Thank you for joining us, Gooch & Housego PLC presentation to discuss the U.S. acquisition of Global Photonics announced this morning. I'll shortly hand over to Charlie Peppiatt, CEO, and Chris Jewell, CFO. Just a quick note on housekeeping to ask that you keep all questions to the end of the presentation and please use the raise hand function. With that, I'll pass over to Charlie and Chris.
Abby, thank you very much. Good afternoon, good morning to everyone, depending on where you're joining from. Thank you for attending this call to provide an update on the acquisition of Global Photonics that we're announcing today, extending our presence in the U.S. A&D market. We can move forward. As a sort of an outline of the agenda for the call, you know, what we'd like to do is just give a little bit more detail around the acquisition, talk to you about the strategic rationale, and then particularly focus on what this does for G&H in North America. Chris will talk a little bit more about some of the transaction details. Again, I'm really pleased to be able to share this news today.
You know, the acquisition of Global Photonics is for $17.5 million is absolutely aligned to our strategy. You know, the business has been acquired from the Rausnitz family, and it has a, you know, strong regard for the activities. The Rausnitz family previously in 2023 sold their European precision optics business, Meopta Optika, to Carlyle. At that time, Global Photonics was under the name of Meopta US and was separate from that transaction. In 2024, the name was changed to Global Photonics. Meopta US, the business that we're acquiring, was established over 20 years ago.
It was founded up in Long Island in New York, then in 2017, the business was relocated to the new facility just outside Tampa in Florida that you see in the image on the slide, and is where the business is located today that we're acquiring. The revenue of Global Photonics is GBP 11.1 million in the calendar year 2024, aligned to similar sorts of output over the previous few years, delivering an EBITDA of GBP 1.8 million. This is a proven optical systems designer and manufacturer offering complex optics going into military land systems, aerospace optics and tactical soldier systems, particularly focused on night vision goggles, rifle scopes, et cetera.
There are 38 employees in the business with a strong pedigree and experience in delivering a full value solution for those complex optical systems as described earlier. We're also pleased about where this facility is located. Florida, and particularly the Tampa area, is recognized as a sort of optics and photonics cluster with many other optics customers, companies, and potential customers in the area, as well as a number of you know, strong universities and colleges that specialize in optics, allowing us what we see aligned to the growth plans for this business, a strong talent pipeline, which over recent years has proved such a critical part of the execution of our strategy.
The facilities are well invested, so as well as having advanced capabilities to process precision optics and assemble complex optical systems, the site also has equipment to provide advanced lithography processes that are used, for example, in reticles. Also along with this acquisition, we have a well-established and very importantly coating capacity. There's multiple thin film coating chambers that come with the acquisition as well. Global Photonics has a long-standing relationship, as outlined here, with many U.S. A&D customers. Again, I think it's important to note that it's been you know supplying a number of the top U.S. primes prime contractors into the defense market for more than 10 years.
It also holds all of the appropriate approvals with the major arms of the U.S. government's procurement for defense and logistics, being approved by TACOM and the DLA. Moving on to the next slide. Just to talk a little bit about some of the rationale of this acquisition. Again, some of you will be very aware and remember the revised strategy for the group that Chris and I outlined in June 2023. You know, I believe that this acquisition associated to what we need and want to do in North America is absolutely in line with our strategy as a speed to value deal for the group.
That's both aligned to bringing in businesses that can help us accelerate our journey to delivering mid-teen returns, as has been outlined in our strategy, and also aligned and following on from the acquisitions of Artemis and Phoenix and the divestment of EM4 up in Boston, effectively the overhaul and the turnaround of the group's aerospace and defense business, which is where not only aerospace and defense, but primarily Global Photonics will play certainly for the next few years. What are some of the other key elements of the deal? One of the major lines of revenue and activity that Global Photonics brings to G&H is what's called the ICWS periscope for the Abrams M1A2 main battle tank.
This is the Improved Commander's Weapon Station that you see pictured in the top right-hand corner of the slide. Again, this advanced capability provides effectively an octagonal turret at the top of the Abrams M1A2, where there are eight periscopes providing sophisticated 360-degree field of view with all of the other advanced and complex fire control system optics that are associated with that. It's an absolute marquee product line to be able to be bringing into G&H and to support in our defense journey.
A second.
We also see this site becoming our U.S. laser protection coating center of excellence.
Yes.
