TIDMSIXH
RNS Number : 0108F
600 Group PLC
10 July 2019
The 600 Group PLC
A Transformational Year
Results for the year ended 30 March 2019
The 600 Group PLC ("the Group"), the diversified industrial
engineering company (AIM: SIXH), today announces its results for
the year ended 30 March 2019.
Financial highlights
-- Revenue from continuing operations up 1.9% to $65.2m (2018: $63.9m)
-- Underlying* operating profit up to $5.3m (2018: $1.8m)
-- Gross margin improved 2.4% to 36.1% (2018: 33.7%)
-- Underlying* pre-tax profit up to $4.1m (2018: $0.6m)
-- Group order book up 6.5%
-- Recommended final dividend of 0.5p per share
*from continuing operations, before adjusting items.
Strategic & operational highlights
-- Good financial performance & significantly improved financial position
o Completion of $270m pension scheme buyout de-risks balance
sheet
o Cash surplus $5.2m net of tax from pension scheme windup now
returned to the Group
o Continued improvement in revenue and profit growth
-- Moving up the value chain
o Continued focus on operational efficiencies and increased
operational flexibility
o Sustainable profit growth supported by investment in product
innovation and higher value customer offering across both
divisions
o Post-period acquisition of Control Micro Systems significantly
enhances customer offering in growing global laser market
-- Positive outlook
o Launch of new European Technology Centre reflects strategic
focus on product innovation
o Revenue visibility underpinned by an improved orderbook, up
6.5%
o Recommended final dividend of 0.5p per share reflects Board's
confidence for the future
Paul Dupee, Executive Chairman of the Group, commented:
"This has been a transformational year for the Group with a
number of major developments, both operationally and financially,
supporting our strategy of building a global industrials
business.
These results demonstrate continued improvement in profitability
and increasing revenues, which reflects our ongoing focus on
driving operational efficiencies across the Group whilst also
investing for growth as we move up the value chain.
As announced on 24 June 2019, we were pleased to announce the
acquisition of Control Micro Systems. CMS is highly complementary
to the Group's existing laser business and will further enhance our
customer offering as we seek to capture world-wide growth in the
use of industrial lasers.
As a result of the Group's improved performance and strengthened
financial position following the successful completion of the
pension scheme buy out, I am pleased to announce the Board's
recommendation of a final dividend of 0.5p per share. The 600 Group
continues to go from strength to strength, we have a clear strategy
for the future, and I look forward to reporting on future
progress."
Enquiries:
The 600 Group PLC Tel: 01924 415000
Paul Dupee, Executive Chairman
Neil Carrick, Finance Director
Instinctif Partners Tel: 0207 457 2020
Mark Garraway
James Gray
Spark Advisory Partners Limited (NOMAD) Tel: 020 3368 3553
Matt Davis
Miriam Greenwood
WH Ireland (Broker) Tel: 020 7220 1666
Harry Ansell
Overview
This has been a transformational year for the Group. Over the
year we have seen a number of major developments, both
operationally and financially, that will have a significant impact
on the Group now and in the future as we pursue our growth
strategy.
The shackles of the Group's UK final salary pension scheme have
been thrown off, relieving the Group of a disproportionate
liability and significantly de-risking the Group's balance sheet
with the cash refund received post-period end on the wind up of the
scheme of $5.2m (net of tax) providing significantly greater
financial flexibility.
The Group's results for the 2019 fiscal year have improved in
line with the Board's expectations with continued good progress in
improving both the Group's profitability and increasing revenues.
These improved results reflect our ongoing focus on driving
operational efficiencies across the Group whilst also investing in
new product development, improving our customer offering and
enhancing our sales and distribution resource.
In May 2019, the Group was pleased to announce the launch of its
new European Technology Centre, marking a step forward for the
Group and demonstrating the importance of product innovation to the
Group's strategy as it seeks to underpin organic growth through a
strong focus on product development, including launching new
products that add to the higher end capabilities of the Group's
product range.
The enhanced financial position has provided the Group the
flexibility to supplement organic growth with value-enhancing
bolt-on acquisition opportunities. The Group was able to expand its
operations through successfully acquiring Control Micro Systems
(CMS) in June 2019. The acquisition of CMS is highly complementary
to the Group's existing laser business, enhancing its customer
offering by providing ever more sophisticated, value-added and
custom solutions to customer requirements as the Group seeks to
capture world-wide growth in the use of industrial lasers. CMS will
likewise benefit from the Group's established sales platform and
marketing capability.
Divisional overview
The rationalisation of the UK operations of the Machine Tool
division has significantly improved operating profitability. The
final phase of the outsourcing of manufacturing is in the process
of being concluded with the sale of the Gamet bearings business,
which has been treated as a discontinued operation in these
financial statements. This rationalisation has reduced operational
risk and capital expenditure requirements. The move of the UK
operation to the new European Technology Centre and re-branding of
the business as 'Colchester Machine Tool Solutions' is already
raising the profile of the business and helping to drive growth in
the UK market and overseas.
In the Industrial Laser division, the UK and European new direct
sales function and the spares and service operations have been
consolidated into the new machine tool facilities. The launch of a
new entry level product during the year has helped unit volumes
increase and provided a competitive product to combat this ever
increasingly price sensitive sector of the market. It also provides
a product which can be sold through selective machine tool
distributors worldwide, further driving operational benefits.
Dividend
As a result of the continued good operational performance, the
current commercial outlook and the successful completion of the
pension scheme wind up, the Board has determined to continue
payment of a dividend and are recommending a pay-out of 0.5p per
share payable on 30 September 2019, to shareholders on the register
at 30 August 2019.
People
Our people are central in continuing the improvement of our
business. During the year we continued to invest in new people as
well as strengthening our senior management team. On behalf of the
Board, I would like to thank all our employees for their ongoing
support, commitment and dedication to The 600 Group. I look forward
to working with them again in the coming year and welcome our new
colleagues from Control Micro Systems to the Group.
Outlook
Despite certain macro-economic and political uncertainties
impacting customer sentiment, enquiry and quotation activity
remains stable with revenue visibility underpinned by an improved
orderbook.
We continue our strategy to grow the Group into a global
industrials business. We are constantly seeking to leverage our
industry-recognised brands and expand our worldwide distribution
network. The introduction of new and innovative products to widen
the customer base continues to be a clear focus for both our
divisional management teams. The Board continues to believe the
strategy of brand promotion, investment in new, higher end product
capabilities, diversification into new markets and selective
acquisitions will help the business move up the value chain and
lead to continued market share growth in the future.
Paul Dupee
Executive Chairman
10 July 2019
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.
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 large 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 30 March 2019 the top 20 customers, of which 16 were
distributors, contributed 27% of revenues.
Revenues
Revenues are generated across many diverse geographical
territories:
Percentage of worldwide revenues 2019 2018
(by destination) % %
United States of America 65 67
United Kingdom 15 15
Europe (excluding UK) 10 10
Rest of the World 10 8
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 $78.5bn in annual sales in its Spring 2019
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 $8.6bn followed by Germany at $6.7bn.
The report indicated growth of nearly 7% globally in the
calendar year to December 2018 but is forecasting a lower 2.3%
growth rate in 2019. Within our main markets the expectations for
2019 were for the USA to be close to 4% growth with Europe at
1.4%.
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. One of the main drivers of this
industry has been legislation and the continual increase in the
requirement for traceability of products in all industries from
aerospace and transport to medical and pharmaceutical.
Industry spending for the entire global industrial laser market
continues to increase and reached a new estimated high of $5bn in
calendar year 2018. Growth in the overall market is estimated to
rise by mid-single-digit growth in 2019 and is dominated by China
which is the largest producer and consumer of industrial lasers.
