Strategic report

 

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 180 countries worldwide.

 

During the 52 week period ended 1 April 2017 27% of revenues came from the sale of metal turning machine tools, with a further 19% from other machine tools and 10% from the sale of precision engineered components. Sales of Industrial laser equipment amounted to 29% of revenues with the remaining 15% of revenues being from after sales support, spare parts and services from both divisions.

 

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 high 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. In the year ended 1 April 2017 the top 20 customers, of which 17 were distributors, contributed less than 26% of revenues, the same as the previous year.

 

By geographical territory of destination

 

Revenues are generated across many diverse geographical territories, with the principal markets in:

 

Percentage of worldwide revenues (by destination)	2017 %	2016 %
United States of America	64	60
United Kingdom	15	19
Europe (excluding UK)	12	13
Rest of the World	9	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 over $75bn in annual sales in its Spring 2017 report. The market is 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.

 

Gardner Research identified the largest five producer countries of machine tools to be China, Japan, Germany, Italy and South Korea with the largest five countries ranked by consumption as China, USA, Germany, Japan and South Korea.

 

The global consumption of machine tools excluding China was reported as being negative at -3% in the latest Oxford Economics data for the year to December 2016 against a positive 8% in 2015. In our most important markets USA was negative at -2.1%, Germany positive at 3.9% and the UK negative at -7%.

 

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.

 

Industry spending for the entire global industrial laser market is reported to be $3.1bn and growing at between 2% and 8% each year. The laser marking and micro-materials subset of the overall laser industry continues to grow at the lower end of these growth forecasts but is supported 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.

 

               

Results

 

Machine tools and precision engineered components

 

This division operates from Heckmondwike and Colchester in the UK, Kalamazoo Michigan in the USA, and Sydney and Brisbane in Australia. It designs and develops metal processing machine tools sold under the brand names Colchester, Harrison and Clausing and designs and manufactures 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 direct sales operations and distribution in North America, Europe, and Australia and a network of distributors in all other key end-user markets.

 

The financial results of these activities, on a total and underlying basis, were as follows:

 

	2017 £ 000	2016 £ 000
Revenues	32,424	32,127
Operating profit	2,750	2,355
Operating margin	8.5%	7.3%
Underlying operating profit*	2,059	2,073
Underlying operating margin*	6.4%	6.5%

*underlying figures before special items. See note 2 and note 10.

 

 

Revenues overall  increased by 1% in Sterling terms despite a decline in local currency terms of 15% in the USA and a backdrop of weak customer confidence caused  first by the Brexit vote affecting UK and Europe and secondly the presidential elections in the USA. It was not until the start of the 2017 calendar year that more stable conditions returned and trading has steadily improved since then.

 

The Australian operation broke even after a return to full time working and has begun to show signs of further progress through the new distribution channels it has established in South East Asia which gained some traction in the early part of the new financial year with the first orders for Thailand being received.

 

The UK and European operations experienced difficult market conditions following the depreciation of Sterling after the Brexit vote. This pushed up the costs of imported machines and parts, which are largely US Dollar denominated. This inevitably reduced margins and consequently the business took the decision, along with most of its competitors, to increase prices for new orders received after 1 November 2016. Additionally steps were taken during the period to reduce costs and a number of management changes took place at Heckmondwike.

 

The Clausing product range of drills, mills, saws and grinders, which were introduced into the product portfolio at the end of last year, are now becoming a regular feature of the package of products we supply in the UK and Europe. Additional launches of new products are planned for later this year which will further enhance the product range and widen the appeal to customers and distributors.

 

The Clausing range of products has been one of the key reasons behind the growth in the North American operations in recent years and represents over 33% of their product sales compared to a figure of just 5% for the UK and European operation.

Industrial laser systems

 

The final integration of the combined TYKMA Electrox operations was completed in early FY17 as all manufacturing operations were consolidated in the Chillicothe, Ohio USA facility. The existing UK factory in Letchworth was sold in July 2016. The remaining UK operations moved to new leasehold premises in Letchworth and now provide a customer-focused service operation serving the UK and Europe.

