Good morning. Thank you to everyone attending in person today and to those joining on the webcast recording. Welcome to G&H's interim results presentation for the half year ended the 31st of March 2026. Firstly, I'm very pleased to be able to introduce James Corte, our new CFO, who joined the group at the beginning of April. James and I will be following the agenda shown on the screen. After the highlights section, James will cover the group's first half results. Then I will provide a segmental review and progress update on the implementation and delivery of our strategy, including outlook for the group. I would like to start by playing a short company introduction and overview video.
Gooch & Housego is a global photonics company built on a simple idea, mastering light to solve complex challenges for our customers. For over 75 years, we've designed, manufactured, and integrated optical components and systems for some of the world's most demanding applications, from the bottom of our oceans to outer space. Our expertise spans acousto-optics, electro-optics, fiber optics, and precision optics, brought together through our global, vertically integrated manufacturing capability that includes crystal growth, fabrication, super polish, thin-film coatings, and complex clean room assembly and test.
With operations across the U.K. and the United States, we continue to invest in our facilities and our capabilities, strengthening how we support customers within region and globally. Our technologies support innovation across industrial, semiconductor, aviation, space, and defense, as well as life sciences markets, where the highest levels of precision and mission-critical reliability are essential.
What sets G&H apart is our ability to move from component level innovation to fully integrated systems, working in partnership with our customers to deliver performance where it matters most. We combine a proud heritage of world-beating optical solutions expertise and proactive investment to help our customers solve the most complex photonics challenges today and into the future.
Turning to slide four. During the first half of the financial year, we made further positive progress implementing the changes required across the business to support the group's margin growth plans. I'm pleased to be able to report on the strong performance that was achieved in H1 against a challenging macroeconomic background. This is a testament to the progress the group is making, delivering our strategy and the resilience and depth of experience across our leadership team in navigating complex market dynamics.
I would like to take this opportunity to thank our many valued customers and strategic suppliers for their continued and growing confidence in G&H. I would also like to extend my sincere thanks and recognition to all of G&H's employees around the world for their hard work during the first half of the year. It is a privilege to lead such a talented workforce who remain committed to delivering our customer-focused strategy during a period of continual global challenges, many of which are unpredictable and require constant vigilance, speed, and agility to address. As reported in our trading update at the beginning of April, demand from the group's aerospace and defense customers continued to be strong in H1. At the same time, our industrial market showed encouraging signs that the recovery in semiconductor is now underway.
Whilst we experienced several challenges in parts of our life sciences business, we expect to see activity normalize in this market. Revenues for the first half of the year increased by 15.5% to GBP 81.9 million, compared to GBP 70.9 million in the prior period. We will take you through the performance by market sector in more detail later in the presentation.
Adjusted operating profit for the period increased by 16.9% to GBP 7.2 million, compared to GBP 6.2 million in the first half of the prior year. Following the acquisitions of Phoenix Optical and Global Photonics last financial year, I can report that the integration of these businesses is now largely complete. Commercial synergies are being realized, and we are focused on expanding capacity at both of these sites to support the significant increase in demand that we are experiencing, especially from our aerospace and defense customers in Europe and North America.
The order book continues to increase and provide stronger visibility for the group, up to GBP 167.3 million at the end of March, compared to GBP 142.4 million at the end of the year and GBP 121.5 million at the same time in the prior year. G&H generated net cash from operations of GBP 3.9 million, compared to GBP 2.6 million in the same period of 2025. Reflecting the strategic investments made by the group, net debt increased to GBP 36.6 million, compared to GBP 29.9 million at the prior year-end, with a leverage ratio of 1.5x .
Our expectations for the group's full-year performance remain unchanged. Although due to continuing macro and geopolitical uncertainty, near-term execution risks remain. G&H has strong prospects for profitable growth in the coming years, supported by the progress we're making to accelerate the delivery of our strategy and underpinned by positive end market tailwinds for our technologies and capabilities. I will now pass you over to James to take you through the financial results for the first half of 2026 in more detail.