The laser marking and micro-materials subset of the market (in
which the Group competes) is smaller than the macro-materials
processing subset and has seen low single digit growth in recent
years. 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. The industry subset occupied by the Group
has however seen a proliferation of vendors and selling price
pressure at the lower commodity end of the market and whilst unit
volumes have continued to increase, revenue has been held back.
Our main markets
The main markets we operate in are the USA, Europe and
Australia. All these markets have experienced some degree of
disruption with the ongoing Brexit issues in the UK, the concern in
the USA over tariffs and a trade war with China and the general
election in Australia. Despite these issues, quotation activity has
remained good, but the various headwinds have had an effect on the
time it is taking customers to commit to an actual order. Order
books have improved after some weakness at the start of 2019 and
are currently 6.5% ahead of the prior year.
Whilst the Brexit issues will continue for some time, The 600
Group has a relatively low exposure to these risks given only 10%
of Group sales were to EU countries excluding the UK. In addition,
given most of the Group's income is in US Dollars this provides a
natural currency hedge against the majority of our purchases which
are also in US Dollars.
In addition, over 10% 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 2018/19 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 a mix of direct sales 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 excellent operating profit
growth of 147% (before adjusting items) on increased revenues of
3.3%. The principal growth came from the UK operation which
returned to profitable operating margins of 7.4% reflecting the
benefits of the restructuring undertaken in this business over the
last two years.
The re-launch of the UK business as "Colchester Machine Tool
Solutions" and the move to a new site in February 2019 gave fresh
impetus to the revised management team, led by Terry Allison who
became the Group Chief Operating Officer in November 2018. The
business has developed new distributor relationships and expanded
its direct sales force in the UK.
The new facility near Halifax in West Yorkshire integrates a
modern, open plan office environment, enhanced manufacturing and
warehousing space as well as serving as the Group's new European
Technology Centre with a dedicated year-round product showroom,
demonstration and customer training capability to showcase the
business' increasingly innovative product range.
The new integrated facility will provide additional operational
flexibility, benefitting from a more integrated logistics operation
which should provide efficiency benefits in both production and
warehousing.
The move of premises was part of the restructuring of the UK
operation which has seen a de-risking of operations and reduction
in the requirement for ongoing capital expenditure by the
outsourcing of further manufacturing. This process is coming to a
conclusion with the sale of the Gamet Bearings operation based in
Colchester. The revenue and trading results of this operation have
been excluded from the ongoing trading and disclosed as a
discontinued operation in the Consolidated Income Statement and the
assets held for sale separately disclosed at their expected fair
value in the Statement of Financial Position at 30 March 2019.
The US machine tool business continued to make progress in
improving operating margins despite revenues remaining flat in a
difficult market where concerns over tariffs and a trade war with
China slowed down customers' decision making. The range of USA
produced machines continues to expand and sales to Mexico and
Canada continue to grow.
The Australian machine tools business continued its progress
with a further 9% growth in revenue and improvement in operating
profits. The business will seek to expand in Australia and the
wider South East Asia, where the Group's machine tool brands remain
well known with a good installed base and focusing on the
'Colchester Machine Tool Solutions' heritage. The business was
strengthened in November 2018 when Zelko Galic an experienced
engineer and manager joined as the new managing director of the
operation.
The financial results of these activities were as follows:
2019 2018
Restated*
$ 000 $ 000
Revenues 44,575 43,152
Operating profit 3,610 1,459
Operating margin 8.1% 3.4%
*Restated for the results of Gamet Bearings which is shown as a
discontinued operation in both financial years and for the effects
of adoption of IFRS 15 and IFRS 9. See note 15.
Industrial laser systems
The industrial laser systems business has seen increased
competition in the lower end commodity products and successfully
introduced a competitive product in September 2018 which has seen
good volume sales. This low-cost machine is now starting to be
distributed through our machine tool distribution channels as well
as the traditional laser distributors. The business has also
expanded its expertise into the higher end market where customer
requirements for more specialised solutions can be satisfied as a
result of the business's proprietary software and technical
capabilities. Whilst the volume of units sold has increased year on
year the move of part of the business to the lower priced units has
kept overall revenues flat but the business has been able to
continue to improve operating margins as a result of the
restructuring of the UK operation and by maintaining overall gross
margins.
The UK spares and service operation has been integrated into the
new European Technology Centre machine tools operation which now
supports both the UK and Europe and a direct sales operation for
the UK has been established based in this facility which provides a
permanent showroom to demonstrate the full range of laser
machines.
The joint TYKMA ELECTROX brand provides laser solutions which
includes marking, engraving and micro-material processing.
Customers are able to choose from the combined product portfolio
the solution to an expanded number of applications. These
industrial laser systems are sold 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 were as follows:
2019 2018
Restated*
$ 000 $ 000
Revenues 20,592 20,792
Operating profit 2,563 2,100
Operating margin 12.4% 10.1%
Group Results
Revenue from continuing operations increased by 1.9% to $65.2m
(2018: $63.9m) and Group profit before tax and adjusting items was
$4.1m (2018: $0.6m) and profit before tax after adjusting items was
$4.3m (2018: $3.3m).
Changes in accounting standards
The Group has adopted two new accounting standards in the year,
IFRS 15, Revenue from Contracts with Customers, which establishes a
principles-based approach to revenue recognition and measurement
depending on when performance obligations are satisfied, and IFRS
9, Financial Instruments. Both of these have required additional
disclosures and some small adjustments to the opening statement of
financial position. Details of these can be found in note 15.
Adjusting items
The directors have highlighted transactions which are material
and unrelated to the normal trading activity of the Group.
In the opinion of the directors the disclosure of these entries
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 13 alternative
performance measures and set out in note 3. All adjusting items are
taken into account in the GAAP figures in the Income Statement.
The buy-out of the Group pension scheme was completed in April
2019 but during the year ended 30 March 2019 the trustees undertook
a number of exercises to reduce the liabilities of the scheme which
had an actuarial cost of $1.28m. Given these had a beneficial
effect on the ultimate buy out cost of the scheme they were
supported by the Group. This amount is shown in adjusting
items.
As a result of the outsourcing of manufacturing in the UK, the
existing premises were vacated, and a sublet is in the process of
negotiation. An onerous lease provision of $0.4m has been provided
as a result of this and shown in adjusting items.
A credit of $1.26m (2018: credit of $1.74m) 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.
The adjustment to the carrying value of the amortised cost of
the loan notes in the year is shown as a credit of $0.82m. This
arose as a result of the extension of these instruments by a
further two years. The prior year's amortisation has been included
as an adjusting item.
An additional credit of $1.26m was recorded in the prior 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.
As a result of the changes in the USA to the rates of taxation,
a significant charge of $0.6m was made to adjust the deferred
taxation assets.
An amount of $0.96m has been recorded to reduce the value of the
Gamet assets available for sale to bring their carrying value into
line with the expected proceeds of sale, less costs to sell.
Taxation
The current year pre-adjusting items profit resulted in a small
charge of $0.066m (2018: credit of $0.53m) 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 sheet as existing recorded losses are utilised which
will help maintain a lower tax charge. There remains an
unrecognised deferred tax asset of over $2m in addition to the
recognised asset of $2m in respect of UK tax losses at the year
end. The US businesses are subject to taxation on their profits at
the rate of 21% (2018: composite rate of 31%). The USA businesses
benefited from claims for R&D tax allowances in current and
previous years during the year.
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 adjusting items.
Following the changes in the USA to the rates of taxation in the
prior year, a significant charge of $0.6m was made to adjust the
deferred taxation assets. This charge was shown in adjusting
items.