With the acquisition of Artemis, we brought into the group capabilities that massively enhanced our laser protection of optics through thin film coating with some unique and very differentiated recipes on how to provide that advanced laser protection capability. We have the ability now with this acquisition and the equipment and the plant that's supplied to do this and the approvals to be able to offer that capability manufactured in America from an advanced and approved facility. We also see the opportunity for revenue synergies through combined commercial pipeline. It would be fair to say that one area that Global Photonics had not invested in significantly was their sort of sales and business development organization.
We believe that aligning that to the existing G&H North American sales organization and also making appropriate investments, there's a really exciting opportunity to combine all of the tier one U.S. prime contractors that we supply and those that Global Photonics supply to bring them a full optical systems, integrated value proposition. The site is more than 50,000 sq ft, and to date, the existing activity that goes on there is using about half of the footprint. There's both physically, from footprint, and also capacity of equipment, as well as location, a really exciting opportunity for us to scale our U.S. manufacturing of other solutions through this facility. We see an opportunity for some cost synergies here. Global Photonics has a well-organized and well-arranged supply chain.
At the same time, there are some procurement opportunities both to use that supply chain, continuing in North America for our existing business, but also, for our European, business as well. Again, some great opportunity to optimize the collaboration of technologies. As I mentioned earlier, the team of 38 employees comes with some really strong capability and know-how that we believe aligns to the existing capability and know-how within G&H, provides a really exciting, unique combination. On the next slide, we just wanted to try and pull out and focus in, particularly against the current backdrop on what does this mean for our U.S. footprint? What does this mean for our capabilities to manufacture and offer value to our customers in North America?
Again, with this acquisition, as is outlined, here, we have six facilities in North America now. I've tried to pull out here, firstly how those are focused. We have the two facilities in Fremont, California and Cleveland, Ohio, that are focused on our photonics businesses, very much aligned to the industrial market. As you'll be aware, we made the acquisition of GS Optics in Rochester, New York, and have further invested in that facility to establish a medical device, innovation hub and manufacturing and design center of excellence for life sciences, with all of the appropriate FDA and ISO 13485 approvals that are required.
This acquisition in Tampa really knits together and pulls together the opportunity to replicate the success we've had in the UK, of creating an optical systems hub for our customers in Europe, in North America. Combining the advanced precision super polish capabilities we have in Moorpark over in California, and the design and manufacturing capability of intricate advanced imaging systems up in Keene, New Hampshire, pulling that together with a facility that offers a full suite of optical systems and coatings capability, in Tampa, in Florida, with the ability to expand that capability.
Again, mirroring the success of the strategy to establish a U.S. life sciences center of excellence in Rochester, we believe that this now places us in a very strong footing to address in the areas where we have unique differentiation, a full suite of capabilities to our U.S. optical systems customers, both existing and new ones that we hope to convert. If I pass over to Chris.
Thanks, Charlie. So as Charlie mentioned, the total consideration for the acquisition is $17.5 million. 50% of that is gonna be in the form of cash on closing, which will be funded from our existing debt facility, and the other 50% will be in the form of newly issued G&H shares. I should say we expect to complete the transaction towards the end of this current month. Come back to that in a minute. The sellers have agreed to enter into a 12-month lock-in on the new G&H shares that they will receive. We expect the acquisition in our current financial year 2025 to be marginally earnings enhancing and then obviously increasing the earnings enhancing thereafter.
Charlie mentioned already that, the business hasn't invested heavily in its sales and business development activity. That's something we absolutely intend to do to support the business's further growth and get after some of the commercial synergies. We also intend to do some limited upgrades to their thin film coating chambers that you see in the picture on the right-hand side here. The purpose of that is to increase capacity, and be able to take some of the recipes and formulas that we have in our Arcis business and replicate those in this new facility. As I just mentioned, the transaction is expected to close around the end of May. The only conditions to closing are to receive customer consent to the assignment and change of control.
Those provisions are laid out in their existing contracts with Global Photonics. There are no other regulatory clearances required. We just need to get those consents in place, and then we'll be ready to complete the transaction as we expect at the end of May. Okay, thank you. I think now we're going to hand over to you for any questions.
Thank you very much, Charlie and Chris. As mentioned at the top of the call, if you'd like to ask a question, please use the Raise Hand function. I'll take the first question from Robin Byde. Robin, please unmute yourself and ask your question.
