The 600 Group PLC annual report and accounts 2012 _0_600_ar12_Cover_[DB.MR_KW].indd 2 07/09/2012 10:18:44 Contents Chairman’s Statement Group Chief Executive’s Review of Operations Financial Review Directors and advisers Report of the directors Statement of Directors’ responsibilities Remuneration report Independent auditor’s report Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Group accounting policies Notes relating to the consolidated financial statements Company balance sheet Company accounting policies Notes relating to the company financial statements 1 3 5 8 9 12 13 18 19 20 21 22 23 24 30 61 62 64 _0_600_ar12_Cover_[DB.MR_KW].indd 3 07/09/2012 10:18:44 Chairman’s Statement Overview and board composition Since my appointment as Chairman in September 2011, and that of Neil Carrick as Group Finance Director shortly thereafter, it became increasingly apparent that the financial performance of the Group was unsatisfactory. Trading results for the financial year ended 31 March 2012 were seriously impaired by the performance of the machine tools business in Europe. In consequence, the Group was unable to capitalise on improving trading conditions in most major geographical and end user markets, instead suffering from the effects of operational difficulties and a shortage of working capital. Since the beginning of the new financial year on 1 April 2012, the Group has made significant changes to address the issues outlined above and these so far have included the appointment of Nigel Rogers as Chief Executive, the divestment of non-core assets, the cessation of manufacturing operations in Poland, and the completion of equity and bank refinancing appropriate to the future strategic direction of the business. Opportunities have also been identified to further reduce the UK cost base over the coming months. The board is now satisfied that the Group is set fair for a period of much greater stability, and has a robust platform from which to deliver future growth, and shareholder value. Strategic review In July 2012 we announced the divestment of 600 SA Pty Limited, the Group’s wholly owned subsidiary in South Africa. This business sold mechanical and waste handling equipment into sub-Saharan Africa, and had minimal interaction with the other activities of the Group. This sale, together with a number of freehold property transactions in the UK, will serve to secure the release of valuable financial resources for the future development of core businesses. These divestments form part of a broader strategic review of Group activities, in which the board has focused on developing the key market strengths of core activities in the design and distribution of machine tools, precision engineered components, and laser marking equipment. In each of these activities, Group businesses have strong brands, significant market share, diverse geographical spread, and reliable distribution partners in key markets. This review also considered the approach to manufacturing and supply chain, and it was determined that Group companies have core manufacturing competences in CNC turning, precision engineered components and laser marking equipment. These activities offer significant added value capability, and the Group intends to continue to invest and develop these facilities. In recent years, the manufacture of machine tools has increasingly been outsourced from the UK, initially to lower cost regions in Asia, supplemented more latterly by the acquisition of the Group subsidiary in Poland, Fabryka Maszyn Tarnow Sp z.o.o. (“FMT”). In August 2012, the Board considered that continued losses incurred by manufacturing at FMT were unsustainable, and this activity was discontinued. The Group has excellent links with valued supply chain partners in Asia, and will continue to outsource the manufacture of conventional and manual/CNC lathes to Group designs. Results and dividend Revenue from continuing operations grew by 8.1% to £39.39m (2011: £36.45m) and generated a net operating loss from continuing operations but before special items of £1.21m (2011: profit of £0.26m). After taking account of interest, pensions, taxation, discontinued activities and special items, the Group loss for the financial year was £14.85m (2011: profit of £2.87m). As any dividend payments continue to be dependent upon the Group’s results, the Board does not recommend that any payment be made. Financial resources On 5 September 2012 the company entered into an agreement for the placing of an aggregate of 19.66m ordinary shares of 1p each at a placing price of 7.5 pence per share, raising an aggregate of £1.47m. The company also entered into revised facility agreements with its principal banker covering existing term loan and revolving credit facilities amounting to £3.64m and a new working capital facility of £0.30m. 0_600_ar12.indd 1 1 1 07/09/2012 10:18:55 Chairman’s Statement Outlook Group order books continue to show strength, and revenues in coming months will benefit from greater certainty within supply chains, and the availability of adequate working capital financing. There are no significant signals to indicate that the current heightened level of macroeconomic uncertainty will have any adverse effect on levels of underlying customer demand, but the Board remain cognisant of this potential risk. A substantial proportion of Group business is derived in North America, where trading in the current year to date has continued to be ahead of our expectations. Prospects are also positive for precision engineered components and laser marking. Meanwhile, the implementation of the strategic review has lowered the risk profile of the Group’s machine tools activities in Europe considerably, and provides a stable base from which to manage and grow the profitability and cash generation of this business in future. Paul Dupee Chairman 5 September 2012 2 0_600_ar12.indd 2 2 07/09/2012 10:18:55 Chairman’s Statement Group Chief Executive’s Review of Operations Group order books continue to show strength, and revenues in coming months will benefit from greater certainty within supply chains, and the availability of adequate working capital financing. There are no significant signals to indicate that the current heightened level of macroeconomic uncertainty will have any adverse effect on levels of underlying customer demand, but the Board remain cognisant of this A substantial proportion of Group business is derived in North America, where trading in the current year to date has continued to be ahead of our expectations. Prospects are also positive for precision engineered components and laser marking. Meanwhile, the implementation of the strategic review has lowered the risk profile of the Group’s machine tools activities in Europe considerably, and provides a stable base from which to manage and grow the profitability and cash generation of this business in future. Outlook potential risk. Paul Dupee Chairman 5 September 2012 Introduction The 600 Group PLC ("the Group") is a diversified engineering group with a world class reputation in the design and distribution of machine tools, and the design, manufacture and distribution of precision engineered components and laser marking systems. The Group operates these businesses from locations in Europe, North America and Australia selling into more than 180 countries worldwide. The improved market conditions of the previous financial year continued to prevail, with strong demand evident in all three principal locations, and especially in North America. Machine tools and precision engineered components Revenues increased by 11.9% to £32.94m (2011: £29.43m) with particularly strong revenue growth generated by our North American operations, from which some 50% of revenues are derived. UK and Europe contribute around 35%, with the remaining revenues derived from the Middle East, Africa and Asia Pacific (including Australia). Only machine tools for the UK and Europe were sourced from FMT in Poland, and the output from FMT satisfied only about one quarter of total sales in this region. The large majority of machine tools and components for UK and Europe, and all sales outside this region, were manufactured in our UK facilities or sourced from our manufacturing partners in Asia. Segmental operating profit, excluding losses incurred at FMT and special items, was £1.47m (4.7% of revenue) against £1.29m (4.5%) last year. FMT incurred an operating loss before special items of £1.43m (39% of local revenue), resulting in a segmental operating profit close to break even in the financial year. The decision to close FMT in August 2012 has been well received by our customers and distributors across Europe, and we have made good progress in managing the transition of open orders on FMT into our existing supply chain. Our product range and market leading brands continue to attract high levels of customer demand, and the order book remains healthy. Our main task now is to sustain continuous improvements to customer service levels and build on the loyalty of our trading partners. Revenues from precision engineered components have also shown growth, both for Pratt Burnerd workholding equipment and for Gamet bearings. These niche activities contribute almost 20% of segmental revenue at above average margins in recognition of their specialist product ranges. We see further growth opportunities in these product areas as a priority for the future. We have now overcome some significant short term challenges, and have identified a clear path to achieving growth in revenues and improvements in costs and efficiencies. Our key focus is now to continue to deliver controlled growth in North America and Australia, whilst delivering improved operational performance in Europe to grow revenues, restore operating margins, and rebuild customer confidence. Laser marking Revenues for Electrox laser marking equipment fell by 8.2% to £6.45m (2011: £7.03m), although operating profits were virtually unchanged at £0.32m. This was attributable to reduced production output as a consequence of working capital constraints, especially in the final quarter of the year. These constraints were mitigated during most of the first quarter of the current financial year, and consequently progressive improvements in output have been achieved. More than 85% of revenues are derived from outside the UK, with major markets in North America and Northern Europe contributing more than two thirds of sales. Delivery lead times are now returning to more normal levels, and this provides opportunities to reduce order backlog and generate increased revenues. This business relies on technical excellence to provide innovative and pragmatic solutions to end-users across a wide range of industry sectors. New opportunities continue to emerge from the increasing need for component traceability in manufacturing processes, and the desire for durable surface marking on consumer and branded products. Electrox offers robust and reliable solutions, whilst also developing specialist applications knowledge to integrate marking equipment into continuous processes. We are confident of strong future growth prospects for this business, and plan to continue to invest in people, process and products to achieve enhanced scale and profitability. 2 0_600_ar12.indd 3 3 3 07/09/2012 10:18:56 Group Chief Executive’s Review of Operations Discontinued activities The Group’s subsidiary in South Africa, 600 SA Pty Ltd (“600SA”) generated an operating profit of £0.34m (2011: £0.91m) on revenues of £13.77m (2011: £14.11m) during the financial year. 600SA was involved in the manufacture and distribution of specialist equipment for handling waste and working at height for markets in South Africa and the surrounding region. These were determined to be non-core activities, especially in view of certain difficulties encountered in repatriating currency to the parent undertaking. On 16 July 2012, the sale of 600SA was completed for net cash proceeds of approximately £1.81m. The net assets of the business at 31 March 2012 have been written down to a fair value of £1.81m and are disclosed in the Statement of Financial Position as assets and liabilities held for sale. Freehold property divestments On 3 July 2012 freehold property at Shepshed, Leicestershire, was sold to a privately owned company for net cash proceeds of £1.20m against a book value of £1.10m. At the time of sale the property was generating rental income of approximately £0.02m per annum. Further freehold property disposals are anticipated during the current financial year. Corporate and Social Responsibility Maintaining the highest ethical and professional standards and accepting social responsibility is fundamental to the way we operate throughout The 600 Group Plc. We run our businesses based on sustained growth and transparency at all levels. The development of our people is a core value throughout the Group and we see it as our duty to be a responsible employer. We are committed to the creation of training opportunities to support our employees in reaching their full potential. The Group operates a global policy on equality and we are committed to providing a working environment with a culture of respect towards the diversity of our people. We are committed to offering equal opportunities to all people without discrimination as to race, sex, nationality, ethnic or national origin, language, age, marital status, sexual orientation, religion or disability. A comprehensive health and safety policy is in place to ensure a safe working environment at all times. The health and safety policy also demonstrates our additional responsibility to customers, suppliers and contractors and we maintain communication of the policy at all levels throughout the Company. We encourage two-way and open lines of communication throughout the Group and are committed to ongoing dialogue with local and global stakeholders to create trust, opportunity and long term sustainable value. People In the relatively short time that I have worked with the Group, I have been impressed by the resilience of employees at all levels, and their determination to deal with some difficult issues with the overarching objective of improving the level of service to our customers. On behalf of the board and shareholders, I would like to place on record our recognition of their professionalism, integrity and hard work. Current trading and prospects Trading results in operations outside Europe have continued to show good progress in the current financial year to date. The issues affecting the European results for the year ended 31 March 2012 have prevailed through the first half of the current financial year. The progress made on divestments, the closure of FMT in August, and the recent refinancing, have resulted in a significant improvement in the availability and disposition of working capital in European operations. This will take time to impact fully on delivery lead times and customer service, but there are clear signs that significant improvements will be evident in the second half of the financial year. Nigel Rogers Group Chief Executive 5 September 2012 4 0_600_ar12.indd 4 4 07/09/2012 10:18:56 Group Chief Executive’s Review of Operations Discontinued activities Financial review Results The Group’s subsidiary in South Africa, 600 SA Pty Ltd (“600SA”) generated an operating profit of £0.34m (2011: £0.91m) on revenues of £13.77m (2011: £14.11m) during the financial year. 600SA was involved in the manufacture and distribution of specialist equipment for handling waste and working at height for markets in South Africa and the surrounding region. These were determined to be non-core activities, especially in view of certain difficulties encountered in repatriating currency to the parent undertaking. On 16 July 2012, the sale of 600SA was completed for net cash proceeds of approximately £1.81m. The net assets of the business at 31 March 2012 have been written down to a fair value of £1.81m and are disclosed in the Statement of Financial Position as assets and liabilities held for sale. Freehold property divestments On 3 July 2012 freehold property at Shepshed, Leicestershire, was sold to a privately owned company for net cash proceeds of £1.20m against a book value of £1.10m. At the time of sale the property was generating rental income of approximately £0.02m per annum. Further freehold property disposals are anticipated during the current financial year. Revenue from continuing operations increased by 8.1% to £39.39m (2011: £36.45m). Gross margin from continuing operations before special items was 30.7% (2011: 35.5%) and the loss from operations was £1.21m (2011: profit of £0.26m). After taking account of financial income and expenses including a net credit in respect of pensions of £1.57m (2011 : £1.39m), the net loss from continuing operations, before taxation, discontinued activities and Special Items, was £0.29m (2011: profit of £1.12m including a net credit special item in respect of pensions of £2.57m). Group operations in South Africa were identified as discontinued during the financial year, and sold in July 2012. Group results reflect the net profit after taxation of £0.49m and the net loss on sale of this operation of £1.26m in discontinued activities. Restructuring costs and other costs which in the judgement of management are non-recurring in nature amounting to £12.88m have been disclosed as Special Items, together with a charge relating to share-based payments of £90,000 (2011 special items credit of £1.35m including a pension credit of £2.57m and a charge for share based payments of £ 127,000). The cash effect of these Special Items in the 2012 year has been £2.2m with an additional cash impact of £0.6m expected over future periods. Corporate and Social Responsibility The net loss for the period was £14.85m (2011: net profit of £2.87m). Maintaining the highest ethical and professional standards and accepting social responsibility is fundamental to the way we operate throughout The 600 Group Plc. We run our businesses based on sustained growth and transparency at all levels. Basic earnings per share from continuing operations before Special Items was a loss of 1.87p (2011: profit of 1.16p) and total basic earnings per share, after allowing for special items and discontinued activities, was a loss of 23.30p (2011: profit of 5.01p). The development of our people is a core value throughout the Group and we see it as our duty to be a responsible employer. We are committed to the creation of training opportunities to support our employees in reaching their full potential. The Group operates a global policy on equality and we are committed to providing a