Source - RNS
RNS Number : 6271I
600 Group PLC
01 September 2016
 



The 600 Group PLC

 

Full Year Results for the year ended 2 April 2016

 

 

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 2 April 2016.  

 

The Group has continued to implement structural changes in both its operating divisions to give it a greater opportunity to grow in existing and new markets from a reduced cost base. This included an expanded integration programme for the TYKMA Electrox laser business. In the machine tools sector however market conditions were challenging throughout the year and despite the necessary actions to reduce costs, expand markets in Asia and the improved trading levels achieved in the USA there was a weaker than expected performance in the UK and Europe. 

 

Over 60% of the Group's activities are now conducted in the USA and these businesses are the main profit drivers of the Group. The dollar income from these activities gives a natural hedge against the majority of purchases which are in dollars. In the year 13% of Group sales were to EU countries and the Group is firmly focused on developing new markets outside of this area particularly in South East Asia.

 

 

CORPORATE AND OPERATIONAL HIGHLIGHTS

 

·          Integration of the UK and US laser businesses reduced the overall cost base significantly

·          Manufacturing operations ceased in Letchworth and building sold post year end for £2m

·          David Grimes, CEO of TYKMA became a significant shareholder in the 600 Group following the acquisition of the remaining 20% of TYKMA

·          Clausing brand of machine tools well received in the UK, European and Australian markets

·          Strengthened distribution network in the Australia, Thailand, Vietnam, Malaysia, Singapore and the Philippines

·          US machine tool business continues to increase domestic market share

·          Updated supply agreement signed with Taiwanese machine tool supplier and, agreement signed for manufacture and distribution under licence in India

 

FINANCIAL HIGHLIGHTS

 

·           Profit for period £1.15m (2015: £2.35m)

·           Underlying profit before tax* £1.48m (2015: £2.01m)

·           Earnings per share 1.26p (2015: 2.66p)

·           Underlying earnings per share* of 1.69p (2015: 2.09p)

·           Revenues increased by 3% to £45.3m (2015: £43.8m)

·           Group net operating margin* of 5.2% (2015: 5.6%)

·           Increased UK Banking facilities agreed up to £4.95m.

 

* From continuing activities, before special items

 



 

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

 

"Despite the difficult trading environment which we have experienced this past year we have taken the necessary actions to maintain if not improve the performance of the operating subsidiaries in the USA and UK as well as improve the financial strength of the company. We maintain a strong market position thanks to our industry recognised brands and are taking active steps to increase our worldwide distribution network to accelerate revenue growth. This we expect, coupled with the reduction in overheads, will yield better margins on increased sales in the future."

 

 

 

SUMMARY OF FINANCIAL RESULTS

FY16

  £m

FY15

  £m

 

Revenues

45.27

 

43.79

 

Underlying Operating profit*

2.36

 

  2.46

Bank and other interest

(0.88)

 (0.45)

Underlying Profit before taxation*

1.48

  2.01

Special items (net)

(0.47)

  1.67

Profit before taxation

1.01

  3.68

Taxation credit/(charge)

0.14

 (1.33)

Total profit for the year

1.15

  2.35




Earnings per share

Underlying basis*

Total for the year

 

 

1.69p

1.26p

 

2.09p

2.66p

 

* 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

Sean Wyndham-Quin/ Miriam Greenwood


Cadogan PR Limited (Financial PR)

Tel: 020 7499 5002 / 07771 713608

Alex Walters


FinnCap (Broker)

Tel: 020 7600 1658

Tony Quirke/Mia Gardiner (Sales/Broking)


 

 

 


 

 

Chairman's statement

 

I am pleased to report that we have continued to implement structural changes in both our operating divisions to give the Group a greater opportunity to grow in existing and new markets from a reduced cost base.

 

The financial benefits of these actions began to be evident in the final few months of the 2016 financial year. The improvement in profitability was, however, delayed by a number of factors including the expanded integration programme for the TYKMA Electrox business and the costs associated with staff reductions in the UK. In addition, like many other companies in the sector, we were also affected by the challenging market conditions in the machine tool sector with a much weaker than expected performance in the UK and Europe.

 

The integration of the two laser businesses has reduced their overall cost base significantly and we have achieved further efficiencies by revising the supply chain and closing down the Electrox manufacturing operation in Letchworth, UK. We consolidated the two businesses onto a single site in Ohio, USA and whilst this proved to be more disruptive and expensive than we first envisaged it is now trading satisfactorily under David Grimes, who became a significant shareholder in the 600 Group following the acquisition of the remaining 20% of TYKMA not already owned in late March 2016.

 

The integration of TYKMA and Electrox has given the Industrial lasers division worldwide credibility and initial sales have already been made to a number of multi-national corporations. The joint TYKMA Electrox brand now provides laser solutions across a number of industrial laser applications including marking, engraving and micro-material processing.

 

The performance of our US and Australian machine tool businesses in the period matched their performance of last year which we consider to be quite an achievement considering the difficult state of the markets. However, business conditions in the UK and Europe were very fragile and we took the necessary steps to restructure our activities and reduce our cost base accordingly.

 

I'm pleased to report that following the appointment of Don Haselton as Managing Director for the machine tools division in August 2015 we have had a good initial response in establishing the Clausing brand of machine tools in the UK, European and Australian markets. Additional resources have been put into sales and marketing for the Colchester, Harrison, Clausing, Pratt Burnerd and Gamet brands and we expect to see continuing improvement in market penetration and revenues as a result of these initiatives.

