The 600 Group PLC
A Transformational Year
Results for the year ended 30 March 2019
The 600 Group PLC ("the Group"), the diversified industrial engineering company (AIM: SIXH), today announces its results for the year ended 30 March 2019.
Financial highlights
· Revenue from continuing operations up 1.9% to $65.2m (2018: $63.9m)
· Underlying* operating profit up to $5.3m (2018: $1.8m)
· Gross margin improved 2.4% to 36.1% (2018: 33.7%)
· Underlying* pre-tax profit up to $4.1m (2018: $0.6m)
· Group order book up 6.5%
· Recommended final dividend of 0.5p per share
*from continuing operations, before adjusting items.
Strategic & operational highlights
· Good financial performance & significantly improved financial position
o Completion of $270m pension scheme buyout de-risks balance sheet
o Cash surplus $5.2m net of tax from pension scheme windup now returned to the Group
o Continued improvement in revenue and profit growth
· Moving up the value chain
o Continued focus on operational efficiencies and increased operational flexibility
o Sustainable profit growth supported by investment in product innovation and higher value customer offering across both divisions
o Post-period acquisition of Control Micro Systems significantly enhances customer offering in growing global laser market
· Positive outlook
o Launch of new European Technology Centre reflects strategic focus on product innovation
o Revenue visibility underpinned by an improved orderbook, up 6.5%
o Recommended final dividend of 0.5p per share reflects Board's confidence for the future
Paul Dupee, Executive Chairman of the Group, commented:
"This has been a transformational year for the Group with a number of major developments, both operationally and financially, supporting our strategy of building a global industrials business.
These results demonstrate continued improvement in profitability and increasing revenues, which reflects our ongoing focus on driving operational efficiencies across the Group whilst also investing for growth as we move up the value chain.
As announced on 24 June 2019, we were pleased to announce the acquisition of Control Micro Systems. CMS is highly complementary to the Group's existing laser business and will further enhance our customer offering as we seek to capture world-wide growth in the use of industrial lasers.
As a result of the Group's improved performance and strengthened financial position following the successful completion of the pension scheme buy out, I am pleased to announce the Board's recommendation of a final dividend of 0.5p per share. The 600 Group continues to go from strength to strength, we have a clear strategy for the future, and I look forward to reporting on future progress."
Enquiries:
| The 600 Group PLC 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) Harry Ansell
| Tel: 020 7220 1666 |
Overview
This has been a transformational year for the Group. Over the year we have seen a number of major developments, both operationally and financially, that will have a significant impact on the Group now and in the future as we pursue our growth strategy.
The shackles of the Group's UK final salary pension scheme have been thrown off, relieving the Group of a disproportionate liability and significantly de-risking the Group's balance sheet with the cash refund received post-period end on the wind up of the scheme of $5.2m (net of tax) providing significantly greater financial flexibility.
The Group's results for the 2019 fiscal year have improved in line with the Board's expectations with continued good progress in improving both the Group's profitability and increasing revenues. These improved results reflect our ongoing focus on driving operational efficiencies across the Group whilst also investing in new product development, improving our customer offering and enhancing our sales and distribution resource.
In May 2019, the Group was pleased to announce the launch of its new European Technology Centre, marking a step forward for the Group and demonstrating the importance of product innovation to the Group's strategy as it seeks to underpin organic growth through a strong focus on product development, including launching new products that add to the higher end capabilities of the Group's product range.
The enhanced financial position has provided the Group the flexibility to supplement organic growth with value-enhancing bolt-on acquisition opportunities. The Group was able to expand its operations through successfully acquiring Control Micro Systems (CMS) in June 2019. The acquisition of CMS is highly complementary to the Group's existing laser business, enhancing its customer offering by providing ever more sophisticated, value-added and custom solutions to customer requirements as the Group seeks to capture world-wide growth in the use of industrial lasers. CMS will likewise benefit from the Group's established sales platform and marketing capability.
Divisional overview
The rationalisation of the UK operations of the Machine Tool division has significantly improved operating profitability. The final phase of the outsourcing of manufacturing is in the process of being concluded with the sale of the Gamet bearings business, which has been treated as a discontinued operation in these financial statements. This rationalisation has reduced operational risk and capital expenditure requirements. The move of the UK operation to the new European Technology Centre and re-branding of the business as 'Colchester Machine Tool Solutions' is already raising the profile of the business and helping to drive growth in the UK market and overseas.
In the Industrial Laser division, the UK and European new direct sales function and the spares and service operations have been consolidated into the new machine tool facilities. The launch of a new entry level product during the year has helped unit volumes increase and provided a competitive product to combat this ever increasingly price sensitive sector of the market. It also provides a product which can be sold through selective machine tool distributors worldwide, further driving operational benefits.
Dividend
As a result of the continued good operational performance, the current commercial outlook and the successful completion of the pension scheme wind up, the Board has determined to continue payment of a dividend and are recommending a pay-out of 0.5p per share payable on 30 September 2019, to shareholders on the register at 30 August 2019.
People
Our people are central in continuing the improvement of our business. During the year we continued to invest in new people as well as strengthening our senior management team. On behalf of the Board, I would like to thank all our employees for their ongoing support, commitment and dedication to The 600 Group. I look forward to working with them again in the coming year and welcome our new colleagues from Control Micro Systems to the Group.
Outlook
Despite certain macro-economic and political uncertainties impacting customer sentiment, enquiry and quotation activity remains stable with revenue visibility underpinned by an improved orderbook.
We continue our strategy to grow the Group into a global industrials business. We are constantly seeking to leverage our industry-recognised brands and expand our worldwide distribution network. The introduction of new and innovative products to widen the customer base continues to be a clear focus for both our divisional management teams. The Board continues to believe the strategy of brand promotion, investment in new, higher end product capabilities, diversification into new markets and selective acquisitions will help the business move up the value chain and lead to continued market share growth in the future.
Paul Dupee
Executive Chairman
10 July 2019
Our businesses
The 600 Group PLC ("the Group") is a leading engineering group with a world class reputation in the design and distribution of machine tools, precision engineered components and the design, manufacture and distribution of industrial laser systems. The Group operates these businesses from locations in North America, Europe and Australia selling into more than 100 countries worldwide.
Group businesses serve customers across a broad range of industry sectors, from niche markets for technical education of young engineering apprentices through to high volume production of automotive, aerospace and defence equipment. A large proportion of revenue is derived from sales via third party distribution channels, in respect of which it is more difficult to track the industry dispersion of end-user customers.
The Group benefits from a high degree of loyalty and repeat business via a large number of established distributors in many countries and territories but with no major concentrations. In the year ended 30 March 2019 the top 20 customers, of which 16 were distributors, contributed 27% of revenues.
Revenues
Revenues are generated across many diverse geographical territories:
| Percentage of worldwide revenues (by destination) | 2019 %
| 2018 %
|
|
| United States of America | 65 | 67 |
|
| United Kingdom | 15 | 15 |
|
| Europe (excluding UK) | 10 | 10 |
|
| Rest of the World | 10 | 8 |
|
| Total | 100 | 100 |
|
Macroeconomic and industry trends
Machine tools and precision engineered components
The worldwide machine tool industry was estimated by Oxford Economics at nearly $78.5bn in annual sales in its Spring 2019 report. The market continues to be driven by the investment intentions of manufacturers and is sensitive to changes in the economic and financial climate. Demand responds to economic trends and typically lags the main cycle of the economy.
The global market is dominated by China with consumption of $30bn but this is largely served domestically with China also being the largest producer. The USA is the second largest consumer of machine tools at $8.6bn followed by Germany at $6.7bn.
The report indicated growth of nearly 7% globally in the calendar year to December 2018 but is forecasting a lower 2.3% growth rate in 2019. Within our main markets the expectations for 2019 were for the USA to be close to 4% growth with Europe at 1.4%.
Industrial laser systems
Industry use of industrial lasers for material processing has continued to expand worldwide. Laser systems have now become a mainstream manufacturing process covering the areas of laser machining, including cutting and drilling, marking, ablation and a host of other niche applications. One of the main drivers of this industry has been legislation and the continual increase in the requirement for traceability of products in all industries from aerospace and transport to medical and pharmaceutical.
Industry spending for the entire global industrial laser market continues to increase and reached a new estimated high of $5bn in calendar year 2018. Growth in the overall market is estimated to rise by mid-single-digit growth in 2019 and is dominated by China which is the largest producer and consumer of industrial lasers. The laser marking and micro-materials subset of the market (in which the Group competes) is smaller than the macro-materials processing subset and has seen low single digit growth in recent years. Growth is underpinned by enhanced performance in the speed, cost and quality of the systems being implemented compared to other techniques as well as by legislative changes driving a requirement for greater traceability. The industry subset occupied by the Group has however seen a proliferation of vendors and selling price pressure at the lower commodity end of the market and whilst unit volumes have continued to increase, revenue has been held back.
