SIXH.L Regulatory News (SIXH)

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014, AS AMENDED (AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018).

22 December 2022

The 600 Group PLC

Unaudited Interim Results for the six months ended 30 September 2022

The 600 Group PLC ("the Group"), the 600 Group plc, the Industrial Laser Systems Business (AIM: SIXH), today announces its unaudited interim results for the six months ended 30 September 2022.

Financial Highlights

· Revenue up 12% to $17.0m (FY 22 H1: $15.2m)

· Net underlying* operating loss of $0.7m (FY 22 H1: profit $0.7m)

· Underlying* pre-tax loss of $0.8m (FY22 H1: profit $0.1m)

· Group net debt excluding lease liabilities was $2.5m as at 30 September 2022 (31 March 2022: $17.0m) with long-term borrowings paid down from the sale of the Machine Tool Division

Strategic & Operational Highlights

· Completed the disposal of the Machine Tool division as the Group refocused its strategy on the high-margin growth market of Industrial Laser Systems

· Continued growth in the Laser Division with revenue up 12% on the previous half year

o  TYKMA Electrox has seen particularly strong growth with revenue up 20% as it transitions from commodity products to higher-margin custom and high-specification products

o  CMS maintained its position despite not receiving any tablet drilling machines during the previous year, making up the shortfall from other activities and new market sectors

· Retained focus on R&D with development of new techniques and technology; further updates to proprietary software with backward compatibility options

· Good forward order book and enquiry pipeline; levels maintained at $9.1m, excluding the large one-off $4.3m order for four tablet drillers in CMS last year

*from continuing operations, before adjusting items.

Paul Dupee, Chairman of the Group, commented:

"The 600 Group has now completed its transformation to target the high-margin, high-growth market of industrial laser systems. Our top-line results for the first six months of the year were encouraging with double-digit revenue growth and a particularly strong performance from TYKMA Electrox. This business is progressing well in its transition to high-specification products with improved margins, a key reason behind the Group's revised strategy. 

"Like many engineering businesses, our profitability has been impacted by supply issues and cost inflation resulting from the aftermath of the Covid pandemic and conflict in Ukraine. However, we have taken a proactive approach to manage our operations and expect the lingering issues from extended build times to clear the system by the end of the financial year.

"The 600 Group is a streamlined business with a low debt profile, agile operations and a large addressable market serving applications in key industries of the future. With highly trusted technology solutions and a strong order book, we remain well positioned to capture this market opportunity."

Enquiries:

 About The 600 Group PLC

The 600 Group PLC is focused on the delivery of Industrial laser systems which cover laser marking and processing including cutting, drilling, ablation and a host of other niche applications in the marking and micro machining sectors. They require no consumables and can operate on a continuous high speed basis and can be integrated into customers' production lines. The businesses have their own technology and proprietary software. Customer applications are diverse and range from aerospace to medical and pharmaceuticals. The requirement for increased product and component traceability is one of the market drivers.

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

The 600 Group Plc

Executive Chairman's Statement for the six months ended 30 September 2022

Overview

The six-month period ended 30 September 2022 began with the completion of the sale of the Machine Tools Division for $21m on 11 April 2022 and the repayment of all $19m of the Group's debt, including the loan notes.

The Laser Division has seen continued growth in this period with revenue up 12% on the previous half year and particularly good progress in the TYKMA Electrox business which is up over 20%, as it continues the transition from commodity product to custom and high specification. Order book levels have been maintained, excluding the large one-off $4.3m order for four tablet drillers in CMS last year, at $9.1m.

The Laser Division has not been immune from supply issues and labor and input price increases during this period, as world economies react to the aftermath of the Covid pandemic and the war in Ukraine, which has impacted margins and overhead costs. Central costs have increased on the prior half year with additional resources, including new websites and marketing for all activities, deployed to help organic growth and the search for external synergistic developments.

Results

Revenue was up 12% at $17.0m (FY 22 H1: $15.2m) with a net underlying operating loss (excluding adjusting items) of $0.7m (FY 22 H1: profit $0.7m).

The Group benefitted from the repayment of debt at the start of the period with interest on borrowings and leases falling from $0.6m in the prior six month period to $0.1m, giving an underlying loss for the Group pre-tax, before adjusting items, of $0.8m (FY22 H1: profit $0.1m) and a loss of $0.9m (FY 22 H1: profit $0.1m) after adjusting items.

The sale of the Machine Tools Division resulted in a profit of $0.9m, after taking account of all costs related to the sale in the period, which is shown in discontinued operations on the face of the Consolidated Income Statement. There was no trading activity for the Machine Tool Division in this period as the sale was effective as at 31 March 2022.

