REG - 600 Group PLC - Final Results
The 600 Group PLC
Full Year Results for the year ended 31 March 2018
"A Year of Transformation"
The 600 Group PLC ("the Group"), the AIM listed distributor, designer and manufacturer of industrial products (AIM: SIXH), today announces its full year results for the year ended 31 March 2018.
Highlights:
· Double digit increases in revenues, pre special items operating earnings and pre tax and special items income
· Buy out of UK pension liabilities of $266m agreed
· Cash surplus (net of tax) estimated at between $4m and $5m after buy out and scheme wind up to be repaid to Company
· Reintroduction of Dividend with maiden payment of 0.5p being recommended to shareholders
· ProPhotonix shares sold for $2m generating $1.3m profit
· Equity raise of $1.4m September 2017 eliminated UK working capital borrowing and introduced new institutional shareholders to the register
· Order books stable and industry forecasts improving
· UK restructuring being undertaken to reduce capex requirement and improve margins further
· Re-launch of " Colchester Machine Tool Solutions"
· New product launches planned for second half of current year
The Board has determined to change the presentational currency to US dollars. Approximately two thirds of revenues are in dollars and a great proportion of expenditure is either in dollars or currency tied to the dollar.
Commenting today, Paul Dupee, Executive Chairman of The 600 Group PLC said:
"This has been a very successful year for the company. Throughout the year we have been working with the pension trustee to negotiate the possible buy out of the group pension scheme, and I'm delighted to report that we have now achieved this. The consequences to the Group are significant as we are released from the financial and regulatory constraints related to the scheme, and will be able to use the net proceeds to reduce Group debt.
The efforts of the last few years can be seen across all our divisions resulting in double-digit growth in both revenues and earnings (before special items). Looking forward, we expect to improve even further as we achieve cost savings in our UK operations and begin to see the benefits of the improved range of machines and engineering solutions being developed throughout the Group.
Financially, we are more robust because of the steps we took last year to raise additional working capital and realise our investment in ProPhotonix.
We go into this new financial year with great confidence and I am delighted that this has given us the opportunity to reinstate paying a dividend to shareholders for the first time in many years."
SUMMARY OF FINANCIAL RESULTS
FY18
$m
FY17
$m
Revenues
66.01
58.79
Underlying Operating profit*
4.23
3.83
Bank and other interest*
(1.18)
(1.18)
Underlying Profit before taxation*
3.05
2.65
Special items (net)
0.82
1.38
Profit before taxation
3.87
4.03
Taxation(charge
(0.82)
(1.46)
Total profit for the year
3.05
2.57
Earnings per share
Underlying basis*
Total for the year
3.20c / (2.46p)
2.80c / (2.16p)
2.68c / (2.15p)
2.46c / (1.97p)
* From continuing activities, before special items
More Information on the group can be viewed at: www.600group.com
Enquiries:
The 600 Group PLC
Tel: 01924 415000
Paul Dupee, Executive Chairman
Neil Carrick, Finance Director
Spark Advisory Partners Limited (NOMAD)
Tel: 020 3368 3553
Matt Davis/ Miriam Greenwood
Cadogan PR Limited (Financial PR)
Tel: 020 7499 5002 / 07771 713608
Alex Walters
WH Ireland (Broker)
Tel: 020 7220 1666
Adam Pollock / Tim Feather
The results for the 2018 fiscal year have been most satisfactory and in line with the Board's expectations. Revenues, operating earnings (before special items) and pre-tax income (before special items) all had double digit percentage increases. Our order books remained steady throughout the year and remain so today.
The period since we last reported annual results has seen a number of developments that will have a significant impact on the group now and in the future.
In the Machine Tool division, the decision has been made to further rationalise UK operations. We are very efficient at product development, engineering and distribution and will continue to focus on these core strengths. The sale of surplus assets resulting from our rationalisation decisions should produce more than sufficient funds to cover the costs of the re-organisation. The resulting lowering of our fixed cost base and reduced forward capital expenditure requirements will benefit both cash flow and operating margins.
In the Industrial Laser division, the integration of TYKMA Electrox has been completed and all manufacturing operations are now being performed at the expanded Chillicothe, Ohio facility. The UK and European support operations have been consolidated with the UK Machine Tool division which will result in reduced headcount, tighter inventory control and a more integrated sales force to capitalise on the inherent synergies in our customer base.
After reviewing our current results, the Board has determined to change our presentational currency to US dollars. Approximately two thirds of our revenues are in dollars and a great proportion of our expenditure is either in dollars or currency tied to the dollar. The fluctuation in Sterling in the last few years has made it difficult to accurately measure our performance when reporting in Sterling and this change will make it more efficient for the Board and shareholders in analysing our financial results going forward.
We have also significantly strengthened our financial team in the last year in both the UK and the US and as a result have seen better, more efficient and timely reporting and forecasting.
Certainly, the most profound change has been the recent development surrounding the buy-out of the scheme liabilities of our UK defined benefit Pension Scheme. Just a few years ago the Scheme was in deficit by all measures with a buyout deficit of some £51 million ($71million). At one point a prominent portfolio manager observed that the Scheme effectively controlled the company. In a sense he was correct as there were undertakings and security arrangements in place which severely limited our flexibility. I'm delighted to say that the Scheme Trustee, working in tandem with the Company, have agreed for the pension scheme liabilities with a 31 March 2018 value of $272 million (£194 million) covering some 2,000 pensioners and 800 deferred members to be entirely transferred to Pension Insurance Corporation Plc. Once the buy-out is completed and the scheme is wound up, expected later this year, all surplus funds remaining will be returned to the 600 Group less a statutory 35% tax charge. The total net amount payable to the Company is currently estimated to be between $4 million and $5 million (£3 million and £4 million).