Our main markets
The main markets we operate in are the USA, Europe and Australia. All these markets have experienced some degree of disruption with the ongoing Brexit issues in the UK, the concern in the USA over tariffs and a trade war with China and the general election in Australia. Despite these issues, quotation activity has remained good, but the various headwinds have had an effect on the time it is taking customers to commit to an actual order. Order books have improved after some weakness at the start of 2019 and are currently 6.5% ahead of the prior year.
Whilst the Brexit issues will continue for some time, The 600 Group has a relatively low exposure to these risks given only 10% of Group sales were to EU countries excluding the UK. In addition, given most of the Group's income is in US Dollars this provides a natural currency hedge against the majority of our purchases which are also in US Dollars.
In addition, over 10% of our total revenues are derived from the supply of spare parts and services and this revenue stream is not dependent on achieving new sales but on servicing our existing installed base of machines.
Activity in the 2018/19 financial year
Machine tools and precision engineered components
This division operates from sites in the UK, USA, and Australia and provides solutions for metal processing through the design and development of machine tools sold under the brand names Colchester, Harrison and Clausing and the design and supply of precision engineering components under the brand names Pratt Burnerd and Gamet. There are also spares, accessories and service operations which support the significant number of machines sold over the Group's long history of supplying quality equipment. Sales are made worldwide, with a mix of direct sales and distribution in North America, Europe, and Australia and a network of distributors in all other key end-user markets.
The machine tools division produced excellent operating profit growth of 147% (before adjusting items) on increased revenues of 3.3%. The principal growth came from the UK operation which returned to profitable operating margins of 7.4% reflecting the benefits of the restructuring undertaken in this business over the last two years.
The re-launch of the UK business as "Colchester Machine Tool Solutions" and the move to a new site in February 2019 gave fresh impetus to the revised management team, led by Terry Allison who became the Group Chief Operating Officer in November 2018. The business has developed new distributor relationships and expanded its direct sales force in the UK.
The new facility near Halifax in West Yorkshire integrates a modern, open plan office environment, enhanced manufacturing and warehousing space as well as serving as the Group's new European Technology Centre with a dedicated year-round product showroom, demonstration and customer training capability to showcase the business' increasingly innovative product range.
The new integrated facility will provide additional operational flexibility, benefitting from a more integrated logistics operation which should provide efficiency benefits in both production and warehousing.
The move of premises was part of the restructuring of the UK operation which has seen a de-risking of operations and reduction in the requirement for ongoing capital expenditure by the outsourcing of further manufacturing. This process is coming to a conclusion with the sale of the Gamet Bearings operation based in Colchester. The revenue and trading results of this operation have been excluded from the ongoing trading and disclosed as a discontinued operation in the Consolidated Income Statement and the assets held for sale separately disclosed at their expected fair value in the Statement of Financial Position at 30 March 2019.
The US machine tool business continued to make progress in improving operating margins despite revenues remaining flat in a difficult market where concerns over tariffs and a trade war with China slowed down customers' decision making. The range of USA produced machines continues to expand and sales to Mexico and Canada continue to grow.
The Australian machine tools business continued its progress with a further 9% growth in revenue and improvement in operating profits. The business will seek to expand in Australia and the wider South East Asia, where the Group's machine tool brands remain well known with a good installed base and focusing on the 'Colchester Machine Tool Solutions' heritage. The business was strengthened in November 2018 when Zelko Galic an experienced engineer and manager joined as the new managing director of the operation.
The financial results of these activities were as follows:
|
| 2019
$ 000 | 2018 Restated* $ 000 |
| Revenues | 44,575 | 43,152 |
|
|
|
|
| Operating profit | 3,610 | 1,459 |
| Operating margin | 8.1% | 3.4%
|
*Restated for the results of Gamet Bearings which is shown as a discontinued operation in both financial years and for the effects of adoption of IFRS 15 and IFRS 9. See note 15.
Industrial laser systems
The industrial laser systems business has seen increased competition in the lower end commodity products and successfully introduced a competitive product in September 2018 which has seen good volume sales. This low-cost machine is now starting to be distributed through our machine tool distribution channels as well as the traditional laser distributors. The business has also expanded its expertise into the higher end market where customer requirements for more specialised solutions can be satisfied as a result of the business's proprietary software and technical capabilities. Whilst the volume of units sold has increased year on year the move of part of the business to the lower priced units has kept overall revenues flat but the business has been able to continue to improve operating margins as a result of the restructuring of the UK operation and by maintaining overall gross margins.
The UK spares and service operation has been integrated into the new European Technology Centre machine tools operation which now supports both the UK and Europe and a direct sales operation for the UK has been established based in this facility which provides a permanent showroom to demonstrate the full range of laser machines.
The joint TYKMA ELECTROX brand provides laser solutions which includes marking, engraving and micro-material processing. Customers are able to choose from the combined product portfolio the solution to an expanded number of applications. These industrial laser systems are sold to an ever-increasing market diversification in the manufacturing industry among both small and large multi-national corporate customers.
The increased requirement for traceability of all production items underpins the growth of this industry and forecasters continue to predict growth in this activity as these products replace traditional stamping, ink and dot peen systems. Continued support from legislation mandating increased traceability continues to be a positive driver for individual component identification.
Results for the financial year were as follows:
|
| 2019
$ 000 | 2018 Restated* $ 000 |
| Revenues | 20,592 | 20,792 |
|
|
|
|
| Operating profit | 2,563 | 2,100 |
| Operating margin | 12.4% | 10.1% |
Group Results
Revenue from continuing operations increased by 1.9% to $65.2m (2018: $63.9m) and Group profit before tax and adjusting items was $4.1m (2018: $0.6m) and profit before tax after adjusting items was $4.3m (2018: $3.3m).
Changes in accounting standards
The Group has adopted two new accounting standards in the year, IFRS 15, Revenue from Contracts with Customers, which establishes a principles-based approach to revenue recognition and measurement depending on when performance obligations are satisfied, and IFRS 9, Financial Instruments. Both of these have required additional disclosures and some small adjustments to the opening statement of financial position. Details of these can be found in note 15.
Adjusting items
The directors have highlighted transactions which are material and unrelated to the normal trading activity of the Group.
In the opinion of the directors the disclosure of these entries should be reported separately for a better understanding of the underlying trading performance of the Group. These underlying figures are used by the Board to monitor business performance, form the basis of bonus incentives and are used for the purposes of the bank covenants.
These non-GAAP measures are explained in note 13 alternative performance measures and set out in note 3. All adjusting items are taken into account in the GAAP figures in the Income Statement.
The buy-out of the Group pension scheme was completed in April 2019 but during the year ended 30 March 2019 the trustees undertook a number of exercises to reduce the liabilities of the scheme which had an actuarial cost of $1.28m. Given these had a beneficial effect on the ultimate buy out cost of the scheme they were supported by the Group. This amount is shown in adjusting items.
As a result of the outsourcing of manufacturing in the UK, the existing premises were vacated, and a sublet is in the process of negotiation. An onerous lease provision of $0.4m has been provided as a result of this and shown in adjusting items.
A credit of $1.26m (2018: credit of $1.74m) is recorded in financial income in respect of the final salary pension scheme. No cash was paid to or received from the scheme in respect of this transaction which arises as a pension accounting entry under the required standard due to the surplus in the scheme recorded in the balance sheet.
The adjustment to the carrying value of the amortised cost of the loan notes in the year is shown as a credit of $0.82m. This arose as a result of the extension of these instruments by a further two years. The prior year's amortisation has been included as an adjusting item.
An additional credit of $1.26m was recorded in the prior year as a result of the sale of the Group's holding in ProPhotonix Ltd at the end of August 2017. This generated $1.97m of cash which was used to pay down UK debt.
As a result of the changes in the USA to the rates of taxation, a significant charge of $0.6m was made to adjust the deferred taxation assets.
An amount of $0.96m has been recorded to reduce the value of the Gamet assets available for sale to bring their carrying value into line with the expected proceeds of sale, less costs to sell.
Taxation
The current year pre-adjusting items profit resulted in a small charge of $0.066m (2018: credit of $0.53m) for taxation. The UK businesses continue to benefit from substantial previous tax losses and no taxation is payable in the UK. There are substantial unrecorded deferred tax assets in the UK which are released onto the balance sheet as existing recorded losses are utilised which will help maintain a lower tax charge. There remains an unrecognised deferred tax asset of over $2m in addition to the recognised asset of $2m in respect of UK tax losses at the year end. The US businesses are subject to taxation on their profits at the rate of 21% (2018: composite rate of 31%). The USA businesses benefited from claims for R&D tax allowances in current and previous years during the year.
