3 Aug 2010 07:01
PRELIMINARY RESULTS 2010
The 600 Group PLC, ("600 Group", the "Company" or the "Group"), the diversified engineering group servicing international markets, announces its preliminary results for the 53 week period ended 3 April 2010.
Financials:
·; Revenue of £45.4m (2009: £76.2m)
·; Loss from operations, before restructuring costs, costs in relation to closed operations, net pension credit and impairment of intangible assets, reduced to £1.1m (2009: loss of £2.2m)
·; Overall loss before tax from continuing operations of £8.7m (2009: loss of £8.0m)
·; Costs in relation to closed operations and restructuring of £5.4m (2009: £5.7m) with a cash cost of £1.9m (2009: £3.0m)
·; Basic loss per share from continuing operations of 15.2p (2009: loss per share of 13.3p)
Key points:
·; Returned to operating profit, before exceptionals, in H2 of £0.6m (2009: operating loss £2.5m)
·; Gross margin improved significantly to 32% (2009: 27%)
·; Annualised overhead cost savings achieved to date - £13.1m (comparing H1 2008-09 to H2 2009-10)
·; Oxford Economics Group forecasts predict significant upturn within Machine Tools markets in 2011
·; Proposed shareholder loan of £2.5m to support further development of the Group
·; Well positioned to capitalise on recovery in the Group's markets
David Norman, Chief Executive of 600 Group, said: "I am pleased to report that the turnaround of the Group is almost complete. The improvement in orders we experienced in the second half has been sustained post year end and we expect this to continue. With the proposed funding in place, the Group will develop its manufacturing footprint to increase capacity and, therefore, improve its ability to supply. This, combined with the predicted upturn in the Machine Tools market, leaves us well placed to deliver a significant improvement in performance."
| For further information, please contact: |
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| The 600 Group PLC | Tel: 01924 415 000 |
| David Norman, Chief Executive |
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| Martyn Wakeman, Finance Director |
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| Rawlings Financial PR Limited | Tel: 01653 618 016 |
| Catriona Valentine |
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| Keeley Clarke |
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| Evolution Securities Limited | Tel: 0113 243 1619 |
| Joanne Lake |
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| Peter Steel |
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Company Description
The 600 Group PLC ("the Group") is a diversified engineering group with four principal areas of activity:
Machine Tools (41% of sales) - the business has a strong reputation in the market for metal turning machines. Products range from small conventional machines for education markets, CNC workshop machines and CNC production machines. The European manufacturing footprint is supported by selected outsourcing partners and machines are marketed through the Group's wholly owned international sales organisation.
Precision Engineered Components (26% of sales) - machine spares are distributed to customers globally to help maintain the installed base of group machines which number in excess of 100,000. Additionally work holding products and roller taper bearings are sold via specialist distributors to OEMs including other machine builders.
Laser Marking (15% of sales) - laser marking is a technologically superior alternative to ink jet marking. It requires no consumables and can operate on a continuous high speed basis when integrated into customers' production lines. The business has its own technology and proprietary software. Customer applications are diverse and range from telecommunications to pharmaceuticals. The requirement for increased product and component traceability is one of the market drivers.
Mechanical Handling and Waste Management (18% of sales) - the business sells equipment into Sub Saharan African markets from its three locations in South Africa. Improvements to municipal infrastructures, mineral extraction and electrification are significant drivers for this business. Distribution of world class brands is supported by wholly owned workshop and factory facilities.
CHAIRMAN'S STATEMENT
Overview
The Group continued to be affected by the global economic environment but we responded robustly, completing a strategic review and implementing a successful turnaround programme to reduce our cost base and improve the efficiency of our operations. We are now in a strong position to take advantage of the early signs of recovery in our markets.
Financial Highlights
Although the second half of the year showed a relatively better performance, overall revenue for the year reduced by 40% to £45.4m (2009: £76.2m) as we selectively withdrew from low margin activities.
Full year gross margin improved significantly to 32% (2009: 27%), as a result of cost savings and the elimination of low margin product lines. Net operating expenses reduced by £8.5m to £21.4m (2009: £29.9m), including restructuring costs of £4.5m (2009: £5.2m) and goodwill impairment of £1.1m (2009: nil).
The Group loss from operations before restructuring costs, costs in relation to closed operations, net pension credit, impairment of intangible assets and tax for the full year was £1.1m (2009: £2.2m). We are pleased to report, however, an operating profit in the second half of the year of £0.6m (2009: operating loss of £2.5m).
After a UK Pension Scheme charge of £1.9m (2009: net income £0.3m), one off restructuring costs of £5.4m (2009: £5.2m), net pension credit of £0.9m and a non-cash charge for the impairment of goodwill of £1.1m, the Group loss before tax was £8.7m (2009: loss before tax £8.0m).
