The 600 Group PLC
annual report and accounts 2011
Who we are
A world class,
diversified
engineering
business
The 600 Group PLC
(“the Group”) is a diversified
engineering group with a
world class reputation in the
manufacture and distribution
of machine tools, precision
engineered components,
laser marking systems and
mechanical handling and waste
management equipment.
Visit us online…
This report and more information on our products
and services are available on our website
www.600group.com
For up-to-date investor information please visit
www.600group.com/investors
www.600group.com
Highlights
The 600 Group PLC
annual report and accounts 2011
01
FINANCIAL
Revenue of £50.6m (2010: £45.4m)
Profit from operations, before restructuring costs,
charge for share‑based payments, net pension
credit and impairment of intangible assets, increased
to £1.2m (2010: loss of £1.1m)
Overall profit before tax from continuing operations
of £3.3m (2010: loss of £8.7m)
Costs in relation to restructuring of £1.1m
(2010: £5.4m) with a cash cost of £0.9m (2010: £1.9m)
Basic profit per share for continuing operations
of 6.2p (2010: loss per share of 15.2p)
OPERATING
Group returned profit from operations of £2.5m
(2010: loss from operations of £6.8m)
Gross margin maintained at 32% (2010: 32%)
Operating expense fell to £14.1m with saving
in year of £7.3m
Oxford Economics Group forecasts predict
significant growth within Machine Tools markets
in 2011
Post year‑end institutional placing and new
increased bank facility mean Group well positioned
for future growth
IFC Who we are
01 Highlights
02 The 600 Group at a glance
04 Chairman’s statement
06 Group chief executive’s review of operations
08 Financial review
10 Directors and advisers
11 Report of the directors
14 Corporate governance
17 Remuneration report
22 Independent auditor’s report
24 Consolidated income statement
25 Consolidated statement of comprehensive income
26 Consolidated statement of financial position
27 Consolidated statement of changes in equity
28 Consolidated cash flow statement
29 Group accounting policies
34 Notes relating to the consolidated financial statements
60 Company balance sheet
61 Company accounting policies
63 Notes relating to the company financial statements
68 Five year record
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The 600 Group PLC
annual report and accounts 2011
www.600group.com
02
The 600 Group at a glance
Building the
business through
brand strength
600 North America based in Michigan,
distributes Clausing and Colchester‑
Harrison machine tool products, precision
engineered components and laser spares.
Our strategy is to organically develop each of the four
business areas, building on a viable operating platform.
We also intend to strengthen our existing manufacturing
base through investment, providing for increased flexibility,
improved quality, reduced lead times and cost.
MACHINE TOOLS
The business has a strong reputation in the market for metal turning
machines. Products range from small conventional machines for
education markets, CNC workshop machines and CNC production
machines. The European manufacturing footprint is supported by
selected outsourcing partners and machines are marketed through
the Group’s wholly owned international sales organisation.
PRECISION ENGINEERED
COMPONENTS
The machine spares are distributed to customers globally to help
maintain the installed base of group machines which number in
excess of 100,000. Additionally work holding products and taper
roller bearings are sold via specialist distributors to OEMs including
other machine builders.
Revenue (£m) / Percentage of revenue:
Revenue (£m) / Percentage of revenue:
£19.5m / 39%
2010: £18.5m / 41%
£9.9m / 20%
2010: £12.0m / 26%
More online:
www.colchester‑harrison.com
www.clausing‑industrial.com
More online:
www.gamet‑bearings.co.uk
www.colchester‑harrison.com
www.600group.com
The 600 Group PLC
annual report and accounts 2011
03
600 Europe based in West Yorkshire,
Essex and Poland, distributes 600 Group
machine tool products and precision
engineered components.
Electrox from its base in Hertfordshire,
manufactures laser marking machines.
The Group operates these four
areas of business from locations
in Europe, North America,
Australia and South Africa
selling into more than
180 countries worldwide.
600 Machinery International covers the
Middle East and North African regions.
600 SA (Holdings) PTY handles
600 Group products throughout
Sub‑Saharan Africa.
600 Machine Tools PTY operates
throughout Australia, New Zealand
and the Pacific Rim regions.
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LASER MARKING
Laser marking is a technologically superior alternative to inkjet
marking. It requires no consumables and can operate on a
continuous high speed basis when integrated into customers’
production lines. The business has its own technology and
proprietary software. Customer applications are diverse and range
from telecommunications to pharmaceuticals.