Basic loss per share on continuing operations was 1.15 cents (equivalent to 0.94p loss) per share (FY 21 H1: profit 0.14 cents (equivalent to 0.10p profit). The underlying continuing earnings per share (excluding adjusting items) was a 0.70c loss (equivalent to 0.57p loss) (FY 21 H1: profit 0.09c (equivalent to 0.06p).

Given the continuing Global uncertainty, no dividend is proposed.

Financial Position

Inventory levels have increased to support the continued uplift in activity but also as a result of supply issues where several months of critical components have been bought forward to secure supply and also hedge against price increases. In addition, the continual supply chain issues have extended manufacturing times and increased work in progress with machines awaiting components to be completed. Inventory overall has increase by $1.9m since 31 March 2022 to $10.0m.

Trade and other receivables have also seen an increase of $2.4m since 31 March 2021 to $9.0m. Whilst normal trade terms for Lasers, in particular on the custom higher specification sales, usually benefit from a significant deposit with order which helps to keep working capital lower, a number of orders were taken during the pandemic in CMS with reduced margins and extended terms to cover overheads and keep our skilled workforce together which, due to the long lead times on manufacturing, are only just working through the system.

Trade and other payables have decreased in the period by $0.3m leaving the overall working capital increase at $4.6m.

As a consequence of this working capital increase and the payment of costs relating to the Machine Tools Division disposal of $1.3m, total net debt excluding leases at 30 September 2022 was $2.5m against $17m at 31 March 2022 and $16.2m at 30 September 2021

Bank of America continue to be very supportive and have maintained a working capital facilities totaling $7.5m with annual review in August 2023. The Group remains covenant compliant.

Adjusting Items

Adjusting Items have been disclosed separately to provide a clearer picture of the Group's underlying trading performance and are set out in note 4. The amortisation of acquisition intangibles relating to the acquisition of CMS of $0.2 has been recorded as an adjusting item in operating expenses. As the loan notes were repaid at the start of the period the related costs of $0.4m which were being amortised have been written off in the period in financial expense. In the prior half year period as a consequence of the extension of the repayment date of the loan notes a credit of $0.6m was recorded in financial income in respect of the adjustment to the carrying value of the amortised cost. The loan note amortization has also been recorded as an adjusting item. The loan notes were repaid in full in April 2022.

Operating Activities

The Laser Division has continued to grow, particularly strongly in the TYKMA Electrox business with the continued shift from commodity products to the higher margin custom and high specification products. CMS has maintained its position despite not receiving any tablet drilling machines during the previous year. This type of pharmaceutical business is particularly lumpy in nature but the operation had made up the shortfall from other activities and new market sectors.

The division continues to be forced to buy forward several months of critical components to secure supply and also hedge against price increases. Supply chain issues with delays in receiving components, particularly in the micro processing sector, have resulted in extended manufacturing times with re-designed products and increased work in progress as machines await component deliveries.

Input costs of materials and labor have both increased, driven by market forces. Whilst sale price increases are being implemented, a number of orders taken by CMS during the pandemic were taken at marginally profitable levels in order to keep the shop working and preserve our skilled workforce. Whilst the government assistance helped during the pandemic period, due to the extended build times on many of these products they are only now being completed which is depressing gross margins in this business. These products will clear the system by the end of the financial year. In addition to lower margins, extended credit terms were also given to customers which has resulted in increased receivables. Once again, these non-standard terms will have worked through the system by the end of the financial year. 

The development of new techniques and technology is forefront to the Division and the Group has continued to update its proprietary software with backward compatibility options. This development drive is supported by both internal R&D and the search for appropriate bolt on acquisitions.

The results of the Division were as follows:

*from continuing operations, before adjusting items.

Summary and Outlook

The Group continued to grow and invest in its businesses in this first six months of the financial year and has a good order book and enquiry pipeline going into the second half of the year. Whilst the lingering effects of work taken during the pandemic will impact CMS in the short term, the de-risking of the Group, both operationally and financially, as a result of the Machine Tool Division sale has created a leaner and more focused technology Group.

Whilst there will continue to be concerns over a recession, COVID variants and supply chain disruption, given the continuing good orderbook activity and backlog and the move to higher specification and custom products, the Board believes the Group is more resilient to market changes and this strategy will lead to improved shareholder value in the future.

Paul Dupee

Executive Chairman

22 December 2022

The 600 Group Plc

Condensed consolidated income statement (unaudited)

For the 26 week period ended 30 September 2022

Restated

The consolidated cashflow includes all activity relating to continuing and discontinued activity

Cash in discontinued entities (assets held for sale) 1,084

Cash in continuing entities 207

Cash and cash equivalents at the end of the period 1,291

Notes relating to the condensed consolidated financial statements

For the 26-week period ended 30 September 2022

1. Basis of preparation and accounting policies

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards in conformity with the requirements of the Companies Act 2006. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 March 2022 Annual Report. The financial information for the half years ended 30 September 2022 and 30 September 2021 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

The annual financial statements of The 600 Group plc ('the Group') are prepared in accordance with International accounting standard in conformity with the requirements of the Companies Act 2006. The comparative financial information for the year ended 31 March 2022 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2022 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 March 2022 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) - (3) of the Companies Act 2006. 