Deferred taxation is provided on the UK pension credits at a rate of 35%, being the rate applicable to any refund from a pension scheme and is included in adjusting items.
Following the changes in the USA to the rates of taxation in the prior year, a significant charge of $0.6m was made to adjust the deferred taxation assets. This charge was shown in adjusting items.
Net profit and earnings per share
The total continuing profit attributable to equity holders of the parent for the current financial year amounted to $4.2m (2018: $2.6m) with pre-adjusting items profit of $4m (2018: $1.1m). The total profits including the effects of the Gamet discontinued operation are $3.1m (2018: $2.9m).
Underlying basic earnings from continuing operations before adjusting items and related taxation were 3.53 cents (equivalent to 2.69p) per share (2018: 1.03 cents, equivalent to 0.79p) and basic earnings per share were 3.75 cents (equivalent to 2.88p) (2018: 2.38 cents, equivalent to 1.83p) see note 7.
Financial position and utilisation of resources
Cash flow
Cash generated from operations before working capital movements was $4.8m (2018: $3.8m).
Working capital on continuing activities was little changed on the prior year with stock, trade receivables and trade payables at similar levels. Other creditors and accruals reduced as the redundancy and restructuring provisions were defrayed in the current year.
Interest paid was similar to the previous years at $1.2m (2018: $1.2m) with the largest component being interest on the £8.5m ($9.5m) 8% loan notes.
Capital expenditure consisted of development work on the upgrading of the industrial laser division proprietary software of $0.9m, demonstration and showroom equipment for the laser business of $0.5m, and the fit out of the new European Technology Centre in the UK for $0.5m. Whilst the development expenditure will be similar in the next year to complete the software project, the machine tool expenditure will not repeat and the sale of the Gamet business and outsourcing of manufacturing has significantly reduced future capital expenditure requirements for this division.
In the prior year net proceeds of $1.97m from the ProPhotonix sale were received in September 2017.
Dividends of $1.1m were paid during the year (2018: nil).
Net borrowings
Group net debt at 30 March 2019 was reduced on prior year to $14.5m (2018: $15.6m) and comprised net bank and finance lease indebtedness of $5m (2018: $4.3m) and the amount outstanding on the loan notes of $9.5m (2018: $11.3m). The amount outstanding on the loan notes has reduced due to the exchange rate effect of re-translation into dollars and the reduction in the carrying value due to the amortisation being re-stated because of the extension of the term of the notes by two years to February 2022. The loan notes are shown net of un-amortised costs and amounts disclosed in equity reserve which amount to $0.6m in the current financial year (2018: $0.6m).
Working capital facilities were renewed with both HSBC and Bank of America during the year and the Group maintains a mixture of term loans and revolving working capital facilities with maturities between 1 and 3 years. Headroom on bank facilities was $8.7m at the year-end (2018: $8m) and all financial covenants in place were met during the year.
The £8.5m ($9.5m) 8% loan notes maturity were extended to February 2022 at the end of February 2019 and the warrants of equal value to subscribe for new ordinary shares at 20p were similarly extended to the same date. As a result, the carrying value of the loan notes were amended to reflect the extended term and the cost involved. A reduction in the carrying value of $0.98m has been recognized at 30 March 2019.
Gearing amounted to 49% of aggregate net assets (2018: 27%) with the increase being as a result of the reduction of the UK pension scheme asset.
Going concern
The Board has assessed the Group's funding and liquidity position. The Directors confirm that, after having made appropriate enquiries, they have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparation of the financial statements.
Retirement benefits
The accounting for the UK pension scheme has continued during the year under the requirements of IAS 19 on the basis that the scheme trustees had secured an insurance policy to match the scheme liabilities but that this was held as an asset and valued along with the scheme liabilities, in accordance with IAS 19 requirements, until the buy-out of the scheme was complete. The buy-out was completed in late April 2019 and the remaining surplus in the scheme of $8m repaid to the Group after deduction of 35% tax with the Group receiving the net $5.2m at the end of May 2019.
The accounting surplus on the UK scheme at 30 March 2019 was $7.5m (2018: $54.3m). The accounting figures are calculated using prescribed methods and in particular use corporate bond rates to value the scheme liabilities.
The buy-out of the scheme involved securing individual annuity contracts for each member with an insurance company with all future risks passing to the insurance company. The cost of achieving this is usually higher than either the accounting basis or the schemes funding basis reflecting the insurer's capital requirements to meet inherent risks of investment returns and life expectancy over the lifetime of the members. The scheme actuary estimated a deficit of over £51m ($71m) on this buy-out basis even as late as the actuarial valuation of 2013.
The buy-out of the scheme has been possible due to improvements in insurers pricing, the trustees' hedging strategy, good investment returns and the hard work of the trustees and Group in reducing scheme liabilities and costs whilst providing members with greater flexibility in the way in which they can take their benefits. The final agreement was secured after a long period of negotiation and an open market tender process with the market leaders in the industry.
The reduction in the accounting value of the scheme surplus has been reflected, along with the corresponding deferred taxation, in the Consolidated Statement of Comprehensive Income. It should be noted that the scheme is held on the subsidiary company 600 UK limited balance sheet and as such the transaction will not affect the holding company reserves.
In accordance with the current legislation on taxation of pension surplus returns to a company, deferred taxation has been provided for on the pension entries at 35% as opposed to the normal 17% rate in the accounting entries. 35% tax was deducted from the gross refund before the trustees paid funds to the Group in May 2019.
The US retiree health scheme and pension fund deficits remained at the same level as the previous year at $1.2m (2018: $1.2m). The only funding of these benefits during the year was the payment of an insurance premium in respect of the retiree health scheme.
Key performance indicators (KPI's)
The Group monitors performance against key financial objectives that the Directors judge to be effective in measuring the delivery of strategic aims and managing and controlling the business. These focus at Group level on underlying profit, together with its associated earnings per share.
At individual business unit level, KPI's also include working capital control, and customer- related performance measures such as on-time delivery, minimisation of warranty concerns, and measured levels of overall customer satisfaction.
These key performance indicators are measured and reviewed against budget projections and prior year on a regular basis and this enables the business to set and communicate its performance targets and monitor its performance against these targets.
The Group's recent performance on these financial KPI's is set out as follows:
| KPI |
|
| 2019 | 2018 |
| Revenue (annual growth rate) |
|
| 1.9% | 12.3% |
| Operating margin (% of revenue) pre adjusting items |
|
| 8.1% | 2.8% |
|
|
|
|
|
|
All figures are pre adjusting items
These KPI's are used to assess performance and manage the business and have been discussed in the strategic report and divisional commentary in the Strategic report.
Key business risks
The Board of Directors has identified the main categories of business risk in relation to the implementation of the Group's strategic aims and objectives, and has considered reasonable steps to prevent, mitigate or manage these risks.
Macro-economic - the Group's businesses are active in markets which can be cyclical in nature as the overall level of market demand is dependent upon capital investment intentions. Economic or financial market conditions determine global demand and could adversely affect our customers, distributors, operations, suppliers, and other parties with whom we transact. Such factors as the ongoing Brexit issues and the concerns over a trade war between the USA and China during the financial year are examples of factors which have resulted in changes in demand. The Directors seek to ensure that our overall risk is mitigated by avoiding excessive concentration of exposure to any given geographical or industry segment, or to any individual customer. Market conditions, lead indicators and industry forecasts are monitored for any early warning signs of changes in overall market demand, and measures to exploit opportunities or manage elevated risks are taken as appropriate. Key business risks are set out in the strategic review.
Production and supply chain - the continuity of the Group's business activities is dependent upon the cost-effective supply of products for sale from our own facilities, and those of our key vendors. Supply can be disrupted by a variety of factors including raw material shortages, labour disputes and unplanned machine down time. In particular, the Directors are mindful that a small number of key manufacturing outsource partners are located in relatively close proximity to each other in Taiwan.
Taiwan is ranked by Gardner Research as the seventh largest producer nation of machine tools, with global production valued at almost US $4 billion. Taiwanese suppliers represent approximately one third of the total cost of sales for the Group. Group businesses mitigate such risk by carefully selecting high quality vendors and maintaining long term constructive and open relationships. The effectiveness of such mitigation would be limited, however, in certain catastrophic circumstances (for example, extreme weather or seismic activity in the vicinity), against which the Group carries appropriate insurance. Additionally, supply sources in India have been developed as a consequence and an increasing amount of product is now made in the USA as well.
Laws and regulations - Group businesses may unknowingly fail to comply with all relevant laws and regulations in the countries in which they operate and contract business. There is a risk of breach of legal, safety, environmental or ethical standards which can be more difficult to identify, comprehend, or monitor in certain territories than others. The Directors believe that they have taken all reasonable steps to ensure that operations are conducted to high ethical, environmental and health and safety standards. Controls are in place to keep regulatory and other requirements under careful review, and scrutinise any identified instances of elevated risk.