 

Since the start of the new financial year our Australian machine tool business has experienced a significant increase in activity. We have expanded our distribution network in the Australian state of Victoria, along with new distributors in Thailand, Vietnam and Malaysia and strengthened our existing distribution relationships in Singapore and the Philippines. We expect these improvements in Australia and South East Asia to continue throughout the fiscal year.

The UK and European markets continue to be challenged by weak economic growth and depressed commodity prices. We have restructured the production operation to provide resources to strengthen the sales and marketing organization. We have seen improvements in market share for the Colchester and Harrison brands in addition to the introduction of the Clausing brand. We expect these improvements to also continue throughout the current fiscal year.

 

The US market has also been challenged by weak economic growth. The AMT (Association for Manufacturing Technology) reports Manufacturing Technology Orders on a monthly basis. This report shows a decrease in order activity of 17.5% in 2015 with an additional decrease of 16.4% through June 2016. The U.S. Presidential campaign has created further uncertainty. Despite these economic headwinds, the US machine tool business continues to increase market share. Utilisation of contract manufacturing has enabled Clausing to capitalise upon the successful introduction of US built drills with the addition of sawing products. US production of additional product lines is planned for the next few years.

 

We have signed an updated supply agreement with our important Taiwanese machine tool supplier and, in addition, entered into a supply and distribution agreement with an Indian manufacturer for supply of machine tools and manufacture and distribution under licence in India of our branded products. These important initiatives reduce risk, expand our product offering and increase market coverage of our brands.

 

Although it is very early to speculate on the effect that the UK leaving the EU may have in the coming year, we would ask shareholders to consider a number of important factors which we believe reduce the risks for the Group associated with this new trading environment. Over 60% of the Group's activity is currently conducted in the USA and these businesses are the main profit drivers of the Group. Furthermore, the dollar income we receive gives us a natural hedge against the majority of our purchases which are in dollars.

 

In the last year only 13% of Group sales were to EU countries and as I have outlined above we are firmly focused on developing new markets outside of this area particularly in South East Asia. Over 15% of our total revenues are derived from the supply of spares parts and services and this is not dependent on achieving new sales but simply servicing our existing client base. Lastly, the growth of our global industrial laser systems business is largely driven by legislative changes and the requirement for traceability both of which are increasing worldwide irrespective of the situation in the UK.

 

 

Financial Overview

 

Revenue from continuing operations was £45.3m (2015: £43.8m) a 3.4% increase on the previous year.

 

After taking account of interest, taxation, pensions credits and other special items, the Group profit for the financial year was £1.15m (2015: £2.35m).

 

Underlying profit (before special items) amounted to £1.54m (2015: £1.85m) resulting in underlying earnings of 1.69p per share (2015: 2.09p) and total earnings were 1.26p per share (2015: 2.66p).

 

At the end of the financial year, group net indebtedness stood at £13.89m (2015: £10.80m), and gearing was 34% (2015: 31%). In addition to the acquisition of the remaining 20% of TYKMA during the year we have invested in new facilities, products and working capital to support our strategic growth plans. At the end of the year the group had financial headroom on the then existing borrowing facilities of £3.30m and had complied with all financial covenants in place throughout the year.

 

I am pleased to report that following the disposal of the Letchworth premises we restructured our UK banking arrangement and new increased facilities were agreed with HSBC in the UK in August 2016 which will provide more flexible support for the Group going forward.

 

In the USA Bank of America have continued to be very supportive, providing facilities to fund the $1.8m cash element of the TYKMA 20% acquisition and renewal of ongoing working capital facilities for both TYKMA and Clausing.

 

Acquisitions 

 

At the end of March 2016 we acquired the remaining 20% of TYKMA, the US based industrial laser business we had acquired 80% of in February 2015. The consideration for this was satisfied by the issue of 12m shares in the Group and $1.8m in cash. TYKMA has been fully integrated with Electrox, the 600 Group's original laser business, during the current financial year and the combined business now operates under the TYKMA Electrox brand.

 

Facilities

 

In the USA we successfully re-located the Clausing machine tools business to new purpose built leasehold premises in Kalamazoo, Michigan and TYKMA re-located, again to purpose built leasehold premises, in Chillicothe Ohio.  These new sites are better located with excellent road links and significantly improved facilities. To the credit of our management teams and their planning there was no significant impact on trading during the period of the moves. At the beginning of July we completed the sale of our Letchworth long leasehold site for £2.0m, with the much reduced UK laser operation moving to a new leasehold site in Letchworth.

 

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 so important in the last year and I look forward to working with them again in the coming year.

 

          Dividends

 

The Board continues to believe that the retention of earnings for deployment in the business is the most appropriate use of available financial resources. Accordingly they do not recommend the payment of a dividend at the present time.

 

Outlook

 

Trading in the period since the FY16 financial year end has been in line with the Board's expectations. The 600 Group is in the process of leveraging our industry recognised brands through an increased worldwide distribution network to accelerate revenue growth. We expect that the actions taken to reduce overheads and become more efficient will yield better margins on increased sales in the future.

 

 

Paul Dupee

Chairman

31 August 2016

 

 

 


Strategic report

 

Our business

 

The 600 Group PLC ("the Group") is a leading engineering group with a world class reputation in the design and distribution of machine tools, the design and manufacture of 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 180 countries worldwide.

 

During the 53 week period ended 2 April 2016 31% of revenues came from the sale of metal turning machine tools, with a further 17% from other machine tools and 11% from the sale of precision engineered components. Sales of Industrial laser equipment amounted to 26% with the remaining 15% 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 established distributors in many countries and territories.  In the year ended 2 April 2016 the top 20 customers, of which 17 were distributors, contributed less than 26% of revenues.