working environment with a culture of respect towards the diversity of our people. We are committed to offering equal opportunities to all people without discrimination as to race, sex, nationality, ethnic or national origin, language, age, marital status, sexual orientation, religion or disability. A comprehensive health and safety policy is in place to ensure a safe working environment at all times. The health and safety policy also demonstrates our additional responsibility to customers, suppliers and contractors and we maintain communication of the policy at all levels throughout the Company. We encourage two-way and open lines of communication throughout the Group and are committed to ongoing dialogue with local and global stakeholders to create trust, opportunity and long term sustainable value. People In the relatively short time that I have worked with the Group, I have been impressed by the resilience of employees at all levels, and their determination to deal with some difficult issues with the overarching objective of improving the level of service to our customers. On behalf of the board and shareholders, I would like to place on record our recognition of their professionalism, integrity and hard work. Statement of Financial Position and cash flow Net cash outflow from operating activities was £3.87m (2011: net inflow of £1.18m) and a further outflow of £1.06m (2011: £1.79m) was incurred on investment activities. The net outflow was financed by proceeds from the issue of ordinary shares of £1.81m and net proceeds from external borrowing of £4.99m. Net indebtedness at 31 March 2012 stood at £7.99m (2011: £4.80m) and there was headroom on bank facilities of approximately £1.30m at the year end. Since the beginning of the new financial year net indebtedness has reduced significantly, mainly as a consequence of the divestment of 600 SA Pty Limited and freehold property at Shepshed announced in July 2012. On 5 September 2012 the company entered into an agreement for the placing of an aggregate of 19.66m ordinary shares of 1p each at a placing price of 7.5 pence per share, raising an aggregate of £1.47m. The company also entered into revised facility agreements with its principal banker covering existing term loan and revolving credit facilities amounting to £3.64m and a new working capital facility of £0.30m. The net proceeds from these transactions will be used to reduce net indebtedness and fund the ongoing working capital requirements of the Group. Current trading and prospects Taxation The company has incurred significant trading losses in current and prior years and accordingly has no significant liability for taxation. Movements in deferred taxation in respect off prior periods recognition of losses and the current deferred taxation movements on employee benefits account for the majority of the charge shown in the Consolidated income statement. Trading results in operations outside Europe have continued to show good progress in the current financial year to date. The issues affecting the European results for the year ended 31 March 2012 have prevailed through the first half of the current financial year. The progress made on divestments, the closure of FMT in August, and the recent refinancing, have resulted in a significant improvement in the availability and disposition of working capital in European operations. This will take time to impact fully on delivery lead times and customer service, but there are clear signs that significant improvements will be evident in the second half of the financial year. Nigel Rogers Group Chief Executive 5 September 2012 4 0_600_ar12.indd 5 5 5 07/09/2012 10:18:56 Financial review Treasury and risk management Financial risks The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The directors regularly review and agree policies for managing these risks. Credit risk is managed by monitoring limits and payment performance of counterparties. The directors consider the level of general credit risk in current market conditions to be higher than normal. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group’s exposure. Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. Foreign currency is bought to match liabilities as they fall due where currency receipts are insufficient to match the liability. The results of 600 Inc and 600 Australia Pty Limited are reported in United States dollars and Australian dollars respectively, and as a result of this the Group’s Statement of Financial Position and trading results can be affected by movements in these currencies. Part of this exposure is hedged by entering into working capital facilities denominated in US dollars. Liquidity risk is managed by the Group maintaining undrawn revolving credit and overdraft facilities in order to provide short term flexibility. Interest rate risk is managed by holding a mixture of cash and borrowings in Sterling, US dollars and Australian dollars at floating rates of interest. Market risks The Group’s main exposure to market risk arises from increases in input costs in so far as it is unable to pass them onto customers through price increases. The Group does not undertake any hedging activity in this area and all materials and utilities are purchased in spot markets. The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to minimise increases in input costs and passing cost increases on to customers, where this is commercially viable. The Group is also aware of market risk in relation to the dependence upon a relatively small number of key vendors in its supply chain. This risk could be manifest in the event of a commercial or natural event leading to reduced or curtailed supply. The Group seeks to mitigate these risks by maintaining transparent and constructive relationships with key vendors, sharing long term plans and forecasts, and encouraging effective disaster recovery planning. The Group is also exposed to the risk of a downturn in its customers’ end markets leading to reduced levels of activity for the Group. The directors seek to ensure that the Group’s activities are not significantly concentrated in sales to either one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. The directors consider that the current level of market risk is normal. Other principal risks and uncertainties The remaining main risks faced by the Group are its exposure to pension funding and the risk to its reputation of a significant failure to comply with accepted standards of ethical and environmental behaviour. Pension funding risk arises from the Group’s operation of a defined benefit pension scheme which gives rise to fluctuations between the value of its projected liabilities and the value of the assets the scheme holds in order to discharge those liabilities. The amount of any surplus or deficit may be adversely affected by such factors as lower than expected investment returns, changes in long term interest rates and inflation expectations and increases in the forecast longevity of members. The directors regularly review the performance of the pension scheme and any recovery plan. On 10 August 2012 the Group withdrew financial support for its Polish subsidiary, Fabryka Maszyn Tarnow Sp z o.o. (“FMT”). The board of FMT are preparing a petition for bankrupt liquidation under local law. The Group directors consider that any risk of material liabilities of FMT becoming attributable to the parent company is remote. The directors have taken steps to ensure that all of the Group’s global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review, and key suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of applicable regulations. 6 0_600_ar12.indd 6 6 07/09/2012 10:18:56 return on sales; revenue growth; cash generation; gross profit percentage; operating profit percentage; and Key financial performance indicators constantly under review include: working capital levels. Financial review 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. Financial review Treasury and risk management Financial risks The main financial risks faced by the Group are credit risk, foreign currency risk, interest rate risk and liquidity risk. The directors regularly review and agree policies for managing these risks. Credit risk is managed by monitoring limits and payment performance of counterparties. The directors consider the level of general credit risk in current market conditions to be higher than normal. Where a customer is deemed to represent an unacceptable level of credit risk, terms of trade are modified to limit the Group’s exposure. Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. Foreign currency is bought to match liabilities as they fall due where currency receipts are insufficient to match the liability. The results of 600 Inc and 600 Australia Pty Limited are reported in United States dollars and Australian dollars respectively, and as a result of this the Group’s Statement of Financial Position and trading results can be affected by movements in these currencies. Part of this exposure is hedged by entering into working capital facilities denominated in US dollars. Interest rate risk is managed by holding a mixture of cash and borrowings in Sterling, US dollars and Australian dollars at floating rates of interest. Market risks The Group’s main exposure to market risk arises from increases in input costs in so far as it is unable to pass them onto customers through price increases. The Group does not undertake any hedging activity in this area and all materials and utilities are purchased in spot markets. The Group seeks to mitigate increases in input costs through a combination of continuous improvement activities to minimise increases in input costs and passing cost increases on to customers, where this is commercially viable. The Group is also aware of market risk in relation to the dependence upon a relatively small number of key vendors in its supply chain. This risk could be manifest in the event of a commercial or natural event leading to reduced or curtailed supply. The Group seeks to mitigate these risks by maintaining transparent and constructive relationships with key vendors, sharing long term plans and forecasts, and encouraging effective disaster recovery planning. The Group is also exposed to the risk of a downturn in its customers’ end markets leading to reduced levels of activity for the Group. The directors seek to ensure that the Group’s activities are not significantly concentrated in sales to either one individual customer or into a single market sector in order to mitigate the exposure to a downturn in activity levels. The directors consider that the current level of market risk is normal. Other principal risks and uncertainties The remaining main risks faced by the Group are its exposure to pension funding and the risk to its reputation of a significant failure to comply with accepted standards of ethical and environmental behaviour. Pension funding risk arises from the Group’s operation of a defined benefit pension scheme which gives rise to fluctuations between the value of its projected liabilities and the value of the assets the scheme holds in order to discharge those liabilities. The amount of any surplus or deficit may be adversely affected by such factors as lower than expected investment returns, changes in long term interest rates and inflation expectations and increases in the forecast longevity of members. The directors regularly review the performance of the pension scheme and any recovery plan. On 10 August 2012 the Group withdrew financial support for its Polish subsidiary, Fabryka Maszyn Tarnow Sp z o.o. (“FMT”). The board of FMT are preparing a petition for bankrupt liquidation under local law. The Group directors consider that any risk of material liabilities of FMT becoming attributable to the parent company is remote. The directors have taken steps to ensure that all of the Group’s global operations are conducted to the highest ethical and environmental standards. Regulatory requirements are kept under review, and key suppliers are vetted in order to minimise the risk of the Group being associated with a company that commits a significant breach of applicable regulations. Liquidity risk is managed by the Group maintaining undrawn revolving credit and overdraft facilities in order to provide short term flexibility. Going concern In accordance with FRC guidelines, the Board has assessed the Group’s funding and liquidity position and further details can be found in the basis of preparation accounting policy note. The Directors confirm that, after having made appropriate enquiries, and after taking into consideration the placing of shares and revisions to banking facilities concluded on 5 September 2012, they have a reasonable expectation that the Group and the Company have adequate resources to continue operations for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparation of the financial statements. Neil Carrick FCA Group Finance Director 5 September 2012 6 0_600_ar12.indd 7 7 7 07/09/2012 10:18:57 Directors and advisers Paul Dupee* Appointed to the Board as a non-executive Director on 2 February 2011 and appointed Chairman on 14 September 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. Nigel Rogers Appointed to the Board as Chief Executive Officer on 26 March 2012. Previously Chief Executive Officer of Stadium Group Plc Neil Carrick Appointed to the Board as Group Finance Director on 3 October 2011. Previously Group Finance Director and Company Secretary of Cosalt plc. Stephen 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. * Non-executive Director and member of the Audit Committee and member of the Remuneration Committee. SECRETARY Neil Carrick REGISTERED OFFICE Union Street Heckmondwike West Yorkshire WF16 0HL REGISTERED NUMBER 196730 REGISTRARS Capita Registrars 34 Beckenham Road Beckenham Kent BR3 4TU AUDITOR KPMG Audit Plc BANKERS Santander Plc STOCKBROKERS Finncap FINANCIAL ADVISORS Spark Advisory Partners 8 0_600_ar12.indd 8 8 07/09/2012 10:18:57 Directors and advisers Report of the directors Appointed to the Board as a non-executive Director on 2 February 2011 and appointed Chairman on 14 September 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 Appointed to the Board as Chief Executive Officer on 26 March 2012. Previously Chief Executive Officer of Stadium Group Plc Appointed to the Board as Group Finance Director on 3 October 2011. Previously Group Finance Director and Company Secretary of A non-executive Director since 1 October 2007. Managing Director of Neofil Limited. 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. * Non-executive Director and member of the Audit Committee and member of the Remuneration Committee. Paul Dupee* + Western Industries. Nigel Rogers Neil Carrick Cosalt plc. Stephen Rutherford* Derek Zissman* REGISTERED OFFICE SECRETARY Neil Carrick Union Street Heckmondwike West Yorkshire WF16 0HL REGISTERED NUMBER 196730 REGISTRARS Capita Registrars 34 Beckenham Road Beckenham Kent BR3 4TU AUDITOR KPMG Audit Plc BANKERS Santander Plc STOCKBROKERS Finncap FINANCIAL ADVISORS Spark Advisory Partners The Directors present their report to the members, together with the audited financial statements for the 52 week period ended 31 March 2012, which should be read in conjunction with the Chairman’s Statement on the affairs of the Group (pages 1 to 2), the Group Chief Executive’s Review of Operations (pages 3 to 4) and the Group Finance Director’s Financial Review (pages 5 to 7). 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 2012 are for the 52-week period ended 31 March 2012. The results for 2011 are for the 52-week period ended 2 April 2011. ACTIVITIES OF THE GROUP The Group is principally engaged in the manufacture and distribution of machine tools, precision engineered components and laser marking equipment. 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 19. 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’ Officers Review of Operations and Group Finance Director’s Financial Review on pages 1 to 7. 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 (2011: £nil). The Group made no political donations in the period (2011: £nil). INTERESTS IN SHARE CAPITAL At 5 August 2012, the Directors had been informed of the following interests in shares of 3% or more of the issued ordinary share capital of the Company: Haddeo Partners Henderson Global Investors Mr A Perloff and the Maland Pension Fund Trustees Schroder Investment Management Aerion Fund Management Percentage of issued ordinary share capital Number 16,125,868 25.22 5,414,519 4,100,000 3,671,320 2,270,000 8.47 6.41 5.74 3.08 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. On 3 August 2010 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. 700,000 warrants were exercised for cash in the period to 2 April 2011 with a further 205,000 warrants exercised for cash in the current period. 11,595,000 warrants remain outstanding. Haddeo Partners LLP, in addition to their shareholding above, currently hold 5,050,000 of these warrants. PURCHASE OF OWN SHARES Authority granting the Company the option to purchase 6,392,625 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 14 September 2011. This authority remains valid until the conclusion of the next Annual General Meeting. 8 0_600_ar12.indd 9 9 9 07/09/2012 10:18:57 Report of the directors DIRECTORS Details of the current Directors of the Company are shown on page 8. In addition, Martin Temple served as a Director and Chairman during the period until his resignation on 14 September 2011, Martyn Wakeman as a Director until his resignation on 2 October 2011 and David Norman as Director until his resignation on 26 March 2012. The director retiring by rotation is S J Rutherford who, being eligible, offers himself for re-election. In addition, Neil Carrick and Nigel Rogers 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. Both Mr Carrick and Mr Rogers have a rolling service contract of twelve months with the Company. 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 31 March 2012 are shown in the Remuneration Report on pages 13 to 17. 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. The amount of trade creditors in the balance sheet as at the end of the financial period represents 89 days (2011: 74 days) of average purchases for the Company and 62 days (2011: 53 days) for the Group. ADMISSION TO AIM A resolution 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 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. POST BALANCE SHEET EVENTS The group disposed of its surplus freehold property in Shepshed, Leicester on 3 July 2012 for £1.20m and completed the sale of its South African subsidiary 600SA on 16 July 2012 for net proceeds of £1.81m. These assets have been shown in the balance as current assets and liabilities for sale at the lower of their carrying value and fair value less costs to sell and the trading operations of 600 SA have been classified as discontinued . 