MECHANICAL AND
WASTE HANDLING
The business sells equipment into Sub Saharan African markets
from its three locations in South Africa. Improvements to municipal
infrastructures, mineral extraction and electrification are significant
drivers for this business. Distribution of world class brands is
supported by wholly owned workshop and factory facilities.
Revenue (£m) / Percentage of revenue:
Revenue (£m) / Percentage of revenue:
£7.0m / 14%
2010: £6.7m / 15%
£14.1m / 27%
2010: £8.1m / 18%
More online:
www.electrox.com
More online:
www.600sa.co.za
The 600 Group PLC
annual report and accounts 2011
www.600group.com
04
Chairman’s statement
Strength through
leading brands and
global diversification
OVERVIEW
The Group has continued to see an
improvement in its global markets during the
financial year and, following the inflow of funds
from a shareholder loan in August 2010,
working capital constraints were reduced and
revenue increased. In November 2010 we
acquired a machine tool manufacturing facility
in Tarnow, Poland for €1m. Since the acquisition
we have progressively transferred production
of machines which were previously outsourced
to Asia. We are in the process of introducing
lean manufacturing methods along with
additional CNC equipment in order to
increase capacity and future output. Our new
manufacturing company in Poland will allow
us to transition to a new business model for
machine tools. Our intention is to manufacture
most of the Group’s requirements in Poland
and Heckmondwike for sale to customers
through our international sales organisation.
The integration of our new factory in Poland in
conjunction with an increase in machine output
will be key elements of our immediate strategy,
the execution of which is a key task for the
executive management.
FINANCIAL HIGHLIGHTS
The second half of the financial year showed
an improved performance with overall
revenue for the financial year increasing by
11% to £50.6m (2010: £45.4m) including
the benefit of a non‑recurring contract of £2m
in South Africa. Full year gross margin rose
slightly to 32.3% (2010: 31.8%) and net
operating expenses reduced by £7.3m to
£14.1m (2010: £21.4m), including restructuring
costs of £1.1m (2010: £5.4m) and a net
pension credit of £2.6m (2010: £0.9m) arising
from the change to using the Consumer Price
Index as the measure of price inflation as
opposed to the Retail Price Index. The Group
profit from operations before restructuring
costs, charge for share‑based payments,
net pension credit, impairment of intangible
assets and tax for the full year was £1.2m
(2010: loss of £1.1m).
After net financial income of £0.8m (2010: charge
of £1.9m) the Group profit before tax was £3.3m
(2010: loss before tax of £8.7m). The basic
earnings per share was 5.0p (2010: loss per
share (16.6)p) and diluted earnings per share
4.3p (2010: loss per share (16.6)p).
FINANCING
At the year end, net debt was £4.8m
(2010: £4.3m). The Group has bank facilities
of £7.2m and is in advanced discussions with
a new lender to extend the Group’s existing
financing requirements in the UK by £1.8m.
Documentation of the new facility is agreed
and execution is expected shortly. The Board
believes that this is sufficient for the Group’s
ongoing requirements.
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.
DIVIDEND
As previously stated, any future dividend payments
will be dependent upon the Group’s results.
Accordingly, the Board does not recommend
the payment of a dividend at this time.
STRATEGY
Following the completion of its turnaround
programme the Group is positioned to grow
organically and by selective acquisition
consistent with its positioning as a diversified
industrial engineering group. As part of this
strategy the acquisition of the machine
tool facility in Poland should prove to be
transformational for the Group and enable it to
reduce delivery times and improve its working
www.600group.com
The 600 Group PLC
annual report and accounts 2011
05
STRATEGIC PRIORITIES FOR 2011
Improve
We’re working towards repairing
revenue streams by improving our
order fulfilment.
Increase
Focusing on our supply chain,
we’re working towards rebuilding
confidence with our key suppliers.
Develop
With a clear focus on the Group
brands we’re implementing the
machine tools business model.
capital performance. These benefits are likely
to be more visible during the second half of
the new financial year although the Group is
expected to continue to trade profitably in the
first half of the year whilst the machine tools
division executes the agreed strategy.
AIM LISTING
On 15 June 2011 we held a general meeting
and a resolution was passed to move the Group
from a Main Market listing to the AIM market.
