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600 Group PLC (SIXH)

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Monday 19 November, 2018

600 Group PLC

Half-year Report

RNS Number : 6887H
600 Group PLC
19 November 2018
 

The 600 Group PLC

 

Building a platform for growth

 

Unaudited Interim Results for the six months ended 29 September 2018

 

The 600 Group PLC ("the Group"), the diversified industrial engineering company (AIM: SIXH), today announces its unaudited interim results for the six months ended 29 September 2018.

 

 

Financial highlights                            

 

•   Revenues increased 2% to $32.8m (FY 18 H1: $32.2m)

•   Underlying* operating profit up 20% to $1.98m (FY18 H1: $1.64m)

•   Underlying* pre-tax profit up 36% to $1.46m (FY18 H1: $1.07m)

•   Group order book up 5% provides continued good visibility

•   Interim dividend of 0.25p per share (FY18 H1: zero)

 

Strategic & operational highlights

 

•   Continued reduction in fixed overheads provides increased operational flexibility

•   $270m pension scheme liabilities buy-in de-risks balance sheet

•   Expected post-tax cash surplus of between $4m -$5m to be repaid to the Group on final scheme wind-up

·      Investment in new people and strengthened management team with senior promotions

·      Continued new product development and customer offering improvement across both divisions

·      Enhanced direct sales and distribution resource to support organic growth

 

*from continuing operations, before special items.

 

 

Paul Dupee, Executive Chairman of the Group, commented:

 

"We are pursuing a strategy to build a global industrials business. In the period we made further progress in de-risking the Group, both operationally and financially, as we create a more flexible platform from which to leverage the strength of the Group's brands and grow the business into increasingly diversified niche markets worldwide."

 

"As previously announced, the buy-out of the Group's $270m pension liabilities will significantly de-risk the Group's balance sheet, with the expected $4m - $5m post-tax cash surplus providing improved financial flexibility."

 

"Despite certain macro-economic and political uncertainties across our end markets, enquiry and quotation activity remains good with revenue visibility underpinned by an improved orderbook. I am also pleased to announce an interim dividend of 0.25p per share, reflecting the Board's confidence in the Group's prospects and the significant opportunity ahead."

 

 

 

Reconciliation of underlying profit before taxation:

 

26 Weeks ended

26 Weeks ended

 

29 September

30 September

 

2018

2017

 

$m

$m

 

 

 

Revenues

32.80

32.19

Cost of sales

(21.00)

(21.10)

Gross profit

11.80

11.09

Net operating costs

(9.82)

(9.45)

Underlying operating profit

1.98

1.64

Bank and loan note interest expense (net)

(0.52)

  (0.57)

Underlying profit before tax

1.46

1.07

 

 

 

Other items:

 

 

Interest on pension surplus

0.65

0.86

ProPhotonix sale

-

1.26

Pensions charge

(1.31)

-

Other Special items

0.32

(0.40)

Amortisation of shareholder loan costs

(0.14)

(0.12)

 

(0.46)

1.60

 

 

 

 

 

 

Reported profit before tax

0.98

2.67

 

 

 

 

Enquiries:

 

The 600 Group PLC

Paul Dupee, Executive Chairman

Neil Carrick, Finance Director

 

 

Tel: 01924 415000

Instinctif Partners

Mark Garraway

James Gray

Tel: 0207 457 2020

 

Spark Advisory Partners Limited (NOMAD)

Matt Davis

Miriam Greenwood

 

 

Tel: 020 3368 3553

WH Ireland (Broker)

Adam Pollock

 

Tel: 020 7220 1666

 

 

 

The 600 Group Plc

Executive Chairman's Statement for the six months ended 29 September 2018

Overview

 

I am pleased to report that we have continued to make good progress in improving the Group's profitability and increasing revenues during the six month period ended 29 September 2018.

 

In the period, the Group undertook a transformational pensions transaction which freed the Group from the risks associated with $270m of scheme liabilities, significantly de-risking the Group's balance sheet and entirely securing the UK scheme for its some 2,000 pensioners and 800 deferred members through a buy-in insurance policy with Pension Insurance Corporation Plc. Once individual policies have been issued to all members - expected to take several months - the buy-out will be complete and the scheme can be wound up. Pursuant to the full wind-up and less the statutory tax charge of 35%, the Group expects to receive a one-off cash payment from surplus funds currently estimated to be $4m - $5m, providing improved financial flexibility.