By geographical territory of destination

Revenues are generated across many diverse geographical territories, with the principal markets in:

Percentage of worldwide revenues (by destination)

2016

%

           

2015

%

United States of America

60

55

United Kingdom

19

18

Europe (excluding UK)

13

16

Rest of the World

8

11

Total

100

100

 

 

Macroeconomic and industry trends

 

Machine tools and precision engineered components

 

The worldwide machine tool industry is estimated at over $70bn in annual sales and is determined 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.

 

Gardner Research identified the largest five producer countries of machine tools to be China, Germany, Japan, South Korea and Italy with the largest five countries ranked by consumption as China, USA, Germany, Japan and South Korea.

 

The global consumption of machine tools was reported as being negative at 10.3% in the latest Oxford Economics data for the year to December 2015 against a relatively flat 2014. In our most important markets USA was -15.6%, Germany -11.9% and UK -8.3%.

 

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 is reported to be $3.3bn and growing between 4% and 6% each year. The laser marking and micro-materials subset of the overall laser industry continues to grow due to enhanced techniques in the speed, cost and quality of the systems being implemented and legislative changes driving a requirement for greater traceability.

 

Results

Machine tools and precision engineered components

This division operates from Heckmondwike in the UK, Kalamazoo Michigan in the USA, and Sydney and Brisbane in Australia. It designs and develops metal processing machine tools sold under the brand names Colchester, Harrison and Clausing and designs and manufactures precision engineering components under the brand names Pratt Burnerd and Gamet. There is also a spares, accessories and service operation to 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 in North America, Europe, and Australia and a network of distributors in all other key end-user markets.

The financial results of these activities, before special items, were as follows:


   2016

 

   £'000

   2015

 

   £'000

    Revenues

  32,127

  34,747

    Operating profit

    2,073

    2,931

    Operating
    margin

     6.5%

     8.4%

 

 

 

           

Revenues overall fell by 7.5% with a 16% fall in the UK and European business and 22% fall in Australia. Revenues and operating profit in our North American operations remained level with the prior year which we consider to be a significant achievement given a 15% industry-wide fall in US consumption. Although the Australian business had a difficult year and was forced to reduce overheads and preserve cash by operating on a four day week basis it has since the financial year end returned to full time working to cope with increased demand and has traded profitably so far this financial year. The Australian operation is also leading the expansion into the South East Asian markets and is responsible for signing up the new distributors in Malaysia, Thailand and Vietnam and it is clear there remains brand recognition in these markets with orders and quotations actively being undertaken.

The UK and European operation experienced difficult market conditions, particularly in Germany, where the weakness of the Euro added pricing pressure. In response to these difficult conditions direct and overhead costs were reduced and the mix of products manufactured in the UK revised during the second half of the financial year. The fall in volume was concentrated on the higher margin component product resulting in a disproportionate fall in operating margins. This was the principal reason for the division's poor overall performance.

Since his appointment as Divisional Managing Director of the machine tool division in August 2015 Don Haselton has been focusing on the introduction to the UK and Europe of the Clausing product range of drills, mills, saws and grinders which are now becoming a regular feature of the package of products we supply in the UK and Europe.

The Clausing range of products has been one of the key reasons behind the sustained growth in the North American operations and represent over 1/3 of their product sales compared to a figure of just 4% for the UK and European operation at present.

Industrial laser systems

Following the acquisition of 80% of TYKMA Inc. in early February 2015, both the TYKMA and Electrox operations were merged into a single industrial laser systems business under a unified management structure. The remaining 20% of TYKMA was purchased at the end of March 2016 just before the financial year end. The integration of the two businesses continued throughout the year with all manufacturing operations centered in a new purpose built facility in Chillicothe, Ohio USA. In the UK we took steps to expand our UK sales presence by signing a distribution agreement with Needham Coding based in Shropshire. This new relationship provides a customer centric operation and increased presence throughout the UK and Ireland and is in addition to the TYKMA Electrox sales and service center located in Letchworth Garden City.

As a result of these actions, operating efficiencies and savings (including those from supplier consolidation) are evidenced in the increased margins we saw towards the end of the financial year. In addition, the restructuring of our entire global sales structure resulted in reduced overall costs and sales operations coming under common leadership.

The worldwide industrial laser systems business now operates under the TYKMA Electrox brand. Industrial laser system solutions are sold for a variety of applications including marking, engraving and micro-material processing to a wide range of industries which includes small companies to large multi-national corporate customers.

The enlarged industrial laser systems division is headed up by David Grimes, the previous CEO of TYKMA, who became a substantial shareholder in the Group as a result of the purchase of the remaining 20% of TYKMA Inc. by the Group at the end of March 2016.

Revenues in this division increased by 43% following the TYKMA contribution being included for a full year for the first time. Operating profit increased substantially but with only the last few months benefitting from the integration of the two companies. We expect this trend will continue to grow and show through in increased margins in the first few months of the current financial year.

 

 

 

Results for the financial year before special items were as follows:

 

 


2016

£ 000

2015

£ 000

 

Revenues

13,142

9,229

Operating profit

1,179

304

Operating margin

8.9%

3.3%

 

Group revenue

 

Revenue from continuing operations increased by 3.4% to £45.3m (2015: £43.8m) which although representing only a modest increase over last year was achieved despite the difficult market conditions experienced in the machine tools business in the UK and Europe where turnover fell by 16% and in Australia which suffered a 22% decline.