 

The industrial laser systems division now accounts for 49% of the Group underlying operating profits (before special items and head office costs).

 

Results for the financial year, on a total and underlying basis, were as follows:

 

	2017 £ 000	2016 £ 000
Revenues	14,608	13,142
Operating profit	1,322	(2,033)
Operating margin	9.0%	(15.4)%
Underlying operating profit*	1,993	1,179
Underlying operating margin*	13.6%	8.9%

*underlying figures before special items. See note 2 and 10.

 

 

Operating efficiencies and savings (including those from supplier consolidation) were successfully achieved and reflected in the improved margins during the year. Similarly to the machine tools division, revenues were held back by the major issues of the Brexit vote in the UK and Europe and the presidential elections in the USA. Once again, however, there has been a steady improvement in trading activity since the start of the 2017 year and order books are currently 29% up on the same period last year, including a large medical industry order.

 

The worldwide industrial laser systems business operates under the combined TYKMA Electrox brand. Each end user or distributor is free to choose among our brands which combined creates an enhanced product portfolio for solving a larger number of applications. These Industrial laser systems are sold for a variety of applications to provide solutions which include marking, engraving and micro-material processing. Sales are made to an extensive range of industries and increasingly to large multi-national corporate customers.

 

Group revenue

 

Revenue from continuing operations increased by 4% to £47.0m (2016: £45.3m) which although representing only a modest increase over last year was achieved despite difficult conditions experienced in a turbulent worldwide market.

 

Costs and margins

 

Gross margins in the industrial laser systems division improved significantly as a result of the business integration. Margins in machine tools were impacted by Sterling's weakness after the Brexit vote increasing input prices but as a result of actions taken in our UK operation these have now been restored.

 

Profit before taxation

 

Group profit before tax was £3.23m (2016: £1.01m) and the underlying profit before tax figure before special items was £2.12m (2016: £1.48m).

 

Special items

 

During the financial year, the Group undertook a number of transactions, which, in the opinion of the directors, 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.

 

The current year has an overall net credit before taxation of £1.11m (2016 net charge £0.47m). A credit of £0.65m (2016: credit of £0.94m) is included as a result of the work by the Trustees of the UK pension scheme and the Group in reducing pension liabilities. A number of transactions took place over the prior and current year including a pension increase exchange, commutation of small pensions and other flexible retirement options. These are now an integral part of the flexible offer to members at retirement. These resulted in actuarial adjustments to the pension liabilities, which are processed through the Consolidated Income Statement.

 

In addition, as a result of the pension scheme being in surplus on an accounting basis, a credit of £1.45m (2016: credit of £1.17m) is recorded in financial income. No cash was paid to or received from the scheme in respect of these transactions.

 

Redundancy and restructuring costs were incurred on both the integration of the Electrox and TYKMA businesses and the overhead and operating cost reduction in head office and UK machine tools business which amounted to £0.62m (2016 £0.83m) and associated stock write offs of £0.19m (2016 £0.89m). A small profit against the written down value of the Letchworth property of £0.1m was achieved on the sale in July 2016.

 

In addition, share option costs, amortisation of intangible assets and amortisation of loan note costs all of which are non-cash costs to the Group in the year have been included in special items. 

 

 

Taxation

 

The current year underlying trading resulted in a small credit of £118k for taxation (2016: credit of £65k). Deferred taxation is provided on the pension credits of £2.16m at a rate of 35%, being the rate applicable to any refund from a pension scheme and is included in special items.

 

The UK businesses continue to benefit from substantial previous tax losses and no taxation is payable in the UK. The US businesses are subject to taxation on their profits at a rate of 34%.

 

 

Net profit and earnings per share

 

The total profit attributable to equity holders of the parent for the current financial year amounted to £2.06m (2016: profit of £1.16m) with underlying profit of £2.24m (2016: £1.55m).