 

To underpin our strategy to grow the Group into a global industrials business, we have continued to invest in new people as well as strengthening our senior management team. As noted in our announcement on 24 October 2018, Terry Allison has been appointed to the newly created role of Chief Operating Officer for the Group and Don Haselton to the newly created role of Manager Director-Development. We are also pleased to announce that Zelco Galic, an engineer with extensive operational and managerial experience in Australia and the USA, has joined the Group as the new Managing Director for our Australian operations, which is our main gateway into the large South East Asian market.

 

To support organic growth, we have also continued to invest in new product developments in both divisions to continue our strategic goal of leveraging the strength of the Group's brands into increasingly diversified niche markets worldwide.

 

Despite certain macro-economic and political uncertainties across our end markets slowing customers' purchase decisions, enquiry and quotation activity remains good with revenue visibility underpinned by an improved orderbook, up 5% on this time last year.

 

 

Results and dividend

 

Revenue was $32.8m (FY 18 H1: $32.2m) with net underlying operating profit (excluding special items) up 20% to $1.98m (FY18 H1:$1.64m).

 

After taking account of interest on bank borrowings and loan notes, the underlying Group pre-tax profit before special items was $1.5m (FY18 H1: $1.1m) and $0.98m (FY 18 H1: $2.7m including the ProPhotonix profit on disposal) after special items.

 

Special Items have been noted separately to provide a clearer picture of the Group's underlying trading performance. In the current period share option costs, costs for the actuarial effects of members taking transfers from the scheme prior to the buy-in policy purchase, the amortisation of intangible assets acquired, amortisation of loan note expenses and the pensions credit interest on the scheme surplus, which are all non-cash costs, are included in special items. In addition, an historical VAT credit recovered on pension costs has been recorded and a cost of dilapidation for leasehold premises has also been recognised. (see note 3)

 

In the prior year a credit of $1.3m was included as a result of the sale of the Group's holding in ProPhotonix Ltd at the end of August 2017.  Reorganisation and redundancy costs as a result of the finalisation of the integration of the TYKMA and Electrox businesses and costs incurred in restructuring the UK machine tools business were also incurred in the prior year.

 

The total profit attributable to shareholders of the Group for the financial period was $1.2m (FY18 H1: $2.4m), providing earnings of 1.03 cents (equivalent to 0.76p) per share (FY18 H1: 2.26cents (equivalent to 1.75p). The underlying earnings per share (excluding the pension interest and other special items) were 1.25c (equivalent to 0.92p)   (FY18 H1: 1.02c (equivalent to 0.79p).

 

The Board is pleased to be able to continue to improve returns for shareholders and has declared an interim dividend of 0.25p per share payable on 28 December 2018, to shareholders on the register at 30 November 2018.

 

Financial position

 

Net assets decreased in the six month period by $30.4m to $28.3m, largely as a result of the pension asset decrease. Net assets excluding the effect of pension schemes (and associated taxation) increased by $0.5m to $24.9m as a result of net profit generation and allowing for the final dividend payment which was paid at the end of September 2018.

 

Stock levels fell by $0.5m from the March year end despite support for new product launches. Trade debtors remain under control and the level of creditors have been reduced during the period by $2.6m. The restored dividend was paid to shareholders in September which cost $0.74m and $0.9m was expended on capital expenditure of which $0.5m was on the Industrial Laser software upgrade.

 

Payments in respect of the restructuring of the UK machine tools business and the closure and move of the TYKMA Electrox UK operation into the UK machine tools business, which were in creditors at March 2018,  amounted to $0.8m during this period. As a consequence of these cashflows net debt at the end of September 2018 was $17.1m (March 2018 $15.6m).

 

 UK annual working capital facilities were renewed in September 2018 with HSBC to support the UK machine tool business and Bank of America have agreed an increase to their annual working capital facilities for Clausing and TYKMA in the USA in November.

 

 

UK pension scheme

 

The adjustment to the accounting valuation of the UK pension scheme reflects the buy in of the insurance policy in July 2018 to fully cover all the liabilities of the scheme. The insurance policy fully removes all the future risks of life expectancy changes and investment risk from the scheme and eliminates from the Company a potential burden which was over ten times its market value. Given the policy is now the primary asset of the scheme and exactly matches all liabilities it is measured at the same value as the liabilities, which are valued under the prescribed accounting assumptions under IAS 19 until the individual policies are issued to members and the scheme wound up. It should be noted that the cost of achieving this beneficial situation is normally higher than both the accounting basis and the more prudent trustees funding basis reflecting the capital requirements of the insurer to meet the inherent risks over the remaining lifetime of the members.

 

The change in valuation and actuarial movements of $43.5m and the associated deferred taxation of $15.2m have been shown in the Statement of Comprehensive Income and the resultant surplus of $6.9m (which includes an estimate of ongoing expenses until wind-up) shown on the Consolidated Balance sheet.

