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RNS
600 Group PLC  -  SIXH   

Final Results

Released 08:49 20-Jul-2018

RNS Number : 2812V
600 Group PLC
20 July 2018
 

The 600 Group PLC 

Full Year Results for the year ended 31 March 2018

"A Year of Transformation"

 

The 600 Group PLC ("the Group"), the AIM listed distributor, designer and manufacturer of industrial products (AIM: SIXH), today announces its full year results for the year ended 31 March 2018.

 

Highlights:

·      Double digit increases in revenues, pre special items operating earnings and pre tax and special items income

 

·      Buy out of UK pension liabilities of $266m agreed

 

·      Cash surplus (net of tax) estimated at between $4m and $5m after buy out and scheme wind up to be repaid to Company

 

·      Reintroduction of Dividend with maiden payment of 0.5p being recommended to shareholders

 

·      ProPhotonix shares sold for $2m generating $1.3m profit

 

·      Equity raise of $1.4m September 2017 eliminated UK working capital borrowing and introduced new institutional shareholders to the register

 

·      Order books stable and industry forecasts improving

 

·      UK restructuring being undertaken to reduce capex requirement and improve margins further

 

·      Re-launch of " Colchester Machine Tool Solutions"

 

·      New product launches planned for second half of current year

 

The Board has determined to change the presentational  currency to US dollars. Approximately two thirds of revenues are in dollars and a great proportion of  expenditure is either in dollars or currency tied to the dollar.

 

Commenting today, Paul Dupee, Executive Chairman of The 600 Group PLC said: 

"This has been a very successful year for the company. Throughout the year we have been working with the pension trustee to negotiate the possible  buy out of the group pension scheme, and I'm delighted to report  that we have now achieved this. The consequences to the Group are significant as we are released from the financial and regulatory constraints related to the scheme, and will be able to use the net proceeds to reduce Group debt. 

The efforts of the last few years can be seen across all our divisions resulting in double-digit growth in both revenues and earnings (before special items). Looking forward, we expect to improve even further as we achieve cost savings in our UK operations and begin to see the benefits of the improved range of machines and engineering solutions being developed throughout the Group.

Financially, we are more robust because of the steps we took last year to raise additional working capital and realise our investment in ProPhotonix.

We go into this new financial year with great confidence and I am delighted that this has given us the opportunity to reinstate paying a dividend to shareholders for the first time in many years."

 

SUMMARY OF FINANCIAL RESULTS

FY18

  $m

FY17

  $m

 

Revenues

66.01

58.79

 

Underlying Operating profit*

4.23

3.83

Bank and other interest*

(1.18)

(1.18)

Underlying Profit before taxation*

3.05

2.65

Special items (net)

0.82

1.38

Profit before taxation

3.87

4.03

Taxation(charge

(0.82)

(1.46)

Total profit for the year

3.05

2.57




Earnings per share

Underlying basis*

Total for the year

 

 

3.20c / (2.46p)

2.80c / (2.16p)

 

2.68c / (2.15p)

2.46c / (1.97p)

 

 

 

 

 

* From continuing activities, before special items

 

More Information on the group can be viewed at: www.600group.com

 

 

Enquiries:


The 600 Group PLC

Tel: 01924 415000

Paul Dupee, Executive Chairman


Neil Carrick, Finance Director


Spark Advisory Partners Limited (NOMAD)

Tel: 020 3368 3553

Matt Davis/ Miriam Greenwood


Cadogan PR Limited (Financial PR)

Tel: 020 7499 5002 / 07771 713608

Alex Walters


WH Ireland (Broker)

Tel: 020 7220 1666

Adam Pollock / Tim Feather


 

 

 

 

 

 


The results for the 2018 fiscal year have been most satisfactory and in line with the Board's expectations. Revenues, operating earnings (before special items) and pre-tax income (before special items) all had double digit percentage increases. Our order books remained steady throughout the year and remain so today. 

 

The period since we last reported annual results has seen a number of developments that will have a significant impact on the group now and in the future.

 

In the Machine Tool division, the decision has been made to further rationalise UK operations. We are very efficient at product development, engineering and distribution and will continue to focus on these core strengths. The sale of surplus assets resulting from our rationalisation decisions should produce more than sufficient funds to cover the costs of the re-organisation. The resulting lowering of our fixed cost base and reduced forward capital expenditure requirements will benefit both cash flow and operating margins.

 

In the Industrial Laser division, the integration of TYKMA Electrox has been completed and all manufacturing operations are now being performed at the expanded Chillicothe, Ohio facility. The UK and European support operations have been consolidated with the UK Machine Tool division which will result in reduced headcount, tighter inventory control and a more integrated sales force to capitalise on the inherent synergies in our customer base.

 

After reviewing our current results, the Board has determined to change our presentational currency to US dollars. Approximately two thirds of our revenues are in dollars and a great proportion of our expenditure is either in dollars or currency tied to the dollar. The fluctuation in Sterling in the last few years has made it difficult to accurately measure our performance when reporting in Sterling and this change will make it more efficient for the Board and shareholders in analysing our financial results going forward.

 

We have also significantly strengthened our financial team in the last year in both the UK and the US and as a result have seen better, more efficient and timely reporting and forecasting.

 

Certainly, the most profound change has been the recent development surrounding the buy-out of the scheme liabilities of our UK defined benefit Pension Scheme. Just a few years ago the Scheme was in deficit by all measures with a buyout deficit of some £51 million ($71million). At one point a prominent portfolio manager observed that the Scheme effectively controlled the company. In a sense he was correct as there were undertakings and security arrangements in place which severely limited our flexibility. I'm delighted to say that the Scheme Trustee, working in tandem with the Company, have agreed for the pension scheme liabilities with a 31 March 2018 value of $272 million (£194 million) covering some 2,000 pensioners and 800 deferred members to be entirely transferred to Pension Insurance Corporation Plc. Once the buy-out is completed and the scheme is wound up, expected later this year, all surplus funds remaining will be returned to the 600 Group less a statutory 35% tax charge. The total net amount payable to the Company is currently estimated to be between $4 million and $5 million (£3 million and £4 million).