We believe that AIM is a market more appropriate
for a Group of our size and offers greater flexibility
and reduced costs particularly with regard to
corporate transactions. The final day of dealings
on the Official List was 13 July 2011 with
commencement of trading on AIM taking place
on 14 July 2011.
DIRECTORATE CHANGES
In February 2011 Paul Dupee and Derek Zissman
joined the Board as non‑executive Directors.
At the same time, Christopher Cundy,
a non‑executive Director, stood down.
Paul Dupee, an American national, is an
experienced private equity investor and currently
managing partner of Haddeo Partners LLP,
a substantial shareholder in the Company.
Mr Zissman, a Chartered Accountant, was
until 2008 vice chairman of KPMG LLP.
OUTLOOK
We continue to be cautious in our outlook
and will maintain close control over the level
of costs. Our level of order intake continues
to be stable and our order book is significantly
higher than the corresponding period last year.
A combination of successful execution of the
strategy for machine tools and improved order
fulfilment, in all divisions, should enable the
Group to build on the recent turnaround in its
performance and make further progress in the
next financial year.
RE-ELECTION OF CHAIRMAN
I joined the Board of the Company as
non‑executive Director in April 2007 and
became Chairman at the subsequent Annual
General Meeting in September 2007. It soon
became clear to me that the Group had a
number of issues, some of which were deep
rooted and structural, including many legacy
issues and the need to clearly define the
strategic direction. During my period as
Chairman we have addressed these issues
whilst at the same time managing the
consequences of the very severe downturn
in our main markets in 2008/9. In August 2008
I took the decision to appoint a new CEO and,
along with the Board’s clear backing and
support, initiated a rapid turnaround strategy.
Following the completion of the turnaround
strategy the Group is considerably stronger
than when I became Chairman and well
placed to proceed to the next stage of its
development. Consequently, I believe that this
is a suitable time for me to stand down and
accordingly I will not be putting myself forward
for re‑election at the AGM on 14 September
2011 and Paul Dupee will succeed me as
Chairman. Despite the difficulties which we
have had to face up to as a Board, during
my tenure, I have enjoyed my period as your
Chairman. I will be following future progress
with interest and would like to thank shareholders,
employees and my colleagues on the Board
for the support I have received in my role
as Chairman over the last four years.
Finally, I would like to wish the Company
every success in the future.
MARTIN TEMPLE CBE
CHAIRMAN
27 JULY 2011
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The 600 Group PLC
annual report and accounts 2011
www.600group.com
06
Group chief executive’s review of operations
Leading brands
supplying customers’
global needs
The challenging market conditions
experienced in the previous financial year
began to ease during the year with the
recovery in North America leading the way
followed by improvements in other territories.
BACKGROUND TO THE RESULTS
The major elements of the turnaround were
completed in 2009/10; however, some residual
transition projects took place during 2010/11
which had been part of the original plan for
returning the Group to profit.
The difficult lending environment referred
to in my last report continued to have some
impact on the Group and its customers during
the year. There were also some improvements,
notably in North America where a supportive
relationship is now in place with Bank of America.
Our businesses in Australia and South Africa
also had access to the necessary levels of
working capital finance throughout the year.
The lending landscape in Europe continued
to be characterised by caution despite the
Group’s modest level of debt. In order to
provide additional funding, an arrangement
was entered into with Haddeo Partners LLP to
advance £2.5m to the Group over a five year
term which also involved the issue of warrants.
These warrants can be used by the holders
to either convert the loan into shares or to
purchase shares for a cash consideration.
These arrangements are well documented
and were subject to shareholder approval
at an EGM on 27 August 2010.
The machine tools business is undergoing
significant change following the acquisition
in November of FMT Colchester in Poland. The
Group’s reliance on outsourcing has reduced and
a business model centred on the manufacture
of our own products and supplying them through
our international sales organisation has become
the cornerstone of our strategy for this business
area. Some of the €1m consideration and
associated working capital requirements were
financed by a subsequent placement of shares
which raised £1.76m prior to costs, a process
which was underway during the last week
of the financial year.
Sales increased by 11% to £50.6m which
generated a full year underlying profit from
operations* of £1.2m. This represents a positive
swing of £2.3m when compared to prior year.
Gross margin rose slightly to 32.3% whilst
operating expenses reduced from £21.4m to
£14.1m. This is an improvement of £15.8m in
two years, a small amount of this improvement
being attributable to discontinued activities.