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 31 March 2012. 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, re-use and recycle packaging. 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 26 to the financial statements. 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 their 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. 10 0_600_ar12.indd 10 10 07/09/2012 10:18:57 Report of the directors DIRECTORS Details of the current Directors of the Company are shown on page 8. In addition, Martin Temple served as a Director and Chairman during the period until his resignation on 14 September 2011, Martyn Wakeman as a Director until his resignation on 2 October 2011 and David Norman as Director until his resignation on 26 March 2012. The director retiring by rotation is S J Rutherford who, being eligible, offers himself for re-election. In addition, Neil Carrick and Nigel Rogers 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. Both Mr Carrick and Mr Rogers have a rolling service contract of twelve months with the Company. 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 31 March 2012 are shown in the Remuneration Report on Report of the directors AUDITOR In accordance with Section 489 of the Companies Act 2006, 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. 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. pages 13 to 17. CREDITOR PAYMENT POLICY No Director has a beneficial interest in the shares or debentures of any other Group undertaking. On behalf of the Board 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. The amount of trade creditors in the balance sheet as at the end of the financial period represents 89 days (2011: 74 days) of average purchases for the Company and 62 days (2011: 53 days) for the Group. A resolution 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 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 ADMISSION TO AIM 2011. NEIL CARRICK DIRECTOR 5 SEPTEMBER 2012 POST BALANCE SHEET EVENTS The group disposed of its surplus freehold property in Shepshed, Leicester on 3 July 2012 for £1.20m and completed the sale of its South African subsidiary 600SA on 16 July 2012 for net proceeds of £1.81m. These assets have been shown in the balance as current assets and liabilities for sale at the lower of their carrying value and fair value less costs to sell and the trading operations of 600 SA have been classified as discontinued . MARKET VALUE OF LAND AND BUILDINGS remain appropriate at 31 March 2012. ENVIRONMENTAL POLICY During March 2010 all of the Group’s properties were revalued by independent valuers and the Directors believe that these valuations 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, re-use and recycle packaging. An indication of the financial risk management objectives and policies and the exposure of the Group to price risk, credit risk, liquidity risk FINANCIAL INSTRUMENTS and cash flow risk is provided in Note 26 to the financial statements. 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 their 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. 10 0_600_ar12.indd 11 11 11 07/09/2012 10:18:58 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. As required by the AIM Rules of the London Stock Exchange 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 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. 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. NEIL CARRICK DIRECTOR 5 SEPTEMBER 2012 12 0_600_ar12.indd 12 12 07/09/2012 10:18:58 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 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. 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. NEIL CARRICK DIRECTOR 5 SEPTEMBER 2012 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. As required by the AIM Rules of the London Stock Exchange 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). As an AIM listed company The 600 Group plc is not required to prepare a remuneration report in accordance with Directors Report Regulations of the Companies Act 2006 , however the Directors recognise the importance and support the principles of the Regulations. The Auditor is not required to report to the shareholders on the remuneration report 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: 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 S J Rutherford (Committee Chairman) 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; D Zissman P Dupee M J Temple (until his resignation on 14 September 2011) Remuneration report The Committee held four meetings during the year. The most significant matters discussed by the Committee at its formal meetings this year were: • the operation of a bonus scheme in the current economic climate; • the formal grant of awards under the share plans; 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 share schemes. No Director 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 previously participated in a discretionary bonus scheme that was linked to the achievement of annual financial and personal performance targets. There were no cash bonuses paid in the period to 31 March 2012 but Awards of Deferred shares were made to Mr. Norman and Mr. Wakeman in January 2012 in lieu of cash bonuses in respect of their performance in the period to 2 April 2011. The Committee is reviewing future incentive arrangements. 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, 22 March 2011 and 18 January 2012. 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 , 22 March 2011 and 18 January 2012 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 in respect of the PSP awards made on 25 August 2009 have not been met and therefore the options have lapsed. 12 0_600_ar12.indd 13 13 13 07/09/2012 10:18:58 Remuneration report LONG-TERM INCENTIVE PLANS CONTINUED The performance conditions and vesting schedule attaching to the PSP awards made on 22 March 2011 and 18 January 2012 are set out in the table below: 22 March 2011 18 January 2012 Average Share Price Achievement During The Performance Period Average Share Price Achievement During The Performance Period Percentage Of Option That May Potentially Become Exercisable Below 31.25 pence Below 25 pence 31.25 pence (25% increase above Base Share Price) 25 pence (25% increase above Base Share Price) 37.50 pence (50% increase above Base Share Price) 30 pence (50% increase above Base Share Price) 43.75 pence (75% increase above Base Share Price) 35 pence (75% increase above Base Share Price) 50.00 pence (100% increase above Base Share Price) 40.00 pence (100% increase above Base Share Price) Nil 25% 50% 75% 100% The Committee may set different targets for future awards, having regard to the prevailing business and economic conditions at the time. This is to ensure that performance targets continue to be demanding and stretching. The Committee expects future award levels for Executive Directors to be 75% of salary save where it deems there to be circumstances which justify a larger award of up to 150% of salary, e.g. upon recruitment. THE 600 GROUP PLC 2009 PERFORMANCE SHARE PLAN (THE PSP) APPROVED SECTION Share options granted under the PSP Approved Section are subject to the same performance and vesting conditions as the 2009 PSP. At the time of exercise, but only to the extent that there is a gain on the options granted under the Approved Section, PSP options will be forfeited to the same value. THE 600 GROUP PLC 2012 DEFERRED SHARE PLAN (THE DSP) A new scheme was introduced on 18 January 2012 which provided for deferred shares to be issued to Directors and senior Executive’s. No performance criteria was attached to the option granted on 18 January 2012 which were granted in lieu of cash bonuses earned in respect of the period to 2 April 2011. BENEFITS IN KIND Executive Directors have the following benefits in kind: • car allowance; • medical insurance for self and family; • Pensions The Company contributes to certain individual Directors own pension arrangements. Only base salaries are pensionable. The contribution rate for the Company is 9%. SERVICE CONTRACTS Mr N R Carrick has a service contract dated 3 October 2011 with a notice period of twelve months. Mr. N F Rogers has a service contract dated 26 March with a notice period of twelve months. In the case of early termination, the Company would negotiate compensation on an individual basis taking into account salary and other benefits as set out in the audited part of this report and the twelve month notice period. NON-EXECUTIVE DIRECTORS’ REMUNERATION Fees for non-executive Directors are determined by the Board on the basis of market comparisons with positions of similar responsibilities and scope in companies of a similar size in comparable industries. Non-executive Directors do not have contracts of service, are not eligible for pension scheme contributory membership and do not participate in any of the Group’s bonus, share option or incentive schemes. 14 0_600_ar12.indd 14 14 07/09/2012 10:18:58 The performance conditions and vesting schedule attaching to the PSP awards made on 22 March 2011 and 18 January 2012 are set LONG-TERM INCENTIVE PLANS CONTINUED out in the table below: 22 March 2011 18 January 2012 Average Share Price Achievement During The Performance Period Average Share Price Achievement During The Performance Period Percentage Of Option That May Potentially Become Exercisable Below 31.25 pence Below 25 pence 31.25 pence (25% increase above Base 25 pence (25% increase above Base 37.50 pence (50% increase above Base 30 pence (50% increase above Base 43.75 pence (75% increase above Base 35 pence (75% increase above Base Share Price) Share Price) Share Price) Share Price) Share Price) Share Price) Nil 25% 50% 75% 50.00 pence (100% increase above 40.00 pence (100% increase above 100% Base Share Price) Base Share Price) The Committee may set different targets for future awards, having regard to the prevailing business and economic conditions at the time. This is to ensure that performance targets continue to be demanding and stretching. The Committee expects future award levels for Executive Directors to be 75% of salary save where it deems there to be circumstances which justify a larger award of up to 150% of salary, e.g. upon recruitment. THE 600 GROUP PLC 2009 PERFORMANCE SHARE PLAN (THE PSP) APPROVED SECTION Share options granted under the PSP Approved Section are subject to the same performance and vesting conditions as the 2009 PSP. At the time of exercise, but only to the extent that there is a gain on the options granted under the Approved Section, PSP options will be forfeited to the same value. THE 600 GROUP PLC 2012 DEFERRED SHARE PLAN (THE DSP) A new scheme was introduced on 18 January 2012 which provided for deferred shares to be issued to Directors and senior Executive’s. No performance criteria was attached to the option granted on 18 January 2012 which were granted in lieu of cash bonuses earned in respect of the period to 2 April 2011. BENEFITS IN KIND Executive Directors have the following benefits in kind: • medical insurance for self and family; • car allowance; • Pensions contribution rate for the Company is 9%. SERVICE CONTRACTS The Company contributes to certain individual Directors own pension arrangements. Only base salaries are pensionable. The Mr N R Carrick has a service contract dated 3 October 2011 with a notice period of twelve months. Mr. N F Rogers has a service contract dated 26 March with a notice period of twelve months. In the case of early termination, the Company would negotiate compensation on an individual basis taking into account salary and other benefits as set out in the audited part of this report and the twelve month notice period. NON-EXECUTIVE DIRECTORS’ REMUNERATION Fees for non-executive Directors are determined by the Board on the basis of market comparisons with positions of similar responsibilities and scope in companies of a similar size in comparable industries. Non-executive Directors do not have contracts of service, are not eligible for pension scheme contributory membership and do not participate in any of the Group’s bonus, share option or incentive schemes. Remuneration report Remuneration report FIVE YEAR TOTAL SHAREHOLDER RETURN This graph shows the Total Shareholder Return (TSR) of the Company from 1 April 2007 to 31 March 2012 compared with the AIM Index, rebased to 100. The TSR is defined as share price growth plus dividends reinvested. As the Company has been a constituent of this index since 14 July 2011, the Board considers that this is now the most appropriate index against which the TSR of the Company should be measured. DIRECTORS’ INTERESTS IN SHARES The interests of Directors holding office at 31 March 2012 in the ordinary shares of the Company were as follows: P R Dupee N F Rogers S J Rutherford N R Carrick D Zissman At 31 March 2012 Number At 2 April 2011 Number 16,125,868 16,125,868 100,000 20,000 — 50,000 — 20,000 — — P R Dupee’s interest in the 16.1m shares arises from his position as Managing Partner of Haddeo Partners LLP, which owns these shares. P R Dupee holds a 44.5% stake in Haddeo Partners LLP. In addition, Haddeo Partners LLP holds 5,050,000 warrants which can be used to either convert their share of the shareholder loan into shares or to purchase shares for a cash consideration. 14 0_600_ar12.indd 15 15 15 07/09/2012 10:18:58 Remuneration report DIRECTORS’ EMOLUMENTS P R Dupee N F Rogers N R Carrick[1] D Zissman S J Rutherford D H Norman[2] M G D Wakeman[3] M J Temple[4] C J Cundy[5] Total 1 From date of appointment as a Director on 2 October 2011. 2 Resigned 26 March 2012. 3 Resigned 2 October 2011. 4 Resigned 14 September 2011. 5 Resigned 2 February 2011. DIRECTORS’ PENSION ENTITLEMENTS All benefits Termination Salary Fees in kind payment Total 2012 £ Total 2011 £ £ £ £ — 47,625 — — £ — — — 47,625 8,250 — — — — 72,500 — 10,400 — 82,900 — 33,000 — 33,000 — — — 33,000 8,250 — 33,000 33,000 244,500 78,300 — — 3,666 283,839 532,005 321,291 5,823 247,950 332,073 201,980 — 27,500 — 32,500 60,000 60,000 — — — — — 33,000 395,300 141,125 19,889 564,289 1,120,603 665,771 Pension contributions of £97,175 (2011: £20,700) for D H Norman, £61,263 (2011: £13,050) for M G D Wakeman and £6,525 for N R Carrick were paid into their personal pension schemes during the year. 16 0_600_ar12.indd 16 16 07/09/2012 10:18:58 Remuneration report DIRECTORS’ EMOLUMENTS P R Dupee N F Rogers N R Carrick[1] D Zissman S J Rutherford D H Norman[2] M G D Wakeman[3] M J Temple[4] C J Cundy[5] Total 1 From date of appointment as a Director on 2 October 2011. 2 Resigned 26 March 2012. 3 Resigned 2 October 2011. 4 Resigned 14 September 2011. 5 Resigned 2 February 2011. DIRECTORS’ PENSION ENTITLEMENTS All benefits Termination Salary Fees in kind payment £ £ £ Total 2012 £ Total 2011 £ — — — 47,625 8,250 — — — 33,000 8,250 — 33,000 33,000 £ — — — — — 47,625 — — — 33,000 — 33,000 72,500 — 10,400 — 82,900 244,500 78,300 3,666 283,839 532,005 321,291 5,823 247,950 332,073 201,980 — 27,500 — 32,500 60,000 60,000 — — — — 33,000 — — — 395,300 141,125 19,889 564,289 1,120,603 665,771 Remuneration report DIRECTORS’ SHARE OPTIONS Details of share options at 31 March 2012 and 2 April 2011 for each Director who held office during the year are as follows: D H Norman M G D Wakeman N R Carrick Number of options at 2 April 2011 2,451,2131 1,613,6703 Granted 308,2472 194,3294 — 1,144,7375 Exercised Lapsed/ forfeited Number of options at 31 March 2012 — (1,245,973) 1,513,487 — — (853,845) 954,154 — 1,144,737 1 2 3 4 5 At 2 April 2,266,598 nil cost options were held under The 600 Group PLC 2008 Performance Share Plan and 184,615 options were held under a HM Revenue & Customs approved share option scheme exercisable between 3 and 10 years of the grant date of 25 August 2009 subject to performance criteria 308,247 nil cost options were granted under The 600 Group PLC Deferred Share Plan on 18 January 2012 exercisable between grant date and 10 years time. At 2 April 2011 1,429,055 nil cost options were held under The 600 Group PLC 2008 Performance Share Plan and 184,615 options were held under a HM Revenue & Customs approved share option scheme exercisable between 3 and 10 years of the grant date of 25 August 2009 subject to performance criteria. 194,329 nil cost options were granted under The 600 Group PLC Deferred Share Plan on 18 January 2012 exercisable between grant date and 10 years time. 1,144,737 nil cost options were granted under the 600 Group PLC 2008 Performance Share Plan on 18 January 2012 exercisable between 3 and 10 years from grant date subject to performance criteria. The share price at 31 March 2012 was 19.75p and the highest and lowest prices during the period were 37.75p and 18.5p, respectively. Pension contributions of £97,175 (2011: £20,700) for D H Norman, £61,263 (2011: £13,050) for M G D Wakeman and £6,525 for N R Carrick were paid into their personal pension schemes during the year. On behalf of the Board NEIL CARRICK DIRECTOR 5 SEPTEMBER 2012 16 0_600_ar12.indd 17 17 17 07/09/2012 10:18:59 Independent auditor’s report To the members of The 600 Group PLC We have audited the financial statements of The 600 Group PLC for the year ended 31 March 2012 set out on pages 19 to 69. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 12, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2012 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice and; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. David Morritt (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 5 September 2012 18 0_600_ar12.indd 18 18 07/09/2012 10:18:59 Independent auditor’s report To the members of The 600 Group PLC Consolidated income statement For the 52-week period ended 31 March 2012 As restated * After Before special items Special items special items 52 weeks ended 31 March 2012 £'000 52 weeks ended 31 March 2012 £'000 52 weeks ended 31 March 2012 £'000 After Before special items special items special items 52 weeks ended 2 April 2011 £'000 52 weeks ended 2 April 2011 £'000 52 weeks ended 2 April 2011 £'000 39,393 (27,316) 12,077 126 (13,410) - (7,512) (7,512) - (5,367) 39,393 (34,828) 4,565 126 (18,777) 36,451 (23,507) 12,944 332 (13,020) - - 36,451 (23,507) - - 1,345 12,944 332 (11,675) (1,207) (12,879) (14,086) 256 1,345 1,601 24 10,834 10,858 (669) (9,268) (9,937) 24 10,834 10,858 (669) (9,268) (9,937) 34 10,876 10,910 (566) (9,484) (10,050) - - 34 10,876 10,910 (566) (9,484) (10,050) - - (286) (12,879) (13,165) 1,116 1,345 2,461 (907) - (907) (448) - (448) (1,193) (12,879) (14,072) (777) - (777) 668 858 1,345 2,013 - 858 (1,970) (12,879) (14,849) 1,526 1,345 2,871 Continuing Revenue Cost of sales Gross profit Other operating income Net operating expenses (Loss)/profit from operations Bank and other interest Expected return on pension assets Financial income Bank and other interest Interest on pension obligations Financial expense (Loss)/profit before tax Income tax charge the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice (Loss)/profit for the period from continuing operations Post tax (loss)/profit of discontinued operations Total (loss)/profit for the financial year attributable to Equity holders of the parent Note 1 2 2 4 6 6 7 1 We have audited the financial statements of The 600 Group PLC for the year ended 31 March 2012 set out on pages 19 to 69. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 12, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2012 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; and; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. David Morritt (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 1 The Embankment Neville Street Leeds LS1 4DW 5 September 2012 Special items comprise exceptional costs relating to reorganisation, redundancy, inventory and intangibles impairments, and share based payments (see note 3) * Comparative figures have been restated as a result of the South African business being treated as discontinued Basic (loss)/earnings per share per share - continuing - discontinued - Total Diluted (loss)/earnings per share - continuing - discontinued - Total 9 9 (1.87)p (1.22)p (3.09)p (1.87)p (1.22)p (3.09)p (20.21)p (20.21)p (20.21)p (20.21)p (22.08)p (1.22)p (23.30)p (22.08)p (1.22)p (23.30)p 1.16p 1.50p 2.66p 0.11p 1.28p 1.39p 2.35p 2.35p 0.24p 0.24p 3.51p 1.50p 5.01p 0.35p 1.28p 1.63p 18 0_600_ar12.indd 19 19 19 07/09/2012 10:18:59 Consolidated statement of comprehensive income for the 52-week period ended 31 March 2012 (Loss)/profit for the period Other comprehensive (expense)/income Foreign exchange translation differences Net actuarial gains on employee benefit schemes Impact of changes to defined benefit asset limit Impact of transfer to assets held for sale Deferred taxation Other comprehensive expense for the period, net of income tax Total comprehensive (expense)/income for the period Attributable to: Equity holders of the Parent Company Total recognised (expense)/income Notes 30 30 13 52-week 52-week period ended period ended 31 March 2012 £000 (14,849) (95) 7,025 (8,810) 349 386 (1,145) (15,994) (15,994) (15,994) 2 April 2011 £000 2,871 — 2,235 (4,130) — (1) (1,958) 975 913 913 20 0_600_ar12.indd 20 20 07/09/2012 10:18:59 Consolidated statement of comprehensive income for the 52-week period ended 31 March 2012 Consolidated statement of financial position as at 31 March 2012 (Loss)/profit for the period Other comprehensive (expense)/income Foreign exchange translation differences Net actuarial gains on employee benefit schemes Impact of changes to defined benefit asset limit Impact of transfer to assets held for sale Deferred taxation Other comprehensive expense for the period, net of income tax Total comprehensive (expense)/income for the period Attributable to: Equity holders of the Parent Company Total recognised (expense)/income Notes 30 30 13 52-week 52-week period ended period ended 31 March 2012 £000 (14,849) (95) 7,025 (8,810) 349 386 (1,145) (15,994) (15,994) (15,994) 2 April 2011 £000 2,871 — 2,235 (4,130) — (1) (1,958) 975 913 913 Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Current assets Inventories Trade and other receivables Assets held for sale Cash and cash equivalents Total assets Non-current liabilities Employee benefits Loans and other borrowings Deferred tax liabilities Current liabilities Trade and other payables Income tax payable Provisions Loans and other borrowings Liabilities held for sale Total liabilities Net assets Shareholders’ equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Equity reserve Translation reserve Retained earnings Total equity Notes 11 12 13 14 15 16 17 30 18 13 19 21 18 20 23 As at 31 March 2012 £000 5,085 852 1,473 7,410 10,811 6,528 9,093 409 26,841 34,251 (2,012) (5,824) (1,365) (9,201) (9,556) (199) (1,241) (2,579) (4,488) (18,063) (27,264) 6,987 14,375 15,645 1,080 2,500 167 1,487 (28,267) 6,987 As at 2 April 2011 £000 10,661 1,350 2,704 14,715 18,742 8,922 — 1,052 28,716 43,431 (1,849) (2,218) (1,817) (5,884) (11,900) (83) (252) (3,629) _ (15,864) (21,748) 21,683 14,315 13,899 1,475 2,500 160 1,697 (12,363) 21,683 The financial statements on pages 19 to 69 were approved by the Board of Directors on 5 September 2012 and were signed on its behalf by: NEIL CARRICK GROUP FINANCE DIRECTOR 5 SEPTEMBER 2012 20 0_600_ar12.indd 21 21 21 07/09/2012 10:18:59 Consolidated statement of changes in equity As at 31 March 2012 At 3 April 2010 At 4 April 2010 Profit for the period Other comprehensive income: Foreign currency translation Net actuarial losses on employee benefit schemes Impact of changes to defined benefit asset limit Deferred tax Total comprehensive income Transactions with owners: Share capital subscribed for Shareholder loan issue with convertible warrants Non-controlling interest reversal Credit for share-based payments Total transactions with owners At 2 April 2011 At 3 April 2011 Loss for the period Other comprehensive income: Foreign currency translation Net actuarial losses on employee benefit schemes Impact of write down of assets held for sale Impact of changes to defined benefit asset limit Deferred tax Total comprehensive income Transactions with owners: Share capital subscribed for Shareholder loan issue with convertible warrants Credit for share-based payments Total transactions with owners At 31 March 2012 Ordinary Share Capital share premium Revaluation redemption Translation Equity Retained Minority capital account reserve reserve[1] reserve reserve Earnings Total interest[2] £000 £000 £000 £000 £000 £000 £000 £000 £000 Total equity £000 14,308 13,766 1,433 2,500 1,570 — (13,550) 20,027 634 20,661 14,308 13,766 1,433 2,500 1,570 — (13,550) 20,027 634 20,661 — — 2,871 2,871 — 2,871 — — — — — — — 7 — — — 7 — — — — — 133 — — — 133 — 42 — — (66) (24) — — 66 — 66 — — — — — — — — — — — (38) — — — (38) — — — — — 160 165 — — — 165 160 — — — 4 — 4 2,235 2,235 — 2,235 — (4,130) (4,130) — (4,130) (1) 975 — — 85 127 212 (67) 913 140 160 — — — — (67) 913 140 160 316 (634) (318) 127 — 743 (634) 127 109 14,315 13,899 1,475 2,500 1,697 160 (12,363) 21,683 — 21,683 14,315 13,899 1,475 2,500 1,697 160 (12,363) 21,683 — 21,683 — — — — — — (14,849) (14,849) — (14,849) — — — — — — — — — — (46) — (349) — — — (210) — — — — — — — — — — — (95) (351) — (351) 7,025 7,025 — 7,025 349 — — — — (8,810) (8,810) — (8,810) — 386 386 — 386 — — (395) — (210) — (15,994) (16,599) — (16,599) 60 1,746 — — — — 60 1,746 — — — — — — — — — — — — — 7 — 7 — 1,806 — — — 1,806 7 90 7 90 1,903 — 1,903 — 90 90 14,375 15,645 1,080 2,500 1,487 167 (28,267) 6,987 — 6,987 1 The capital redemption reserve was set up on cancellation and repayment of cumulative preference shares in 2001. 2 The minority interest related to the 25.1% in 600SA Holdings (Pty) Limited acquired by a South African individual on 3 April 2005 which was divested during the prior period. 22 0_600_ar12.indd 22 22 07/09/2012 10:19:00 Shareholder loan issue with convertible warrants — — — 160 At 3 April 2010 At 4 April 2010 Profit for the period Other comprehensive income: Foreign currency translation Net actuarial losses on employee benefit schemes Deferred tax Total comprehensive income Transactions with owners: Share capital subscribed for Non-controlling interest reversal Credit for share-based payments Total transactions with owners At 2 April 2011 At 3 April 2011 Loss for the period Other comprehensive income: Foreign currency translation Net actuarial losses on employee benefit schemes Impact of write down of assets held for sale Impact of changes to defined benefit asset limit Deferred tax Total comprehensive income Transactions with owners: Share capital subscribed for Shareholder loan issue with convertible warrants Credit for share-based payments Total transactions with owners 60 1,746 60 1,746 Ordinary Share Capital share premium Revaluation redemption Translation Equity Retained Minority capital account reserve reserve[1] reserve reserve Earnings Total interest[2] £000 £000 £000 £000 £000 £000 £000 £000 £000 Total equity £000 14,308 13,766 1,433 2,500 1,570 — (13,550) 20,027 634 20,661 14,308 13,766 1,433 2,500 1,570 — (13,550) 20,027 634 20,661 — — — — 2,871 2,871 — 2,871 — 4 — 4 2,235 2,235 — 2,235 (67) 913 140 160 127 — — — — — (1) 975 — — 85 127 212 (67) 913 140 160 127 109 — — — — — 7 — — — 7 — — — — — — — — — — — — 133 — — — 133 — — — — — — — — 42 — — (66) (24) — — 66 — 66 (46) — (349) — — — — — — — — — — — — — — — — — — — — — — — — — (38) — — — (38) 165 — — — — — — — — — — — — — — — — — — — 7 — 7 165 160 743 (634) 14,315 13,899 1,475 2,500 1,697 160 (12,363) 21,683 — 21,683 14,315 13,899 1,475 2,500 1,697 160 (12,363) 21,683 — 21,683 — — — — — — (14,849) (14,849) — (14,849) — (210) (95) (351) — (351) 7,025 7,025 — 7,025 349 — — — — (8,810) (8,810) — (8,810) — 386 386 — 386 — — (395) — (210) — (15,994) (16,599) — (16,599) — 1,806 1,806 — — — 7 90 7 90 1,903 — 1,903 — 90 90 At 31 March 2012 14,375 15,645 1,080 2,500 1,487 167 (28,267) 6,987 — 6,987 1 The capital redemption reserve was set up on cancellation and repayment of cumulative preference shares in 2001. 2 The minority interest related to the 25.1% in 600SA Holdings (Pty) Limited acquired by a South African individual on 3 April 2005 which was divested during the prior period. Consolidated statement of changes in equity As at 31 March 2012 Consolidated cash flow statement For the 52-week period ended 31 March 2012 Impact of changes to defined benefit asset limit — (4,130) (4,130) — (4,130) Impairment of tangible fixed assets Net financial income Net pension credit Loss on disposal of plant and equipment Equity share option expense Income tax expense/(income) 316 (634) (318) Operating cash flow before changes in working capital and provisions Cash flows from operating activities (Loss)/profit for the period Adjustments for: Amortisation of development expenditure Depreciation Impairment of goodwill (Increase)/decrease in trade and other receivables Decrease in inventories Increase in trade and other payables Decrease in employee benefits Cash (used in )/generated from operations Interest paid Income tax (paid) Net cash flows from operating activities Cash flows from investing activities Interest received Proceeds from sale of property, plant and equipment Acquisition of Polish manufacturing company Purchase of property, plant and equipment Development expenditure capitalised Net cash flows from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Proceeds from issue of shareholder loan net of costs Net proceeds from external borrowing Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of exchange rate fluctuations on cash held Cash and cash equivalents at the end of the period 22 0_600_ar12.indd 23 52-week 52-week period ended period ended 31 March 2012 £000 2 April 2011 £000 (14,849) 2,871 Notes 116 1,033 931 1,158 (921) (1,224) — 90 907 (12,759) (1,240) 5,896 3,358 1,767 (2,978) (757) (132) (3,867) 68 380 — (963) (549) (1,064) 1,806 — 4,986 6,792 1,861 (1,905) (73) (117) 513 994 — — (756) (2,570) 16 127 (307) 888 549 578 652 (788) 1,879 (645) (53) 1,181 7 245 (632) (1,002) (406) (1,788) 140 2,104 (171) 2,073 1,466 (3,371) — (1,905) 23 23 07/09/2012 10:19:00 24 17 Group accounting policies BASIS OF PREPARATION The 600 Group PLC is a public limited company incorporated and domiciled in England and Wales. The Company’s ordinary shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange. The Group Consolidated Financial Statements incorporate accounts, prepared to the Saturday nearest to the Group’s accounting reference date of 31 March, of the Company and its subsidiary undertakings (together referred to as the Group). The results for 2012 are for the 52- week period ended 31 March 2012. The results for 2011 are for the 52-week period ended 2 April 2011. The Parent Company financial statements present information about the Company as a separate entity and not about its Group. The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS. IFRS and IFRIC are issued by the International Accounting Standards Board (the IASB) and must be adopted into European Union law, referred to as endorsement, before they become mandatory under the IAS Regulation. There have been no further alterations made to the accounting policies as a result of considering all amendments to IFRS and IFRIC interpretations that became effective during the accounting period as these were considered to be immaterial to the Group’s operations or were not relevant. A change to the Deed and Rules is in the process of being agreed with the Trustees of the UK 600 Group Pension Scheme which would allow the accounting surplus, which at 31 March 2012 stood at £12.9m, to be included on the Group balance sheet. There are a number of standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. The following have not been adopted by the Group: Effective for accounting periods starting on or after: International Financial Reporting Standards: IFRS 7 Amendment to Financial Instruments: Disclosures on derecognition IAS 12 Amendment to Income taxes on deferred tax IAS 1 Amendment to Financial Statement presentation IAS 19 Amendment to Employee benefits IFRS 9 Financial Instruments IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosures of interests in other entities IFRS 13 Fair Value measurement IAS 27 Separate financial statements (revised) IAS 28 Associates and joint ventures (revised) 1 July 2011 1 January 2012 1 July 2012 1 January 2013 1 January 2015 1 January 2013 1 January 2013 1 January 2013 1January 2013 1 January 2013 1 January 2013 These standards and interpretations have been endorsed by the European Union The application of these standards and interpretations are not anticipated to have a material effect on the Group’s financial statements The Company has elected to prepare its Parent Company financial statements in accordance with UK GAAP; these are presented on pages 61 to 69. The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the Group financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 32. The consolidated financial statements are presented in sterling rounded to the nearest thousand. The following principal accounting policies have been applied consistently to all periods presented in these Group financial statements. 24 0_600_ar12.indd 24 24 07/09/2012 10:19:00 Group accounting policies Group accounting policies BASIS OF PREPARATION The 600 Group PLC is a public limited company incorporated and domiciled in England and Wales. The Company’s ordinary shares are traded on the Alternative Investment Market (AIM) of the London Stock Exchange. The Group Consolidated Financial Statements incorporate accounts, prepared to the Saturday nearest to the Group’s accounting reference date of 31 March, of the Company and its subsidiary undertakings (together referred to as the Group). The results for 2012 are for the 52- week period ended 31 March 2012. The results for 2011 are for the 52-week period ended 2 April 2011. The Parent Company financial statements present information about the Company as a separate entity and not about its Group. The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS. IFRS and IFRIC are issued by the International Accounting Standards Board (the IASB) and must be adopted into European Union law, referred to as endorsement, before they become mandatory under the IAS Regulation. There have been no further alterations made to the accounting policies as a result of considering all amendments to IFRS and IFRIC interpretations that became effective during the accounting period as these were considered to be immaterial to the Group’s operations or were not relevant. A change to the Deed and Rules is in the process of being agreed with the Trustees of the UK 600 Group Pension Scheme which would allow the accounting surplus, which at 31 March 2012 stood at £12.9m, to be included on the Group balance sheet. There are a number of standards and interpretations issued by the IASB that are effective for financial statements after this reporting period. The following have not been adopted by the Group: Effective for accounting periods starting on or after: International Financial Reporting Standards: IFRS 7 Amendment to Financial Instruments: Disclosures on derecognition IAS 12 Amendment to Income taxes on deferred tax IAS 1 Amendment to Financial Statement presentation IAS 19 Amendment to Employee benefits IFRS 9 Financial Instruments IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosures of interests in other entities IFRS 13 Fair Value measurement IAS 27 Separate financial statements (revised) IAS 28 Associates and joint ventures (revised) 1 July 2011 1 January 2012 1 July 2012 1 January 2013 1 January 2015 1 January 2013 1 January 2013 1 January 2013 1January 2013 1 January 2013 1 January 2013 These standards and interpretations have been endorsed by the European Union The application of these standards and interpretations are not anticipated to have a material effect on the Group’s financial statements The Company has elected to prepare its Parent Company financial statements in accordance with UK GAAP; these are presented on pages 61 to 69. The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the Group financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 32. The consolidated financial statements are presented in sterling rounded to the nearest thousand. The following principal accounting policies have been applied consistently to all periods presented in these Group financial statements. The financial statements are prepared under the historical cost convention except that properties are stated at their fair value. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement on pages 1 to 2 and the Group Chief Executive’s Review of Operations on pages 3 to 4. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Group Finance Director’s Financial Review on pages 5 to 7 and Note 26 to the financial statements. In addition Note 26 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group refinanced in August 2011 with Santander PLC who provided a Term Loan facility of £2.5m with scheduled repayments through to June 2015 and a Revolving Credit facility of £2.5m until 30 June 2014. Security over the UK assets which is shared with Haddeo and the UK Pension Trustees was put in place at this time. The new facility was utilised to repay existing bank debt and provide working capital for the European operations including Poland. As a result of continued supply disruption and poor trading in Poland the Group negotiated a further £800,000 overdraft facility in early January 2012 to provide additional working capital whilst it completed a number of asset divestments. Subsequent to the year end date the Group divested of its Shepshed property and its South African subsidiary and the proceeds of £2.9m were used to repay the overdraft and part of the term loan facility with the balance being used for working capital. As a result of these divestments and the recent strategic review including the decision to close its manufacturing operation in Poland the Group has agreed amendments on the 5 September 2012 to the existing facilities including revised covenants and a deferment of the quarterly capital repayments on the Term Loan until September 2013. In addition a new overdraft facility of £300,000 until 1 October 2013 has been agreed. These amendments were conditional upon the placing of shares undertaken with institutions raising £1.47m which was completed on 5 September 2012. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of these revised facilities. This includes consideration of working capital requirements and the impact of funding further reorganisation costs and the possible delay in the divestment of further property assets. Additional property asset disposals have been factored into future banking covenants and the disposal of these properties and allocation of the proceeds will require the agreement of all debenture holders including Haddeo and the Pension Trustees. The overseas bank overdrafts in place around the Group are all due for renewal within the next 6 months. The Group has held discussions with its overseas bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewals may not be forthcoming on acceptable terms. The Group also considers that alternative sources of finance would be available should the need arise. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. BASIS OF CONSOLIDATION The Group’s financial statements consolidate the financial statements of the Company and its subsidiary undertakings. Subsidiary undertakings are those entities that are controlled by the Group. The results of any subsidiaries sold or acquired are included in the Group’s income statement up to, or from, the date control passes. All intra-Group balances and transactions, including unrealised profits arising from intra-Group transactions, are eliminated fully on consolidation. FOREIGN CURRENCY TRANSLATION Transactions denominated in foreign currencies are translated into Sterling at the rates of exchange ruling on the date of the transaction. Monetary assets and liabilities are translated into Sterling at the rate of exchange ruling at the balance sheet dates. Earnings of foreign operations are translated at the average exchange rate for the period as an approximation to actual transaction date rates. Exchange rates used to express the assets and liabilities of overseas companies in Sterling are the rates ruling at the balance sheet dates. Exchange differences arising from the re-translation of the investments in overseas subsidiaries are recorded as a movement on reserves. All other exchange differences are dealt with through the income statement. On transition to adopted IFRS, the Group took the exemption under IFRS 1 to start the translation reserve at £nil. The balance on this reserve only relates to post transition. REVENUE Revenue represents commission on agency sales and the total of the amounts invoiced to customers outside the Group for goods supplied and services rendered, excluding VAT, and after deducting discounts allowed and credit notes issued. Revenue is recognised at the point at which goods are supplied to customers. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated completion costs, the possible return of goods or continuing management involvement with the goods. 24 0_600_ar12.indd 25 25 25 07/09/2012 10:19:01 Group accounting policies SEGMENT ANALYSIS The Group has adopted IFRS 8 “Operating segments” which requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. Following the restructuring undertaken the two business streams of Machine Tools and Precision Engineered Equipment have been aggregated as they are operationally managed and reported internally to the Executive Directors as a single Division. The South African business consisted of the Mechanical Handling and Waste activity and has been classified as a discontinued activity in these accounts. The Executive Directors consider there to be two continuing operating segments being Machine Tools and Precision Engineered Components and Laser Marking. The executive directors assess the performance of the operating segments based on a measure of operating profit/(loss). This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs and include the effects of the Group Final Salary Scheme in the UK. OPERATING PROFIT AND SPECIAL ITEMS In order for users of the financial statements to better understand the underlying performance of the Group, the Board have separately disclosed transactions which, whilst falling within the ordinary activities of the Group, are, by the virtue of their size or incidence, considered to be one off in nature. In addition they include the charge for share based payments. Such items include gains and losses on the revaluation or sale of properties and assets, exceptional costs relating to reorganisation, redundancy, restructuring, legal disputs,inventory and intangibles impairments. PENSIONS AND POST-RETIREMENT HEALTH BENEFITS The Group operates both defined benefit and defined contribution pension schemes. It also operates a retirement healthcare benefit scheme for certain of its employees in the US. The Group’s net obligation in respect of the defined benefit schemes and the retirement healthcare benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of any scheme assets is deducted. The discount rate for the UK schemes is based on the annualised yield on AA credit rated corporate bonds. The discount rate for the retirement healthcare benefit scheme is based on a similar measure which is appropriate for the US market. The calculations are performed by a qualified actuary using the projected unit method. Actuarial gains and losses are recognised immediately through the statement of comprehensive income. The extent to which the schemes’ assets exceed the liabilities is shown as a surplus in the balance sheet to the extent that the surplus is recoverable by the Group. Further provision is made to the extent that the Group has any additional obligation under a minimum funding requirement. Items recognised in the income statement and statement of comprehensive income are as follows: WITHIN PROFIT FROM OPERATIONS • current service cost – representing the increase in the present value of the defined benefit obligation resulting from employee service in the current period; • past service cost – representing the increase in the present value of the defined benefit obligation resulting from employee service in prior periods, which arises from changes made to the benefits under the scheme in the current period. To the extent that the changes to benefits vest immediately, past service costs are recognised immediately, otherwise they are recognised on a straight-line basis over the vesting period; and • gains and losses arising on settlements and curtailments – where the item that gave rise to the settlement or curtailment is recognised within operating profit. • obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred. BELOW PROFIT FROM OPERATIONS • interest cost on the liabilities of the scheme – calculated by reference to the scheme liabilities and discount rate at the beginning of the period and allowing for changes in liabilities during the period; and • expected return on the assets of the scheme – calculated by reference to the scheme assets and long-term expected rate of return at the beginning of the period and allowing for changes during the period. WITHIN THE STATEMENT OF COMPREHENSIVE INCOME • actuarial gains and losses arising on the assets and liabilities of the scheme; and • any change in the unrecognised asset of the scheme due to the asset limit test. GOODWILL Goodwill arising on acquisition of subsidiaries and businesses is capitalised as an asset and represents the excess of the fair value of the consideration given over the fair value of the net identifiable assets, liabilities and contingent liabilities acquired. In accordance with IFRS 1 “First-time Adoption of IFRS”, goodwill has been frozen at its net book value as at the date of transition and will not be amortised. Instead it will be subject to an annual impairment review with any impairment losses being recognised immediately in the income statement. Goodwill written off in prior years under previous UK GAAP will not be reinstated. 26 0_600_ar12.indd 26 26 07/09/2012 10:19:01 Group accounting policies SEGMENT ANALYSIS and to assess their performance. The Group has adopted IFRS 8 “Operating segments” which requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments Following the restructuring undertaken the two business streams of Machine Tools and Precision Engineered Equipment have been aggregated as they are operationally managed and reported internally to the Executive Directors as a single Division. The South African business consisted of the Mechanical Handling and Waste activity and has been classified as a discontinued activity in these accounts. The Executive Directors consider there to be two continuing operating segments being Machine Tools and Precision Engineered Components and Laser Marking. The executive directors assess the performance of the operating segments based on a measure of operating profit/(loss). This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs and include the effects of the Group Final Salary Scheme in the UK. OPERATING PROFIT AND SPECIAL ITEMS In order for users of the financial statements to better understand the underlying performance of the Group, the Board have separately disclosed transactions which, whilst falling within the ordinary activities of the Group, are, by the virtue of their size or incidence, considered to be one off in nature. In addition they include the charge for share based payments. Such items include gains and losses on the revaluation or sale of properties and assets, exceptional costs relating to reorganisation, redundancy, restructuring, legal disputs,inventory and intangibles impairments. PENSIONS AND POST-RETIREMENT HEALTH BENEFITS The Group operates both defined benefit and defined contribution pension schemes. It also operates a retirement healthcare benefit scheme for certain of its employees in the US. The Group’s net obligation in respect of the defined benefit schemes and the retirement healthcare benefit scheme is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of any scheme assets is deducted. The discount rate for the UK schemes is based on the annualised yield on AA credit rated corporate bonds. The discount rate for the retirement healthcare benefit scheme is based on a similar measure which is appropriate for the US market. The calculations are performed by a qualified actuary using the projected unit method. Actuarial gains and losses are recognised immediately through the statement of comprehensive income. The extent to which the schemes’ assets exceed the liabilities is shown as a surplus in the balance sheet to the extent that the surplus is recoverable by the Group. Further provision is made to the extent that the Group has any additional obligation under Items recognised in the income statement and statement of comprehensive income are as follows: a minimum funding requirement. WITHIN PROFIT FROM OPERATIONS the current period; vesting period; and within operating profit. • current service cost – representing the increase in the present value of the defined benefit obligation resulting from employee service in • past service cost – representing the increase in the present value of the defined benefit obligation resulting from employee service in prior periods, which arises from changes made to the benefits under the scheme in the current period. To the extent that the changes to benefits vest immediately, past service costs are recognised immediately, otherwise they are recognised on a straight-line basis over the • gains and losses arising on settlements and curtailments – where the item that gave rise to the settlement or curtailment is recognised • obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred. BELOW PROFIT FROM OPERATIONS • interest cost on the liabilities of the scheme – calculated by reference to the scheme liabilities and discount rate at the beginning of the period and allowing for changes in liabilities during the period; and • expected return on the assets of the scheme – calculated by reference to the scheme assets and long-term expected rate of return at the beginning of the period and allowing for changes during the period. WITHIN THE STATEMENT OF COMPREHENSIVE INCOME • actuarial gains and losses arising on the assets and liabilities of the scheme; and • any change in the unrecognised asset of the scheme due to the asset limit test. Goodwill arising on acquisition of subsidiaries and businesses is capitalised as an asset and represents the excess of the fair value of the consideration given over the fair value of the net identifiable assets, liabilities and contingent liabilities acquired. In accordance with IFRS 1 “First-time Adoption of IFRS”, goodwill has been frozen at its net book value as at the date of transition and will not be amortised. Instead it will be subject to an annual impairment review with any impairment losses being recognised immediately in the GOODWILL income statement. Goodwill written off in prior years under previous UK GAAP will not be reinstated. Group accounting policies RESEARCH AND DEVELOPMENT Research expenditure undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in the income statement as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes direct labour and an appropriate proportion of overheads. Amortisation is charged to the income statement on a straight-line basis over the useful economic life of the activity. Currently the annual rates used are between two and five years. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are held at cost, subject to property revaluations every three to five years, or indications of changes in fair value of properties. During March 2010 the Group’s properties were revalued. The valuations were performed by independent valuers, Eddisons, and the valuations were determined by market rate for sale with vacant possession. The Directors believe that these valuations remain appropriate at 31 March 2012. Revalued amounts are reflected in the balance sheet with the resulting credit taken to revaluation reserve. Depreciation is calculated to write off the cost (or amount of the valuation) of property, plant and equipment less the estimated residual value on a straight-line basis over the expected useful economic life of the assets concerned. The annual rates used are generally: • freehold buildings • leasehold buildings • plant and machinery – 2 to 4% – over residual terms of the leases – 10 to 20% • fixtures, fittings, tools and equipment – 10 to 33.3% INVENTORIES Inventories are valued at the lower of cost and net realisable value after making due allowance for obsolete and slow moving items. Costs incurred in bringing each product to its present location and condition are accounted for as follows: • raw materials – purchase cost on a first in, first out basis • finished goods and work in progress – cost of direct materials on a first in, first out basis and labour and a proportion of manufacturing overheads based on normal operating capacity Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and the estimated costs necessary to make the sale. TRADE AND OTHER RECEIVABLES Trade receivables are initially measured on the basis of their fair value and are subsequently reduced by appropriate provisions for estimated unrecoverable amounts. Trade receivables are subsequently measured at amortised cost. Bad debts are written off when identified. CASH AND CASH EQUIVALENTS Cash and cash equivalents in the balance sheet comprise cash at bank and in hand. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as described above, net of outstanding bank overdrafts which are repayable on demand and form an integral part of cash management. COMPOUND FINANCIAL INSTRUMENTS Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, when the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition. Interest and gains and losses related to the financial liability are recognised in profit or loss. On conversion, the financial liability is reclassified to equity; no gain or loss is recognised on conversion. 26 0_600_ar12.indd 27 27 27 07/09/2012 10:19:01 Group accounting policies SHARE-BASED PAYMENTS The grant-date fair value of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors of the Group and based on the best available estimates at that date, will ultimately vest. The charge is trued-up only for service and non-market conditions. The income statement charge or credit for a period represents the movement in cumulative expenses recognised as at the beginning and end of that period. Charges for employee services received in exchange for share-based payment have been made for all options granted after 7 November 2002 in accordance with IFRS 2 “Share-based payment”. The fair value of such options has been calculated using a binomial or Monte Carlo option-pricing model, based upon publicly available market data at the point of grant. TAXATION Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in the statement of comprehensive income. Income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which an asset can be utilised. LEASES Assets financed by leasing arrangements, which give rights approximating to ownership, are treated as if they had been purchased outright and are capitalised and depreciated over the shorter of the estimated useful life of the assets and the period of the leases. The capital element of future rentals is treated as a liability and the interest element is charged against profits in proportion to the balances outstanding. Leases where the risk and reward of ownership remain with the lessor are treated as operating leases and the rental costs are charged against profits on a straight-line basis. DERIVATIVE FINANCIAL INSTRUMENTS The Group does not hedge account but uses on occasion derivative financial instruments to hedge its commercial exposure to foreign exchange arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are accounted for as trading instruments and are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, which is based on the quoted forward price. INTEREST-BEARING BORROWINGS Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, although there remains uncertainty over timing or the amount of the obligation, and a reliable estimate can be made of the amount of the obligation. IMPAIRMENT The carrying amount of the Group’s assets, other than inventories and deferred tax assets (see accounting policies above), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement. Those relating to revalued property are treated in accordance with IAS 16. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then to reduce the carrying amount of the other assets of the unit (group of units) on a pro rata basis. ASSETS AND LIABILITIES HELD FOR SALE Assets and liabilities held for sale are those which are being actively marketed for sale at the period-end and which management believes will be disposed of within 12 months of the balance sheet date. These assets are stated at fair value with any gain or loss resulting from the changes in fair value recognised within the consolidated income statement as a special item. Where the asset is an investment in a subsidiary undertaking then any corresponding liabilities are disclosed in liabilities held for sale. 28 0_600_ar12.indd 28 28 07/09/2012 10:19:01 Group accounting policies Group accounting policies SHARE-BASED PAYMENTS The grant-date fair value of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the Directors of the Group and based on the best available estimates at that date, will ultimately vest. The charge is trued-up only for service and non-market conditions. The income statement charge or credit for a period represents the movement in cumulative expenses recognised as at the beginning and end of that BUSINESS COMBINATIONS The Group measures goodwill at the acquisition date as: • • • The fair value of the consideration transferred: plus The recognised amount of any non-controlling interest in the acquire: plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquire: less The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Charges for employee services received in exchange for share-based payment have been made for all options granted after 7 November 2002 in accordance with IFRS 2 “Share-based payment”. The fair value of such options has been calculated using a binomial or Monte Carlo option-pricing model, based upon publicly available market data at the point of grant. NON-CONTROLLING INTERESTS Transactions that result in changes in ownership interests while retaining control are accounted for as transactions with equity holders in their capacity as equity holders. As a result, no gain or loss on such changes is recognised in profit or loss but rather in equity. DIVIDENDS Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity dividends are recognised as a liability in the period in which they are declared (appropriately authorised and no longer at the discretion of the Company). RESERVES A consolidated statement of changes in equity is shown on page 22. Share premium account The share premium reserve comprises the premium paid over the nominal value of shares for shares issued. Revaluation reserve The Group’s properties are valued periodically and the difference between the valuation and the carrying value of the property is taken to revaluation reserve. Any impairments in property valuation in excess of credits made to the revaluation reserve for that property are charged to the consolidation income statement. Capital redemption reserve The capital redemption reserve was created on the cancellation and repayment of cumulative preference shares in 2001. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries. Equity reserve The equity reserve was created on the issue of the shareholder loan which includes convertible warrants the value of which is recognised in equity. period. TAXATION utilised. LEASES Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in the statement of comprehensive income. Income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which an asset can be Assets financed by leasing arrangements, which give rights approximating to ownership, are treated as if they had been purchased outright and are capitalised and depreciated over the shorter of the estimated useful life of the assets and the period of the leases. The capital element of future rentals is treated as a liability and the interest element is charged against profits in proportion to the balances outstanding. Leases where the risk and reward of ownership remain with the lessor are treated as operating leases and the rental costs are charged against profits on a straight-line basis. DERIVATIVE FINANCIAL INSTRUMENTS The Group does not hedge account but uses on occasion derivative financial instruments to hedge its commercial exposure to foreign exchange arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are accounted for as trading instruments and are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, which is based on the quoted forward price. INTEREST-BEARING BORROWINGS Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation, although there remains uncertainty over timing or the amount of the obligation, and a reliable estimate can be made of the amount of the obligation. The carrying amount of the Group’s assets, other than inventories and deferred tax assets (see accounting policies above), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount For goodwill, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the consolidated income statement. Those relating to revalued property are treated in accordance with Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then to reduce the carrying amount of the other assets of the unit (group of units) on a pro rata PROVISIONS IMPAIRMENT is estimated. IAS 16. basis. ASSETS AND LIABILITIES HELD FOR SALE Assets and liabilities held for sale are those which are being actively marketed for sale at the period-end and which management believes will be disposed of within 12 months of the balance sheet date. These assets are stated at fair value with any gain or loss resulting from the changes in fair value recognised within the consolidated income statement as a special item. Where the asset is an investment in a subsidiary undertaking then any corresponding liabilities are disclosed in liabilities held for sale. 28 0_600_ar12.indd 29 29 29 07/09/2012 10:19:01 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 1. SEGMENT INFORMATION IFRS 8 – “Operating Segments” requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Executive Directors. The Executive Directors review the Group’s internal reporting in order to assess performance and allocate resources. Following the restructuring undertaken the two business streams of Machine Tools and Precision Engineered Equipment have been aggregated as they are operationally managed and reported internally to the Executive Directors as a single Division. The South African business consisted of the Mechanical Handling and Waste activity and has been classified as a discontinued activity in these accounts. The Executive Directors consider there to be two continuing operating segments being Machine Tools and Precision Engineered Components and Laser Marking . The executive directors assess the performance of the operating segments based on a measure of operating profit/(loss). This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs and include the effects of the Group Final Salary Scheme in the UK. The following is an analysis of the Group’s revenue and results by reportable segment: 52-weeks ended 31 March 2012 Segmental analysis of revenue Revenue from external customers Inter-segment revenue Total segment revenue USA, UK Australia £000 31,114 — 31,114 Poland £000 1,828 1,903 3,731 Less: inter-segment revenue — (1,903) Continuing Discontinued Machine Tools & Precision Engineered Components Laser Marking Head Office & unallocated Total continuing Mechanical Handling & Waste £000 £000 £000 £000 £000 Total £000 32,942 1,903 34,845 (1,903) 6,451 200 6,651 (200) — — — — — 39,393 2,103 41,496 (2,103) 13,772 53,165 — 2,103 13,772 55,268 — (2,103) 39,393 13,772 53,165 Total revenue per statutory accounts 31,114 1,828 32,942 6,451 Segmental analysis of operating profit/(loss) before special Items 1,468 (1,432) 36 316 (1,559) (1,207) 335 (872) Special Items (6,435) (3,048) (9,483) (1,372) (2,024) (12,879) — (12,879) Group (loss) from operations (4,967) (4,480) (9,447) (1,056) (3,583) (14,086) Financial income Financial expense Loss from write down of 600SA 50 (216) — — — — 50 (216) — — (2) — 10,808 (9,719) — 10,858 (9,937) — 10,858 — (9,937) — (1,263) (1,263) Profit before tax (5,133) (4,480) (9,613) (1,058) (2,494) (13,165) (928) (14,093) Other segmental information: Reportable segment assets 21,034 1,479 22,513 4,056 1,385 27,954 6,300 34,251 Reportable segment liabilities (15,441) (1,479) (16,920) (3,977) (1,903) (22,800) (4,488) (27,264) Non-current assets Fixed asset additions Depreciation and amortisation Impairment of fixed assets Impairment of development costs 30 3,063 229 613 — — — 410 197 1,158 — 3,063 2,310 2,037 639 810 1,158 — 151 225 — 931 1 28 — — 7,410 791 1,063 1,158 931 — 7,410 172 86 963 1,149 — 1,158 — 931 30 0_600_ar12.indd 30 07/09/2012 10:19:02 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 1. SEGMENT INFORMATION 1. SEGMENT INFORMATION CONTINUED IFRS 8 – “Operating Segments” requires operating segments to be identified on the basis of internal reporting about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. The chief operating decision maker has been identified as the Executive Directors. The Executive Directors 52-weeks ended 2 April 2011 review the Group’s internal reporting in order to assess performance and allocate resources. Following the restructuring undertaken the two business streams of Machine Tools and Precision Engineered Equipment have been aggregated as they are operationally managed and reported internally to the Executive Directors as a single Division. The Continuing Discontinued Machine Tools & Precision Engineered Components Laser Marking Head Office & unallocated Total continuing Mechanical Handling & Waste £000 £000 £000 £000 £000 Total £000 USA, UK Australia £000 Poland £000 South African business consisted of the Mechanical Handling and Waste activity and has been classified as a discontinued activity Segmental analysis of revenue in these accounts. The Executive Directors consider there to be two continuing operating segments being Machine Tools and Revenue from external customers 29,040 Precision Engineered Components and Laser Marking . The executive directors assess the performance of the operating segments based on a measure of operating profit/(loss). This measurement basis excludes the effects of Special Items from the operating segments. Head Office and unallocated represent central functions and costs and include the effects of the Group Final Salary Scheme in the UK. Inter-segment revenue Total segment revenue Less: inter-segment revenue 29,040 386 480 866 (480) 29,426 7,025 480 29,906 (480) 332 7,357 (332) Total revenue per statutory accounts 29,040 386 29,426 7,025 — — — — — 36,451 812 37,263 (812) 14,113 50,564 — 812 14,113 51,376 — (812) 36,451 14,113 50,564 The following is an analysis of the Group’s revenue and results by reportable segment: Continuing Discontinued Segmental analysis of operating profit/(loss) before special Items 1,293 226 1,519 325 (1,588) 256 911 1,167 Special Items (847) — (847) — 2,192 1,345 — 1,345 Machine Tools & Precision Engineered 52-weeks ended 31 March 2012 Group profit from operations 446 226 672 325 604 1,601 911 2,512 USA, UK Australia Poland Components Marking unallocated continuing Head Office Laser & Total £000 £000 £000 £000 £000 £000 £000 Mechanical Handling & Waste Total £000 Segmental analysis of revenue Revenue from external customers Inter-segment revenue Total segment revenue Less: inter-segment revenue — (1,903) 31,114 — 31,114 1,828 1,903 3,731 32,942 1,903 34,845 (1,903) 6,451 200 6,651 (200) 39,393 2,103 41,496 (2,103) 13,772 53,165 — 2,103 13,772 55,268 — (2,103) Total revenue per statutory accounts 31,114 1,828 32,942 6,451 39,393 13,772 53,165 — — — — — Other segmental information: Reportable segment assets 28,123 2,151 30,274 4,960 1,365 36,599 6,832 43,431 Reportable segment liabilities (13,848) (1,016) (14,864) (2,016) (1,976) (18,856) (2,892) (21,748) Fixed asset additions Depreciation and amortisation 345 873 936 38 1,281 911 410 510 - 30 1,691 1,451 154 56 1,845 1,507 Inter-segment pricing is determined on an arm’s length basis. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Segmental analysis of operating profit/(loss) before special Items 1,468 (1,432) 36 316 (1,559) (1,207) 335 (872) Geographical segmental analysis of revenue is shown by origin and destination in the following two tables: Special Items (6,435) (3,048) (9,483) (1,372) (2,024) (12,879) — (12,879) Group (loss) from operations (4,967) (4,480) (9,447) (1,056) (3,583) (14,086) Financial income Financial expense Loss from write down of 600SA 50 (216) — — — — 50 (216) — — (2) — 10,808 (9,719) — 10,858 (9,937) — 10,858 — (9,937) — (1,263) (1,263) Profit before tax (5,133) (4,480) (9,613) (1,058) (2,494) (13,165) (928) (14,093) Other segmental information: Reportable segment assets 21,034 1,479 22,513 4,056 1,385 27,954 6,300 34,251 Reportable segment liabilities (15,441) (1,479) (16,920) (3,977) (1,903) (22,800) (4,488) (27,264) Non-current assets Fixed asset additions Depreciation and amortisation Impairment of fixed assets Impairment of development costs 3,063 229 613 — — — 410 197 1,158 — 639 810 1,158 — 151 225 — 931 3,063 2,310 2,037 7,410 791 1,063 1,158 931 1 28 — — — 7,410 172 86 963 1,149 — 1,158 — 931 30 Segmental analysis by origin Gross sales revenue: UK Other European North America Australasia Less: Inter-company Continuing Revenue Discontinued - Africa Total Revenue 2012 £000 2011 % £000 % 16,414 1,828 17,167 3,984 — 39,393 558 39,951 41.0 4.6 43.0 10.0 — 98.6 1.4 100.0 21,111 865 15,216 3,234 (3,975) 36,451 14,113 50,564 41.8 1.7 30.1 6.4 (7.9) 72.1 27.9 100.0 31 31 0_600_ar12.indd 31 07/09/2012 10:19:02 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 1. SEGMENT INFORMATION CONTINUED Segmental analysis by destination: Gross sales revenue: UK Other European North America Africa Australasia Central America Middle East Far East Continuing Revenue Discontinued – Africa 2012 £000 2011 % £000 % 6,034 6,810 20,063 500 4,103 425 665 793 39,393 558 39,951 15.1 17.0 50.2 1.2 10.3 1.1 1.7 2.0 98.6 1.4 100.0 6,325 6,260 17,884 171 3,252 167 1,629 763 36,451 14,113 50,564 12.5 12.4 35.4 0.3 6.4 0.3 3.3 1.5 72.1 27.9 100.0 There are no customers that represent 10% or more of the Group’s revenues. Discontinued operations 600SA the Group’s South African business was sold on 16 July 2012 to Eqstra Holdings Limited for a total consideration of ZAR ( South African Rand) 24.3m which resulted in net proceeds after costs received in the UK of £1.81m. This represented the full activities of the Mechanical Handling and Waste business segment and the results for 52-week period ended 31 March 2012 are included in the post tax loss on discontinued activities in the Group’s consolidated income statement. The figures for 2011 also include the discontinued operations in Germany. The results of these discontinued operations are as follows: Results of the discontinued operations Revenue Expenses Profit /(loss) before tax from discontinued operations Taxation Profit/Loss from operating activities after tax Loss from sale of discontinued activities Loss for the period Cash flows from discontinued operations Net cash flow from operating activities Cash flow from investing activities Net cash used /generated from discontinued activities 32 2012 £000 South Africa South Africa Germany 2011 £000 Total 13,772 14,113 303 14,416 (13,437) (13,306) (1,007) (14,313) 335 151 486 (1,263) (777) £000 South Africa (511) 460 (51) 807 755 1,562 — 1,562 (704) — (704) — (704) South Africa Germany — — — (704) — (704) 103 755 858 — 858 £000 Total (704) — (704) 32 0_600_ar12.indd 32 07/09/2012 10:19:02 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 1. SEGMENT INFORMATION CONTINUED Segmental analysis by destination: Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 2. OTHER OPERATING INCOME/OPERATING EXPENSES Other operating income Operating expenses: – administration expenses – distribution costs Total operating expenses 3. SPECIAL ITEMS 2012 £000 126 17,035 1,742 18,777 2011 £000 332 8,508 3,167 11,675 In order for users of the financial statements to better understand the underlying performance of the Group the Board have separately disclosed transactions which by virtue of their size or incidence, are considered to be one off in nature. In addition, they include the charge for share based payments. Such items include gains and losses on the sale of properties and assets, impairments of assets re FMT-Colchester closure, exceptional costs relating to reorganisation, redundancy and restructuring, legal disputes and inventory and intangibles impairments. Cost of sales Inventory impairments Plant and equipment impairments Development expenditure impairments Redundancies Operating costs Redundancies Refinancing Reorganisation and restructuring costs Share-based payments Pension credit Restructuring costs 2012 £000 5,171 1,158 931 252 1,159 451 3,667 90 — 12,879 2011 £000 201 — — — 242 — 655 127 (2,570) (1,345) Reorganisation and restructuring costs relate to legal disputes and costs incurred both in the UK and Poland with regard to the move of the machine tools manufacturing to Poland. As a result of these manufacturing transfers and trading losses in Poland, inventory levels were reviewed for obsolescence and age and impairments were made to inventories and plant and machinery. Subsequent to the year end the decision was taken to cease manufacturing in Poland. Within the laser marking business there has been a sales trend towards the most recent technological ranges with the result that the carrying value of the development expenditure and related stock of older generation products has been impaired. Redundancies relate to the reduction in UK production capacity on the transfer of machine tool manufacturing to Poland and the termination costs related to Head Office and Board changes. Refinancing costs relate to the costs of the share placing in the early part of the year and the re-banking completed in August 2011. 