Thank you, Charlie, and good morning, everyone. As this is my first opportunity to present G&H's results, I'd like to start by saying how thrilled I am to have joined such a high-quality business with unique technology, differentiated capabilities, and clear momentum in a number of very attractive end markets. From my first impressions, there is a lot to get stuck into, and I'm excited for the future of the group. Turning to slide six, the group financial performance. As Charlie highlighted earlier, the group delivered a strong first half performance. Organic revenue growth of 9.1% at constant currency was driven by excellent momentum in our aerospace and defense segment, with industrial and life science markets broadly flat. The reported growth of 15.5% shows the acceleration in aerospace and defense from the Global Photonics and Phoenix acquisitions.
Gross margins decreased by 100 basis points to 29.4% as continued operational improvements were offset by a number of mixed headwinds in our fiber optics and life science businesses, combined with continued supply shortages of key materials, notably germanium. We continued to invest in innovation with R&D spend increasing by GBP 400,000 to GBP 3.9 million.
Development remains focused on our six vital few R&D work streams, and progress in these areas has been positive. We've invested in engineering resource where necessary and continue to expect these projects to generate in excess of GBP 50 million of margin-accretive revenue in the medium term. Adjusted operating profit margin increased by 10 basis points, reflecting the leverage effect of higher volume. After the impact of slightly higher finance charges following the recent acquisitions, this drives a strong increase in adjusted profit before tax, growing 13.9% compared with H1 2025.
This resulted in adjusted profits before tax of GBP 5.8 million, with adjusted basic earnings per share up GBP 0.014 at GBP 0.164. Our adjusted effective tax rate was 22.4%, in line with our expected medium-term range of around 25%. Non-underlying charges, which are excluded from our adjusted profit, totaled GBP 2.4 million, with a cash impact of GBP 0.8 million, primarily relating to ongoing acquisition and restructuring activity.
One final thing on this slide, we're announcing an unchanged interim dividend of GBP 0.049 per share. Turning now to cash flow on slide seven. Net cash flow from operating activities has improved significantly compared to H1 2025 at GBP 1.8 million of cash generated. This reflects a slower increase in working capital, up GBP 4.9 million compared to an increase of GBP 6.7 million in H1 2025, reflecting timing effects.
The group continued its investment in strategic inventory of GBP 4.7 million, including germanium, during a period of supply chain uncertainty. Receivables increased GBP 10.8 million following a particularly strong month in March, with much of that balance already converted into cash early in the second half. Largely offsetting that was a GBP 7.2 million increase in trade creditor balances at period end. Investment in capital expenditure increased to GBP 4.3 million, up GBP 0.9 million on H1 2025, reflecting continued focus on our six vital few R&D work streams, which, as mentioned above, are successfully driving new products to market. We've also invested in machinery to accelerate production ramp-ups and to drive efficiency, particularly in our U.S. and U.K. aerospace and defense-focused manufacturing sites, which will help underpin the ability to grow the top line.
The higher net interest and tax is primarily driven by tax paid, an increase of GBP 1 million, with the remainder being higher financing costs. As expected, net debt excluding lease liabilities has increased, and at the end of March was GBP 36.6 million or GBP 49.8 million including leases. Our leverage, as calculated for our banking covenant ratio, remains comfortable at 1.5x EBITDA, well within our limit of 2.5x , and we predict this to reduce in half two as we continue to grow the profitability of the business.
On the 12th of March, we extended our committed facilities from $60 million to $70 million in order to ensure we remain agile and allowing us to make strategic inventory purchases at short notice. At the 31st of March 2026, the group had drawn $54.8 million on its revolving credit facility, up from the September 2025 position of $50.2 million, driven by the investment in working capital. Overall, we believe the group remains very well-positioned from both a liquidity and balance sheet perspective to support future growth. Turning now to slide eight. I've added this slide as the accelerated pace in aerospace and defense market has driven some material changes to the end market makeup of our business.