 

Costs and margins

 

Gross margins in the Industrial laser systems division improved as the year progressed and the benefits of the TYKMA Electrox business integration began to take effect. Margins in machine tools were however inevitably  affected by the reduced volumes in the UK and European operation, particularly in the higher margin precision components.

 

 

Profit before taxation

 

Group profit before tax was £1.00m (2015: £3.68m) and the underlying profit figure before special items was £1.48m (2015: £2.02m).

 

Special items

 

During the financial year, the Group had a number of transactions, which in the opinion of the directors should be reported seperately for a better understanding of the underlying trading performance of the Group.

 

A credit of £0.94m (2015: £2.35m) is included in operating profit as a result of the work by the trustees of the UK pension scheme and the company in reducing pension liabilities. A number of transactions took place over the previous and current year including a pension increase exchange, commutation of small pensions and other flexible retirement options. This resulted in actuarial adjustments to the pension liabilities, which are processed through the Consolidated Income Statement.

 

In addition, as a result of the scheme being in surplus on an accounting basis, a credit of £1.17m (2015: £0.86m) is recorded in interest. No cash was paid to or received from the scheme in respect of these transactions.

 

As a result of the settlement of the contingent deferred consideration on the acquisition of the remaining 20% of TYKMA Inc. a credit is recorded within financial income of £2.03m. The acquisition occurred earlier than was originally envisaged under the put and call options in place and consequently the amount paid was less than that accrued based on the earnings of the combined industrial laser systems division over the next few years.

 

Costs incurred on the acquisition of the remaining 20% of TYKMA Inc. amounted to £0.2m. Redundancy and restructuring costs incurred on the integration of the Electrox and TYKMA businesses and the overhead and operating cost reduction in Head Office and UK machine tools business amounted to £1.72m.

During the integration process of TYKMA and Electrox it became clear that the capitalised cost of the software developed by Electrox was not going to be realised as originally envisaged ,would not be sold as a distinct product and that further work would be required to integrate the software with existing systems. As a result it has been decided to impair the value of the work so far and an impairment charge of £2.39m has been shown within special items.

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

 

Taxation

 

The current year resulted in a small credit for taxation of £0.14m (2015: charge of £1.33m). Deferred taxation is provided on the pension credits of £2.11m at a rate of 35%, being the rate applicable to any refund from a pension scheme.

 

The UK businesses continue to benefit from the substantial previous tax losses and no taxation is payable in the UK. The US businesses are subject to taxation on their profits at a rate of 35%.

 

Net profit and earnings per share

 

The total profit attributable to equity holders of the parent for the current financial year amounted to £1.16m (2015: £2.33m).

 

Underlying earnings from continuing operations before special items and related taxation was 1.69p per share (2015: 2.09p) and basic earnings per share was 1.26p (2015: 2.66p)

 

Financial position and utilisation of resources

 

Cash flow

 

Cash generated from operations before working capital movements was £3.03m (2015: £3.02m). Working capital movement was largely due to a reduction in creditors of which part was professional costs relating to the original purchase of 80% of TYKMA towards the end of the prior financial year. £0.81m was expended on redundancy and restructuring costs which largely consisted of redundancy payments at Electrox, UK machine tools and head office, including to the previous CEO.

 

Interest paid has increased to £0.96m as a result of a full year of interest paid on the loan notes with the final tranche of £806k of loan notes issued in August 2015.

 

Capital expenditure included replacement machinery for the UK machine tools business and the fit out costs and plant, machinery and fixtures of the two new facilities in the USA; Clausing machine tools in Michigan and TYKMA in Ohio.

 

Net borrowings

 

Group net debt at 2 April 2016 stood at £13.89m (2015: £10.8m) comprising net bank and finance lease indebtedness of £6.2m (2015: £4.0m) and the amount outstanding on the new loan notes of £7.70m (2015: £6.78m). The amount outstanding is net of unamortised costs and amounts disclosed in equity reserve of £0.8m in the current financial year (2015: £0.7m).

 

New increased facilities were agreed with HSBC in the UK in August 2016 following the sale of the Letchworth property. A package of facilities to support the working capital of the UK machine tools business and a term loan secured on the remaining freehold site in Colchester have been put in place totaling £4.95m. In the USA Bank of America supported the 20% TYKMA acquisition in March 2016 with an additional term loan of $1.8m in addition to their existing term and working capital facilities. The Group has a mixture of term loans and revolving working capital facilities with maturities between 1 and 5 years. Headroom on bank facilities was £3.2m at the year-end (2015: £4.2m) and all financial covenants in place were met during the year.

 

During August 2015 the Group issued the remaining £806k of New 8% loan notes with a maturity of February 2020 to bring the total gross amount issued to the £8.5m agreed under the loan note programme. These loan notes also entitled holders to warrants of equal value to subscribe for new ordinary shares at 20p.

 

Gearing amounted to 34% of aggregate net assets (2015: 31%)

 

Going concern

 

In accordance with FRC guidelines, 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 at 2 April 2016 was £40.94m (2015: £34.29m). This surplus has been calculated in accordance with the scheme rules and recognised accounting requirements.

 

As a result of liability reduction exercises undertaken by the UK scheme's Trustees in conjunction with the company, a credit has been taken in the period in the Income Statement of £0.97m to reflect the actuarial reduction in scheme liabilities.

 

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 20% rate.

 

In October 2013 the Company reached agreement with the Trustees of the scheme regarding the funding position on a more prudent Technical Provisions basis as at 31 March 2013, which indicated a funding deficit of £25.4m at that date, and estimated a deficit on a full buy-out basis of £51.1m.