Net profit and earnings per share
The total continuing profit attributable to equity holders of
the parent for the current financial year amounted to $4.2m (2018:
$2.6m) with pre-adjusting items profit of $4m (2018: $1.1m). The
total profits including the effects of the Gamet discontinued
operation are $3.1m (2018: $2.9m).
Underlying basic earnings from continuing operations before
adjusting items and related taxation were 3.53 cents (equivalent to
2.69p) per share (2018: 1.03 cents, equivalent to 0.79p) and basic
earnings per share were 3.75 cents (equivalent to 2.88p) (2018:
2.38 cents, equivalent to 1.83p) see note 7.
Financial position and utilisation of resources
Cash flow
Cash generated from operations before working capital movements
was $4.8m (2018: $3.8m).
Working capital on continuing activities was little changed on
the prior year with stock, trade receivables and trade payables at
similar levels. Other creditors and accruals reduced as the
redundancy and restructuring provisions were defrayed in the
current year.
Interest paid was similar to the previous years at $1.2m (2018:
$1.2m) with the largest component being interest on the GBP8.5m
($9.5m) 8% loan notes.
Capital expenditure consisted of development work on the
upgrading of the industrial laser division proprietary software of
$0.9m, demonstration and showroom equipment for the laser business
of $0.5m, and the fit out of the new European Technology Centre in
the UK for $0.5m. Whilst the development expenditure will be
similar in the next year to complete the software project, the
machine tool expenditure will not repeat and the sale of the Gamet
business and outsourcing of manufacturing has significantly reduced
future capital expenditure requirements for this division.
In the prior year net proceeds of $1.97m from the ProPhotonix
sale were received in September 2017.
Dividends of $1.1m were paid during the year (2018: nil).
Net borrowings
Group net debt at 30 March 2019 was reduced on prior year to
$14.5m (2018: $15.6m) and comprised net bank and finance lease
indebtedness of $5m (2018: $4.3m) and the amount outstanding on the
loan notes of $9.5m (2018: $11.3m). The amount outstanding on the
loan notes has reduced due to the exchange rate effect of
re-translation into dollars and the reduction in the carrying value
due to the amortisation being re-stated because of the extension of
the term of the notes by two years to February 2022. 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 (2018:
$0.6m).
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 $8.7m at the
year-end (2018: $8m) and all financial covenants in place were met
during the year.
The GBP8.5m ($9.5m) 8% loan notes maturity were extended to
February 2022 at the end of February 2019 and the warrants of equal
value to subscribe for new ordinary shares at 20p were similarly
extended to the same date. As a result, the carrying value of the
loan notes were amended to reflect the extended term and the cost
involved. A reduction in the carrying value of $0.98m has been
recognized at 30 March 2019.
Gearing amounted to 49% of aggregate net assets (2018: 27%) with
the increase being as a result of the reduction of the UK pension
scheme asset.
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 has
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 for the UK pension scheme has continued during
the year under the requirements of IAS 19 on the basis that the
scheme trustees had secured an insurance policy to match the scheme
liabilities but that this was held as an asset and valued along
with the scheme liabilities, in accordance with IAS 19
requirements, until the buy-out of the scheme was complete. The
buy-out was completed in late April 2019 and the remaining surplus
in the scheme of $8m repaid to the Group after deduction of 35% tax
with the Group receiving the net $5.2m at the end of May 2019.
The accounting surplus on the UK scheme at 30 March 2019 was
$7.5m (2018: $54.3m). The accounting figures are calculated using
prescribed methods and in particular use corporate bond rates to
value the scheme liabilities.
The buy-out of the scheme involved securing individual annuity
contracts for each member with an insurance company with all future
risks passing 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 GBP51m ($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 Group 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 reduction in the accounting value of the scheme surplus has
been reflected, along with the corresponding deferred taxation, in
the Consolidated Statement of Comprehensive Income. 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
17% rate in the accounting entries. 35% tax was deducted from the
gross refund before the trustees paid funds to the Group in May
2019.
The US retiree health scheme and pension fund deficits remained
at the same level as the previous year at $1.2m (2018: $1.2m). The
only funding of these benefits during the year was the payment of
an insurance premium in respect of the retiree health scheme.
Key performance indicators (KPI's)
The Group monitors performance against key financial objectives
that the Directors judge to be effective in measuring the delivery
of strategic aims and managing and controlling the business. These
focus at Group level on underlying profit, together with its
associated earnings per share.
At individual business unit level, KPI's also include working
capital control, and customer- related performance measures such as
on-time delivery, minimisation of warranty concerns, and measured
levels of overall customer satisfaction.
These key performance indicators are measured and reviewed
against budget projections and prior year on a regular basis and
this enables the business to set and communicate its performance
targets and monitor its performance against these targets.
The Group's recent performance on these financial KPI's is set
out as follows:
KPI 2019 2018
Revenue (annual
growth rate) 1.9% 12.3%
Operating margin
(% of revenue) pre
adjusting items 8.1% 2.8%
All figures are pre adjusting items
These KPI's are used to assess performance and manage the
business and have been discussed in the strategic report and
divisional commentary in the Strategic report.
Key business risks
The Board of Directors has identified the main categories of
business risk in relation to the implementation of the Group's
strategic aims and objectives, and has considered reasonable steps
to prevent, mitigate or manage these risks.
Macro-economic - the Group's businesses are active in markets
which can be cyclical in nature as the overall level of market
demand is dependent upon capital investment intentions. Economic or
financial market conditions determine global demand and could
adversely affect our customers, distributors, operations,
suppliers, and other parties with whom we transact. Such factors as
the ongoing Brexit issues and the concerns over a trade war between
the USA and China during the financial year are examples of factors
which have resulted in changes in demand. The Directors seek to
ensure that our overall risk is mitigated by avoiding excessive
concentration of exposure to any given geographical or industry
segment, or to any individual customer. Market conditions, lead
indicators and industry forecasts are monitored for any early
warning signs of changes in overall market demand, and measures to
exploit opportunities or manage elevated risks are taken as
appropriate. Key business risks are set out in the strategic
review.
Production and supply chain - the continuity of the Group's
business activities is dependent upon the cost-effective supply of
products for sale from our own facilities, and those of our key
vendors. Supply can be disrupted by a variety of factors including
raw material shortages, labour disputes and unplanned machine down
time. In particular, the Directors are mindful that a small number
of key manufacturing outsource partners are located in relatively
close proximity to each other in Taiwan.
Taiwan is ranked by Gardner Research as the seventh largest
producer nation of machine tools, with global production valued at
almost US $4 billion. Taiwanese suppliers represent approximately
one third of the total cost of sales for the Group. Group
businesses mitigate such risk by carefully selecting high quality
vendors and maintaining long term constructive and open
relationships. The effectiveness of such mitigation would be
limited, however, in certain catastrophic circumstances (for
example, extreme weather or seismic activity in the vicinity),
against which the Group carries appropriate insurance.
Additionally, supply sources in India have been developed as a
consequence and an increasing amount of product is now made in the
USA as well.
Laws and regulations - Group businesses may unknowingly fail to
comply with all relevant laws and regulations in the countries in
which they operate and contract business. There is a risk of breach
of legal, safety, environmental or ethical standards which can be
more difficult to identify, comprehend, or monitor in certain
territories than others. The Directors believe that they have taken
all reasonable steps to ensure that operations are conducted to
high ethical, environmental and health and safety standards.
Controls are in place to keep regulatory and other requirements
under careful review, and scrutinise any identified instances of
elevated risk.
