30th Jun 2005 07:01
600 Group PLC30 June 2005 30th June 2005 600 GROUP PLC PRELIMINARY RESULTS FOR THE PERIOD TO 2 APRIL 2005 CHAIRMAN'S STATEMENT Having come through an exceptionally long recession, the Group is now seeing agradual improvement in overall market demand and our resources are beingfocussed increasingly on opportunities for organic growth. After the improved performance reported at the half year, the second half resultwas disappointing due to a short-term softening in some of our western markets,coupled with slippage in a new supply programme. Market conditions The UK and North American markets continued to be erratic, showing signs ofrecovery in the first half of the year but easing during the second half asshort-term economic uncertainties returned. As in the previous year, otherEuropean markets remained depressed, but those in the Far East continued to bebuoyant. Results Despite these market conditions, the Group's underlying order intake increasedby 5% with increases in all geographic areas with the exception of Australia.Our outstanding order book also increased slightly, but is still below ouroptimal level. Our UK factoring, lasers and USA businesses all showed increased turnover, butthese improvements were largely offset by reduced sales from the lathes businesswhere output was restricted due to start-up problems on new component supplycontracts. The resulting profit before tax improved from £0.2m to £1.6m. The improvement in gross profit from 25% to 27% is due principally to thechanges in business and product mix. Net operating expenses before pension credit and exceptional items increased by£1.2m. Distribution costs increased by £0.8m reflecting a very high level ofexhibition expenditure together with increased direct selling costs in the UKand Germany and other operating income was down by £0.2m as a result of lowercommission-only sales in Canada. The SSAP24 calculated pension scheme credit increased by £0.2m and the sale ofsurplus plant and machinery following our increase in sub-contractedmanufacturing generated a profit of £0.4m. There were no exceptional costsrelating to restructuring during the year. Net funds decreased by £3.3m from £9.9m to £6.6m. Dividends absorbed £3.1m andthe net cash outflow from operating activities was £0.2m. Dividend The board recommends a final dividend of 4.0p, maintaining the full yeardividend of 5.5p. People The constitution of the board has changed significantly during the past year.Peter Bullock retired in September after sixteen years' service as anon-executive director and I should like to record our thanks for hiscontribution during this period and our best wishes for the future. I waspleased to welcome Andrew Dick to the board as Group Managing Director from thestart of the current year. For an initial period, he will shadow Tony Sweeten,with a view to succeeding him as Group Chief Executive at the appropriate time. On behalf of the board, I should like to record our continued appreciation ofthe efforts of all our employees during the year. Outlook Capacity utilisation levels in western markets continue to show an improvingtrend, indicating continued growth in demand for machine tools in the longerterm, albeit at a slower rate than last year. However, as I have highlighted inprevious statements, short-term confidence levels in the machine tool marketcontinue to be dominated by economic and political events. This marketbackground will continue to have a significant influence in the coming halfyear. Accordingly, our priority during the current year will be to continue thetransition to a Group focussed increasingly on organic growth, concentrating ourefforts on the expansion and exploitation of the new sources of supply and theuse of our extensive international presence to develop improved marketinginitiatives, especially in new growth markets. Even though it is anticipated that the Group will remain free of net debt andcash positive, the new International Accounting Standards coming into force inthe current year will result in future dividend payments being linked directlyto future operating results. With our wide geographic coverage, a continuously updated product range andstrengthened management teams, I am confident that we are in a strong positionto increase our market share and to benefit from the longer-term opportunitiesthat are likely to develop in the international machine tool market. Michael Wright Chairman 30 June 2005 Enquiries: Enquiries: The 600 Group PLCTony Sweeten, Group Chief ExecutiveJohn Fussey, Group Finance Director Telephone: 0113 2776100 Hudson SandlerNick Lyon Telephone: 020 7796 4133 CHIEF EXECUTIVE'S REVIEW OF OPERATIONS Last year saw recovery in our major markets in the USA and UK and continuedbuoyancy in the Far East. These trends are set to continue, although they arelikely to include significant short-term fluctuations, as demonstrated duringthe last few months. Our drive to enhance our products, raise efficiency andbuild international strategic alliances has created a solid platform for growthand we have further strengthened our operational management to ensure that wemake the most of the opportunities before us. Market trends This was a year of exceptional growth in the world economy. The principaldrivers were the continued rapid expansion of the Chinese economy and recoveryin the USA, both of which were reflected in strong demand for machine tools. TheUK market also returned to growth, while the newer EU member states and othereconomies in Eastern