THE GROUP
As outlined in my report last year, the Group has
been repositioned as a diversified engineering
Group with four principal areas of activity:
Machine Tools (39%)
Market‑leading brands; Colchester,
Harrison and Clausing.
Continuation of positive forecasts from
the Oxford Economics Group.
Increased vertical integration following
the acquisition of FMT Colchester, Poland.
Precision Engineered Components (20%)
High precision bearings and work
holding equipment.
Spares sales generated from an installed
base of machines in excess of 100,000.
Machining capability in Poland for
OEM requirements.
Laser Marking (14%)
Proprietary technology and software.
Diversity of customers from pharmaceutical
to telecommunications.
Growth market with an increasing requirement
for product and component traceability.
* Underlying profit from operations refers to profit/(loss)
from operations before restructuring costs, charge for
share‑based payments, net pension credit and
impairment of intangible assets on the face of
the consolidated income statement.
www.600group.com
The 600 Group PLC
annual report and accounts 2011
07
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The machine tool division services
production and workshop OEMs as well
as educational establishments
CORPORATE AND
SOCIAL RESPONSIBILITY
The Group takes it responsibilities to all its
stakeholders seriously including employees.
Many employees had been working reduced
hours during the lowest point of the downturn
and this continued for several months in
some cases. During the year normal working
was reinstated in all locations and once again
I would like to thank all those employees who
made personal sacrifices during this period
of economic uncertainty.
ISO 18001 and ISO14001, being the
international standards for health and safety
and the environment respectively, are planned
for implementation in Heckmondwike during
the new financial year.
OUTLOOK
The Group is now well positioned with a much
lower breakeven point and a strong order book
at the end of the year compared to the same
time last year. The successful integration of
FMT Colchester in Poland, introduction of
lean manufacturing techniques and capacity
improvements throughout our European
factories will be the basis for further profitable
development of the Group which should
provide a sound platform for future growth.
DAVID NORMAN
GROUP CHIEF EXECUTIVE
27 JULY 2011
Mechanical Handling and Waste (27%)
Positive GDP growth rates forecast for
sub‑Saharan Africa.
Continuing requirements driven by the
electrification programme in South Africa.
TURNAROUND
Most of the major initiatives which were required
to return the Group to profit have now been
completed. During the year, the spares and
service centre in Indiana was transferred into
our Michigan facility whilst at the same time the
information system was upgraded. This was
a difficult project which was well executed.
In Australia, our operations in Sydney transferred
into a lower cost building. The breakeven point
in the Group is now significantly lower than at
any time in the Group’s recent history.
MARKETS
Machine Tools
The recovery in the US which was evident
towards the end of 2009/10 continued to gain
traction during the course of the year. This was
followed by an improving order book within
Europe and the Middle East and included
some recovery in production CNC machines
which had been the most badly affected area
during the downturn. Conventional and workshop
CNC machines have, however, continued to
be our most successful product groups.
Oxford Economics Group prepares a biannual
forecast covering all major geographical areas
and the latest forecast continues to be positive
with regard to our main markets.
Precision Engineered Components
The US led the recovery in orders for chucks
which also followed a similar pattern to machine
tools with Europe again subsequently seeing
some recovery. The market for bearings was
one of the last areas to experience a severe
downturn; however, a recovery has been clear
in recent months. Spare parts were helped by
the introduction of web based ordering as part
of the IT upgrade in the US.
Laser Marking
A number of customer projects had been
put on hold in 2009/10, particularly in the US.
These were released as confidence began
to return to the market. The US and Germany
were two key markets during the year where
our Electrox division held its own against some
much larger industry players. We continue to
focus on our own technology including the
next generation of software in order that we
can maintain a large degree of technological
independence within the industry. A number
of product development initiatives are also
in the pipeline.
Mechanical and Waste Handling
Following the management changes in
2009/10, the team in South Africa delivered a
much improved performance. Relationships
with key northern hemisphere suppliers were
further developed and the association with
Altec was strengthened following our success
with Eskom, the South African state utility, for
supply of double insulated aerial platforms
required for the electrification programme.
This was a major contract with most of the
work taking place within our Johannesburg
workshop. Other market segments also
showed recovery.
OPERATIONS
Some restructuring will be required as the
machine tools business moves further towards
the new business model. Manufacturing of
machines in Poland has continued to increase
and given the quality being achieved, we have
been able to simplify the process of shipping
to customers without the need for secondary
operations in the UK. The focus is now
switching from restructuring towards capacity
improvements in all our manufacturing
businesses which will involve the adoption
of lean manufacturing processes and
investments in new CNC equipment where
satisfactory paybacks can be achieved.