 

Underlying earnings from continuing operations before special items and related taxation were 2.15p per share (2016: 1.69p) and basic earnings per share were1.97p (2015: 1.26p)

 

 

Financial position and utilisation of resources

 

Cash flow

 

Cash generated from operations before working capital movements was £3.58m (2016: £3.03m). Working capital movement was largely due to a reduction in creditors and build up of stocks as a consequence of the transfer of laser manufacturing operations to the USA. £0.54m was expended on redundancy and restructuring costs which largely consisted of redundancy payments at Electrox, UK machine tools and head office.

 

Interest paid was in line with previous years at £0.95m with the largest component being interest on the £8.5m 8% loan notes.

 

Capital expenditure largely consisted of demonstration and showroom equipment for the new facility in Chillicothe and these machines generally turn over regularly.

 

The net proceeds from the Letchworth property sale were received in July 2016 and were used to pay down UK bank debt.

 

Net borrowings

 

Group net debt at 1 April 2017 was reduced to £13.66m (2016: £13.89m) and comprised net bank and finance lease indebtedness of £5.79m (2015: £4.0m) and the amount outstanding on the loan notes of £7.87m(2016: £7.70m). The amount outstanding is net of un-amortised costs and amounts disclosed in equity reserve of £0.6m in the current financial year(2016: £0.8m).

 

Net debt repayments of £0.8m were made during the year but given a large part of the Group's working capital finance is denominated in US Dollars the depreciation of Sterling has had the effect of increasing disclosed debt by £430k on translation to Sterling at the year end.

 

New increased banking facilities were agreed with HSBC,in the UK, in August 2016 following the sale of the Letchworth property. A package of facilities to support the working capital of the UK machine tools business and a term loan secured on the remaining freehold site in Colchester were put in place totaling £4.95m.

 

In March 2016,Bank of America supported the acquisition by the Group of the 20% interest in TYKMA not previously owned with an additional term loan of $1.8m in addition to their existing term and working capital facilities.

 

The Group has a mixture of term loans and revolving working capital facilities with maturities between 1 and 5 years. Headroom on bank facilities was £3.2m at the year-end (2016: £3.2m) and all financial covenants in place were met during the year.

 

The £8.5m 8% loan notes with a maturity of February 2020 also entitle holders to warrants of equal value to subscribe for new ordinary shares at 20p.

 

Gearing amounted to 27% of aggregate net assets (2016: 34%)

 

Going concern

 

In accordance with FRC guidelines, 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 and the Company have 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 surplus on the UK scheme at 1 April 2017 was £52.50m (2016: £41.97m). This surplus has been calculated in accordance with the scheme rules and recognised accounting requirements.

 

As a result of liability reduction exercises undertaken by the UK scheme's Trustees in conjunction with the company, a credit has been taken in the period in the Income Statement of £0.65m (2016 £0.94m) to reflect the actuarial reduction in scheme liabilities.

 

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 19% rate.

 

In October 2013 the Company reached agreement with the Trustees of the scheme regarding the funding position on a more prudent Technical Provisions basis as at 31 March 2013, which indicated a funding deficit of £25.4m at that date.

 

It was further agreed that the Technical Provisions deficit would be resolved by an out-performance of the investment returns on the scheme assets of 1% above the return on UK gilts, and that no cash contributions would be required until at least the next funding valuation due as at 31 March 2016.

 

The formal Actuarial Technical Provisions calculation for 31 March 2016 has now been undertaken and the draft results show that the scheme was in surplus by £2.2m at that time and this surplus has continued to grow since then and is estimated to be in surplus of £10.8m at 31 March 2017.

 

The Directors and the Trustees work together on a collaborative basis to continue to monitor investment performance and market conditions closely and to mitigate the risk of mis-matching assets and liabilities to a tactically appropriate level.