Dividend
As a result of the good operational performance, the reasonable current commercial outlook and particularly the resolution of the Pension Scheme, the Board has determined to resume payment of a dividend and are recommending a pay-out of 0.5p per share payable on 28 September 2018, to shareholders on the register at 31 August 2018.
People
On behalf of the Board, I would like to thank all our employees for their ongoing support, commitment and dedication to The 600 Group which has been important in continuing the improvement in our businesses. I look forward to working with them again in the coming year.
Outlook
Trading and order intake in the period since the FY18 financial year end has remained stable. We continue to seek opportunities to leverage our industry-recognised brands and expand our worldwide distribution network. The introduction of new products to widen the customer base remains a clear focus for our management teams in both divisions. Industry forecasts of growth for both divisions have improved during the year but as always remain subject to uncertain international influences and world events. The Board continues to believe the strategy of brand promotion and investment in new products and new markets will lead to continued market share growth in the future.
Paul Dupee
Executive Chairman
20 July 2018
Our businesses
The 600 Group PLC ("the Group") is a leading engineering group with a world class reputation in the design and distribution of machine tools, precision engineered components and the design, manufacture and distribution of industrial laser systems. The Group operates these businesses from locations in North America, Europe and Australia selling into more than 100 countries worldwide.
During the 52 week period ended 31 March 2018 28% of revenues came from the sale of metal turning machine tools, with a further 19% from other machine tools and 11% from the sale of precision engineered components for machine tools. Sales of Industrial laser equipment amounted to 29% of revenues with the remaining 13% of revenues being from after sales support, spare parts and services from both divisions.
Group businesses serve customers across a broad range of industry sectors, from niche markets for technical education of young engineering apprentices through to high volume production of automotive, aerospace and defence equipment. A high proportion of revenue is derived from sales via third party distribution channels, in respect of which it is more difficult to track the industry dispersion of end-user customers.
The Group benefits from a high degree of loyalty and repeat business via a large number of established distributors in many countries and territories but with no major concentrations. In the year ended 31 March 2018 the top 20 customers, of which 17 were distributors, contributed less than 26% of revenues, the same percentage as the previous year.
Revenues
Revenues are generated across many diverse geographical territories:
Percentage of worldwide revenues
(by destination)
2018
%
2017
%
United States of America
65
64
United Kingdom
15
15
Europe (excluding UK)
11
12
Rest of the World
9
9
Total
100
100
Macroeconomic and industry trends
Machine tools and precision engineered components
The worldwide machine tool industry was estimated by Oxford Economics at nearly $79bn in annual sales in its Spring 2018 report. The market continues to be driven by the investment intentions of manufacturers and is sensitive to changes in the economic and financial climate. Demand responds to economic trends and typically lags the main cycle of the economy.
The global market is dominated by China with consumption of $30bn but this is largely served domestically with China also being the largest producer. The USA is the second largest consumer of machine tools at $8.8bn followed by Germany at $6.8bn.
The report indicated growth of over 7% globally in 2017 and expects the market for machine tools to remain healthy during 2018 at over 6%. Within our main markets the expectations were for the USA to remain close to 8% growth with Europe at just over 8% for 2018.
Industrial laser systems
Industry use of industrial lasers for material processing has continued to expand worldwide. Laser systems have now become a mainstream manufacturing process covering the areas of laser machining, including cutting and drilling, marking, ablation and a host of other niche applications.
Industry spending for the entire global industrial laser market continues to increase and reached a new estimated high of $4.6bn in 2017. Growth in the overall market is estimated to rise by about 7% in 2018. The laser marking and micro-materials subset is smaller than the macro-materials processing but is still solidly producing mid-single digit growth. This growth is underpinned by enhanced performance in the speed, cost and quality of the systems being implemented compared to other techniques as well as by legislative changes driving a requirement for greater traceability.
Our main markets
The main markets we operate in are the USA, Europe and Australia and these have generally stabilised following the volatility of the prior year which contained both the Brexit vote result and the US presidential elections. Order books have now returned to more normal levels and are on a par with the previous year although we have seen a market trend in both divisions for shorter lead times for our standard equipment with the expectation it is delivered in four to six weeks or less.
Whilst there remains concerns associated with the UK leaving the EU, we believe The 600 Group has a relatively low exposure to these risks given only 11% of Group sales were to EU countries excluding the UK and US Dollar income the Group generates provides a natural currency hedge against the majority of our purchases which are in US Dollars.
In addition, over 13% of our total revenues are derived from the supply of spare parts and services and this revenue stream is not dependent on achieving new sales but on servicing our existing installed base of machines.
Activity in the 2017/18 financial year
Machine tools and precision engineered components
This division operates from sites in the UK, USA, and Australia and provides solutions for metal processing through the design and development of machine tools sold under the brand names Colchester, Harrison and Clausing and the design and supply of precision engineering components under the brand names Pratt Burnerd and Gamet. There are also spares, accessories and service operations which support the significant number of machines sold over the Group's long history of supplying quality equipment. Sales are made worldwide, with direct sales operations and distribution in North America, Europe, and Australia and a network of distributors in all other key end-user markets.
The machine tools division produced double digit growth of 11.6%, which was despite an under performance in the first half of the financial year in the UK business. The second half of the financial year saw a significant improvement in the UK operation with a 27% increase in revenue over the prior year's second half performance and operating profits in this six month period outperforming the prior full year.
