600 Group PLC Annual Report 2009

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FY2009 Annual Report · 600 Group PLC

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The 600 Group PLC
Union Street
Heckmondwike
West Yorkshire
WF16 0HL

Tel:
Website: www.600group.com

+ 44 (0) 1924 415000

The 600 Group PLC annual report and accounts 2009

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We are an international group manufacturing and marketing
machine tools, machine tool accessories, lasers and other
engineering products.

We are the UK’s largest machine tool company, operating from
a number of locations worldwide and selling products into more
than 180 countries.

IFC Company profile
01 Highlights
02 Chairman’s statement
05 Group chief executive’s review of operations
09 Financial review
12 Directors and advisers
13 Report of the directors
15 Corporate governance
17 Remuneration report
21 Independent auditor’s report
22 Consolidated income statement
23 Consolidated statement of recognised income and expense
24 Consolidated balance sheet
25 Consolidated cash flow statement
26 Group accounting policies
31 Notes relating to the consolidated financial statements
57 Five year record
58 Company balance sheet
59 Company accounting policies
60 Notes relating to the company financial statements

Highlights

Financials
 Revenue of £76.2m (2008: £77.4m)

 Loss from operations (before costs in relation to closed operations,

restructuring and impairment of intangible assets) of £2.2m
(2008: profit of £0.5m)

 Costs in relation to closed operations, restructuring and
impairment of intangible assets of £6.1m (2008: £0.2m)

 Loss from continuing operations of £7.6m (2008: profit of £2.0m)

 Reported loss for the period of £8.9m (2008: profit of £0.2m)

 Reported basic loss per share for continuing operations of 13.3p

(2008: earnings per share of 3.3p)

Operating
 Strategic review completed in January 2009; first phase of the

turnaround strategy implemented ahead of schedule

 Closure of 12 sites and a reduction of 210 employees resulting

in estimated cost savings of £10m on an annualised basis

 Second phase of the turnaround strategy has commenced with

an estimated one-off cost of £2.5m and annualised savings of £5m

 Supply of certain product re-sourced to alternative suppliers

to improve quality and reduce lead times

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The 600 Group PLC annual report and accounts 2009

Chairman’s statement

This has been a very challenging year for The 600 Group PLC.
We have, however, met these challenges head on and made
significant strides towards creating a platform from which
to build a profitable future for the Group.

We entered the year facing a downturn in our main
markets and, as serious problems with the Group’s
supply chain began to emerge, it became apparent
that a radical overhaul of the business was required.
David Norman accepted the role of Group Chief Executive
in August 2008, undertaking responsibility to review all
the Group’s operations in order to deliver an achievable
and rapid turnaround strategy.

The strategic review was completed in January 2009
and a full restructuring of the Group commenced. The first
phase, the major cost reduction programme outlined in
the Interim Management Statement dated 3 February 2009,
was achieved ahead of schedule in May 2009. The Board
expects that the second phase, commenced in June 2009,
which consists of further cost reductions and the integration
of business units and functions will be substantially complete
by the end of September 2009.

Results
Overall, sales for the year reduced by 2% to £76.2m
(2008: £77.4m) although underlying sales reduced by 7%
after taking into account the effect of a one-off major
aerospace contract undertaken in the first half of the year.
Gross profit margins reduced to 27% (2008: 29%) as a
result of the adverse impact of the aerospace contract and

currency movements. Other operating income included the
£0.3m benefit in respect of the sale and leaseback of our
Colchester and Halifax properties. Other operating expenses
were £29.9m (2008: £22.9m) including restructuring costs
of £5.2m, costs in relation to closed operations of £0.5m
and an impairment charge for intangible assets of £0.4m.
The restructuring costs relate to the previously announced
programme of redundancies, an extensive reorganisation
of the Group’s structure and impairment of inventory
and receivables.

The Group’s loss from operations before net financial
income and tax was £8.3m (2008: operating profit of
£0.3m). As anticipated, net financial income for the year
reduced significantly to £0.3m (2008: £2.3m) due to the
UK Pension Scheme moving to de-risk its assets.