Hi, guys. Congratulations, this looks a good one. Could you talk a little bit about Global Photonics' pipeline? Perhaps in, you know, in broad terms, the value over how many years and what it consists of, if possible.
Yeah, certainly, Robin. Thank you for that question. I think first of all, the nature of a number of the contracts that Global Photonics is working on are multi-year in nature. There is what we would describe as a strong pipeline to support the business going forward and performing at or slightly above the levels that it has delivered in its recent past. What we are most excited about though is the opportunity to take that capability with our existing capability and present that and sell that to our customers. We would hope to see that pipeline further grow and expand.
We also believe, and that's something that, you know, when we're presenting at the beginning of June at our half-year results, we'll be in a position to give more updates on that, you know, once we've had the chance to go and sit in front of and speak to Global Photonics' customers between now and then. I think we'll get a much clearer picture of their reaction to this deal, and also the opportunity to, you know, to offer our capability in a much more credible manner in North America. Many of our customers have come to us and said, "You know, we would like you to do what you're doing in Europe, in North America." This deal provides us the opportunity to do that.
Thanks, Charlie. That's very clear. Congrats again.
Many thanks, Robin. Next question from Thomas Elgar.
Hi, guys. Thanks for taking the questions. Yeah, from my side, just trying to really dig into kind of the extent of that cross-sell opportunity that you guys have alluded to. Is this more that you could bring this into Europe, where demand is particularly robust in van vehicles, or is this more sort of technology sharing and you'll be able to actively, you know, bit more actively in the future regarding, you know, in the US? You know, just trying to get an idea of where the focus is on that growth. Or is this really kind of US for US, you know, Europe for Europe, and this gives you a better stronghold in the US for those opportunities you see there? Thanks.
Thomas, I think yes is the answer to what you said. We'll provide more updates in June once we've had the chance to go and sit face-to-face with those key customers. I think obviously one of the areas that we are very aware of and has been built into the rationale and the planning of this deal, which has only been accelerated by some of the recent decisions and current decisions that are being made by the U.S. administration, is the desire to have a number of these critical capabilities supported by and made in North America for the DoD.
Obviously, I mentioned the DLA and TACOM, you know, they continually have asked us previously, "We love your capability, but we need this made in the U.S." For example, on the laser protection would be a great example of that. We need to now do the work to understand and verify those opportunities that we believe are there.
Brilliant. Thank you.
Thanks, Thomas. Next question from Scott Cagehin. Go ahead, Scott.
Thank you. Just a couple of quick questions from me. How many customers do you need to talk to as part of this process? Are you pre-approved with all of them anyway, like pre this deal? That's the first question, please.
Scott, it's three customers. Certainly with, I think all three of those customers, they absolutely know G&H. They're already a customer of ours on other programs.
I think, with their major customer as well, we're already pre-approved with them so as a supplier, so we don't anticipate any problems at all.
Thank you. Second one being on the footprint side, if you look at the optic dots, is there room for those to be consolidated, or do you need to still have that sort of footprint across the U.S.? I'm trying to work out the operational synergies other than what you stated.
I think that's something that we are going to review. I think what we can say is that, you know, our business, Stingray business, G&H Stingray up in Keene, New Hampshire, has some, you know, some really great design and innovation and development capabilities. Many of the U.S. primes that we supply those designs to have been challenging us that facility is really not set up for volume, high volume mass production. You know, one of the challenges that we were looking at was to meet those requirements going forward, we were either going to need to expand the New Hampshire facility or find another appropriate location to meet that demand.
That's an immediate area that is addressing and supporting, 'cause there's obviously space and the appropriate approvals and know-how in Tampa to be able to manufacture the products that are designed in Keene, New Hampshire. I think if you take the analogy of mirroring the UK, we obviously have our three points in North Wales, in Ilminster and in Plymouth, where a lot of the designs are being done in North Wales for manufacture in Ilminster. We would see a similar type of model of designs being done in New Hampshire for volume manufacture in Tampa, Scott.
Got it. Thank you. Sort of follow on to that then. The Tampa facility, how much extra could go through that facility, you know, if you got more contracts or if you know, is there room to double what they're producing now or?
The facility could do three to five times more, depending on the product mix.
Fantastic. Thank you. Thank you very much.
Thanks, Scott. Next question from Dan Vaughan. Go ahead, Dan.
