Final Results

600 Group PLC 22 June 2006 22 June 2006 THE 600 GROUP PLC PRELIMINARY RESULTS FOR THE PERIOD TO 1 APRIL 2006 HIGHLIGHTS - Order intake up 15% and strong order book for delivery in second half 2006/7 - Revenue up 6% to £71m - Underlying profit before tax £0.2m compared with loss of £0.3m last year - Strategic review now being implemented, resulting in £1.9m restructuring charge in the year - Resulting loss before tax £1.7m compared to £0.1m profit before tax last year - Net cash inflow from operating activities of £2.1m - Strong balance sheet maintained incorporating net funds of £5.8m CHAIRMAN'S STATEMENT Our continuing focus on organic growth during the year resulted in significant new product launches, increased sales and marketing activity and improving supply chain performance. These developments, coupled with improvements in our markets, generated growth in both order intake and revenue. We continued to invest the benefits of this growth into the further development of our core product and market segments. Market conditions Our UK and North American markets improved steadily during the year, recovering from the downturn experienced during the second half of last year. Other European markets showed more limited growth, whereas those in the Far East continued to be very buoyant. Results The results for this year have been prepared under the new International Financial Reporting Standards (IFRS) for the first time. Therefore, they include restated data for the results published for the previous year under UK GAAP. The Group's underlying order intake increased by 15% with increases in all our major geographic areas. Our outstanding order book also increased significantly, but is still below the optimal level for most of our business units. A notable achievement was the receipt of major contracts worth £5.1m from the aerospace industry for delivery in the second half of the current year. Revenue increased by 6% to £71m with the most significant increases coming from our North American businesses. Increased expenditure on sales and marketing throughout the Group led to underlying net operating expenses (before restructuring and disposal of surplus assets) increasing by £0.9m. Total net operating expenses including restructuring and disposal of surplus assets increased by £2.8m. During the year, we commenced the implementation of a strategic review throughout the Group. This included the extension of our global sourcing programme and the refocusing of our French operation. The costs of this restructuring were £1.9m, predominantly non-cash. Although underlying profit before tax improved from a loss of £0.3m to a profit of £0.2m, the loss before tax was £1.7m compared with a profit of £0.1m last year. Net funds decreased by £0.8m from £6.6m to £5.8m. Net cash inflow from operating activities was £2.1m, net cash outflow from investing activities was £0.6m and dividends absorbed £2.3m. Dividend As I stated in our last Annual Report and Accounts, with the introduction of the new accounting standards, dividend payments will now be related directly to our operating results. The board does not yet consider that the results allow the payment of a dividend. People Andrew Dick joined the board as Group Managing Director from the start of the year, succeeding Tony Sweeten as Group Chief Executive from 1 January 2006. I am pleased to confirm that Tony has agreed to stay on the board as a non-executive director, providing the board with the benefit of his extensive experience of the international machine tool market. On behalf of the board, I should like to record our continued appreciation of the efforts of all our employees during the year. Outlook Capacity utilisation levels in western markets continued to show the improving trend seen last year, indicating continued longer-term growth in demand for machine tools. However, as I have highlighted in previous statements, short-term expenditure levels in the machine tool market are determined by the impact of economic and political events on customer confidence levels and therefore tend to be very erratic. We will continue to focus increasingly on organic growth, concentrating our efforts on the expansion of our core machine tool and laser marking businesses. With our improved strategic focus and strengthened management teams, I am confident that we are now in a robust position to maintain the improving performance trends seen during the second half of last year. Michael Wright Chairman 22 June 2006 Enquiries: The 600 Group PLC Andrew Dick, Group Chief Executive John Fussey, Group Finance Director Telephone: 0113 277 6100 Hudson Sandler Nick Lyon Telephone: 020 7796 4133 GROUP CHIEF EXECUTIVE'S REVIEW OF OPERATIONS Our key objective is to capture a greater share of the growth opportunities that exist in the large and growing markets for machine tools and laser marking by focusing more closely on the needs of customers in our core areas of operation. The Group's robust finances, strong brands, good design capabilities and product development skills provide us with a solid platform from which to achieve this objective. Market background The global market for machine tools enjoyed its fourth successive year of growth, but it was driven principally by the rapid expansion of manufacturing in China and other low-cost economies, primarily in Asia. The migration of international procurement programmes to these territories has had a continuing impact on our industry and on our addressable markets. Among our major markets, the US demonstrated reasonably solid growth during the year and the UK continued to recover from the poor second half of last year, despite the effect of