Trade wars hamper Gooch & Housego

As a result of the trade dispute and a cyclical downturn, the group does not expect industrial laser performance to return to "normal levels" in the full year. It is only supplying orders that are known, or where G&H has a high degree of certainty. President Trump’s imposition of tariffs on Chinese goods, however, has not materially hindered the business, according to chief executive Mark Webster.

“The tariffs really themselves don’t affect Gooch & Housego that much,” he says, because the company can move business from its US facility in Fremont to Ilminster, in the UK. “It’s the confidence in the Chinese market, I guess, that is affecting the industrial laser market,” Mr Webster observes. While order levels are improving, G&H has reduced its expectations for its full-year adjusted pre-tax profits by between £3.5m and £4m.

However, the chief executive pointed to the imminent roll-out of 5G mobile networks and technological developments including folding phones, and said that G&H remained in a strong position to cater to new products. The group weathered a similar slowdown in industrial lasers in 2012 before returning to profitability in the subsequent year. “When it does come back, it tends to come back quite hard,” Mr Webster argues. “There are signs that it’s improving, but we’re not seeing that flickback that we’ve seen in previous years happening just yet.”

But G&H is sticking to its guns, and has increased its dividend. Despite its travails, G&H delivered a record half-year order book of £93.2m, up 10 per cent on the same time last year. Its life sciences division more than doubled in size, due in part to its August acquisition of medical devices outfit ITL. G&H expects a threefold rise in demand for its high-reliability fibre couplers over the next three years. Aerospace and defence revenues fell 1.6 per cent, however, owing primarily to delays at the Boston site.

Chief operating officer Alex Warnock will leave at the end of G&H’s financial year, after five years in his position, but will not be directly replaced; instead, the group’s three manufacturing heads will report to the chief executive.

Analysts at Investec forecast full-year 2019 pre-tax profits of £14.8m and earnings per share of 44.4p, rising to £17m and 50.7p in 2020.