Loss before tax was, therefore, £8.0m (2008: profit before
tax of £2.5m). The discontinued costs of £1.3m (2008: £1.8m)
relate to the closure of operations in Canada. The basic and
diluted loss per share for continuing operations was 13.3p
(2008: earnings per share of 3.3p and 3.2p respectively).

As anticipated, the net cash balance of £3.2m in 2008
reduced to net borrowings of £1.5m in 2009 due to costs
incurred in restructuring.

In accordance with FRC guidelines, the Board has assessed
the Group’s funding and liquidity position and concluded that
the going concern basis for the preparation of its accounts
continues to be appropriate.

This has been a very challenging year for The 600 Group PLC. We have,
however, met these challenges head on and made significant strides towards
creating a platform from which to build a profitable future for the Group.

The 600 Group PLC annual report and accounts 2009

Dividend
We have previously stated that dividend payments will be
directly related to our results. The Board does not consider
it is appropriate to pay a dividend at the present time.

Progress
I believe we have made substantial progress in reshaping
the Group and positioning it for the future. We needed to
cut the Group’s costs dramatically and deliver a sustainable
improvement in the efficiency of our business, particularly
in the use of cash. This meant that we had to change our
Group structure and management, reduce the number of
sites and overhaul the supply chain.

David Norman’s first task was to review senior management.
Numbers were inevitably reduced but, pleasingly, he managed
to establish a new team with the experience and energy
to take us forward predominantly from our existing staff.
You will read in his Group Chief Executive’s report that
we aggressively addressed our cost base during the year
under review and continue to do so. Our product strategies,
which were having a major impact on our costs and our
reputation as a leading machine tools producer, were also
addressed. We made the decision to leave our chosen
Chinese partner, The Dalian Machine Tool Group, and have
sourced products and components elsewhere. This was
a challenging but necessary action, which needed careful
handling to avoid further costs and disruption to our supply
lines. The number of sites operated by the Group were also
reduced and the sales force is being shaped into a more
focused and cost effective team.

Such fundamental reshaping of the business incurs costs.
I am pleased to report that we have been able to fund this
from within our existing overdraft facilities and through the
release of cash which was locked inside the business. Our
action has, however, significantly impacted the balance sheet
(split in similar proportions between legacy costs, ceased
operations and operational activity). This should not affect
our ability to move forward in the short term and will result
in a very different and more sustainable platform for the Group.
Improvements to the balance sheet will, however, now be
both a necessity and a priority as we move forward.

Separately we will continue to address the issue of the
Pension Fund, which is significant in terms of size and
impact, and we are working closely with the Trustee to
further de-risk its asset holdings.

Strategy
The new business platform we have developed has
provided us with an opportunity to review our overall
business strategy. We continue to see machine tools
and lathes products as our core business and the UK,
Continental Europe and North America remain our key
strategic markets. There are real opportunities to build
on our strong brands in these product areas and exploit
our engineering and manufacturing expertise to a much
greater extent than achieved in recent years. We will
concentrate on the Group’s branded products, take much
more control of our own manufacturing and shorten
our supply lines. The challenging global economy has
weakened many companies in our product or associated
product areas and, we believe, this will present us with
opportunities to expand the business over and above
our own organic growth.

I believe we have made substantial progress in reshaping
the Group and positioning it for the future. We needed to
cut the Group’s costs dramatically and deliver a sustainable
improvement in the efficiency of our business, particularly
in the use of cash.

The 600 Group PLC annual report and accounts 2009

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Chairman’s statement/continued

People
The Board relishes these prospects but they will, of course,
present us with new challenges. To assist the Group’s
progress there will be one further change to our Board.
Jonathan Kitchen has informed me that he will retire at the
Annual General Meeting on 25 September 2009. He has
given outstanding service to the Group for a number of
years and I, in particular, am grateful for his wise counsel
over my relatively short period as Chairman.

I am pleased to announce that Chris Cundy, Commercial
Director of VT Group, has agreed to join the Board with
effect from 1 August 2009, as a non-executive Director.
He has a wide experience as a finance director in a
manufacturing and service environment. His breadth
of knowledge and expertise will be valuable to the Group
as we move forward over the coming years.