Information Technology ("IT") - Group IT systems and the
information they contain are subject to security risks including
the unexpected loss of continuity from virus or other issues, and
the deliberate breach of security controls for commercial gain or
mischief. Any such occurrences could have a significant detrimental
effect on the Group's business activities. These risks are
mitigated by the utilisation of physical and embedded security
systems, regular back-ups and comprehensive disaster recovery
plans.
Treasury and risk management
Financial risks
The main financial risks faced by the Group are credit risk,
foreign currency risk, interest rate risk and liquidity risk. The
Directors regularly review and agree policies for managing these
risks.
Credit risk is managed by monitoring limits and payment
performance of counterparties. The Directors consider the level of
general credit risk in current market conditions to be normal.
Where a customer is deemed to represent an unacceptable level of
credit risk, terms of trade are modified to limit the Group's
exposure. Insurance cover is also taken where appropriate.
Foreign currency risk is managed by matching payments and
receipts in foreign currency to minimise exposure. Foreign currency
is bought to match liabilities as they fall due where currency
receipts are insufficient to match the liability. Whilst the Group
results are now reported in US Dollars the functional currency of
600 UK, 600 Inc. and 600 Machine Tools Pty Limited remain in their
local currencies respectively and the result in the Group's
Statement of Financial Position and trading results can be affected
by movements in these currencies. Part of this exposure is
naturally hedged by entering into borrowing facilities denominated
in local currencies.
Liquidity risk is managed by the Group maintaining undrawn trade
finance facilities in addition to a number of longer-term loans and
loan notes in order to provide short term flexibility.
Interest rate risk is managed by maintaining a mixture of cash
and borrowings in Sterling, US Dollars and Australian Dollars at
floating rates of interest and issuing loan notes with a fixed
interest rate until maturity.
Market risks
The Group's main exposure to market risk arises from increases
in input costs in so far as it is unable to pass them on to
customers through price increases. The Group does not undertake any
hedging activity in this area and all materials and utilities are
purchased in spot markets. The Group seeks to mitigate increases in
input costs through a combination of continuous improvement
activities to minimise increases in input costs and passing cost
increases on to customers, where this is commercially viable.
The Group is also aware of market risk in relation to the
dependence upon a relatively small number of key vendors in its
supply chain. This risk could manifest in the event of a commercial
or natural event leading to reduced or curtailed supply. The Group
seeks to mitigate these risks by maintaining transparent and
constructive relationships with key vendors, sharing long term
plans and forecasts, and encouraging effective disaster recovery
planning. Alternative sources of supply in different geographic
regions have also been put in place.
The Group is also exposed to the risk of a downturn in its
customers' end markets leading to reduced levels of activity for
the Group. The Directors seek to ensure that the Group's activities
are not significantly concentrated in sales to either one
individual customer or into a single market sector in order to
mitigate the exposure to a downturn in activity levels. The
Directors consider that the current
level of market risk has risen as a result of concerns over
trade wars.
Other principal risks and uncertainties
Pension funding risk was a significant risk to the Group, but
this has largely been eliminated by the buy-out of the UK final
salary scheme. There remains a small closed pension arrangement in
the USA and a requirement to provide health insurance cover to a
limited extent to a number of retired people in the USA. The
Directors regularly review the performance of the pension scheme
and any recovery plan. Proactive steps are taken to identify and
implement cost effective activities to mitigate the pension scheme
liabilities and insurance premium of the retiree health scheme.
The remaining main risks faced by the Group are to its
reputation as a consequence of a significant failure to comply with
accepted standards of ethical and environmental behaviour.
The Directors have taken steps to ensure that all of the Group's
global operations are conducted to the highest ethical and
environmental standards. Regulatory requirements are kept under
review, and key suppliers are vetted in order to minimise the risk
of the Group being associated with a company that commits a
significant breach of applicable regulations.
Neil Carrick
Finance Director
10 July 2019
Consolidated income statement
For the 52-week period ended 30 March 2019
Restated Restated
Before After Before Restated After
Adjusting Adjusting Adjusting Adjusting Adjusting Adjusting
Items Items Items Items Items Items
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
ended ended ended ended ended ended
30 March 30 March 30 March 31 March 31 March 31 March
2019 2019 2019 2018 2018 2018
Notes $000 $000 $000 $000 $000 $000
------------------------------------ ----- --------- --------- --------- --------- --------- ---------
Continuing
Revenue 2 65,167 - 65,167 63,944 - 63,944
Cost of sales (41,641) - (41,641) (42,363) - (42,363)
------------------------------------ ----- --------- --------- --------- --------- --------- ---------
Gross profit 23,526 - 23,526 21,581 - 21,581
Net operating expenses (18,269) (1,786) (20,055) (19,803) - (19,803)
------------------------------------ -----
Operating profit/(loss) 5,257 (1,786) 3,471 1,778 - 1,778
Financial income 4 35 2,077 2,112 - 1,741 1,741
Financial expense 4 (1,236) - (1,236) (1,182) (290) (1,472)
Profit on ProPhotonix disposal - - - - 1,256 1,256
Profit before tax 4,056 291 4,347 596 2,707 3,303
Income tax (charge)/credit 5 (66) (48) (114) 529 (1,239) (710)
------------------------------------ ----- --------- --------- --------- --------- --------- ---------
Profit for the period on continuing
activities 3,990 243 4,233 1,125 1,468 2,593
attributable to equity holders
of the parent
(Loss)/profit on discontinued
activity (146) (961) (1,107) 312 - 312
------------------------------------ ----- --------- --------- --------- --------- --------- ---------
Profit for the period attributable
to the equity holders of the
parent 3,844 (718) 3,126 1,437 1,468 2,905
Basic earnings per share 7 3.53c 0.22c 3.75c 1.03c 1.35c 2.38c
Diluted earnings per share 7 3.50c 0.21c 3.71c 1.03c 1.34c 2.37c
Basic earnings per share after
discontinued 7 3.40c (0.63c) 2.77c 1.32c 1.35c 2.67c
Diluted earnings per share
after discontinued 7 3.37c (0.63c) 2.74c 1.31c 1.34c 2.65c
Company Number 00196730
The comparative figures have been adjusted for the result of
Gamet Bearings which is shown as a discontinued operation and the
effects of the adoption of IFRS 15 and IFRS 9. See note 15.
As explained in note 3, the directors have highlighted adjusting
items which are material and unrelated to the normal trading
activity of the group. The "before adjusting items" column in the
consolidated income statement shows non-GAAP measures. The "after
adjusting items" column shows the GAAP measures.