 

Dividend

 

As a result of the good operational performance, the reasonable current commercial outlook and particularly the resolution of the Pension Scheme, the Board has determined to resume payment of a dividend and are recommending a pay-out of 0.5p per share payable on 28 September 2018, to shareholders on the register at 31 August 2018.

 

People

 

On behalf of the Board, I would like to thank all our employees for their ongoing support, commitment and dedication to The 600 Group which has been important in continuing the improvement in our businesses. I look forward to working with them again in the coming year.

 

Outlook

 

Trading and order intake in the period since the FY18 financial year end has remained stable. We continue to seek opportunities to leverage our industry-recognised brands and expand our worldwide distribution network. The introduction of new products to widen the customer base remains a clear focus for our management teams in both divisions. Industry forecasts of growth for both divisions have improved during the year but as always remain subject to uncertain international influences and world events. The Board continues to believe the strategy of brand promotion and investment in new products and new markets will lead to continued market share growth in the future.

 

 

Paul Dupee

Executive Chairman

20 July 2018

 

 

 

 

 

 

 


 

Our businesses

 

The 600 Group PLC ("the Group") is a leading engineering group with a world class reputation in the design and distribution of machine tools, precision engineered components and the design, manufacture and distribution of industrial laser systems.  The Group operates these businesses from locations in North America, Europe and Australia selling into more than 100 countries worldwide.

 

During the 52 week period ended 31 March 2018 28% of revenues came from the sale of metal turning machine tools, with a further 19% from other machine tools and 11% from the sale of precision engineered components for machine tools. Sales of Industrial laser equipment amounted to 29% of revenues with the remaining 13% of revenues being from after sales support, spare parts and services from both divisions.

 

Group businesses serve customers across a broad range of industry sectors, from niche markets for technical education of young engineering apprentices through to high volume production of automotive, aerospace and defence equipment.  A high proportion of revenue is derived from sales via third party distribution channels, in respect of which it is more difficult to track the industry dispersion of end-user customers.

 

The Group benefits from a high degree of loyalty and repeat business via a large number of established distributors in many countries and territories but with no major concentrations. In the year ended 31 March 2018 the top 20 customers, of which 17 were distributors, contributed less than 26% of revenues, the same percentage as the previous year.

 

Revenues

 

Revenues are generated across many diverse geographical territories:

 

Percentage of worldwide revenues

(by destination)

2018

%

 

2017

%

United States of America

  65

  64

United Kingdom

  15

  15

Europe (excluding UK)

  11

  12

Rest of the World

    9

    9

Total

100

100

 

 

Macroeconomic and industry trends

 

Machine tools and precision engineered components

 

The worldwide machine tool industry was estimated by Oxford Economics at nearly $79bn in annual sales in its Spring 2018 report. The market continues to be driven by the investment intentions of manufacturers and is sensitive to changes in the economic and financial climate. Demand responds to economic trends and typically lags the main cycle of the economy.

 

The global market is dominated by China with consumption of $30bn but this is largely served domestically with China also being the largest producer. The USA is the second largest consumer of machine tools at $8.8bn followed by Germany at $6.8bn.

 

The report indicated growth of over 7% globally in 2017 and expects the market for machine tools to remain healthy during 2018 at over 6%. Within our main markets the expectations were for the USA to remain close to 8% growth with Europe at just over 8% for 2018.

 



 

 

Industrial laser systems

 

Industry use of industrial lasers for material processing has continued to expand worldwide. Laser systems have now become a mainstream manufacturing process covering the areas of laser machining, including cutting and drilling, marking, ablation and a host of other niche applications.

 

Industry spending for the entire global industrial laser market continues to increase and reached a new estimated high of $4.6bn in 2017. Growth in the overall market is estimated to rise by about 7% in 2018. The laser marking and micro-materials subset is smaller than the macro-materials processing but is still solidly producing mid-single digit growth. This growth is underpinned by enhanced performance in the speed, cost and quality of the systems being implemented compared to other techniques as well as by legislative changes driving a requirement for greater traceability.

               

Our main markets

 

The main markets we operate in are the USA, Europe and Australia and these have generally stabilised following the volatility of the prior year which contained both the Brexit vote result and the US presidential elections. Order books have now returned to more normal levels and are on a par with the previous year although we have seen a market trend in both divisions for shorter lead times for our standard equipment with the expectation it is delivered in four to six weeks or less.

 

Whilst there remains concerns associated with the UK leaving the EU, we believe The 600 Group has a relatively low exposure to these risks given only 11% of Group sales were to EU countries excluding the UK and US Dollar income the Group generates provides a natural currency hedge against the majority of our purchases which are in US Dollars.

 

In addition, over 13% of our total revenues are derived from the supply of spare parts and services and this revenue stream is not dependent on achieving new sales but on servicing our existing installed base of machines.

 

 

Activity in the 2017/18 financial year

 

Machine tools and precision engineered components

 

This division operates from sites in the UK, USA, and Australia and provides solutions for metal processing through the design and development of machine tools sold under the brand names Colchester, Harrison and Clausing and the design and supply of precision engineering components under the brand names Pratt Burnerd and Gamet. There are also spares, accessories and service operations which support the significant number of machines sold over the Group's long history of supplying quality equipment. Sales are made worldwide, with direct sales operations and distribution in North America, Europe, and Australia and a network of distributors in all other key end-user markets.

 

The machine tools division produced double digit growth of 11.6%, which was despite an under performance in the first half of the financial year in the UK business. The second half of the financial year saw a significant improvement in the UK operation with a 27% increase in revenue over the prior year's second half performance and operating profits in this six month period outperforming the prior full year.