 

The surplus will be repaid to the Company once the individual annuity policies have been issued to all members and the scheme finally wound up which, after the statutory tax deduction of 35%, is expected to be between $4m and $5m.

 

 

Operating activities

 

Machine tools and precision engineered components

Revenues in our UK business grew strongly at 10% compared to the prior year and this, combined with the restructuring undertaken in the previous financial year and the revised management team led by Terry Allison, produced a significant improvement in the business resulting in a 6.3% operating margin against a break-even result for the same period last year. The Australian business also continued its recovery with a further 11% improvement on the prior year revenues. The USA business, however, remained flat with the concerns of a trade war slowing down customers decision making process.

Despite certain macro-economic and political uncertainties across our end markets slowing customers' purchase decisions, enquiry and quotation activity remains good and the division as a whole is reporting order books up 3% on this time last year.

 

The worldwide machine tool industry was estimated by Oxford Economics at nearly $88bn in annual sales in its Autumn 2018 report with mid-single digit growth expected across our current markets of operation although the UK growth may suffer depending on the outcome of Brexit. In this context the division continues to seek opportunities to leverage our industry-recognised brands and expand our worldwide distribution network. 

Underpinning organic growth is a focus on product development, which has continued during the period particularly in the UK with the newly re-branded 'Colchester Machine Tool Solutions' launching new products that add to the higher end capabilities of the brand's product line-up. To further improve growth, additional resource has also been put into direct sales in the UK market and a new distribution partnership established in Germany.

 

The results of the division were as follows:

 

 

FY19 H1

$m

FY18 H1

$m

Revenues

23.11

21.98

Operating profit*

1.53

0.98

Operating margin*

6.6%

4.5%

*from continuing operations, before special items.

 

 

Industrial Laser systems

 

US sales in the period suffered from a slowing of customer orders because of concerns over a trade war. The division's results comparatively are also impacted by a one-off large order of $0.8m that fell in the first half of the prior year and whilst there are several of these types of projects currently being quoted none came to fruition in the first half of this financial year. Quotation activity in this division has also been good and the recent International Manufacturing Technology Show in Chicago, where several new products were launched, was very successful. The division's combined order book is currently up over 10% on this time last year providing good revenue visibility.

 

The use of industrial lasers for material processing has continued to expand worldwide providing a large and growing market opportunity with laser systems fast becoming a mainstream and integral manufacturing process covering the areas of laser machining, including cutting and drilling, marking, ablation and a host of other niche applications. To harness this opportunity the division has continued to upgrade its proprietary software to enhance its customer offering and providing ever more sophisticated, value-add and unique solutions to customers requirements.

 

The results of this Division were as follows:

 

 

FY19 H1

$m

FY18 H1

$m

 

Revenues

9.69

10.21

Operating profit*

1.12

1.44

Operating margin*

11.6%

14.1%

*from continuing operations, before special items.

 

 

 

Summary and outlook

 

We are pursuing a strategy to build a global industrial business. In the period we made further progress in de-risking the Group, both operationally and financially, as we create a more flexible platform from which to leverage the strength of the Group's brands and grow the business into increasingly diversified niche markets worldwide.

 

As previously announced, the buy-out of the Group's $270m pension liabilities will significantly de-risk the Group's balance sheet, with the expected $4m - $5m post-tax cash surplus providing improved financial flexibility.

 

Despite certain macro-economic and political uncertainties across our end markets, enquiry and quotation activity remains good with revenue visibility underpinned by an improved orderbook. I am also pleased to announce an interim dividend of 0.25p per share, reflecting the Board's confidence in the Group's prospects and the significant opportunity ahead.

 

 

Paul Dupee

Executive Chairman

19 November 2018

 

 

Condensed consolidated income statement (unaudited)

For the 26 week period ended 29 September 2018

 

Before

 

After

Before

 

After

After

 

 

Special

Special

Special

Special

Special

Special

Special

 

 

Items

Items

Items

Items

Items

Items

Items

 

 

26 weeks

26 weeks

26 weeks

26 weeks

26 weeks

26 weeks

52 weeks

 

 

ended 29

ended 29

ended 29

ended 30

ended 30

ended 30

ended 31

 

 

September 

September  

September  

   September

 September

September

 March

 

 

2018

2018

2018

2017

2017

2017

2018

 

 

$000

$000

$000

$000

$000

$000

$000

 

Continuing

 

 

 

 

 

 

 

 

Revenue

32,797

-

32,797

32,188

-

32,188

66,014

 

Cost of sales

(20,997)

-

(20,997)

(21,095)

-

(21,095)

(42,972)

 

