RNS Number:5057M
600 Group PLC
19 June 2003
19th June 2003
THE 600 GROUP PLC
PRELIMINARY RESULTS FOR THE PERIOD TO 29 MARCH 2003
CHAIRMAN'S STATEMENT
Throughout the year, the international machine tool market was dominated by the
continuing recession in western markets and the structural move of manufacturing
to lower cost economies. The Group responded by exploiting its strong product
range in the expanding markets of the Far East and Eastern Europe, while
maintaining major cost and asset reduction programmes.
Market conditions
For the first three quarters of the year, the UK and North American markets
stabilised at the depressed levels seen at the end of the previous year.
Unfortunately, increased international geopolitical uncertainties affected
market confidence during the fourth quarter, resulting in further delays in
investment expenditure instead of the anticipated small recovery.
China has now become the world's largest consumer of machine tools and other
local Far Eastern markets are benefiting from this increase in economic
activity.
Following several years of over capacity, investment in the IT component
industry started to recover, benefiting our laser marker business.
Results
With our current short order book, the Group was immediately affected by these
difficult and unpredictable conditions, with only the laser and South African
businesses showing significant year-on-year increases in sales.
Turnover in the period was down from #80.5m to #68.1m.
We continued to reduce our cost base. Headcount decreased by 11% in the year,
making a 32% reduction over the past two years, and our machine tool accessories
businesses were consolidated onto the Halifax site.
Profit before tax reduced from #2.7m to a loss of #1.4m, reflecting a #2.2m
reduction in gross profit resulting from the lower turnover, net cost savings of
#1.7m, a reduction in the SSAP24 calculated pension credit from #5.9m to #1.1m
following the March 2002 revaluation, a #1.8m profit from the sale of the
surplus Witney site and an increase in reorganisation costs from #1.0 to #1.6m
(including a #0.4m asset write-off).
Net funds reduced by #4.1m to #7.4m. The total dividend absorbed #3.1m and a
further #0.5m was spent on the acquisition of a UK sheet metal fabrication
facility. The cash flows relating to the reorganisation costs were #0.9m in the
year, with a further #0.3m in 2003/04. The #2.8m proceeds from the disposal of
the Witney site will be received in the first half of the current year.
Dividend
The board recommends a final dividend of 4.0p, maintaining the full year
dividend of 5.5p.
People
On behalf of the board, I should like to record our continued appreciation of
the efforts of all our employees during a period of extremely difficult trading
conditions and major reorganisation.
Outlook
It is unlikely that recent market trends will change substantially in the short
term. Therefore, during the coming year, we will be focusing on the further
development of our strategic supply and marketing alliances in the Far East,
while continuing to realign our cost structure to reflect the changing shape of
the industry. With our wide geographic coverage, diverse product range and
improving cost base, I am confident that we are well positioned to exploit the
opportunities that are developing in the international machine tool market.
Michael Wright
Chairman
19 June 2003
Tony Sweeten, Group Chief Executive
Enquiries: John Fussey, Group Finance Director
Telephone: 020 7796 4133 on Thursday 19 June 2003
thereafter on 0113 277 6100
Nick Lyon, Hudson Sandler
Telephone: 020 7796 4133
GROUP CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
The recession in our main markets intensified during the year, as increased
worldwide economic and political uncertainties negated the tentative signs of
manufacturing recovery that we had detected in the first quarter. In this
hostile climate, we continued to focus on reducing costs and generating cash,
while sustaining our new product development programme and increasing our
exposure to the growing economies of the Far East and Eastern Europe.
Market trends
All the major markets of the developed world declined more sharply than we had
anticipated at the beginning of our financial year.
The UK machine tool market contracted by 26% during 2002, with performance
worsening in the latter part of the year after some encouraging signs of
stabilisation in the first half. Very low levels of business confidence
reflected the uncertain international situation, particularly in the Middle
East, widespread excess capacity and the structural shift of manufacturing to
lower cost economies overseas. Concerns about the Iraq war and the potential
impact of SARS contributed to a further decline in demand in the first quarter
of 2003.
During the year we experienced similar downturns in most of the large western
European markets, notably France, Switzerland and Germany. Competitive pressure
grew even more intense, with German producers in particular cutting prices
dramatically in an attempt to stimulate demand.