 

The UK machine tools operation has undergone some restructuring during the year with further outsourcing of operations and some changes to the distribution network and management team. The consequent reduction in overheads will underpin further growth potential in the new financial year. 

 

The UK business re-launch as "Colchester Machine Tool Solutions" has given fresh impetus to the revised management team and the business is developing new distributor relationships and expanding both its direct sales force in the UK and its spares and service operation.

 

The US machine tool business has recovered well from market uncertainty created by the presidential elections and increased revenues by over 10%. New product launches and the increased activity of the Kondia business, acquired in the previous year, have helped improve the top line and more new products are planned for the current financial year. The range of USA produced machines continues to expand and sales to Mexico and Canada continue to grow.

 

The Australian machine tools business, whilst relatively small, has shown a significant increase in activity and returned to profitable trading. A review of the business in Australia and the wider South east Asia, where the Group's machine tool brands remain well know with a good installed base, is taking place with a view to improving this operation further.

 

The supply and distribution agreement with our Indian partners for the manufacture and supply of machine tools and their manufacture and distribution under licence is now in operation and provides a hedge against our dependency on Taiwanese produced machine tools. We continue to work with our partners on new products to increase market coverage of our brands.

 

 

 

The financial results of these activities, on an underlying basis excluding special items, were as follows:

 


2018

$ 000

2017

$ 000

 

Revenues

45,222

40,530







Underlying operating profit*

2,904

2,574

Underlying operating margin*

6.4%

6.4%

 

*underlying figures before special items. See note 3 and note 11.

 

 

 

Industrial laser systems

 

The integration of our industrial laser systems manufacturing facilities into the expanded site in Ohio, USA has now been completed. The UK spares and service operation is being integrated into the machine tools operation in Heckmondwike with the closure of the Letchworth operation. The business remains committed to the UK and European markets and we believe these are better serviced from the more substantial machine tools UK operation with which it already shares some common customers and distributors.

 

The division is building upon its increased profile in the marketplace following the integration of TYKMA ELECTROX.

Revenues increased 14% over the previous year and the division continues to develop new products and has launched a number of innovative new technologies with further planned product releases in the current financial year.

 

The joint TYKMA ELECTROX brand now provides laser solutions which includes marking, engraving and micro-material processing. Each end user or distributor is free to choose among our brands which combined creates an enhanced product portfolio for solving an expanded number of applications. These industrial laser systems are sold for a variety of applications to provide solutions to an ever increasing market diversification in the manufacturing industry among both small and large multi-national corporate customers.

 

The increased requirement for traceability of all production items underpins the growth of this industry and forecasters continue to predict growth in this activity as these products replace traditional stamping, ink and dot peen systems. Continued support from legislation mandating increased traceability continues to be a positive driver for individual component identification.

 

Results for the financial year, on an underlying basis excluding special items, were as follows:

 


2018

$ 000

2017

$ 000

 

Revenues

20,792

18,260




Underlying operating profit*

2,867

2,491

Underlying operating margin*

13.8%

13.6%

 

*underlying figures before special items. See note 3 and 11.

 

 

Group Results

 

Revenue from continuing operations increased by 12.3% to $66m (2017: $58.8m) with double digit growth from both divisions.

 

Group profit before tax was $3.87m (2017: $4.04m) and the underlying profit (before special items) was up 15% to $3.05m (2017: $2.65m).

 

 

Special items

 

During the financial year, the Group undertook a number of transactions, which, in the opinion of the directors, should be reported separately for a better understanding of the underlying trading performance of the Group. These underlying figures are used by the Board to monitor business performance, form the basis of bonus incentives and are used for the purposes of the bank covenants.

 

These non GAAP measures are explained in note 11 alternative performance measures and set out in note 3. All special items are taken into account in the GAAP figures in the Income Statement

 

A credit of $1.74m (2017: credit of $1.89m) is recorded in financial income in respect of the final salary pension scheme. No cash was paid to or received from the scheme in respect of this transaction which arises as a pension accounting entry under the required standard due to the surplus in the scheme recorded in the balance sheet.

 

In addition, in 2017 a credit of $0.8m was included as a result of work by the Trustees of the UK pension scheme and the Group in reducing pension liabilities. As a result of the changes in the USA to the rates of taxation, a significant charge of $0.6m has been made  to adjust the deferred taxation assets.

 

An additional credit of $1.26m is recorded this year as a result of the sale of the Group's holding in ProPhotonix Ltd at the end of August 2017. This generated $1.97m of cash which was used to pay down UK debt.

 

Redundancy and restructuring costs were incurred on the overhead and operating cost reduction in the UK machine tools business including the further outsourcing of operations and in industrial lasers on the closure of Letchworth and the move of the spares and service operation in the UK into the machine tools operation which amounted to $1.8m (2017 $0.83m). 

 

In addition, share option costs, amortisation of intangible assets and amortisation of loan note costs all of which are non-cash costs to the Group in the year have been included in special items. 

 

 

Taxation

 

The current year underlying trading resulted in a credit of $0.44m (2017: credit of $0.15m) for taxation. The UK businesses continue to benefit from substantial previous tax losses and no taxation is payable in the UK. There are substantial unrecorded deferred tax assets in the UK which are released onto the balance as existing recorded losses are utilised which will help maintain a lower tax charge. There remains an unrecognised deferred tax asset of over $3.6m in addition to the recognised asset of $2.96m in respect of UK tax losses at the year end. The US businesses are subject to taxation on their profits at the new rate of 21% (2017: 34%) although the rate applicable for the 2017/18 year was a composite rate of 31%.

 

Deferred taxation is provided on the UK pension credits at a rate of 35%, being the rate applicable to any refund from a pension scheme and is included in special items.

 

Following the changes in the USA to the rates of taxation, a significant charge of $0.6m has been made  to adjust the deferred taxation assets. This charge has been shown in special items.