The UK machine tools operation has undergone some restructuring during the year with further outsourcing of operations and some changes to the distribution network and management team. The consequent reduction in overheads will underpin further growth potential in the new financial year.
The UK business re-launch as "Colchester Machine Tool Solutions" has given fresh impetus to the revised management team and the business is developing new distributor relationships and expanding both its direct sales force in the UK and its spares and service operation.
The US machine tool business has recovered well from market uncertainty created by the presidential elections and increased revenues by over 10%. New product launches and the increased activity of the Kondia business, acquired in the previous year, have helped improve the top line and more new products are planned for the current financial year. The range of USA produced machines continues to expand and sales to Mexico and Canada continue to grow.
The Australian machine tools business, whilst relatively small, has shown a significant increase in activity and returned to profitable trading. A review of the business in Australia and the wider South east Asia, where the Group's machine tool brands remain well know with a good installed base, is taking place with a view to improving this operation further.
The supply and distribution agreement with our Indian partners for the manufacture and supply of machine tools and their manufacture and distribution under licence is now in operation and provides a hedge against our dependency on Taiwanese produced machine tools. We continue to work with our partners on new products to increase market coverage of our brands.
The financial results of these activities, on an underlying basis excluding special items, were as follows:
2018
$ 000
2017
$ 000
Revenues
45,222
40,530
Underlying operating profit*
2,904
2,574
Underlying operating margin*
6.4%
6.4%
*underlying figures before special items. See note 3 and note 11.
Industrial laser systems
The integration of our industrial laser systems manufacturing facilities into the expanded site in Ohio, USA has now been completed. The UK spares and service operation is being integrated into the machine tools operation in Heckmondwike with the closure of the Letchworth operation. The business remains committed to the UK and European markets and we believe these are better serviced from the more substantial machine tools UK operation with which it already shares some common customers and distributors.
The division is building upon its increased profile in the marketplace following the integration of TYKMA ELECTROX.
Revenues increased 14% over the previous year and the division continues to develop new products and has launched a number of innovative new technologies with further planned product releases in the current financial year.
The joint TYKMA ELECTROX brand now provides laser solutions which includes marking, engraving and micro-material processing. Each end user or distributor is free to choose among our brands which combined creates an enhanced product portfolio for solving an expanded number of applications. These industrial laser systems are sold for a variety of applications to provide solutions to an ever increasing market diversification in the manufacturing industry among both small and large multi-national corporate customers.
The increased requirement for traceability of all production items underpins the growth of this industry and forecasters continue to predict growth in this activity as these products replace traditional stamping, ink and dot peen systems. Continued support from legislation mandating increased traceability continues to be a positive driver for individual component identification.
Results for the financial year, on an underlying basis excluding special items, were as follows:
2018
$ 000
2017
$ 000
Revenues
20,792
18,260
Underlying operating profit*
2,867
2,491
Underlying operating margin*
13.8%
13.6%
*underlying figures before special items. See note 3 and 11.
Group Results
Revenue from continuing operations increased by 12.3% to $66m (2017: $58.8m) with double digit growth from both divisions.
Group profit before tax was $3.87m (2017: $4.04m) and the underlying profit (before special items) was up 15% to $3.05m (2017: $2.65m).
Special items
During the financial year, the Group undertook a number of transactions, which, in the opinion of the directors, should be reported separately for a better understanding of the underlying trading performance of the Group. These underlying figures are used by the Board to monitor business performance, form the basis of bonus incentives and are used for the purposes of the bank covenants.
These non GAAP measures are explained in note 11 alternative performance measures and set out in note 3. All special items are taken into account in the GAAP figures in the Income Statement
A credit of $1.74m (2017: credit of $1.89m) is recorded in financial income in respect of the final salary pension scheme. No cash was paid to or received from the scheme in respect of this transaction which arises as a pension accounting entry under the required standard due to the surplus in the scheme recorded in the balance sheet.
In addition, in 2017 a credit of $0.8m was included as a result of work by the Trustees of the UK pension scheme and the Group in reducing pension liabilities. As a result of the changes in the USA to the rates of taxation, a significant charge of $0.6m has been made to adjust the deferred taxation assets.
An additional credit of $1.26m is recorded this year as a result of the sale of the Group's holding in ProPhotonix Ltd at the end of August 2017. This generated $1.97m of cash which was used to pay down UK debt.
Redundancy and restructuring costs were incurred on the overhead and operating cost reduction in the UK machine tools business including the further outsourcing of operations and in industrial lasers on the closure of Letchworth and the move of the spares and service operation in the UK into the machine tools operation which amounted to $1.8m (2017 $0.83m).
In addition, share option costs, amortisation of intangible assets and amortisation of loan note costs all of which are non-cash costs to the Group in the year have been included in special items.
Taxation
The current year underlying trading resulted in a credit of $0.44m (2017: credit of $0.15m) for taxation. The UK businesses continue to benefit from substantial previous tax losses and no taxation is payable in the UK. There are substantial unrecorded deferred tax assets in the UK which are released onto the balance as existing recorded losses are utilised which will help maintain a lower tax charge. There remains an unrecognised deferred tax asset of over $3.6m in addition to the recognised asset of $2.96m in respect of UK tax losses at the year end. The US businesses are subject to taxation on their profits at the new rate of 21% (2017: 34%) although the rate applicable for the 2017/18 year was a composite rate of 31%.
Deferred taxation is provided on the UK pension credits at a rate of 35%, being the rate applicable to any refund from a pension scheme and is included in special items.