The US machine tool market fell by an unprecedented 36% during 2002, continuing
a downward trend that began in 1997 and has now taken the US down to fourth
place in world market rankings. As in the UK, some early signs of recovery were
followed by a decline in the second half and a very weak start to 2003.
The markets of the less developed world, by contrast, benefited from the
transfer of manufacturing to lower cost suppliers. The market in China increased
by 20%, making it the world's largest consumer of machine tools, and there was
encouraging growth elsewhere in the Far East, India, South Africa and Eastern
Europe. These positive trends seem set to continue in 2003, with per capita
measurements of machine tool consumption compared with North America and Western
Europe suggesting considerable further growth potential in these markets in the
medium and longer term.
Strategic development
Our key strategic objectives have remained clear, consistent and well attuned to
this demanding market environment. Our core principles are:
* focusing on machine tools, with strong global brands and a reputation for
quality and value;
* sustaining our market leadership through consistent innovation;
* expanding geographically to increase our exposure to growing markets and
to exploit appropriate opportunities for low cost sourcing;
* reducing our cost base; and
* maintaining a strong balance sheet.
All our companies continued to enhance and extend their product ranges, giving
us our strongest ever portfolio of world-class machines and accessories. In the
final quarter of 2002, we took further measures to reduce costs in response to
the deterioration in western markets. This followed previously announced
initiatives, including the consolidation of Crawford Colletts production into
the Pratt Burnerd International site in Halifax, which not only produced
substantial cost savings but also generated an exceptional profit of #1.8
million on the disposal of the redundant Witney factory site.
UNITED KINGDOM OPERATIONS
600 Lathes substantially improved its performance and returned to profitability
during the year. This reflected substantial cost reductions and the continued
drive to develop up-to-date and cost-effective products, including the
introduction of enhanced performance high-tech machines in both the Harrison
Alpha and Colchester Tornado ranges. We have invested in a new state-of-the-art
computer-aided design system to enhance our design capabilities still further
and this will be followed by the introduction of a new production planning
system during 2003.
The business is also deriving growing benefits from the Group's offshore
sourcing initiatives, following value engineering of selected centre lathe
models that enables us to base these models on low-cost imported carcases. 600
Lathes has also worked closely with our strategic partner in China to develop
and launch new highly economical variable speed lathes under the Triumph and
Master brands.
In response to customer demand, we have broken with our long tradition of
selling through distributors by establishing our own direct UK sales force,
supported by three technical centres. We are already beginning to see benefits
from this new approach which we initiated in autumn 2002. The acquisition of a
small UK sheet metal facility specialising in the fabrication of machine
guarding has also given us enhanced control of product quality and increased
flexibility in future business development.
600 Centre, our UK marketing operation for imported machine tools was naturally
affected by the market downturn but broadened its portfolio with the launch of
the Fidia range of high speed machining centres in October. These machines have
generated encouraging levels of interest and the business will be seeking
additional products in the current year. A switch to direct sales of the
Richmond range of low-cost vertical machining centres was implemented in the
final quarter and this has already produced improved results.
Pratt Burnerd International, the leading producer of workholding systems,
successfully absorbed production from the Crawford Colletts factory in Witney to
create a single centre of excellence in Halifax for the Group's range of high
precision mechanical components and accessories. Significant cost savings from
this reorganisation will be realised in the current year.
The award-winning Pratt Burnerd programmable power chuck, introduced at MACH
2002, was also successfully exhibited at Stuttgart and has generated exceptional
interest. The product has been refined to achieve even greater grip and is
currently undergoing final tests prior to its formal launch on the market. A
particularly pleasing feature of the year was the significant progress made in
the German market, where we have received a number of orders for specialist
workholding equipment and have a significant number of enquiries in the
pipeline.
Gamet Bearings, manufacturing super high precision taper roller bearings for
machine tools and similar applications, increased its output following
consolidation of the French business acquired the previous year. Investment in
equipment during the year has significantly expanded the company's addressable
market by greatly increasing the maximum diameter of the bearings it can produce
and facilitating the production of imperial lines targeted at the US market.
Further investment is planned for the current year to increase overall capacity
and reduce costs.
Electrox, our laser manufacturing business, achieved very strong sales growth in
laser markers. US sales in particular benefited from further expansion of the
product range, including the new Cobra diode-pumped marker and the Maxim range
of workstations which provide a turnkey solution for marker applications. A
doubling of Far Eastern sales was based on increased market penetration with
established products as well as the success of the new Cobra range.
