,668	2,348	1,879
Share-based payments reserve		2,148	1,116	1,625
Cash flow hedge reserve		(2,617)	(3,486)	(23)
Cost of hedging reserve		394	-	(201)
Retained earnings		95,172	91,267	95,568
Total equity attributable to equity holders of the parent		97,485	91,965	99,568
Non-controlling interests		5,023	4,395	5,259
Total equity		102,508	96,360	104,827

Condensed Consolidated Statement of Cash Flows

for the half year ended 31st October 2018

	Unaudited	Unaudited	Audited
	Half Year to 31st October 2018	Half Year to 31st October 2017	Year ended 30th April 2018
	£'000	£'000	£'000
Cash flow from operating activities
Profit from continuing operations after tax	5,728	4,452	9,435
Adjustments for:
Depreciation	2,764	2,644	5,243
Amortisation of intangible assets	549	552	1,138
Financial expenses	303	419	590
Foreign exchange (gains) / losses	(127)	192	277
Profit on sale of property, plant and equipment	(11)	(1,610)	(1,568)
Share of profit of associate companies	(270)	(165)	(310)
Equity-settled share-based provision	523	515	1,024
Tax expense	2,076	1,656	3,865
Operating profit before changes in working capital and provisions	11,535	8,655	19,694
Increase in trade and other receivables	(2,175)	(3,194)	(8,671)
(Increase) / decrease in inventories	(2,442)	2,343	8,801
(Increase) / decrease in contract assets	(1,389)	-	6,046
Increase / (decrease) in trade and other payables (excluding payments on account)	3,005	(1,760)	2,001
Increase / (decrease) in contract liabilities	(1,604)	-	212
Decrease in cash flow hedge balances	617	548	5,249
Increase in payments on account	5,913	3,094	2,224
Cash inflow from operations	13,460	9,686	35,556
Interest paid	(193)	(383)	(665)
Corporation tax paid	(906)	(1,254)	(3,703)
Interest element of finance lease obligations	(32)	(45)	(89)
Net cash from operating activities	12,329	8,004	31,099
Cash flow from investing activities
Proceeds from sale of property, plant and equipment	93	1,811	1,888
Acquisition of intangible assets	(232)	(354)	(378)
Acquisition of property, plant and equipment	(5,652)	(4,850)	(9,010)
Development expenditure capitalised	(469)	(355)	(3,334)
Dividends received from associate companies	-	-	441
Net cash outflow from investing activities	(6,260)	(3,748)	(10,393)
Cash flows from financing activities
Payment of capital element of finance lease obligations	(455)	(429)	(865)
Dividends paid	(6,074)	(3,137)	(3,137)
Dividends paid to non-controlling interests	(451)	-	-
Proceeds from loans and committed facilities	4,000	-	-
Repayment of loans and committed facilities	(2,023)	(1,023)	(12,044)
Net cash outflow from financing activities	(5,003)	(4,589)	(16,046)
Net increase / (decrease) in cash and cash equivalents	1,066	(333)	4,660
Cash and cash equivalents at beginning of year	2,900	(1,483)	(1,483)
Effect of exchange rate fluctuations on cash held	(43)	(108)	(277)
Closing cash and cash equivalents	3,923	(1,924)	2,900

Notes

to the Condensed Consolidated Financial Statements

1.         Reporting entity

Goodwin PLC (the "Company") is a company incorporated in England and Wales. The unaudited condensed consolidated interim financial statements of the Company as at and for the six months ended 31st October 2018 comprise the Company, its subsidiaries, and the Group's interests in associates (together referred to as the "Group").

The audited consolidated financial statements of the Group as at and for the year ended 30th April 2018 are available upon request from the Company's registered office at Ivy House Foundry, Hanley, Stoke-on-Trent,  ST1 3NR or via the Company's web site:  www.goodwin.co.uk.

2.         Statement of compliance

These unaudited condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted in the EU.  They do not include all of the information required for full annual financial statements, and should be read in conjunction with the audited consolidated financial statements of the Group as at and for the year ended 30th April 2018.