 

 

Net profit and earnings per share

 

The total profit attributable to equity holders of the parent for the current financial year amounted to $3.05m (2017:  $2.57m) with underlying profit of $3.48m (2017: $2.80m).

 

Underlying earnings from continuing operations before special items and related taxation were 3.20cents (equivalent to 2.46p) per share (2017: 2.68cents, equivalent to 2.15p) and basic earnings per share were 2.80cents (equivalent to 2.16p) (2017: 2.46cents, equivalent to 1.97p) see note 7.

 

Financial position and utilisation of resources

 

Cash flow

 

Cash generated from operations before working capital movements was $4.0m (2017: $3.8m)

 

Stock levels have increased in line with the increased activity but also to support the new product launches and the increasing market demands for shorter lead time. The UK machine tool operation has taken advantage of the greater liquidity to obtain improved terms with overseas suppliers and reduce bank trade finance costs but this has added about $0.7m to stock in transit.

 

$0.86m was expended on redundancy and restructuring costs at Electrox, and UK machine tools with the balance of the cash cost falling into the 2018/19 financial year.

 

Interest paid was in line with previous years at $1.2m with the largest component being interest on the £8.5m ($11.9m) 8% loan notes.

 

Capital expenditure largely consisted of demonstration and showroom equipment for the new facility in Chillicothe and these machines generally turn over regularly.

 

The net proceeds of $1.97m from the ProPhotonix sale were received in September 2017 and were used to pay down UK bank debt.

 

Net borrowings

 

Group net debt at 31 March 2018 reduced to $15.6m (2017: $17.1m) and comprised net bank and finance lease indebtedness of $4.3m (2017: $7.2m) and the amount outstanding on the loan notes of $11.3m (2017: $9.8m). The amount outstanding on the loan notes has increased due to the exchange rate effect of re-translation into Dollars and a small movement due to the amortisation of costs. The loan notes are shown net of un-amortised costs and amounts disclosed in equity reserve which amount to $0.6m in the current financial year (2017: $0.8m).

 

Repayments of $0.85m were made on term facilities in the period reducing these to $1.68m.

 

Working capital facilities were renewed with both HSBC and Bank of America during the year and the Group maintains a mixture of term loans and revolving working capital facilities with maturities between 1 and 3 years. Headroom on bank facilities was $8m at the year-end (2017: $4m) and all financial covenants in place were met during the year.

 

The £8.5m ($11.9m) 8% loan notes with a maturity of February 2020 also entitle holders to warrants of equal value to subscribe for new ordinary shares at 20p.

 

Gearing amounted to 27% of aggregate net assets (2017: 27%)

 

Going concern

 

The Board has assessed the Group's funding and liquidity position. The Directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future.  Accordingly, the Directors continue to adopt the going concern basis in preparation of the financial statements.

 

 

Retirement benefits

 

The accounting surplus on the UK scheme at 31 March 2018 was $54.3m (2017: $65.7m). This surplus has been calculated in accordance with the scheme rules and recognised accounting requirements.

 

The accounting figures are calculated using prescribed methods and in particular use corporate bond rates to value the scheme liabilities whereas the trustees use a much more prudent gilts only basis of valuation when considering the Actuarial valuation.

 

On 17 July 2018 a contract was signed securing the buy-out of the schemes liabilities (see note 13).

The buy-out of the scheme involves securing individual annuity contracts for each member with an insurance company and passes all future risks to the insurance company. The cost of achieving this is usually higher than either the accounting basis or the schemes funding basis reflecting the insurer's capital requirements to meet inherent risks of investment returns and life expectancy over the lifetime of the members. The scheme actuary estimated a deficit of over £51m ($71m) on this buy-out basis even as late as the actuarial valuation of 2013.

 

The buy out of the scheme has been possible due to improvements in insurers pricing, the trustees hedging strategy, good investment returns and the hard work of the Trustees and Company in reducing scheme liabilities and costs whilst providing members with greater flexibility in the way in which they can take their benefits. The final agreement was secured after a long period of negotiation and an open market tender process with the market leaders in the industry.

 

The effect of the completion of this transaction on the Group balance sheet will be to eliminate the accounting surplus and associated deferred taxation liabilities and recognise the net (after tax) cash, currently estimated at between $4m and $5m (£3m and 4m), to be received from the scheme on closure (the final sum will remain uncertain until the scheme is finally wound up, which is expected towards the end of 2018). It should be noted that the scheme is held on the subsidiary company 600 UK limited balance sheet and as such the transaction will not affect the holding company reserves.

 

 

In accordance with the current legislation on taxation of pension surplus returns to a company, deferred taxation has been provided for on the pension entries at 35% as opposed to the normal 19% rate in the accounting entries. 35% tax will be deducted from the gross refund before the Trustees pay funds to the Company.

 

 

The US retiree health scheme and pension fund deficits reduced slightly during the year due to changes in actuarial assumptions to $1.2m (2017: $1.3m). The only funding of these benefits during the year was the payment of an insurance premium in respect of the retiree health scheme.