0_600_ar12.indd 33 33 33 07/09/2012 10:19:02 There are no customers that represent 10% or more of the Group’s revenues. Discontinued operations 600SA the Group’s South African business was sold on 16 July 2012 to Eqstra Holdings Limited for a total consideration of ZAR ( South African Rand) 24.3m which resulted in net proceeds after costs received in the UK of £1.81m. This represented the full activities of the Mechanical Handling and Waste business segment and the results for 52-week period ended 31 March 2012 are included in the post tax loss on discontinued activities in the Group’s consolidated income statement. The figures for 2011 also include the discontinued operations in Germany. The results of these discontinued operations are as follows: Gross sales revenue: UK Other European North America Africa Australasia Central America Middle East Far East Continuing Revenue Discontinued – Africa Results of the discontinued operations Revenue Expenses Taxation Profit /(loss) before tax from discontinued operations Profit/Loss from operating activities after tax Loss from sale of discontinued activities Loss for the period Cash flows from discontinued operations Net cash flow from operating activities Cash flow from investing activities Net cash used /generated from discontinued activities 2012 £000 2011 % £000 % 6,034 6,810 20,063 500 4,103 425 665 793 39,393 558 39,951 15.1 17.0 50.2 1.2 10.3 1.1 1.7 2.0 98.6 1.4 100.0 6,325 6,260 17,884 171 3,252 167 1,629 763 36,451 14,113 50,564 12.5 12.4 35.4 0.3 6.4 0.3 3.3 1.5 72.1 27.9 100.0 13,772 14,113 303 14,416 (13,437) (13,306) (1,007) (14,313) 2012 £000 South Africa 335 151 486 (1,263) (777) £000 South Africa (511) 460 (51) South Africa Germany 807 755 1,562 — 1,562 (704) (704) — — (704) South Africa Germany — — — (704) — (704) 2011 £000 Total 103 755 858 — 858 £000 Total (704) — (704) 32 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 4. (LOSS)/PROFIT FROM OPERATIONS – depreciation of assets held under finance leases – amortisation of development expenditure – research and development expensed as incurred – hire of plant – other operating lease rentals – loss on sale of property, plant and equipment and after crediting: – rents receivable – profit on sale of property, plant and equipment 2012 £000 25 116 — 13 112 1 52 2 2011 £000 34 513 65 33 117 16 222 2 Special Items –Reorganisation, redundancy, share bases payments, inventory and intangibles impairment (note 3) 12,879 (1,345) Auditor’s remuneration: – audit of these financial statements – amounts receivable by auditor and its associates in respect of: – auditing of accounts of associates of the company pursuant to legislation (including that of countries and territories outside of Great Britain) – other services relating to taxation – other services pursuant to such legislation 82 71 21 51 Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements have not been disclosed as the information is required instead to be disclosed on a consolidated basis. 5. PERSONNEL EXPENSES Staff costs: – wages and salaries – social security costs – pension charges relating to defined contribution schemes – pension charges relating to defined benefit schemes – equity share options expense (included in Special Items) 2012 £000 10,483 1,363 258 269 (61) 75 86 17 12 2011 £000 11,020 1,273 201 300 127 In addition to the above staff costs, redundancy costs of £1,411,000 were incurred during the year (2011 - £242,000). Redundancy amounts payable to directors during the year amounted to £643,000 (2011 - £nil). Director’s emoluments including disclosure of the highest paid director are included in the Director’s Emoluments table contained within the Remuneration report. 12,312 12,921 34 0_600_ar12.indd 34 34 07/09/2012 10:19:02 – depreciation of assets held under finance leases – amortisation of development expenditure – research and development expensed as incurred – hire of plant – other operating lease rentals – loss on sale of property, plant and equipment and after crediting: – rents receivable Special Items – profit on sale of property, plant and equipment Auditor’s remuneration: – audit of these financial statements territories outside of Great Britain) – other services relating to taxation – other services pursuant to such legislation 5. PERSONNEL EXPENSES Staff costs: – wages and salaries – social security costs – pension charges relating to defined contribution schemes – pension charges relating to defined benefit schemes – equity share options expense (included in Special Items) 2012 £000 25 116 — 13 112 1 52 2 82 71 21 51 2011 £000 34 513 65 33 117 16 222 2 75 86 17 12 2012 £000 10,483 1,363 258 269 (61) 2011 £000 11,020 1,273 201 300 127 12,312 12,921 In addition to the above staff costs, redundancy costs of £1,411,000 were incurred during the year (2011 - £242,000). Redundancy amounts payable to directors during the year amounted to £643,000 (2011 - £nil). Director’s emoluments including disclosure of the highest paid director are included in the Director’s Emoluments table contained within the Remuneration report. Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 4. (LOSS)/PROFIT FROM OPERATIONS 5. PERSONNEL EXPENSES CONTINUED The average number of employees of the Group (including Executive Directors) during the period was as follows: Management and administration Production Sales All operating segments 2012 Number 2011 Number 137 382 102 621 117 356 99 572 Details of Directors’ emoluments, share option schemes and pension entitlements are given in the Directors’ Remuneration Report on pages 13 to 17. –Reorganisation, redundancy, share bases payments, inventory and intangibles impairment (note 3) 12,879 (1,345) – amounts receivable by auditor and its associates in respect of: – auditing of accounts of associates of the company pursuant to legislation (including that of countries and 6. FINANCIAL INCOME AND EXPENSE Interest income Expected return on defined benefit pension scheme assets Financial income Bank overdraft and loan interest Shareholder loan interest Other loan interest Other finance charges Finance charges on finance leases Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements have not been disclosed as the information is required instead to be disclosed on a consolidated basis. Interest on defined benefit pension scheme obligations Financial expense 7. TAXATION Current tax: Corporation tax at 26% (2011: 28%): – current period relating to prior period Overseas taxation: – current period Total current tax charge Deferred taxation: – current period – prior period Total deferred taxation charge (Note 13) Taxation charged to the income statement 34 0_600_ar12.indd 35 2012 £000 24 10,834 10,858 (385) (200) (23) — (61) (9,268) (9,937) 2012 £000 — (74) (74) (50) (783) (833) (907) 2011 £000 34 10,876 10,910 (311) (118) (55) (31) (51) (9,484) (10,050) 2011 £000 — (60) (60) (213) (175) (388) (448) 35 35 07/09/2012 10:19:03 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 7. TAXATION CONTINUED TAX RECONCILIATION The tax charge assessed for the period is lower than the standard rate of corporation tax in the UK of 26% (2011: 28%). The differences are explained below: (Loss)/profit before tax (Loss)/profit before tax multiplied by the standard rate of corporation tax in the UK of 26% (2011 28%) Effects of: – expenses not deductible – non-taxable income – overseas tax rates – deferred tax prior period adjustment – unrecognised losses utilised/tax not recognised on losses – impact of rate change Taxation charged/(credited) to the income statement 2012 £000 (13,165) % 2011 £000 2,461 % (3,423) (26.0) 689 28.0 120 — 104 783 3,345 (22) 907 0.9 — 0.8 5.9 25.4 (0.2) 6.9 475 (72) 44 (580) (219) 111 448 19.3 (2.9) 1.8 (23.6) (8.9) 4.5 18.2 Following the enactment of legislation in the UK to reduce the corporation tax rate from 26% to 24% from 1 April 2012, the effective tax rate this year includes the impact on the income statement of calculating the UK deferred tax balances at the lower UK corporation tax rate. The impact of this rate change is a £22,000 decrease in the tax charge in the income statement. A further reduction in the UK tax rate to 23% has been enacted on 3 July 2012. Deferred taxation balances are analysed in note 13. 8. DIVIDENDS No dividend was paid in period (2011: no dividend paid). 9. EARNINGS PER SHARE The calculation of the basic loss per share of 23.30p (2011: profit of 5.01p) is based on the earnings for the financial period attributable to the Parent Company’s shareholders of a loss of £14,849,000 (2011: profit of £2,871,000) and on the weighted average number of shares in issue during the period of 63,717,224 (2011: 57,347,141). At 31 March 2012, there were 2,272,102 (2011: 16,511,898) potentially dilutive shares on option with a weighted average effect of 2,272,102 (2011: 9,863,832) shares. As a loss cannot be diluted the figures for 2012 will remain the same as the basic loss per share for continuing operations is 22.08p (2011: profit of 3.51p) and the basic loss per share for discontinued operations is (1.22)p (2011: profit of 1.50p). Weighted average number of shares Issued shares at start of period Effect of shares issued in the year Weighted average number of shares at end of period 2012 2011 57,933,679 57,233,679 5,783,545 113,462 63,717,224 57,347,141 36 0_600_ar12.indd 36 36 07/09/2012 10:19:03 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 The tax charge assessed for the period is lower than the standard rate of corporation tax in the UK of 26% (2011: 28%). The differences 2012 £000 (13,165) % % 2011 £000 2,461 (3,423) (26.0) 689 28.0 120 — 104 783 3,345 (22) 907 0.9 — 0.8 5.9 25.4 (0.2) 6.9 475 (72) 44 (580) (219) 111 448 19.3 (2.9) 1.8 (23.6) (8.9) 4.5 18.2 (Loss)/profit before tax multiplied by the standard rate of corporation tax 7. TAXATION CONTINUED TAX RECONCILIATION are explained below: (Loss)/profit before tax in the UK of 26% (2011 28%) Effects of: – expenses not deductible – non-taxable income – overseas tax rates – deferred tax prior period adjustment – unrecognised losses utilised/tax not recognised on losses – impact of rate change Taxation charged/(credited) to the income statement rate to 23% has been enacted on 3 July 2012. Deferred taxation balances are analysed in note 13. 8. DIVIDENDS No dividend was paid in period (2011: no dividend paid). 9. EARNINGS PER SHARE Weighted average number of shares Issued shares at start of period Effect of shares issued in the year Weighted average number of shares at end of period Following the enactment of legislation in the UK to reduce the corporation tax rate from 26% to 24% from 1 April 2012, the effective tax rate this year includes the impact on the income statement of calculating the UK deferred tax balances at the lower UK corporation tax rate. The impact of this rate change is a £22,000 decrease in the tax charge in the income statement. A further reduction in the UK tax The calculation of the basic loss per share of 23.30p (2011: profit of 5.01p) is based on the earnings for the financial period attributable to the Parent Company’s shareholders of a loss of £14,849,000 (2011: profit of £2,871,000) and on the weighted average number of shares in issue during the period of 63,717,224 (2011: 57,347,141). At 31 March 2012, there were 2,272,102 (2011: 16,511,898) potentially dilutive shares on option with a weighted average effect of 2,272,102 (2011: 9,863,832) shares. As a loss cannot be diluted the figures for 2012 will remain the same as the basic loss per share for continuing operations is 22.08p (2011: profit of 3.51p) and the basic loss per share for discontinued operations is (1.22)p (2011: profit of 1.50p). 10. EMPLOYEE SHARE OPTION SCHEMES The Group has granted share options to employees under The 600 Group PLC 2008 and 2009 Performance Share Plan and the 600 Group PLC Deferred Share plan 2011. On 25 August 2009, awards were made to certain senior employees under a new Performance Share Plan (the PSP).The performance criteria attached to these shares have not been met and therefore they have now lapsed. On 22 March 2011 and 18 January 2012, further awards were made to the Executive Directors and other senior employees under the PSP scheme. Existing options under the PSP are exercisable at the end of a three year performance period and are subject to performance criteria relating to EPS targets as set out in the Remuneration Report. Options were also made to certain Executive Directors on 18 January under the new Deferred Share Plan (DSP).Options are exercisable immediately and no performance criteria are attached to the current options. The schemes are equity-settled. SHARE-BASED EXPENSE The Group recognised a total charge of £90,000 (2011: charge of £127,000) in relation to equity-settled share-based payment transactions. The number and weighted average exercise prices of share options Number of options outstanding at beginning of period 4,711,898 2,404,669 2012 PSP 2011 PSP 2012 DSP __ Number of options granted in period Number of options forfeited/lapsed in period Number of options exercised in period Number of options outstanding at end of period Number of options exercisable at end of period 1,144,737 2,612,080 502,576 (2,099,818) (304,851) — — 3,756,817 4,711,898 — — __ — 502,576 502,576 2011 DSP — — — — — — During the current and prior period, the Group has not granted equity as consideration for goods or services received. FAIR VALUE ASSUMPTIONS OF SHARE-BASED PAYMENTS THE 600 GROUP PLC 2008 PERFORMANCE SHARE PLAN The fair value of awards granted under The 600 Group PLC 2008 Performance Share Plan are determined using the Monte Carlo valuation model. The fair value of share options and assumptions are shown in the table below: 2012 2011 57,933,679 57,233,679 5,783,545 113,462 63,717,224 57,347,141 Fair value Share price at grant Exercise price Dividend yield Expected volatility Expected life Risk-free interest rate Number of shares under option 2012 £000 2011 £000 £0.1625 £0.1625 £0.19 £0.28625 £nil 0% 50% £nil 0% 12% 3.0 years 3.0 years 5% 4.08% 1,144,737 2,507,277 As the share options issued under the DSP scheme on 18 January 2012 have no performance criteria and are excercisable immediately they have been valued at their issue price of 19p. 36 0_600_ar12.indd 37 37 37 07/09/2012 10:19:03 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 11. PROPERTY, PLANT AND EQUIPMENT Cost or valuation At 2 April 2011 Exchange differences Additions during period Reclassification Disposals during period Transferred to assets held for sale At 31 March 2012 At professional valuation At cost Depreciation At 2 April 2011 Exchange differences Reclassification Charge for period Impairment Disposals during period Transferred to assets held for sale At 31 March 2012 Net book value At 31 March 2012 At 2 April 2011 Land and buildings Plant and Fixtures, fittings, tools and Freehold Leasehold machinery equipment £000 £000 £000 £000 4,684 (83) 28 — — (3,565) 1,064 1,064 — 1,064 121 — — 112 — — (126) 107 957 4,563 2,576 (7) 83 — — (134) 2,518 2,395 123 2,518 174 (4) — 59 — — (53) 176 2,342 2,402 22,242 (137) 835 409 (653) (483) 22,213 — 22,213 22,213 18,983 (31) 282 737 1,158 (273) (258) 20,598 1,615 3,259 2,858 (14) 17 (409) — (71) 2,381 — 2,381 2,381 2,421 (12) (282) 125 — — (42) 2,210 171 437 Total £000 32,360 (241) 963 — (653) (4,253) 28,176 3,459 24,717 28,176 21,699 (47) — 1,033 1,158 (273) (479) 23,091 5,085 10,661 The net book value of property, plant and equipment includes £172,000 (2011: £196,000) of assets held under finance leases. The depreciation charged in the period against assets held under finance leases was £25,000 (2011: £34,000). The impairment of £1,158,000 relates entirely to the write-down of the group’s Polish subsidiary’s plant and machinery following the decision to close the subsidiary in August 2012 and has been recognised in the special items in the consolidated income statement. 38 0_600_ar12.indd 38 38 07/09/2012 10:19:03 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 11. PROPERTY, PLANT AND EQUIPMENT Cost or valuation At 2 April 2011 Exchange differences Additions during period Reclassification Disposals during period Transferred to assets held for sale At 31 March 2012 At professional valuation At cost Depreciation At 2 April 2011 Exchange differences Reclassification Charge for period Impairment Disposals during period At 31 March 2012 Net book value At 31 March 2012 At 2 April 2011 Transferred to assets held for sale Land and buildings Plant and Freehold Leasehold machinery equipment £000 £000 £000 £000 Total £000 Fixtures, fittings, tools and 2,858 (14) 17 (409) — (71) 2,381 — 2,381 2,381 2,421 (12) (282) 125 — — (42) 2,210 171 437 4,684 (83) 28 — — (3,565) 1,064 1,064 — 1,064 121 112 — — — — (126) 107 957 4,563 2,576 (7) 83 — — (134) 2,518 2,395 123 2,518 174 (4) — 59 — — (53) 176 2,342 2,402 22,242 (137) 835 409 (653) (483) 22,213 — 22,213 22,213 18,983 (31) 282 737 1,158 (273) (258) 20,598 1,615 3,259 The net book value of property, plant and equipment includes £172,000 (2011: £196,000) of assets held under finance leases. The depreciation charged in the period against assets held under finance leases was £25,000 (2011: £34,000). The impairment of £1,158,000 relates entirely to the write-down of the group’s Polish subsidiary’s plant and machinery following the decision to close the subsidiary in August 2012 and has been recognised in the special items in the consolidated income statement. 