The comparative figures for the financial year ended 30th April 2018 are extracts and not the full Group's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference 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.

The Audit Committee has reviewed these unaudited condensed consolidated interim financial statements and has advised the Board of Directors that, taken as a whole, they are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's half year performance.  These unaudited condensed consolidated interim financial statements were approved by the Board of Directors on 18th December 2018.

3.         Significant accounting policies

The accounting policies applied by the Group in these unaudited condensed consolidated financial statements are the same as those applied by the Group in its audited consolidated financial statements as at and for the year ended 30th April 2018, with the exception of IFRS 15 revenue recognition (see note 5) and IFRS 9 Financial Instruments. The changes in accounting policies are to be reflected in the Group's consolidated financial statements as at and for the year ending 30 April 2019.

The following standards and amendments became effective and therefore were 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)

·  Amendments to IAS 40 - Transfers of Investment Property (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)

·  Amendments to IFRS 4 - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (effective for annual periods beginning on or after 1st January 2018)

The impact of IFRS 15 Revenue from Contracts with Customers, which replaces IAS 18 Revenue, IAS11 Construction Contracts and related interpretations, is outlined in note 5 below.  The Group has considered the impact on profit, earnings per share and net assets in future periods, of the other new standards and interpretations referred to above (including IFRS 9), and with the exception of IFRS 15 none of the above standards or interpretations is expected to have a material impact.

New IFRS standards, amendments and interpretations not adopted

The IASB and IFRIC have issued additional standards and amendments which are effective for periods starting after the date of these financial statements. The following standards and amendments have not yet been adopted by the Group:

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

·  IFRS 16 - Leases (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)

·  Amendments to IAS 19 - Plan Amendment, Curtailment or Settlement (effective for annual periods beginning on or after 1st January 2019)

4.         Accounting estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from these estimates.

In preparing these unaudited consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as at and for the year ended 30th April 2018, with the exception of revenue recognition (see note 5).

In terms of revenue recognition under IFRS 15 there is a requirement to recognise revenue and profit on contracts where the customer effectively assumes ownership and control of the goods as the contract progresses. When reviewing these contracts, management prudently estimates both the percentage completion of the works and the profit within the contract when arriving at the appropriate amount of revenue to be taken in the period.

The tax charge in the period is based on management's estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period, and the impact of any disallowed costs.

5.         Changes in significant accounting policies

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 30th April 2018. The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30th April 2019. The Group has initially adopted IFRS 15 Revenue from Contracts with Customers from 1st May 2018. A number of other new standards (including IFRS 9 Financial Instruments) are effective from 1st May 2018 but they are not expected to have a material effect on the Group's financial statements.
The main impacts of initially applying IFRS 15 are the following:                 - earlier recognition of revenue from some short and long term engineered product contracts                 - earlier recognition of revenue from the unbundling of minimum period contracts                 - reduction in recognition of revenue from some long term engineered product contracts
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e. 1st May 2018). Accordingly, the information presented for the half year to 31st October 2017 and for the year ended 30th April 2018 has not been restated - i.e. it is presented, as previously reported, under IAS 18, IAS 11 and related interpretations.
The following table summarises the impact, net of tax, of transition to IFRS 15 on retained earnings and non-controlling interests at 1st May 2018.
			£'000
Minimum Period Contracts for the Provision of Goods and Services			76
Short Term Engineered Bespoke Products - Performance Obligations Satisfied Over Time			566
Short term Engineered Bespoke Products - Performance Obligations Satisfied at a Point in Time			(359)
Less related tax			(54)
Impact on total equity at 1 May 2018			229
Equity attributable to equity holders of the parent			285
Non-controlling interests			(56)
			229

The following tables summarise the impacts of adopting IFRS 15 on the Group's interim statement of financial position as at 31st October 2018 and its interim statement of profit or loss and other comprehensive income for the six months then ended for each of the line items affected. There was no material impact on the Group's interim statement of cash flows for the six month period ended 31st October 2018.