Information Technology ("IT") - Group IT systems and the information they contain are subject to security risks including the unexpected loss of continuity from virus or other issues, and the deliberate breach of security controls for commercial gain or mischief. Any such occurrences could have a significant detrimental effect on the Group's business activities. These risks are mitigated by the utilisation of physical and embedded security systems, regular back-ups and comprehensive disaster recovery plans.
Treasury and risk management
Financial risks
The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The Directors regularly review and agree policies for managing these risks.
Credit risk is managed by monitoring limits and payment performance of counterparties. The Directors consider the level of general credit risk in current market conditions to be normal. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group's exposure. Insurance cover is also taken where appropriate.
Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. Foreign currency is bought to match liabilities as they fall due where currency receipts are insufficient to match the liability. Whilst the Group results are now reported in US Dollars the functional currency of 600 UK, 600 Inc. and 600 Machine Tools Pty Limited remain in their local currencies respectively and the result in the Group's Statement of Financial Position and trading results can be affected by movements in these currencies. Part of this exposure is naturally hedged by entering into borrowing facilities denominated in local currencies.
Liquidity risk is managed by the Group maintaining undrawn trade finance facilities in addition to a number of longer-term loans and loan notes in order to provide short term flexibility.
Interest rate risk is managed by maintaining a mixture of cash and borrowings in Sterling, US Dollars and Australian Dollars at floating rates of interest and issuing loan notes with a fixed interest rate until maturity.
Market risks
The Group's main exposure to market risk arises from increases in input costs in so far as it is unable to pass them on to customers through price increases. The Group does not undertake any hedging activity in this area and all materials and utilities are purchased in spot markets. The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to minimise increases in input costs and passing cost increases on to customers, where this is commercially viable.
The Group is also aware of market risk in relation to the dependence upon a relatively small number of key vendors in its supply chain. This risk could manifest in the event of a commercial or natural event leading to reduced or curtailed supply. The Group seeks to mitigate these risks by maintaining transparent and constructive relationships with key vendors, sharing long term plans and forecasts, and encouraging effective disaster recovery planning. Alternative sources of supply in different geographic regions have also been put in place.
The Group is also exposed to the risk of a downturn in its customers' end markets leading to reduced levels of activity for the Group. The Directors seek to ensure that the Group's activities are not significantly concentrated in sales to either one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. The Directors consider that the current
level of market risk has risen as a result of concerns over trade wars.
Other principal risks and uncertainties
Pension funding risk was a significant risk to the Group, but this has largely been eliminated by the buy-out of the UK final salary scheme. There remains a small closed pension arrangement in the USA and a requirement to provide health insurance cover to a limited extent to a number of retired people in the USA. The Directors regularly review the performance of the pension scheme and any recovery plan. Proactive steps are taken to identify and implement cost effective activities to mitigate the pension scheme liabilities and insurance premium of the retiree health scheme.
The remaining main risks faced by the Group are to its reputation as a consequence of a significant failure to comply with accepted standards of ethical and environmental behaviour.
The Directors have taken steps to ensure that all of the Group's global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review, and key suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of applicable regulations.
Neil Carrick
Finance Director
10 July 2019
Consolidated income statement
For the 52-week period ended 30 March 2019
|
|
|
|
|
| Restated |
| Restated |
|
|
| Before |
| After | Before | Restated | After |
|
|
| Adjusting | Adjusting | Adjusting | Adjusting | Adjusting | Adjusting |
|
|
| Items | Items | Items | Items | Items | Items |
|
|
| 52 weeks | 52 weeks | 52 weeks | 52 weeks | 52 weeks | 52 weeks |
|
|
| ended | ended | ended | ended | ended | ended |
|
|
| 30 March | 30 March | 30 March | 31 March | 31 March | 31 March |
|
|
| 2019 | 2019 | 2019 | 2018 | 2018 | 2018 |
|
| Notes | $000 | $000 | $000 | $000 | $000 | $000 |
| Continuing |
|
|
|
|
|
|
|
| Revenue | 2 | 65,167 | - | 65,167 | 63,944 | - | 63,944 |
| Cost of sales |
| (41,641) | - | (41,641) | (42,363) | - | (42,363) |
| Gross profit |
| 23,526 | - | 23,526 | 21,581 | - | 21,581 |
| Net operating expenses |
| (18,269) | (1,786) | (20,055) | (19,803) | - | (19,803) |
| Operating profit/(loss) |
| 5,257 | (1,786) | 3,471 | 1,778 | - | 1,778 |
|
|
|
|
|
|
|
|
|
| Financial income | 4 | 35 | 2,077 | 2,112 | - | 1,741 | 1,741 |
| Financial expense | 4 | (1,236) | - | (1,236) | (1,182) | (290) | (1,472) |
| Profit on ProPhotonix disposal |
| - | - | - | - | 1,256 | 1,256 |
|
|
|
|
|
|
|
|
|
| Profit before tax |
| 4,056 | 291 | 4,347 | 596 | 2,707 | 3,303 |
|
|
|
|
|
|
|
|
|
| Income tax (charge)/credit | 5 | (66) | (48) | (114) | 529 | (1,239) | (710) |
| Profit for the period on continuing activities |
| 3,990 | 243 | 4,233 | 1,125 | 1,468 | 2,593 |
| attributable to equity holders of the parent |
|
|
|
|
|
|
|
| (Loss)/profit on discontinued activity |
| (146) | (961) | (1,107) | 312 | - | 312 |
| Profit for the period attributable to the equity holders of the parent |
| 3,844 | (718) | 3,126 | 1,437 | 1,468 | 2,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share | 7 | 3.53c | 0.22c | 3.75c | 1.03c | 1.35c | 2.38c |
| Diluted earnings per share | 7 | 3.50c | 0.21c | 3.71c | 1.03c | 1.34c | 2.37c |
| Basic earnings per share after discontinued | 7 | 3.40c | (0.63c) | 2.77c | 1.32c | 1.35c | 2.67c |
| Diluted earnings per share after discontinued | 7 | 3.37c | (0.63c) | 2.74c | 1.31c | 1.34c | 2.65c |
Company Number 00196730
The comparative figures have been adjusted for the result of Gamet Bearings which is shown as a discontinued operation and the effects of the adoption of IFRS 15 and IFRS 9. See note 15.
As explained in note 3, the directors have highlighted adjusting items which are material and unrelated to the normal trading activity of the group. The "before adjusting items" column in the consolidated income statement shows non-GAAP measures. The "after adjusting items" column shows the GAAP measures.