Financing
The Group's historic low levels of borrowing have allowed us to successfully fund our turnaround strategy through a modest increase in gearing. At the year end, net borrowings were £4.3m (2009: £1.5m). The Group has bank facilities of £6.3m and the Board believes that this is sufficient for the Group's ongoing requirements, although additional funding of £2.5m is now being sought to support further development within the Group.
The Board intends to invest in the Group's manufacturing base with the aim of shortening lead times for critical products and reducing supply chain costs and has negotiated a £2.5m loan with warrants to fund these investments. Details of this transaction, which requires shareholder approval at a forthcoming General Meeting, have been announced earlier today and the full Circular is also being posted to shareholders today. Both these documents are available on the Company's website www.600group.com.
In accordance with FRC guidelines, the Board has assessed the Group's funding and liquidity position and concluded that the going concern basis for the preparation of its accounts continues to be appropriate.
Dividend
As previously stated, any future dividend payments will be dependent upon the Group's results. Accordingly, the Board does not recommend the payment of a dividend at this time.
Strategy
The Group has now been positioned as a diversified engineering company with four principal areas of activity - Machine Tools, Precision Engineered Components, Laser Marking and Mechanical Handling and Waste Management - and a global distribution capability. The Board's strategy is to build the business around the Group's core strengths in its traditional markets, exploiting the streamlined business platform which has been developed through the turnaround programme.
Our focus in the forthcoming year is to build on the strong brands which the Group has in these four key areas of operation. We shall increasingly source our manufacturing requirements in Europe retaining our Asian outsourcing partners in a supporting role, with the aim of improving lead times and reducing our supply chain costs and working capital requirements.
We believe this strategy will allow us to respond to new business opportunities in a rapid and efficient manner whilst being closer to our traditional markets.
Outlook
Although we remain cautious in our outlook, there are clear indications of improvements in the Group's four core business markets and this is reflected in the more recent levels of order intake. In the first quarter of the current financial year, our order intake increased by 31% compared with the previous year and the Group's order book is currently 16% higher than at the end of the corresponding period in 2009.
We now need to increase our capacity to supply and reduce our delivery lead times to take full advantage of this improvement in demand. It is our intention to progress these and other associated initiatives with funding from the proposed £2.5m loan with warrants. With these elements in place, the Board is confident that significant progress will be made as our markets recover.
Martin Temple CBE
Chairman
3 August 2010
GROUP CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
The challenging market environment, to which I referred in last year's Annual Report, continued into 2009/10 with conditions in some parts of the business worsening in the first half as the order book reduced. In the second half of the year, however, there was a modest improvement in all our markets particularly with regard to Machine Tools in North America and Laser Marking.
Background to the Results
In my first full year, the priority was to complete the turnaround as rapidly as possible and leave the Group well positioned to develop organically as markets began to recover. However, in light of the worsening trading conditions at the start of the financial year, it was clear that another significant and rapid phase of restructuring was required in order to reduce further the breakeven point of the Group.
The business area most impacted by these prevailing market conditions was Machine Tools, which showed a calendar year on year deterioration of 51% and 44% in the US and Europe respectively. Additionally, an increasingly difficult lending environment, combined with some adverse currency movements, led us to discontinue activities which would otherwise have consumed cash for a low return and residual warranty risks. These activities were non-core and promoted our suppliers' brands, which required significant overhead and produced little compensating margin. The combination of discontinued activities and difficult market conditions reduced revenue from £76m to £45m. The previous year's sales also included a large, low margin, aerospace contract. I am pleased to report that, as a result, gross margin was improved significantly from 27% to 32% year on year. Exceptional costs in relation to restructuring and asset impairment charges were £5.4m and £1.1m respectively with the cash element within restructuring being principally required for redundancy payments.
In addition to the margin improvements, net operating expenses on a year on year basis were lowered by £8.5m. Some of the cost savings only impacted the latter part of the year; a comparison of the second half of 2009/10 with the first half of the prior year shows an annualised reduction of £13.1m in total overheads from £32.5m to £19.4m. This is in addition to the direct labour savings and margin improvements. The loss in the year was £1.1m, compared to £2.2m in the previous year. I am pleased to report, however, that the Group traded profitably throughout most of the second half of the year.
As working capital continued to reduce during the year, particularly with regard to inventory, it became more difficult to generate internally the cash required to absorb the earlier operating losses and ongoing restructuring costs, whilst also responding to working capital demands as markets began to recover.
The Group remains relatively underleveraged in relation to its underlying assets. Nevertheless, to move forward, the Board believes that additional finance should be raised over and above our normal banking facilities. Haddeo Partners LLP, which acquired a 28.18% stake in the Group in March 2010, and certain other lenders are prepared to advance £2.5m to the Group, which will also involve the issue of 12,500,000 warrants at an exercise price of 20p. Details of this transaction, which requires shareholder approval at a forthcoming General Meeting, have been announced earlier today and the full Circular is also being posted to shareholders today. The availability of increased finance will enable us to fund the growth of the business as markets recover, complete the final stages of the turnaround and develop our manufacturing footprint in Europe.