The 600 Group PLC
annual report and accounts 2011
www.600group.com
08
Financial review
Positive indicators
for all markets
in 2011
ACCOUNTING POLICIES
The Group’s results for the period ended
2 April 2011 have been prepared in accordance
with International Financial Reporting Standards
(IFRS) as adopted by the EU and the results for
the Parent Company have been consistently
prepared in accordance with UK GAAP.
RESULTS
Revenue from continuing operations increased
by £5.2m (11% growth on prior year) from
£45.4m to £50.6m following an improvement
in our markets and included the benefit of £2m
revenue from a non‑recurring contract in our
South African operation. Analysis of revenue
by principal area of activity reflects an increased
level of activity in three of the four areas with
Machine Tools, which represents 39% (2009: 41%)
increasing by 5%, Laser Marking increasing by
4% and Mechanical and Waste Handling by 74%.
Precision Engineered Components, which
includes spares, fell by 17% due mainly to the
elimination of low margin product lines.
Gross profit was maintained at the level of 32%
of revenue and there was a reduction in other
operating expenses of £7.3m (2010: £8.5m).
The profit from operations before restructuring
costs, charge for share‑based payments, net
pension credit and impairment of intangible
assets increased to £1.2m (2010: loss of
£1.1m) – as a % measure this rose to 2.3%
for 2011 against (2.4)% for 2010. Restructuring
costs of £1.1m (2010: £5.4m) relating to
the reorganisation and restructuring of
the business were incurred. These costs
were offset by a net pension credit of £2.6m
(2010: net curtailment gain £0.9m) in respect
of the change to the Consumer Price Index as
opposed to the Retail Price Index. The profit
from operations before tax and net finance
costs was £2.5m (2010: loss of £6.8m)
with net financial income being £0.8m
(2010: net financial expense of £1.9m).
The resulting profit before tax was £3.3m
compared with a loss last year of £8.7m.
Taxation was a £0.3m credit and related in
the main to the recognition of future tax losses
available to the Group.
Net assets increased by £1.0m (2010: reduction
of £9.3m) to £21.7m (2010: £20.7m). Property,
plant and equipment increased by £0.7m
(2010: reduction of £0.8m), intangible assets
decreased by £0.1m (2010: £1.4m) and
inventory reduced by £0.7m (2010: £5.3m).
Net deferred tax assets increased by £0.3m
to £0.9m (2010: £0.6m) and there was a net
decrease in trade and other receivables/
payables of £1.1m (2010: increase of £1.3m).
Net debt increased during the period by £0.5m
(2010: increase of £2.9m), resulting in net debt
at the period end of £(4.8)m (2010: £(4.3)m).
EMPLOYEE BENEFITS
The Group accounts for its pension arrangements
in accordance with IAS 19. This accounting is
based on a series of actuarial assumptions.
Full details of 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, remains 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. The employee
benefits liability recognised in the statement
of financial position has decreased by £2.3m
due mainly to the changes which have been
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The 600 Group PLC
annual report and accounts 2011
09
Gross profit percentage
Operating profit percentage
Working capital levels
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;
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MEASURING OUR PERFORMANCE
These KPIs are measured and
reviewed on a regular basis and
enable us to set and communicate
performance targets and monitor
the progress of the business.
Return on sales
Cash generation
Key performance indicators
Revenue growth
made to the measure of inflation for private
sector occupational pension schemes in the
UK. The overall surplus for the UK scheme at
the year end of £4.1m has not been recognised
on the balance sheet in accordance with the
requirement of IFRIC 14.
operational, e.g. 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;
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 and managed centrally for both
the UK and 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
global nature of our principal areas of activity,
the Group purchases and sells in a range
of major foreign currencies.
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,
exchange rate movements, low‑cost
competition, market conditions, short‑term
customer confidence levels;
liquidity, e.g. the risk that the Group will
encounter difficulty in meeting its obligations
associated with financial liabilities, including
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, e.g. major contract management,
inventory control, credit control, pension
scheme funding;
hazard/health and safety/product liability; and
return on sales;
defined benefit pension schemes – the
cash generation;
Group continues to be subject to various
financial risks in relation to the pension
schemes, for example the volatility of
discount rates and of the valuation of
pension scheme assets. See Note 28
for further information on this.
gross profit percentage;
operating profit percentage; and
working capital levels.