the closure of Rover's Longbridge plant. Demand in Germany also began to improve during the final quarter for the first time in several years while the major countries of Eastern Europe remained relatively buoyant. South Africa continued to make good progress during the year as its communities benefited from substantial infrastructure investment. Australia and New Zealand remained flat. Strategic review Following my appointment as Group Chief Executive on 1 January 2006, we embarked on a major strategic review designed to clarify our objectives for the remainder of this decade. It is clear that we have some very strong brands, that our core skills lie in the design and development of machine tools and laser markers and that we have significant scope for improvement in both marketing and customer service. Our strategic growth platform in machine tools is based around a central core activity supplying stand-alone, medium-tech CNC machines under our own Colchester and Harrison brands. This core is supported by two further businesses, one focused on conventional machines, centred around the Clausing brand and the other concentrating on higher-tech, high quality machine tools, sold together with a total manufacturing solution, centred around our agencies for Fuji, Toyoda Mitsui, Fanuc and Fidia machines. Our strategic growth platform in laser marking is focused on fully exploiting the potential of the new Electrox product portfolio, concentrating our marketing efforts on key industrial sectors for laser marking and on low to medium complexity work handling systems. We have also identified a number of areas where there is significant potential to reduce our costs. Although the Group has long experience of working with strategic partners such as Fanuc, we have not been at the forefront of developing satisfactory sourcing arrangements with low-cost overseas suppliers. We are already working closely with our existing Chinese partner on lathe manufacturing and we have also recently opened a representative office in China to create a more professional framework for the development of additional sourcing partnerships, notably for our North American operations. Review of operations Machine tools The UK machine tool businesses had a difficult year as a result of the loss of confidence and overcapacity among suppliers to the UK automotive sector. Also, supply shortfalls from our Chinese manufacturing partner constrained our ability to fulfil orders at 600 Lathes, especially during the first half of the year. Our new product development programme continued with the successful launches of the new Harrison Alpha XS and XT ranges and the 5-axis T8MSY flagship member of the Colchester Tornado family. Improving demand in the final quarter enabled us to end the year on a positive note with an exceptionally strong order book, including a £4.4m order placed by Airbus UK with 600 Centre for four Mitsui Seiki machining centres coupled to a Fastems materials handling system and a £0.7m order from BAe Systems for two Mitsui Seiki machining centres. Both of these orders are for delivery in the second half of the current year. Our USA business also suffered some impact from shortages of imported product but benefited from the generally robust market and saw an upturn in order levels towards the end of the year. We expect to achieve margin improvements by rationalising our USA manufacturing operations and outsourcing the production of saws, drills and drill presses. Although we made progress in Canada, order levels did not fully reflect the high levels of market activity and enquiries that we received. We have recruited a new president for our North American operations who will be charged with reorganising and re-energising our selling function and distributor base to ensure that we realise the full potential of these markets. Our business in Germany began to see an upturn in its order book during the second half while our distributors in Central and Eastern Europe continued to perform well. Increased sales were achieved particularly of Tornado and Alpha lathes and new distribution channels were opened in the Russian Federation and Baltic States. Performance in Australasia was unsatisfactory and action is being taken to resolve the situation. Laser marking During the year we undertook an increased programme of new product development. This included the completion of the Cobra V series of markers and the introduction of the Razor CO2 product. Most importantly, we introduced the new Scorpion fibre lasers that offer significant advantages to our customers in extended product life, lower maintenance costs and increased flexibility, reliability and efficiency. This was coupled with the development of a new MaxBox workstation designed to make the Scorpion range accessible to low volume first-time users. Customer reaction to these innovative products has been extremely positive and we achieved particularly strong sales in the UK during the second half. The expansion and improvement of our product range places Electrox among the industry leaders in this sector and in the current year we aim to capitalise on this strong position through the recruitment of additional sales personnel and an increase in marketing and selling activity, particularly in the USA. Machine tool accessories In the UK, the Pratt Burnerd business, specialising in work-holding systems, was affected by the general flatness of the domestic market and the disappointing volume of lathes despatched by 600 Lathes, though there was an encouraging pick-up in orders in the final quarter. Pratt Burnerd America continued to develop well, achieving significant growth in sales of the Crawford