The Group
The Group is now positioned as a diversified engineering group with four principal areas of activity. Our website and all future communications to both customers and shareholders will reinforce this message. The four areas and their related percentage of Group revenues are:
Machine Tools (41%)
·; Focused on development of Group brands, including Colchester-Harrison, Pratt Burnerd International ("PBI"), Crawford Collets and Gamet Bearings
·; Oxford Economics Group forecast predicts significant upturn in 2011
·; Group holds strong position in conventional and workshop CNC machines
Precision Engineered Components (26%)
·; High precision bearings and work holding equipment
·; Spares sales generated from an installed base of 100,000 machines
Laser Marking (15%)
·; Proprietary technology and software
·; Diversity of customers from pharmaceutical to telecommunications
·; High growth market - increased requirement for traceability of products and components
Mechanical Handling and Waste Management (18%)
·; Positive forecasts from the International Monetary Fund for South Africa
·; Increased spending on infrastructure by municipalities
·; Electrification of areas previously without power
Turnaround
The vast majority of the restructuring is now complete. In the last 18 months, the Group has reduced the number of its locations from 29 to 12 and many legacy issues have been resolved. Reporting entities have also been reduced in the same period. The managers of these businesses have shown good leadership, driving through the necessary changes and associated transition projects.
Supply Chain
During the year, our Machine Tools division completed the change from a dependence on outsourcing in China to other proven sources in Asia. Full supply became available in the summer and we have been able to commence the rebuilding of customer confidence with regard to machine quality. Warranty costs in the year have been minimal. Nevertheless, given the new economic landscape, we are unable to ignore the costs of financing Asian supply chains, for Europe in particular, when cash is a scarce resource. This issue, combined with some exchange rate volatility in relation to Asian and European currencies, has persuaded us to further de-risk our current arrangements.
Over the last 18 months, we have had meetings with potential manufacturing partners in Central and Eastern Europe ("CEE"). We believe that certain CEE based manufacturing businesses are logistically very well positioned, given EU membership, and possess the necessary operational capabilities. Our aim is to work with a manufacturing partner in CEE to combine production with the manufacture of certain critical components in the UK to give a manufacturing footprint located in the same geography as our European customers. We are particularly looking for a partner who will accept a degree of management control with the further prospect of the Group acquiring a subsequent financial interest.
The Machine Tools division will continue to move towards a business model based on this European manufacturing footprint, supported by Asian outsource partners, which delivers product under our own brands to customers via our international sales organisation.
Markets
Machine Tools
During the year, the market for Machine Tools continued to be affected by the global economic environment. Difficulties within the automotive sector affected sales of production CNC machines, although there was a partial compensating impact from the increased sales of conventional (non CNC) machines into the education sector.
During the second half of the year, clear signs of recovery were visible in the US and modest indicators were identified in the UK, which translated through into the order book. Germany remained a difficult market with many customers on short time production, which was not surprising given the importance of the automotive industry to the German economy. Demand for workshop CNC machines began to recover during the latter part of the year.
Looking further ahead, the most recent forecast from the Oxford Economics Group has considered the principal economic factors for the global machine tools industry and, whilst a small decline is predicted for 2010, there is a significant positive trend forecast from 2011 onwards.
Precision Engineered Components
Spares began to recover during the second half of the year in all territories, as manufacturing capacity utilisation began to slowly increase. Work holding product sales declined, particularly in the US where some de-stocking took place. Sales in this business area will follow the recovery in machine sales. Bearing sales were one of the last areas to decline as machine builders were reluctant to cancel orders for such critical components.
Laser Marking
Electrox was affected by a deferral of projects in the US in the early part of the year. The UK was also subdued due to lack of customer finance and general uncertainty. In Germany, our market share continued to increase and initial inroads were also made in the French market.
With regard to products and technology, the Raptor range, which uses proprietary technology and software, continued to increase its market share, enabling the manufacturing focus to switch to increased modularity with less dependence on bespoke solutions. Marking products on a continuous production basis at high speed became a feature of the development work during the year with customers requiring higher cycle times. Electrox is now able to match or exceed the cycle times of many integrated production lines which require this facility.
Work has started on the next generation of operating software for all Laser Marking units, in addition to a number of product enhancements which are in the development pipeline.