 

The US retiree health scheme and pension fund deficits reduced slightly during the year due to changes in actuarial assumptions to £1.03m (2016: £1.04m)

 

 

 

Neil Carrick

Finance Director

3 July 2017

 

 

Consolidated income statement

for the 53-week period ended

1 April 2017

	Before		After	Before		After
	Special	Special	Special	Special	Special	Special
	Items	Items	Items	Items	Items	Items
	52 weeks	52 weeks	52 weeks	53 weeks	53 weeks	53 weeks
	ended	ended	ended	ended	ended	ended
	1 April	1 April	1 April	2 April	2 April	2 April
	2017	2017	2017	2016	2016	2016
	£000	£000	£000	£000	£000	£000
Continuing
Revenue	47,032	-	47,032	45,269	-	45,269
Cost of sales	(30,602)	(118)	(30,720)	(29,899)	(894)	(30,793)
Gross profit/(loss)	16,430	(118)	16,312	15,370	(894)	14,476
Net operating expenses	(13,365)	(53)	(13,418)	(13,014)	(2,626)	(15,640)
Operating profit/(loss)	3,065	(171)	2,894	2,356	(3,520)	(1,164)
Financial income	3	1,445	1,448	10	1,171	1,181
Financial expense	(946)	(168)	(1,114)	(890)	(150)	(1,040)
Contingent consideration settlement	-	-	-	-	2,032	2,032
Profit/(loss) before tax	2,122	1,106	3,228	1,476	(467)	1,009
Income tax (charge)/credit	118	(1,287)	(1,169)	65	72	137
Profit/(loss) for the period	2,240	(181)	2,059	1,541	(395)	1,146
Attributable to equity holders of the parent	2,240	(181)	2,059	1,552	(395)	1,157
Attributable to non controlling interests	-	-	-	(11)	-	(11)
	2,240	(181)	2,059	1,541	(395)	1,146
Basic earnings per share	2.15p	(0.18)p	1.97p	1.69p	(0.43)p	1.26p
Diluted earnings per share	2.14p	(0.18)p	1.96p	1.68p	(0.43)p	1.25p

 

Consolidated statement of comprehensive income

for the 53-week period ended

1 April 2017

 

	52-week	53-week
	period ended	period ended
	1 April	2 April
	2017	2016
	£000	£000
Profit for the period	2,059	1,146
Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement:
Remeasurement of defined benefit asset	8,367	4,436
Deferred taxation	(2,928)	(515)
Total items that will not be reclassified to the Income Statement:	5,439	3,921
Items that are or may in the future be reclassified to the Income Statement:
Foreign exchange translation differences	705	286
Fair valuation of assets held for sale	-	(450)
Fair valuation of investments	1,157	(29)
Total items that are or may in the future be reclassified to the Income Statement:	1,862	(193)
Other comprehensive income for the period, net of income tax	7,301	3,728
Total comprehensive income for the period	9,360	4,874
Attributable to:
Equity holders of the Parent Company	9,360	4,885
Non controlling interests	-	(11)
Total recognised income	9,360	4,874

 

 

Consolidated statement of financial position As at 1 April 2017
	As at	As at
	1 April 2017	2 April 2016
	£000	£000
Non-current assets
Property, plant and equipment	3,732	3,235
Goodwill	7,144	7,144
Other Intangible assets	305	322
Investments	1,653	496
Deferred tax assets	3,486	3,832
Employee benefits	51,469	40,937
	67,789	55,966
Current assets
Inventories	12,737	11,271
Trade and other receivables	7,444	6,771
Assets classified as held for sale	-	1,999
Cash and cash equivalents	1,081	765
	21,262	20,806
Total assets	89,051	76,772
Non-current liabilities
Loans and other borrowings	(9,234)	(11,376)
Deferred tax liabilities	(18,216)	(14,538)
	(27,450)	(25,914)
Current liabilities
Trade and other payables	(5,436)	(6,318)
Provisions	(389)	(425)
Loans and other borrowings	(5,508)	(3,275)
	(11,333)	(10,018)
Total liabilities	(38,783)	(35,932)
Net assets	50,268	40,840
Shareholders' equity
Called-up share capital	1,044	1,044
Share premium account	1,013	1,013
Revaluation reserve	637	1,273
Available for sale reserve	506	(651)
Equity reserve	139	139
Translation reserve	2,466	1,714
Retained earnings	44,463	36,308
Total equity	50,268	40,840

 

 