Collets range to USA customers. Gamet Bearings, which produces super high precision taper roller bearings for machine tools and similar applications, maintained a satisfactory order book with gains in sales to emerging markets, particularly in the Far East, more than offsetting reductions in business from the Western economies. South Africa Our diversified South African business has had to overcome the loss of its important agency for Timberjack forestry equipment in April 2005 resulting from Timberjack's takeover by John Deere. Although the introduction of the new Terex-Fuchs forestry range proceeded more slowly than planned, valuable new agencies were secured for Usimeca waste compactors and Altec aerial platforms. The Fassi truck-mounted crane business continued to enjoy excellent growth. With a strong portfolio of high quality agencies across a range of sectors, the business is now well placed to make progress as South Africa continues to invest substantially in its nationwide infrastructure. As reported in last year's Annual Report, we sold 25.1% of the business to a South African individual at the beginning of the year. This not only strengthened our management team but has also significantly improved our Black Economic Empowerment rating, enabling us to maximise our business from government and local authority controlled organisations. Outlook The fundamentals for the Group are sound. We have clear objectives and effective platforms for growth in our two core businesses. Our strengths include good product ranges, allied with strong design and development skills, recognised and respected brands and robust finances. As our current global market shares are small, the markets in which we operate offer substantial opportunities and the economic prospects in most of our core territories appear reasonably encouraging. With product development continuing to progress well, our future growth plans will be built on the development and effective marketing of new products that meet our customers' requirements and on achieving high levels of quality, dependability and service. Andrew J Dick Group Chief Executive 22 June 2006 AUDITED CONSOLIDATED INCOME STATEMENT 52-week period ended 1 April 2006 52-week period ended 2 April 2005 Before Restructuring Total Before Disposal Total restructuring (see note 3) disposal of of surplus surplus fixed fixed assets assets £000 £000 £000 £000 £000 £000 Revenue 70,993 - 70,993 67,210 - 67,210 Cost of sales (51,924) (387) (52,311) (48,815) - (48,815) Gross profit 19,069 (387) 18,682 18,395 - 18,395 Net operating expenses (20,479) (1,489) (21,968) (19,599) 392 (19,207) Operating loss before financing (1,410) (1,876) (3,286) (1,204) 392 (812) income and expense Financial income 10,141 - 10,141 9,575 - 9,575 Financial expense (8,574) - (8,574) (8,702) - (8,702) Profit/(loss) before tax 157 (1,876) (1,719) (331) 392 61 Income tax charge (429) - (429) (107) - (107) Loss for the period (272) (1,876) (2,148) (438) 392 (46) Attributable to: Equity holders of the parent (320) (1,876) (2,196) (438) 392 (46) Minority interest 48 - 48 - - - Loss for the period (272) (1,876) (2,148) (438) 392 (46) Basic earnings per share (3.9)p (0.1)p Diluted earnings per share (3.9)p (0.1)p AUDITED CONSOLIDATED BALANCE SHEET At 1 April At 2 April 2006 2005 £000 £000 Non-current assets Property, plant and equipment 14,203 11,916 Intangible assets 2,072 2,960 Investments 84 84 Employee benefits 7,400 - Deferred tax assets 303 676 24,062 15,636 Current assets Inventories 21,147 23,213 Trade and other receivables 15,740 15,785 Investments - 580 Cash and cash equivalents 7,657 7,751 44,544 47,329 Total assets 68,606 62,965 Non-current liabilities Employee benefits (2,281) (6,484) Deferred tax liabilities (3,003) - (5,284) (6,484) Current liabilities Trade and other payables (14,633) (14,231) Income tax payable (134) (200) Provisions (388) (423) Loans and other borrowings (1,809) (1,714) (16,964) (16,568) Total liabilities (22,248) (23,052) Net assets 46,358 39,913 Shareholders' equity Called-up share capital 14,212 14,212 Share premium account 13,680 13,680 Revaluation reserve 3,397 - Capital redemption reserve 2,500 2,500 Translation reserve 843 (17) Retained earnings 11,333 9,538 Total equity attributable to equity holders of the parent 45,965 39,913 Minority interest 393 - Total equity 46,358 39,913 AUDITED CONSOLIDATED CASH FLOW STATEMENT 52-week period 52-week period ended 1 April ended 2 April 2006 2005 £000 £000 Cash flows from operating activities Loss for the period (2,148) (46) Adjustments for: Amortisation of development expenditure 67 - Depreciation 1,640 1,808 Impairment of goodwill 1,254 - Net financial income (1,567) (873) Profit on disposal of plant and equipment (26) (430) Equity share option expense 31 38 Income tax expense 429 107 Operating cash flow before changes in working capital and provisions (320) 604 Decrease in trade and other receivables 838 604 Decrease/(increase) in inventories 2,903 (2,905) (Decrease)/increase in trade and other payables (42) 1,614 (Increase)/decrease in employee benefits (1,006) 88 Cash generated from the operations 2,373 5 Interest paid (170) (184) Income tax (paid)/repaid (66) 44 Net cash flows from operating activities 2,137 (135) Cash flows from investing activities Interest received 199 368 Proceeds from sale of plant and equipment 168 506 Purchase of plant and equipment (520) (641) Development expenditure capitalised (402) (218) Net cash flows from investing activities (555) 15 Cash flows from financing activities Proceeds from the issue of ordinary shares - 11 (Repayment)/proceeds from external borrowing (305) 772 Equity dividends paid (2,274) (3,127) Reduction in