Mechanical and Waste Handling
There was a reduction in activity during the middle part of the year with most South African municipalities having implemented infrastructure projects well in advance of the World Cup. Private construction activity also remained at a low level. A great deal of work has gone in to establishing a relationship with Eskom, the state owned electricity utility, and prospects appear to be good for the recently launched range of aerial platforms which are imported from the U.S. There should also be some benefits accruing from the recovery in the world market for minerals which should result in increased demand for equipment.
Economic growth in 2010 is forecast by the IMF to recover gradually to 2.4% with a further improvement to 3.3% in 2011.
Operations
As mentioned earlier, a second phase of restructuring was necessitated when it became clear at the start of the year that market conditions, particularly in Europe, were worse than anticipated. A number of transition projects were implemented in order to bring down the cost structure and improve performance including the following:
Europe
·; The PBI factory in Halifax was closed and moved to Heckmondwike
·; Externally sourced work holding products were re-engineered for production in Heckmondwike's enlarged machining facility, increasing utilisation of our state-of-the-art equipment
·; A partial transfer of bearing production from Colchester to Heckmondwike was effected and overheads reduced
·; At Electrox, changes were made at senior management level and the business was restructured to return it to profit
·; In Germany, following falling sales of third party products, we have transferred this business into our UK-based European sales organisation, which is focusing on the supply of Group products.
North America
·; The Electrox facility in Indianapolis, providing spares, service and back office functions, has been transferred to Clausing
·; The Web based ordering system for machine tool spares is now operational
Australia
·; The unit in Melbourne has been closed and absorbed into the branch in Sydney, which has been transferred into a lower cost location
South Africa
·; A management change took place in the third quarter and subsequently the breakeven point for the business was reduced following improvements in the factory and workshop in Johannesburg
Corporate Social Responsibility
The Group takes its responsibilities seriously towards all its stakeholders, including its employees, the community and the environment. This has been another difficult year for many of our employees and those that remain with the Group have regrettably had to work within a very uncertain economic environment for much of the year. Most employees at some time during the year have worked reduced hours in order to support their businesses through periods of lower demand. I would like to thank them for the sacrifices which they have made.
It is our intention during the new financial year to implement both OHSAS18001 and ISO14001 being the international standards for health and safety and the environment respectively. Subject to progress in Heckmondwike, our largest UK site, these standards will be considered for other locations where appropriate.
Outlook
There is still work to do in finalising the shape of the Machine Tools business within Europe and the US; this will, however, be minimal when compared to the two main phases of the turnaround which took place in the second half of 2008/9 and the first half of 2009/10. One area of caution must be with regard to the current European austerity measures which could have some impact on public sector demand. Whatever the future holds, the cost structure we have created within the Group means that we are better able to withstand any unexpected downturn in demand.
The main focus in 2010 will be the development of a stronger supply chain and in particular the European manufacturing footprint, so that a robust platform is in place to deliver product in line with the expected improvements in our principal markets.
I believe that the progress in North America and within the Laser Marking business is encouraging and combined with the recent Oxford Economic forecast for machine tools; there is reason to expect further recovery, particularly in Europe, as we move into 2011.
David Norman
Group Chief Executive
3 August 2010
AUDITED CONSOLIDATED INCOME STATEMENT
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| 53 week period ended 3 April 2010 | 52 week period ended 28 March 2009 |
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| £000 | £000 |
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| Revenue | 45,376 | 76,211 |
| Cost of sales | (30,933) | (55,301) |
| Gross profit | 14,443 | 20,910 |
| Other operating income | 176 | 727 |
| Other operating expenses
| (21,393) | (29,920) |
| Loss from operations before restructuring costs, costs in relation to closed operations, net pension credit and impairment of intangible assets |
(1,081) |
(2,206) |
| Restructuring costs | (5,401) | (5,184) |
| Costs in relation to closed operations | - | (475) |
| Credit in respect of past service pension liabilities net of curtailment costs |
897 |
- |
| Charge for share-based payments | (67) | (24) |
| Impairment of intangible assets | (1,122) | (394) |
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| Loss from operations | (6,774) | (8,283) |
| Financial income | 8,607 | 10,723 |
| Financial expense | (10,541) | (10,429) |
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| Loss before tax | (8,708) | (7,989) |
| Income tax (charge)/credit | (8) | 419 |
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| Loss for the period from continuing operations | (8,716) | (7,570) |
| Post tax loss of discontinued operations | (798) | (1,288) |
| Total loss for the period | (9,514) | (8,858) |
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| Attributable to: |
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| Equity holders of the parent | (9,423) | (8,888) |
| Minority interest | (91) | 30 |
| Loss for the period | (9,514) | (8,858) |
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| Basic loss per share |
|
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| - continuing operations | (15.2)p | (13.3)p |
| - total | (16.6)p | (15.5)p |
| Diluted loss per share |
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|
| - continuing operations | (15.2)p | (13.3)p |
| - total | (16.6)p | (15.5)p |
AUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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| 53 week period ended 3 April 2010 | 52 week period ended 28 March 2009 |
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| £000 | £000 |