Impact on the condensed interim consolidated statement of profit or loss

	As reported	Adjustments	Without the adoption of IFRS 15
	£'000	£'000	£'000
Continuing operations
Revenue	67,548	(4,890)	62,658
Cost of sales	(47,608)	4,699	(42,909)
Gross profit	19,940	(191)	19,749
Distribution expenses	(1,564)	-	(1,564)
Administrative expenses	(10,539)	-	(10,539)
Operating profit	7,837	(191)	7,646
Financial expenses	(303)	-	(303)
Share of profit of associate companies	270	-	270
Profit before taxation	7,804	(191)	7,613
Tax on profit	(2,076)	36	(2,040)
Profit after taxation	5,728	(155)	5,573

Attributable to:

# Equity holders of the parent	5,393	(167)	5,226
# Non-controlling interests	335	12	347
Profit for the period	5,728	(155)	5,573

Impact on the condensed interim consolidated statement of financial position

		As reported	Adjustments	Without the adoption of IFRS 15
		£'000	£'000	£'000
Non-current assets		95,875	-	95,875
Current assets
Inventories		33,916	1,602	35,518
Contract assets		6,527	(1,246)	5,281
Trade and other receivables		24,118	(29)	24,089
Derivative financial assets		24	-	24
Cash and cash equivalents		7,577	-	7,577
		72,162	327	72,489
Total assets		168,037	327	168,364
Current liabilities
Bank overdrafts		3,654	-	3,654
Interest-bearing loans and borrowings		5,990	-	5,990
Contract liabilities		1,570	2,168	3,738
Payments on account		8,935	(1,505)	7,430
Trade and other payables		24,539	(144)	24,395
Deferred consideration		500	-	508
Liabilities for current tax		2,388	-	2,380
Derivative financial liabilities		4,240	-	4,240
Warranty provision		99	-	99
		51,915	519	52,434
Non-current liabilities
Interest-bearing loans and borrowings		9,637	-	9,637
Warranty provision		439	-	439
Deferred tax liabilities		3,538	(37)	3,501
		13,614	(37)	13,577
Total liabilities		65,529	482	66,011
Net assets		102,508	(155)	102,353
Equity attributable to equity holders of the parent
Share capital		720	-	720
Translation reserve		1,668	-	1,668
Share-based payments reserve		2,148	-	2,148
Cash flow hedge reserve		(2,617)	-	(2,617)
Cost of hedging reserve		394	-	394
Retained earnings		95,172	(167)	95,005
Total equity attributable to equity holders of the parent		97,485	(167)	97,318
Non-controlling interests		5,023	12	5,035
Total equity		102,508	(155)	102,353

IFRS 15 stipulates that revenue is to be recognised when a customer obtains control of the goods or services i.e. upon the satisfaction of a performance obligation. Judgement is required to determine the timing of the transfer of control, and whether it is at a point in time or over time. Where a contract contains several performance obligations then the contract is unbundled and each performance obligation is dealt with separately. Warranties do not feature as a separate revenue stream. The Group's warranties are assurance based and not sold separately within contracts. The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Group's various goods and services are set out below.

Standard Inventory Product Lines and Consumables

This typically applies to the whole of the Group's Refractories Engineering segment and the sale of slurry pumps within the Mechanical Engineering segment. The revenue here relates to standard products manufactured for sale. The performance obligation is satisfied and revenue taken at the point when customers obtain control of the goods in accordance with the International Commercial (INCO) terms agreed or via a bill and hold arrangement. For this revenue stream the treatment under IAS 18 and IFRS 15 is essentially the same in the profit and loss account and the balance sheet. The Group is not significantly impacted by standard products sold on a sale or return basis.

Minimum Period Contracts for the Provision of Goods and Services

This relates predominantly to the supply of broadband and related services under minimum term contracts. Performance obligations are satisfied over time and revenue is recognised equally over the term of the contract. Within these contracts it is often the case that the service contract also contains hardware / software as part of the monthly payments. Under IAS 18, any such hardware / software was amortised over the term of the contract. Under IFRS 15, these contracts are unbundled with the fair value of the hardware / software taken as revenue in month 1 by the creation of a contract asset, thus leaving the true service element to be taken as revenue over the term of the contract. Prepayments under IFRS 15 are therefore reduced due to the taking of the sale of goods in month 1.

