The 600 Group PLC

Unaudited Interim Results for the six months ended 27 September 2014

The 600 Group PLC ("600" or "the Group"), the machine tools and laser marking company, today announces its unaudited interim results for the six months ended 27 September 2014.

Highlights:

•   Revenues increased by 0.5% to £21.05m (FY14 H1: £20.94m)

•   Profit before taxation of £3.16m (FY14 H1: £0.94m)

•   Pension credit of £2.19m arising from liability mitigation exercise

•   Adjusted* net profit before tax of £0.67m (FY14 H1: £0.61m)

•   Total profit attributable to shareholders of £2.14m (FY14 H1: £0.80m)

•   Earnings per share increased to 2.49 pence (FY14 H1: 0.95 pence)

•   Underlying earnings up 1.6% to 0.65 pence (FY14 H1: 0.64 pence)

•   Growth momentum maintained at Electrox Laser

*from continuing operations, before pension credit, pension interest, amortisation of shareholder loan and share option costs.

Commenting today, Paul Dupee, Chairman of The 600 Group PLC said:

"Our businesses have delivered satisfactory financial results for the six month period ended 27 September 2014. Revenue growth was above the industry average and profit margins showed continued resilience despite facing sluggish overall market demand.

The Board is optimistic that continued investment in product development, facilities and people offers the opportunity for stronger organic growth than the market average, based on further increases in market share.  Meanwhile, we continue to explore acquisition opportunities and anticipate progress from this activity in the second half of the year."

Reconciliation of underlying profit before taxation:

More Information on the group can be viewed at: www.600group.com

The 600 Group Plc

Chairman's Statement for the six months ended 27 September 2014

Overview

Our businesses have delivered satisfactory financial results for the six month period ended 27 September 2014. Revenue growth was above the industry average and profit margins showed continued resilience despite facing sluggish overall market demand.  We have continued to invest in facilities, people and product development, and to implement our strategic goal of developing the Group's exposure to high growth industry sectors led by technical leadership in niche markets.

Results and dividend 

Revenue increased by 0.5% to £21.05m (FY14 H1: £20.94m) generating a net operating profit (excluding the effects of pension credit of £2.19m) of £0.80m (FY14 H1: £0.77m).

Revenues were adversely affected by the relative strength of Sterling against the US Dollar during the period.  At constant rates of exchange, revenues would have been approximately £1.00m (5.0%) higher than those reported at actual rates prevailing during the first half.  Profits were virtually unaffected overall, as the adverse translation of results from operations in North America was mitigated by cost savings on imports into Europe.  Foreign currency effects will be softened in the second half of the financial year assuming that current rates of exchange prevail.

After taking account of interest on bank borrowings, the underlying Group pre-tax profit before pension credit interest and amortisation of shareholder loan and share option costs was £0.67m (FY14 H1: £0.61m).

The total profit attributable to shareholders of the Group for the financial period was £2.14m (FY14 H1: £0.80m), providing earnings of 2.49 pence per share (FY14 H1: 0.95 pence).

The process of gaining court approval for the restoration of distributable reserves approval at the Annual General meeting is underway, however the Board does not recommend that any dividend payment be made for the current period.

Operating activities

Machine tools and precision engineered components

Like for like revenues (at constant rates of exchange) increased by approximately 1.7%, but reported a reduction of 3.4% as a consequence of the relative strength of Sterling during the period. 

Overall market consumption in North America reduced by 1.5% in the period (Source: Oxford Economics) whilst Group revenues (at constant rates of exchange) increased by 4.0%. European market conditions showed a modest 2.7% improvement, and revenues also increased by approximately 4.0% led by the UK and Germany. 

Deliveries began in respect of several orders in the period for large swing lathes used primarily in the oil and gas supply chain in North America.  Further deliveries will be made in the current quarter, and revenues from this activity are expected to contribute to stronger revenue growth in the second half of the year.

Gross margins were maintained and overhead costs continued to be well managed, facilitating an increase in operating margin for the segment from 6.9% to 8.0% of revenues. 

Both the Tornado EL range of CNC machines and the Pratt Burnerd Gripfast chuck were successfully launched in the period.  Continuing product developments are well advanced, focused in particular on further expansion of both conventional and CNC ranges of turning machines, and on safety related workholding products.  A range of Gamet taper roller bearings targeted specifically outside the machine tool market is scheduled for launch in the second half of the year.

The US build programme has also continued, with several additional accessory options for the drill line, and development of a range of US built saws for launch in the second half of the year.

Laser marking

Electrox Laser continued to generate strong growth momentum, with revenues increasing by more than 15% to £4.00m across a broad geographical base.    More than 44% of revenues were generated in North America, where margins were squeezed by the strength of Sterling relative to the US dollar and additional sales resource was added to increase market penetration.

Further investment was made in new product development, including additions to the EMS range of enclosures and completion of the Scriba control software for imminent launch.

The effect of currency, combined with discretionary product development and higher selling costs, combined to hold back the segmental profit to just above break even.

The investment made in new products over the last two years has returned Electrox to a leading  position amongst its peers from a technology and user interface viewpoint.  There are now clear signs of increased traction in the market, and we continue to progress opportunities to build our market presence through acquisition. 

Investment in ProPhotonix Limited  ("ProPhotonix")

On 3 August 2014 we announced the acquisition of 26.3% of the ordinary share capital of ProPhotonix through the issue of ordinary shares in the Group representing 5.5% of the enlarged share capital of 600 Group Plc.  The share exchange was carried out following presentations with three London-based institutional investors, each of whom indicated support for the transaction.

ProPhotonix is AIM listed, although registered in Delaware and designs and manufactures LED arrays and laser diode modules in the UK and Ireland. It has a strong base of technology and applications knowledge, applicable to high growth sectors including niche industrial, security and medical markets. We continue to engage with the board of Prophotonix in constructive dialogue to promote closer co-operation.

Facilities

On 30 June 2014, the freehold site at Colchester, previously occupied under lease by Gamet Bearings, was acquired for £0.77m, saving annual rental payments of £0.09m.

The board has subsequently approved the relocation of Clausing to new leasehold premises in Kalamazoo, Michigan in the second half of the financial year.  The new site has the benefits of a better location, improved road links, enhanced operating efficiency, and significantly improved facilities.  The existing freehold premises will be sold at its approximate current book value of £0.10m.  The new leasehold facility will be rented at an approximate annual rental of £0.14m, with the additional rental cost fully mitigated by savings in utilities and other overheads.

An offer has also been accepted, subject to contract, for the sale of the former Head Office building in Leeds at close to its current book value of £0.39m.

Financial position

Net assets increased by £0.34m to £22.88m with net assets excluding the effect of pension schemes (and associated taxation) increasing by £1.37m to £11.55m.

Cash used in operations was slightly negative at £0.06m with £1.15m of funds from operations absorbed by increased stock to support new product launches and a reduction in trade payables including the final installments on an onerous lease exited back in 2012. Capital expenditure including the purchase of the Gamet premises amounted to £1.04m during the period with a further £0.23m expended on interest and tax payments.

Net debt as a consequence increased by £1.44m to £6.75m resulting in gearing of 29.5% (March 2014: 23.5%). 

UK pension scheme

The surplus on the UK pension scheme decreased during the period from £19.90m to £18.46m as a result of changes in underlying assumptions, most notably the yield on corporate bonds upon which the valuation is based.

The estimated funding deficit at the end of September 2014 using the technical provisions basis agreed at the last tri-ennial valuation remained largely unchanged at £15m.This compared to the tri-ennial valuation deficit at 31 March 2013 of £25.40m.

The scheme continues to benefit from active management of the investment portfolio with the overall aim of reaching full buy-out funding without reliance on future contributions from the Group.  The Directors and Trustee continue to work in close co-operation, and during the period an exercise was completed to enable pensioners to exchange non-statutory increases to their pension for an elevated level of fixed benefits. This offer was widely appreciated by scheme members, and the resulting level of take up reduced fixed rate pension increase and inflation risk to the scheme.  It also provided an overall funding benefit of more than £2.18m, which is reflected in the consolidated profit and loss account of the Group under IAS 19.

Outlook

Most recent industry forecasts indicate a return to growth in machine tool consumption in North America of 6.2% for 2015, and a further modest improvement in Europe of 3.7% (source: Oxford Economics).  Order intake in the United States during the period, and since the period end, provide substance to these forecasts, with the order book currently at a two year high.

Market conditions in Europe are patchy.  The UK market has been particularly buoyant for almost eighteen months, and is now showing signs of leveling off, whilst Germany and many other territories are slightly more encouraging after a sustained period of negative sentiment.

The Board is optimistic that continued investment in product development, facilities and people offers the opportunity for stronger organic growth than the market average, based on further increases in market share.  Meanwhile, we continue to explore acquisition opportunities and anticipate progress from this activity in the second half of the year.

Paul Dupee

Chairman

26 November 2014