Special Items in cost of sales

-

-

-

-

-

-

(764)

 

Gross profit

11,800

-

11,800

11,093

-

11,093

22,278

 

Net operating expenses

(9,818)

-

(9,818)

(9,448)

-

(9,448)

(18,812)

 

Special Items in operating expenses

-

(995)

(995)

-

(398)

(398)

(1,126)

 

Operating profit/(loss)

1,982

(995)

987

1,645

(398)

1,247

2,340

 

 

Profit on ProPhotonix disposal

-

-

-

-

1,256

1,256

1,256

 

Interest on pension surplus

-

649

649

-

862

862

1,741

 

Financial income

-

649

649

-

862

862

1,741

 

Bank and other interest

(523)

-

(523)

(573)

-

(573)

(1,182)

 

Special Items

-

(138)

(138)

-

(118)

(118)

(290)

 

Financial expense

(523)

(138)

(661)

(573)

(118)

(691)

(1,472)

 

 

 

 

 

 

 

 

 

 

Profit before tax

1,459

(484)

975

1,072

1,602

2,674

3,865

 

 

 

 

 

 

 

 

 

 

Income tax charge

(50)

231

181

-

(300)

(300)

(816)

 

Profit for the period attributable to equity holders of the parent

1,409

(253)

1,156

1,072

1,302

2,374

3,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

1.25p

(0.22)c

1.03c

1.02c

1.24c

2.26c

2.80c

 

 

 

 

 

 

 

 

 

 

Diluted EPS

1.24c

(0.22)c

1.02c

1.02c

1.24c

2.26c

2.78c

 

 

 

 

 

 

 

 

 

 

26 weeks

26 weeks

52 weeks

 Ended

 Ended

Ended

29 September

30 September

31 March

2018

2017

2018

 

$000

$000

$000

Profit for the period

1,156

2,374

3,049

 

 

 

-

(1,465)

(1,465)

(43,476)

(9,756)

(19,659)

Deferred taxation

15,217

3,415

6,852

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

(28,259)

(7,806)

(14,272)

 

 

 

Foreign exchange translation differences

(2,611)

3,356

4,109

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

(2,611)

3,356

4,109

Other comprehensive (expense)/income for the period, net of income tax

(30,870)

(4,450)

(10,163)

Total comprehensive (expense)/income for the period

(29,714)

(2,076)

(7,114)

  

 

Condensed consolidated statement of financial position (unaudited)

As at 29 September 2018

 

 

 

 

 

As at

As at

As at

 

29 September

30 September

31 March

 

2018

2017

2018

 

$000

$000

$000

Non-current assets

 

 

 

Property, plant and equipment

          3,914

            4,405

            4,111

Goodwill

       10,329

         10,329

         10,329

Other Intangible assets

             864

               364

               407

Employee benefits

          6,889

         61,325

         54,319

Deferred tax assets

          4,827

            5,085

            5,102

 

       26,823

         81,508

         74,268

Current assets

 

 

 

Inventories

       19,090

         18,256

         19,597

Trade and other receivables

          9,910

            9,672

         10,266

Cash and cash equivalents

             754

               664

            1,676

 

       29,754

         28,592

         31,539

Total assets

       56,577

       110,100

       105,807

Non-current liabilities

 

 

 

Employee benefits

(1,309)

(1,385)

(1,225)

Loans and other borrowings

(11,381)

(12,040)

  (12,251)

Deferred tax liability

(2,489)

(21,339)

(19,020)

 

(15,179)

(34,764)

(32,496)

Current liabilities

 

 

 

Trade and other payables

(6,371)

(6,435)

 (9,205)

Income tax payable

              62

                   -  

(291)

Provisions

(302)

(270)

 (53)

Loans and other borrowings

(6,474)

(4,876)

    (5,025)

 

(13,085)

(11,581)

(14,574)

Total liabilities

(28,264)

(46,345)

        (47,070)

Net assets

       28,313

         63,755

         58,737

 

Shareholders' equity

 

 

 

Called-up share capital

1,746

1,746

1,746

Share premium account

          2,885

            2,885

            2,885

Revaluation reserve

          700

1,062

759

Equity reserve

             201

               201

               201

Translation reserve

(5,767)

(2,861)

               (4,565)

Retained earnings

       28,548

         60,722

         57,711

Total equity

       28,313

         63,755

         58,737

 

 

Consolidated statement of changes in equity (unaudited)

As at 29 September 2018

 

 

 

 

 

 

 

 

 

               

Ordinary

Share

 

Available

 

 

 

 

 

               

share

premium

Revaluation

 for sale

Translation

Equity

Retained

 