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| Loss for the period | (9,514) | (8,858) |
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| Other comprehensive income: |
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| Foreign exchange translation differences | 716 | 1,164 |
| Net actuarial losses on employee benefit schemes | (3,109) | (24,430) |
| Impact of changes to defined benefit asset limit | 3,070 | 23,930 |
| Impairment of property through revaluation reserve | (1,019) | (151) |
| Revaluation of properties | 418 | - |
| Other comprehensive income for the period net of income tax |
76 |
513 |
| Total comprehensive expense for the period | (9,438) | (8,345) |
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| Attributable to: |
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| Equity holders of the parent | (9,545) | (8,451) |
| Minority interest | 107 | 106 |
| Total | (9,438) | (8,345) |
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AUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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| At 3 April 2010 | At 28 March 2009 |
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| £000 | £000 |
| Non-current assets |
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| Property, plant and equipment | 9,996 | 10,832 |
| Intangible assets | 1,457 | 2,868 |
| Deferred tax assets | 2,294 | 1,268 |
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| 13,747 | 14,968 |
| Current assets |
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| Inventories | 19,393 | 24,644 |
| Trade and other receivables | 9,499 | 11,512 |
| Cash and cash equivalents | 823 | 552 |
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| 29,715 | 36,708 |
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| Total assets | 43,462 | 51,676 |
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| Non-current liabilities |
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| Employee benefits | (4,137) | (3,829) |
| Deferred tax liabilities | (1,735) | (709) |
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| (5,872) | (4,538) |
| Current liabilities |
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| Trade and other payables | (11,435) | (14,716) |
| Income tax payable | (114) | (77) |
| Provisions | (229) | (294) |
| Loans and other borrowings | (5,151) | (2,019) |
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| (16,929) | (17,106) |
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| Total liabilities | (22,801) | (21,644) |
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| Net assets | 20,661 | 30,032 |
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| Shareholders' equity |
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| Called-up share capital | 14,308 | 14,308 |
| Share premium account | 13,766 | 13,766 |
| Revaluation reserve | 1,433 | 1,969 |
| Capital redemption reserve | 2,500 | 2,500 |
| Translation reserve | 1,570 | 1,117 |
| Retained earnings | (13,550) | (4,155) |
| Total equity attributable to equity holders of the parent | 20,027 | 29,505 |
| Minority interest | 634 | 527 |
| Total equity | 20,661 | 30,032 |
AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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| Ordinary | Share |
| Capital |
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| Share | premium | Revaluation | redemption | Translation | Retained |
| Minority | Total | |||||||||
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| capital | account | reserve | reserve1 | reserve | earnings | Total | Interest2 | equity | |||||||||
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
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| At 29 March 2008 | 14,308 | 13,766 | 2,765 | 2,500 | 113 | 4,480 | 37,932 | 421 | 38,353 |
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| (Loss)/profit for the period | - | - | - | - | - | (8,888) | (8,888) | 30 | (8,858) |
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| Other comprehensive income: |
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| Foreign currency translation | - | - | 84 | - | 1,004 | - | 1,088 | 76 | 1,164 | |||||||||
| Reserve transfer on disposal of property | - | - | (729) | - | - | 729 | - | - | - | |||||||||
| Impairment of property through revaluation reserve | - | - | (151) | - | - | - | (151) | - | (151) | |||||||||
| Net actuarial losses on employee benefit schemes | - | - | - | - | - | (24,430) | (24,430) | - | (24,430) | |||||||||
| Impact of changes to defined benefit asset limit | - | - | - | - | - | 23,930 | 23,930 | - | 23,930 |
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| Total comprehensive income | - | - | (796) | - | 1,004 | (8,659) | (8,451) | 106 | (8,345) |
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| Transactions with owners: |
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| ||||||||
| Credit for share-based payments | - | - | - | - | - | 24 | 24 | - | 24 |
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| At 28 March 2009 | 14,308 | 13,766 | 1,969 | 2,500 | 1,117 | (4,155) | 29,505 | 527 | 30,032 |
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| At 29 March 2009 | 14,308 | 13,766 | 1,969 | 2,500 | 1,117 | (4,155) | 29,505 | 527 | 30,032 |
| ||||||||
| Loss for the period | - | - | - | - | - | (9,423) | (9,423) | (91) | (9,514) |
| ||||||||
| Other comprehensive income: |
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|
|
|
|
|
|
| |||||||||
| Foreign currency translation | - | - | 131 | - | 453 | - | 584 | 132 | 716 | |||||||||
| Revaluation of property | - | - | 418 | - | - | - | 418 | - | 418 | |||||||||
| Impairment of property through revaluation reserve | - | - | (1,019) | - | - | - | (1,019) | - | (1,019) | |||||||||
| Minority share of property revaluation | - | - | (66) | - | - | - | (66) | 66 | - | |||||||||
| Net actuarial losses on employee benefit schemes | - | - | - | - | - | (3,109) | (3,109) | - | (3,109) | |||||||||
| Impact of changes to defined benefit asset limit | - | - | - | - | - | 3,070 | 3,070 | - | 3,070 |
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| Total comprehensive income | - | - | (536) | - | 453 | (9,462) | (9,545) | 107 | (9,438) |
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| Transactions with owners: |
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|
|
|
|
|
|
|
| ||||||||
| Credit for share-based payments | - | - | - | - | - | 67 | 67 | - | 67 |
| ||||||||
| At 3 April 2010 | 14,308 | 13,766 | 1,433 | 2,500 | 1,570 | (13,550) | 20,027 | 634 | 20,661 |
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1 The capital redemption reserve was set up on cancellation and repayment of cumulative preference shares in 2001.