 


 


Consolidated income statement

For the 52-week period ended 31 March 2018

 












Before


After

Before


After





Special

Special

Special

Special

Special

Special





Items

Items

Items

Items

Items

Items





52 weeks

52 weeks

52 weeks

52 weeks

52 weeks

52 weeks





ended

ended

ended

ended

ended

ended



               


31 Mar

31 Mar

31 Mar

1 April

1 April

1 April



               


2018

2018

2018

2017

2017

2017



               

Notes

$000

$000

$000

$000

$000

$000



Continuing










Revenue

1

66,014

-

66,014

58,790

-

58,790



Cost of sales


(42,972)

(764)

(43,736)

(38,252)

(147)

(38,399)



Gross profit/(loss)


23,042

(764)

22,278

20,538

(147)

20,391



Net operating expenses

3

(18,812)

(1,126)

(19,938)

(16,706)

(66)

(16,772)



Operating profit/(loss)

3

4,230

(1,890)

2,340

3,832

(213)

3,619













Financial income

4

-

1,741

1,741

4

1,891

1,895



Financial expense

4

(1,182)

(290)

(1,472)

(1,183)

(295)

(1,478)



Profit on ProPhotonix disposal

3

-

1,256

1,256

-

-

-













Profit/(loss) before tax


3,048

817

3,865

2,653

1,383

4,036













Income tax (charge)/credit

5

436

(1,252)

(816)

147

(1,609)

(1,462)



Profit/(loss) for the period from continuing operations attributable to the equity holders of the parent


3,484

(435)

3,049

2,800

(226)

2,574























Basic earnings per share

7

3.20c

(0.40)c

2.80c

2.68c

(0.22)c

2.46c













Diluted earnings per share

7

3.18c

(0.40)c

2.78c

2.68c

(0.22)c

2.46c



   

 


Consolidated statement of comprehensive income

For the 52-week period ended 31 March 2018

 




 

52-week

 

52-week

               

period ended

period ended

               

 31 March

 1 April

               

2018

2017

               

$000

$000

Profit for the period

3,049

2,574

Other comprehensive income/(expense)

Items that will not be reclassified to the Income Statement:



Release of available for sale reserve on ProPhotonix disposal

(1,465)

-

Remeasurement of defined benefit asset

(19,659)

10,495

Deferred taxation

6,852

(3,673)

Total items that will not be reclassified to the Income Statement:

(14,272)

6,822

Items that are or may in the future be reclassified to the Income Statement:



Foreign exchange translation differences

4,109

(4,779)

Fair valuation of investments

-

1,446

Total items that are or may in the future be reclassified to the Income Statement:

4,109

(3,333)

Other comprehensive income / (costs) for the period, net of income tax

(10,163)

3,489

Total comprehensive income for the period

(7,114)

6,063

Attributable to:



Equity holders of the Parent Company

(7,114)

6,063

 

 

 

 


Consolidated statement of financial position                                                        

As at 31 March 2018

 





As at

As at

As at

               

31 March 2018

1 April 2017

2 April 2016

               


$000

$000

$000

Non-current assets





Property, plant and equipment

4,111

4,668

4,590

Goodwill

10,329

10,329

10,329

Other Intangible assets

407

382

457

Investments

-

2,068

704

Deferred tax assets

5,102

4,359

5,438

Employee benefits

54,319

65,677

59,559



74,268

87,483

81,077

Current assets





Inventories

19,597

15,935

15,994

Trade and other receivables

10,266

9,312

9,608

Assets classified as held for sale

 -

-

2,837

Cash and cash equivalents

1,676

1,352

1,086

               


31,539

26,599

29,525

Total assets


105,807

114,082

110,602

Non-current liabilities





Employee benefits


(1,225)

(1,289)

(1,469)

Loans and other borrowings

(12,251)

(11,552)

(16,143)

Deferred tax liabilities


(19,020)

(22,770)

(20,629)

               


(32,496)

(35,611)

(38,241)

Current liabilities





Trade and other payables

(9,205)

(6,801)

(8,965)

Taxation

(291)

-

-

Provisions

(53)

(486)

(603)

Loans and other borrowings

(5,025)

(6,890)

(4,647)

               


(14,574)

(14,177)

(14,215)

Total liabilities


(47,070)

(49,788)

(52,456)

Net assets


58,737

64,294

58,146






Shareholders' equity




Called-up share capital

1,746

1,629

1,629

Share premium account

2,885

1,484

1,484

Revaluation reserve

759

797

1,806

Available for sale reserve

-

1,446

-

Equity reserve

201

201

201

Translation reserve

(4,565)

(6,724)

(2,830)

Retained earnings


57,711

65,461

55,856

Total equity


58,737

64,294

58,146

 


 


Consolidated statement of changes in equity                                                                                   

As at 31 March 2018

 


               

               

               

               

               

               

               

               

 



               

               

               

               

               

               

               

               

 

               

Ordinary

Share


Available



               



 

               

share

premium

Revaluation

 for sale

Translation

Equity

               

Retained


               

capital

account

reserve

reserve

reserve

reserve

               

Earnings

Total

               

$000

$000

$000

$000

$000

$000

               

$000

$000

At 2 April 2016

1,629

1,484

1,806

(924)

(2,830)

201


56,780

57,952

At 2 April 2016 as restated*

1,629

1,484

1,806

-

(2,830)

201


55,856

58,146

Profit for the period

-

-

-

-

-

-


2,574

2,574

Other comprehensive income:










Foreign currency translation

-

-

(120)

-

(3,894)

-


(765)

(4,779)

Net defined benefit asset mvmt

-

-

-

-

-

-


10,495

10,495

Fair valuation of Investments

-

-

-

1,446

-

-


-

1,446

Transfer on revalued properties

-

-

(889)

-

-

-


889

-

Deferred tax

-

-

-

-

-

-


   (3,673)

(3,673)

Total comprehensive income

-

-

(1,009)

1,446

(3,894)

-


9,520

6,063

Transactions with owners:










Credit for share-based payments

-

-

-

-

-

-


85

85

Total transactions with owners

-

-

-

-

-

-


85

85

At 1 April 2017

1,629

1,484

797

1,446

(6,724)

201


65,461

64,294

Profit for the period

-

-

-


-

-


3,049

3,049

Other comprehensive income:










Foreign currency translation

-

-

(38)

19

2,159

-


1,969

4,109

Net defined benefit asset mvmt

-

-

-

-

-

-


(19,659)

(19,659)

ProPhotonix disposal

-

-

              -

 (1,465)

-

-


-

(1,465)

Deferred tax

-

-

-

-

-

-


6,852

6,852

Total comprehensive income

-

-

(38)