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‘s Managing Director or General Manager.
These risks are closely monitored and discussed
with each business unit and appropriate
safeguards are put in place where possible.
MARTYN WAKEMAN
GROUP FINANCE DIRECTOR
27 JULY 2011
The 600 Group PLC
annual report and accounts 2011
www.600group.com
10
Directors and advisers
MARTIN JOHN TEMPLE*
A non‑executive Director since 1 April 2007 and Chairman since 5 September 2007. Chairman of
the Engineering Employers’ Federation (EEF) and Chairman of the Design Council. Formerly held
senior management positions in British Steel.
DAVID NORMAN
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
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. Managing Director of Neofil Limited.
DEREK ZISSMAN*
Appointed to the Board as a non‑executive Director on 2 February 2011. Chairman of the
advisory board at Alchemy Partners LLP, Chairman of Seymour Pierce Ltd and a member
of the Barclays Wealth Advisory Committee. Previously vice‑chairman of KPMG LLP.
PAUL DUPEE**
Appointed to the Board as a non‑executive Director on 2 February 2011. Currently Managing
Partner of Haddeo Partners LLP. Formerly Director and Chairman of Lynton Aviation, Boston Celtic
Communications and Boston Celtic Limited Partnership. Previously President and Director of
Providence Capitol International Investment Ltd, a subsidiary of Gulf + Western Industries.
* Non‑executive Director, Chairman of the Audit Committee and member of the Remuneration Committee.
** Non‑executive Director.
SECRETARY
Alan Roy Myers
REGISTERED OFFICE
Union Street
Heckmondwike
West Yorkshire
WF16 0HL
REGISTERED NUMBER
196730
REGISTRARS
CAPITA REGISTRARS
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
AUDITOR
KPMG AUDIT PLC
BANKERS
HSBC BANK PLC
STOCKBROKERS
FINNCAP
SHAREHOLDER INFORMATION
FINANCIAL CALENDAR
PERIOD ENDING 2 APRIL 2011
Annual General Meeting
To be held 14 September 2011
PERIOD ENDING 31 MARCH 2012
Interim Report
To be issued mid‑November 2011
Results for the year
To be announced June 2012
Annual Report and Accounts
To be issued July 2012
www.600group.com
The 600 Group PLC
annual report and accounts 2011
11
Report of the directors
The Directors present their report to the members, together with the audited financial statements for the period ended 2 April 2011, which should
be read in conjunction with the Chairman’s Statement on the affairs of the Group (pages 4 and 5), the Group Chief Executive’s Review of Operations
(pages 6 and 7) and the Group Finance Director’s Financial Review (pages 8 and 9). 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 2011 are for the 52-week period ended 2 April 2011. The results for 2010 are for the 53-week period ended 3 April 2010.
ACTIVITIES OF THE GROUP
The Group is principally engaged in the manufacture and distribution of machine tools, machine tool accessories, laser marking equipment
and other engineering products. The Group has subsidiary companies in overseas locations but does not have any overseas branches.
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 4 to 9. 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.
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 (2010: £nil). The Group made no political donations in the period (2010: £nil).
INTERESTS IN SHARE CAPITAL
At 2 June 2011, the Directors had been informed of the following interests in shares of 3% or more of the issued ordinary share capital
of the Company:
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Haddeo Partners
Henderson Global Investors
Schroder Investment Management
Maland Pension Fund Trustees
Barclays Stockbrokers
Percentage
of issued
ordinary
Number
share capital
16,125,868
5,314,519
3,671,320
3,200,000
2,507,947
25.27
8.33
5.75
5.01
3.93
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.
During the period an arrangement was entered into with Haddeo Partners LLP to advance £2.5m to the Group over a five year term which also
involved the issue of 12.5m warrants. These warrants can be used by the holders to either convert the loan into shares or to purchase shares
for a cash consideration. During the period 700,000 warrants were exercised for cash with a further 150,000 warrants exercised for cash since
the period end.
Haddeo Partners LLP, in addition to their shareholding above, currently holds 5,050,000 warrants.