Outlook
The next few months will continue to present us with major
challenges as our markets remain subdued. Whilst this will
impact the level of sales revenue, further improvements
that will deliver a more efficient and effective business are
either in progress or planned. In addition, the Group’s new
product strategies, which will be implemented over the
next twelve months, are being finalised.

Our priorities for the first half of the current year are to
complete the improvements to our business, return the Group
to sustainable profitability with a positive cash flow and begin
the rebuilding of our balance sheet. When we have secured
these objectives, we will be able to take a bolder approach
to other market and corporate opportunities.

The Group has a strong business plan, experienced
leadership and a much clearer sense of its strategic
direction. In view of this, the Board believes that the
Group is in a strong position to take advantage of any
recovery in our markets and will soon be able to progress
new and rewarding growth opportunities.

Martin Temple CBE
Chairman
23 June 2009

The 600 Group PLC annual report and accounts 2009

Group chief executive’s review of operations

This financial year has been a difficult period for the Group,
which was affected by a number of operational issues,
as well as a sudden and severe downturn in the world
market for machine tools.

At the time of my appointment in August 2008, it was
clear that both the cost infrastructure of the Group and
the machine tools’ supply chain were in need of urgent
attention. Some cost reduction initiatives had started in the
early part of the year. However, as I mentioned at the time
of our Interim Management Statement in February 2009,
considerable action has been taken and continues to
be required to effect transformational change within the
Group’s operations, whilst concurrently taking additional
defensive actions in light of depressed market conditions.

Sales revenue reduced by 2% in the year as a whole but
showed a greater decline in the second half of the year with a
particularly disappointing final quarter. The Group generated
a loss from operations before restructuring costs, costs in
relation to closed operations and impairment of intangible
assets of £2.2m in the year, much of this in the second half.
Exceptional costs and other non-cash costs relate to the cost
of restructuring and discontinued products. Additionally,
other charges have been made as a result of moving to a
simpler business model and the need to account for costs
associated with operating units, historically managed as
independent entities.

The restructuring costs incurred in the year were internally
financed from working capital improvements and the Group’s
global banking facilities.

My immediate priority is to deliver an effective turnaround
of the Group’s operations. This will fully occupy our
management teams during the first half of the current
financial year. We hope that economic conditions will
improve to provide an environment in which we can drive
the organic development of the business. In the absence
of any encouraging indicators, however, we will consider
acquiring other businesses, subject to the availability of
finance, which could enhance earnings and sit comfortably
within the framework we are creating.

Markets
Machine tools
The world market for machine tools experienced
a sharp downturn during the second half of the year.
The initial impact was in the area of CNC machines,
where demand for higher specification products reduced
sharply. Automotive manufacturing is a major driver in this
area and has a strong influence on second tier component
suppliers with whom we conduct much of our higher end
CNC business. The demand for conventional, non-CNC
machines, whilst reduced, has been less adversely affected
and we continue to receive orders in most of our territories
from distributors servicing the education sector in particular.
The demand for high precision bearings held up during the
year, although there is currently some evidence of customers
rescheduling their future requirements. The market for
workholding products was reasonable for much of the
year but deteriorated during the final quarter.

As previously reported, the Group outsourced a large part of
its production and supply from China, which was a significant
feature of the original strategy for 2008. Regrettably, quality
standards we had originally envisaged were not achieved,
despite a major effort by our own engineering and quality
teams to support this initiative. This resulted in machines
being shipped to customers which, in many cases, led to an
unacceptable level of warranty claims. These costs are fully
accounted for in the year under review. Stocks of machines
have been returned to the supplier in question and, under
these circumstances, it was not possible to proceed with the
previously announced joint venture agreement for Europe.

Supply has been switched to alternative sources which
have, in the past, produced machines to a high standard
for the Group. Whilst the manufacturing costs are somewhat
greater, this is the optimum solution for the Group after the
total cost of quality is taken into account. These changes to
the supply chain began during the fourth quarter of the last
financial year and the full effects will feed through during
the second quarter of the current financial year.

Considerable action has been taken and continues to be
required to effect transformational change within the Group’s
operations, whilst concurrently taking additional defensive
actions in light of depressed market conditions.