(1,446)

2,159

-


(7,789)

(7,114)

Transactions with owners:










Share capital subscribed for

117

1,401

-

-

-

-


-

1,518

Credit for share-based payments

-

-

-

-

-

-


39

39

Total transactions with owners

117

1,401

-

-

-

-


39

1,557

At 31 March 2018

1,746

2,885

759

-

(4,565)

201


57,711

58,737

 

*see note 12 ProPhotonix disposal

 






52-week

52-week

               

period ended

period ended

               

31 March

1 April

               

2018

2017

               

$000

$000

Cash flows from operating activities



Profit for the period

3,049

2,574

Adjustments for:



Amortisation of development expenditure

71

73

Depreciation

596

566

Net financial income

(269)

(417)

Net pension credit

-

(809)

Non-cash special Items

991

262

Profit on disposal of Prophotonix

(1,256)

-

Equity share option expense

39

85

Income tax expense/(credit)

816

1,462

Operating cash flow before changes in working capital and provisions

4,037

3,796

(Increase) in trade and other receivables

(445)

(188)

(Increase) in inventories

(2,970)

(1,755)

Decrease/(increase) in trade and other payables

1,169

(1,576)

Employee benefits contributions

(143)

(150)

Cash generated in operations

1,648

127

Interest paid

(1,183)

(1,183)

Income tax received/( paid)

-

110

Net cash flows from operating activities

465

(946)

Cash flows from investing activities



Interest received

-

4

Proceeds from sale of property, plant and equipment

285

2,613

Sale of investment in Prophotonix

1,972

-

Purchase of property, plant and equipment

(694)

(612)

Development and trademarks expenditure capitalised

(87)

(28)

Net cash flows from investing activities

1,476

1,977

Cash flows from financing activities



Proceeds from issue of ordinary shares

1,517

-

Repayment of external borrowing

(2,985)

(3,141)

Proceeds from external borrowing

-

2,593

Net finance lease income/(expenditure)

(56)

(116)

Net cash flows from financing activities

(1,524)

(664)

Net increase in cash and cash equivalents

417

367

Cash and cash equivalents at the beginning of the period

1,352

1,086

Effect of exchange rate fluctuations on cash held

(93)

(101)

Cash and cash equivalents at the end of the period

1,676

1,352

 

 

 


1.Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 March 2018, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Financial information set out in this preliminary announcement does not constitute the company's Consolidated Financial Statements for the financial years ended 31 March 2018 or 1 April 2017 but is derived from those Financial Statements. Statutory Financial Statements for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the company's AGM.

The Auditors, KPMG LLP for 2017 and BDO LLP for 2018, have reported on those financial statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

The Statutory accounts will be available on the Company's website and will be posted to shareholders who have requested a copy and thereafter by request to the company's registered office.

 

After reviewing current results, the Board has determined to change presentational currency to US dollars. Approximately two thirds of our revenues are in dollars and a great proportion of expenditure is either in dollars or currency tied to the dollar. The fluctuation in Sterling in the last few years has made it difficult to accurately measure performance when reporting in Sterling and this change will make it more efficient for the Board and shareholders in analysing financial results going forward.

 

2. Segment information

IFRS 8 - "Operating Segments" requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.  The chief operating decision maker has been identified as the Executive Directors.  The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources.

The Executive Directors consider there to be two continuing operating segments being machine tools and precision engineered components and industrial laser systems. 

The Executive Directors assess the performance of the operating segments based on a measure of underlying operating profit/(loss).  This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs.

 

The following is an analysis of the Group's revenue and results by reportable segment:

 


Continuing

52 Weeks ended 31 March 2018

Machine

tools

& precision

engineered

components

Industrial laser systems

 

Head Office

& unallocated

Total

 

Segmental analysis of revenue

$000

$000

$000

$000

 

Total revenue

45,222

20,792

-

66,014

 

               


                 

                 

                 

 

Segmental analysis of operating profit/(loss) before Special Items

2,904

2,867

(1,541)

4,230

 

Special Items

(883)

(767)

(240)

(1,890)

 

Group operating profit/(loss)

2,021

2,100

(1,781)

2,340

 

               


                 

                 

                 

 

Other segmental information:





 

Reportable segment assets

40,320

9,867

55,620

105,807

 

Reportable segment liabilities

(28,153)

(5,826)

(13,091)

(47,070)

 

Fixed asset additions

146

544

4

694

 

Depreciation and amortisation

362

294

-

656

 











 

 



2. Segment information (CONTINUED)



 

52 Weeks ended 1 April 2017

Machine

tools

& precision

engineered

components

Industrial laser systems

Head Office

& unallocated

Total

Segmental analysis of revenue

$000

$000

$000

$000

Total revenue

             40,530

        18,260

                 -

        58,790

               


                  

                  

                  

Segmental analysis of operating profit/(loss) before Special Items

               2,574

          2,491

        (1,233)

          3,832

Special Items

                  864

           (839)

           (238)

            (213)

Group operating profit/(loss)

               3,438

          1,652

        (1,471)

          3,619

               


                  

                  

                  

Other segmental information:





Reportable segment assets

             36,429

          9,555

68,098

      114,082

Reportable segment liabilities

           (33,199)

        (4,719)

      (11,870)

       (49,788)

Fixed asset additions

                  144

             496

                 -

             640

Depreciation and amortisation

                  370

             269

                 -

             639






Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

 

Geographical segmental analysis of revenue is shown by origin and destination in the following two tables:

Segmental analysis by origin

2018

              

2017

               

$000

%

$000

%

Gross sales revenue:





UK

15,500

23.5

14,631

24.9

North America

47,262

71.6

41,693

70.9

Australasia

3,252

4.9

2,466

4.2

Total Revenue

66,014

100.0

58,790

100.0

 

Segmental analysis by destination:


2018

              

2017

Gross sales revenue:

$000

%

$000

%






UK

       10,035

15.2

         8,991

15.3

Other European

         7,411

11.2

         7,229

12.3

North America (USA)

       42,768

64.9

        37,165

63.3

Africa

            738

1.1

            176

0.3

Australasia

         3,136

4.8

         2,255

3.8

Central America

              26

0.0

            175

0.3

Middle East

              97

0.1

            539

0.9

Far East

         1,803

2.7

3.8

               

       66,014

100.0

100.0

 

There are no customers that represent 10% or more of the Group's revenues.