Consolidated statement of changes in equity  

As at 1 April 2017

	Ordinary	Share		Available
	share	premium	Revaluation	for sale	Translation	Equity		Total
	capital	account	reserve	reserve	reserve	reserve		Equity
	£000	£000	£000	£000	£000	£000		£000
At 28 March 2015	896	-	1,494	(622)	1,428	124		34,726
At 29 March 2015	896	-	1,494	(622)	1,428	124		34,726
Profit for the period	-	-	-	-	-	-		1,146
Other comprehensive income:
Foreign currency translation	-	-	-	-	286	-		286
Net defined benefit asset mvmt	-	-	-	-	-	-		4,436
Fair valuation of Investments	-	-	-	(29)	-	-		(29)
Fair valuation of assets held for sale	-	-	(450)	-	-	-		(450)
Transfer on revalued properties	-	-	229	-	-	-		-
Deferred tax	-	-	-	-	-	-		(515)
Total comprehensive income	-	-	(221)	(29)	286	-		4,874
Transactions with owners:
Share capital subscribed for	148	1,013	-	-	-	-		1,161
Equity element of shareholder loan issued in period	-	-	-	-	-	15		15
Acquisition of NCI	-	-	-	-	-	-	-	-
Credit for share-based payments	-	-	-	-	-	-		64
Total transactions with owners	148	1,013	-	-	-	15		1,240
At 2 April 2016	1,044	1,013	1,273	(651)	1,714	139		40,840
At 3 April 2016	1,044	1,013	1,273	(651)	1,714	139		40,840
Profit for the period	-	-	-	-	-	-		2,059
Other comprehensive income:
Foreign currency translation	-	-	75	-	752	-		705
Net defined benefit asset mvmt	-	-	-	-	-	-		8,367
Fair valuation of Investments	-	-	-	1,157	-	-		1,157
Transfer on revalued properties	-	-	(711)	-	-	-		-
Deferred tax	-	-	-	-	-	-		(2,928)
Total comprehensive income	-	-	(636)	1,157	752	-		9,360
Transactions with owners:
Credit for share-based payments	-	-	-	-	-	-		68
Total transactions with owners	-	-	-	-	-	-		68
At 1 April 2017	1,044	1,013	637	506	2,466	139		50,268

 

Consolidated cash flow statement  

For the 52-week period ended 1 April 2017

 

	52-week	53-week
	period ended	period ended
	1 April	2 April
	2017	2016
	£000	£000
Cash flows from operating activities
Profit for the period	2,059	1,146
Adjustments for:
Amortisation of development expenditure	58	122
Depreciation	452	548
Net financial income	(334)	(141)
Net pension credit	(647)	(940)
Other Special Items	750	2,363
Equity share option expense	68	64
Income tax expense/(credit)	1,169	(137)
Operating cash flow before changes in working capital and provisions	3,575	3,025
(Increase)/decrease in trade and other receivables	(150)	463
(Increase)/decrease in inventories	(1,404)	106
Decrease in trade and other payables	(1,260)	(1,682)
Restructuring and redundancy expenditure	(541)	(807)
Employee benefits contributions	(120)	(130)
Cash generated in operations	100	975
Interest paid	(946)	(964)
Income tax received/( paid)	88	(3)
Net cash flows from operating activities	(758)	8
Cash flows from investing activities
Interest received	3	10
Proceeds from sale of property, plant and equipment	2,090	-
Purchase of TYKMA Inc.	-	(1,378)
Purchase of property, plant and equipment	(490)	(1,522)
Development and trademarks expenditure capitalised	(22)	(297)
Net cash flows from investing activities	1,581	(3,187)
Cash flows from financing activities
Proceeds from issue of ordinary shares	-	275
Proceeds from issue of Loan Notes	-	806
Repayment of external borrowing	(2,513)	1,883
Proceeds from external borrowing	2,074	-
Net finance lease income/(expenditure)	(93)	67
Net cash flows from financing activities	(532)	3,031
Net decrease in cash and cash equivalents	291	(148)
Cash and cash equivalents at the beginning of the period	765	902
Effect of exchange rate fluctuations on cash held	25	11
Cash and cash equivalents at the end of the period	1,081	765

 

 

Notes relating to the financial information

 

Basis of preparation

The Financial information set out in this preliminary announcement does not constitute the company's Consolidated Financial Statements for the financial years ended 1 April 2017 or 2 April 2016 but are derived from those Financial Statements. Statutory Financial Statements for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the company's AGM. The Auditors KPMG 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 report and did not contain statements under Section 498(2) or (3) of the Companies Act 2006 in respect of the Financial Statements for 2017 or 2016.