current asset investments 580 582 Net cash flows from financing activities (1,999) (1,762) Net decrease in cash and cash equivalents (417) (1,882) Cash and cash equivalents at the beginning of the period 7,127 9,010 Effect of exchange rate fluctuations on cash held 8 (1) Cash and cash equivalents at the end of the period 6,718 7,127 NOTES 1. Basis of preparation The 600 Group PLC is a public limited company incorporated and domiciled in England and Wales. The Company's ordinary shares are traded on the London Stock Exchange. The Group consolidated financial statements incorporate accounts, prepared to the Saturday nearest to the Group's accounting reference date of 31 March, of the Company and its subsidiary undertakings (together referred to as "the Group"). The results for 2006 are for the 52-week period ended 1 April 2006. The results for 2005 are for the 52-week period ended 2 April 2005. The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). These results represent the first annual financial statements the Group has prepared in accordance with its accounting policies under IFRS and the comparatives for 2005 have been restated from UK GAAP to comply with IFRS. For the purpose of the accounts, the date of transition to IFRS is 3 April 2004. The rules for first time adoption of IFRS are set out in IFRS 1 "First time adoption of international financial reporting standards". In general, a company is required to determine its IFRS accounting policies and apply these retrospectively to determine its opening balance sheet under IFRS. The standard allows a number of exceptions to this general principle to assist companies as they change to reporting under IFRS. The Group has taken advantage of the following exemptions: • business combinations that took place prior to the date of transition have not been restated • at the date of transition, previous UK GAAP valuations have been used as deemed cost for properties • all cumulative actuarial gains and losses on defined benefit schemes have been recognised in equity at the date of transition • all cumulative translation differences that existed at the date of transition are assumed to be zero. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 2. Audited consolidated statement of recognised income and expense 52-week 52-week period ended period ended 1 April 2006 2 April 2005 £000 £000 Foreign exchange translation differences 893 (17) Net actuarial gains on employee benefit schemes 9,244 7,561 Revaluation of properties 3,397 - Deferred taxation on above items (3,010) 543 Net income recognised directly in equity 10,524 8,087 Loss for the period (2,148) (46) Total recognised income and expense for the period 8,376 8,041 Attributable to: Equity holders of the parent 8,295 8,041 Minority interest 81 - Total recognised income and expense for the period 8,376 8,041 3. Net operating expenses 2006 2005 £000 £000 Net operating expenses: Administration expenses before: 14,823 14,159 - profit on disposal of surplus fixed assets - (392) - reorganisation 235 - - goodwill impairment 1,254 - Total net administration expenses 16,312 13,767 Distribution costs 6,154 5,920 Other operating income (498) (480) Total net operating expenses 21,968 19,207 Total restructuring costs consist of the reorganisation and goodwill impairment amounts shown above, plus a £387,000 stock provision charged through cost of sales in the income statement. They relate mainly to the refocusing of the Group's French operation and the extension of its global sourcing programme as part of the strategic review. Profit on sale of fixed assets of £430,000 in the prior period includes £392,000 relating to the sale of surplus plant and machinery. This has been disclosed as a separate item on the face of the income statement, leaving £38,000 as profit on sale of other fixed assets. 4. Financial income and expense 2006 2005 £000 £000 Interest income 199 328 Expected return on defined benefit pension scheme assets 9,942 9,247 Financial income 10,141 9,575 Interest expense (170) (184) Interest on defined benefit pension scheme obligations (8,404) (8,518) Financial expense (8,574) (8,702) 5. Cash and cash equivalents 2006 2005 £000 £000 Cash at bank 7,406 6,225 Short-term deposits 251 1,526 Cash and cash equivalents per balance sheet 7,657 7,751 Bank overdrafts (939) (624) Cash and cash equivalents per cash flow statement 6,718 7,127 6. Reconciliation of net cash flow to net funds 2006 2005 £000 £000 Decrease in cash and cash equivalents (417) (1,882) Reduction in current asset investments (580) (582) Decrease/(increase) in debt and finance leases 305 (772) Decrease in net funds from cash flows (692) (3,236) New finance leases - (53) Decrease in net funds (692) (3,289) Net funds at beginning of period 6,617 9,902 Exchange effects on net funds (77) 4 Net funds at end of period 5,848 6,617 7. Statutory accounts The financial information set out above does not constitute the company's statutory accounts for the period ended 1 April 2006 or the period ended 2 April 2005 but is derived from those accounts. Statutory accounts for 2005 have been delivered to the registrar of companies, whereas those for 2006 will be delivered following the company's Annual General Meeting. The auditors have reported on the 2005 accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 8. Annual report and accounts The annual report will be posted to all shareholders in due course and will be available on request from the Secretary, The 600 Group PLC, 600 House, Landmark Court, Revie Road, Leeds LS11 8JT. This information is provided by RNS The company news service from the London Stock Exchange

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