The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2022 annual financial statements.

2. SEGMENT ANALYSIS

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 Board to allocate resources to the segments and to assess their performance. 

The chief operating decision maker has been identified as the Board.

The Board consider there to be one operating segment being industrial laser systems with the Machine Tool Division being discontinued following the sale agreed in March 2022.

The Board assess the performance of the operating segments based on a measure of 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:

3. NET operating expenses

4. Adjusting ITEMS

The directors have highlighted transactions which are material and unrelated to the normal trading activity of the Group.

In the opinion of the directors the disclosure of these transactions 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.

The items below correspond to the table below;

a) A charge of $0.07m was expensed in cost of sales relating to US duty and tariff charges from prior year in the six months to September 2021 which was cancelled in the second half of the year.

b) The amortisation of the loan note costs and associated costs are shown in financial expense. These are non cash movements and relate to the discounting of the loan notes and associated costs which unwind over the term of the notes. In the current period as a result of the repayment of the loan notes the remaining costs have been expensed.

c) Amortisation of intangible assets, including customer relationships, acquired through the Control Micro Systems Inc deal.

5. Financial income and expensE

6. Taxation

7. Earnings per share

The calculation of the basic earnings per share of a loss after discontinued activities of 0.39c (2021 HY: profit 1.52c) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a loss of $463,000 (2021 HY: profit $1,783,000) and on the weighted average number of shares in issue during the period of 117,762,521 (2021 HY: 117,473,341). At 30 September 2022, there were 3,300,000 (2021 HY: 3,790,000) potentially dilutive shares (share options or warrants with a price below the average price for the period) with a weighted average effect of 2,088,927 shares (2021 HY: 2,100,375) giving a diluted earnings per share of loss 0.39c (2021 HY: profit 1.49c). In accordance with IAS 33 - Earnings per Share, the Group shows no dilutive impact in respect of its share options as their conversion to ordinary shares would decrease the loss per share from continuing operations.

8. RECONCILIATION OF NET CASH FLOW TO NET DEBT

9. Analysis of net DEBT

10. FAIR VALUE

The group considers that the carrying amount of the following financial assets and financial liabilities are

a reasonable approximation of their fair value:

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Loans and other borrowings

11. Principal Risks and Uncertainties

The principal risks and uncertainties affecting the Group remain those set out in the 2022 Annual Report. Those which are most likely to impact the performance of the Group in the remaining period of the current financial year are the continuing issues surrounding the COVID-19 pandemic and the possible recession which may result in exposure to increased input costs, supply chain and delivery issues and a downturn in its customers' end markets, particularly in North America and Europe.

12. Disposal of Machine Tools Division

On 5 March 2022, the 600 Group signed a contract with Timesavers Acquisitions LLC to sell its Machine Tool Division. This sale included the following legal entities: (a) Colchester GmbH, a private company with limited liability organized under the Legal Requirements of Federal Republic of Germany, (b) 600 UK Limited (registered number 144979), a private limited company organized under the Legal Requirements of England and Wales, (c) 600 Machine Tools Pty Ltd. (ACN 000161106), a proprietary company organized under the Legal Requirements of Australia, and (d) Clausing Industrial, Inc., a Delaware corporation.

The price agreed for the transaction was $21m. While the contract was signed in early March 2022, the completion date and collection of funds happened on 8 and 11 April 2022. The agreement included two escrow accounts of which the Retention escrow of $0.15m remains outstanding. The working capital escrow was repaid during the period to 30 September 2022 and an additional amount in respect of settlement of the agreed working capital adjustment is due to the Group within the next few weeks of $650,000.

With the contract signed before 31 March 2022 and the deal closing after this date, the accounts to 31 March 2022 reflected the profitability of the Machine Tool Division as "discontinued operations". The 600 Group consolidated balance sheet at 31 March 2022 reflected the entities to be sold as "Assets held for sale" and "liabilities held for sale". The sale of this division has been recognized in these financial statements to 30 September 2022 with a profit of $886,000 after associated costs in adjusting items profit on discontinued operations. There is no trading activity for the Machine Tools Division in the current period as the sale agreement was effective as at 31 march 2022.

There was no adjustment for impairment to the value of the assets transferred to held for sale in the year ended 31 March 2022.

As noted in this report, with the proceeds of the sale, all debt of the 600 Group was repaid on 11 April 2022. After paying the loan notes, the HSBC loans in the UK and all remaining loans with Bank of America in the US, the Group continues to benefit from a revolving credit line of $7.5m with Bank of America.