Europe continued to progress. However, there was no sign ofimprovement in the major Western European markets of Germany, Italy or France. Despite its strong growth, China has proved a challenging market in which tosecure sales of imported product because of the combined effects of intensecompetition, import duties and the weak local currency. Our strategic alliancesfor the sourcing of low-cost products have progressed steadily, though teethingissues of quality control in particular meant that we did not maximise salesopportunities last year. Now that this learning curve is being addressed, thereis real potential to develop sales of value products that complement our newer,high-tech lines. All our businesses have maintained their focus on innovation and we have manyexcellent new products in the pipeline. We are particularly excited by thepotential for our new fibre laser products which offer substantial advantages inimproved reliability and reduced maintenance costs. Significant growthopportunities have already been identified in the aerospace and medical sectorswhere laser marking of components and instruments will help to improve theirtraceability. Strategic development Our clear and consistent strategy has enabled us to weather the worst recessionin our industry in living memory, while remaining financially robust. Our keystrategic principles continue to be: • to focus on machine tools, with strong global brands that enjoy a reputation for quality and value; • to maintain an extensive programme of new product development to sustain our strong market positions; • to develop strategic alliances with appropriate overseas partners to improve our global selling network and exploit suitable opportunities for low-cost sourcing; • to reduce our cost base to ensure that we can compete effectively; and • to maintain a sound balance sheet. We have completed the restructuring of the Group and now have an efficientbusiness with the right mix of technologies, skills and leadership to addressthe challenging markets of the next decade. Our product portfolio is inexcellent shape, with new lines steadily enhancing both the performance and thevalue we can offer to our customers and we have well-qualified and highlymotivated new managing directors in place in the majority of our key operations. United Kingdom operations 600 Lathes benefited from the successful launch of the new Colchester Tornadorange and the introduction of a new family of sub-spindle models. The newMultiTurn range of flatbed CNC centre lathes also generated good volume growthin its first full year of sales. We were particularly pleased by the growth in export orders for Tornado productsand the expansion of the EU stimulated increased demand for our whole range fromdistributors in the new member countries in Eastern Europe. Our programme to outsource the manufacture of our range of standard lathes hasprogressed during the year, although problems with production scheduling andquality assurance meant that we did not achieve our projected sales towards theend of the year. These difficulties are now being addressed. The management team at 600 Lathes has been significantly strengthened with a newmanaging director now in place and additional resources provided in engineeringand product development where a significant programme of innovation and rangeextension is under way. We have also consolidated our manufacturing process bybringing on site a state-of-the-art metal fabrications facility which hasenabled us to reduce lead times while making product improvements and cuttingcosts. 600 Centre, our UK marketing operation for imported machine tools, achieved agood increase in both sales and profits, driven mainly by growth in theautomotive and medical sectors. We supplied a number of high-specification FanucRobodrills to a major customer as part of a total engineered solution for themanufacture of engine components and also enjoyed strong demand for FanucRobodrill machining centres and wire cut machines for the production ofartificial joints. We continued our successful drive to broaden our agency baseby securing sole UK selling rights for the Toyoda-Mitsui Seki range of machiningcentres and cylindrical grinding machines. Pratt Burnerd International, our market-leading producer of workholding systems,successfully completed integration of the Crawford Colletts product range inboth manufacturing and sales. Significant cost savings in collett production arebeing achieved, aided by investment in new plant, and we saw an encouragingincrease in US orders towards the end of the year as Pratt Burnerd America tookover responsibility for distribution of the Crawford range. We have alsoimproved our European sales network and gained a number of blue chip customers,helping us to raise our profile on the Continent as the leading supplier ofspecialist workholding systems. Gamet Bearings, manufacturing super high precision taper roller bearings formachine tools and similar applications, realised all the expected benefits ofour major capital investment to automate production. As well as deliveringimproved efficiency and productivity, this investment has given Gamet additionalflexibility and capability to develop new business opportunities outside itstraditional machine tools market. An initial breakthrough was achieved with acontract to supply bearing components for the aerospace industry and there arefurther contracts in the pipeline. Electrox, our laser manufacturing business, achieved further strong growth insales