Following the changes in the USA to the rates of taxation, a significant charge of $0.6m has been made to adjust the deferred taxation assets. This charge has been shown in special items.
Net profit and earnings per share
The total profit attributable to equity holders of the parent for the current financial year amounted to $3.05m (2017: $2.57m) with underlying profit of $3.48m (2017: $2.80m).
Underlying earnings from continuing operations before special items and related taxation were 3.20cents (equivalent to 2.46p) per share (2017: 2.68cents, equivalent to 2.15p) and basic earnings per share were 2.80cents (equivalent to 2.16p) (2017: 2.46cents, equivalent to 1.97p) see note 7.
Financial position and utilisation of resources
Cash flow
Cash generated from operations before working capital movements was $4.0m (2017: $3.8m)
Stock levels have increased in line with the increased activity but also to support the new product launches and the increasing market demands for shorter lead time. The UK machine tool operation has taken advantage of the greater liquidity to obtain improved terms with overseas suppliers and reduce bank trade finance costs but this has added about $0.7m to stock in transit.
$0.86m was expended on redundancy and restructuring costs at Electrox, and UK machine tools with the balance of the cash cost falling into the 2018/19 financial year.
Interest paid was in line with previous years at $1.2m with the largest component being interest on the £8.5m ($11.9m) 8% loan notes.
Capital expenditure largely consisted of demonstration and showroom equipment for the new facility in Chillicothe and these machines generally turn over regularly.
The net proceeds of $1.97m from the ProPhotonix sale were received in September 2017 and were used to pay down UK bank debt.
Net borrowings
Group net debt at 31 March 2018 reduced to $15.6m (2017: $17.1m) and comprised net bank and finance lease indebtedness of $4.3m (2017: $7.2m) and the amount outstanding on the loan notes of $11.3m (2017: $9.8m). The amount outstanding on the loan notes has increased due to the exchange rate effect of re-translation into Dollars and a small movement due to the amortisation of costs. The loan notes are shown net of un-amortised costs and amounts disclosed in equity reserve which amount to $0.6m in the current financial year (2017: $0.8m).
Repayments of $0.85m were made on term facilities in the period reducing these to $1.68m.
Working capital facilities were renewed with both HSBC and Bank of America during the year and the Group maintains a mixture of term loans and revolving working capital facilities with maturities between 1 and 3 years. Headroom on bank facilities was $8m at the year-end (2017: $4m) and all financial covenants in place were met during the year.
The £8.5m ($11.9m) 8% loan notes with a maturity of February 2020 also entitle holders to warrants of equal value to subscribe for new ordinary shares at 20p.
Gearing amounted to 27% of aggregate net assets (2017: 27%)
Going concern
The Board has assessed the Group's funding and liquidity position. The Directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparation of the financial statements.
Retirement benefits
The accounting surplus on the UK scheme at 31 March 2018 was $54.3m (2017: $65.7m). This surplus has been calculated in accordance with the scheme rules and recognised accounting requirements.
The accounting figures are calculated using prescribed methods and in particular use corporate bond rates to value the scheme liabilities whereas the trustees use a much more prudent gilts only basis of valuation when considering the Actuarial valuation.
On 17 July 2018 a contract was signed securing the buy-out of the schemes liabilities (see note 13).
The buy-out of the scheme involves securing individual annuity contracts for each member with an insurance company and passes all future risks to the insurance company. The cost of achieving this is usually higher than either the accounting basis or the schemes funding basis reflecting the insurer's capital requirements to meet inherent risks of investment returns and life expectancy over the lifetime of the members. The scheme actuary estimated a deficit of over £51m ($71m) on this buy-out basis even as late as the actuarial valuation of 2013.
The buy out of the scheme has been possible due to improvements in insurers pricing, the trustees hedging strategy, good investment returns and the hard work of the Trustees and Company in reducing scheme liabilities and costs whilst providing members with greater flexibility in the way in which they can take their benefits. The final agreement was secured after a long period of negotiation and an open market tender process with the market leaders in the industry.
The effect of the completion of this transaction on the Group balance sheet will be to eliminate the accounting surplus and associated deferred taxation liabilities and recognise the net (after tax) cash, currently estimated at between $4m and $5m (£3m and 4m), to be received from the scheme on closure (the final sum will remain uncertain until the scheme is finally wound up, which is expected towards the end of 2018). It should be noted that the scheme is held on the subsidiary company 600 UK limited balance sheet and as such the transaction will not affect the holding company reserves.
In accordance with the current legislation on taxation of pension surplus returns to a company, deferred taxation has been provided for on the pension entries at 35% as opposed to the normal 19% rate in the accounting entries. 35% tax will be deducted from the gross refund before the Trustees pay funds to the Company.
The US retiree health scheme and pension fund deficits reduced slightly during the year due to changes in actuarial assumptions to $1.2m (2017: $1.3m). The only funding of these benefits during the year was the payment of an insurance premium in respect of the retiree health scheme.