The 600 Group PLC annual report and accounts 2009

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Group chief executive’s review of operations/continued

Markets continued
Machine tools continued
The product strategy of the Group is also being
developed in line with the move to a simpler business
model. Product sourcing is now under the control of a
single product management team, working on behalf of
the entire Group. Most of our sales and marketing effort
will be directed towards our own brands, although we
will continue to sell a limited number of other products
where these are complementary to our core ranges.

Review of operations
UK
Overheads were reduced in all the UK businesses during
the second half of the year as it became clear that order
intake was slowing. Following a period of strategic review,
a new structure was designed for the UK machine tools
businesses. From a market point of view, the sales and
product management teams are now focused on areas
of the business where we have the greatest likelihood
of success in the short to medium term.

Geographically, our target markets continue to be Europe
and North America, supported by our activities in Australia,
Africa, the Middle East and the Indian subcontinent.

Bearings and workholding continue to form a valuable
part of our overall product offering and now sit within the
Machine Tools Division, together with spares and service.

Operationally, we had too much space on three sites
which was not being fully utilised. We therefore took the
decision to close 600 Centre in Shepshed, Leicestershire,
and transfer the showroom and back office functions to our
principal site in Heckmondwike, West Yorkshire. The 600 Centre
building is in a good location close to the M1 and will be
sold or leased when market conditions permit.

Laser marking
During the course of the year, the business did not experience
the same level of downturn as that experienced by machine
tools. The mix of customers is not dependent upon any
one sector and ranges from general industrial through to
pharmaceutical. Some notable projects were won in the year,
both in the UK and the US. Germany is also becoming an
increasingly important market.

The Raptor range, based on our in-house laser technology,
has continued to make progress in sales volume terms.
Since passing through the initial industrialisation phase,
further value engineering has taken place to reduce the
material cost and improve margins. Our objective for the
laser marking business is to sell an increasing share of
standard products whilst still retaining the capability to
supply a range of other lasers for specialist applications.
Following the success of the 10W Raptor, a 20W version
is now under active development.

The Dalian office in China, which was a cost centre of
the UK machine tools business, was closed as the new
supply chain arrangements were put in place.

The Pratt Burnerd factory in Halifax is twelve miles from
the site in Heckmondwike. Operations from Halifax are
in the process of being transferred to Heckmondwike.
This will result in the elimination of establishment costs
and, combined with the existing, but underutilised, machining
facilities in Heckmondwike, will provide us with a first class
machining facility where labour can be more effectively
utilised in one large plant. Some additional investments are
being made in order that previously outsourced product
can in future be produced within the new unit.

Employee numbers were unfortunately reduced, partly
as a result of these measures but also in response to
deteriorating demand. Short time working and a reduction
in the hourly rates of pay were also agreed with employee
representatives, as short term measures, in order to reduce
payroll costs during this downturn.

The product strategy of the Group is also being developed in line with
the move to a simpler business model. Product sourcing is now under
the control of a single product management team, working on behalf
of the entire Group.

The 600 Group PLC annual report and accounts 2009

Investments are being made at Gamet to support the
expansion of production in the Colchester plant for high
precision bearings. This will enable the business to reduce
lead times and compete more effectively in the future.

Sales of Clausing conventional products generally held up
well during the year, although the business was affected
by supply chain shortages. Warranty and other associated
costs of quality had an adverse impact on operating profit
and absorbed too much management time during the year.

At Electrox, the small office in Singapore was closed.
Whilst some overheads were reduced in the UK, most work
has been put into maintaining sales volume and increasing
margins by reducing material costs for standard products.
The challenge for Electrox is to improve its time to market
for current developments and there are a number of initiatives
in the pipeline.

Clausing has an extensive installed base of machines in
the US which is serviced from our spares operation in Indiana.
Work continued throughout the year on the development of
a web-based ordering system and, subject to satisfactory
experience in the US, our intention is to roll out this initiative
elsewhere in the Group.