               

capital

account

reserve

reserve

reserve

reserve

Earnings

Total

               

$000

$000

$000

$000

$000

$000

$000

$000

At 1 April 2017

1,629

1,484

797

1,446

(6,724)

201

65,461

64,294

Profit for the period

-

-

-

 

-

-

2,374

2,374

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation

-

-

265

19

3,863

-

(791)

3,356

Net defined benefit asset mvmt

-

-

-

-

-

-

(9,756)

(9,756)

ProPhotonix disposal

-

-

              -

 (1,465)

-

-

-

(1,465)

Deferred tax

-

-

-

-

-

-

3,415

3,415

Total comprehensive income

-

-

265

(1,446)

3,863

-

(4,758)

(2,076)

Transactions with owners:

 

 

 

 

 

 

 

 

Share capital subscribed for

117

1,401

-

-

-

-

-

1,518

Credit for share-based payments

-

-

-

-

-

-

19

19

Total transactions with owners

117

1,401

-

-

-

-

19

1,537

At 30 September 2017

1,746

2,885

1,062

-

(2,861)

201

60,722

63,755

Profit for the period

-

-

-

-

-

-

675

675

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation

-

-

(303)

-

(1,704)

-

2,760

753

Net defined benefit asset mvmt

-

-

-

-

-

-

(9,903)

(9,903)

Deferred tax

-

-

-

-

-

-

3,437

3,437

Total comprehensive income

-

-

(303)

-

(1,704)

-

(3,031)

(5,038)

Transactions with owners:

-

-

-

-

-

-

-

-

Credit for share-based payments

-

-

-

-

-

-

20

20

Total transactions with owners

-

-

-

-

-

-

20

20

At 31 March 2018

1,746

2,885

759

-

(4,565)

201

57,711

58,737

Profit for the period

-

-

-

-

-

-

1,156

1,156

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation

-

-

(59)

-

(1,202)

-

(1,350)

(2,611)

Net defined benefit asset mvmt

-

-

-

-

-

-

(43,476)

(43,476)

Deferred tax

-

-

-

-

-

-

15,217

15,217

Total comprehensive income

-

-

(59)

-

(1,202)

-

(28,453)

(29,714)

Transactions with owners:

-

-

-

-

-

-

-

-

Dividends

-

-

-

-

-

-

(738)

(738)

Credit for share-based payments

-

-

-

-

-

-

28

28

Total transactions with owners

-

-

-

-

-

-

(710)

(710)

At 29 September 2018

1,746

2,885

700

-

(5,767)

201

28,548

28,313

                       

 

Condensed consolidated cash flow statement (unaudited)

For the 26 week period ended 29 September 2018

 

 

 

 

26 weeks

26 weeks

52 weeks

 

ended

ended

ended

 

29 September

30 September

31 March

 

2018

2017

2018

 

$000

$000

$000

Cash flows from operating activities

 

 

 

Profit for the period

1,156

2,374

3,049

Adjustments for:

 

 

 

Amortisation of development expenditure

5

34

71

Depreciation

295

293

596

Net financial income

12

(171)

(269)

Net pension charge

1,308

-

-

Other special items

                  294

378

991

Profit on disposal of fixed assets

(343)

-

-

ProPhotonix profit

-

(1,256)

(1,256)

Equity share option expense

28

19

39

Income tax expense/(credit)

(181)

301

816

Operating cash flow before changes in working capital and provisions

2,574

1,972

4,037

(Increase) /decrease in trade and other receivables

(108)

(125)

(445)

(increase)/decrease in inventories

80

(1,951)

(2,970)

 (Decrease) in trade and other payables

(2,531)

(572)

1,169

Employee benefit contributions

(13)

(81)

(143)

Restructuring and redundancy expenditure

-

(65)

-

Cash generated from/(used in) operations

2

(822)

1,648

Interest paid

(523)

(573)

(1,183)

Income tax paid

(382)

-

-

Net cash flows from operating activities

(903)

(1,395)

465

Cash flows from investing activities

 

 

 

Proceeds from sale of property, plant and equipment

344

-

285

Proceeds from sale of ProPhotonix

-

1,972

1,972

Purchase of property, plant and equipment

(404)

(257)

(694)

Development expenditure capitalised

(497)

(8)

(87)

Net cash from investing activities

(557)

1,707

1,476

Cash flows from financing activities

 

 

 

Net proceeds from issue of ordinary shares

-

1,517

1,517

Dividends paid

(736)

-

-

Proceeds from/(Net repayment of) external borrowing

1,328

(2,439)

(2,985)

Net finance lease expenditure

(21)

(38)

(56)

Net cash flows from financing activities

571

(960)