Consolidated income statement
For the 52-week period ended 31 March 2018
Before
After
Before
After
Special
Special
Special
Special
Special
Special
Items
Items
Items
Items
Items
Items
52 weeks
52 weeks
52 weeks
52 weeks
52 weeks
52 weeks
ended
ended
ended
ended
ended
ended
31 Mar
31 Mar
31 Mar
1 April
1 April
1 April
2018
2018
2018
2017
2017
2017
Notes
$000
$000
$000
$000
$000
$000
Continuing
Revenue
1
66,014
-
66,014
58,790
-
58,790
Cost of sales
(42,972)
(764)
(43,736)
(38,252)
(147)
(38,399)
Gross profit/(loss)
23,042
(764)
22,278
20,538
(147)
20,391
Net operating expenses
3
(18,812)
(1,126)
(19,938)
(16,706)
(66)
(16,772)
Operating profit/(loss)
3
4,230
(1,890)
2,340
3,832
(213)
3,619
Financial income
4
-
1,741
1,741
4
1,891
1,895
Financial expense
4
(1,182)
(290)
(1,472)
(1,183)
(295)
(1,478)
Profit on ProPhotonix disposal
3
-
1,256
1,256
-
-
-
Profit/(loss) before tax
3,048
817
3,865
2,653
1,383
4,036
Income tax (charge)/credit
5
436
(1,252)
(816)
147
(1,609)
(1,462)
Profit/(loss) for the period from continuing operations attributable to the equity holders of the parent
3,484
(435)
3,049
2,800
(226)
2,574
Basic earnings per share
7
3.20c
(0.40)c
2.80c
2.68c
(0.22)c
2.46c
Diluted earnings per share
7
3.18c
(0.40)c
2.78c
2.68c
(0.22)c
2.46c
Consolidated statement of comprehensive income
For the 52-week period ended 31 March 2018
52-week
52-week
period ended
period ended
31 March
1 April
2018
2017
$000
$000
Profit for the period
3,049
2,574
Other comprehensive income/(expense)
Items that will not be reclassified to the Income Statement:
Release of available for sale reserve on ProPhotonix disposal
(1,465)
-
Remeasurement of defined benefit asset
(19,659)
10,495
Deferred taxation
6,852
(3,673)
Total items that will not be reclassified to the Income Statement:
(14,272)
6,822
Items that are or may in the future be reclassified to the Income Statement:
Foreign exchange translation differences
4,109
(4,779)
Fair valuation of investments
-
1,446
Total items that are or may in the future be reclassified to the Income Statement:
4,109
(3,333)
Other comprehensive income / (costs) for the period, net of income tax
(10,163)
3,489
Total comprehensive income for the period
(7,114)
6,063
Attributable to:
Equity holders of the Parent Company
(7,114)
6,063
Consolidated statement of financial position
As at 31 March 2018
As at
As at
As at
notes
31 March 2018
1 April 2017
2 April 2016
$000
$000
$000
Non-current assets
Property, plant and equipment
4,111
4,668
4,590
Goodwill
10,329
10,329
10,329
Other Intangible assets
407
382
457
Investments
-
2,068
704
Deferred tax assets
5,102
4,359
5,438
Employee benefits
54,319
65,677
59,559
74,268
87,483
81,077
Current assets
Inventories
19,597
15,935
15,994
Trade and other receivables
10,266
9,312
9,608
Assets classified as held for sale
-
-
2,837
Cash and cash equivalents
8
1,676
1,352
1,086
31,539
26,599
29,525
Total assets
105,807
114,082
110,602
Non-current liabilities
Employee benefits
(1,225)
(1,289)
(1,469)
Loans and other borrowings
9
(12,251)
(11,552)
(16,143)
Deferred tax liabilities
(19,020)
(22,770)
(20,629)
(32,496)
(35,611)
(38,241)
Current liabilities
Trade and other payables
(9,205)
(6,801)
(8,965)
Taxation
(291)
-
-
Provisions
(53)
(486)
(603)
Loans and other borrowings
9
(5,025)
(6,890)
(4,647)
(14,574)
(14,177)
(14,215)
Total liabilities
(47,070)
(49,788)
(52,456)
Net assets
58,737
64,294
58,146
Shareholders' equity
Called-up share capital
1,746
1,629
1,629
Share premium account
2,885
1,484
1,484
Revaluation reserve
759
797
1,806
Available for sale reserve
-
1,446
-
Equity reserve
201
201
201
Translation reserve
(4,565)
(6,724)
(2,830)
Retained earnings
57,711
65,461
55,856
Total equity
58,737
64,294
58,146
Consolidated statement of changes in equity
As at 31 March 2018
Ordinary
Share
Available
share
premium
Revaluation
for sale
Translation
Equity
Retained
capital
account
reserve
reserve
reserve
reserve
Earnings
Total
$000
$000
$000
$000
$000
$000
$000
$000
At 2 April 2016
1,629
1,484
1,806
(924)
(2,830)
201
56,780
57,952
At 2 April 2016 as restated*
1,629
1,484
1,806
-
(2,830)
201
55,856
58,146
Profit for the period
-
-
-
-
-
-
2,574
2,574
Other comprehensive income:
Foreign currency translation
-
-
(120)
-
(3,894)
-
(765)
(4,779)
Net defined benefit asset mvmt
-
-
-
-
-
-
10,495
10,495
Fair valuation of Investments
-
-
-
1,446
-
-
-
1,446
Transfer on revalued properties
-
-
(889)
-
-
-
889
-
Deferred tax
-
-
-
-
-
-
(3,673)
(3,673)
Total comprehensive income
-
-
(1,009)
1,446
(3,894)
-
9,520
6,063
Transactions with owners:
Credit for share-based payments
-
-
-
-
-
-
85
85
Total transactions with owners
-
-
-
-
-
-
85
85
At 1 April 2017
1,629
1,484
797
1,446
(6,724)
201
65,461
64,294
Profit for the period
-
-
-
-
-
3,049
3,049
Other comprehensive income:
Foreign currency translation
-
-
(38)
19
2,159
-
1,969
4,109
Net defined benefit asset mvmt
-
-
-
-
-
-
(19,659)
(19,659)
ProPhotonix disposal
-
-
-
(1,465)
-
-
-
(1,465)
Deferred tax
-
-
-
-
-
-
6,852
6,852
Total comprehensive income
-
-
(38)
(1,446)
2,159
-
(7,789)
(7,114)
Transactions with owners:
Share capital subscribed for
117
1,401
-
-
-
-
-
1,518
Credit for share-based payments
-
-
-
-
-
-
39
39
Total transactions with owners
117
1,401
-
-
-
-
39
1,557
At 31 March 2018
1,746
2,885
759
-
(4,565)
201
57,711
58,737
*see note 12 ProPhotonix disposal
52-week
52-week
period ended
period ended
31 March
1 April
2018
2017
$000
$000
Cash flows from operating activities
Profit for the period
3,049
2,574
Adjustments for:
Amortisation of development expenditure
71
73
Depreciation