Consolidated statement of comprehensive income
For the 52-week period ended 30 March 2019
Restated
52-week 52-week
period period
ended ended
30 March 31 March
2019 2018
$000 $000
----------------------------------------------------- --------- ---------
Profit for the period 3,126 2,905
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 (43,083) (19,659)
Deferred taxation 15,071 6,852
------------------------------------------------------ --------- ---------
Total items that will not be reclassified to
the Income Statement: (28,012) (14,272)
------------------------------------------------------ --------- ---------
Items that are or may in the future be reclassified
to the Income Statement:
Foreign exchange translation differences (3,005) 4,109
Total items that are or may in the future be
reclassified to the Income Statement: (3,005) 4,109
------------------------------------------------------ --------- ---------
Other comprehensive income / (expense) for the
period, net of income tax (31,017) (10,163)
Total comprehensive income/(expense) for the
period (27,891) (7,258)
------------------------------------------------------ --------- ---------
Attributable to:
Equity holders of the Parent Company (27,891) (7,258)
------------------------------------------------------ --------- ---------
Consolidated statement of financial position Company Number 00196730
As at 30 March 2019
Restated Restated
As at As at As at
30 March 31 March 1 April
2019 2018 2017
Notes $000 $000 $000
------------------------------ ----- -------- -------- --------
Non-current assets
Property, plant and equipment 3,435 4,111 4,668
Goodwill 10,329 10,329 10,329
Other Intangible assets 1,110 407 382
Investments - - 2,068
Deferred tax assets 4,578 5,135 4,383
Employee benefits - 54,319 65,677
19,452 74,301 87,507
------------------------------ ----- -------- -------- --------
Current assets
Inventories 19,030 19,960 16,161
Trade and other receivables 8 9,163 9,726 8,959
Employee Benefits 7,459 - -
Taxation 8 294 - -
Assets classified as held for
sale 1,108 - -
Cash and cash equivalents 948 1,676 1,352
------------------------------ ----- -------- --------
38,002 31,362 26,472
------------------------------ ----- -------- -------- --------
Total assets 57,454 105,663 113,979
------------------------------ ----- -------- -------- --------
Non-current liabilities
Employee benefits (1,239) (1,225) (1,289)
Loans and other borrowings (10,173) (12,251) (11,552)
Deferred tax liabilities - (19,020) (22,770)
------------------------------ ----- -------- -------- --------
(11,412) (32,496) (35,611)
------------------------------ ----- -------- -------- --------
Current liabilities
Trade and other payables 9 (8,095) (9,205) (6,801)
Deferred tax liabilities (2,541) - -
Taxation 9 - (291) -
Provisions 10 (447) (53) (486)
Loans and other borrowings (5,316) (5,025) (6,890)
(16,399) (14,574) (14,177)
------------------------------ ----- -------- -------- --------
Total liabilities (27,811) (47,070) (49,788)
------------------------------ ----- -------- -------- --------
Net assets 29,643 58,593 64,191
------------------------------ ----- -------- -------- --------
Shareholders' equity
Called-up share capital 1,746 1,746 1,629
Share premium account 2,885 2,885 1,484
Revaluation reserve 1,149 1,149 1,149
Available for sale reserve - - 1,446
Equity reserve 201 201 201
Translation reserve (6,524) (3,519) (7,609)
Retained earnings 30,186 56,131 65,891
------------------------------ ----- -------- -------- --------
Total equity 29,643 58,593 64,191
------------------------------ ----- -------- -------- --------
Consolidated statement of changes in equity Company Number 00196730
As at 30 March 2019
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 1 April 2017 1,629 1,484 797 1,446 (6,724) 201 65,461 64,294
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
Adjustments for the
adoption of IFRS 15 and
9* - - - - - - (103) (103)
Changes in accounting
policy * - - 352 - (885) - 533 -
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
At 1 April 2017 restated 1,629 1,484 1,149 1,446 (7,609) 201 65,891 64,191
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
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
movement - - - - - - (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 restated 1,746 2,885 1,111 - (5,450) 201 58,141 58,634
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
Adjustments for the
adoption of IFRS 15 and
9* - - - - - - (41) (41)
Changes in accounting
policy * - - 38 - 1,931 - (1,969) -
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
At 31 March 2018 restated 1,746 2,885 1,149 - (3,519) 201 56,131 58,593
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
Profit for the period - - - - - - 3,126 3,126
Other comprehensive
income:
Foreign currency
translation - - - - (3,005) - - (3,005)
Net defined benefit asset
movement - - - - - - (43,083) (43,083)
Deferred tax - - - - - - 15,071 15,071
Total comprehensive
income - - - - (3,005) - (24,886) (27,891)
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
Transactions with owners:
Dividend - - - - - - (1,104) (1,104)
Credit for share-based
payments - - - - - - 45 45
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
Total transactions with
owners - - - - - - (1,059) (1,059)
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
At 30 March 2019 1,746 2,885 1,149 - (6,524) 201 30,186 29,643
------------------------- -------- ------- ----------- --------------- ----------- ------- -------- --------
* see note 15 Impact on the financial statements of changes in
accounting policies and discontinued activities
Consolidated cash flow statement
For the 52-week period ended 30 March 2019
Restated
52-week 52-week
period ended period ended
30 March 31 March
2019 2018
Notes $000 $000
---------------------------------------------------- ----- -------------------------------- ------------
Cash flows from operating activities
Profit for the period 3,126 2,905
Adjustments for:
Amortisation of development expenditure 73 71
Depreciation 540 596
Net financial income 4 (876) (269)
Non-cash adjusting Items 2,238 991
(Profit)/loss on disposal of property, plant
and equipment (461) 29
Profit on disposal of Prophotonix - (1,256)
Equity share option expense 45 39
Income tax expense/(credit) 5 114 710
---------------------------------------------------- ----- -------------------------------- ------------
Operating cash flow before changes in working
capital and provisions 4,799 3,816
(Increase)/decrease in trade and other receivables (451) 95
(Increase) in inventories (730) (3,333)
(Decrease)/increase in trade and other payables (352) 1,213
Employee benefits contributions (13) (143)
Cash generated by operations 3,253 1,648
Interest paid (1,236) (1,183)
Income tax received/(paid) (125) -
---------------------------------------------------- ----- -------------------------------- ------------
Net cash flows from operating activities 1,892 465
---------------------------------------------------- ----- -------------------------------- ------------
Cash flows from investing activities
Interest received 1 -
Proceeds from sale of property, plant and
equipment 514 285
Sale of investment in Prophotonix - 1,972
Purchase of property, plant and equipment (1,245) (694)
Development and IT software expenditure capitalised (1,399) (87)
Proceeds from sale of development expenditure 639 -
Net cash flows from investing activities (1,490) 1,476
---------------------------------------------------- ----- -------------------------------- ------------
Cash flows from financing activities
Proceeds from issue of ordinary shares - 1,517
Dividends paid 6 (1,104) -
Proceeds from external borrowing 2 (2,985)
Net finance lease income/(expenditure) 59 (56)
---------------------------------------------------- ----- -------------------------------- ------------
Net cash flows from financing activities (1,043) (1,524)
---------------------------------------------------- ----- -------------------------------- ------------
Net (decrease)/increase in cash and cash
equivalents 11 (641) 417
Cash and cash equivalents at the beginning
of the period 1,676 1,352
Effect of exchange rate fluctuations on cash
held (87) (93)
---------------------------------------------------- ----- -------------------------------- ------------
Cash and cash equivalents at the end of the
period 948 1,676
---------------------------------------------------- ----- -------------------------------- ------------
Notes
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 30 March 2019, 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 30 March 2019 or
31 March 2018 but is derived from those Financial Statements.
Statutory Financial Statements for 2018 have been delivered to the
Registrar of Companies and those for 2019 will be delivered
following the company's AGM.
The Auditors, BDO 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 reports
and did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
The Statutory accounts are 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.