(1,524)

Net increase/(decrease) in cash and cash equivalents

(889)

(648)

417

Cash and cash equivalents at the beginning of the period

1,676

1,352

1,352

Effect of exchange rate fluctuations on cash held

(33)

(40)

(93)

Cash and cash equivalents at the end of the period

754

664

1,676

 

Notes relating to the condensed consolidated financial statements

For the 26-week period ended 29 September 2018

 

1. Basis of preparation and accounting policies

These interim consolidated financial statements have been prepared using accounting policies based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 March 2018 Annual Report. The financial information for the half years ended 29 September 2018 and 30 September 2017 does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

 

             The annual financial statements of The 600 Group plc ('the Group') are prepared in accordance with IFRS as adopted by the European Union. The comparative financial information for the year ended 31 March 2018 included within this report does not constitute the full statutory Annual Report for that period. The statutory Annual Report and Financial Statements for 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 March 2018 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under 498(2) - (3) of the Companies Act 2006. 

         

            The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2018 annual financial statements, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 April 2018, and will be adopted in the 2019 financial statements. New standards impacting the Group that will be adopted in the annual financial statements for the year ended 30 March 2019, and which have given rise to changes in the Group's accounting policies are:

 

·      IFRS 9 Financial Instruments; and

·      IFRS 15 Revenue from Contracts with Customers

 

Details of the impact of these two standards are given below. Other new and amended standards and interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to have a material impact on the Group.

 

IFRS 9 Financial Instruments

 

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had an effect on the Group in the following areas:

 

·    The impairment provision on financial assets measured at amortised cost (such as trade and other receivables) have been calculated in accordance with IFRS 9's expected credit loss model, which differs from the incurred loss model previously required by IAS 39. This has not resulted in a change to the impairment provision at 1 April 2018

 

IFRS 15 Revenue from Contract with Customers

 

IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various Interpretations previously issued by the IFRS Interpretations Committee, noting the Group has adopted the modified retrospective approach. There is no material impact on any revenue stream for the Group given that machines are recorded as revenue on dispatch and with spares and maintenance recorded at the appropriate time as work is done.

 

There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective for periods beginning subsequent to 30 March 2019 (the date on which the company's next annual financial statements will be prepared up to) that the Group has decided not to adopt early. The most significant of these is IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019).

 

 

2. SEGMENT ANALYSIS

IFRS 8 - "Operating Segments" requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance.  The chief operating decision maker has been identified as the Executive Directors.  The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources.

 

The Executive Directors consider there to be two continuing operating segments being machine tools and precision engineered Components and industrial laser systems.

The Executive Directors assess the performance of the operating segments based on a measure of operating profit/(loss).  This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs.

 

 

The following is an analysis of the Group's revenue and results by reportable segment:

 

 

 

Continuing

26 Weeks ended 29 September 2018

Machine

Tools

& Precision

Engineered

Components

Industrial

Laser

Systems

Head Office

& unallocated

Total

Segmental analysis of revenue

$000

$000

$000

$000

Total revenue

23,112

9,685

-

32,797

 

 

 

 

 

Operating profit/(loss) pre special items

1,527

1,121

(666)

1,982

 Special items

(1,003)

-

8

(995)

Operating profit/(loss)

524

1,121

(658)

987

 

 

 

 

 

 

Other segmental information:

 

 

 

 

Reportable segment assets

38,353

9,274

8,950

56,577

Reportable segment liabilities

(10,467)

(5,017)

(12,780)

(28,264)

Intangible & Property, plant and equipment  additions

264

637

-

901

Depreciation and amortisation

153

146

1

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. SEGMENT ANALYSIS (continued)

 

Continuing

26 Weeks ended 30 September 2017

Machine

Tools

& Precision

Engineered

Components

Industrial

 Laser

Systems

Head Office

& unallocated

Total

Segmental analysis of revenue

$000

$000

$000

$000

Total revenue

21,981

10,207

-

32,188

 

 

 

 

 

Operating profit/(loss) pre- special items

985

1,438

(778)

1,645

Special items

(144)

(210)

(44)

(398)

Operating profit/(loss)

841

1,228

(822)

1,247

 

 

 

 

 

 

Other segmental information:

 

 

 

 

Reportable segment assets

37,094

10,510

65,128

112,732

Reportable segment liabilities

(30,231)

(5,071)

(11,639)

(46,941)

Intangible & Property, plant and equipment  additions

51

214

-

265

Depreciation and amortisation

176

126

-

302

 

 

 

 