596
566
Net financial income
(269)
(417)
Net pension credit
-
(809)
Non-cash special Items
991
262
Profit on disposal of Prophotonix
(1,256)
-
Equity share option expense
39
85
Income tax expense/(credit)
816
1,462
Operating cash flow before changes in working capital and provisions
4,037
3,796
(Increase) in trade and other receivables
(445)
(188)
(Increase) in inventories
(2,970)
(1,755)
Decrease/(increase) in trade and other payables
1,169
(1,576)
Employee benefits contributions
(143)
(150)
Cash generated in operations
1,648
127
Interest paid
(1,183)
(1,183)
Income tax received/( paid)
-
110
Net cash flows from operating activities
465
(946)
Cash flows from investing activities
Interest received
-
4
Proceeds from sale of property, plant and equipment
285
2,613
Sale of investment in Prophotonix
1,972
-
Purchase of property, plant and equipment
(694)
(612)
Development and trademarks expenditure capitalised
(87)
(28)
Net cash flows from investing activities
1,476
1,977
Cash flows from financing activities
Proceeds from issue of ordinary shares
1,517
-
Repayment of external borrowing
(2,985)
(3,141)
Proceeds from external borrowing
-
2,593
Net finance lease income/(expenditure)
(56)
(116)
Net cash flows from financing activities
(1,524)
(664)
Net increase in cash and cash equivalents
417
367
Cash and cash equivalents at the beginning of the period
1,352
1,086
Effect of exchange rate fluctuations on cash held
(93)
(101)
Cash and cash equivalents at the end of the period
1,676
1,352
1.Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 31 March 2018, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Financial information set out in this preliminary announcement does not constitute the company's Consolidated Financial Statements for the financial years ended 31 March 2018 or 1 April 2017 but is derived from those Financial Statements. Statutory Financial Statements for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the company's AGM.
The Auditors, KPMG LLP for 2017 and BDO LLP for 2018, have reported on those financial statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
The Statutory accounts will be available on the Company's website and will be posted to shareholders who have requested a copy and thereafter by request to the company's registered office.
After reviewing current results, the Board has determined to change presentational currency to US dollars. Approximately two thirds of our revenues are in dollars and a great proportion of expenditure is either in dollars or currency tied to the dollar. The fluctuation in Sterling in the last few years has made it difficult to accurately measure performance when reporting in Sterling and this change will make it more efficient for the Board and shareholders in analysing financial results going forward.
2. Segment information
IFRS 8 - "Operating Segments" requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Executive Directors. The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources.
The Executive Directors consider there to be two continuing operating segments being machine tools and precision engineered components and industrial laser systems.
The Executive Directors assess the performance of the operating segments based on a measure of underlying operating profit/(loss). This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs.
The following is an analysis of the Group's revenue and results by reportable segment:
Continuing
52 Weeks ended 31 March 2018
Machine
tools
& precision
engineered
components
Industrial laser systems
Head Office
& unallocated
Total
Segmental analysis of revenue
$000
$000
$000
$000
Total revenue
45,222
20,792
-
66,014
Segmental analysis of operating profit/(loss) before Special Items
2,904
2,867
(1,541)
4,230
Special Items
(883)
(767)
(240)
(1,890)
Group operating profit/(loss)
2,021
2,100
(1,781)
2,340
Other segmental information:
Reportable segment assets
40,320
9,867
55,620
105,807
Reportable segment liabilities
(28,153)
(5,826)
(13,091)
(47,070)
Fixed asset additions
146
544
4
694
Depreciation and amortisation
362
294
-
656
2. Segment information (CONTINUED)
52 Weeks ended 1 April 2017
Machine
tools
& precision
engineered
components
Industrial laser systems
Head Office
& unallocated
Total
Segmental analysis of revenue
$000
$000
$000
$000
Total revenue
40,530
18,260
-
58,790
Segmental analysis of operating profit/(loss) before Special Items
2,574
2,491
(1,233)
3,832
Special Items
864
(839)
(238)
(213)
Group operating profit/(loss)
3,438
1,652
(1,471)
3,619
Other segmental information:
Reportable segment assets
36,429
9,555
68,098
114,082
Reportable segment liabilities
(33,199)
(4,719)
(11,870)
(49,788)
Fixed asset additions
144
496
-
640
Depreciation and amortisation
370
269
-
639
Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Geographical segmental analysis of revenue is shown by origin and destination in the following two tables:
Segmental analysis by origin
2018
2017
$000
%
$000
%
Gross sales revenue:
UK
15,500
23.5
14,631
24.9
North America
47,262
71.6
41,693
70.9
Australasia
3,252
4.9
2,466
4.2
Total Revenue
66,014
100.0
58,790
100.0
Segmental analysis by destination:
2018
2017
Gross sales revenue:
$000
%
$000
%
UK
10,035
15.2
8,991
15.3
Other European
7,411
11.2
7,229
12.3
North America (USA)
42,768
64.9
37,165
63.3
Africa
738
1.1
176
0.3
Australasia
3,136
4.8
2,255
3.8
Central America
26
0.0
175
0.3
Middle East
97
0.1
539
0.9
Far East
1,803
2.7
2,260
3.8
66,014
100.0
58,790
100.0
There are no customers that represent 10% or more of the Group's revenues.
