26th Jun 2014 12:37
LONDON (Alliance News) - Machine tools and laser-marking company The 600 Group PLC Thursday said it is now looking to bolster the business through acquisitions after reporting an increase in profit for the full year.
AIM-listed 600 Group, which was subject to a takeover bid by China-based Qingdao D&D Investment Group Co Ltd in 2013, said it is currently in negotiations to acquire laser marker-related companies.
Chief Executive Nigel Rogers said the laser marking sector is growing much more rapidly than the machine tools industry. Laser marking creates permanent non-erasable identification and traceability for industrial parts.
"The [laser marker] industry as a whole is showing consistent year-on-year growth of about 10%, and it's a fragmented space," Rogers told Alliance News in a telephone interview. "Although our own business is quite small, turning over about GBP8 million, there are not many people out there any bigger, and in terms of brand recognition, our business is as good as any other around the world."
Rogers added: "It is very well geographically spread. Almost half of our sales come from the US, and a chunk comes from Continental Europe. We are well represented elsewhere in the world. It is an interesting base in which to look at acquisition opportunities."
Rogers said the company has added new products to the division and invested in its sales team, as it attempts to gain recognition as a market leader in the sector.
"The best way to achieve that [recognition] quickly is through the right strategic acquisition," he said. "For that reason we have engaged with a number of people to have a discussion about how we see the industry, and what we would like to see happen next, and whether they would like to participate," he said.
Rogers said negotiations with various companies are at an early stage. However he will be "disappointed" if a deal is not concluded by Christmas. Rogers would not name the companies involved but said they are not based in the UK.
"They are in a mixture of geographies, but not the UK," he said. "It's more likely to be outside the UK purely, because the size of the UK market is such that being a UK-based producer, we already have quite a dominant market share relative to other parts of the world."
600 Group Thursday posted pretax profit of GBP2.7 million for the year ended March 29, up from GBP1.0 million a year earlier, even though revenue dipped to GBP41.7 million from GBP41.8 million, as its two reportable businesses, machine tools and laser making, had a mixed year.
Machine tools reported revenue of GBP34.4 million, down slightly from GBP34.9 million a year earlier. 600 Group said revenue in local currency contracted by more than 34% in Australia where market conditions were challenging due to political uncertainty, government austerity measures, and major fluctuations in currency and interest rates.
European revenues increased 21% for machine tools, as product availability, lead times and customer service all returned to normalised levels. Overall operating margin for machine tools rose to 8.7% from 6.1%.
Earlier this year 600 Group said it terminated discussions with Qingdao D&D Investment Group Co Ltd over potential sale of 600 Group's machine tools business. Rogers said the company decided that the price offered did not match its value, as the business had grown substantially during the talks.
"If you asked the question now, would we sell our machine tools business, then the answer would be that we are a public limited company and consequently everything is for sale at a price, but it would be at a substantial premium," Rogers said. "We believe that it is an extremely high-quality business and we don't have any intention of selling it unless someone comes along and offers us a deal we can't refuse."
Laser markers performed well during the recent year, with revenue up 8.6% to GBP7.6 million from GBP7.0 million a year earlier, including an 18% increase in the second half compared with the first. This coincided with the launch in September of new products, which have been very well received, 600 Group said. Operating margin for the laser marker division rose to 5.6% from 3.0%.
600 Group said group gross margins increased by 150 basis points to 33.2% from 31.7%, primarily as a result of management initiatives to reduce direct costs through modifications to product specification, renegotiation of sources of supply, and greater throughput of products against a relatively fixed production cost base.
Order intake during the year rose to GBP42.3 million from GBP37.4 million a year earlier.
Despite its performance, the company said it will not pay a dividend. It said the "retention of earnings for redeployment in the business continues to be the most appropriate use of available financial resources in the short term."
The 600 Group shares were quoted down 0.9% at 22.05 pence Thursday afternoon.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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