In half one, as is clear from the pie charts, aerospace and defense is the main driver of the 15.5% growth year-on-year, now representing 43% of the total group revenues. Because of the increase in aerospace and defense, our industrial markets segment has shrunk as a proportion of total group revenue by 5 percentage points from 42% to 37%. In absolute terms, the industrial segment is still growing, but just not as fast as the aerospace and defense segment. Looking forward, we're seeing the semiconductor market is now also making a recovery, so expect this split to stabilize with both the industrial and aerospace and defense segments growing at more equal rates. Our life sciences business is also showing a reduction in share of group revenues, where the segment is showing a modest decline of 5.8% against H1 2025 on an organic constant currency basis.
This is due to a combination of disruption to our Pockels cells production from materials availability and in medical diagnostics, where demand has temporarily reduced as end-of-life products are ramping down before new ones ramp up. Both these situations are expected to improve through the second half and into FY 2027. Moving on to slide nine, the operating margin progression slide. Overall operating margin improves from 8.7% to 8.8% in half one 2026 compared with half one 2025. Within that, I want to explain the movements by end market segment, as this helps to give a little more color to the progression. We can see from the first bar on the waterfall that the industrial business was relatively static year-on-year, with revenue broadly flat and margin sustained compared to half one 2025.
Diving a little deeper, adverse mix was broadly offset by new, higher profitability products and outsourcing activities. However, the recovery in aerospace and defense, which we will talk about more in a few slides' time, is driving a 230 basis points increase to margin, and we expect this to be sustained going into half two and beyond. This reflects operational and NPI progress across our aerospace and defense-focused businesses, notably at the Moorpark, Keene, and Ilminster sites. The life sciences business has faced a number of non-repeating revenue headwinds in half one, as mentioned above, which have dropped through to the bottom line. Finally, there is a smaller headwind on the cost base from inflationary pressures in the U.K. and U.S. and due to the addition and ongoing investment underway at the Global Photonics site in Tampa. Thank you. I'll now hand back to Charlie.
Thank you, James. I would now like to provide a segmental update. Firstly, turning to aerospace and defense on slide 11. This segment now accounts for 43% of the group's revenues, up from 33% in the prior year, and is expected to continue to grow in the coming years. Aerospace and defense revenue in the first half was GBP 35.6 million, up 51.7%, compared to GBP 23.5 million in the same period last year, an increase of 26% on an organic constant currency basis.
Through the focused deployment of our new strategy, operating profit in H1 jumped to GBP 3.6 million, compared to GBP 0.6 million in the prior year and a loss of GBP 1.6 million in the first half of 2024. For the first time, this sector was a major contributor to the group's profitability with an operating profit margin of 10.2%, a 760 basis points improvement on the same period last year.
The significant volume growth in aerospace and defense has been achieved by a more focused go-to market strategy in all regions, the successful transition of a number of new projects moving into volume production, and improved productivity and output at several of our sites. This was complemented by synergy benefits from the defense-focused acquisitions of Artemis, Phoenix Optical, and Global Photonics, all starting to gain positive traction, especially around advanced laser protection and our enhanced germanium fabrication capabilities that we can now offer alongside our superior optical system solutions.
The performance in this segment could have been even stronger if it were not for the negative impact experienced in the first quarter due to material availability challenges caused by ongoing restrictions on germanium and other optical materials due to the retaliatory measures imposed by the Chinese government in response to U.S. tariffs.
Despite this variable supply, the business has worked hard to optimize its supply chain by making strategic investments, and we are now in a better position. Demand across the sector remains strong as key allied nations continue to prioritize the enhancement of defensive capabilities in response to the evolving global security environment. We continue to strengthen and grow well-established positions in sighting systems and periscopes, target designation countermeasures, navigation and range finding, advanced optomechanical subsystems, and space-based optical communications. The group is also seeing increasing involvement in laser-directed energy programs, where our precision optical and subsystems capabilities are supporting the development of next-generation defense technologies for allied naval and land-based applications.
We've also seen an increase in demand for the group's infrared lens systems and optical assemblies for counter-unmanned aerial systems, short-ranged air defense, and near-Earth orbit applications, all areas where our precision optical expertise and vertically integrated manufacturing capabilities provide a differentiated offering. The continued recovery and production ramp-up within the commercial aviation market is also driving increased demand for G&H's ring laser gyroscope products, with customers seeking reliable supply partners capable of supporting higher build rates and long-term program requirements.