2 The minority interest relates to the 25.1% in 600SA Holdings (Pty) Limited acquired by a South African individual on 3 April 2005 as explained in our Annual Report and Accounts for 2005.
AUDITED CONSOLIDATED CASH FLOW STATEMENT
|
| 53 week period ended 3 April 2010 | 52 week period ended 28 March 2009 |
|
| £000 | £000 |
| Cash flows from operating activities |
|
|
| Loss for the period | (9,514) | (8,858) |
| Adjustments for: |
|
|
| Amortisation of development expenditure | 528 | 549 |
| Depreciation | 974 | 1,267 |
| Impairment of goodwill | 1,122 | 394 |
| Net financial expense/(income) | 1,934 | (294) |
| Profit on disposal of plant and equipment | (14) | (226) |
| Equity share option expense | 67 | 24 |
| Income tax expense/(income) | 8 | (419) |
| Operating cash flow before changes in working capital and provisions |
(4,895) | (7,563) |
| Decrease in trade and other receivables | 2,166 | 9,278 |
| Decrease in inventories | 5,714 | 2,436 |
| Decrease in trade and other payables | (3,597) | (8,977) |
| Decrease in employee benefits | (1,076) | (188) |
| Cash used in operations | (1,688) | (5,014) |
| Interest paid | (454) | (306) |
| Income tax received/(paid) | 24 | (24) |
| Net cash flows from operating activities | (2,118) | (5,344) |
|
|
|
|
| Cash flows from investing activities |
|
|
| Interest received | 22 | 82 |
| Proceeds from sale of property, plant and equipment | 128 | 2,106 |
| Purchase of property, plant and equipment | (576) | (1,131) |
| Development expenditure capitalised | (239) | (724) |
| Net cash flows from investing activities | (665) | 333 |
|
|
|
|
| Cash flows from financing activities |
|
|
| Proceeds from external borrowing | 555 | 254 |
| Net cash flows from financing activities | 555 | 254 |
|
|
|
|
| Net decrease in cash and cash equivalents | (2,228) | (4,757) |
| Cash and cash equivalents at the beginning of the period | (1,075) | 3,297 |
| Effect of exchange rate fluctuations on cash held | (68) | 385 |
|
Cash and cash equivalents at the end of the period |
(3,371) | (1,075) |
NOTES
1. Basis of preparation
The 600 Group PLC is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Stock Exchange.
The Group consolidated financial statements incorporate accounts, prepared to the Saturday nearest to the Group's accounting reference date of 31 March, of the Company and its subsidiary undertakings (together referred to as the Group). The results for 2010 are for the 53 week period ended 3 April 2010. The results for 2009 are for the 52 week period ended 28 March 2009. The Parent Company financial statements present information about the Company as a separate entity and not about its Group.
The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and International Financial Reporting Interpretation Committee (IFRIC) interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS.
IFRS and IFRIC are issued by the International Accounting Standards Board (the IASB) and must be adopted into European Union law, referred to as endorsement, before they become mandatory under the IAS Regulation.
The following IFRSs, IFRIC interpretations and amendments are adopted in the financial statements for the first time in this financial period:
¾ IFRS 2 - 'Share-based payment: Vesting conditions and cancellation'. This is an amendment to IFRS 2 which clarifies the term "vesting conditions" and provides the accounting treatment for non-vesting conditions and cancellations. This has been implemented by the Group but has had no impact on the results or assets of the Group.
¾ IFRS 8 - 'Operating Segments' replaces IAS 14 - 'Segmental Reporting' and requires operating segments to be disclosed on the same basis as that used for internal reporting. It has been implemented by the Group from 29 March 2009 and has had no impact on the results or net assets of the Group but has resulted in revised disclosures.