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 adjusting 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
--------------------------------------------------
Machine
52 Weeks ended 30 March tools
2019 & precision Industrial
engineered laser Head Office
components systems & unallocated Total Discontinued
Segmental analysis of revenue $000 $000 $000 $000 $000 Group Total
-------------------------------- ------------ ---------- -------------- -------- ------------ -----------
Total revenue 44,575 20,592 65,167 1,572 66,739
-------------------------------- ------------ ---------- -------------- -------- ------------ -----------
Segmental analysis of operating
profit/(loss) before Adjusting
Items 3,610 2,563 (916) 5,257 (146) 5,111
-------------------------------- ------------ ---------- -------------- -------- ------------ -----------
Adjusting Items (1,355) (431) (1,786) (961) (2,747)
-------------------------------- ------------ ---------- -------------- -------- ------------ -----------
Group operating profit/(loss) 2,255 2,563 (1,347) 3,471 (1,107) 2,364
-------------------------------- ------------ ---------- -------------- -------- ------------ -----------
Other segmental information:
Reportable segment assets 38,666 9,492 8,188 56,346 1,108 57,454
Reportable segment liabilities (11,560) (4,496) (11,755) (27,811) - (27,811)
Fixed asset additions 686 559 - 1,245 - 1,245
Depreciation and amortisation 275 292 46 613 - 613
2. Segment information (CONTINUED)
Restated
Continuing
--------------------------------------------------
52 Weeks ended 31 March Machine
2018 tools
& precision Industrial
engineered laser Head Office
components systems & unallocated Total Discontinued Group Total
Segmental analysis of revenue $000 $000 $000 $000 $000 $000
-------------------------------- ------------ ---------- -------------- -------- -------------- -----------
Total revenue 43,152 20,792 - 63,944 1,573 65,517
-------------------------------- ------------ ---------- -------------- -------- -------------- -----------
Segmental analysis of operating
profit/(loss) before adjusting
Items 1,459 2,100 (1,781) 1,778 385 2,163
-------------------------------- ------------ ---------- -------------- -------- -------------- -----------
Group operating profit/(loss) 1,459 2,100 (1,781) 1,778 385 2,163
-------------------------------- ------------ ---------- -------------- -------- -------------- -----------
Other segmental information:
Reportable segment assets 40,176 9,867 55,620 105,663 - 105,663
Reportable segment liabilities (28,153) (5,826) (13,091) (47,070) - (47,070)
Fixed asset additions 146 544 4 694 - 694
Depreciation and amortisation 373 294 - 667 - 667
-------------------------------- ------------ ---------- -------------- -------- -------------- -----------
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.
Disaggregation of revenue is shown by origin, destination and
product group in the following two tables:
All revenue is recognised at a point in time.
Disaggregation of revenue by origin 2019 2018
-------------- -------------
$000% $000%
------------------------------------ ------ ----- ------ ----
UK 14,249 21.8 13,430 21.0
North America 47,387 72.8 47,262 73.9
Australasia 3,531 5.4 3,252 5.1
------------------------------------ ------ ------ ------ -----
65,167 100.00 63,944 100.0
------------------------------------ ------ ------ ------ -----
2. Segment information (CONTINUED)
Disaggregation of revenue by destination:
2019 2018
------------- -------------
$000% $000%
Gross sales revenue:
--------------------- ------ ----- ------ -----
UK 9,507 14.6 9,677 15.1
Other European 6,951 10.7 6,707 10.5
North America (USA) 42,534 65.2 42,694 66.8
Africa 644 1.0 485 0.8
Australasia 3,370 5.2 3,110 4.9
Central America 126 0.2 8 0.0
Middle East 485 0.7 96 0.2
Far East 1,550 2.4 1,167 1.8
--------------------- ------ -----
65,167 100.0 63,944 100.0
--------------------- ------ ----- ------ -----
Disaggregation of revenue by product group:
2019 2018
------------- -------------
$000% $000%
CNC lathes 4,761 7.3 4,972 7.8
Conventional lathes 13,941 21.4 12,838 20.0
CNC other 1,209 1.9 1,284 2.0
Conventional other 11,587 17.8 11,402 17.8
Workholding 7,062 10.8 6,175 9.7
Spares & service 5,620 8.6 6,447 10.1
Lasers 19,814 30.4 18,862 29.5
Laser spares and service 1,173 1.8 1,964 3.1
------ -----
65,167 100.0 63,944 100.0
-------------------------- ------ ----- ------ -----
There are no customers that represent 10% or more of the Group's
revenues.
Assets and liabilities related to contracts with customers:
The group has recognised the following assets and liabilities
related to contracts with customers.
2019 2018
----------------------------------------- ---- -----
$000 $000
----------------------------------------- ---- -----
Current contract liabilities relating to
deposits from customers 538 1,244
---- -----
There are no assets arising from contracts with customers.
Remaining performance obligations
The vast majority of the groups' contracts are for the delivery
of goods within the next 12 months for which the practical
expedient in paragraph 121(a) of IFRS 15 applies.
The following table shows how much of the revenue recognised in
the current reporting year relates to carried forward contract
liabilities:
2019 2018
------------------------------------------------- ----- -----
$'000 $'000
------------------------------------------------- ----- -----
Revenue recognised that was included in
the contract liability balance at the beginning
of the year 1,244 627
----- -----
3. adjusting ITEMS
The directors have highlighted transactions which are material
and unrelated to the normal trading activity of the Group.
In the opinion of the directors the disclosure of these
transactions should be reported separately for a better
understanding of the underlying trading performance of the Group.
These underlying figures are used by the Board to monitor business
performance, form the basis of bonus incentives and are used for
the purposes of the bank covenants.
These non-GAAP measures are explained in note 13 alternative
performance measures and set out below in note 3. All adjusting
items are taken into account in the GAAP figures in the Income
Statement.
These consist of the entries in relation to the UK final salary
scheme in both years and the profit on the disposal of the
ProPhotonix shares in the previous year. In addition, the
adjustment to the carrying value of the amortised loan note
expenses in the current year, as a result of the extension of these
instruments by a further two years, and the prior year's
amortisation have been included as adjusting items. The items below
correspond to the table below;
a) The buy-out of the Group pension scheme was completed in
April 2019 but during the year ended March 2019 the trustees
undertook a number of exercises to reduce the liabilities of the
scheme which had an actuarial cost. Given these had a beneficial
effect on the ultimate buy out cost of the scheme they were
supported by the Group. A charge of $1.28m plus $0.08m of
associated legal costs was included as a result of work by the
Trustees of the UK pension scheme and the Group in reducing pension
liabilities.
b) As a result of the outsourcing of manufacturing in the UK,
the existing premises were vacated, and a sublet is in the process
of negotiation. An onerous lease provision of $0.4m has been
provided as a result of this and shown in adjusting items.
c) A credit of $1.26m (2018: credit of $1.74m) 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.
d) The adjustment to the carrying value of the amortised loan
note costs in the year is shown as a credit of $0.8m in financial
income with the corresponding charge for the 2018 year shown in
financial expense.
e) An additional credit of $1.26m was recorded in the prior 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.
f) As a result of the changes in the USA to the rates of
taxation in the prior year, a significant charge of $0.6m was made
to adjust the deferred taxation assets.
g) An amount of $0.96m has been recorded against the value of
the Gamet Bearings assets available for sale to bring their
carrying value into line with the expected proceeds of sale, less
costs to sell.
3. adjusting ITEMS (Continued)
Adjusting items
Restated
2019 2018
$000 $000
---------------------------------------------- ------- --------
Items included in operating profit:
Pensions charge (a) (1,277) -
Pensions legal costs (a) (78) -
Onerous lease charges (b) (431) -
(1,786) -
---------------------------------------------- ------- --------
Items included in financial income/(expense):
Pensions interest on surplus (c) 1,255 1,741
Adjustment to loan notes (d) 822 -
---------------------------------------------- ------- --------
Financial income 2,077 1,741
---------------------------------------------- ------- --------
Amortisation of loan note expenses - (290)
Profit on disposal of ProPhotonix Ltd (e) - 1,256
---------------------------------------------- ------- --------
Total adjusting items before tax 291 2,707
---------------------------------------------- ------- --------
Taxation effect of rate range in the USA (f) - (630)
---------------------------------------------- ------- --------
Income tax on adjusting items (48) (609)
---------------------------------------------- ------- --------
Total adjusting items after tax 243 1,468
---------------------------------------------- ------- --------
Loss on discontinued activity (g) (961) -
---------------------------------------------- ------- --------
During the prior year the Group incurred costs with regard to
the reorganisation of TYKMA Inc and the integration of the Electrox
Laser marking spares and service division into the UK machine tools
operation and redundancy exercises were carried out in the UK
machine tools operation, Amounts of $764k and $1m were previously
disclosed as adjusting items in cost of sales and administration
costs respectively but have been incorporated in normal operating
costs in the comparative figures in line with the revised
definition of adjusting items. Costs of redundancy and
restructuring in the current year have been included in normal
activity.