 

It was further agreed that the Technical Provisions deficit would be resolved by an outperformance of the investment returns on the scheme assets of 1% above the return on UK gilts, and that no cash contributions would be required until at least the next funding valuation due as at 31 March 2016.

 

The formal Actuarial Technical Provisions calculation for 31 March 2016 is currently in

progress but it is expected that a similar agreement will be reached with the Trustees following its completion.

 

At 2 April 2016, the subsequent performance of the scheme assets, changes in the underlying market conditions and the various liability reduction exercises, indicate that the estimated deficit on a Technical Provisions basis had reduced to £10.6m. On a full buy-out basis the estimated deficit had reduced to £44m by the end of March 2016.

 

The directors and the Trustees work together on a collaborative basis to continue to monitor investment performance and market conditions closely, to mitigate the risk of mis-matching assets and liabilities to a tactically appropriate level, and to pursue opportunities to secure a full or partial buy-out of UK pension liabilities when conditions permit.

 

The US retiree health scheme and pension fund deficits reduced slightly during the year due to changes in actuarial assumptions to £1.04m (2015: £1.10m)

 

 

Electrox site

 

As a result of the merger of TYKMA and Electrox, and the centralisation of manufacturing in the USA, the long leasehold UK site in Letchworth became too large for the remaining sales and service operation which has moved to smaller leased premises. The sale of the existing site for a net £2.0m was completed on 11 July 2016 with proceeds used to reduce the UK senior bank debt. A reduction in valuation of £0.45m down to the net proceeds has been taken in the revaluation reserve at the year-end and the property has been classified as an asset held for sale within current assets in the Consolidated Statement of Financial Position.

 

Share capital and reserves

 

Share capital and share premium reflect the exercise of 2.75m of share options by Nigel Rogers in August 2015 and the issue of 12m shares at the end of March 2016 in part settlement of the consideration for the remaining 20% of TYKMA Inc.

 

 

Neil Carrick

Finance Director

31 August 2016

 

 

 


Consolidated income statement

for the 53-week period ended

2 April 2016






















Before


After

Before


After


Special

Special

Special

Special

Special

Special


Items

Items

Items

Items

Items

Items


53 weeks

53 weeks

53 weeks

52 weeks

52 weeks

52 weeks


ended

ended

ended

ended

ended

ended

               

2 April

2 April

2 April

28 March

28 March

28 March

               

2016

2016

2016

2015

2015

2015

               

£000

£000

£000

£000

£000

£000

Continuing







Revenue

45,269

-

45,269

43,794

-

43,794

Cost of sales

(29,899)

(894)

(30,793)

(29,374)

-

(29,374)

Gross profit

15,370

(894)

14,476

14,420

-

14,420

Net operating expenses

(13,014)

(2,626)

(15,640)

(11,956)

958

(10,998)

Operating profit/(loss)

2,356

(3,520)

(1,164)

2,464

958

3,422








Financial income

10

1,171

1,181

2

857

859

Financial expense

(890)

(150)

(1,040)

(451)

(155)

(606)

Contingent consideration settlement

-

2,032

2,032

-

-

-








Profit/(loss) before tax

1,476

(467)

1,009

2,015

1,660

3,675








Income tax (charge)/credit

65

72

137

(166)

(1,159)

(1,325)

Profit/(loss) for the period

1,541

(395)

1,146

1,849

501

2,350








Attributable to equity holders of the parent

1,552

(395)

1,157

1,832

501

2,333

Attributable to non controlling interests

(11)

-

(11)

17

-

17


1,541

(395)

1,146

1,849

501

2,350















Basic earnings per share

1.69p

(0.43)p

1.26p

2.09p

0.57p

2.66p








Diluted earnings per share

1.68p

(0.43)p

1.25p

2.03p

0.55p

2.58p

   

 


Consolidated statement of comprehensive income

for the 53-week period ended

2 April 2016




 

53-week

 

52-week

               

period ended

period ended

               

2April

28 March

               

2016

2015

               

£000

£000

Profit for the period

1,146

2,350

Other comprehensive income/(expense)

Items that will not be reclassified to the Income Statement:



Impact of changes to defined benefit asset limit

4,436

12,188

Deferred taxation

(515)

(4,296)

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

3,921

7,892

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



Foreign exchange translation differences

286

462

Fair valuation of assets held for sale

(450)

656

Fair valuation of investments

(29)

(622)

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

(193)

496

Other comprehensive income for the period, net of income tax

3,728

8,388

Total comprehensive income for the period

4,874

10,738

Attributable to:



Equity holders of the Parent Company

4,885

10,721

Non controlling interests

(11)

17

Total recognised income

4,874

10,738

 

 


Consolidated statement of financial position                             

As at 2 April 2016




As at

As at

               

2 April 2016

28 March 2015

               

£000

£000

Non-current assets



Property, plant and equipment

3,235

5,159

Goodwill

7,144

7,144

Other Intangible assets

322

2,347

Investments

496

525

Deferred tax assets

3,832

3,022

Employee benefits

40,937

34,292

55,966

52,489

Current assets



Inventories

11,271

11,036

Trade and other receivables

6,771

7,070

Assets held for sale

1,999

-

Cash and cash equivalents

765

902

               

20,806

19,008

Total assets

76,772

71,497

Non-current liabilities



Loans and other borrowings

(11,376)

(8,405)

Trade and other payables

-

(4,175)

Deferred tax liabilities

(14,538)

(13,358)

               

(25,914)

(25,938)

Current liabilities



Trade and other payables

(6,318)

(6,792)