Consolidated statement of comprehensive income
For the 52-week period ended 30 March 2019
|
|
|
52-week | Restated 52-week |
|
|
| period ended | period ended |
|
|
| 30 March | 31 March |
|
|
| 2019 | 2018 |
|
|
| $000 | $000 |
| Profit for the period |
| 3,126 | 2,905 |
| Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement: |
|
|
|
| Release of available for sale reserve on ProPhotonix disposal |
| - | (1,465) |
| Remeasurement of defined benefit asset |
| (43,083) | (19,659) |
| Deferred taxation |
| 15,071 | 6,852 |
| Total items that will not be reclassified to the Income Statement: |
| (28,012) | (14,272) |
| Items that are or may in the future be reclassified to the Income Statement: |
|
|
|
| Foreign exchange translation differences |
| (3,005) | 4,109 |
| Total items that are or may in the future be reclassified to the Income Statement: |
| (3,005) | 4,109 |
| Other comprehensive income / (expense) for the period, net of income tax |
| (31,017) | (10,163) |
| Total comprehensive income/(expense) for the period |
| (27,891) | (7,258) |
| Attributable to: |
|
|
|
| Equity holders of the Parent Company |
| (27,891) | (7,258) |
Consolidated statement of financial position Company Number 00196730
As at 30 March 2019
|
|
|
|
As at |
| Restated As at |
| Restated As at |
|
|
|
| 30 March 2019 |
| 31 March 2018 |
| 1 April 2017 |
|
| Notes |
| $000 |
| $000 |
| $000 |
| Non-current assets |
|
|
|
|
|
|
|
| Property, plant and equipment |
|
| 3,435 |
| 4,111 |
| 4,668 |
| Goodwill |
|
| 10,329 |
| 10,329 |
| 10,329 |
| Other Intangible assets |
|
| 1,110 |
| 407 |
| 382 |
| Investments |
|
| - |
| - |
| 2,068 |
| Deferred tax assets |
|
| 4,578 |
| 5,135 |
| 4,383 |
| Employee benefits |
|
| - |
| 54,319 |
| 65,677 |
|
|
|
| 19,452 |
| 74,301 |
| 87,507 |
| Current assets |
|
|
|
|
|
|
|
| Inventories |
|
| 19,030 |
| 19,960 |
| 16,161 |
| Trade and other receivables | 8 |
| 9,163 |
| 9,726 |
| 8,959 |
| Employee Benefits |
|
| 7,459 |
| - |
| - |
| Taxation | 8 |
| 294 |
| - |
| - |
| Assets classified as held for sale |
|
| 1,108 |
| - |
| - |
| Cash and cash equivalents |
|
| 948 |
| 1,676 |
| 1,352 |
|
|
|
| 38,002 |
| 31,362 |
| 26,472 |
| Total assets |
|
| 57,454 |
| 105,663 |
| 113,979 |
| Non-current liabilities |
|
|
|
|
|
|
|
| Employee benefits |
|
| (1,239) |
| (1,225) |
| (1,289) |
| Loans and other borrowings |
|
| (10,173) |
| (12,251) |
| (11,552) |
| Deferred tax liabilities |
|
| - |
| (19,020) |
| (22,770) |
|
|
|
| (11,412) |
| (32,496) |
| (35,611) |
| Current liabilities |
|
|
|
|
|
|
|
| Trade and other payables | 9 |
| (8,095) |
| (9,205) |
| (6,801) |
| Deferred tax liabilities |
|
| (2,541) |
| - |
| - |
| Taxation | 9 |
| - |
| (291) |
| - |
| Provisions | 10 |
| (447) |
| (53) |
| (486) |
| Loans and other borrowings |
|
| (5,316) |
| (5,025) |
| (6,890) |
|
|
|
| (16,399) |
| (14,574) |
| (14,177) |
| Total liabilities |
|
| (27,811) |
| (47,070) |
| (49,788) |
| Net assets |
|
| 29,643 |
| 58,593 |
| 64,191 |
|
|
|
|
|
|
|
|
|
| Shareholders' equity |
|
|
|
|
|
|
|
| Called-up share capital |
|
| 1,746 |
| 1,746 |
| 1,629 |
| Share premium account |
|
| 2,885 |
| 2,885 |
| 1,484 |
| Revaluation reserve |
|
| 1,149 |
| 1,149 |
| 1,149 |
| Available for sale reserve |
|
| - |
| - |
| 1,446 |
| Equity reserve |
|
| 201 |
| 201 |
| 201 |
| Translation reserve |
|
| (6,524) |
| (3,519) |
| (7,609) |
| Retained earnings |
|
| 30,186 |
| 56,131 |
| 65,891 |
| Total equity |
|
| 29,643 |
| 58,593 |
| 64,191 |
Consolidated statement of changes in equity Company Number 00196730
As at 30 March 2019
|
| Ordinary | Share |
| Available |
|
|
| ||
|
| share | premium | Revaluation | for sale | Translation | Equity |
| Retained |
|
|
| capital | account | reserve | reserve | reserve | reserve |
| Earnings | Total |
|
| $000 | $000 | $000 | $000 | $000 | $000 |
| $000 | $000 |
| At 1 April 2017 | 1,629 | 1,484 | 797 | 1,446 | (6,724) | 201 |
| 65,461 | 64,294 |
| Adjustments for the adoption of IFRS 15 and 9* | - | - | - | - | - | - |
| (103) | (103) |
| Changes in accounting policy * | - | - | 352 | - | (885) | - |
| 533 | - |
| At 1 April 2017 restated | 1,629 | 1,484 | 1,149 | 1,446 | (7,609) | 201 |
| 65,891 | 64,191 |
| Profit for the period | - | - | - | - | - | - |
| 3,049 | 3,049 |
| Other comprehensive income: |
|
|
|
|
|
|
|
|
|
| Foreign currency translation | - | - | (38) | 19 | 2,159 | - |
| 1,969 | 4,109 |
| Net defined benefit asset movement | - | - | - | - | - | - |
| (19,659) | (19,659) |
| ProPhotonix disposal | - | - | - | (1,465) | - | - |
| - | (1,465) |
| Deferred tax | - | - | - | - | - | - |
| 6,852 | 6,852 |
| Total comprehensive income | - | - | (38) | (1,446) | 2,159 | - |
| (7,789) | (7,114) |
| Transactions with owners: |
|
|
|
|
|
|
|
|
|
| Share capital subscribed for | 117 | 1,401 | - | - | - | - |
| - | 1,518 |
| Credit for share-based payments | - | - | - | - | - | - |
| 39 | 39 |
| Total transactions with owners | 117 | 1,401 | - | - | - | - |
| 39 | 1,557 |
| At 31 March 2018 restated | 1,746 | 2,885 | 1,111 | - | (5,450) | 201 |
| 58,141 | 58,634 |
| Adjustments for the adoption of IFRS 15 and 9* | - | - | - | - | - | - |
| (41) | (41) |
| Changes in accounting policy * | - | - | 38 | - | 1,931 | - |
| (1,969) | - |
| At 31 March 2018 restated | 1,746 | 2,885 | 1,149 | - | (3,519) | 201 |
| 56,131 | 58,593 |
| Profit for the period | - | - | - | - | - | - |
| 3,126 | 3,126 |
| Other comprehensive income: |
|
|
|
|
|
|
|
|
|
| Foreign currency translation | - | - | - | - | (3,005) | - |
| - | (3,005) |
| Net defined benefit asset movement | - | - | - | - | - | - |
| (43,083) | (43,083) |
| Deferred tax | - | - | - | - | - | - |
| 15,071 | 15,071 |
| Total comprehensive income | - | - | - | - | (3,005) | - |
| (24,886) | (27,891) |
| Transactions with owners: |
|
|
|
|
|
|
|
|
|
| Dividend | - | - | - | - | - | - |
| (1,104) | (1,104) |
| Credit for share-based payments | - | - | - | - | - | - |
| 45 | 45 |
| Total transactions with owners | - | - | - | - | - | - |
| (1,059) | (1,059) |
| At 30 March 2019 | 1,746 | 2,885 | 1,149 | - | (6,524) | 201 |
| 30,186 | 29,643 |
|
|
|
|
|
|
|
|
|
|
|
* see note 15 Impact on the financial statements of changes in accounting policies and discontinued activities
Consolidated cash flow statement
For the 52-week period ended 30 March 2019
|
|
|
52-week | Restated 52-week |
|
|
| period ended | period ended |
|
|
| 30 March | 31 March |
|
|
| 2019 | 2018 |
|
| Notes | $000 | $000 |
| Cash flows from operating activities |
|
|
|
| Profit for the period |
| 3,126 | 2,905 |
| Adjustments for: |
|
|
|
| Amortisation of development expenditure |
| 73 | 71 |
| Depreciation |
| 540 | 596 |
| Net financial income | 4 | (876) | (269) |
| Non-cash adjusting Items |
| 2,238 | 991 |
| (Profit)/loss on disposal of property, plant and equipment |
| (461) | 29 |
| Profit on disposal of Prophotonix |
| - | (1,256) |
| Equity share option expense |
| 45 | 39 |
| Income tax expense/(credit) | 5 | 114 | 710 |
| Operating cash flow before changes in working capital and provisions |
| 4,799 | 3,816 |
| (Increase)/decrease in trade and other receivables |
| (451) | 95 |
| (Increase) in inventories |
| (730) | (3,333) |
| (Decrease)/increase in trade and other payables |
| (352) | 1,213 |
| Employee benefits contributions |
| (13) | (143) |
| Cash generated by operations |
| 3,253 | 1,648 |
| Interest paid |
| (1,236) | (1,183) |
| Income tax received/(paid) |
| (125) | - |
| Net cash flows from operating activities |
| 1,892 | 465 |
| Cash flows from investing activities |
|
|
|
| Interest received |
| 1 | - |
| Proceeds from sale of property, plant and equipment |
| 514 | 285 |
| Sale of investment in Prophotonix |
| - | 1,972 |
| Purchase of property, plant and equipment |
| (1,245) | (694) |
| Development and IT software expenditure capitalised |
| (1,399) | (87) |
| Proceeds from sale of development expenditure |
| 639 | - |
| Net cash flows from investing activities |
| (1,490) | 1,476 |
| Cash flows from financing activities |
|
|
|
| Proceeds from issue of ordinary shares |
| - | 1,517 |
| Dividends paid | 6 | (1,104) | - |
| Proceeds from external borrowing |
| 2 | (2,985) |
| Net finance lease income/(expenditure) |
| 59 | (56) |
| Net cash flows from financing activities |
| (1,043) | (1,524) |
| Net (decrease)/increase in cash and cash equivalents | 11 | (641) | 417 |
| Cash and cash equivalents at the beginning of the period |
| 1,676 | 1,352 |
| Effect of exchange rate fluctuations on cash held |
| (87) | (93) |
| Cash and cash equivalents at the end of the period |
| 948 | 1,676 |
Notes
1.Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use by the European Union (EU) effective at 30 March 2019, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Financial information set out in this preliminary announcement does not constitute the company's Consolidated Financial Statements for the financial years ended 30 March 2019 or 31 March 2018 but is derived from those Financial Statements. Statutory Financial Statements for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the company's AGM.