4. Financial income and expense
2019 2018
$000 $000
----------------------------------------- ------- -------
Bank and other interest 35 -
Interest on employee benefit surplus 1,255 1,741
Loan note and net adjustment 822 -
----------------------------------------- ------- -------
Financial income 2,112 1,741
----------------------------------------- -------
Bank overdraft and loan interest (236) (234)
Other loan interest (948) (925)
Other finance charges (1) (8)
Finance charges on finance leases (6) (15)
Interest on employee benefit liabilities (45) (47)
Amortisation of loan notes expenses - (243)
Financial expense (1,236) (1,472)
----------------------------------------- ------- -------
5. Taxation
Restated
2019 2018
$000 $000
----------------------------------------- ------ ---------
Current tax:
Corporation tax at 19% (2018: 19%):
- current period - -
Overseas taxation:
- current period 77 (340)
----------------------------------------- ------ ---------
Total current tax credit charge 77 (340)
----------------------------------------- ------ ---------
Deferred taxation:
- current period 92 358
- effect of rate change in USA - (630)
- prior period (283) (98)
----------------------------------------- ------ ---------
Total deferred taxation credit/(charge) (191) (370)
----------------------------------------- ------ ---------
Taxation charged to the income statement (114) (710)
----------------------------------------- ------ ---------
The rate for tax in the USA was changed from 34% to 21% during
the previous year requiring a remeasurement of deferred tax assets
in the USA.
Restated for Gamet Bearings now shown as a discontinued
operation and the effects of IFRS 15 & 9 (see note 15).
Tax reconciliation
The tax charge assessed for the period is lower than (2018:
higher than) the standard rate of corporation tax in the UK of 19%
(2018: 19%). The differences are explained below:
Restated
2019 2018
-------------
$000 % $000 %
--------------------------------------------- ----- ----- ----- -----
Profit before tax 4,347 3,303
--------------------------------------------- ----- ------ ----- ------
Profit before tax multiplied by the standard
rate of corporation tax
in the UK of 19% (2018: 19%) 826 19.0 628 19.0
Effects of:
- income not taxable and/or expenses
not deductible 274 6.3 11 0.3
- overseas tax rates 14 0.3 58 1.8
- pension fund surplus taxed at higher
rate 3 0.0 97 2.9
- US state taxes 166 3.8 52 1.6
- utilisation of discontinued business
losses (140) (3.2) - -
- deferred tax prior period adjustment - - 98 3.0
- impact of rate change in the UK on
deferred tax 290 6.7 - -
- tax losses utilised not previously
recognised (912) (20.1) - -
- additional deferred tax recognised
on losses in the period (124) (2.8) (864) (26.2)
- R&D claims in the USA (prior periods) (283) (6.5)
- impact of rate change in the USA - - 630 19.1
--------------------------------------------- ----- ----- ----- ------
Taxation charged to the income statement 114 2.6 710 21.5
--------------------------------------------- ----- ------ ----- ------
6. Dividends
A final dividend of 0.5p has been proposed, payable on 30
September 2019 to holders on the register at 30 August 2019.
2019 2018
$000 $000
-------------------------------------------------- ----- ----
Interim Dividend paid September 2018 (0.5p/share) 736 -
Final Dividend paid December 2018 (0.25p/share) 368 -
Total 1,104 -
-------------------------------------------------- ----- ----
7. Earnings per share
The calculation of the basic earnings per share of 3.75c (2018:
2.38c) is based on the earnings for the financial period
attributable to the Parent Company's shareholders of a profit of
$4,233,000 (2018: $2,593,000) and on the weighted average number of
shares in issue during the period of 112,973,341 (2018:
108,902,335). At 30 March 2019, there were 7,5000,000 (2018:
6,650,000) potentially dilutive shares on option with a weighted
average effect of 1,191,415 (2018: 790,601) shares giving a diluted
earnings per share of 3.71c (2018: 2.37c).
2019 2018
----------------------------------------------------------- ----------- -----------
Weighted average number of shares
Issued shares at start of period 112,973,341 104,357,957
Effect of shares issued in the year - 4,544,378
----------------------------------------------------------- ----------- -----------
Weighted average number of shares at end of period 112,973,341 108,902,335
----------------------------------------------------------- ----------- -----------
Weighted average number of the 7,500,000 (2018: 6,650,000)
potentially dilutive shares 1,191,415 790,601
----------------------------------------------------------- ----------- -----------
Total Weighted average diluted shares 114,164,756 109,692,936
----------------------------------------------------------- ----------- -----------
Restated
------------------------------------------------------ ------- ----------
Total post tax earnings continuing 4,233 2,593
Total post tax earnings including discounted activity 3,126 2,905
------------------------------------------------------ ------- ----------
Basic EPS 3.75c 2.38c
Diluted basic EPS 3.71c 2.37c
Total including discontinued
Basic EPS 2.77 2.67
Diluted basic EPS 2.74 2.65
------------------------------------------------------ ------- ----------
Underlying earnings $000 $000
------------------------------------------------------ ------- ----------
Total post tax earnings continuing 4,233 2,593
Pension cost 1,277 -
Pensions legal costs 78 -
Onerous lease charges 431 -
Pensions Interest (1,255) (1,741)
Amortisation of loan notes - 290
Adjustment to amortisation of loan notes (822) -
Profit on disposal of ProPhotonix Ltd - (1,256)
Tax effect of rate change in USA - 630
Tax on adjusting items 48 609
Underlying earnings after tax 3,990 1,125
------------------------------------------------------ ------- --------
Underlying basic EPS 3.53c 1.03c
Underlying diluted EPS 3.50c 1.03c
8. Trade and other receivables
2019 2018
$000 $000
------------------------------------- ----- -----
Trade receivables 7,599 8,113
Other debtors 540 425
Other prepayments and accrued income 1,024 1,188
------------------------------------- ----- -----
9,163 9,726
------------------------------------- ----- -----
2019 2018
$000 $000
------------------------------------- ----- -----
Taxation 294 -
------------------------------------- ----- -----
9. Trade and other payables
2019 2018
$000 $000
-------------------------------- ----- -----
Current liabilities:
Trade payables 4,292 4,010
Social security and other taxes 199 405
Other creditors 1,323 1,347
Accruals 1,743 2,199
Contract liabilities 538 1,244
8,095 9,205
-------------------------------- ----- -----
2019 2018
$000 $000
-------------------------------- ----- -----
Taxation - 291
-------------------------------- ----- -----
10. Provisions
Onerous Warranties Total
lease
$000 $000 $000
------------------------------------------- ------- ---------- -----
Provision carried forward at 31 March 2018 - 53 53
Exchange differences - (3) (3)
(Credited)/charged to income statement 429 (9) 420
Utilised in the period - (23) (23)
-------------------------------------------
Provision carried forward at 30 March 2019 429 18 447
------------------------------------------- ------- ---------- -----
The timing of warranty payments are uncertain in nature. The
warranty provisions are calculated based on historical experience
of claims received, taking into account recent sales of items which
are covered by warranty. The provision relates mainly to products
sold in the last twelve months. The typical warranty period is now
twelve months.
Onerous lease provisions
Following the move of the UK business to the new facility in
Elland, a sub-let of the old premises is in the process of being
negotiated and a consequent cost has been provided.