3. SPECIAL ITEMS

In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed significant costs associated with the ongoing restructuring of the Group and associated redundancy costs incurred in the year. In addition, the non cash charges for share based payments, amortisation of intangible assets acquired and amortisation of loan note costs. Non cash pension transactions have also been separately identified.

Special items

               

2018

2017

               

$000

$000

Items included in cost of sales:



Reorganisation and redundancy

(764)

(147)


(764)

(147)




Items included in operating profit:



Pensions credit

-

809

Refinancing costs

-

(68)

Redundancy and reorganisation

(1,036)

(778)

Profit on sale of property

-

143

Acquisition costs

-

(36)

Share option charge

(39)

(85)

Amortisation of intangible assets acquired

(51)

(51)


(1,126)

(66)




Items included in financial income/(expense):



Pensions interest on surplus

1,741

1,891




Amortisation of loan note expenses

(243)

(210)

Interest on pensions deficit

(47)

(85)


(290)

(295)

 

Profit on disposal of ProPhotonix Ltd

1,256

-




Total special items before tax

817

1,383

Taxation effect of rate range in the USA

(630)

-

Income tax on special items

(622)

(1,609)

Total special items after tax

(435)

(226)

 

 

During the year the Group incurred further costs with regard to the reorganisation of TYKMA Inc and the integration of the Electrox Laser marking division spares and service into the UK machine tools operation. In addition redundancy exercises were carried out in the UK machine tools operation during the year.

The Group also realised a profit on the disposal of its entire holding in ProPhotonix Ltd.

Costs were also incurred with regard to the granting of share options and amortisation.



 

 

4. Financial income and expense

               



               

2018

2017

               

$000

$000

Bank and other interest

-

4

Interest on employee benefit surplus

1,741

1,891

Financial income

1,741

1,895

Bank overdraft and loan interest

(234)

(216)

Other loan interest

(925)

(951)

Other finance charges

(8)

-

Finance charges on finance leases

(15)

(16)

Interest on employee benefit liabilities

(47)

(85)

Amortisation of shareholder loan expenses

(243)

(210)

Financial expense

(1,472)

(1,478)

 



 

 

5. Taxation

               

               



2018

2017

               

$000

$000

Current tax:



Corporation tax at 19% (2017: 20%):



- current period

-

-

Overseas taxation:



- current period

(340)

-

Total current tax charge

(340)

-

Deferred taxation:



- current period

252

(869)

- effect of rate change in USA

(630)

-

- prior period (adjustments to the capital allowance pools in the UK and overseas)

(98)

(593)

Total deferred taxation credit/(charge)

(476)

(1,462)

Taxation charged to the income statement

(816)

(1,462)

 

The rate for tax in the USA was changed from 34% to 21% during the year requiring a remeasurement of deferred tax assets in the USA.

 

Tax reconciliation

The tax charge assessed for the period is higher than (2017: higher than) the standard rate of corporation tax in the UK of 19% (2017: 20%). The differences are explained below:        

 

               

2018

               

2017



               

$000

%

$000

%

 

Profit before tax

3,865

               

4,036

               

 

Profit before tax multiplied by the standard rate of corporation tax





 

in the UK of 19% (2017: 20%)

734

19.0

807

20.0

 

Effects of:





 

-income not taxable and/or expenses not deductible

338

8.7

(527)

(13.1)

 

- overseas tax rates

58

1.5

21

0.5

 

- pension fund surplus taxed at higher rate

97

2.5

161

4.0

 

- state taxes

52

1.4

21

0.5

 

- deferred tax prior period adjustment

98

2.5

593

14.7

 

- tax not recognised on losses

-

-

386

9.6

 

- Recognition of tax losses not previously recognised

(864)

(22.4)

-

-

 

- Utilisation of tax losses

(327)

(8.4)

-

-

 

- impact of rate change in the USA

630

16.3

-

-

 

Taxation charged to the income statement

816

21.1

1,462

36.2

 

 

6. Dividends

No dividend was declared or paid in the period (2017: no dividend paid).

A final dividend of 0.5p has been proposed, payable on 28 September 2018 to holders on the register at 31 August 2018.



 

7. Earnings per share                                          

The calculation of the basic earnings per share of 2.80c (2017: 2.46c) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of $3,049,000 (2017: $2,574,000) and on the weighted average number of shares in issue during the period of 108,902,335 (2017: 104,357,957). At 31 March 2018, there were 6,650,000 (2017: 6,650,000) potentially dilutive shares on option with a weighted average effect of 790,601 (2017: 303,255) shares giving a diluted earnings per share of 2.78c (2017: 2.46c)

               

2018

2017

Weighted average number of shares



Issued shares at start of period

104,357,957

104,357,957

Effect of shares issued in the year

4,544,378

-

Weighted average number of shares at end of period

108,902,335

104,357,957

Weighted average number of the 6,650,000 (2017: 6,650,000) potentially dilutive shares

790,601

303,255

Total Weighted average diluted shares

109,692,936

104,661,212

 

               



Total post tax earnings

3,049

2,574

 




Basic EPS

2.80c

2.46c

 

Diluted basic EPS

2.78c

2.46c

 

               



Underlying earnings

$000

$000

Total post tax earnings

3,049

2,574

 

Share Option Costs

39

85

 

Pensions Interest

(1,694)

(1,806)