of laser markers. We made particularly encouraging progress in the USA,benefiting from strong market growth and our application of additionalresources, including the refurbishment of our US office to provide a moreeffective centre for sales, applications advice and service support. We alsosuccessfully established a presence in a number of new and growing markets inScandinavia and Eastern Europe. In the final quarter we introduced a new CobraES entry-level complete laser and workstation which has proved very successful.The most exciting new development in the current year will be the introductionof fibre laser technology which will offer substantially extended product life,increased reliability and reduced maintenance costs. We are also pressing aheadwith plans to expand sales into a number of new target markets. We have recentlysecured approved supplier status with Rolls-Royce for product marking by itscomponent manufacturers and are pursuing opportunities in both the US and UK todevelop sales of laser marking technology to ensure the traceability of medicalimplants and instruments. 600 Machinery International, our global trading business, benefited from thecompletion of a long-term contract in Egypt during the year. Although ourtraditional Middle East markets remained relatively quiet, we secured a largecontract in Oman towards the end of the year and continued our successful driveto raise our profile in Far Eastern markets, notably in China, Thailand andMalaysia. Overseas operations Parat, our German distribution business, faced an extremely challenging marketplace as domestic consumption of machine tools again declined. Against thisbackground, the business did well to stabilise sales of Harrison and Paratproducts and successfully re-established the Colchester brand in the Germanmarket after assuming responsibility for its sales and service in 2004. Parat'sgrowing reputation for high quality servicing of lathes is playing an importantpart in securing sales of new products. The business secured a new agency forSachman and Rabaudi machining centres. These complement the established FIDIArange, sales of which have been severely affected as major customers curtailedtheir investment programmes following the expansion of the EU into EasternEurope. 600 France also continued to operate in a depressed and highly competitivemarket, with industrial demand remaining weak. These effects have been partiallyoffset by further progress in the education sector, which is now our largestgenerator of turnover and where we expect to gain further contracts in thecurrent year. Work is continuing to extend our market coverage in preparationfor the availability of our new product ranges. Clausing Industrial, our North American manufacturing and distribution business,benefited from a strong recovery in US machine tool consumption during the year,led by large orders for sophisticated turnkey projects and aided by a specialGovernment tax relief programme during 2004. Sales of Group CNC lathes showedthe largest increase, aided by the successful introduction of the ColchesterMultiTurn and Storm 'T' series lathes, the latter being the US name for theTornado. Orders for vari-speed lathes reached their highest level for a decade,reflecting healthy demand for Colchester standard products and the first fullyear of sales for the new Triumph low-cost range. Good growth was also achievedin sales of surface grinders, sawing machines and drills. This was partiallyoffset by significant reductions in demand for Metosa lathes and Kondia millingmachines, owing to the weakness of the US Dollar against the Euro. 600 Machine Tools Canada had a relatively disappointing year after reportingexcellent results last time. This mainly reflected a shortfall in large agencysales, though the business was successful in winning smaller orders from anumber of new customers. It has also extended its high-tech portfolio,reorganised its service department and is improving its nation-wide distributionnetwork. 600 International, our Prague office with responsibility for co-ordinating Groupsales and procurement in Central and Eastern Europe, continued to perform well.Good growth was achieved in sales of Colchester and Harrison lathes to new EUmember states including Slovakia, the Czech Republic and Poland. Following theappointment of a new distributor, we also made our first sales of these brandsin Russia and have secured new distribution channels in the Baltic states. 600 Machine Tools Australia maintained its strong sales level of the previousyear, despite a lull in spending by important Government customers such as theDepartment of Defence. Sales of Group products showed a healthy increase and ourextended range of high-tech machinery is achieving increased recognition in themarket place. 600SA, our operation in South Africa, had another successful year. Strong salesof Fanuc wire cut machines were again the highlight of performance in machinetools. The Fassi range of lorry-mounted cranes also sold well and we achievedmajor improvements in production efficiency and quality standards in ouroperation manufacturing waste compactors. In forestry, we secured distributionrights for the Terex/Fuchs range of products to replace our former Timberjackagency. Most importantly for the future, at the beginning of the current year wesold 25.1% of the company to a South African individual, strengthening thesenior management team. This step has improved our Black Economic Empowermentrating and thus will enable us to maximise sales opportunities for all ourproducts in this market place in the years ahead. Outlook I believe that the prospects for the Group are good. Demand from China and theUS remains strong and we expect the UK market to remain in growth, albeit at aslower rate than last year. In both of our core UK businesses in lathes andlasers, we have revitalised management teams under new leadership, focusing onmajor opportunities for growth. 