Income tax payable

-

(135)

Provisions

(425)

(611)

Loans and other borrowings

(3,275)

(3,295)

(10,018)

(10,833)

Total liabilities

(35,932)

(36,771)

Net assets

40,840

34,726

Shareholders' equity



Called-up share capital

1,044

896

Share premium account

1,013

-

Revaluation reserve

1,273

1,494

Available for sale reserve

(651)

(622)

Equity reserve

139

124

Translation reserve

1,714

1,428

Retained earnings

36,308

31,270


40,840

34,590

Non-controlling interests

-

136

Total equity

40,840

34,726

 


 


Consolidated statement of financial position                                                                         

As at 2 April 2016



       


               

               

               

               

               

               

               

               




       


               

               

               

               

               

               

               

               

               

Ordinary

Share


Capital

Available



               



Non


               

share

premium

Revaluation

redemption

for sale

Translation

Equity

               

Retained


Controlling

Total

               

capital

account

reserve

reserve[1]

reserve

reserve

reserve

               

Earnings

Total

Interest

Equity

               

£000

£000

£000

£000

£000

£000

£000

               

£000

£000

£000

£000

At 29 March 2014

14,581

16,885

862

2,500

-

938

180


(13,401)

22,545

-

22,545

At 30 March 2014

14,581

16,885

862

2,500


938

180


(13,401)

22,545

-

22,545

Profit for the period

-

-

-

-

-

-

-


2,333

2,333

17

2,350

Other comprehensive income:













Foreign currency translation

-

-

(24)

-

-

490

-


(4)

462

-

462

Net defined benefit asset mvmt

-

-

-

-

-

-

-


12,188

12,188

-

12,188

Fair value of Investments

-

-

-

-

(622)

-

-


-

(622)

-

(622)

Revaluation of properties

-

-

656

-

-

-

-


-

656

-

656

Deferred tax

-

-

-

-

-

-

-


(4,296)

(4,296)

-

(4,296)

Total comprehensive income

-

-

632

-

(622)

490

-


10,221

10,721

17

10,738

Transactions with owners:













Share capital subscribed for

51

1,094

-

-

-

-

-


-

1,145

-

1,145

Cancellation in period

(13,736)

(17,979)

-

(2,500)

-

-

-


34,215

-

-

-

Equity element of shareholder loan issued in period

-

-

-

-

-

-

(56)


104

48

-

48

Credit for share-based payments

-

-

-

-

-

-

-


131

131

-

131

Total transactions with owners

(13,685)

(16,885)

-

(2,500)

-

-

(56)


34,450

1,324

-

1,324

Non controlling interest

-

-

-

-

-

-

-


-

-

119

119

At 28 March 2015

896

-

1,494

-

(622)

1,428

124

               

31,270

34,590

136

34,726

At 29 March 2015

896

-

1,494

-

(622)

1,428

124


31,270

34,590

136

34,726

Profit for the period

-

-

-

-

-

-

-


1,157

1,157

(11)

1,146

Other comprehensive income:













Foreign currency translation

-

-

-

-

-

286

-


-

286

-

286

Net defined benefit asset mvmt

-

-

-

-

-

-

-


4,436

4,436

-

4,436

Fair valuation of Investments

-

-

-

-

(29)

-

-


-

(29)

-

(29)

Fair valuation of assets held for sale

-

-

(450)

-

-

-

-


-

(450)

-

(450)

Transfer on revalued properties

-

-

229

-

-

-

-


(229)

-

-

-

Deferred tax

-

-

-

-

-

-

-


(515)

(515)

-

(515)

Total comprehensive income

-

-

(221)

-

(29)

286

-


4,849

4,885

(11)

4,874

Transactions with owners:













Share capital subscribed for

148

1,013

-

-

-

-

-


-

1,161

-

1,161

Equity element of shareholder loan issued in period

-

-

-

-

-

-

15


-

15

-

15

Acquisition of NCI

-

-

-

-

-

-

-

-

125

125

(125)

-

Credit for share-based payments

-

-

-

-

-

-

-


64

64

-

64

Total transactions with owners

148

1,013

-

-

-

-

15


189

1,365

(125)

1,240

At 2 April 2016

1,044

1,013

1,273

-

(651)

1,714

139


36,308

40,840

-

40,840

 


Consolidated cash flow statement

For the 53-week period ended 2 April 2016




53-week

52-week

               

period ended

period ended

               

2April

28March

               

2016

2015

               

£000

£000

Cash flows from operating activities



Profit for the period

1,146

2,350

Adjustments for:



Amortisation of development expenditure

122

133

Depreciation

548

450

Net financial income

(141)

(253)

Net pension credit

(940)

(2,347)

Other special items

2,363

1,231

Equity share option expense

64

131

Income tax (credit)/expense

(137)

1,325

Operating cash flow before changes in working capital and provisions

3,025

3,020

Decrease in trade and other receivables

463

203

Decrease/(increase) in inventories

106

(1,051)

Decrease in trade and other payables

(1,682)

(1,626)

Restructuring and redundancy expenditure

(807)

(170)

Employee benefits contributions

(130)

-

Cash generated in operations

975

376

Interest paid

(964)

(414)

Income tax paid

(3)

(205)

Net cash flows from operating activities

8

(243)

Cash flows from investing activities



Interest received

10

2

Proceeds from sale of property, plant and equipment

-

460

Purchase of TYKMA Inc.