Germany
Germany was affected by quality issues on China-sourced
machines which resulted in high warranty costs during the year.
Further, in advance of the proposed joint venture agreement
being formally signed with Dalian Machine Tool Group, an
additional building with warehouse was leased in Ditzingen,
near Stuttgart. As the joint venture could no longer proceed,
the existing Parat operation was transferred into the new
Ditzingen facility and staff recruited specifically to sell
Dalian branded machines were made redundant.

Germany, as an economy, is heavily orientated to the
automotive and engineering industries and is currently
going through a very difficult period. Nevertheless, demand
for the Parat tool holder product, along with Colchester Harrison
machines and spares, performed for most of the year in line
with expectations.

North America
In line with other world markets, the demand for CNC machines
fell away sharply. The economic mood in the US is very
subdued and this is not helped by the constant stream of bad
news from the automotive sector which is still a major driver
for our machine tools business. There was some optimism
from within the oil production sector with an increase in
demand for large swing lathes and large chucks. This side
of the business is heavily dependent upon the price of oil
remaining at a level to justify domestic production.

Pratt Burnerd America had an excellent start to the year,
but was subsequently caught in the downturn within its
traditional markets, in addition to oil price related project
deferral with regard to larger chucks.

The operation that remained in Canada following
the disposal of the core part of the Canadian operation
in 2008 was focused on the marketing of high precision
Japanese machines to component manufacturers servicing
automotive and aerospace. This business could not generate
enough revenue to cover its costs and was loss making
for most of the year. A review of prospects for the next
two years held out little hope of improvement. Rather than
continue to carry the overhead, sales and working capital
risk, the business was closed in February 2009. A sales
operation, focused on Group products and managed from
our Michigan operation, has now been established.

The Electrox infrastructure in the US was excessive for a
business of this size and this structure was reduced along
with associated showrooms in a number of locations. Back
office functions have been transferred to Michigan. Despite
the very difficult market in the US and a lack of confidence in
many areas, there continue to be some good sales prospects
which we expect to convert during the first half of the current
financial year.

Overheads were reduced in all the UK businesses during the
second half of the year as it became clear that order intake
was slowing.

The 600 Group PLC annual report and accounts 2009

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Group chief executive’s review of operations/continued

Review of operations continued
Australia
Steps were taken in the early part of the year to reduce
costs. The economy seems slightly less affected by the
downturn than elsewhere in the world, although the local
automotive industry is struggling. Opportunities continue
to exist principally for conventional machines destined for
the educational sector.

South Africa
The major part of our activity relates to mechanical handling
and, in sales volume terms, the business performed in line with
our expectations. There was a swing in the year from private
construction work to requirements driven by the development
of infrastructure. State utilities, such as ESCOM also continue
to drive demand. As a distribution business with a workshop
facility, the Company will be able to respond quite quickly
to changes within individual market segments. Currency
fluctuation against the Euro and Sterling continues to
be a negative feature of trading in the region.

PLC costs
We have continued to make significant reductions in
central costs during the year. The Leeds head office was
vacated in October 2008 and is now up for sale or lease.
All PLC activities are now managed from our site in
Heckmondwike, which also enables the Executive team
to be much closer to the operations.

Corporate social responsibility
The Group takes its responsibilities seriously towards all
its stakeholders, including its employees, the community
and the environment. This is more applicable than ever
as we steer the Company through this economic downturn.
Employees on a number of sites have worked hard during
some difficult periods of consultation to ensure that ultimately
we have a profitable and growing business. Many sacrifices
have been made and, sadly, a number of employees have
left the Group during the year.

Following the outcome of the risk survey, which was
commissioned in the early part of the current financial year,
a full time health and safety manager has been appointed
and action plans are being developed for all sites within
the Group.

Outlook
The machine tools market is large and diverse and we cannot
hope to compete in every sector. We will therefore continue
to play to our strengths, which remain in the mid priced CNC
and conventional machine sectors, along with components
and spares.

The laser marking business will improve its time to market
and the business will be positioned to capitalise on opportunities
as confidence starts to return.

The transformational work which we started in the second
half of last year has continued into the current fiscal year.
I envisage that a large proportion of the actions required
under the current phase will be completed by the half year,
although some subsequent business process integration
issues may take a little longer to bed down. I am confident
that the actions already implemented, along with the current
phase, will allow the Group to trade profitably if current
sales levels do not deteriorate further. This will provide
a good platform for further development of the Group,
exploiting its organic potential, together with any other
opportunities which may arise in the future.

David Norman
Group Chief Executive
23 June 2009

We will therefore continue to play to our strengths, which remain
in the mid priced CNC and conventional machine sectors, along with
components and spares.

The 600 Group PLC annual report and accounts 2009

Financial review

Accounting policies
The Group’s results for the period to 28 March 2009 have been
prepared in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS) and
the results for the Parent Company have been consistently
prepared in accordance with United Kingdom Generally
Accepted Accounting Policies (UK GAAP).

Results
Revenue from continuing operations reduced by £1.2m
from £77.4m to £76.2m. Analysis of revenue by destination
reflects an increased level of sales revenue in our European
and South African operations, with our North American and
UK operations being impacted by sharp downturns in the
second half of the year.

The resulting loss before tax was £8.0m compared with
a profit last year of £2.5m. Taxation of £0.4m was credited
in the period (2008: charge of £0.5m) and this primarily
related to deferred tax.

Net assets decreased by £8.3m (2008: decrease of £1.1m)
to £30.0m (2008: £38.3m). Property, plant and equipment
reduced by £1.8m (2008: reduction of £0.4m), intangible
assets reduced by £0.1m (2008: increase of £0.6m) and
inventory increased by £0.2m (2008: increase of £2.1m).
Net deferred tax assets increased by £0.4m (2008: increase
of £0.6m) principally as a result of the increase in tax losses.
In addition, there was a net decrease in trade and other
receivables/payables of £1.7m (2008: decrease of £2.8m).

The operating loss before tax and net finance income
worsened, from a profit of £0.3m to a loss of £8.3m.
Gross profit reduced from 29% in 2008 to 27% as a result
of the adverse impact of a major aerospace contract and
currency movements. Other operating income included a
profit of £0.3m from the sale of our Colchester and Halifax
properties. Other operating expenses included restructuring
costs of £5.2m, costs in relation to closed operations of
£0.5m and the impairment of intangible assets of £0.4m.

Net funds decreased during the period by £4.6m
(2008: decrease of £1.2m), resulting in net funds at the
period end of £(1.5)m (2008: £3.2m). This decrease was
primarily due to a cash outflow from operating activities
of £5.3m (2008: £0.9m outflow).

Employee benefits
The Group accounts for its pension arrangements
in accordance with IAS 19. This accounting is based
on a series of actuarial assumptions.

Net financial income reduced by £0.6m principally as
a result of the reduced expected return on the Group’s
employee benefit schemes. Net financial expense increased
by £1.4m due to an increase in the estimated interest on
pension scheme obligations (Note 6).

The Group adopted the principles of IFRIC 14 in its financial
statements last year. The impact of this is that the pension
surplus of £3.1m at 28 March 2009 is not recognised as a
plan asset because the Group does not have an unconditional
right to the use of this surplus.

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The 600 Group PLC annual report and accounts 2009

Principal risks
Risk management is embedded in the Group’s internal control
processes throughout the year and also as part of the year
end reporting procedure.

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
operational risks include supply chains, product failure,
loss of key personnel;

liquidity, e.g. the risk that the Group will encounter
difficulty in meeting its obligations associated with
financial liabilities, such as uncertainties around current
financing arrangements (committed and uncommitted);
potential changes in financing arrangements; and
uncertainties posed by the potential impact of the
economic outlook on the level of demand for the
Group’s products and business activities;

Financial review/continued

Employee benefits continued
Full details of the Group’s employee benefit schemes
are shown in Note 29 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 its size and impact.
The Group accounts for pensions in accordance with IAS 19
“Employee benefits,” which requires the 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 the overseas operations.



Further exposure to transaction risks arising from foreign
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.

The 600 Group PLC annual report and accounts 2009



financial, e.g. major contract management, inventory
control, credit control, pension scheme funding;



hazard/health and safety/product liability; and



defined benefit pension schemes – the Group
continues to be subject to various financial risks
in relation to the pension schemes, e.g. the volatility
of discount rates and of the valuation of pension
scheme assets. See Note 29 for further information
on this.