The Auditors, BDO LLP, have reported on those financial statements. Their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
The Statutory accounts are available on the Company's website and will be posted to shareholders who have requested a copy and thereafter by request to the company's registered office.
2. Segment information
IFRS 8 - "Operating Segments" requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Executive Directors. The Executive Directors review the Group's internal reporting in order to assess performance and allocate resources.
The Executive Directors consider there to be two continuing operating segments being machine tools and precision engineered components and industrial laser systems.
The Executive Directors assess the performance of the operating segments based on a measure of underlying operating profit/(loss). This measurement basis excludes the effects of adjusting items from the operating segments. "Head Office and unallocated" represent central functions and costs.
The following is an analysis of the Group's revenue and results by reportable segment:
|
| Continuing |
|
| |||
|
52 Weeks ended 30 March 2019 | Machine tools & precision engineered components | Industrial laser systems | Head Office & unallocated | Total | Discontinued | |
| Segmental analysis of revenue | $000 | $000 | $000 | $000 | $000 | Group Total |
| Total revenue | 44,575 | 20,592 |
| 65,167 | 1,572 | 66,739 |
|
|
|
|
|
|
|
|
| Segmental analysis of operating profit/(loss) before Adjusting Items | 3,610 | 2,563 | (916) | 5,257 | (146) | 5,111 |
| Adjusting Items | (1,355) |
| (431) | (1,786) | (961) | (2,747) |
| Group operating profit/(loss) | 2,255 | 2,563 | (1,347) | 3,471 | (1,107) | 2,364 |
|
|
|
|
|
|
|
|
| Other segmental information: |
|
|
|
|
|
|
| Reportable segment assets | 38,666 | 9,492 | 8,188 | 56,346 | 1,108 | 57,454 |
| Reportable segment liabilities | (11,560) | (4,496) | (11,755) | (27,811) | - | (27,811) |
| Fixed asset additions | 686 | 559 | - | 1,245 | - | 1,245 |
| Depreciation and amortisation | 275 | 292 | 46 | 613 | - | 613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2. Segment information (CONTINUED)
|
| Restated |
|
| |||
|
| Continuing |
|
Group Total | |||
| 52 Weeks ended 31 March 2018 | Machine tools & precision engineered components | Industrial laser systems | Head Office & unallocated | Total |
Discontinued | |
| Segmental analysis of revenue | $000 | $000 | $000 | $000 | $000 | $000 |
| Total revenue | 43,152 | 20,792 | - | 63,944 | 1,573 | 65,517 |
|
|
|
|
|
|
|
|
| Segmental analysis of operating profit/(loss) before adjusting Items | 1,459 | 2,100 | (1,781) | 1,778 | 385 | 2,163 |
| Group operating profit/(loss) | 1,459 | 2,100 | (1,781) | 1,778 | 385 | 2,163 |
|
|
|
|
|
|
|
|
| Other segmental information: |
|
|
|
|
|
|
| Reportable segment assets | 40,176 | 9,867 | 55,620 | 105,663 | - | 105,663 |
| Reportable segment liabilities | (28,153) | (5,826) | (13,091) | (47,070) | - | (47,070) |
| Fixed asset additions | 146 | 544 | 4 | 694 | - | 694 |
| Depreciation and amortisation | 373 | 294 | - | 667 | - | 667 |
|
|
|
|
|
|
|
|
Inter-segment pricing is determined on an arm's length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.
Disaggregation of revenue is shown by origin, destination and product group in the following two tables:
All revenue is recognised at a point in time.
| Disaggregation of revenue by origin | 2019 | 2018 | ||
|
| $000 | % | $000 | % |
| UK | 14,249 | 21.8 | 13,430 | 21.0 |
| North America | 47,387 | 72.8 | 47,262 | 73.9 |
| Australasia | 3,531 | 5.4 | 3,252 | 5.1 |
|
| 65,167 | 100.00 | 63,944 | 100.0 |
2. Segment information (CONTINUED)
Disaggregation of revenue by destination:
|
| 2019 | 2018 | ||
| | $000 | % | $000 | % |
| Gross sales revenue: |
|
|
|
|
|
|
|
|
|
|
| UK | 9,507 | 14.6 | 9,677 | 15.1 |
| Other European | 6,951 | 10.7 | 6,707 | 10.5 |
| North America (USA) | 42,534 | 65.2 | 42,694 | 66.8 |
| Africa | 644 | 1.0 | 485 | 0.8 |
| Australasia | 3,370 | 5.2 | 3,110 | 4.9 |
| Central America | 126 | 0.2 | 8 | 0.0 |
| Middle East | 485 | 0.7 | 96 | 0.2 |
| Far East | 1,550 | 2.4 | 1,167 | 1.8 |
|
| 65,167 | 100.0 | 63,944 | 100.0 |
Disaggregation of revenue by product group:
|
| 2019 | 2018 | ||
| | $000 | % | $000 | % |
|
|
|
|
|
|
| CNC lathes | 4,761 | 7.3 | 4,972 | 7.8 |
| Conventional lathes | 13,941 | 21.4 | 12,838 | 20.0 |
| CNC other | 1,209 | 1.9 | 1,284 | 2.0 |
| Conventional other | 11,587 | 17.8 | 11,402 | 17.8 |
| Workholding | 7,062 | 10.8 | 6,175 | 9.7 |
| Spares & service | 5,620 | 8.6 | 6,447 | 10.1 |
| Lasers | 19,814 | 30.4 | 18,862 | 29.5 |
| Laser spares and service | 1,173 | 1.8 | 1,964 | 3.1 |
|
| 65,167 | 100.0 | 63,944 | 100.0 |
There are no customers that represent 10% or more of the Group's revenues.
Assets and liabilities related to contracts with customers:
The group has recognised the following assets and liabilities related to contracts with customers.
|
|
|
| 2019 | 2018 |
|
|
|
| $000 | $000 |
| Current contract liabilities relating to deposits from customers |
|
| 538 | 1,244 |
There are no assets arising from contracts with customers.
Remaining performance obligations
The vast majority of the groups' contracts are for the delivery of goods within the next 12 months for which the practical expedient in paragraph 121(a) of IFRS 15 applies.
The following table shows how much of the revenue recognised in the current reporting year relates to carried forward contract liabilities:
|
|
|
| 2019 | 2018 |
|
|
|
| $'000 | $'000 |
| Revenue recognised that was included in the contract liability balance at the beginning of the year |
|
| 1,244 | 627 |
3. adjusting ITEMS
The directors have highlighted transactions which are material and unrelated to the normal trading activity of the Group.
In the opinion of the directors the disclosure of these transactions should be reported separately for a better understanding of the underlying trading performance of the Group. These underlying figures are used by the Board to monitor business performance, form the basis of bonus incentives and are used for the purposes of the bank covenants.
These non-GAAP measures are explained in note 13 alternative performance measures and set out below in note 3. All adjusting items are taken into account in the GAAP figures in the Income Statement.
These consist of the entries in relation to the UK final salary scheme in both years and the profit on the disposal of the ProPhotonix shares in the previous year. In addition, the adjustment to the carrying value of the amortised loan note expenses in the current year, as a result of the extension of these instruments by a further two years, and the prior year's amortisation have been included as adjusting items. The items below correspond to the table below;
a) The buy-out of the Group pension scheme was completed in April 2019 but during the year ended March 2019 the trustees undertook a number of exercises to reduce the liabilities of the scheme which had an actuarial cost. Given these had a beneficial effect on the ultimate buy out cost of the scheme they were supported by the Group. A charge of $1.28m plus $0.08m of associated legal costs was included as a result of work by the Trustees of the UK pension scheme and the Group in reducing pension liabilities.
b) As a result of the outsourcing of manufacturing in the UK, the existing premises were vacated, and a sublet is in the process of negotiation. An onerous lease provision of $0.4m has been provided as a result of this and shown in adjusting items.
c) A credit of $1.26m (2018: credit of $1.74m) is recorded in financial income in respect of the final salary pension scheme. No cash was paid to or received from the scheme in respect of this transaction which arises as a pension accounting entry under the required standard due to the surplus in the scheme recorded in the balance sheet.
d) The adjustment to the carrying value of the amortised loan note costs in the year is shown as a credit of $0.8m in financial income with the corresponding charge for the 2018 year shown in financial expense.
e) An additional credit of $1.26m was recorded in the prior year as a result of the sale of the Group's holding in ProPhotonix Ltd at the end of August 2017. This generated $1.97m of cash which was used to pay down UK debt.
f) As a result of the changes in the USA to the rates of taxation in the prior year, a significant charge of $0.6m was made to adjust the deferred taxation assets.
g) An amount of $0.96m has been recorded against the value of the Gamet Bearings assets available for sale to bring their carrying value into line with the expected proceeds of sale, less costs to sell.