¾ IAS 1 (Revised) - 'Presentation of Financial Statements' is effective for the year ended 3 April 2010. The standard requires a change in the format and presentation of the Group's primary statements but has had no impact on reported results or equity.
¾ IFRS 7 - 'Finance Instruments - Disclosures' (amendment) is effective for the year ended 3 April 2010. The amendment requires enhanced disclosures about fair value measurement and liquidity risk.
¾ Amendments to IAS 23 - 'Borrowing Costs' removes the option of immediately expensing borrowing costs that are directly attributable to a qualifying asset and requires such costs to be capitalised. It has been adopted by the Group from 29 March 2009 and has had no impact on the results or net assets of the Group.
The following IFRSs, IFRIC interpretations and amendments have been issued but are not yet effective and have not been adopted early by the Group:
¾ IFRS 3 (Revised) - 'Business Combinations' was issued in January 2008. It will affect the accounting for any acquisitions made by the Group after March 2010. Acquisitions made prior to that date will not be affected.
¾ IFRIC 17 - 'Distributions of Non-Cash Assets to Owners' was issued in November 2008. It is effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the Group as it has not made any non-cash distributions.
¾ IFRIC 18 - 'Transfers of Assets from Customers' was issued in January 2009. It is effective for transfer of assets received on or after 1 July 2009. This is not relevant for the Group as it has not received any assets from customers.
There have been no further alterations made to the accounting policies as a result of considering all amendments to IFRS and IFRIC interpretations that became effective during the accounting period as these were considered to be immaterial to the Group's operations or were not relevant.
There are a number of standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. The following have not been adopted by the Group:
|
| Effective for accounting periods |
|
| starting on or after: |
| International Financial Reporting Standards: |
|
| IAS 27 Consolidated and separate financial statements | 1 July 2009 |
| IFRS 9 'Financial Instruments' | 1 January 2013 |
The application of these standards and interpretations are not anticipated to have a material effect on the Group's financial statements except for additional disclosure.
The preparation of financial statements in conformity with adopted IFRS require management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
2. Going Concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement and the Group Chief Executive's review of operations.
The Group meets its day to day working capital requirements through overdraft facilities which are due for renewal on various dates. The facilities in place are as follows and are subject to normal covenant arrangements:
UK - £3.0m facility, signed on 6 July 2010 and due for renewal on 24 May 2011.
US - £1.2m facility, signed on 7 December 2009 with no specific renewal date.
South Africa - £1.5m facility signed on 15 September 2009 for a period of 12 months.
Australia - £0.8m loan taken out on 24 November 2009 for a period of 12 months.
The Group has met the relevant performance covenants during the year.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. This includes consideration of working capital requirements and the impact of funding any further reorganisation costs. Further cost saving and result enhancing actions continue to be reviewed by the Board on a regular basis. The Group has issued a circular to shareholders as at the date of this announcement, seeking approval for a loan of £2.5m. Whilst the Directors believe that the Group can operate within the level of its existing facilities, this loan is viewed as offering an important opportunity to further develop the Group.
The Group will open facility renewal negotiations with the banks in due course and has, at this stage, not sought any written commitment that the facilities will be renewed. However, the Group has held discussions with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewals may not be forthcoming on acceptable terms. The Group also considers that alternative sources of finance would be available should the need arise.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
3. Other operating income/operating expenses
|
| 2010 £000
| 2009 £000 |
| Other operating income | 176 | 727 |
|
Operating expenses: |
|
|
| Administration expenses | 17,213 | 22,283 |
| Distribution costs | 4,180 | 7,637 |
| Total operating expenses | 21,393 | 29,920 |
No amounts are included within other operating income in the current year in respect of profit on disposal of properties (2009: £254,000).
4. Restructuring costs, costs in relation to closed operations, net pension credit and impairment of intangible assets
Restructuring costs and costs in relation to closed operations are items of expenditure that, in the judgement of management, should be disclosed separately on the basis that they are material, either by their nature or their size, to an understanding of the financial performance and significantly distort the comparability of financial performance between accounting periods.
Items of expense that are considered by management for designation as restructuring costs include such items as redundancy costs, plant, property and equipment impairments, inventory impairments, receivable impairments and onerous lease costs.
|
| 2010 £000 | 2009 £000 |
| Cost of sales: |
|
|
| Inventory impairments (i) | 1,209 | 1,808 |
| Asset impairments (ii) | 38 | 138 |
| Operating expenses: |
|
|
| Other restructuring costs (iii) | 4,154 | 3,238 |
| Restructuring costs | 5,401 | 5,184 |
i. At 3 April 2010, the Group conducted a review of the net realisable value of its inventory carrying values following a review of the Group strategy and operations. This has resulted in a charge of £1.2m. The charge has followed a strategic restructuring of certain of the Group operations.
ii. At 3 April 2010, a review of the carrying value of property, plant and equipment was undertaken following the decision to exit certain production facilities. This has resulted in a charge of £0.03m.
iii. At 3 April 2010, the Group had incurred £4.2m in relation to reorganising and restructuring the business. These costs comprise staff redundancy and contract severance costs, costs relating to exiting leased premises and certain warranty costs.
