Half-year Report

GOODWIN PLC

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

for the half year ended 31st October 2019

CHAIRMAN'S STATEMENT

The pre-tax profit for the Group for the six month period ending 31st October 2019 was £7.4 million some 5.1% down (2018 £7.8 million). This deterioration was despite the turnover for the period being marginally in front with a 3.8% increase. This is a feature of the disruption caused by the commotions in our parliamentary system over the past six months where the uncertainty has temporarily stalled projects.

With further clarity over Brexit, we will be looking to start capitalising from the tremendous success our Group companies have had in winning large amounts of business from new market areas.

We have every reason to believe that the new financial year will allow our Group companies to start increasing profits. We also expect to have further successes in winning significant new business due to the dedication and hard work of all who work within them.

Management Report

Financial Highlights

IFRS 16

The Group adopted IFRS 16 from 1 May 2019, using the modified retrospective approach to transition, such that prior periods have not been restated. The impact of the change in accounting policy is outlined in note 5.

Turnover

Sales revenue of £70,090,000 for the half year represents a 3.8 % increase from the £67,548,000 achieved during the same period last year.

Profit Before Tax

Profit before tax for the six months of £7,406,000 is down 5.1% from the £7,804,000 achieved for the same six month period last year.

Key performance indicators

The key performance indicators for the business are listed below; the prior period KPIs have not been restated to reflect IFRS 16.

Alternative performance measures mentioned above are defined in note 36 on page 82 of the Group Annual accounts to 30th April 2019.

2020/21 Outlook

The Group is likely to show a similar profitability in the next six months as it achieved in the first six months of the year, with an improving cash flow by the 30th April 2020.

In the Mechanical Engineering Division, although the petrochemical market has not yet recovered, we continue to have a positive outlook based on the fact that the demand for energy is set to increase. This is propelled to a large extent by increases in wealth in the developing economies which obtain a growing share of their power from the US LNG market, in which Noreva and Goodwin International are well established.

Easat Radar Systems has been successful in winning an order to supply two turnkey surveillance systems for an Asian air force. The order is the first overseas system order for the company opening the door to a larger market within which, with its competitive offering as a result of the acquisition of NRPL, the company is expected to prosper.

Within the Refractory Engineering Division, there has been an unforeseen decrease in demand for the consumer orientated jewellery products for which we globally supply the casting powder. We believe this is due mainly to the uncertainty around the ongoing USA and China trade war and the rise in gold price since May that peaked in August and has declined ever since. However, at the time of writing, it appears the market is beginning to improve.

Sales of the AVD fire extinguishers and extinguishing agent are starting to grow with a constant monthly sales stream. First adopters have primarily been companies that manufacture products incorporating lithium ion batteries, such as e-scooters, vehicles and green energy storage systems. We are in technical and supply discussion with several large battery manufacturers both in the UK and overseas which may bode well over time.

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 pages 10 and 11 of the Group Annual Accounts to 30th April 2019 which describe the principal risks and uncertainties, and to note 27 (starting on page 72) 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 2020. 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

The Group continues to trade profitably and with the current order book level we are confident that this will continue and improve, especially as we move in to the next financial year. As in previous periods, the levels of depreciation and amortisation (both non cash items) remain significant thus increasing the cash generating capability of the Group. As at 31st October 2019, the Group net debt stood at £27.2 million as set out in note 11 to these accounts. Whilst the net debt levels are higher than those recorded as at April 2019 and October 2018 the gearing level at 25.7% is still modest and our banking headroom (facilities versus utilisation) is significant. Furthermore, within the second half of this financial year we would expect to significantly reduce our investment in working capital. Given the foregoing, the Directors do not see an issue with the continued ability of the Group to meet its financial commitments and so have drawn up these accounts on a going concern basis.

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).

Condensed Consolidated Statement of Profit or Loss

for the half year to 31st October 2019

Condensed Consolidated Statement of Comprehensive Income

for the half year to 31st October 2019

Condensed Consolidated Statement of Changes in Equity

for the half year to 31st October 2019

Condensed Consolidated Statement of Changes in Equity

for the half year to 31st October 2019

Condensed Consolidated Statement of Changes in Equity

for the half year to 31st October 2019

Condensed Consolidated Balance Sheet

as at 31st October 2019

*Contract liabilities include advance payments from customers of £26,820,000, with the balance of £248,000 being costs accrued for contracts.

Condensed Consolidated Statement of Cash Flows

for the half year ended 31st October 2019

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 2019 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 2019 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 2019.

The comparative figures for the financial year ended 30th April 2019 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 .

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 2019, with the exception of IFRS 16 Leases (see note 5). The changes in accounting policies are to be reflected in the Group's consolidated financial statements as at and for the year ending 30th April 2020.

The following standards and amendments became effective and therefore were adopted by the Group.

·; Amendments to IFRS 9 - Prepayment Features with Negative Compensation (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 - 2015-17 Cycle - minor amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (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)

The impact of IFRS 16 Leases, which replaces IAS 17 Leases and IFRIC 4, 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, and 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 3 - Definition of a business (effective for annual periods beginning on or after 1st January 2020)

·; Amendments to IAS 1 and IAS 8 - Definition of material (effective for annual periods beginning on or after 1st January 2020)

·; Amendments to References to the Conceptual Framework in IFRS Standards (effective for annual periods beginning on or after 1st January 2020)

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 2019, with the exception of leases (see note 5).

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 2019.

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 2020.

The Group adopted IFRS 16 Leases initially from 1st May 2019. A number of other new standards are effective from 1st May 2019 but they are not expected to have a material effect on the Group's financial statements.