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. The risks are closely
monitored and discussed with each business unit and
appropriate safeguards are 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:



revenue growth;



return on sales;



cash generation;



gross profit percentage; and



operating profit percentage.

Martyn Wakeman
Group Finance Director
23 June 2009

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The 600 Group PLC annual report and accounts 2009

Directors and advisers

Martin John Temple* (59)
A non-executive Director since 1 April 2007 and Chairman since
1 August 2007. Chairman of the Engineering Employers’ Federation (EEF),
and Chair of the BSSP Transition Management Board, Department for
Business, Enterprise and regulatory Reform. Formerly held senior
management positions in British Steel.

Jonathan Aistrope Kitchen* (69)
A non-executive Director since 1 July 1998. Vice Chairman and
Chairman of the Audit Committee with effect from 6 September 2000.
Chairman of the Remuneration Committee since 26 September 2007
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.

David Norman (56)
Appointed to the Board as Group Chief Executive on 7 August 2008.
Formerly a Divisional Managing Director of Saia-Burgess AG.

Martyn Gordon David Wakeman (53)
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* (58)
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.

Shareholder information
Financial calendar
Period ending 28 March 2009
Annual General Meeting

Period ending 27 March 2010
Interim Report
Results for the year
Annual Report and Accounts

To be held 25 September 2009

To be issued mid-November 2009
To be announced June 2010
To be issued July 2010

Secretary
Alan Roy Myers

Registered office
Union Street
Heckmondwike
West Yorkshire
WF16 0HL

Registered number
196730

Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0GA

Auditor
KPMG Audit Plc

Bankers
HSBC Bank plc

Stockbrokers
Altium Capital Limited

The 600 Group PLC annual report and accounts 2009

Report of the directors

The Directors present their report to the members, together with the audited financial statements for the period ended 28 March 2009,
which should be read in conjunction with the Chairman’s Statement on the affairs of the Group (page 2), the Group Chief Executive’s Review
of Operations (pages 5 to 8) and the Group Finance Director’s Financial Review (pages 9 to 11). 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 2009 are for the 52-week period ended 28 March 2009. The results for 2008
are for the 52-week period ended 29 March 2008.

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 22.

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 2 to 11. 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 no donations to charitable organisations in the period (2008: £5,000). The Group made no political donations in the UK in the period.

Interests in share capital
At 23 June 2009, the Directors had been informed of the following interests in shares of 3% or more of the issued ordinary share capital of the Company:

P Gyllenhammar

Gartmore Investment Management

Legal & General Investment Management

Schroder Investment Management

Barclays Stockbrokers Limited

Maland Pension Fund Trustees

Percentage
of issued
ordinary

Number share capital

11,700,000

22.70

5,219,602

4,040,455

3,671,320

2,026,387

2,000,000

9.12

7.06

6.41

3.54

3.49

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
Authority granting the Company the option to purchase 8,579,328 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 24 October 2008. This authority remains valid until the conclusion of the next
Annual General Meeting on 25 September 2009.

The 600 Group PLC annual report and accounts 2009

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Report of the directors/continued

Directors
Details of the Directors of the Company at 28 March 2009 are shown on page 12. A J Dick resigned as a Director on 5 August 2008
and D H Norman was appointed on 7 August 2008.

The Directors retiring by rotation are D H Norman and S J Rutherford, who, being eligible, offer themselves for re-election. D H Norman has
a rolling service contract of six months with the Company. S J Rutherford does not have a rolling service contract with the Company.

The beneficial interests of the Directors in the share capital of the Company at 28 March 2009 are shown in the Remuneration Report on pages 17 to 20.

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 54 days (2008: 45 days) of average purchases for the Company
and 62 days (2008: 66 days) for the Group.

Post balance sheet events
On 22 May 2009 the decision was taken to close the PBI manufacturing facility and relocate production to the Heckmondwike site. Restructuring costs
of approximately £1.2m are expected to be incurred in the year ending 27 March 2010 in relation to this.

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 28 March 2009.

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 25 to the financial statements.

Corporate governance
The Board’s statement on corporate governance is set out on pages 15 to 16.