Despite the weak market for high value machine tools, we made a number of new UK
installations of the Lazerblade profile cutting machine and also installed our
first unit in China. The upgraded Lazerblade Plus model, launched at the Sheet
Metal Show in Birmingham last year, has attracted significant interest for its
improved performance and ease of use.
600 Machinery International exceeded its targets for sales of Group products
despite the effects of uncertainty in many of its traditional major markets,
notably the Gulf. The management of the Group's strategic alliances in China is
an increasing focus for this business, both in the sourcing of low-cost
machines, accessories and raw materials and in the development of sales of Group
products. A major order was negotiated during the year for the supply of CNC
lathe kits to a Chinese manufacturer to satisfy local demand.
OVERSEAS OPERATIONS
600 France continued to improve its performance, benefiting from our previous
cost reduction initiatives. Sales efforts have been focused particularly on the
education sector, given the depressed state of industrial demand. We are also
planning to introduce the Electrox laser marker range to the French market
during the current year.
Parat, our German distribution business, had a disappointing year, reflecting
the difficult economic climate. The business has relocated to improved premises
and continued to extend its product range, including the extended range of Fidia
machining centres. During the current year Parat will begin to market the
Electrox laser marker range and will also introduce the Adira range of press
brakes and guillotines manufactured in Portugal.
Clausing Industrial, our North American manufacturing and distribution business,
further increased its share of the vocational education market and successfully
introduced a new line of low-cost power chucks for the replacement market.
Further cost reductions were implemented to reflect the continued weakness in
the core metalworking machine tool market. Colchester CNC, our specialist
distributor of higher-technology machines based in Cincinnati, was merged into
the core Clausing business as a result of the disappointing prospects for this
sector. We anticipate that Clausing will derive growing benefits from the
Group's global sourcing initiatives in the years ahead.
600 Machine Tools Canada was affected by weakening demand in the second half,
particularly for high-tech products. This was only partly offset by a steady
improvement in the education market. New initiatives have been implemented to
co-ordinate our sales efforts to automotive parts manufacturers, resulting in a
large number of new project quotations which should result in improved sales of
high-tech machines in the current year.
600 International, our Prague office with responsibility for co-ordinating Group
sales and procurement in Central and Eastern Europe, had a good year and
generated increased turnover of lathes.
600 Machine Tools in Australia had a difficult year but has secured significant
orders from the Department of Defence, which is upgrading its workshop
capabilities.
600SA, our operation in South Africa, had an excellent year, achieving a
significant turnaround as a result of restructuring initiatives and strong
demand for forestry equipment and Group products. The weaker Rand increased
demand for locally manufactured products and helped to strengthen exports of
waste compactors and Spartan cranes. We have relocated our Johannesburg plant
and sales office to more cost-effective premises to generate improved production
efficiencies and reduced lead times. We are already benefiting from our
membership of the 'Proudly South African' Association and are seeking to
reinforce our market positioning through compliance with the government's Black
Empowerment initiatives.
OUTLOOK
Our current major markets are likely to remain depressed for the remainder of
2003, but most observers are expecting demand in the main western economies to
recover in 2004. Despite these adverse market conditions, we have not stinted on
our investment in new products and technology, continuously improving our
higher-technology products and developing lower-cost options attuned to current
market requirements, supported by global sourcing initiatives and cost
realignment. There is no doubt that the Group today has its best-ever portfolio
of products and I am confident that it is excellently placed to exploit them
around the world.