Continuing

52-weeks ended 31 March 2018

Machine Tools

& Precision

Engineered

Components

Industrial Laser

Systems

Head Office

& unallocated

Total

Segmental analysis of revenue

$000

$000

$000

$000

 

Total revenue per statutory accounts

45,222

20,792

-

66,014

 

 

 

 

 

Operating Profit/(loss) before special Items

2,904

2,867

(1,541)

4,230

 

 

 

 

 

Special Items

(883)

(767)

(240)

(1,890)

Group profit/(loss) from operations

2,021

2,100

(1,781)

                2,340

Other segmental information:

 

 

 

 

Reportable segment assets

40,320

9,867

55,620

105,807

Reportable segment liabilities

(28,153)

(5,826)

(13,091)

(47,070)

Intangible & Property, plant and equipment additions

146

544

4

694

Depreciation and amortisation

362

294

-

656

 

 

 

 

 

 

 

 

 

 

 

 

3. SPECIAL ITEMS

In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed significant costs associated with the ongoing restructuring of the Group and associated redundancy costs incurred in the period. In addition, the non-cash charges for share based payments, amortisation of intangible assets acquired and amortisation of loan note costs have been included.

 

 

29 September     2018

30 September

2017

31 March

2018

 

$000

$000

Items included in cost of sales - redundancy and restructuring

-

-

(764)

 

 

 

Items included in operating profit:

 

 

 

Pension charge

(1,308)

-

-

Reorganisation ,restructuring and redundancy costs

(39)

(354)

(1,036)

Profit on sale of plant and equipment

344

-

-

Dilapidation costs

(272)

-

-

Historic VAT recovery

331

-

-

Share option costs

(29)

(19)

(39)

Amortisation of intangible assets acquired

(25)

(51)

 

(398)

(1,126)

 

 

 

Items included in financial (income)/expense:

 

 

Pensions interest on surplus

862

1,741

 

 

 

Amortisation of loan note expenses

(138)

(118)

(243)

Pensions interest on deficit

-

              (47)

 

(118)

(290)

 

 

 

Profit on ProPhotonix sale

1,256

1,256

 

4. Financial income and expensE

 

29 September   2018

30 September   2017

31 March

2018

 

$000

$000

$000

Interest on Pension surplus

649

862

1,741

Financial income

649

862

1,741

Bank overdraft and loan interest

(26)

(127)

(234)

Loan note interest

(496)

(441)

(925)

Other finance charges

-

-

(8)

Finance charges on finance leases

(1)

(5)

(15)

Pensions interest on deficit

-

-

(47)

Amortisation of loan note costs

(138)

(118)

(243)

Financial expense

(661)

(691)

(1,472)

 

 

5. Taxation

 

29 September

2018

30 September 2017

31 March

2018

 

$000

$000

$000

Current tax:

 

 

 

Corporation tax at 19% (2017: 20%):

-

-

-

Overseas taxation:

 

 

 

- current period

(50)

-

(340)

Total current tax charge

(50)

-

(340)

Deferred taxation:

 

 

 

- current period

231

(300)

252

- effect of rate change in USA

-

-

(630)

- prior period

-

-

(98)

Total deferred taxation charge

231

(300)

(476)

Taxation charged to the income statement

181

(300)

(816)

 

 

6. Earnings per share

The calculation of the basic earnings per share of 1.25c (2017: 1.02c) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of $1,179,000 (2017 $2,372,000) and on the weighted average number of shares in issue during the period of 112,973,341 (2017 104,831,330). At 29 September 2018, there were 6,650,000 (2017: 6,650,000) potentially dilutive shares on option and 43,950,000 (2017: 43,950,000) share warrants exercisable at 20p. The weighted average effect of these as at 29 September 2018 was 1,187,462 shares (2017: 716,915) giving a diluted earnings per share of 1.03c (2017: 2.26c).

 

.

 

29 September

2018

30 September

2017

31 March

2018

Weighted average number of shares

Shares

Shares

Shares

Issued shares at start of period

112,973,341

104, 357,957

104,357,957

Effect of shares issued in the period

-

473,373

4,544,378

Weighted average number of shares at end of period

112,973,341

104,831,330

108,902,335

Weighted average number of 6,650,000 potentially dilutive shares

1,187,462

716,915

790,601

Total Weighted average diluted shares

114,160,803

105,548,245

109,692,936

 

 

 

29 September 2018

30 September

2017

31 March

2018

 

$000

$000

$000

Underlying earnings

 

 

 

Total post tax earnings

1,156

2,374

3,049

Share option costs

29

20

39

Pensions Interest on surplus/deficit

(649)

(862)

(1,694)

Amortisation of Shareholder loan expenses

138

118

243

Pensions charge

1,308

-

-

Amortisation of intangible assets acquired

22

25

51

Other special items

(364)