Auditor
In accordance with Section 384 of the Companies Act 1985, a resolution for the re-appointment of KPMG Audit Plc as auditor of the Company
is to be proposed at the forthcoming Annual General Meeting.

Disclosure of information to auditor
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 auditor is 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 auditor is 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
23 June 2009

The 600 Group PLC annual report and accounts 2009

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, as revised in June 2006 (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 20.

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 28 March 2009 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. A J Dick resigned as a Director on 5 August 2008. D H Norman was appointed on 7 August 2008.

The Board of Directors met ten times during the year. S J Rutherford and M G D Wakeman attended all meetings. M J Temple and J A Kitchen
attended nine meetings, D H Norman attended six meetings and A J Dick attended four meetings. The Board retains full and effective control over
the Group and is responsible for overall 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.

All Directors have access to the advice and services of the Company Secretary.

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 auditor
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 auditor, the scope of the audit and matters arising from the audit and internal control procedures.
During the year J A Kitchen and S J Rutherford attended both meetings of the committee and M J Temple attended one meeting of the committee.
There is provision for the committee to meet with the auditor 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 three meetings during
the year attended by all members. 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
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:



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

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:



an organisational structure with clearly defined lines of responsibility and delegation of authority to executive management;

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);

defined policies and minimum financial controls and procedures at each operating unit;

prescribed procedures for capital expenditure applications;

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

the identification and appraisal of risks during the annual process of preparing business plans and detailed budgets and their regular review
during the year.

The 600 Group PLC annual report and accounts 2009

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Corporate governance/continued

Internal audit
Head office staff perform control review visits to locations on a cyclical basis. The results of these reviews are reported to the Audit Committee.

Relations with the auditor
During the year the auditor provided tax and other non-audit advice to the Company and its subsidiaries. The Board has considered the effect on
the independence of the auditor 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 auditor. The Audit Committee monitors the scope of the auditor’s 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 website 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 IFRS 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 IFRS 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.

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:



select suitable accounting policies and then apply them consistently;

make judgments and estimates that are reasonable and prudent;

for the Group financial statements, state whether they have been prepared in accordance with IFRS as adopted by the EU;

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

prepare the financial statements on the going concern 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.

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. Further information on this matter is set out
in the Basis of Preparation section of the Notes to the Consolidated Financial Statements.

By order of the Board

Alan Myers
Secretary
23 June 2009

The 600 Group PLC annual report and accounts 2009

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 19.

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

(Committee Chairman)

S J Rutherford

M J Temple

The Committee held three meetings during the year. The most significant matters discussed by the Committee at its formal meetings this year were:

(a) the operation of the bonus scheme in the current economic climate;

(b) the formal grant of awards under the new performance share plan; and

Committee’s advisers
During the year, PricewaterhouseCoopers LLP acted as independent advisors to the Committee and provided services relating to the benchmarking
of Executive Directors’ pay. 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:

D H Norman

Group Chief Executive

M G D Wakeman Group Finance Director

No Executive was present when his own remuneration arrangements were being discussed.

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. 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 28 March 2009.

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 from 1 December 2008 to 28 March 2009 was 40% of
basic annual salary with a maximum potential bonus of 131∕3% of basic annual salary of the four month period. The maximum 40% entitlement
was divided into two parts which are each subject to different performance targets:

(i) overall Group performance based on sales, operating profit and cash flow for the four-month period (maximum 25%); and

(ii) discretionary (maximum 15%).

The 600 Group PLC annual report and accounts 2009

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Remuneration report/continued

Executive Directors’ remuneration continued
Long-term incentive plans
The 600 Group PLC 2008 Performance Share Plan (the PSP)
The PSP provides significant rewards for the achievement of stretching performance targets thus achieving a clear and demonstrable link between
executive performance and executive reward.

The PSP provides for the award of both “nil cost” (or nominal cost) share options and contingent share awards (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.
Initial awards of 150% of salary were made to A J Dick and M G D Wakeman and awards of 75% of salary to senior employees selected to participate.

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 were set after consideration at that time
of the current economic circumstances of the Company and expectations of the future. 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)

TSR target