Short Term Engineered Bespoke Products - Performance Obligations Satisfied Over Time

This typically applies to the Group's Mechanical Engineering Segment and covers sales orders deliverable within 12 months which are customer bespoke and permit the Group Subsidiary to claim profit earned to date if the customer were to trigger the profit based cancel for convenience clause within the contract. In such cases, the performance obligations are treated as satisfied over time (i.e. as the contract progresses) and revenue taken is taken based on the percentage completion of the contract by the creation of a contract asset. Under IAS 18 revenue was not taken until the goods were despatched and until then were accounted for as work in progress (cost and overhead recovery only) and so work in progress under IFRS 15 is reduced and replaced by a contract asset which includes profit. Measuring progress requires judgement as to the stage of completion of each job, and the production of forecasts, which contain allowances for technical risks and inherent uncertainties.

Short term Engineered Bespoke Products - Performance Obligations Satisfied at a Point in Time

This typically applies to the Group's Mechanical Engineering Segment and covers sales orders deliverable within 12 months which are customer bespoke but only permit the Group Subsidiary to claim for costs in the event the customer triggers the cost based cancel for convenience clause within the contract. In such cases, the performance obligation is deemed to be met and revenue taken as order lines are shipped in accordance with the relevant shipping terms or via a bill and hold arrangement. For this revenue stream the treatment under IAS 18 and IFRS 15 is essentially the same.

Long term contracts - Performance Obligations Satisfied Over Time

This applies to the Group's Mechanical Engineering Segment and relates to sales orders with a contract period in excess of 12 months where the cancel for convenience clause in the contract permits the recovery of profit. Revenue is taken on a percentage complete basis by the creation of a contract asset. Such contracts were previously accounted for under IAS 11 and for this revenue stream the treatment under IAS 11 and IFRS 15 is essentially the same. Measuring progress requires judgement as to the stage of completion of each job, and the production of forecasts, which contain allowances for technical risks and inherent uncertainties.

Long-term contracts - Performance Obligations Satisfied at a Point in Time

This applies to the Group's Mechanical Engineering Segment and relates to sales orders with a contract period lasting more than 12 months where the cancel for convenience clause in the contract only allows for the recovery of costs. Performance obligations in these contracts are satisfied and revenue taken either on the delivery of individual units or against vesting certificates issued in favour of the customer. Such contracts were previously accounted for under IAS 11 where revenue and profit was taken on a percentage complete basis. Under IFRS 15, the contract asset balance is eliminated and is replaced by work in progress at cost plus overheads.

6.         Operating Segments

Products and services from which reportable segments derive their revenues

The Group has applied IFRS 15 initially at 1st May 2018; information presented for the half year to 31st October 2017 and for the year ended 30th April 2018  has not been restated but is 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.

In accordance with the requirements of IFRS 8 "Operating Segments" 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, machining and general engineering

•     Refractory Engineering                  - powder manufacture and mineral processing

Information regarding the Group's operating segments is reported in the following tables. 

Segment Revenue

	Mechanical Engineering			Refractory Engineering			Sub Total
	Unaudited Half Year Ended   31st October 2018	Unaudited Half Year Ended    31st October 2017	Audited Year  Ended  30th     April   2018	Unaudited Half Year Ended  31st October 2018	Unaudited Half Year Ended   31st October 2017	Audited Year  Ended  30th    April   2018	Unaudited Half Year Ended    31st October  2018	Unaudited Half Year Ended     31st   October 2017	Audited Year  Ended  30th    April   2018
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
External sales	45,052	39,779	80,661	22,496	22,114	44,150	67,548	61,893	124,811
Inter-segment sales	10,591	10,189	18,839	4,423	4,350	8,354	15,014	14,539	27,193
Total revenue	55,643	49,968	99,500	26,919	26,464	52,504	82,562	76,432	152,004
Reconciliation to consolidated revenues:
Inter-segment sales							(15,014)	(14,539)	(27,193)
Consolidated revenue for the period							67,548	61,893	124,811