3. SPECIAL ITEMS
In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed significant costs associated with the ongoing restructuring of the Group and associated redundancy costs incurred in the year. In addition, the non cash charges for share based payments, amortisation of intangible assets acquired and amortisation of loan note costs. Non cash pension transactions have also been separately identified.
Special items
2018
2017
$000
$000
Items included in cost of sales:
Reorganisation and redundancy
(764)
(147)
(764)
(147)
Items included in operating profit:
Pensions credit
-
809
Refinancing costs
-
(68)
Redundancy and reorganisation
(1,036)
(778)
Profit on sale of property
-
143
Acquisition costs
-
(36)
Share option charge
(39)
(85)
Amortisation of intangible assets acquired
(51)
(51)
(1,126)
(66)
Items included in financial income/(expense):
Pensions interest on surplus
1,741
1,891
Amortisation of loan note expenses
(243)
(210)
Interest on pensions deficit
(47)
(85)
(290)
(295)
Profit on disposal of ProPhotonix Ltd
1,256
-
Total special items before tax
817
1,383
Taxation effect of rate range in the USA
(630)
-
Income tax on special items
(622)
(1,609)
Total special items after tax
(435)
(226)
During the year the Group incurred further costs with regard to the reorganisation of TYKMA Inc and the integration of the Electrox Laser marking division spares and service into the UK machine tools operation. In addition redundancy exercises were carried out in the UK machine tools operation during the year.
The Group also realised a profit on the disposal of its entire holding in ProPhotonix Ltd.
Costs were also incurred with regard to the granting of share options and amortisation.
4. Financial income and expense
2018
2017
$000
$000
Bank and other interest
-
4
Interest on employee benefit surplus
1,741
1,891
Financial income
1,741
1,895
Bank overdraft and loan interest
(234)
(216)
Other loan interest
(925)
(951)
Other finance charges
(8)
-
Finance charges on finance leases
(15)
(16)
Interest on employee benefit liabilities
(47)
(85)
Amortisation of shareholder loan expenses
(243)
(210)
Financial expense
(1,472)
(1,478)
5. Taxation
2018
2017
$000
$000
Current tax:
Corporation tax at 19% (2017: 20%):
- current period
-
-
Overseas taxation:
- current period
(340)
-
Total current tax charge
(340)
-
Deferred taxation:
- current period
252
(869)
- effect of rate change in USA
(630)
-
- prior period (adjustments to the capital allowance pools in the UK and overseas)
(98)
(593)
Total deferred taxation credit/(charge)
(476)
(1,462)
Taxation charged to the income statement
(816)
(1,462)
The rate for tax in the USA was changed from 34% to 21% during the year requiring a remeasurement of deferred tax assets in the USA.
Tax reconciliation
The tax charge assessed for the period is higher than (2017: higher than) the standard rate of corporation tax in the UK of 19% (2017: 20%). The differences are explained below:
2018
2017
$000
%
$000
%
Profit before tax
3,865
4,036
Profit before tax multiplied by the standard rate of corporation tax
in the UK of 19% (2017: 20%)
734
19.0
807
20.0
Effects of:
-income not taxable and/or expenses not deductible
338
8.7
(527)
(13.1)
- overseas tax rates
58
1.5
21
0.5
- pension fund surplus taxed at higher rate
97
2.5
161
4.0
- state taxes
52
1.4
21
0.5
- deferred tax prior period adjustment
98
2.5
593
14.7
- tax not recognised on losses
-
-
386
9.6
- Recognition of tax losses not previously recognised
(864)
(22.4)
-
-
- Utilisation of tax losses
(327)
(8.4)
-
-
- impact of rate change in the USA
630
16.3
-
-
Taxation charged to the income statement
816
21.1
1,462
36.2
6. Dividends
No dividend was declared or paid in the period (2017: no dividend paid).
A final dividend of 0.5p has been proposed, payable on 28 September 2018 to holders on the register at 31 August 2018.