3. adjusting ITEMS (Continued)
Adjusting items
|
|
2019 | Restated 2018 |
|
| $000 | $000 |
| Items included in operating profit: |
|
|
| Pensions charge (a) | (1,277) | - |
| Pensions legal costs (a) | (78) | - |
| Onerous lease charges (b) | (431) | - |
|
| (1,786) | - |
|
|
|
|
| Items included in financial income/(expense): |
|
|
| Pensions interest on surplus (c) | 1,255 | 1,741 |
| Adjustment to loan notes (d) | 822 | - |
| Financial income | 2,077 | 1,741 |
| Amortisation of loan note expenses | - | (290) |
|
|
|
|
|
|
|
|
| Profit on disposal of ProPhotonix Ltd (e) | - | 1,256 |
|
|
|
|
| Total adjusting items before tax | 291 | 2,707 |
| Taxation effect of rate range in the USA (f) | - | (630) |
| Income tax on adjusting items | (48) | (609) |
| Total adjusting items after tax | 243 | 1,468 |
| Loss on discontinued activity (g) | (961) | - |
During the prior year the Group incurred costs with regard to the reorganisation of TYKMA Inc and the integration of the Electrox Laser marking spares and service division into the UK machine tools operation and redundancy exercises were carried out in the UK machine tools operation, Amounts of $764k and $1m were previously disclosed as adjusting items in cost of sales and administration costs respectively but have been incorporated in normal operating costs in the comparative figures in line with the revised definition of adjusting items. Costs of redundancy and restructuring in the current year have been included in normal activity.
4. Financial income and expense
|
|
|
|
|
| 2019 | 2018 |
|
| $000 | $000 |
| Bank and other interest | 35 | - |
| Interest on employee benefit surplus | 1,255 | 1,741 |
| Loan note and net adjustment | 822 | - |
| Financial income | 2,112 | 1,741 |
| Bank overdraft and loan interest | (236) | (234) |
| Other loan interest | (948) | (925) |
| Other finance charges | (1) | (8) |
| Finance charges on finance leases | (6) | (15) |
| Interest on employee benefit liabilities | (45) | (47) |
| Amortisation of loan notes expenses | - | (243) |
| Financial expense | (1,236) | (1,472) |
5. Taxation
|
|
2019 $000 |
Restated 2018 $000 |
| Current tax: |
|
|
| Corporation tax at 19% (2018: 19%): |
|
|
| - current period | - | - |
| Overseas taxation: |
|
|
| - current period | 77 | (340) |
| Total current tax credit charge | 77 | (340) |
| Deferred taxation: |
|
|
| - current period | 92 | 358 |
| - effect of rate change in USA | - | (630) |
| - prior period | (283) | (98) |
| Total deferred taxation credit/(charge) | (191) | (370) |
| Taxation charged to the income statement | (114) | (710) |
The rate for tax in the USA was changed from 34% to 21% during the previous year requiring a remeasurement of deferred tax assets in the USA.
Restated for Gamet Bearings now shown as a discontinued operation and the effects of IFRS 15 & 9 (see note 15).
Tax reconciliation
The tax charge assessed for the period is lower than (2018: higher than) the standard rate of corporation tax in the UK of 19% (2018: 19%). The differences are explained below:
|
|
2019 | Restated 2018 | ||
|
| $000 | % | $000 | % |
| Profit before tax | 4,347 |
| 3,303 |
|
| Profit before tax multiplied by the standard rate of corporation tax |
|
|
|
|
| in the UK of 19% (2018: 19%) | 826 | 19.0 | 628 | 19.0 |
| Effects of: |
|
|
|
|
| - income not taxable and/or expenses not deductible | 274 | 6.3 | 11 | 0.3 |
| - overseas tax rates | 14 | 0.3 | 58 | 1.8 |
| - pension fund surplus taxed at higher rate | 3 | 0.0 | 97 | 2.9 |
| - US state taxes | 166 | 3.8 | 52 | 1.6 |
| - utilisation of discontinued business losses | (140) | (3.2) | - | - |
| - deferred tax prior period adjustment | - | - | 98 | 3.0 |
| - impact of rate change in the UK on deferred tax | 290 | 6.7 | - | - |
| - tax losses utilised not previously recognised | (912) | (20.1) | - | - |
| - additional deferred tax recognised on losses in the period | (124) | (2.8) | (864) | (26.2) |
| - R&D claims in the USA (prior periods) | (283) | (6.5) |
|
|
| - impact of rate change in the USA | - | - | 630 | 19.1 |
| Taxation charged to the income statement | 114 | 2.6 | 710 | 21.5 |
6. Dividends
A final dividend of 0.5p has been proposed, payable on 30 September 2019 to holders on the register at 30 August 2019.
|
| 2019 | 2018 |
|
| $000 | $000 |
| Interim Dividend paid September 2018 (0.5p/share) | 736 | - |
| Final Dividend paid December 2018 (0.25p/share) | 368 | - |
| Total | 1,104 | - |
7. Earnings per share
The calculation of the basic earnings per share of 3.75c (2018: 2.38c) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of $4,233,000 (2018: $2,593,000) and on the weighted average number of shares in issue during the period of 112,973,341 (2018: 108,902,335). At 30 March 2019, there were 7,5000,000 (2018: 6,650,000) potentially dilutive shares on option with a weighted average effect of 1,191,415 (2018: 790,601) shares giving a diluted earnings per share of 3.71c (2018: 2.37c).
|
| 2019 | 2018 |
| Weighted average number of shares |
|
|
| Issued shares at start of period | 112,973,341 | 104,357,957 |
| Effect of shares issued in the year | - | 4,544,378 |
| Weighted average number of shares at end of period | 112,973,341 | 108,902,335 |
| Weighted average number of the 7,500,000 (2018: 6,650,000) potentially dilutive shares | 1,191,415 | 790,601 |
| Total Weighted average diluted shares | 114,164,756 | 109,692,936 |
|
|
| Restated | |
| Total post tax earnings continuing | 4,233 | 2,593 |
|
| Total post tax earnings including discounted activity | 3,126 | 2,905 | |
| Basic EPS | 3.75c | 2.38c |
|
| Diluted basic EPS | 3.71c | 2.37c |
|
| Total including discontinued |
|
| |
| Basic EPS | 2.77 | 2.67 | |
| Diluted basic EPS | 2.74 | 2.65 | |
| Underlying earnings | $000 | $000 | |
| Total post tax earnings continuing | 4,233 | 2,593 |
|
| Pension cost | 1,277 | - |
|
| Pensions legal costs | 78 | - |
|
| Onerous lease charges | 431 | - |
|
| Pensions Interest | (1,255) | (1,741) |
|
| Amortisation of loan notes | - | 290 |
|
| Adjustment to amortisation of loan notes | (822) | - |
|
| Profit on disposal of ProPhotonix Ltd | - | (1,256) |
|
| Tax effect of rate change in USA | - | 630 |
|
| Tax on adjusting items | 48 | 609 |
|
| Underlying earnings after tax | 3,990 | 1,125 |
|
| Underlying basic EPS | 3.53c | 1.03c |
|
| Underlying diluted EPS | 3.50c | 1.03c |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Trade and other receivables
|
| 2019 | 2018 |
|
| $000 | $000 |
| Trade receivables | 7,599 | 8,113 |
| Other debtors | 540 | 425 |
| Other prepayments and accrued income | 1,024 | 1,188 |
|
| 9,163 | 9,726 |
|
|
|
|
|
| 2019 | 2018 |
|
| $000 | $000 |
| Taxation | 294 | - |
|
|
|
|
9. Trade and other payables
|
| 2019 | 2018 |
|
| $000 | $000 |
| Current liabilities: |
|
|
|
|
|
|
| Trade payables | 4,292 | 4,010 |
| Social security and other taxes | 199 | 405 |
| Other creditors | 1,323 | 1,347 |
| Accruals | 1,743 | 2,199 |
| Contract liabilities | 538 | 1,244 |
|
| 8,095 | 9,205 |
|
|
|
|
|
| 2019 | 2018 |
|
| $000 | $000 |
| Taxation | - | 291 |
|
|
|
|
10. Provisions
|
|
|
|
|
|
|
|
|
|
|
| Onerous lease | Warranties | Total |
|
| $000 | $000 | $000 |
| Provision carried forward at 31 March 2018 | - | 53 | 53 |
| Exchange differences | - | (3) | (3) |
| (Credited)/charged to income statement | 429 | (9) | 420 |
| Utilised in the period | - | (23) | (23) |
| Provision carried forward at 30 March 2019 | 429 | 18 | 447 |
The timing of warranty payments are uncertain in nature. The warranty provisions are calculated based on historical experience of claims received, taking into account recent sales of items which are covered by warranty. The provision relates mainly to products sold in the last twelve months. The typical warranty period is now twelve months.