The 600 Group PLC
annual report and accounts 2011
www.600group.com
12
Report of the directors continued
PURCHASE OF OWN SHARES
Authority granting the Company the option to purchase 5,723,367 of its own ordinary shares in accordance with the Companies Act 2006 was
given by shareholders at the Annual General Meeting of the Company on 29 September 2010. This authority remains valid until the conclusion
of the next Annual General Meeting on 14 September 2011.
DIRECTORS
Details of the current Directors of the Company are shown on page 10. In addition, C J Cundy served as a Director during the period until his
resignation on 2 February 2011.
M J Temple has decided not to stand for re-election and the Director retiring by rotation is M G D Wakeman who, being eligible, offers
himself for re-election. In addition, P R Dupee and D Zissman were appointed as Directors of the Company by the Board subsequent to the last
Annual General Meeting. As such, they shall retire and each offer themselves for election as a Director of the Company. D H Norman and
M G D Wakeman both have rolling service contracts of twelve months with the Company. M J Temple, S J Rutherford, D Zissman and P R Dupee
do not have rolling service contracts with the Company.
The beneficial interests of the Directors in the share capital of the Company at 2 April 2011 are shown in the Remuneration Report on pages 17 to 21.
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 74 days (2010: 64 days) of average purchases for the Company
and 53 days (2010: 69 days) for the Group.
POST BALANCE SHEET EVENTS
The Group raised approximately £1.76m through an institutional placing of 5,787,574 new ordinary shares of 1p each at a price of 30.5p per share
on 5 April 2011. This raised the total number of shares in issue to 63,721,253 at that date.
Subsequent to the period-end 150,000 of the share warrants attached to the shareholder loan have been exercised which leaves the total number
of shares in issue currently at 63,871,253.
11,650,000 warrants remain from the original 12,500,000 warrants attached to the £2.5m shareholder loan. These warrants can be used by their
holders to either convert their element of the shareholder loan into shares or to purchase shares for a cash consideration.
On 23 May 2011 a circular was issued to our shareholders proposing to cancel the admission of the Company’s ordinary shares from the Official
List and to trading on the London Stock Exchange’s Main Market and to apply for the admission of the Company’s ordinary shares to trading on AIM.
This resolution was approved at a general meeting held on 15 June 2011. The final day of dealings on the Official List was 13 July 2011 with
commencement of trading on AIM taking place on 14 July 2011.
MARKET VALUE OF LAND AND BUILDINGS
During March 2010 all of the Group’s properties were revalued by independent valuers and the Directors believe that these valuations remain
appropriate at 2 April 2011.
ENVIRONMENTAL POLICY
It is the Group’s policy to seek continually to eliminate and, where this is not practicable, to minimise negative environmental impacts from the
pursuit of its various business interests whilst continuing to produce high quality products to its customers’ requirements.
It is the Group’s policy to comply with all statutory environmental legislation as a minimum and to aim to improve upon the standards set by the
local regulatory authorities.
To this end, each subsidiary is audited by the Group’s internal health, safety and environment manager to:
benchmark performances across the Group;
help sites identify and prioritise issues for improvement; and
ensure legal compliance.
The results of audits are communicated directly to the Directors and to all subsidiary boards and appropriate action is taken.
It is the Group’s policy to foster an informed and responsible approach to all environmental concerns and it encourages the involvement
of employees, customers and suppliers. Regulatory authorities are consulted and informed at all appropriate times. The Group continues
to support long-term strategies to minimise, reuse and recycle packaging.
www.600group.com
The 600 Group PLC
annual report and accounts 2011
13
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.
PROVISION OF INFORMATION TO AUDITOR
All of the current Directors have taken all steps that they ought to have taken to make themselves aware of any information needed by the
Company’s auditor for the purposes of its audit and to establish that the auditor is aware of that information. The Directors are not aware
of any relevant audit information of which the auditor is unaware.
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 2006.
On behalf of the Board
MARTYN WAKEMAN
DIRECTOR
27 JULY 2011
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The 600 Group PLC
annual report and accounts 2011
www.600group.com
14
Corporate governance
Other than as indicated below, the Board considers that the Company has complied throughout the period with the Combined Code on Corporate
Governance published by the Financial Reporting Council in June 2008 (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 following relates to the Company’s application during the period to 2 April 2011 of the principles and detailed provisions of the Combined Code.
BOARD OF DIRECTORS
During the year, the Board was broadly balanced with for the majority of the year the non-executive Chairman supported by a non-executive
Vice Chairman, one other non-executive Director and two Executive Directors. From 2 February 2011 onwards an additional non-executive Director
was added to the Board. The Director recognised as the senior independent Director for the purposes of the Combined Code is S J Rutherford.