Segment profits

	Mechanical Engineering			Refractory Engineering			Sub Total
	Unaudited Half Year Ended   31st October 2018	Unaudited Half Year Ended    31st October 2017	Audited Year  Ended  30th     April   2018	Unaudited Half Year Ended  31st October 2018	Unaudited Half Year Ended   31st October 2017	Audited Year  Ended  30th    April   2018	Unaudited Half Year Ended    31st October  2018	Unaudited Half Year Ended     31st   October 2017	Audited Year  Ended  30th    April   2018
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Profits
Segment result including associates	4,541	2,733	8,282	4,854	5,313	9,130	9,395	8,046	17,412
Group administration costs							(765)	(1,004)	(2,498)
LTIP equity plan provision							(523)	(515)	(1,024)
Group finance and treasury costs							(303)	(419)	(590)
Consolidated profit before tax for the period							7,804	6,108	13,300
Tax							(2,076)	(1,656)	(3,865)
Consolidated profit after tax for the period							5,728	4,452	9,435

Segment Assets and Liabilities

	Segmental total assets			Segmental total liabilities			Segmental net assets
	Unaudited Half Year Ended   31st October 2018	Unaudited Half Year Ended    31st October 2017	Audited Year  Ended  30th     April   2018	Unaudited Half Year Ended  31st October 2018	Unaudited Half Year Ended   31st October 2017	Audited Year  Ended  30th    April   2018	Unaudited Half Year Ended    31st October  2018	Unaudited Half Year Ended     31st   October 2017	Audited Year  Ended  30th    April   2018
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Mechanical Engineering	96,710	85,793	79,835	64,674	66,798	50,113	32,036	18,995	29,722
Refractory Engineering	40,207	45,425	39,534	19,859	24,527	19,905	20,348	20,898	19,629
Sub total reportable segment	136,917	131,218	119,369	84,533	91,325	70,018	52,384	39,893	49,351
Goodwin PLC (the Company) net assets							61,369	68,841	66,715
Elimination of Goodwin PLC investments							(20,960)	(22,084)	(20,950)
Goodwill							9,715	9,710	9,711
Consolidated total net assets							102,508	96,360	104,827
Segmental property, plant and equipment (PPE) capital expenditure
Goodwin PLC							2,408	3,049	6,880
Mechanical Engineering							3,039	687	2,176
Refractory Engineering							225	267	360
							5,672	4,003	9,416

7.     Geographical segments

	Half Year Ended 31st October 2018				Half Year Ended 31st October 2017
	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited	Unaudited
	Revenue	Operational assets	Non-current assets	PPE capital expenditure	Revenue	Operational assets	Non-current assets	PPE capital expenditure
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
UK	14,991	68,263	77,896	3,195	13,698	63,870	71,656	3,610
Rest of Europe	17,503	12,120	3,724	535	14,674	10,483	2,276	136
USA	2,138	-	-	-	2,544	-	-	-
Pacific Basin	14,762	15,064	7,888	17	11,709	14,635	7,505	116
Rest of World	18,154	7,061	6,367	1,925	19,268	7,372	6,187	141
Total	67,548	102,508	95,875	5,672	61,893	96,360	87,624	4,003
					Year Ended 30th April 2018
					Audited	Audited	Audited	Audited
					Revenue	Operational assets	Non-current assets	PPE capital expenditure
					£'000	£'000	£'000	£'000
UK					27,829	70,558	76,325	8,301
Rest of Europe					31,246	12,477	3,281	772
USA					3,742	-	-	-
Pacific Basin					23,052	14,785	8,003	154
Rest of World					38,942	7,007	5,374	189
Total					124,811	104,827	92,983	9,416

8.         Revenue

The Group's revenue is derived from contracts with customers.  The nature and effect, on the Group's interim financial statements, of applying IFRS15 for the first time are outlined in note 5.