Onerous lease provisions
Following the move of the UK business to the new facility in Elland, a sub-let of the old premises is in the process of being negotiated and a consequent cost has been provided.
11. RECONCILIATION OF NET CASH FLOW TO NET DEBT
|
| 2019 | 2018 |
|
| $000 | $000 |
| (Decrease)/increase in cash and cash equivalents | (641) | 417 |
| (Increase)/decrease in debt and finance leases | (61) | 3,041 |
| (Increase)/decrease in net debt from cash flows | (702) | 3,458 |
| Net debt at beginning of period | (15,600) | (17,090) |
| Loan note credit/(amortisation) | 982 | (243) |
| Exchange effects on net funds | 779 | (1,725) |
| Net debt at end of period | (14,541) | (15,600) |
12. Analysis of net DEBT
|
| At |
|
|
| At |
|
| 31 March | Exchange |
|
| 30 March |
|
| 2018 | movement | Other | Cash flows | 2019 |
|
| $000 | $000 | $000 | $000 | $000 |
| Cash at bank and in hand | 1,536 | (77) | - | (641) | 818 |
| Term deposits (included within cash and cash equivalents on the balance sheet) | 140 | (10) | - | - | 130 |
|
| 1,676 | (87) | - | (641) | 948 |
| Debt due within one year | (4,984) | 42 | - | (247) | (5,189) |
| Debt due after one year | (842) | 25 | - | 245 | (572) |
| Loan notes due after one year | (11,287) | 788 | 982 | - | (9,517) |
| Finance leases | (163) | 11 | - | (59) | (211) |
| Total | (15,600) | 779 | 982 | (702) | (14,541) |
13. Alternative performance measures
The Directors assess the performance of the Group by a number of measures and frequently present results on an 'underlying' basis, which excludes adjusting items. The Directors believe the use of these 'non-GAAP measures' provide a better understanding of underlying performance of the Group. In addition, discontinued operations are excluded from underlying figures.
In the review of performance reference is made to 'underlying profit' or 'profit before adjusting items', and in the Consolidated Income Statement the Group's results are analysed between Before adjusting items and After adjusting items.
Adjusting items are detailed in note 3 and are disclosed separately on the basis that this presentation gives a clearer picture of the underlying performance of the group.
These measures are used by the Board to assess performance, form the basis of bonus incentives and are used in the Group's banking covenants. In addition, the Board makes reference to orders and order book or backlog. This represents orders received from customers for goods and services and the amount of such orders not yet fulfilled.
Underlying operating profit
|
|
2019 $000 | Restated 2018 $000 | |
| Operating profit | 3,471 | 1,778 |
|
| Adjusting items included in net operating expenses (see note 3) | 1,786 | - |
|
| Underlying operating profit | 5,257 | 1,778 |
|
|
Underlying profit for the period from continuing activities |
|
|
|
| Profit for the period | 4,233 | 2,593 |
|
| Adjusting items included in net operating expenses (see note 3) | 1,786 | - |
|
| Adjusting items included in Financial income | (2,077) | (1,741) |
|
| Adjusting items included in Financial expense | - | 290 |
|
| Profit on disposal of ProPhotonix | - | (1,256) |
|
| Tax effect of rate change in USA | - | 630 |
|
| Tax on adjusting items | 48 | 609 |
|
| Underlying profit for the period | 3,990 | 1,125 |
|
|
Underlying EPS |
|
|
|
| A reconciliation of underlying EPS is included in note 7
|
|
|
|
14. Post balance sheet events
On 23 April 2019 the buyout of the UK final schemes liabilities was completed with the Pension Insurance Corporation PLC.
On the 29 May 2019, the company received $5.2m (£4.1m) from the completion of the buyout of the 600 Group Pension Scheme, after deduction of statutory 35% tax.
On 30 May 2019 the UK final salary scheme terminated, and the scheme was wound up and trustees discharged.
On 21 June 2019 the group acquired 100% of the voting equity of Control Micro Systems Inc., a company based in Florida USA, manufacturing Laser systems.
The book value of the net assets acquired are as follows:
|
|
| $000 |
| Plant and equipment |
| 790 |
| Inventories |
| 1,541 |
| Receivables |
| 851 |
| Cash |
| 2,938 |
| Payables |
| (1,173) |
| Total |
| 4,947 |
At the date of approval of these financial statements, a detailed assessment of the fair value of the identifiable net assets had not been completed.
|
|
| $000 |
| Fair value of consideration paid |
| 10,000 |
The Gamet Bearings business is held for sale at the 30 March 2019 and has not been sold at the date of these financial statements.
15. Impact on the financial statements of changes in accounting policies and discontinued activities
As a result of changes in the group's accounting policies, prior year financial statements had to be restated.
As explained below IFRS 9 was applied retrospectively with restatement of comparative information.
The following tables show the adjustments to each line item, but line items not affected have not been included.
In addition, the classification of the Gamet Bearings business as discontinued requires comparative information to be adjusted and this has been included in order to provide the correct restated figures.
|
| 31 March 2018 | IFRS 15 ($) | IFRS 9 ($) | Discontinued ($) | 31 March 2018 |
|
| As originally presented |
|
|
| Restated ($) |
|
| $'000 | $'000 | $'000 | $'000 | $'000 |
| Revenue | 66,014 | (497) | - | (1,573) | 63,944 |
| Cost of sales | (43,736) | 363 | (43) | 1,053 | (42,363) |
| Gross profit | 22,278 | (134) | (43) | (520) | 21,581 |
| Net operating expenses | (19,938) | - | - | 135 | (19,803) |
| Operating Profit | 2,340 | (134) | (43) | (385) | 1,778 |
|
|
|
|
|
|
|
| Profit before Tax | 3,865 | (134) | (43) | (385) | 3,303 |
| Income Tax | (816) | 25 | 8 | 73 | (710) |
| Profit from continuing activities | 3,049 | (109) | (35) | (312) | 2,593 |
| Loss/profit from discontinued activities | - | - | - | 312 | 312 |
| Profit for the Period | 3,049 | (109) | (35) | - | 2,905 |
| Earnings per share | 2.80c | - | - | - | 2.67c |
15. Impact on the financial statements of changes in accounting policies and discontinued activities (continued)
During the year ended 1 April 2017 and 31 March 2018, the retranslation of non-US Dollar functional currency entities has been split between equity reserves. A change in accounting policy has been adopted not to retranslate other equity reserves but to present net assets at closing rates and income statement items at average rates within the translation reserve. As such, an adjustment has been made between the equity reserves; there is no impact to total equity.
Consolidated Statement of financial position (extract)
|
| 31 March 2018 | IFRS 15 | IFRS 15 | IFRS 9 | Discontinued | 2017 Changes | 2018 Changes | 31 March 2018 |
|
| As originally presented | 2017 reverse | 2018
|
|
| In accounting policy | In accounting policy | Restated |
|
| $'000 |
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| Deferred tax assets | 5,102 | - | 25 | 8 | - | - | - | 5,135 |
| Inventories | 19,597 | - | 363 | - | - | - | - | 19,960 |
| Trade and other receivables | 10,266 | - | (497) | (43) | - | - | - | 9,726 |
| Net assets | 58,737 | - | (109) | (35) | - | - | - | 58,593 |
|
|
|
|
|
|
|
|
|
|
| Revaluation reserve | 759 | - | - | - | - | 352 | 38 | 1,149 |
| Translation reserve | (4,565) | - | - | - | - | (885) | 1,931 | 3,519 |
| Retained earnings | 57,711 | (103) | (6) | (35) | - | 533 | (1,969) | 56,131 |
| Total equity | 58,737 | (103) | (6) | (35) | - | - | - | 58,593 |
|
|
|
|
|
|
|
|
|
|
|
| 1 April 2017 | IFRS 15 | IFRS 9 | Discontinued | Changes | 1 April 2017 |
|
| As originally presented |
|
|
| In accounting policy | Restated |
|
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| Deferred tax assets | 4,359 | 24 | - | - | - | 4,383 |
| Inventories | 15,935 | 226 | - | - | - | 16,161 |
| Trade and other receivables | 9,312 | (353) | - | - | - | 8,959 |
| Net assets | 64,294 | (103) | - | - | - | 64,191 |
|
|
|
|
|
|
|
|
| Revaluation reserve | 797 | - | - | - | 352 | 1,149 |
| Translation reserve | (6,724) | - | - | - | (885) | (7,609) |
| Retained earnings | 65,461 | (103) | - | - | 533 | 65,891 |
| Total equity | 64,294 | (103) | - | - | - | 64,191 |
|
|
|
|
|
|
|
|