353

1,800

Profit on sale of ProPhotonix

-

(1,256)

(1,256)

Associated taxation on special items

(231)

300

1,252

Underlying earnings after tax

1,409

1,072

3,484

 

Underlying Earnings Per Share

1.25c

1.02c

3.20c

 

 

 

 

7. RECONCILIATION OF NET CASH FLOW TO NET DEBT

 

29 September

2018

30 September

2017

31 March

2018

 

$000

$000

$000

Increase/(decrease) in cash and cash equivalents

(889)

(648)

417

(decrease)/Increase in debt and finance leases

(1,307)

2,477

3,041

(decrease)/Increase in net debt from cash flows

(2,196)

1,829

3,458

Net debt at beginning of period

(15,600)

(17,090)

(17,090)

Loan costs amortisation and adjustments

(138)

(118)

(243)

Exchange effects on net funds

833

(873)

(1,725)

Net debt at end of period

(17,101)

(16,252)

(15,600)

 

8. Analysis of net DEBT

 

At

Exchange/

 

 

 

At

 

31 March

Reserve

 

 

 

29 September

 

2018

movement

 

Other

Cash flows

2018

 

$000

$000

 

$000

$000

$000

Cash at bank and in hand

1,536

(23)

 

-

(889)

624

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

140

(10)

 

-

-

130

 

1,676

(33)

 

-

(889)

754

Debt due within one year

(4,984)

44

 

-

(1,483)

(6,423)

Debt due after one year

(842)

25

 

-

155

(662)

Loan Notes due after one year

(11,287)

796

 

(138)

-

(10,629)

Finance leases

(163)

1

 

-

21

(141)

Total

(15,600)

833

 

(138)

(2,196)

(17,101)

 

9. Employee benefits

The Group has defined benefit pension schemes in the UK and USA. The assets of these schemes are held in separate trustee-administered funds. In addition, the Group operates a retirement healthcare benefit scheme for certain of its retired employees in the USA, which is also treated as a defined benefit scheme. The principal scheme is the UK defined benefit pension plan.

The UK scheme secured an insurance policy on 19 July 2018 with Pension Insurance Corporation which matches the scheme liabilities.

 

Value of UK and USA scheme assets and liabilities for the purposes of IAS 19

 

 

 

29 September

2018

 

29 September

2018

30 September

2017

30 September

2017

31 March

2018

31 March

2018

 

UK Scheme

US Scheme

UK Scheme

US Scheme

UK Scheme

US Scheme

 

$000

$000

$000

$000

$000

$000

 

 

 

 

 

 

 

Opening Fair value of schemes assets

326,135

1,007

305,870

1,085

305,870

1,085

Experience adjustments in the period

(97,666)

-

4,803

-

19,116

(78)

Closing Fair value of schemes assets

228,469

1,007

310,673

1,085

326,135

1,007

 

 

 

 

 

 

 

Opening present value of schemes liabilities

(271,816)

(2,232)

(240,193)

(2,374)

(240,193)

(2,374)

Experience adjustments in the period

50,236

84

(9,155)

(96)

(31,623)

142

Closing present value of schemes liabilities

(221,580)

(2,316)

(249,348)

(2,470)

(271,816)

(2,232)

 

 

 

 

 

 

 

Surplus/(deficit) recognised under IAS 19

6,889

(1,309)

61,325

(1,385)

54,219

(1,225)

 

 

The principal assumptions used for the purpose of the IAS 19 valuation for the UK scheme compared to the 2018 year end were as follows:

 

29 September

2018

31 March

2018

 

UK scheme

UK scheme

 

% p.a.

% p.a.

Inflation under RPI

3.25

3.25

Inflation under CPI

2.15

2.15

Rate of increase to pensions in payment - LPI 5%

3.15

3.15

Discount rate for scheme liabilities and return on assets

2.65

2.50

 

The liabilities of the UK scheme are valued under the prescribed requirement of IAS 19 but given all the risk associated with these have been covered by the insurance policy bought in, the insurance asset is valued at the same amount.

10. FAIR VALUE

 

The group considers that the carrying amount of the following financial assets and financial liabilities are

a reasonable approximation of their fair value:

 

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Loans and other borrowings

 

 

11. Principal Risks and Uncertainties

 

The principal risks and uncertainties affecting the Group remain those set out in the 2018 Annual Report. Those which are most likely to impact the performance of the Group in the remaining period of the current financial year are the exposure to increased input costs, the dependence on a relatively small number of key vendors in the supply chain and a downturn in its customers' end markets particularly in North America and Europe.

 

 

 


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