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

				Mechanical Engineering		Refractory Engineering		Total
				£'000		£'000		£'000
Primary Geographical markets
Unaudited half year ended 31st October 2018
UK				9,160		5,831		14,991
Rest of Europe				13,497		4,006		17,503
USA				2,097		41		2,138
Pacific Basin				6,570		8,192		14,762
Rest of World				13,728		4,426		18,154
Total				45,052		22,496		67,548

		Mechanical Engineering	Refractory Engineering	Total
		£'000	£'000	£'000
Primary Geographical markets
Unaudited half year ended 31st October 2017
UK		7,912	5,786	13,698
Rest of Europe		10,799	3,875	14,674
USA		2,469	75	2,544
Pacific Basin		3,989	7,720	11,709
Rest of World		14,610	4,658	19,268
Total		39,779	22,114	61,893
Product lines
Unaudited half year ended 31st October 2018
Standard products and consumables		4,317	22,496	26,813
Minimum period contracts for goods and services		1,446	-	1,446
Bespoke engineered products - over time		2,556	-	2,556
Bespoke engineered products - point in time		27,958	-	27,958
Long term contracts - over time		407	-	407
Long term contracts - point in time		8,368	-	8,368
Total		45,052	22,496	67,548
Unaudited half year ended 31st October 2017
Standard products and consumables		2,833	22,114	24,947
Minimum period contracts for goods and services		1,503	-	1,503
Bespoke engineered products - over time		778	-	778
Bespoke engineered products - point in time		29,378	-	29,378
Long term contracts - over time		792	-	792
Long term contracts - point in time		4,495	-	4,495
Total		39,779	22,114	61,893

Contract balances

The following table presents information about receivables, contract assets and liabilities from contracts with customers.

		Unaudited	Unaudited
		as at	as at
		31st October 2018	1 May        2018
		£'000	£'000
Receivables - included in "Trade and other receivables"		19,449	18,375
Contract assets		6,527	5,138
Contract liabilities		(1,570)	(3,207)
Net book value at the end of the period		24,406	20,306

The Group has recognised the cumulative effect of applying IFRS 15 for the first time as an adjustment to the opening balance at 1st May 2018.  Contract assets and liabilities as at 30th April 2018 have been adjusted, in this table only, to reflect the impact of IFRS 15.

The contract assets represent the Group's rights to consideration for work completed but not invoiced at the reporting date for bespoke products and long term contracts.  Contract assets are transferred to receivables when the rights to consideration become unconditional. This is generally when the Group invoices the customer. Where progress billings exceed the recognised profits (less losses), the balances are disclosed as contract liabilities.

Of the contract liabilities recognised at the beginning of the period, revenue of £1,646,000 has been recognised in the half year ended 31st October 2018.

No revenue has been recognised in the half year ended 31st October 2018 from performance obligations, which were satisfied (or partially satisfied) in previous periods. 

The Group has applied the practical expedient in IFRS 15, paragraph 121, and has not disclosed the remaining performance obligations for contracts which have an original expected duration of one year or less.  The aggregate amount of the transaction price allocated to the performance obligations for longer term contracts, which are unsatisfied (or partially unsatisfied) as at the end of the reporting period is £26,490,000.  The longest of these contracts is due to be completed in 2023.

The Group's revenue is not significantly impacted by seasonal / cyclical events.

9.         Other income

Other income deals with the profit on the sale of land in India in the half year to 31st October 2017.

10.       Dividends

The Directors do not propose the payment of an interim dividend.

		Unaudited	Unaudited	Audited
		Half Year to	Half Year to	Year Ended
		31st October 2018	31st October 2017	30th April 2018
		£'000	£'000	£'000
Equity Dividends Paid:
Ordinary dividends paid during the period in respect of the year ended 30th April 2018 (83.473p per share)		6,010	-	-
Ordinary dividends paid during the period in respect of the year ended 30th April 2017 (42.348p per share)		-	3,049	3,049
Dividends paid to minority shareholders in Noreva GmbH		64	88	88
Total dividends paid during the period		6,074	3,137	3,137

11.       Earnings Per Share

The calculation of the basic earnings per ordinary share is based on the number of ordinary shares in issue during all periods of 7,200,000, and on the profit for the six months attributable to ordinary shareholders of £5,393,000 (six months to 31st October 2017: £4,203,000).