Operational improvements at the group's Moorpark facility have enabled increased throughput and enhanced production efficiency to support this growing demand. The aerospace and defense order book continued to grow, up to GBP 73.8 million at the end of March, an increase of 38% on the same period in the prior year, now accounting for 44% of the group's total order book.
This is expected to continue to expand during the second half of FY 2026, as we secure new orders for multi-year defense programs. Moving to our industrial business on slide 12. Revenues in this segment, at GBP 30.3 million, were broadly flat compared to the same period of the prior year. Adjusted operating profit was also flat in this segment during the period, at GBP 3.8 million, with an operating margin of 12.7%, driven by an adverse mix impact that was offset by accretive new products and outsourcing benefits.
Despite ongoing macroeconomic uncertainties, we saw improvement in our industrial laser and semiconductor markets in the period, and the recovery in the latter is now underway. Encouragingly, order intake across this sector has increased significantly with the industrial order book returning to historic levels, up 49.2% on the same period in the prior year to GBP 56.1 million, and up 35% on September 2025.
This was underpinned by demand from customers in the microelectronics, subsea data cable, sensing, and semiconductor processing sectors. The increased capacity and technical skill needed to build our more complex fiber optic assemblies and modules has been enabled by transferring production of all high-reliability fiber coupler products to carefully qualified contract manufacturing partners. Due to the phasing of several contracts, module production was lower in H1 than the prior year. However, this is expected to increase again in H2 with our production facilities and skilled operators well prepared for the ramp-up of this higher value-added work. Moving on to slide 13. Revenues from the group's life sciences market reduced by 7.7% in H1 compared to the prior year.
This lower revenue, combined with a reduction in production yields and supply chain challenges, meant that operating profit in the first half declined to GBP 0.7 million, an operating margin of 4.6% compared to 12% in the same period of last year. Revenues from our medical diagnostic markets reduced principally due to the demand phasing of several medical device programs. Certain customers saw equipment deployment delayed by slower than expected qualification and installation phases.
Other in vitro diagnostic device programs have also remained in the clinical trial and regulatory approval phase longer than planned, with volume production now expected to contribute from FY 2027. During last year, the group made the decision to end of life the majority of our Pockels Cell product lines for the medical and aesthetic dermatology laser market.
This last time buy activity created the expected elevated short-term demand in these products during the period, which unfortunately coincided with material supply constraints and crystal growth yield challenges at the group's Cleveland facility. Action has been taken to qualify alternative material sources and improve in-house production performance. Output started to increase at the end of Q2, and this has continued into the third quarter, with full recovery expected for the second half.
W hile these factors significantly affected performance in the first half of the year, life sciences margins are expected to return to more normalized levels in the second half, and the medium-term outlook for this segment is positive with encouraging developments in commercial activity over the last quarter. Next, I would like to provide an update on the group strategy.
Turning to page 15. G&H's strategy remains focused on delivering sustainable margin growth by following a clearly executable path to mid-teen returns over the medium term. G&H is becoming a more innovative, customer-focused technology company, delivered responsibly by making a better world with photonics. H1 2026 was another positive step forward on that journey. We are laser-focused on ensuring G&H remains a first choice for all our stakeholders, including our employees, customers, shareholders, our ecosystem partners, and the communities in which we operate. This will be achieved by offering differentiated performance through continuing to focus on the four key strategic priorities shown on the slide. Through our people by creating a high-performance, purpose-led culture across the whole company. From self-help activities to improve customer experience and operational execution.
Thirdly, through deploying our advanced photonics technology and technical know-how more effectively to accelerate our time to market for new products into commercially attractive applications. Finally, by applying greater discipline and rigor in the allocation of resources to deliver accretive growth, both organically and inorganically. We have refocused the business to invest in higher margin products and sectors at the same time as addressing non-performers, in combination with making several exciting speed to value acquisitions. Turning to slide 16, I would like to provide an update on the progress underway in our aerospace and defense business. Through the focused deployment of our new strategy, I'm pleased to report that the turnaround of our A&D business continues to progress positively.