Tony Sweeten
Group Chief Executive
19 June 2003
AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
Period ended 29 Period ended
March 2003 30 March 2002
#000 #000
Turnover 68,072 80,451
Cost of sales (51,029) (61,190)
Gross profit 17,043 19,261
Net operating expenses before pension scheme credit and (19,929) (21,721)
exceptional items
- Pension scheme credit 1,046 5,853
- Exceptional items - restructuring costs (1,559) (1,026)
Total net operating expenses (20,442) (16,894)
Operating (loss) before pension credit and exceptional (2,886) (2,460)
items
Operating (loss)/profit (3,399) 2,367
Profit on sale of property 1,800 -
(Loss)/profit on ordinary activities before interest and (1,599) 2,367
taxation
Net interest receivable and similar income 159 299
(Loss)/profit on ordinary activities before taxation (1,440) 2,666
Taxation credit/(charge) 171 (1,210)
(Loss)/profit for the financial period (1,269) 1,456
Dividends (3,087) (3,144)
Retained (loss) for the financial period (4,356) (1,688)
Earnings per share - basic (2.3)p 2.5p
Earnings per share - diluted (2.3)p 2.5p
AUDITED CONSOLIDATED BALANCE SHEET
At 29 March 2003 At 30 March 2002
#000 #000
Fixed assets
Intangible assets - goodwill 3,003 3,236
Tangible assets 14,430 16,215
Investments 84 84
17,517 19,535
Current assets
Stocks 24,965 26,037
Debtors:
- falling due within one year 18,959 18,061
- falling due after one year 31,974 30,951
50,933 49,012
Investments 1,269 1,990
Cash at bank and in hand 12,522 17,685
89,689 94,724
Current liabilities
Creditors: amounts falling due within one year:
- short-term borrowings (6,278) (7,504)
- other creditors (16,812) (17,807)
(23,090) (25,311)
Net current assets 66,599 69,413
Total assets less current liabilities 84,116 88,948
Creditors: amounts falling due after more than one year:
- loans and other borrowings (73) (653)
- other creditors (1,206) (1,131)
(1,279) (1,784)
Provisions for liabilities and charges (7,692) (7,519)
Net assets 75,145 79,645
Capital and reserves
Called-up share capital 14,025 14,020
Share premium account 13,521 13,517
Revaluation reserve 1,685 1,709
Capital redemption reserve 2,500 2,500
Profit and loss account 43,414 47,899
Shareholders' funds - equity 75,145 79,645
AUDITED CONSOLIDATED CASH FLOW STATEMENT
At 29 March 2003 At 30 March 2002
#000 #000
Net cash (outflow)/inflow from operating (166) 362
activities
(see below)
Returns on investments and servicing of finance 103 106
Taxation (paid)/repaid (206) 202
Capital expenditure (920) (1,027)
Acquisitions and disposals - acquisitions (455) (597)
Equity dividends paid (3,086) (3,083)
Net cash (outflow) before use of liquid (4,730) (4,037)
resources and financing
Management of liquid resources 221 14,081
Financing (1,167) (9,400)
(Decrease)/increase in cash in the period (5,676) 644
Reconciliation of movement in cash flow to movement in net funds
(Decrease)/increase in cash in the period (5,676) 644
Cash outflow from decrease in debt and lease 1,176 6,677
financing
Cash inflow from decrease in liquid resources (221) (14,081)
Change in net funds resulting from cash flows (4,721) (6,760)
New finance leases entered into (38) (2)
Exchange movement 681 385
Movement in net funds in the period (4,078) (6,377)
Net funds brought forward 11,518 17,895
Net funds carried forward 7,440 11,518
Reconciliation of operating (loss)/profit to net cash (outflow)/inflow from operating activities
Operating (loss)/profit (3,399) 2,367
Depreciation of fixed assets 2,283 2,420
Amortisation of goodwill 187 193
Profit on sale of fixed assets (excluding (165) (64)
property)
Decrease in stocks 721 1,834
Increase in pension prepayment (1,046) (5,853)
Decrease in debtors 2,562 2,394
Decrease in creditors (1,309) (2,929)
Net cash (outflow)/inflow from operating (166) 362
activities
Cash, for the purpose of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand.
Liquid resources are defined as term deposits and amounts held as current assets
- investments.
NOTES
1. The financial information set out above does not constitute the company's
statutory accounts for the period ended 29 March 2003 or the period ended
30 March 2002 but is derived from those accounts. Statutory accounts for
2002 have been delivered to the registrar of companies, whereas those for
2003 will be delivered following the company's Annual General Meeting. The
auditors have reported on the 2002 accounts; their report was unqualified
and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
2. The annual report will be posted to all shareholders in due course and will
be available on request from the Secretary, The 600 Group PLC, 600 House,
Landmark Court, Revie Road, Leeds LS11 8JT.
3. The final dividend of 4.0p per share, if approved by shareholders at the
Annual General Meeting, will be paid on 8 September 2003 to shareholders on
the register at 15 August 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
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