600 Lathes has its new overseas supply chain andhas a number of new developments in hand to extend and improve its alreadyexcellent product range. Electrox is poised to launch an exciting new technologyand to secure major new markets. Clausing, also under new management, is wellplaced to reap the benefits of continued growth in the US and our businesses inEastern Europe, South Africa and Australia are all well positioned to makeprogress. Tony Sweeten Group Chief Executive 30 June 2005 AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT 52-week period 53-week period ended ended 2 April 2005 3 April 2004 £000 £000 Turnover 66,682 66,323Cost of sales (48,582) (49,644)Gross profit 18,100 16,679Net operating expenses (17,015) (16,609) Net operating expenses before pension scheme credit and exceptional items (19,355) (18,115)- Pension scheme credit 2,340 2,160- Exceptional items - restructuring costs - (654)Total net operating expenses (17,015) (16,609)Operating loss before pension credit and exceptional items (1,255) (1,436) Operating profit 1,085 70Profit on sale of fixed assets 392 - Profit on ordinary activities before interest and taxation 1,477 70Net interest receivable and similar income 149 116 Profit on ordinary activities before taxation 1,626 186Taxation charge (731) (20) Profit for the financial period 895 166Dividends (3,127) (3,115) Retained loss for the financial period (2,232) (2,949) Earnings per share - basic 1.6p 0.3pEarnings per share - diluted 1.6p 0.3p AUDITED CONSOLIDATED BALANCE SHEET At 2 April 2005 At 3 April 2004 £000 £000Fixed assetsIntangible assets - goodwill 2,560 2,753Tangible assets 11,916 13,116Investments 84 84 14,560 15,953 Current assetsStocks 23,213 20,346Debtors: - falling due within one year 15,704 15,494 - falling due after one year 37,062 34,729 52,766 50,223 Investments 580 1,162Cash at bank and in hand 7,751 9,569 84,310 81,300Current liabilitiesCreditors: amounts falling due within one year: - short-term borrowings (1,622) (754) - other creditors (16,761) (14,565) (18,383) (15,319) Net current assets 65,927 65,981 Total assets less current liabilities 80,487 81,934 Creditors: amounts falling due after more than one year: - loans and other borrowings (92) (75) - other creditors (1,329) (1,317) (1,421) (1,392) Provisions for liabilities and charges (9,383) (8,570)Net assets 69,683 71,972 Capital and reservesCalled-up share capital 14,212 14,206Share premium account 13,680 13,675Revaluation reserve 1,760 1,749Capital redemption reserve 2,500 2,500Profit and loss account 37,531 39,842 Shareholders' funds - equity 69,683 71,972 AUDITED CONSOLIDATED CASH FLOW STATEMENT 52-week 53-week period period ended ended 2 April 2005 3 April 2004 £000 £000 Net cash (outflow)/inflow from operating activities (213) 4,420Returns on investments and servicing of finance 184 63Taxation repaid 44 544Capital expenditure (135) (752)Dividends paid (3,127) (3,086)Net cash (outflow)/inflow before use of liquid resources and financing (3,247) 1,189Management of liquid resources 8 30Financing 783 (2,540) Decrease in cash in the period (2,456) (1,321) Reconciliation of movement in cash flow to movement in net fundsDecrease in cash in the period (2,456) (1,321)Cash (inflow)/outflow from decrease in debt and lease financing (772) 2,875Cash inflow from decrease in liquid resources (8) (30)Change in net funds resulting from cash flows (3,236) 1,524New finance leases entered into (53) (77)Exchange movement 4 1,015 Movement in net funds in the period (3,285) 2,462Net funds brought forward 9,902 7,440 Net funds carried forward 6,617 9,902 Reconciliation of operating profit to net cash inflow/(outflow) from operating activitiesOperating profit 1,085 70Depreciation of fixed assets 1,808 2,039Amortisation of goodwill 182 186Profit on sale of fixed assets (38) (40)(Increase)/Decrease in stocks (2,905) 3,659Increase in pension prepayment (2,752) (2,578)Decrease in debtors 399 2,665Increase/(Decrease) in creditors 2,008 (1,581) Net cash (outflow)/inflow from operating activities (213) 4,420 Cash, for the purpose of the cash flow statement, comprises cash in hand anddeposits repayable on demand, less overdrafts payable on demand. Liquid resources are defined as term deposits and amounts held as current assets- investments. NOTES 1. The financial information set out above does not constitute the company's statutory accounts for the period ended 2 April 2005 or the period ended 3 April 2004 but is derived from those accounts. Statutory accounts for 2004 have been delivered to the registrar of companies, whereas those for 2005 will be delivered following the company's Annual General Meeting. The auditors have reported on the 2004 accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. 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. 3. The final dividend of 4.0p per share, if approved by shareholders at the Annual General Meeting, will be paid on 12 September 2005 to shareholders on the register at 12 August 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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