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.  Under the LTIP, as at 31st October 2018 and based on the share price at that date, a total of 144,000 shares would have accrued to the Directors under the LTIP which net of the option price payable would dilute the number of shares by 143,433. The diluted earnings per share has been based on 7,343,433 shares and the same profits attributable to shareholders as set out in the previous paragraph.

12.       Capital Management, Issuance and Repayment of Debt

At 31st October 2018 the capital utilised was £109,689,000 as shown below:

		Unaudited	Unaudited	Audited
		as at	as at	as at
		31st October 2018	31st October 2017	30th April  2018
		£'000	£'000	£'000
Cash and cash equivalents		(7,577)	(7,813)	(7,485)
Finance leases		2,539	2,984	2,548
Bank loans and committed facilities		13,088	22,132	11,110
Bank overdrafts		3,654	9,737	4,585
Deferred consideration		500	500	500
Net debt		12,204	27,540	11,258
Total equity attributable to equity holders of the parent		97,485	91,965	99,568
Capital		109,689	119,505	110,826

13.       Property, Plant and Equipment

		Unaudited	Unaudited
		as at	as at
		31st October 2018	31st October 2017
		£'000	£'000
Net book value at the beginning of the period		69,154	65,739
Additions		5,672	4,003
Disposals (at net book value)		(82)	(201)
Depreciation		(2,764)	(2,644)
Exchange adjustment		(267)	(105)
Net book value at the end of the period		71,713	66,792

14.       Intangible assets

		Unaudited	Unaudited
		as at	as at
		31st October 2018	31st October 2017
		£'000	£'000
Net book value at the beginning of the period		21,138	18,240
Additions		701	709
Amortisation		(549)	(552)
Exchange adjustment		18	206
Net book value at the end of the period		21,308	18,603

15.       Total Financial Assets and Financial Liabilities

The following table sets out the Group's accounting classification of its financial assets and financial liabilities, and their carrying amounts at 31st October 2018.  The carrying amount is a reasonable approximation of fair value for all financial assets and financial liabilities.

		Fair value - hedging instruments	FVTPL	Amortised cost	Other financial liabilities	Total carrying amount / fair value amount
		£'000	£'000	£'000	£'000	£'000
Financial assets measured at fair value
Forward exchange contracts used for hedging		24	-	-	-	24
Other forward exchange contracts		-	-	-	-	-
		24	-	-	-	24
Financial assets not measured at fair value
Trade and other receivables		-	-	21,251	-	21,251
Cash and cash equivalents		-	-	7,577	-	7,577
		-	-	28,828	-	28,828
Financial liabilities measured at fair value
Forward exchange contracts used for hedging		2,745	-	-	-	2,745
Other forward exchange contracts		-	1,495	-	-	1,495
Contingent consideration		-	-	-	500	500
		2,745	1,495	-	500	4,740
Financial liabilities not measured at fair value
Bank overdrafts		-	-	-	3,654	3,654
Bank loans		-	-	-	13,088	13,088
Finance lease liabilities		-	-	-	2,539	2,539
Trade and other payables		-	-	-	20,084	20,084
		-	-	-	39,365	39,365

The forward exchange contract assets and liabilities fair values in the above table are derived using Level 2 inputs as defined by IFRS 7 as detailed in the paragraph below. All other financial assets and liabilities fair values are determined using Level 3 inputs. As can be seen from the above table the fair value of these contracts amount to less than 5% of the Group net asset value.

IFRS 7 requires that the classification of financial instruments at fair value be determined by reference to the source of inputs used to derive the fair value. This classification uses the following three-level hierarchy:  Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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