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.

1. 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 Special Items from the operating segments. Head Office and unallocated represent central functions and costs.

 

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

 

		Continuing
52 Weeks ended 1 April 2017	Machine tools & precision engineered components		Industrial laser systems		Head Office & unallocated		Total
Segmental analysis of revenue	£000		£000		£000		£000
Total revenue	32,424		14,608		-		47,032
Segmental analysis of operating profit/(loss) before Special Items	2,059		1,993		(987)		3,065
Special Items	691		(671)		(191)		(171)
Group operating profit/(loss)	2,750		1,322		(1,178)		2,894
Other segmental information:
Reportable segment assets	29,120		7,638		52,293		89,051
Reportable segment liabilities	(26,538)		(3,772)		(8,473)		(38,783)
Fixed asset additions	115		397		-		512
Depreciation and amortisation	295		215		-		510

1. Segment information (CONTINUED)

53 Weeks ended 2 April 2016	Machine tools & precision engineered components		Industrial laser systems	Head Office & unallocated		Total
Segmental analysis of revenue	£000		£000	£000		£000
Total revenue	32,127		13,142	-		45,269
Segmental analysis of operating profit/(loss) before Special Items	2,073		1,179	(896)		2,356
Special Items	282		(3,212)	(590)		(3,520)
Group operating profit/(loss)	2,355		(2,033)	(1,486)		(1,164)
Other segmental information:
Reportable segment assets	26,630		5,970	44,172		76,772
Reportable segment liabilities	(22,078)		(3,048)	(10,806)		(35,932)
Fixed asset additions	605		1,214	-		1,819
Depreciation and amortisation	293		457	-		750

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.

 

Geographical segmental analysis of revenue is shown by origin and destination in the following two tables:

Segmental analysis by origin	2017			2016
	£000	%	£000		%
Gross sales revenue:
UK	11,705	24.9	14,851		32.8
North America	33,354	70.9	28,936		63.9
Australasia	1,973	4.2	1,482		3.3
Total Revenue	47,032	100.0	45,269		100.0

 

 

1. Segment information (CONTINUED)

 

Segmental analysis by destination:

	2017			2016
	£000	%	£000		%
Gross sales revenue:
UK	7,193	15.3	8,498		18.8
Other European	5,783	12.3	5,905		13.0
North America	29,732	63.3	27,291		60.3
Africa	141	0.3	162		0.4
Australasia	1,804	3.8	1,438		3.2
Central America	140	0.3	163		0.4
Middle East	431	0.9	733		1.6
Far East	1,808	3.8	1,079		2.3
	47,032	100.0	45,269		100.0

 

There are no customers that represent 10% or more of the Group's revenues.

 

2. SPECIAL ITEMS

In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed transactions which by virtue of their size or incidence, are considered to be one off in nature. In addition the charge for share based payments, amortisation of intangible assets acquired and non cash pension transactions have also been separately identified.