 

Amortisation of Shareholder loan expenses

243

210

 

Pensions credit

-

(809)

 

Amortisation of intangible assets acquired

51

51

 

Profit on disposal of ProPhotonix Ltd

(1,256)

-

 

Other special items

1,800

850

 

Acquisition costs

-

36

 

Tax effect of rate change in USA

630

-

 

Tax on special items

622

1,609

 

Underlying Earnings after tax

3,484

2,800

 

Underlying EPS

3.20c

2.68c

 

Underlying diluted EPS

3.18c

2.68c

 

 



 

8. Cash and cash equivalents

               

2018

2017

               

$000

$000

Cash at bank

1,536

1,227

Short-term deposits

140

125

Cash and cash equivalents per statement of financial position and per cash flow statement

1,676

1,352

 

9. Loans and other borrowings

 

CURRENT:

2018

2017

               

$000

$000

Bank loans

4,984

6,789

Obligations under finance leases

41

101

               

5,025

6,890

 

NON-CURRENT:

2018

2017

               

$000

$000

Bank loans

842

1,598

8% Loan Notes

11,287

9,842

Obligations under finance leases

122

112

               

12,251

11,552

 

The $11.9m (£8.5m) of Loan Notes in place at the year-end were issued in three tranches in February, March and August 2015 with 43.95m convertible warrants attached to them. These warrants allow the holders to either convert the loan into shares or to purchase  shares at 20p for a cash consideration. The loan has both debt and equity components and $195,000 is shown in equity reserve and the balance after deduction of associated costs and amortisation of $429,000, is shown in non current borrowings. Costs are amortised to the income statement over the term of the loan. The loan notes are repayable and the warrants expire both on 14 February 2020.

Facilities from HSBC include a $5m trade and invoice finance facility, of which $0.5m had been utilised at the year-end, and a mortgage for the Colchester property of $0.4m which will be repaid on a monthly basis through to March 2020.

US Dollar denominated term loans of $0.6m and $0.5m are to be repaid on a monthly basis through to March 2019 and April 2021 respectively in equal instalments with an interest rate of 2.25% above base, with revolving credit loans in addition of $3.8m.

Given the nature of the Group's financial assets and liabilities, it is the directors' opinion that there is no material difference between their reported book values and estimated fair values. The fair value of the Loan Notes is the book value less the debt issue cost and equity element.

The above loans and borrowings are secured by way of fixed and floating charges over the assets of the Company and its subsidiaries.

 

10. Analysis of net DEBT

               

At

               

               

               

At

               

1 April

Exchange

               

               

31 March

               

2017

movement

Other

Cash flows

2018

               

$000

$000

$000

$000

$000

Cash at bank and in hand

1,227

(108)

-

417

1,536

Term deposits (included within cash and cash equivalents on the balance sheet)

125

15

-

-

140


1,352

(93)

-

417

1,676

Debt due within one year

(6,789)

(290)

-

2,095

(4,984)

Debt due after one year

(1,598)

(134)

-

890

(842)

Loan notes due after one year

(9,842)

(1,202)

(243)

-

(11,287)

Finance leases

(213)

(6)

-

56

(163)

Total

(17,090)

(1,725)

(243)

3,458

(15,600)



 

11. Alternative performance measures

The Directors assess the performance of the Group by a number of measures and frequently present results on an 'underlying' basis, which excludes special items. The Directors believe the use of these 'non-GAAP measures' provide a better understanding of underlying performance of the Group.

In the review of performance reference is made to 'underlying profit' or 'profit before special items', and in the Consolidated Income Statement the Group's results are analysed between Before Special items and After Special items. 

 

Special items are detailed in note 3 and are disclosed separately on the basis that this presentation gives a clearer picture of the underlying performance of the group. 

 

These measures are used by the Board to assess performance, form the basis of bonus incentives and are used in the Group's banking covenants. In addition the Board makes reference to orders and order book or backlog. This represents orders received from customers for goods and services and the amount of such orders not yet fulfilled.

 

Underlying operating profit

 

$000

$000

Operating profit

2,340

3,619

 

Special items included in cost of sales (see note 3)

764

147

 

Special items included in net operating expenses (see note 3)

1,126

66

 

Underlying operating profit

4,230

3,832

 

 

Underlying profit for the period



 

Profit for the period

3,049

2,574

 

Special items included in cost of sales (see note 3)

764

147

 

Special items included in net operating expenses (see note 3)

1,126

66

 

Special items included in Financial income

(1,741)

(1,891)

 

Special items included in Financial expense

290

295

 

Profit on disposal of ProPhotonix

(1,256)

-

 

Tax effect of rate change in USA

630

-

 

Tax on special items

622

1,609

 

Underlying profit for the period

3,484

2,800

 

 

Underlying EPS



 

A reconciliation of underlying EPS is included in note 7



 

 

12. Prophotonix disposal

 

The Group disposed of its entire holding in ProPhotonix Limited on 31 August 2017. The shareholding was originally acquired in a share swap with institutional investors in August 2014 when 4.925m shares were issued in exchange for 26.3% of ProPhotonix. Proceeds of $1.97m gross were received which was used to reduce the UK senior debt with HSBC.

 

On disposal management identified that a write down of the carrying amount of the investment that occurred in 2015 should have been recognised in the consolidated income statement rather than the available for sale reserve. As a result, an amount of $924,000 has been transferred from retained earnings to the available for sale reserve as at 2 April 2016. The restated available for sale carrying amount after fair value movement from the start of the year to the date of disposal has then been recycled as part of the profit on disposal of $1,256,000. 

 

 

13. Post balance sheet events

On 17 July 2018 the Trustee of the 600 Group Pension Scheme signed a policy with Pension Insurance Corporation to buy out the scheme liabilities for £200,600,000 ($266,000,000). Further details on the transaction and the implications for the Group are included in the Strategic report.


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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