(1,378)

(3,802)

Investment in Prophotonix

-

(1,147)

Purchase of property, plant and equipment

(1,522)

(944)

Development expenditure capitalised

(297)

(299)

Refinancing expenditure

-

(487)

Net cash flows from investing activities

(3,187)

(6,217)

Cash flows from financing activities



Proceeds from issue of ordinary shares

275

1,145

Proceeds from issue of Loan Notes

806

7,694

Net Repayment of external borrowing

1,883

(2,505)

Net Finance lease income/(expenditure)

67

(107)

Net cash flows from financing activities

3,031

6,227

Net decrease in cash and cash equivalents

(148)

(233)

Cash and cash equivalents at the beginning of the period

902

1,149

Effect of exchange rate fluctuations on cash held

11

(14)

Cash and cash equivalents at the end of the period

765

902

 

 


Notes relating to the financial information

 

Basis of preparation

The Financial information set out in this preliminary announcement does not constitute the company's Consolidated Financial Statements for the financial years ended 2 April 2016 or 28 March 2015 but are derived from those Financial Statements. Statutory Financial Statements for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the company's AGM. The Auditors KPMG LLP have reported on those financial statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2016 or 2015.

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

1. 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 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

53 Weeks ended 2 April 2016

Machine

tools

& precision

engineered

components

Industrial laser systems

 

Head Office

& unallocated

Total

 

Segmental analysis of revenue

£000

£000

£000

£000

 

Revenue from external customers

32,127

13,142

-

45,269

 

Inter-segment revenue

-

-

-

-

 

Total segment revenue

32,127

13,142

-

45,269

 

Less: inter-segment revenue

-

-

-

-

 

Total revenue

32,127

13,142

-

45,269

 

               

               

               

               

               

 

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

2,073

1,179

(896)

2,356

 

Special Items

282

(3,212)

(590)

(3,520)

 

Group profit/(loss) from operations

2,355

(2,033)

(1,486)

(1,164)

 

               

               

               

               

               

 

Other segmental information:





 

Reportable segment assets

26,630

5,970

44,172

76,772

 

Reportable segment liabilities

(22,078)

(3,048)

(10,806)

(35,932)

 

Fixed asset additions

605

1,214

-

1,819

 

Depreciation and amortisation

293

457

-

750

 

































1. Segment information (CONTINUED)



 

52 Weeks ended 28 March 2015

Machine

tools

& precision

engineered

components

Industrial laser systems

Head Office

& unallocated

Total

Segmental analysis of revenue

£000

£000

£000

£000

Revenue from external customers

34,747

9,047

-

43,794

Inter-segment revenue

-

182

-

182

Total segment revenue

34,747

9,229

-

43,976

Less: inter-segment revenue

-

(182)

-

(182)

Total revenue

34,747

9,047

-

43,794






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

2,931

304

(771)

2,464

Special Items

1,965

(772)

(235)

958

Group profit/(loss) from operations

4,896

(468)

(1,006)

3,422






Other segmental information:





Reportable segment assets

29,443

6,622

35,432

71,497

Reportable segment liabilities

(19,614)

(2,619)

(14,538)

(36,771)

Fixed asset additions

919

353

-

1,272

Depreciation and amortisation

305

278

-

583






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

2016

              

               

£000

%

£000

%

Gross sales revenue:





UK

14,851

32.8

 20,806

     47.5

North America

28,936

63.9

21,083

48.1

Australasia

1,482

3.3

1,905

4.4

Total Revenue

45,269

100.0

43,794

100.0

 

 



 

1. Segment information (CONTINUED)

 

Segmental analysis by destination:

 

2016

              

2015

           

£000

%

£000

%

Gross sales revenue:










UK

8,498

18.8

8,043

18.4

Other European

5,905

13.0

7,045

16.1

North America

27,291

60.3

24,087

55.0

Africa

162

0.4

187

0.4

Australasia

1,438

3.2

1,709

3.9

Central America

163

0.4

148

0.3

Middle East

733

1.6

893

2.1

Far East

1,079

2.3

1,682

3.8

               

45,269

100.0

43,794

100.0

 

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

2.SPECIAL ITEMS

In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed transactions which by virtue of their size or incidence, are considered to be one off in nature. In addition the charge for share based payments, amortisation of intangible assets acquired and non cash pension transactions have also been separately identified.

Special items include acquisition costs, gains and losses on the sale of properties and assets, exceptional costs relating to reorganisation, redundancy and restructuring, asset impairments, legal disputes and inventory, asset and intangibles impairments.

 

               

2016

2015

               

£000

£000

Items included in operating profit:



Pensions credit

(940)

(2,347)

Property valuation adjustment

-

462

Redundancy and reorganisation

1,729

434

Impairment of intangible assets

2,390

-

Acquisition costs

197

335

Share option costs

64

131

Amortisation of intangible assets acquired

80

27


3,520

(958)




Items included in financial (income)/expense:



Pensions interest on surplus

(1,171)

(857)

Amortisation of loan note expenses

150

155


(1,021)

(702)

 

Items included in contingent consideration settlement:



TYKMA deferred consideration settlement

(2,032)

-


(2,032)

-

 

During the year the Group incurred further costs with regard to the acquisition of TYKMA Inc. Property disposals in both the UK and US and the revaluation of properties led to losses. Reorganisation and restructuring costs were principally related to the integration of TYKMA Inc. and the Electrox Laser marking division.

The pension credit relates to liability reduction exercises undertaken by the trustees of the main scheme including pensions increase exchange.

During the prior year the Group incurred costs with regard to the abortive acquisition of the Group by Qinddao D&D Investment Group Co. Ltd. Costs were also incurred with regard to the granting of share options.