The cash cost of the restructuring in 2010 was £1.9m (2009: £3.0m).
During the period, a credit of £1.2m (2009: £nil) arose in respect of past pension service costs as a result of an amendment to the benefits arising under the Group's US healthcare plan. Additionally a charge of £0.3m (2009: £nil) arose in respect of curtailment costs incurred under the Group's UK pension plan.
Also, at 3 April 2010, a review of the carrying value of intangible assets was conducted and the goodwill relating to the PARAT operation in Germany and the Gamet operation in the UK was found to be impaired. A charge of £1.2m was recognised in relation to this.
5. Results of the discontinued operations
|
| 2010 £000
| 2009 £000 |
| Revenue | 2,872 | 444 |
| Expenses | (3,670) | (1,732) |
| Loss from discontinued operations | (798) | (1,288) |
The discontinued operations relate to the closure of operations in Germany. The discontinued operations in 2009 also include final closure costs in relation to the Canadian operation.
6. Financial income and expense
|
| 2010 £000
| 2009 £000 |
| Interest income | 22 | 91 |
| Expected return on defined benefit pension scheme assets | 8,585 | 10,632 |
| Financial income | 8,607 | 10,723 |
|
|
|
|
| Interest expense | (454) | (346) |
| Interest on defined benefit pension scheme obligations | (10,087) | (10,083) |
| Financial expense | (10,541) | (10,429) |
7. Earnings per share
The calculation of the basic loss per share of (16.6)p (2009: (15.5)p) is based on the earnings for the financial period attributable to the Parent Company's shareholders of £(9,423,000) (2009: £(8,888,000)) and on the weighted average number of shares in issue during the period of 57,233,679 (2009: 57,233,679). At 3 April 2010, there were 2,404,849 potentially dilutive shares on option and the diluted loss per share was (16.6)p. The basic loss per share for continuing operations is (15.2)p (2009: (13.3)p) and the basic loss per share for discontinued operations is (1.4)p (2009: (2.2)p). The diluted loss per share for continuing operations is (15.2)p (2009: (13.3)p) and the diluted loss per share for discontinued operations is (1.4)p (2009: (2.2)p).
The comparative figures have been restated to take account of the discontinued businesses in the current period.
|
| 2010 | 2009 |
| Weighted average number of shares |
|
|
| Issued shares at start of period | 57,233,679 | 57,207,168 |
| Effect of shares issued in the year | - | 26,511 |
| Weighted average number of shares at end of period | 57,233,679 | 57,233,679 |
8. Cash and cash equivalents
|
| 2010 £000
| 2009 £000 |
| Cash at bank | 673 | 380 |
| Short-term deposits | 150 | 172 |
| Cash and cash equivalents per balance sheet | 823 | 552 |
| Bank overdrafts | (4,194) | (1,627) |
| Cash and cash equivalents per cash flow statement | (3,371) | (1,075) |
9. Reconciliation of net cash flow to net (borrowings)/funds
|
| 2010 | 2009 |
|
| £000
| £000 |
| Decrease in cash and cash equivalents | (2,228) | (4,699) |
| Increase in debt and finance leases | (555) | (254) |
| Increase in net borrowings from cash flows | (2,783) | (4,953) |
| Net (borrowings)/funds at beginning of period | (1,467) | 3,166 |
| Exchange effects on net borrowings | (78) | 320 |
| Net borrowings at end of period | (4,328) | (1,467) |
10. Statutory accounts
The financial information set out above does not constitute the Group's statutory accounts for the 53 week period ended 3 April 2010 or the 52 week period ended 28 March 2009 but is derived from those accounts. Statutory accounts for 52 week period ended 28 March 2009 have been delivered to the Registrar of Companies and those for the 53 week period ended 3 April 2010 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 498(2) or (3) Companies Act 1985 in respect of the financial statements for 2010 nor a statement under section 237(2) or (3) of the Companies Act 1985 in respect of the financial statements for 2009.
11. Cautionary statement
This report contains certain forward looking statements with respect to the financial condition, results, operations and business of The 600 Group PLC. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this report should be construed as a profit forecast.
12. Directors' liability
Neither the Company nor the Directors accept any liability to any person in relation to this report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.
13. Annual report and accounts
The annual report will be posted to all shareholders in due course and will be available on request from the Secretary, The 600 Group PLC, Union Street, Heckmondwike, West Yorkshire, WF16 0HL. The annual report is also available from the Company's website: www.600group.com.