7. Earnings per share
The calculation of the basic earnings per share of 2.80c (2017: 2.46c) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of $3,049,000 (2017: $2,574,000) and on the weighted average number of shares in issue during the period of 108,902,335 (2017: 104,357,957). At 31 March 2018, there were 6,650,000 (2017: 6,650,000) potentially dilutive shares on option with a weighted average effect of 790,601 (2017: 303,255) shares giving a diluted earnings per share of 2.78c (2017: 2.46c)
2018
2017
Weighted average number of shares
Issued shares at start of period
104,357,957
104,357,957
Effect of shares issued in the year
4,544,378
-
Weighted average number of shares at end of period
108,902,335
104,357,957
Weighted average number of the 6,650,000 (2017: 6,650,000) potentially dilutive shares
790,601
303,255
Total Weighted average diluted shares
109,692,936
104,661,212
Total post tax earnings
3,049
2,574
Basic EPS
2.80c
2.46c
Diluted basic EPS
2.78c
2.46c
Underlying earnings
$000
$000
Total post tax earnings
3,049
2,574
Share Option Costs
39
85
Pensions Interest
(1,694)
(1,806)
Amortisation of Shareholder loan expenses
243
210
Pensions credit
-
(809)
Amortisation of intangible assets acquired
51
51
Profit on disposal of ProPhotonix Ltd
(1,256)
-
Other special items
1,800
850
Acquisition costs
-
36
Tax effect of rate change in USA
630
-
Tax on special items
622
1,609
Underlying Earnings after tax
3,484
2,800
Underlying EPS
3.20c
2.68c
Underlying diluted EPS
3.18c
2.68c
8. Cash and cash equivalents
2018
2017
$000
$000
Cash at bank
1,536
1,227
Short-term deposits
140
125
Cash and cash equivalents per statement of financial position and per cash flow statement
1,676
1,352
9. Loans and other borrowings
CURRENT:
2018
2017
$000
$000
Bank loans
4,984
6,789
Obligations under finance leases
41
101
5,025
6,890
NON-CURRENT:
2018
2017
$000
$000
Bank loans
842
1,598
8% Loan Notes
11,287
9,842
Obligations under finance leases
122
112
12,251
11,552
The $11.9m (£8.5m) of Loan Notes in place at the year-end were issued in three tranches in February, March and August 2015 with 43.95m convertible warrants attached to them. These warrants allow the holders to either convert the loan into shares or to purchase shares at 20p for a cash consideration. The loan has both debt and equity components and $195,000 is shown in equity reserve and the balance after deduction of associated costs and amortisation of $429,000, is shown in non current borrowings. Costs are amortised to the income statement over the term of the loan. The loan notes are repayable and the warrants expire both on 14 February 2020.
Facilities from HSBC include a $5m trade and invoice finance facility, of which $0.5m had been utilised at the year-end, and a mortgage for the Colchester property of $0.4m which will be repaid on a monthly basis through to March 2020.
US Dollar denominated term loans of $0.6m and $0.5m are to be repaid on a monthly basis through to March 2019 and April 2021 respectively in equal instalments with an interest rate of 2.25% above base, with revolving credit loans in addition of $3.8m.
Given the nature of the Group's financial assets and liabilities, it is the directors' opinion that there is no material difference between their reported book values and estimated fair values. The fair value of the Loan Notes is the book value less the debt issue cost and equity element.
The above loans and borrowings are secured by way of fixed and floating charges over the assets of the Company and its subsidiaries.
10. Analysis of net DEBT
At
At
1 April
Exchange
31 March
2017
movement
Other
Cash flows
2018
$000
$000
$000
$000
$000
Cash at bank and in hand
1,227
(108)
-
417
1,536
Term deposits (included within cash and cash equivalents on the balance sheet)
125
15
-
-
140
1,352
(93)
-
417
1,676
Debt due within one year
(6,789)
(290)
-
2,095
(4,984)
Debt due after one year
(1,598)
(134)
-
890
(842)
Loan notes due after one year
(9,842)
(1,202)
(243)
-
(11,287)
Finance leases
(213)
(6)
-
56
(163)
Total
(17,090)
(1,725)
(243)
3,458
(15,600)
11. Alternative performance measures
The Directors assess the performance of the Group by a number of measures and frequently present results on an 'underlying' basis, which excludes special items. The Directors believe the use of these 'non-GAAP measures' provide a better understanding of underlying performance of the Group.
In the review of performance reference is made to 'underlying profit' or 'profit before special items', and in the Consolidated Income Statement the Group's results are analysed between Before Special items and After Special items.
Special items are detailed in note 3 and are disclosed separately on the basis that this presentation gives a clearer picture of the underlying performance of the group.
These measures are used by the Board to assess performance, form the basis of bonus incentives and are used in the Group's banking covenants. In addition the Board makes reference to orders and order book or backlog. This represents orders received from customers for goods and services and the amount of such orders not yet fulfilled.
Underlying operating profit
$000
$000
Operating profit
2,340
3,619
Special items included in cost of sales (see note 3)
764
147
Special items included in net operating expenses (see note 3)
1,126
66
Underlying operating profit
4,230
3,832
Underlying profit for the period
Profit for the period
3,049
2,574
Special items included in cost of sales (see note 3)
764
147
Special items included in net operating expenses (see note 3)
1,126
66
Special items included in Financial income
(1,741)
(1,891)
Special items included in Financial expense
290
295
Profit on disposal of ProPhotonix
(1,256)
-
Tax effect of rate change in USA
630
-
Tax on special items
622
1,609
Underlying profit for the period
3,484
2,800
Underlying EPS
A reconciliation of underlying EPS is included in note 7
12. Prophotonix disposal
The Group disposed of its entire holding in ProPhotonix Limited on 31 August 2017. The shareholding was originally acquired in a share swap with institutional investors in August 2014 when 4.925m shares were issued in exchange for 26.3% of ProPhotonix. Proceeds of $1.97m gross were received which was used to reduce the UK senior debt with HSBC.
On disposal management identified that a write down of the carrying amount of the investment that occurred in 2015 should have been recognised in the consolidated income statement rather than the available for sale reserve. As a result, an amount of $924,000 has been transferred from retained earnings to the available for sale reserve as at 2 April 2016. The restated available for sale carrying amount after fair value movement from the start of the year to the date of disposal has then been recycled as part of the profit on disposal of $1,256,000.
13. Post balance sheet events
On 17 July 2018 the Trustee of the 600 Group Pension Scheme signed a policy with Pension Insurance Corporation to buy out the scheme liabilities for £200,600,000 ($266,000,000). Further details on the transaction and the implications for the Group are included in the Strategic report.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR GRGDRXSDBGIG
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