The Board of Directors met 18 times during the period. D H Norman and M G D Wakeman attended all meetings. M J Temple attended 17 meetings,
S J Rutherford attended 14 meetings and C J Cundy attended eleven meetings until his resignation on 2 February 2011. Following their appointment
on 2 February 2011 D Zissman attended three meetings and P R Dupee attended two 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 D Zissman, M J Temple and S J Rutherford. It is chaired by D Zissman (who the Board considers has recent and
relevant financial experience). It met three times 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 M J Temple, D H Norman and M G D Wakeman attended all of the meetings of the committee. S J Rutherford
and D Zissman attended two meetings and C J Cundy attended one. There is provision for the committee to meet with the auditor without the
attendance of the Executive Directors.
The Remuneration Committee consists of S J Rutherford, M J Temple and D Zissman. It is chaired by S J Rutherford. It determines the terms and
conditions of employment for Executive Directors and agrees the parameters of remuneration for the senior management. There were five meetings
during the year. S J Rutherford and M J Temple attended all the meetings and C J Cundy attended three meetings until his resignation on
2 February 2011. 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.
There are no formal policies in place for employees to raise concerns to the Audit Committee but all employees are encouraged to address
concerns to their respective manager.
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.
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The 600 Group PLC
annual report and accounts 2011
15
INTERNAL CONTROL CONTINUED
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.
INTERNAL AUDIT
Head office staff visit locations on a regular cyclical basis. The results of these visits and 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 its 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.
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.
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The 600 Group PLC
annual report and accounts 2011
www.600group.com
16
Corporate governance continued
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).
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and Parent Company and of their profit or loss for that period. 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 judgements and estimates that are reasonable and prudent;
for the Group financial statements, state whether they have been prepared in accordance with IFRSs 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 adequate accounting records that are sufficient to show and explain the parent company’s transactions
and 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 2006. 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 and Directors’ Remuneration Report that
complies with that law and those regulations. The Directors have also decided to prepare voluntarily a Corporate Governance Statement as if the
Company were required to comply with the Listing Rules and the Disclosure Rules and Transparency Rules of the Financial Services Authority in
relation to those matters.
The Directors are responsible for the maintenance and integrity of the 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.
On behalf of the Board
MARTYN WAKEMAN
DIRECTOR
27 JULY 2011
www.600group.com
The 600 Group PLC
annual report and accounts 2011
17
Remuneration report
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INTRODUCTION
This report has been prepared in accordance with the requirements of the Companies Act 2006. The report is divided into two sections, unaudited
and audited information. 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:
S J Rutherford (Committee Chairman)
M J Temple
D Zissman (from his appointment on 2 February 2011)
C J Cundy (until his resignation on 2 February 2011)
The Committee held five meetings during the year. The most significant matters discussed by the Committee at its formal meetings this year were:
the operation of the bonus scheme in the current economic climate;
the formal grant of awards under the new performance share plan; and
a review of Executive Directors’ salaries.
COMMITTEE’S ADVISERS
During the year, PricewaterhouseCoopers LLP continued to act as independent advisers to the Committee and provided services relating
to the benchmarking of Executive Directors’ pay.
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 paid in the period to 2 April 2011.
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 3 April 2010 to 2 April 2011 was 75% of basic annual
salary and was divided into two parts which are each subject to different performance targets:
overall Group performance based on operating profit and EBITDA for the year (maximum 55%); and
achievement of agreed objectives (maximum 20%).
The 600 Group PLC
annual report and accounts 2011
www.600group.com
18
Remuneration report continued
EXECUTIVE DIRECTORS’ REMUNERATION CONTINUED
LONG-TERM INCENTIVE PLANS
THE 600 GROUP PLC 2008 AND 2009 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. Awards under the PSP were made on 25 August 2009 and
22 March 2011. Awards of 150% of salary were made to D H Norman and M G D Wakeman and awards of 75% of salary were made to certain
senior employees.
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 awards made on 25 August 2009 and 22 March 2011 were set after
consideration at that time of the current economic circumstances of the Company and expectations of the future. The exercise price of both
schemes is nil and both will ordinarily only vest after three years from grant.
The performance conditions and vesting schedule attaching to the PSP awards made on 25 August 2009 are set out in the table below:
TSR target
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