The contingent consideration settlement of £2.03m related to the acquisition of the final 20% of TYKMA Inc.

3. Financial income and expense

               



               

2016

2015

               

£000

£000

Bank and other interest

10

2

Interest on pensions surplus

1,171

857

Financial income

1,181

859

Bank overdraft and loan interest

(155)

(174)

Shareholder loan interest

-

(238)

Other loan interest

(721)

(22)

Other finance charges

(3)

-

Finance charges on finance leases

(11)

(17)

Amortisation of shareholder loan expenses

(150)

(155)

Financial expense

(1,040)

(606)

 

4. Taxation

               

               



2016

2015

               

£000

£000

Current tax:



Corporation tax at 20% (2015: 21%):



- current period

-

-

Overseas taxation:



- current period

53

(339)

Total current tax charge

53

(339)

Deferred taxation:



- current period

79

(1,060)

- prior period

5

74

Total deferred taxation credit/(charge)

84

(986)

Taxation credited/ (charged) to the income statement

137

(1,325)

 

 



 

 

Tax reconciliation

The tax charge assessed for the period is lower than the standard rate of corporation tax in the UK of 20% (2015: 21%). The differences are explained below:       

 

               

2016

               

2015

               

£000

%

£000

%

Profit before tax

1,009

               

3,675

               

Profit before tax multiplied by the standard rate of corporation tax





in the UK of 20% (2015: 21%)

202

20.0

772

21.0

Effects of:





- income not taxable and/or expenses not deductible

(205)

(20.3)

252

6.9

- overseas tax rates

19

1.9

114

3.1

- pension fund surplus taxed at higher rate

321

31.8

454

12.3

- property disposals

(52)

(5.2)

-

-

- state taxes

75

7.4



- deferred tax prior period adjustment

(5)

(0.5)

(74)

(2.0)

- (unrecognised losses utilised)/tax not recognised on losses

(600)

(59.5)

(193)

(5.2)

- impact of rate change

108

10.7

-

-

Taxation (credited)/charged to the income statement

(137)

(13.6)

1,325

36.1

 

 

5. Earnings per share

The calculation of the basic earnings per share of 1.26p (2015: 2.66p) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of £1,157,000 (2015: £2,333,000) and on the weighted average number of shares in issue during the period of 91,684,103 (2015: 87,771,514). At 2 April 2016, there were 6,150,000 (2015: 9,900,000) potentially dilutive shares on option with a weighted average effect of 583,333 (2015: 2,783,270) shares giving a diluted profit per share of 1.25p (2015: 2.58p)

               

2016

2015

Weighted average number of shares



Issued shares at start of period

89,607,957

84,430,346

Effect of shares issued in the year

2,076,146

3,341,168

Weighted average number of shares at end of period

91,684,103

87,771,514

 

               

£000

£000

Total post tax earnings

1,146

2,350

 

Share Option Costs

64

131

 

Pensions Interest

(1,171)

(857)

 

Amortisation of Shareholder loan expenses

150

155

 

Pensions credit

(940)

(2,347)

 

Credit on settling deferred consideration

(2,032)

-

 

Impairment of intangible assets

2,390

-

 

Amortisation of intangible assets acquired

80

27

 

Property sales and revaluation

-

462

 

Other special items

1,729

434

 

Acquisition costs

197

335

 

Associated Taxation

(72)

1,159

 

Underlying Earnings before tax

1,476

2,015

 

Underlying Earnings after tax

1,541

1,849

 

Underlying EPS

1.69p

2.09p

 

 

 

6. Cash and cash equivalents

               

2016

2015

               

£000

£000

Cash at bank

665

802

Short-term deposits

100

100

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

765

902

 

 

 

7. RECONCILIATION OF NET CASH FLOW TO NET DEBT

               

2016

2015

               

£000

£000

Decrease in cash and cash equivalents

(148)

(233)

Increase in debt and finance leases

(2,757)

(5,200)

Increase in net debt from cash flows

(2,905)

(5,433)

Net debt at beginning of period

(10,798)

(5,308)

Shareholder loan issue costs amortisation

(110)

701

Cash and debt through acquisitions

-

(697)

Exchange effects on net funds

(73)

(61)

Net debt at end of period

(13,886)

(10,798)

 

8. Analysis of net DEBT

               

At

               

               

               

At

               

29 March

Exchange

               

               

2 April

               

2015

movement

Other

Cash flows

2016

               

£000

£000

£000

£000

£000

Cash at bank and in hand

802

11

-

(148)

665

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

100

-

-

-

100


902

11

-

(148)

765

Debt due within one year

(3,206)

(82)

-

174

(3,114)

Debt due after one year

(1,539)

-

-

(2,057)

(3,596)

Loan notes due after one year

(6,783)

-

(110)

(806)

(7,699)

Finance leases

(172)

(2)

-

(68)

(242)

Total

(10,798)

(73)

(110)

(2,905)

(13,886)

 

9. ACQUISITION

 

There were no acquisitions in the current year. During the prior year the Group acquired 80% of the issued share capital of TYKMA Inc, a US laser marking company. There have been no changes in the year to the fair value of net assets acquired, and therefore no change in the goodwill arising of £7,144,000.

The acquisition of TYKMA Inc. included contingent consideration relating to put and call options between the group and the vendor which had a fair value at March 2015 of £4.1m. During the year the fair value was remeasured to £2.1m and was settled at this amount. The settlement comprised of US$1.8m and the issue of 12m ordinary shares in the Group with a value at that time of £0.9m. The fair value gain of £2,032,000 has been included as a special item given its size and nature.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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