Prior to 1st May 2019, the Group's policy for operating leases was to recognise the lease payments in the statement of profit or loss on a straight-line basis over the term of the lease. With the implementation of IFRS 16, subject to the recognition exemptions as outlined below, a right-of-use asset is now recognised on the balance sheet together with an associated lease liability corresponding to the minimum envisaged lease period.  Within the profit or loss account, depreciation is charged based on the expired element of the minimum lease term and finance charges expensed on an effective interest rate basis. Instead of being reported within Property, plant and equipment, such assets acquired under finance leases are now reported as right-of-use assets.

The updated Group accounting policy for leases is as follows:

Definition of a lease

A contract is a lease or contains a lease if it transfers the right to use an identified asset over the contract term, in exchange for payment. In determining whether a contract gives the Group the right to use an asset, the Group assesses whether:

• the contract involves the use of an identified asset

• the Group has the right to obtain substantially all of the economic benefits of using the asset; and

• the Group has the right to direct the use of the asset by deciding how the asset is employed.

Lease term

The lease term is the non-cancellable period of a lease, and options to extend the lease or terminate it, where it is probable that the Group will exercise the available options. At the start of a lease, the Group makes a judgement about whether it is reasonably certain to exercise the options, and reassesses this judgement at every reporting period. Contracts, where the original lease term has expired, with assets continuing to be leased on a short-term rolling basis of a few months, are treated as short-term leases.

Lease balances

A right-of-use asset and a lease liability are calculated at the beginning of a lease. The right-of-use asset is measured initially at cost, being the opening lease liability, adjusted for any lease payments made by the start of the lease, adjusted for any initial direct costs, which have been incurred. 

The lease liability is measured initially at the present value of the lease payments, which are outstanding at the start date, discounted at either the rate implicit in the lease or the Group's incremental borrowing rate. With the exception of leases containing an option to purchase, the Group uses its incremental borrowing rate as the discount rate. Lease liabilities are measured at amortised cost, using the effective interest rate, and adjusted as required for any subsequent change to the lease terms.

The right-of-use asset is depreciated on a straight-line basis over the lease term, or from the start date of the lease to the end of the useful life of the right-of-use asset as appropriate. The method of calculating the estimated useful lives of right-of-use assets and testing for impairment is the same as that for property, plant and equipment.

Recognition exemptions

Payments for short-term leases, lasting twelve months or less, without a purchase option continue to be reported as an operating expense on a straight line basis over the term of the lease. 

The cost of leasing low-value items will continue to be reported as an operating expense over the life of the lease.

Lease portfolios

The Group has leases for the following types of assets:

Land and buildings

The Group leases a number of factory buildings, warehouses and office buildings.

Plant and equipment

A number of significant items of plant, such as CNC machines and furnaces, have been leased under contracts with an option to buy the asset at the end of the lease term. The Group also leases a small number of motor vehicles.

Printers and photocopiers

The Group has applied the recognition exemption for low-value assets to these leases.

Accounting estimates and judgements

The Group's contracts are such that the terms are generally very clear in establishing whether they are or contain leases, and consequently, significant judgements have not been required in assessing the contracts. The Group's incremental borrowing rates have been estimated separately for each country, in which leases are held, with rates ranging from 2.0% to 7.7%.

Transition

IFRS 16 has been implemented using the modified retrospective approach, because it does not require a full restatement of comparatives, but the cumulative opening impact is posted to reserves on the transition date.

For leases, which were previously classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and lease liability on transition is the same as the carrying amount of the lease asset and lease liability calculated in accordance with IAS 17.

A right-of-use asset and lease liability are now recognised for leases considered to be operating leases in accordance with IAS 17. As it is not possible to calculate the rate implicit in these leases, the lease liabilities are calculated as the present value of the remaining lease payments, discounted using the group's estimated incremental borrowing rate (IBR). Right-of-use assets are reported as the same value as the lease liability, adjusted for any lease prepayments or accruals, at the transition date.

Practical expedients

The following practical expedients have been applied at the IFRS 16 application date.

• There has been no re-assessment of leases treated as finance leases under IAS 17 as at 30th April 2019.

• A single discount rate has been applied for similar leases.

• Long term leases, which expire within twelve months of the transition date, have been treated as short term leases, with no right-of-use asset and lease liability being calculated.

• Initial direct costs have been excluded, when measuring the right-of-use asset at the transition date.

The reconciliation of lease liabilities is shown below

The IFRS 16 impact on the statement of profit or loss for the six months to 31st October 2019 is as follows:

The IFRS 16 impact on the balance sheet as at 31st October 2019 is as follows:

6. Operating Segments

Products and services from which reportable segments derive their revenues

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

Segment profits

Segment Assets and Liabilities

7. Geographical segments

8. Revenue

The Group's revenue is derived from contracts with customers. The following tables provide an analysis of revenue by geographical market and by product line.

9. Dividends

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

10. Earnings Per Share

The calculation of the basic earnings per ordinary share is based on the number of ordinary shares in issue. For all periods up to and including 30th April 2019 this amounted to 7,200,000 shares and with effect from the 16th October 2019 this has increased to 7,363,200 shares. The weighted average number of ordinary shares in issue during the six months ended 31st October 2019 was 7,213,304. The relevant profits attributable to ordinary shareholders were £5,260,000 (half year ended 31st October 2018: £5,393,000).

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 scheme, a maximum of 489,600 share options vested at 1st May 2019, of which 163,200 were exercised during the current period. The total number of shares used as the denominator for the diluted earnings per share is 7,538,727 (half year ended 31st October 2018: 7,344,000; year ended 30th April 2019: 7,688,056).

11. Capital Management, Issuance and Repayment of Debt

At 31st October 2019 the capital utilised was £132,217,000 as shown below: