Corporate profile _____________________________________________________________3
Chairman’s statement ________________________________________________________4
Group Chief Executive’s review of operations ___________________________________6
Financial review ______________________________________________________________9
Directors_____________________________________________________________________11
Corporate information_________________________________________________________11
Shareholder information ______________________________________________________11
Report of the directors _______________________________________________________12
Corporate governance ________________________________________________________14
Remuneration report _________________________________________________________17
Independent auditors’ report to the members of The 600 Group PLC ___________22
Consolidated income statement ______________________________________________24
Consolidated statement of recognised income and expense _____________________25
Consolidated balance sheet___________________________________________________26
Consolidated cash flow statement ____________________________________________27
Group accounting policies ____________________________________________________28
Notes relating to the consolidated financial statements ________________________32
Five year record _____________________________________________________________59
Company balance sheet ______________________________________________________60
Company accounting policies _________________________________________________61
Notes relating to the Company financial statements ___________________________63
Shaping the future
of Industry Worldwide
We are an international group,
manufacturing and marketing machine
tools, machine tool accessories, lasers
and other engineering products.
We operate from some 28 locations
world-wide and sell our products around
the world. Our international marketing and
distribution network handles both Group
products and those of other manufacturers.
3
Chairman’s statement
The 600 Group PLC (the “600 Group” or the “Group”) has continued to make positive progress in the
implementation of its strategy, which evolved from the strategic review undertaken in 2006. There
was a further improvement in our performance during the year together with additional product
launches, consolidation of our North American operations and better supply chain performance.
Market conditions
Our European operations experienced significant growth
during the year with our North American and South African
markets continuing to improve despite the adverse impact of
exchange rates and general economic conditions. The UK
business showed more limited growth having benefited from
a one-off contract in the previous year.
Results
Our order book increased over the year and order intake
activity across the Group continued at an encouraging level
particularly in North America and South Africa. Sales revenue
from continuing operations increased by 4% to £78.9m
(2007: £75.6m). After adjustment for the disposal of Erickson
Machine Tools last year and adjusting for the impact of
discontinued businesses, sales were £81.8m (2007: £75.7m)
with underlying growth being 8%.
Gross profit margins improved to 30% (2007: 29%) as a
result of increased production efficiencies and improved
sourcing and despite an underlying increase in raw material
costs. Other operating income increased by £0.5m mainly as
a result of the sale of a piece of land no longer required for
future growth plans. Operating expenses increased by £1.7m
due to the continued investment in the Group’s sales,
marketing and distribution activities together with non-
recurring expenses of £0.6m, principally relating to bid
defence and exhibition costs.
Operating profit before net finance income and tax of £1.3m
improved from a profit of £1.1m last year. Net finance
income, principally due to the impact of the Group’s pension
scheme, increased to £2.3m from £1.8m last year resulting in
profit before tax improving to £3.6m compared to a profit of
£2.9m last year.
Following a review of the future opportunities for the Group in
the Canadian market a decision was taken to discontinue the
Group’s direct operations in Canada. This resulted in the
closure of parts of the Canadian business and the recognition
of associated redundancy, operating losses, closure and
inventory write down costs. Further costs were also incurred
in relation to the closure of the French operation principally
related to final closure and redundancy costs. The post tax
loss relating to discontinued businesses is £2.3m (2007:
losses of £0.8m).
New accounting guidance was issued in the form of IFRIC 14
which clarified that pension scheme surpluses should only be
recognised if the company has an unconditional right to the
surplus. This is not the case for the Group. Following these
developments the IAS 19 asset of £15.6m included in 2007
has not been recognised.
Net funds at the year end were £3.2m (2007: £4.4m). Net
cash outflow from operating activities was £0.9m (2007:
£0.9m) and net cash outflow from investing activities,
principally capital and development expenditure, was £0.5m
(2007: £0.8m).
Strategy Update
Our core strategy remains to develop a customer-focused
business concentrating on the North American, UK and
European markets and based on our two strategic growth
platforms of machine tools and laser marking, supported by
our technologies business. However, the Board considers our
strategy on a regular basis and, in the current economic
climate, will continue to review opportunities to maximise
value for shareholders.
The relationship with our Chinese partners continues to form
a key part of the Group’s strategy. The agreement with
Chinese machine tool company, The Dalian Machine Tool
Group (DMTG), to establish a 50:50 joint venture, based in
Germany, to market and distribute ‘Dalian’ branded products
across the whole of Europe is in the process of being
finalised. The operation is not anticipated to have a material
financial impact on 600 Group’s results until the financial year
commencing 29 March 2009.
On 30 January 2008 we entered into an agreement to sell
certain assets in Canada to Semcan Inc. This included the
property and service-related inventories. The proceeds of
C$3.0m (£1.5m) were settled as to C$2.4m (£1.2m) in cash
and C$0.6m (£0.3m) in the form of a promissory loan note
which can be redeemed for cash on 31 January 2009.
Subsequently, our US business opened a new sales office in
Ontario which is focused on the 600 Solutions business. 600
Solutions delivers a broad range of high performance
machine tools to Canada which will generate a commission-
based revenue stream.
Outlook
The medium term outlook for the Group will be dependent
on the impact of any changes in our main markets as a
result of financial, economic and political events. The current
industry forecasts indicate that the rate of growth in the
machine tool market is nearing its peak in the current cycle
and has slowed in North America and the UK. However, we
believe that we will continue to benefit from our investment
in product development, supply chain and distribution in the
more challenging market conditions and we are involved in a
number of thriving sectors such as aerospace, medicine and
oil & gas. Overall growth in demand for laser marking is
forecast to continue although sales in North America have
declined. We will continue to closely monitor the
performance of our businesses as we further implement the
Group’s strategy.
Martin Temple
Chairman
20 June 2008
As part of our continuing cost reduction and cash generation
initiative, on 19 May 2008, we commenced a redundancy
programme of 70 employees in our North American and UK
operations. It is anticipated that we will achieve annualised
savings of £2.1m as a result of this reduction in our
workforce at an estimated one-off cost of £0.9m. The
redundancies will be completed in the first half of the current
financial year. In addition, we have recently agreed terms,
subject to contract, for the sale and leaseback of our
properties in Colchester and Halifax.
As noted in the 2007 Annual Report and the 2008 Interim
Results, the 600 Group Pension Scheme is significant in
terms of its size and impact. The Group accounts for its
pension arrangements in accordance with IAS 19 and this
accounting is based on a series of actuarial assumptions.
The 2008/9 income statement credit generated under IAS 19
is expected to reduce significantly from the £1.9m generated
in 2007/8. This is because the Scheme has moved to de-risk
its asset holdings, leading to lower forecast future returns
and because increasing corporate bond returns will generate
a higher IAS 19 income expense.
Dividend
We have previously stated that dividend payments will be
related directly to our operating results. Although we have
made good progress during the year, the Board does not yet
consider that it is appropriate to pay a dividend.
People
In April 2007, I was appointed by the Board as a non-
executive director and I succeeded Michael Wright as non-
executive Chairman of the Group at the end of July last
year. Tony Sweeten also retired as a director at the same
time, but continues to be available to assist the Board in a
consultancy capacity until 31 December 2008.
Stephen Rutherford joined the Board as a non-executive
director on 1 October 2007. Stephen brings extensive
international experience to the Board, particularly in the
Far East.
On behalf of the Board, I should like to record our
continued appreciation of the efforts of all our
employees during the year.
4
5
Group Chief Executive’s review of operations
Overall, the year has been one of solid progress, with further success on the achievement of our
strategic objectives, namely the capture of a greater share of the growing market for machine tools and
laser marking. Revenue increased by 4% and underlying revenue (revenue adjusted for closed operations
not treated as discontinued) increased 8% despite the weakness of the dollar and South African Rand.
We continue to increase and strengthen our product offering and have made further advances in the
development of our distributor base across our target markets. In addition, we have continued to
develop and deepen our relationship with our manufacturing partners, especially in China.
In spite of our heavy investments across several fronts, we have remained cash positive at 29 March
2008 and we are continually evaluating our operational effectiveness to ensure we maximise
profitability.
Market Background
There are clear signals that the global market for machine
tools is now approaching its peak within the current cycle;
growth in consumption remains in the low cost economies of
the Far East, especially China, but even this is now starting
to moderate. During the year, and for the time being, activity
levels remain strong in Western Europe, especially
Germany. From a small base, Eastern Europe also
continues to grow. However, activity levels have definitely
slowed in both the UK and North America. In particular, we
have noticed that many smaller customers, albeit busy in
terms of current activity, are both reluctant to spend on
capital items and are also finding credit availability
increasingly difficult. Nevertheless, we are involved in
several thriving sectors of the market such as aerospace,
medicine and oil & gas.
Within the laser marking market, most regions of the world
continue to show good growth. However, our largest market,
the USA, has slowed significantly as customers postpone
the acquisition of what can still be seen as a discretionary
purchase.
Despite political uncertainty, volatility, weakness of the rand
and power outages, South Africa continues to invest strongly
in its infrastructure which means further opportunities for our
business.
Strategic Development
As commented upon in the Chairman’s Statement, we
continue our strategy of developing a customer focused
business concentrating on the North American, UK and
Continental European markets and based on our two
strategic growth platforms of machine tools and laser
marking, supported by our accessories business. Our unique
three-pronged approach to selling machine tools is standing
us in good stead as the rate of growth in the market appears
to be slowing.
We are in the process of finalising a joint venture agreement
with our Chinese partner, DMTG, for the sale of their Dalian
branded products across Europe.
In North America, we continue to develop our capabilities as
a provider of CNC machine tools, enhancing both our
product offering and our distributor capabilities.
We have launched the next generation of our highly
successful ‘Tornado’ range of CNC slant bed lathes.
We have continued the development of our unique EFT
Raptor lasers which have now gained full acceptance across
our key markets.
Overall our investments, in line with our strategy, have
positioned our business for further growth during the
coming year.
Review of operations
United Kingdom
Machine Tools
Our main manufacturing facility in Heckmondwike has
continued to improve its performance both operationally and
financially. Output of our high level ‘Tornado’ slant bed
turning centres increased slightly during the year, offset by a
reduction in the number of flat bed CNC ‘Alpha’ lathes.
Delivery from China has further improved in terms of both
quantity and quality and much of our product range is now in
free supply for the first time in several years. At the recent
‘MACH’ machine tool exhibition, we presented our new, fully
in-house developed twin turret, twin spindle ‘TT’ turning
centre. This lathe represents a major step forward in our
technology and was extremely well received by both our UK
and overseas customers and distributors. Commercial
deliveries will begin in the final quarter of this calendar year.
Our UK distribution centre has consolidated its position as
one of the country’s leading providers of machine tools
across the full spectrum. We supply high level turnkey
solutions from the likes of Toyoda Mitsui, Fuji and Fanuc
through our own mid range Colchester Harrison products to
the value range ‘Dalian’ supplied by our partner DMTG. This
three-pronged strategy allows us to sell to all sectors of the
market – from multi-million pound turnkey manufacturing
cells within the aerospace sector down to single stand-alone
machines for small machine tool job shops.
Laser Marking
Another excellent year of progress has seen the extending
of our in-house developed ‘Raptor’ programme, using our
unique EFT technology, the launch of our new electronics
platform and the initial introduction of our new software
package.
By global standards, the UK market for laser markers is
relatively small; however, during the last two years we have
built a dominant position in the UK and continue to find
exciting new markets and applications for our product. Last
year, we established several European distributors from our
UK base and this year we have seen excellent progress and
market penetration in Germany, Poland, Sweden and
Ireland. During the year, we established a relationship with
Han’s Laser, China’s largest laser manufacturer. Under the
Agreement we will be able to source certain Han’s Laser
products, both complete systems and sub-assemblies, to
enhance our product offering and also reduce our costs. Our
exploration of the Chinese market has also led us to believe
that certain of our own products can be viably sold into
China. We will be launching our activities during the second
quarter of this year.
Overall, unit sales grew by 25% during the year and we
believe this momentum will be, at least, maintained during
the coming year.
Machine Tool Accessories
Strengthened management during the year means that we
now look forward to the development of the Pratt Burnerd
International (PBI) and Crawford Collets with particular
optimism. As we improve our manufacturing capability we
more profitably exploit the increasing number of orders we
are obtaining for this business. We are outsourcing the
production of more of our standard range of smaller chucks
and collets which will allow us to concentrate on
manufacturing more of the high value specially customised
products for industries such as oil and gas, aerospace and
automotive.
Gamet Bearings, our specialist high precision taper roller
bearing manufacturing facility in Colchester, has had an
exceptionally strong year. Improvements to our
manufacturing process have allowed us to increase
production by about 25% but this is still barely keeping pace
with the increase in orders we are receiving quite literally
from across the globe.
Germany
Our German operation Parat, based in Stuttgart has
developed a strong momentum during the year. Overall
sales have grown by 35% and we have seen excellent
progress in the sale of our own Colchester-Harrison
products. The bi-annual ‘EMO’ exhibition, the world’s largest
machine tool show, was held in Hanover in September 2007.
For The 600 Group this was the best and biggest ever. In
total we had 5 stands, all of which successfully attracted
new leads and customers. EMO also saw the official launch
of the Dalian brand, a collaboration between DMTG, China’s
largest machine tool manufacturer, and us. The impressive
stand and range of machinery certainly made a major impact
on the global machine tool industry. Our own collaboration
with DMTG is being cemented through the formation of a
50/50 Joint Venture (JV). Based in Germany, the JV will
market ‘Dalian’ branded products across both eastern and
western mainland Europe. The body of this agreement has
already been signed, premises identified and the final legal
agreement will be signed during the next few weeks. In the
meantime, significant distributor and customer interest has
been generated and Dalian products are already being sold
across Europe through our German operation.
North America
Machine Tools
Against a challenging economic background and a machine
tool market which declined in 2007/8, we have seen sales
growth in local currency terms. Our improved market
penetration is due to the expansion and improvement in our
product ranges, both CNC machines and conventional and
also the continued growth in our distributor base. Our overall
financial performance in the US has been impacted by both
lack of product availability and additional rectification costs
on imported product. Both of these are expected to improve
during the current financial year. In order to further enhance
our attractiveness to our customers and distributors, we are
investing in new IT systems which will allow us, from the
second half of this year, to offer online spare parts ordering.
6
7
Group Chief Executive’s review of operations (continued)
Australia
This market remains a challenge for us although the
business is a small part of our Group. We have enhanced
our product offering and continue to rationalise our
operations to extract the best possible returns.
Corporate Social Responsibility
The Group remains highly sensitive to its responsibilities to
its own employees, the wider community and the
environment.
We have recently commissioned a risk survey across all our
key facilities. The results of this are currently being analysed
by management and any areas or operations not fully
complying with the latest guidelines will establish corrective
action plans.
Our key operations conform to the ISO9001 Quality
Standard. During the coming year, we will evaluate the
possibility of moving to the Environmental Quality Standard
ISO14001 where appropriate.
Each of our operations is encouraged to play a fully
supportive role within its own local community.
Outlook
Despite the overall more challenging economic environment,
we started the current year with a healthy order book,
including a major aerospace contract, and our order levels
have remained reasonable during the first two months of the
current year. We believe we will continue to make progress
during the coming months, as we benefit from our recent
investments in product development, supply chain and
distribution and our continuing cost reduction programme.
We will also continue to evaluate our portfolio of businesses
to ensure that each one is capable of delivering appropriate
returns to our shareholders within a reasonable time frame.
Andrew J Dick
Group Chief Executive
20 June 2008
As reported in our January 2008 Interim Management
Statement, we disposed of our Canadian distributor business
to Semcan Inc. An excellent transition has allowed us to
continue to serve the Canadian market, albeit more cost
effectively. We have retained our own operation to sell the
high value ‘Solutions’ machines such as Toyoda Mitsui, Fuji
and Enshu and see excellent prospects for this business.
We continue to refine and enhance our product range and
build up our distributor base and are, therefore, confident
that despite the very challenging market environment, we will
see improved market penetration and profitability during the
coming year.
Laser Marking
Traditionally, the USA has been Electrox’s single largest
market – globally it is also our largest addressable market.
We have substantially enhanced our capability with the
establishment of regional sales and application offices.
Unfortunately, the weakening US economic climate impacted
this business during the second half of the year with many
customers postponing purchase decisions on a product that
can still be viewed as discretionary. Nevertheless, with our
new products now being released, we believe that not only
are we well placed from a technology standpoint, but also in
terms of competitiveness to make further real gains in the
year ahead.
Machine Tool Accessories – PBA
Our Pratt Burnerd Americas (PBA) business has seen an
exceptionally good performance during the year. Excellent
availability, customer service and quality mean that we
continue to make real market share gains in this market.
Additionally, the business benefited from a one-off order for
the refurbishment of a large OEM plant. The introduction of a
‘value’ range of products during this year will further broaden
our range. The close relationship with PBI in the UK allows
PBA to quote and win many high-value customised projects,
especially in the booming oil and gas sector.
South Africa
We continue to grow our South African business, which is
focused on infrastructure, through our continually expanding
product range and excellent levels of customer service. This
has been achieved despite ongoing political and economic
uncertainty, power outages and a volatile currency. All
indicators suggest that this positive situation will continue
until at least 2010. The only negative for us is the decline in
value of the Rand which, when translated to sterling,
reduced the profit contribution.
Financial review
Accounting policies
The Group’s results for the period to 29 March 2008 have
been prepared in accordance with International Financial
Reporting Standards as adopted by the EU (IFRS) and the
results for the parent company have been consistently
prepared in accordance with UK GAAP.
Results
Revenue from continuing operations increased by £3.3m
from £75.6m to £78.9m. Analysis of revenue by destination
reflects an increased level of sales revenue in our European
and South African operations, with our North American
operations being generally stable. Our United Kingdom
revenue in 2007 included the benefit of a one off contract
with Airbus and, excluding this contract, revenue was
also stable.
The operating profit before tax and net finance income
improved from a profit of £1.1m to a profit of £1.3m. The
increase in revenue and cost reduction initiatives resulted in
an additional gross profit of £1.5m. Operating income
included a profit of £0.4m, generated from the sale of surplus
land at the Group’s Letchworth site. This was partially offset
by an increase in sales, marketing and distribution costs to
support our continued organic growth. Non-recurring
expenses of £0.6m were incurred in relation to an exhibition
in Germany, the unsolicited approach from Precision
Technologies Group and the introduction of a new
management incentive scheme.
Net financial income increased by £0.5m principally as a
result of the increased expected return on the Group’s
employee benefit schemes (note 5).
The resulting profit before tax was £3.6m compared with a
profit last year of £2.9m. Taxation of £1.0m (2007: £0.7m)
was charged in the period and this primarily related to
overseas and deferred tax. There was a post tax loss in
respect of discontinued businesses, which mainly related to
the closure of the French and parts of the Canadian
operations of £2.3m (2007: £0.8m), resulting in a profit after
tax of £0.2m for the period compared to a profit of £1.4m
in 2007.
Net assets decreased by £1.1m (2007: £1.7m) to £38.4m
(2007: £39.5m). Property, plant and equipment reduced by
£0.4m (2007: reduction of £1.2m), intangible assets
increased by £0.6m (2007: increase of £0.4m) and inventory
increased by £2.1m (2007: increase of £1.2m). Deferred tax
assets increased by a net £0.6m (2007: increase of £2.5m),
principally as a result of the increase in overseas tax losses.
In addition, there was a net decrease in trade and other
receivables/payables of £2.8m (2007: increase £0.1m).
Net funds decreased during the period by £1.2m (2007:
decrease £1.4m), resulting in net funds at the period end of
£3.2m (2007: £4.4m). This decrease was primarily due to a
cash outflow from operating activities of £0.9m (2007: £0.9m
outflow) and a cash outflow from investing activities of £0.5m
(2006: £0.8m).
Employee Benefits
As noted in the 2007 Annual Report and the September
2007 Interim Management Report the 600 Group Pension
Scheme is significant in terms of its size and impact. The
Group accounts for its pension arrangements in accordance
with IAS 19. This accounting is based on a series of actuarial
assumptions. There have been three significant
developments in this area in the period.
An updated actuarial valuation has been produced which
demonstrated that the funding position of the Scheme at 31
March 2007 was neutral, the Scheme being in neither a
surplus or deficit position. In addition, further new accounting
guidance was issued in the form of IFRIC 14 which clarified
that pension scheme surpluses should only be recognised if
the company has an unconditional right to the surplus – this
is not the case. As a result of this, the Group has decided to
adopt the principles of IFRIC 14 in its financial statements
and has restated the prior year. The impact of this is that the
pension surplus of £27.0m at 29 March 2008 is not
recognised as a plan asset because the Group does not
have an unconditional right to the use of this surplus. In
accordance with IFRIC 14, an initial adjustment of £5.2m has
been made to retained earnings at 1 April 2006.
The third development relates to the future income statement
credit that IAS 19 is expected to generate. This amount,
which equated to £1.9m in 2007/08, is expected to reduce
significantly for 2008/09 as the Scheme has moved to derisk
its asset holdings, thereby lowering forecast future returns
and as returns on corporate bonds have increased, which
will generate a higher IAS income expense.
8
9
Financial review (continued)
Full details of all the Group’s employee benefit schemes are
shown in note 28 to the accounts but, in summary, the Group
operates three defined benefit schemes which are based in
the UK and US. The main UK fund, The 600 Group Pension
Scheme, is significant in terms of size and impact. The
Group accounts for pensions in accordance with IAS 19
“Employee benefits,” which requires recognition of the
pension scheme deficits or surpluses, subject to
recoverability tests, on the balance sheet and recognition of
service costs, interest cost and expected return on assets for
the period as charges/credits to the income statement.
Treasury
The Group operates a centrally controlled treasury function
for all UK foreign exchange dealings. Group guidelines do
not permit speculative transactions in the normal course of
business and exposure to movements in exchange rates on
transactions is minimised, using forward foreign exchange
contracts.
Arrangements for borrowing facilities are approved centrally
and managed centrally for the UK operations and locally for
overseas companies.
Further exposure to transaction risks arising from exchange
fluctuations is minimised by matching foreign currency
dealings as closely as possible throughout the Group. With
the increasingly global nature of the machine tool industry,
the Group now purchases and sells in a range of major
foreign currencies.
Principal risks
-
financial e.g. major contract management, inventory
control, credit control, pension scheme funding; and
- hazard/health and safety/product liability.
These risks are identified and managed through a regular
dialogue and internal reporting procedures in place between
the Group Chief Executive and each business unit Managing
Director or General Manager. These risks are closely
monitored and discussed with each business unit and
appropriate safeguards put in place where possible.
Key performance indicators
The Group’s key financial objectives that the directors judge
to be effective in measuring the delivery of their strategies
and managing the business concentrate at the Group level
on profit, together with its associated earnings per share,
forward order book and net cash. At the business unit level,
they include return on net assets and customer related
performance measures.
These key performance indicators are measured and
reviewed on a regular basis and enable the business to set
and communicate its performance targets and monitor its
performance against these targets.
Key financial performance indicators constantly under review
include:
(cid:2) Revenue growth
(cid:2) Return on sales
(cid:2) Cash generation
Risk management is embedded in the Group’s internal
control processes throughout the year and also as part of the
year end reporting procedure.
(cid:2) Gross profit percentage
(cid:2) Operating profit percentage
Martyn Wakeman
Group Finance Director
20 June 2008
The major risk categories, together with examples, are
considered to be:
-
strategic e.g. reputation, distribution network degradation,
product obsolescence, agency agreements for factored
products, exchange rate movements, low cost
competition, short-term customer confidence levels;
- operational e.g. inventory valuation – there is a risk that
an element of the inventory of the Group is not realisable
as the global machine tool market approaches maturity.
Development expenditure – there is a risk that the full
carrying value of the intangible asset is not recoverable if
a downturn in trading occurs. Other risks include supply
chains, product failure, loss of key personnel;
Directors
Martin John Temple*
A non-executive director since 1 April 2007 and chairman
since 1 August 2007. Chairman of the Engineering
Employers’ Federation (“EEF”), and Chair, BSSP Transition
Management Board, Department for Business, Enterprise
and regulatory Reform. He has formerly held senior
management positions in British Steel.
Jonathan Aistrope Kitchen*
A non-executive director since 1 July 1998. Vice Chairman
and Chairman of the Audit Committee with effect from 6
September 2000 and senior independent director with effect
from 8 September 2004. Chairman of The 600 Group
Pension Trustees Limited with effect from 20 July 2000.
Formerly a director of Lazard Brothers & Co., Limited with
executive responsibilities within the corporate finance
division.
Andrew James Dick
Group Chief Executive since 1 January 2006. Appointed to
the board as Group Managing Director on 18 April 2005.
Formerly Chief Executive of Yorkshire Group Plc.
Martyn Gordon David Wakeman
Group Finance Director since 21 December 2006. Appointed
to the board on 2 October 2006. Formerly UK Chief Financial
Officer of ASSA ABLOY AB.
Stephen John Rutherford*
A non-executive Director since 1 October 2007. A director of
QED Consulting Limited.
*Non-executive director, member of the Audit Committee and
member of the Remuneration Committee.
Corporate information
Secretary
Alan Roy Myers
Registered office
600 House
Landmark Court
Revie Road
Leeds
LS11 8JT
Registered number
196730
Registrars
Capita Registrars
Auditors
KPMG Audit Plc
Bankers
HSBC Bank plc
Stockbrokers
Altium Capital Limited
Shareholder information
Financial Calendar
Period ending 29 March 2008
Annual General Meeting
To be held 24 October 2008
Period ending 28 March 2009
Interim Report
Results for the year
Report and Accounts
Issued mid-November 2008
Announced June 2009
Issued July 2009
10
11
Report of the directors
The directors present their report to the members, together with the audited financial statements for
the period ended 29 March 2008, which should be read in conjunction with the statement by the
Chairman on the affairs of the Group (pages 4 to 5), the Group Chief Executive’s review of operations
(pages 6 to 8) and the Group Finance Director’s financial review (pages 9 to 10). The consolidated
financial statements incorporate financial statements, prepared to the Saturday nearest to the
Group’s accounting reference date of 31 March, of the Company and all subsidiary undertakings (“the
Group”). The results for 2008 are for the 52-week period ended 29 March 2008. The results for 2007
are for the 52-week period ended 31 March 2007.
Activities of the Group
The Group is principally engaged in the manufacture and
distribution of machine tools, machine tool accessories,
lasers and other engineering products.
Result
The result for the period is shown in the consolidated income
statement on page 24.
Business review
A balanced and comprehensive analysis of development and
performance of the Group is contained in the Chairman’s
statement, the Group Chief Executive’s review of operations
and Group Finance Director’s financial review on pages 9 to
10. This analysis includes comments on the position of the
Group at the end of the financial period, consideration of the
principal risks and uncertainties facing the business and the
key performance indicators which are monitored in relation to
the achievement of the strategy of the business.
Employees
It is the Group's policy to employ and train disabled persons
wherever their aptitudes and abilities allow and suitable
vacancies are available. An employee becoming disabled
would, where appropriate, be offered retraining. All
employees are given equal opportunities to develop their
experience and knowledge and to qualify for promotion in
furtherance of their careers.
The Group is committed to keeping employees as fully
informed as possible with regard to the Group's
performance and prospects and to seeking their views,
whenever practicable, on matters which particularly affect
them as employees.
The directors consider that employees at all levels should be
encouraged to identify their interests with those of the
Group's shareholders and that this objective can be
furthered by providing means for employees to become
shareholders themselves. A Sharesave scheme was
introduced during 2000 and a grant of options under the
scheme was made in December 2000, with further grants of
options being made in December 2003 and 2006.
Research and development
Group policy is to design and develop products that will
enable it to retain and improve its market position.
Charitable and political donations
The Group made donations to charitable organisations
during the period totalling £5,000 (2007: £6,210).
The Group made no political donations in the United
Kingdom during the period.
Interests in share capital
At 20 June 2008, the directors had been informed of the following interests in shares of 3% or more of the issued ordinary share
capital of the Company:
Number
Percentage of issued ordinary share capital
M & G Investment Management
Gartmore Investment Management
Artemis Investment Management
Barclays Global Investors
Legal & General Investment Management
Barclays Global Investors
Schroder investment Management
Maland Pension Fund Trustees
Barclays Stockbrokers Limited
7,863,383
4,952,758
4,135,000
4,127,193
4,040,455
3,897,193
3,671,320
2,000,000
1,968,194
13.74
8.65
7.22
7.21
7.06
6.81
6.41
3.49
3.44
The directors have not been notified that any other person had a declarable interest in the nominal value of the ordinary share
capital amounting to 3% or more.
Purchase of own shares
Financial instruments
An indication of the financial risk management objectives
and policies and the exposure of the group to price risk,
credit risk, liquidity risk and cash flow risk is provided in note
24 to the financial statements.
Corporate governance
The board’s statement on corporate governance is set out on
pages 14 to 16.
Auditors
In accordance with Section 384 of the Companies Act 1985,
a resolution for the re-appointment of KPMG Audit Plc as
auditors of the Company is to be proposed at the
forthcoming Annual General Meeting.
Disclosure of information to auditors
So far as each of the directors are aware, there is no
relevant audit information (as defined by Section 234ZA of
the Companies Act 1985) of which the Company’s auditors
are unaware and each director has taken all steps that he
ought to have taken as a director in order to make himself
aware of any relevant audit information and to establish that
the Company’s auditors are aware of that information.
Qualifying third party indemnity
The Company has provided an indemnity for the benefit of
its current directors which is a qualifying third party indemnity
provision for the purpose of the Companies Act 1985.
By order of the board
Alan Myers
Secretary
20 June 2008
Authority granting the Company the option to purchase
8,567,526 of its own ordinary shares in accordance with the
Companies Act 1985 was given by shareholders at the
Annual General Meeting of the Company on 5 September
2007. This authority remains valid until the conclusion of the
next Annual General Meeting on 24 October 2008.
Directors
Details of the directors of the Company at 29 March 2008
are shown on page 11. In addition to this, Professor M T
Wright and A R Sweeten were directors during the year and
both retired on 31 July 2007.
The directors retiring by rotation are M J Temple and
M G D Wakeman, who, being eligible, offer themselves for
re-election. In addition, S J Rutherford who joined the board
on 1 October 2007 seeks reappointment as a Director. M G
D Wakeman has a rolling service contract of six months with
the company. Neither M J Temple nor S J Rutherford has a
rolling service contract with the company.
The beneficial interests of the directors in the share capital of
the Company at 29 March 2008 are shown in the
remuneration report on pages 17 to 21.
There were no other arrangements to enable the directors to
benefit from the acquisition of securities in the Company or
any other relevant corporate body during the period. No
director has a beneficial interest in the shares or debentures
of any other Group undertaking.
Creditor payment policy
The Company does not follow a code or standard on
payment practice. Payment terms are normally agreed with
individual suppliers at the time of order placement and are
honoured, provided that goods and services are supplied in
accordance with the contractual conditions. The amount of
trade creditors in the balance sheet as at the end of the
financial period represents 45 days (2007: 40 days) of
average purchases for the Company and 66 days (2007: 66
days) for the Group.
Post balance sheet events
There are no significant post balance events.
Market value of land and buildings
During March 2006 all of the Group’s properties were
revalued by independent valuers and the directors believe
that these valuations are appropriate at 29 March 2008.
12
13
Corporate governance
Other than as indicated below, the board considers that the
Company has complied throughout the period with the
revised Combined Code on Corporate Governance issued
by the Financial Reporting Council in July 2003 (the
Combined Code). Compliance with the provisions of the
Combined Code relating to directors’ remuneration is
covered by the remuneration report on pages 17 to 21.
The Company did not comply for the whole year with the
following provisions of the Combined Code:
Group strategy and management, acquisition and divestment
policies, internal control, control of major capital expenditure
projects and significant financing matters. It also reviews
annual budgets and the progress towards achievement of
those budgets. A schedule of matters specifically reserved
for the board’s decision has been agreed.
All directors are subject to election by shareholders at the
first opportunity after their appointment and to re-election at
regular intervals and at least every three years.
(cid:2) that the board, excluding the Chairman, should comprise
at least two independent non-executive directors;
All directors have access to the advice and services of the
Company Secretary.
(cid:2) that the audit committee should comprise at least two
independent non-executive directors;
(cid:2) that the remuneration committee should comprise at
least two independent non-executive directors;
(cid:2) that the Chairman, who is not deemed to be
independent, served on both the audit committee and the
remuneration committee.
In addition, during the year, the board did not comply with
the requirement to undertake an annual evaluation of its
performance and that of its committees and individual
directors.
The following relates to the Company’s application during the
period to 29 March 2008 of the principles and detailed
provisions of the Combined Code.
Board of directors
During the year, the board was broadly balanced with the
non-executive Chairman supported by a non-executive Vice
Chairman, one other non-executive director and two
executive directors. The director recognised as the senior
independent director for the purposes of the Combined Code
is J A Kitchen. Professor M T Wright and A R Sweeten
retired as directors on 31 July 2007.
The board of directors met ten times during the year. J A
Kitchen, A J Dick and M G D Wakeman attended all
meetings. M J Temple attended eight meetings, S J
Rutherford attended four meetings, Professor Wright and A R
Sweeten attended three meetings. The board retains full and
effective control over the Group and is responsible for overall
Board committees
The board has delegated specific responsibility to two
committees, each with defined terms of reference. Minutes of
their meetings are circulated to and reviewed by the board.
The Audit Committee consists of all the non-executive
directors and is chaired by J A Kitchen (who the board
considers has recent and relevant financial experience). It
met twice during the year, with the Group Chief Executive,
Group Finance Director, and representatives of the external
auditors in attendance. It reviewed the interim and final
financial statements and considered the Annual Report and
Accounts before submission to the board for approval, the
appointment of the external auditors, the scope of the audit
and matters arising from the audit and internal control
procedures. During the year all members attended all
meetings of the committee. There is provision for the
committee to meet with the auditors without the attendance
of the executive directors.
The Remuneration Committee consists of all the non-
executive directors and is chaired by J A Kitchen. It
determines the terms and conditions of employment for
executive directors and agrees the parameters of
remuneration for the senior management. There were six
meetings during the year. The Remuneration Committee also
functions as the Nomination Committee.
Owing to the size of the board, it is not considered
necessary for the board to have a separate
Nomination Committee.
Internal control
Internal audit
The directors have overall responsibility for the Group’s
system of internal control and for reviewing its effectiveness.
Such a system is designed to manage rather than eliminate
the risk of failure to achieve business objectives and can
only provide reasonable, but not absolute, assurance against
material misstatement or loss.
The board monitors the effectiveness of the systems of
internal control principally through the regular review of
financial information and the work of the Audit Committee.
Operational and compliance controls and risk management
are part of the Group’s basis of operation.
The board has established key principles of Corporate
Governance for the Group. These include:
(cid:2) an ongoing process for identifying, evaluating and
managing the significant risks faced by the Group. The
process is reviewed regularly by the board and accords
with the requirements of the Combined Code; and
(cid:2) a comprehensive financial reporting structure, including a
detailed formal budgeting process for all Group
businesses which culminates in an annual Group budget
which is approved by the board.
The board has reviewed the effectiveness of the system of
internal control. The major elements of the system and the
process of review are as follows:
(cid:2) an organisational structure with clearly defined lines of
responsibility and delegation of authority to executive
management;
(cid:2) a comprehensive framework for planning, budgeting and
reporting the performance of the Group’s operating units.
Monthly results are reported against budget and
forecasts (which are regularly revised);
(cid:2) defined policies and minimum financial controls and
procedures at each operating unit;
(cid:2) prescribed procedures for capital expenditure
applications;
(cid:2) confirmation by operating unit senior managers of
compliance with the Group’s procedures (regular internal
control reviews are also carried out by Group finance
staff); and
(cid:2) the identification and appraisal of risks during the annual
process of preparing business plans and detailed
budgets and their regular review during the year.
Head office staff perform control review visits to all locations
on a cyclical basis. The results of these reviews are reported
to the Audit Committee.
Relations with the auditors
During the year the auditors provided tax and other non-
audit advice to the Company and its subsidiaries. The board
has considered the effect on the independence of the
auditors and concluded that their provision of non-audit
services was the most cost-effective way of obtaining
appropriate advice without a serious risk of compromising
the independence of the auditors. The Audit Committee
monitors the scope of the auditors’ work.
Relations with shareholders
The Company carries out a regular dialogue with its
institutional shareholders while having regard to UK Listing
Authority guidance on the release of price sensitive
information. Full use is made of the Annual General Meeting
and the Company’s web site to communicate with private
investors. The results of proxy votes are declared at the
Annual General Meeting after each resolution has been dealt
with on a show of hands.
Statement of Directors’ responsibilities
in respect of the Annual Report and the
financial statements
The directors are responsible for preparing the Annual
Report and the Group and parent company financial
statements, in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group and
parent company financial statements for each financial year.
Under that law they are required to prepare the Group
financial statements in accordance with IFRSs as adopted by
the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK
Accounting Standards and applicable law (UK Generally
Accepted Accounting Practice).
The Group financial statements are required by law and
IFRSs as adopted by the EU to present fairly the financial
position and the performance of the Group; the Companies
Act 1985 provides in relation to such financial statements
that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their
achieving a fair presentation.
14
15
Corporate governance (continued)
The parent company financial statements are required by
law to give a true and fair view of the state of affairs of the
parent company.
In preparing each of the Group and parent company financial
statements, the directors are required to:
(cid:2) select suitable accounting policies and then apply them
consistently;
(cid:2) make judgments and estimates that are reasonable and
prudent;
(cid:2) for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as
adopted by the EU;
(cid:2) for the parent company financial statements, state
whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed
and explained in the parent company financial
statements; and
Under applicable law and regulations, the directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations.
The directors are responsible for the maintenance and
integrity of corporate and financial information included on
the company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Going concern
The directors are confident, after making appropriate
enquiries, that the Group has adequate resources to
continue in operation for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing
the accounts.
(cid:2) prepare the financial statements on the going concern
By order of the board
basis unless it is inappropriate to presume that the Group
and the parent company will continue in business.
The directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time
the financial position of the parent company and enable
them to ensure that its financial statements comply with the
Companies Act 1985. They have general responsibility for
taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect
fraud and other irregularities.
Alan Myers
Secretary
20 June 2008
Remuneration report
Introduction
This report has been prepared in accordance with Section
234B of the Companies Act 1985 as amended by the
Directors’’ Remuneration Report Regulations 2002. The
report is divided into two sections, unaudited and audited
information, in accordance with Schedule 7A of the
Companies Act 1985. The audited information starts
on page 20.
The Remuneration Committee
The Remuneration Committee (“the Committee”) is
responsible for determining the salary and benefits of
executive directors. It currently consists of three non-
executive directors. The members of the Committee during
the year have been:
J A Kitchen
M T Wright
A R Sweeten
S J Rutherford (appointed 1 October 2007)
M J Temple
(appointed 1 August 2007)
(Committee Chairman)
(until 31 July 2007)
(until 31 July 2007)
The Committee held six meetings during the year. The most
significant matters discussed by the Committee at its formal
meetings this year were:
(a) ensuring more clarity on how the discretionary bonus
scheme works; and
(b) the introduction of a new performance share plan.
Committee’s advisers
During the year, PricewaterhouseCoopers LLP acted as
independent advisors to the Committee and provided
services relating to reviewing the parameters of the current
discretionary bonus scheme and the design of the new
performance share plan. PricewaterhouseCoopers LLP has
provided other consultancy services to the Company.
In addition to PricewaterhouseCoopers LLP, the following
people provided material advice or services to the
Committee during the year:
A J Dick
M G D Wakeman
Group Chief Executive
Group Finance Director
No executive was present when his or own remuneration
arrangements were being discussed.
During the year, the Committee appointed and received
survey information from PricewaterhouseCoopers LLP and
Independent Remuneration Solutions.
Executive directors’ remuneration
Policy - The Company aims to attract, motivate and retain
the most able executives in the industry by ensuring that the
executive directors are fairly rewarded for their individual
contributions to the Group’s overall performance, to the
interests of the shareholders and to the ongoing financial
and commercial health of the Group. To date, the Company
has not operated any long term incentive arrangements in
which executive directors and senior management
participate. The Committee feels that including equity
incentives in the total remuneration package encourages
alignment of the interests of the executive directors and
senior management with those of the shareholders. The
Company’s strategy is to reward executive directors and key
senior employees on both a long term and short term basis.
Salaries - Salaries are established on the basis of market
comparisons with positions of similar responsibility and
scope in companies of a similar size in comparable
industries. The Committee uses annual surveys conducted
by external remuneration consultants as its source of market
information. Individual salaries of directors are reviewed
annually by the Committee and adjusted by reference to
individual performance and market factors. With the approval
of the Chairman, executive directors may take up
appointments as non-executive directors and retain
payments from sources outside the Group, provided that
there is no conflict of interest with their duties and
responsibilities with the Group.
Bonus scheme - Executive directors participate in a
discretionary bonus scheme that is linked to the achievement
of annual financial and personal performance targets. The
accounts disclose bonuses in respect of the period to 29
March 2008.
The Committee has sought to give participants in the
discretionary bonus scheme more clarity on how the scheme
works by setting out clear objectives for future years.
The maximum annual cash bonus opportunity for the
executive directors for the period to 29 March 2008 was 75
per cent of base salary. The maximum 75 per cent
entitlement was divided into four parts which are each
subject to different performance targets:
(i) overall Group performance based on sales, operating
profit and cash flow (maximum 50 per cent);
(ii) personal objectives (maximum 5 per cent);
(iii) ability to pay dividends (maximum 10 per cent); and
(iv) discretionary (maximum 10 per cent).
In subsequent years the maximum bonus level will reduce to
50 per cent of the base salary of executive directors.
16
17
Remuneration report (continued)
Long-term incentive plans - The 600 Group PLC 2008
Performance Share plan (“the PSP”)
In formulating the new PSP, the Committee aimed to achieve
a clear and demonstrable link between executive
performance and executive reward such that the
arrangements only provide significant rewards for the
achievement of stretching performance targets.
The PSP was approved by shareholders at an Extraordinary
General Meeting held on 29 February 2008 and provides for
the award of both “nil cost” (or nominal cost) share options
and contingent share options (together referred to as
“awards”) to executive directors and other senior employees
who are selected to participate. The first awards under the
PSP were made on 31 March 2008 and do not therefore
feature in the audited part of this year’s remuneration report.
Initial awards of 150% of salary were made to the executive
directors and 75% of salary to those senior employees
selected to participate. In future years, the Committee
expects the award level for executive directors to be
75% of salary.
At the time of making an award the Committee will set
performance targets which must be satisfied before the
award can vest. Such targets will normally be measured over
a three year period. The targets for the first awards made on
31 March 2008 have been set after consideration of the
current economic circumstances of the Company and
expectations of the future. The Committee may set different
targets for awards in future years, having regard to the
prevailing business and economic conditions at the time.
This is to ensure that performance targets continue to be
demanding and stretching.
The performance conditions and vesting schedule attaching to the PSP awards made on 31 March 2008 are set out in the
table below.
TSR (40% of full award)
EPS (60% of full award)
TOTAL VESTING
TSR target
Total award vesting
EPS target
Total award vesting
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