11. RECONCILIATION OF NET CASH FLOW TO NET DEBT
2019 2018
$000 $000
------------------------------------------------- -------- --------
(Decrease)/increase in cash and cash equivalents (641) 417
(Increase)/decrease in debt and finance leases (61) 3,041
------------------------------------------------- -------- --------
(Increase)/decrease in net debt from cash flows (702) 3,458
Net debt at beginning of period (15,600) (17,090)
Loan note credit/(amortisation) 982 (243)
Exchange effects on net funds 779 (1,725)
------------------------------------------------- -------- --------
Net debt at end of period (14,541) (15,600)
------------------------------------------------- -------- --------
12. Analysis of net DEBT
At At
31 March Exchange 30 March
2018 movement Other Cash flows 2019
$000 $000 $000 $000 $000
------------------------------------- -------- -------- ----- ---------- --------
Cash at bank and in hand 1,536 (77) - (641) 818
Term deposits (included within cash
and cash equivalents on the balance
sheet) 140 (10) - - 130
1,676 (87) - (641) 948
Debt due within one year (4,984) 42 - (247) (5,189)
Debt due after one year (842) 25 - 245 (572)
Loan notes due after one year (11,287) 788 982 - (9,517)
Finance leases (163) 11 - (59) (211)
Total (15,600) 779 982 (702) (14,541)
------------------------------------- -------- -------- ----- ---------- --------
13. 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 adjusting items. The Directors believe the use of
these 'non-GAAP measures' provide a better understanding of
underlying performance of the Group. In addition, discontinued
operations are excluded from underlying figures.
In the review of performance reference is made to 'underlying
profit' or 'profit before adjusting items', and in the Consolidated
Income Statement the Group's results are analysed between Before
adjusting items and After adjusting items.
Adjusting 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
Restated
2019 2018
$000 $000
-------------------------------------------------------------- ------- ----------
Operating profit 3,471 1,778
Adjusting items included in net operating expenses (see
note 3) 1,786 -
-------------------------------------------------------------- ------- --------
Underlying operating profit 5,257 1,778
-------------------------------------------------------------- ------- --------
Underlying profit for the period from continuing activities
Profit for the period 4,233 2,593
Adjusting items included in net operating expenses (see
note 3) 1,786 -
Adjusting items included in Financial income (2,077) (1,741)
Adjusting items included in Financial expense - 290
Profit on disposal of ProPhotonix - (1,256)
Tax effect of rate change in USA - 630
Tax on adjusting items 48 609
Underlying profit for the period 3,990 1,125
-------------------------------------------------------------- ------- --------
Underlying EPS
A reconciliation of underlying EPS is included in note
7
14. Post balance sheet events
On 23 April 2019 the buyout of the UK final schemes liabilities
was completed with the Pension Insurance Corporation PLC.
On the 29 May 2019, the company received $5.2m (GBP4.1m) from
the completion of the buyout of the 600 Group Pension Scheme, after
deduction of statutory 35% tax.
On 30 May 2019 the UK final salary scheme terminated, and the
scheme was wound up and trustees discharged.
On 21 June 2019 the group acquired 100% of the voting equity of
Control Micro Systems Inc., a company based in Florida USA,
manufacturing Laser systems.
The book value of the net assets acquired are as follows:
$000
-------------------- -------
Plant and equipment 790
Inventories 1,541
Receivables 851
Cash 2,938
Payables (1,173)
--------------------- -------
Total 4,947
At the date of approval of these financial statements, a
detailed assessment of the fair value of the identifiable net
assets had not been completed.
$000
--------------------------------- ------
Fair value of consideration paid 10,000
The Gamet Bearings business is held for sale at the 30 March
2019 and has not been sold at the date of these financial
statements.
15. Impact on the financial statements of changes in accounting
policies and discontinued activities
As a result of changes in the group's accounting policies, prior
year financial statements had to be restated.
As explained below IFRS 9 was applied retrospectively with
restatement of comparative information.
The following tables show the adjustments to each line item, but
line items not affected have not been included.
In addition, the classification of the Gamet Bearings business
as discontinued requires comparative information to be adjusted and
this has been included in order to provide the correct restated
figures.
31 March IFRS 15 IFRS 9 ($) Discontinued 31 March
2018 ($) ($) 2018
As originally Restated
presented ($)
$'000 $'000 $'000 $'000 $'000
Revenue 66,014 (497) - (1,573) 63,944
Cost of sales (43,736) 363 (43) 1,053 (42,363)
------------------------------ ------------- ------- ---------- ------------ --------
Gross profit 22,278 (134) (43) (520) 21,581
Net operating expenses (19,938) - - 135 (19,803)
------------------------------ ------------- ------- ---------- ------------ --------
Operating Profit 2,340 (134) (43) (385) 1,778
Profit before Tax 3,865 (134) (43) (385) 3,303
------------------------------ ------------- ------- ---------- ------------ --------
Income Tax (816) 25 8 73 (710)
Profit from continuing
activities 3,049 (109) (35) (312) 2,593
Loss/profit from discontinued
activities - - - 312 312
------------------------------ ------------- ------- ---------- ------------ --------
Profit for the Period 3,049 (109) (35) - 2,905
------------------------------ ------------- ------- ---------- ------------ --------
Earnings per share 2.80c - - - 2.67c
15. Impact on the financial statements of changes in accounting
policies and discontinued activities (continued)
During the year ended 1 April 2017 and 31 March 2018, the
retranslation of non-US Dollar functional currency entities has
been split between equity reserves. A change in accounting policy
has been adopted not to retranslate other equity reserves but to
present net assets at closing rates and income statement items at
average rates within the translation reserve. As such, an
adjustment has been made between the equity reserves; there is no
impact to total equity.
Consolidated Statement of financial position (extract)
31 March IFRS IFRS IFRS Discontinued 2017 Changes 2018 Changes 31 March
2018 15 15 9 2018
As 2017 2018 In In Restated
originally reverse accounting accounting
presented policy policy
$'000 $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ------------ -------- ----- ----- ------------ ------------ ------------ --------
Deferred tax assets 5,102 - 25 8 - - - 5,135
Inventories 19,597 - 363 - - - - 19,960
Trade and other receivables 10,266 - (497) (43) - - - 9,726
---------------------------- ------------ -------- ----- ----- ------------ ------------ ------------ --------
Net assets 58,737 - (109) (35) - - - 58,593
---------------------------- ------------ -------- ----- ----- ------------ ------------ ------------ --------
Revaluation reserve 759 - - - - 352 38 1,149
Translation reserve (4,565) - - - - (885) 1,931 3,519
Retained earnings 57,711 (103) (6) (35) - 533 (1,969) 56,131
---------------------------- ------------ -------- ----- ----- ------------ ------------ ------------ --------
Total equity 58,737 (103) (6) (35) - - - 58,593
1 April IFRS 15 IFRS 9 Discontinued Changes 1 April
2017 2017
As originally In accounting Restated
presented policy
$'000 $'000 $'000 $'000 $'000 $'000
---------------------------- ------------- ------- ------ ------------ ------------- --------
Deferred tax assets 4,359 24 - - - 4,383
Inventories 15,935 226 - - - 16,161
Trade and other receivables 9,312 (353) - - - 8,959
---------------------------- ------------- ------- ------ ------------ ------------- --------
Net assets 64,294 (103) - - - 64,191
---------------------------- ------------- ------- ------ ------------ ------------- --------
Revaluation reserve 797 - - - 352 1,149
Translation reserve (6,724) - - - (885) (7,609)
Retained earnings 65,461 (103) - - 533 65,891
---------------------------- ------------- ------- ------ ------------ ------------- --------
Total equity 64,294 (103) - - - 64,191
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.
END
FR DBGDRRBGBGCC
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