Hi, guys. Just a bit of color on the structure of the deal, where the pressure came from for it to be half shares, whether it was driven by you and therefore providing you with more firepower for potentially more deals or whether they were very keen to have your equity. Just some comment therefore on your, I guess, thoughts on dilution for the rest of us at this point in time at such a low share price.
The sellers were very keen to take G&H equity at this stage. I think they recognized the potential in taking G&H shares. From our perspective, you know, it worked fairly well as well. From the very initial discussions with sellers, a fairly heavy equity element was always part of their considerations. In fact, I think they would have taken more if we'd have allowed them to.
I mean, I think to add to what Chris has said, I think there's the knowledge there that the Rausnitz family have spent their entire life in optics, photonics and precision optics, so they understand this industry very well.
Thank you.
Thanks, Dan. Next question from Dominic King. Go ahead, Dom. I believe you're on mute there, Dom. Just unmute yourself.
Sorry, just a very brief question. Does this now give you the full suite in terms of photonics over in the States now? Is that really the major piece now that you needed? I mean, obviously Abrams is very interesting in terms of sort of volumes on that, but is there anything else significant missing now?
Well, we're very pleased with, for our optical systems business, the capability this now provides for us. You know, to meet all of the precision optical system design, develop and manufacture, plus most importantly, the ability to scale our unique thin film coating for laser protection. It puts us in a strong position in North America.
Thanks.
Love it. Any more questions at this time, please use the Raise Hand function. Yes, Thomas, another one from you.
Yeah, I'll just come back on a question. You mentioned kind of the last couple of years, kind of steady revenues for this business, but with obviously great opportunity to grow well, given the pipeline. Is there any sort of commentary you can give on perhaps the margin evolution over the last couple of years and just how that has tracked and maybe what the full expectations in time could be for this business? Thanks.
They've always been a nicely profitable business, Thomas. I mean, I think as Charlie's mentioned, you know, there's a lot of capacity in the facility, and I think, you know, with a bit of investment in the sales and BD, we can get more revenue through. You know, that additional revenue should drop to the bottom line quite nicely because, as I say, we don't need to invest more space or equipment. It'll just be a bit extra production labor really.
Thanks.
Thanks, Thomas. Got a question as well from Ben Vaughan. Unmute yourself, Ben. Go ahead, Ben.
Yeah. Hi, gents. Thank you for the time, and congrats. Looks like a great transaction, great new site and capability. Just a few questions. Charlie, please, can you remind us what the current build rate of the Abrams tank is?
Yeah. The Abrams Tank is directionally at about 200+ units per year. That's it. That's. There's a combined sort of U.S. sales, and then there's the foreign sale element of that, goes up and down. There's obviously, you know, that's something that's in ascent at the moment. And then there is, on top of that, some spares and repairs effectively, piece of that business.
Does your AS team change in that mix?
Yes. There are some differences across that mix, Ben.
Thank you. How many of the existing fleet still require upgrades, optical upgrades to the M1A2? I think it's SEP 4, isn't it? Or SEP 3.
Yeah. At the moment, the upgrade of the optic system is not something that's being. That's still in discussion with regard to what actually is the laser protection requirement for that. Obviously, the G&H and Global Photonics are, you know, fully approved to provide all of those solutions to General Dynamics, who manufacture this for the U.S. government.
Understood. My understanding is it's 100% land vehicle exposure at the moment. Is that right?
No. The business does do some aerospace.
Okay.
Defense and avionics optics, but that would be currently, you know, circa 10%-15% of activity. That is, again, not an insignificant opportunity for us to expand.
Well, that was my final question, really. Yeah. Across the group, really, Charlie, while we've got you, what opportunities are you seeing now in sort of uncrewed air systems and missile seekers, please?
I think the opportunities are significant both in Europe and in North America, Ben.
Perfect. Thanks, Charlie.
Thank you, Ben. Any further questions at this time, please use the raise hand function. Give a couple moments to see if anyone has any more questions. Doesn't seem so. Charlie and Chris, I'll hand back to you just for quick closing remarks.
No, I mean, just to close, again, thank you for everyone's time joining this meeting at short notice. We're pleased to have been able to share this news with you, and Chris and I will provide further updates in due course. Obviously, we're back again at the beginning of June to talk about our half year results. Thank you very much.
Yeah. Thanks, everybody. Thank you. Thank you.
Thanks very much, Jules.