Special items include

 

	2017	2016
	£000	£000
Items included in cost of sales:
Stock write-offs	(118)	(894)
	(118)	(894)
Items included in operating profit:
Pensions credit	647	940
Refinancing costs	(54)	-
Redundancy and reorganisation	(622)	(835)
Profit on sale of property	114	-
Impairment of intangible assets	-	(2,390)
Acquisition costs	(29)	(197)
Share option charge	(68)	(64)
Amortisation of intangible assets acquired	(41)	(80)
	(53)	(2,626)

 

2. SPECIAL ITEMS (continued)

 

Items included in financial (income)/expense:
Pensions interest on surplus	1,445	1,171
Amortisation of loan note expenses	(168)	(150)
	1,277	1,021

 

Items included in contingent consideration settlement:
TYKMA deferred consideration settlement	-	2,032
	-	2,032
Total special items before tax	1,106	(467)
Income tax credit on special items	(1,287)	72
Total special items after tax	(181)	(395)

 

Special items are disclosed separately on the basis that this presentation gives a clearer picture of the underlying performance of the Group.  Special items comprise two elements:

 

-           Items which are expected to be one-off in nature and are considered significant to the result of the group or one of its reporting segments; and

-           Non-cash items which, given the scale of our current activities, represent a disproportionate share of the Group's result.  Examples include the credit arising on the pension surplus share based payments and the amortisation of intangible assets.

 

During the year the Group incurred further costs with regard to the reorganisation of TYKMA Inc and the integration of the Electrox Laser marking division. Redundancy exercises were carried out in the UK during the year. Property disposals in the UK also resulted in the profit of £114k. Costs were also incurred relating to the refinancing carried out in the UK during the year.

Costs were also incurred with regard to the granting of share options.

 

3. Financial income and expense

	2017	2016
	£000	£000
Bank and other interest	3	10
Interest on pensions surplus	1,445	1,171
Financial income	1,448	1,181
Bank overdraft and loan interest	(173)	(155)
Other loan interest	(761)	(721)
Other finance charges	-	(3)
Finance charges on finance leases	(12)	(11)
Amortisation of shareholder loan expenses	(168)	(150)
Financial expense	(1,114)	(1,040)

 

 

4. Taxation

	2017	2016
	£000	£000
Current tax:
Corporation tax at 20% (2016: 20%):
- current period	-	-
Overseas taxation:
- current period	-	53
Total current tax charge	-	53
Deferred taxation:
- current period	(695)	79
- prior period (adjustments to the capital allowance pools in the UK and overseas)	(474)	5
Total deferred taxation credit/(charge)	(1,169)	84
Taxation charged to the income statement	(1,169)	137

 

Tax reconciliation

The tax charge assessed for the period is higher than the standard rate of corporation tax in the UK of 20% (2016: lower than standard rate of 20%). The differences are explained below:        

 

	2017			2016
	£000	%	£000		%
Profit before tax	3,228		1,009
Profit before tax multiplied by the standard rate of corporation tax
in the UK of 20% (2016: 20%)	646	20.0	202		20.0
Effects of:
-income not taxable and/or expenses not deductible	(423)	(13.1)	(205)		(20.3)
- overseas tax rates	17	0.5	19		1.9
- pension fund surplus taxed at higher rate	129	4.0	321		31.8
- property disposals	-	-	(52)		(5.2)
- state taxes	17	0.5	75		7.4
- deferred tax prior period adjustment	474	14.7	(5)		(0.5)
- tax not recognised on losses/(unrecognised losses utilised)	309	9.6	(600)		(59.4)
- impact of rate change	-	-	108		10.7
Taxation charged/(credited) to the income statement	1,169	36.2	(137)		(13.6)

 

5. Earnings per share

The calculation of the basic earnings per share of 1.97p (2016: 1.26p) is based on the earnings for the financial period attributable to the Parent Company's shareholders of a profit of £2,059,000 (2016: £1,157,000) and on the weighted average number of shares in issue during the period of 104,357,957 (2016: 91,684,103). At 1 April 2017, there were 6,650,000 (2016: 6,150,000) potentially dilutive shares on option with a weighted average effect of 303,255 (2016: 583,333) shares giving a diluted earnings per share of 1.96p (2016: 1.25p)

	2017	2016
Weighted average number of shares
Issued shares at start of period	104,357,957	89,607,957
Effect of shares issued in the year	-	2,076,146
Weighted average number of shares at end of period	104,357,957	91,684,103

 

	£000	£000
Total post tax earnings	2,059	1,146
Share Option Costs	68	64
Pensions Interest	(1,445)	(1,171)
Amortisation of Shareholder loan expenses	168	150
Pensions credit	(647)	(940)
Credit on settling deferred consideration	-	(2,032)
Impairment of intangible assets	-	2,390
Amortisation of intangible assets acquired	41	80
Other special items	680	1,729
Acquisition costs	29	197
Associated Taxation	1,287	(72)
Underlying Earnings after tax	2,240	1,541
Underlying Earnings before tax	2,122	1,476
Underlying EPS	2.15p	1.69p

 

6. Cash and cash equivalents

	2017	2016
	£000	£000
Cash at bank	981	665
Short-term deposits	100	100
Cash and cash equivalents per statement of financial position and per cash flow statement	1,081	765

 

 

7. RECONCILIATION OF NET CASH FLOW TO NET DEBT

 

	2017	2016
	£000	£000
Increase/(decrease) in cash and cash equivalents	291	(148)
Decrease/(increase) in debt and finance leases	532	(2,757)
Decrease/(increase) in net debt from cash flows	823	(2,905)
Net debt at beginning of period	(13,886)	(10,798)
Shareholder loan issue costs amortisation	(168)	(110)
Exchange effects on net funds	(430)	(73)
Net debt at end of period	(13,661)	(13,886)

 

8. Analysis of net DEBT

	At				At
	3 April	Exchange			1 April
	2016	movement	Other	Cash flows	2017
	£000	£000	£000	£000	£000
Cash at bank and in hand	665	25	-	291	981
Term deposits (included within cash and cash equivalents on the balance sheet)	100	-	-	-	100
	765	25	-	291	1,081
Debt due within one year	(3,114)	(239)	-	(2,074)	(5,427)
Debt due after one year	(3,596)	(194)	-	2,513	(1,277)
Loan notes due after one year	(7,699)	-	(168)	-	(7,867)
Finance leases	(242)	(22)	-	93	(171)
Total	(13,886)	(430)	(168)	823	(13,661)

 

9. ACQUISITION

There have been no changes in the year to the fair value of net assets acquired, and therefore no change in the goodwill arising of £7,144,000.

During the prior year the final 20% of the issued share capital of TYKMA Inc. was acquired. The original acquisition of 80% of the issued share capital of TYKMA Inc. included put and call options for the remaining 20% between the group and the vendor which had a value at March 2015 of £4.1m. During the prior year the value was remeasured to £2.1m and was settled at this amount. The settlement comprised of US$1.8m and the issue of 12m ordinary shares in the Group with a value at that time of £0.9m. The gain of £2,032,000 was included as a special item given its size and nature.  

 

10. 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 special items. The Directors believe the use of these 'non-GAAP measures' provide a better understanding of underlying performance of the Group.

In the review of performance  refererence is made to 'underlying profit' or 'profit before special items', and in the Consolidated Income Statement  the Group's results are analysed between Before Special items and After Special items. 

 

Special items are detailed in note 2, and are disclosed separately on the basis that this presentation gives a clearer picture of the underlying performance of the group.  Special items comprise two elements:

 

-           Items which are expected to be one-off in nature and are considered significant to the result of the group or one of its reporting segments; and

-           Non-cash items which, given the scale of our current activities, represent a disproportionate share of the Group's result.  Examples include the credit arising on the pension surplus share based payments and the amortisation of intangible assets.

 

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

	£000	£000
Operating profit /(loss)	2,894	(1,164)
Special items included in cost of sales (see note 2)	118	894
Special items included in net operating expenses (see note 2)	53	2,626
Underlying operating profit	3,065	2,356
Underlying profit / (loss) for the period
Profit  for the period	2,059	1,146
Special items included in cost of sales (see note 2)	118	894
Special items included in net operating expenses (see note 2)	53	2,626
Special items included in Financial income	(1,445)	(1,171)
Special items included in Financial expense	168	150
Contingent consideration settlement	-	(2,032)
Special items included in income tax charge /(credit)	1,287	(72)
Underlying profit for the period	2,240	1,541
Underlying EPS
A reconciliation of underlying EPS is included in note 5