The return on sales in this segment has improved by more than 18 percentage points since the launch of our new strategy. This is expected to continue over the coming years. G&H's upgraded aerospace and defense team are delivering these planned benefits through operational improvements, productivity gains, supply chain action, cybersecurity compliance, and disciplined customer-focused new product introduction and R&D activities.
The group's aerospace and defense business is now uniquely positioned to meet increased demand from existing customers, capture new business opportunities, and become a full optical and photonic system solution provider for allied nations and defense primes globally. This has been accelerated by the successful implementation of our portfolio strategy, focused on divesting non-core parts of the business and adding carefully selected complementary bolt-on acquisitions. Turning to the next slide, 17, I will provide an update on progress with our most recent M&A activity.
The integration of the two most recent acquisitions is now largely complete, and the enhanced offering the group provides through these two additions has been key in helping secure new orders from defense customers on both sides of the Atlantic. The defense-focused investments made through the speed to value acquisitions of Artemis, Phoenix Optical, and Global Photonics, previously known as Meopta USA, combined with our existing enhanced capabilities, have significantly strengthened the group's position in the defense market at a critical time. This demonstrates our commitment to expand manufacturing capacity and technical capability of a broader integrated optical system solution offering to meet the increasingly regionalized supply chain requirements of allied nations.
G&H now has credible and qualified manufacturing and technical capability in the U.K., aligned to Western European customer requirements, as well as a dedicated and scalable U.S.-based footprint supporting North America's growing demand, where made in the U.S. is a prerequisite for accelerated growth. The combination of these businesses with the group's existing capabilities continues to support new customer opportunities and reinforces our position as a strategic supplier within the aerospace and defense market.
Turning to the third pillar of our strategy, value creation from photonics, on page 18. We continue to refine our customer-focused technology roadmaps to deploy platform design solutions, accelerating time to market where G&H has technology-led differentiation. Spending on R&D of GBP 3.9 million in the first half was up by 11% compared to the prior year, supporting the increased contribution expected from new products in the coming years.
Our fiber optics engineering group are seeing successful customer take-up on cutting-edge next generation fiber optic modules for semiconductor fabrication, high reliability submarine amplifiers, environmental sensing, and medical diagnostics. Notably, during the period, our photonic solutions engineering group in the U.S. made significant progress with the development of our thin-film lithium niobate offering for electronic warfare, AI data centers, and quantum systems applications.
Over the medium term, we expect these six focused R&D work streams shown on the slide to deliver more than GBP 50 million of margin accretive new business from next generation product introductions. Next I will cover the outlook for the group. Turning to page 20. The group entered H2 with an order book of GBP 167.3 million, following order intake in the first half of more than GBP 100 million, both at record levels for the group and providing near full revenue cover for FY 2026.
After much anticipation, our semiconductor markets are starting to show encouraging signs of recovery and growth. We are seeing strong demand from the aerospace and defense markets in Europe and the U.S., with spending commitments from the U.K. still expected to convert to orders at some point. The group has proactively managed the resourcing of key raw materials used across several of our production processes, where availability has been restricted by retaliatory measures in response to U.S. tariffs and geopolitical tensions.
The supply side situation remains fluid, especially for germanium, where availability is still lumpy and delivery variable. Consequently, the group remains vigilant around sourcing, supply chain resilience and inventory planning. Finally, turning to page 21, in summary. Value creation synergies from the recent acquisitions are underway and being realized.
As a result of the operational and supply chain improvements made over the last couple of years, the group is well-positioned to benefit from the increasing demand levels in the aerospace and defense, semiconductor and other markets. Recent life sciences production disruptions are expected to ease through the second half of the year and into FY 2027.
Target investments are being made to address bottlenecks and increase capacity to support the increased demand. While mindful of the current uncertain macro and geopolitical landscape, G&H's healthy growing order book, strengthening market positions, and differentiated photonics expertise aligned to structural growth drivers from megatrends all provide confidence in the group's ability to deliver further positive progress on our journey to mid-teen returns over the medium term. Thank you for listening