32,360 (241) 963 — (653) (4,253) 28,176 3,459 24,717 28,176 21,699 (47) — 1,033 1,158 (273) (479) 23,091 5,085 10,661 38 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 11. PROPERTY, PLANT AND EQUIPMENT CONTINUED This impairment of the plant and machinery at FMT results from the losses which the group’s Polish subsidiary has incurred during the period ending 31 March 2012. During March 2010 the Group’s properties were revalued. The valuations were performed by independent valuers and the valuations were determined by market rate for sale with vacant possession. The Directors believe that these valuations remain appropriate at 31 March 2012. Various UK properties with a net book value of £5,116,000 (2011: £6,965,000) are charged as security for borrowing facilities. Land and buildings Plant and Fixtures, fittings, tools and Freehold Leasehold machinery equipment £000 £000 £000 £000 Total £000 4,595 2,583 21,021 Cost or valuation At 3 April 2010 Exchange differences Acquisitions during period (note 31) Additions during period Disposals during period At 2 April 2011 At professional valuation At cost Depreciation At 3 April 2010 Exchange differences Charge for period Disposals during period At 2 April 2011 Net book value At 2 April 2011 At 3 April 2010 12. INTANGIBLE ASSETS Cost At 2 April 2011 Additions Written off At 31 March 2012 Amortisation and impairment At 2 April 2011 Amortisation Impairment Written off At 31 March 2012 Net book value At 31 March 2012 At 2 April 2011 63 — 26 — 4,684 4,367 317 4,684 — — 121 — 121 — — 24 (31) 2,576 2,370 206 2,576 168 — 37 (31) 174 4,563 4,595 2,402 2,415 1 843 941 (564) 22,242 — 22,242 22,242 2,905 (43) — 11 (15) 2,858 — 2,858 2,858 31,104 21 843 1,002 (610) 32,360 6,737 25,623 32,360 18,603 2,337 21,108 (5) 704 (319) 18,983 3,259 2,418 (33) 132 (15) 2,421 437 568 Development Goodwill expenditure £000 £000 1,514 — — 1,514 3,325 549 (2,634) 1,240 1,514 1,975 — — — 1,514 — — 116 931 (2,634) 388 852 1,350 (38) 994 (365) 21,699 10,661 9,996 Total £000 4,839 549 (2,634) 2,754 3,489 116 931 (2,634) 1,902 852 1,350 39 39 0_600_ar12.indd 39 07/09/2012 10:19:04 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 12. INTANGIBLE ASSETS CONTINUED Development Goodwill expenditure £000 £000 Cost At 3 April 2010 Additions At 2 April 2011 Amortisation and impairment At 3 April 2010 Amortisation At 2 April 2011 Net book value At 2 April 2011 At 3 April 2010 1,514 — 1,514 1,514 — 1,514 — — Amortisation and impairment charges are recorded in the following line items in the income statement: Operating expenses 2,919 406 3,325 1,462 513 1,975 1,350 1,457 2012 £000 1,047 Total £000 4,433 406 4,839 2,976 513 3,489 1,350 1,457 2011 £000 513 IMPAIRMENT OF DEVELOPMENT EXPENDITURE Within the Laser Marking business segment there has been a sales trend during the year towards the most recent technological ranges. During the year a review of the carrying value of development expenditure was made. This review resulted in an impairment charge of £931,000 in respect of those technologies that are becoming obsolete and whose future income stream is unlikely to recover the full carrying value. This impairment has been charged to special items. IMPAIRMENT OF GOODWILL Goodwill of £1.51m arose on acquisitions before the date of transition to adopted IFRS and is retained at the previous UK GAAP amounts, subject to it being tested for impairment at that date. £1.0m related to the Parat operation in Germany, £0.1m related to the Gamet operation in the UK and £0.4m related to the Metal Muncher operation in the US. All of these cash-generating units have been reviewed for impairment and had been fully provided against at the start of the current reporting period. 40 0_600_ar12.indd 40 40 07/09/2012 10:19:04 Amortisation and impairment Cost At 3 April 2010 Additions At 2 April 2011 At 3 April 2010 Amortisation At 2 April 2011 Net book value At 2 April 2011 At 3 April 2010 Operating expenses Development Goodwill expenditure £000 £000 1,514 — 1,514 1,514 — 1,514 — — 2,919 406 3,325 1,462 513 1,975 1,350 1,457 2012 £000 1,047 Total £000 4,433 406 4,839 2,976 513 3,489 1,350 1,457 2011 £000 513 IMPAIRMENT OF DEVELOPMENT EXPENDITURE Within the Laser Marking business segment there has been a sales trend during the year towards the most recent technological ranges. During the year a review of the carrying value of development expenditure was made. This review resulted in an impairment charge of £931,000 in respect of those technologies that are becoming obsolete and whose future income stream is unlikely to recover the full carrying value. This impairment has been charged to special items. IMPAIRMENT OF GOODWILL Goodwill of £1.51m arose on acquisitions before the date of transition to adopted IFRS and is retained at the previous UK GAAP amounts, subject to it being tested for impairment at that date. £1.0m related to the Parat operation in Germany, £0.1m related to the Gamet operation in the UK and £0.4m related to the Metal Muncher operation in the US. All of these cash-generating units have been reviewed for impairment and had been fully provided against at the start of the current reporting period. Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 12. INTANGIBLE ASSETS CONTINUED Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 13. DEFERRED TAX ASSETS AND LIABILITIES RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Revaluations and rolled over gains Research and development Tax assets/(liabilities) Held for sale Net tax assets/(liabilities) 2012 £000 72 36 1.365 405 — — 1,878 (405) 1,473 Amortisation and impairment charges are recorded in the following line items in the income statement: MOVEMENT IN DEFERRED TAX DURING THE PERIOD Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Employee benefits Revaluations and rolled over gains Research and development MOVEMENT IN DEFERRED TAX DURING THE PRIOR PERIOD Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Revaluations and rolled over gains Research and development 2011 £000 118 39 1,370 1,177 — — 2,704 — 2,704 As at 2 April 2011 £000 99 39 1,370 1,177 — (1,398) (400) 887 As at 3 April 2010 £000 118 7 1,433 736 (1,335) (400) 559 2012 £000 — — — — (1,226) (139) (1,365) — (1,365) 2011 £000 (19) — — — (1,398) (400) (1,817) — (1,817) 2012 £000 72 36 1,365 405 (1,226) (139) 513 (405) 108 Statement of Income comprehensive Exchange statement income Fluctuations £000 (27) (3) (5) (694) (386) 172 261 (682) £000 £000 — — — — 386 — — 386 — — — (78) — — — (78) Statement of Income comprehensive Exchange statement income Fluctuations £000 (19) 32 (63) 417 — — 367 £000 £000 — — — — (67) — (67) — — — 24 4 — 28 2011 £000 99 39 1,370 1,177 (1,398) (400) 887 — 887 As at 31 March 2012 £000 72 36 1,365 405 — (1,226) (139) 513 As at 2 April 2011 £000 99 39 1,370 1,177 (1,398) (400) 887 Following the enactment of legislation in the UK to reduce the corporation tax rate from 28% to 26% from 1 April 2011, the effective tax rate this year includes the impact on the income statement of calculating the UK deferred tax balances at the lower UK corporation tax rate. The impact of this rate change is a £111,000 increase in the tax charge in the income statement. A further reduction in the UK tax rate to 23% has been enacted on 3 July 2012. No provision is made for taxation that would arise if reserves in overseas companies were to be distributed. 40 0_600_ar12.indd 41 41 41 07/09/2012 10:19:04 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 13. DEFERRED TAX ASSETS AND LIABILITIES CONTINUED The following deferred tax assets have not been recognised on the basis that their future economic benefit is uncertain: Advance corporation tax recoverable Tax losses There is no expiry date for the advance corporation tax recoverable or the tax losses. 14. INVENTORIES Raw materials and consumables Work in progress Finished goods and goods for resale 2012 £000 1,670 7,600 2012 £000 2,559 628 7,624 2011 £000 1,670 4,942 2011 £000 7,025 2,072 9,645 10,811 18,742 The Directors consider all inventories to be essentially current in nature although the Group’s operational cycle is such that a proportion of inventories will not be realised within twelve months. It is not possible to determine with accuracy when specific inventory will be realised as this is subject to a number of issues, including customer demand. During the period, the Group conducted a review of the net realisable value of its inventories in light of the deterioration in the global economic environment and obsolescence of certain product lines. When the estimated net realisable value was less than its carrying value within the balance sheet, the Group impaired the inventory values. During the period inventory provisions have increased by £3,389,000 (2011: reduced by £2,000). Following the impairment provisions, inventories are valued at fair value less costs to sell rather than at historical cost. The value of inventories expensed in 2012 and included in cost of sales was £30,076,000 (2011: £26,880,000). 15. TRADE AND OTHER RECEIVABLES Trade receivables Other debtors Other prepayments and accrued income The trade receivables disclosed above are shown net of the provisions which are disclosed below. The movements on the Group’s provisions against trade receivables are as follows: At start of year Exchange differences on opening balances Utilised in the period Charged in the period Receivables written off during the year as uncollectable At end of year 42 2012 £000 5,392 318 818 6,528 2012 £000 572 (3) (164) 62 (39) 428 2011 £000 7,535 542 845 8,922 2011 £000 818 (11) (163) (51) (21) 572 42 0_600_ar12.indd 42 07/09/2012 10:19:04 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 13. DEFERRED TAX ASSETS AND LIABILITIES CONTINUED The following deferred tax assets have not been recognised on the basis that their future economic benefit is uncertain: 15. TRADE AND OTHER RECEIVABLES CONTINUED The ageing analysis of gross trade receivables is as follows: Current (not overdue and no provision held) Overdue but no provision held: – 0–3 months overdue – 3–6 months overdue – 6–12 months overdue – more than 12 months overdue Total gross trade receivables before provision 2012 £000 3,980 1,210 589 3 38 2011 £000 5,195 1,771 1,011 59 71 5,820 8,107 10,811 18,742 The other classes of debtors do not contain impaired assets. As at 31 March 2012, trade receivables that were neither past due nor impaired related to a number of independent customers for whom there is no recent history of default. The Directors consider all inventories to be essentially current in nature although the Group’s operational cycle is such that a proportion 16. ASSETS HELD FOR SALE of inventories will not be realised within twelve months. It is not possible to determine with accuracy when specific inventory will be realised as this is subject to a number of issues, including customer demand. During the period, the Group conducted a review of the net realisable value of its inventories in light of the deterioration in the global economic environment and obsolescence of certain product lines. When the estimated net realisable value was less than its carrying value within the balance sheet, the Group impaired the inventory values. During the period inventory provisions have increased by £3,389,000 (2011: reduced by £2,000). Following the impairment provisions, inventories are valued at fair value less costs to sell rather The value of inventories expensed in 2012 and included in cost of sales was £30,076,000 (2011: £26,880,000). Properties held for sale 600SA assets held for sale (including property, plant and equipment) Total assets held for sale 2012 £000 2,793 6,300 9,093 2011 £000 - - - The assets of 600SA, the Group’s South African business, are shown as assets held for sale as the business was being actively marketed at the period-end and has subsequently been sold to Eqstra Holdings Limited on 16 July 2012. The liabilities of this business are also disclosed separately in the Consolidated statement of financial position (note 20). The properties held for sale relate to UK land and buildings which were being actively marketed at the period-end. 17. CASH AND CASH EQUIVALENTS Cash at bank Short-term deposits Cash and cash equivalents per statement of financial position Bank overdrafts (note 18 ) Cash and cash equivalents per cash flow statement 0_600_ar12.indd 43 2012 £000 309 100 409 (526) (117) 2011 £000 952 100 1,052 (2,957) (1,905) 43 43 07/09/2012 10:19:04 There is no expiry date for the advance corporation tax recoverable or the tax losses. Advance corporation tax recoverable Tax losses 14. INVENTORIES Raw materials and consumables Work in progress Finished goods and goods for resale than at historical cost. 15. TRADE AND OTHER RECEIVABLES Trade receivables Other debtors Other prepayments and accrued income The trade receivables disclosed above are shown net of the provisions which are disclosed below. The movements on the Group’s provisions against trade receivables are as follows: At start of year Exchange differences on opening balances Utilised in the period Charged in the period At end of year Receivables written off during the year as uncollectable 2012 £000 1,670 7,600 2012 £000 2,559 628 7,624 2012 £000 5,392 318 818 6,528 2012 £000 572 (3) (164) 62 (39) 428 2011 £000 1,670 4,942 2011 £000 7,025 2,072 9,645 2011 £000 7,535 542 845 8,922 2011 £000 818 (11) (163) (51) (21) 572 42 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 18. LOANS AND OTHER BORROWINGS CURRENT: Bank overdrafts (note 17) Bank loans Obligations under finance leases (note 22) NON-CURRENT: Bank loans Shareholder loan Obligations under finance leases (note 22) 2012 £000 526 1,761 292 2,579 2012 £000 3,638 2,052 134 5,824 2011 £000 2,957 374 298 3,629 2011 £000 — 1,957 261 2,218 The £2.5m shareholder loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. During the period 205,000 of these warrants have been exercised and as a result share capital has increased by £2,050 and share premium by £38,950. The loan has both debt and equity components and so the value has been split between these components. The debt element is only repayable in August 2015 and as a result the loan is classified as non-current. Deferred borrowing costs relating to the loan of £281,000 are also netted off the loan carrying value which at the period-end is £2,052,000. The Term Loan of £1,138,000 included within Bank loans will be repaid on a quarterly basis with payments of £160,000 starting on 30 September 2013. The revolving credit facility of £2,500,000 included within Bank Loans is repayable in June 2014. Given the nature of the Group’s financial assets and liabilities, it is the Directors’ opinion that there is no material difference between their reported book values and estimated fair values. The above loans and borrowings are secured by way of fixed and floating charges over the assets of the Company and its subsidiaries. 19. TRADE AND OTHER PAYABLES Payments received on account Trade payables Social security and other taxes Other creditors Accruals and deferred income The above includes the following balances due in more than one year: Other creditors 44 0_600_ar12.indd 44 2012 £000 168 5,776 930 1,082 1,600 9,556 2012 £000 — 2011 £000 82 7,399 987 1,670 1,762 11,900 2011 £000 25 44 07/09/2012 10:19:04 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 18. LOANS AND OTHER BORROWINGS 20. LIABILITIES HELD FOR SALE CURRENT: Bank overdrafts (note 17) Bank loans Obligations under finance leases (note 22) NON-CURRENT: Bank loans Shareholder loan Obligations under finance leases (note 22) The £2.5m shareholder loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. During the period 205,000 of these warrants have been exercised and as a result share capital has increased by £2,050 and share premium by £38,950. The loan has both debt and equity components and so the value has been split between these components. The debt element is only repayable in August 2015 and as a result the loan is classified as non-current. Deferred borrowing costs relating to the loan of £281,000 are also netted off the loan carrying value which at the period-end is £2,052,000. The Term Loan of £1,138,000 included within Bank loans will be repaid on a quarterly basis with payments of £160,000 starting on 30 September 2013. The revolving credit facility of £2,500,000 included within Bank Loans is repayable in June 2014. Given the nature of the Group’s financial assets and liabilities, it is the Directors’ opinion that there is no material difference between their reported book values and estimated fair values. The above loans and borrowings are secured by way of fixed and floating charges over the assets of the Company and its subsidiaries. 19. TRADE AND OTHER PAYABLES Payments received on account Trade payables Social security and other taxes Other creditors Accruals and deferred income The above includes the following balances due in more than one year: Other creditors 2012 £000 526 1,761 292 2,579 2012 £000 3,638 2,052 134 5,824 2012 £000 168 5,776 930 1,082 1,600 9,556 2012 £000 — 2011 £000 2,957 374 298 3,629 2011 £000 — 1,957 261 2,218 2011 £000 82 7,399 987 1,670 1,762 11,900 2011 £000 25 44 600SA liabilities held for sale 2012 £000 4,488 4,488 2011 £000 — — The liabilities of 600SA, the Group’s South African business, are shown as liabilities held for sale as the business was being actively marketed at the period-end and has subsequently been sold to Eqstra Holdings Limited on 16 July 2012. The assets of this business are also disclosed separately in the Consolidated statement of position (note 16). 21. PROVISIONS Provision carried forward at 2 April 2011 Exchange differences Charged to income statement Transferred to liabilities held for sale Utilised in the period Provision carried forward at 31 March 2012 Other £000 — — 1,158 — (43) 1,115 Warranties £000 252 (6) 62 (64) (118) 126 Total £000 252 (6) 1,220 (64) (161) 1,241 The timing of warranty payments are uncertain in nature. The warranty provisions are calculated based on historical experience of claims received, taking into account recent sales of items which are covered by warranty. The provision relates mainly to products sold in the last twelve months. The typical warranty period is now twelve months. The other provisions relate to various legal disputes that the directors believe should be provided against. This charge is included within special items within net operating expenses. The timing of these outflows is not clear due to the uncertainty around the timescales of the various legal processes. 22. OBLIGATIONS UNDER FINANCE LEASES The maturity of obligations under finance leases is as follows: Falling due: – within one year – within two to five years – less future finance charges Amounts falling due within one year Amounts falling due after one year 0_600_ar12.indd 45 2012 £000 292 140 (6) 426 292 134 426 2011 £000 298 351 (90) 559 298 261 559 45 45 07/09/2012 10:19:05 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 23. SHARE CAPITAL Authorised 626,391,704 ordinary shares of 1p each 57,233,679 deferred shares of 24p each Allotted, called-up and fully paid: Ordinary shares of 1p each 2012 £000 6,264 13,736 20,000 2011 £000 6,264 13,736 20,000 57,933,679 ordinary shares of 1p each on issue at start of the period (2011: 57,233,679 ordinary shares of 25p each on issue at start of period) 579 14,308 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 5,787,574 ordinary shares of 1p each issued in institutional placing 205,000 ordinary shares of 1p each issued under exercised warrants (2011: 700,000 ordinary shares of 1p each issued under exercised warrants) 63,926,253 ordinary shares of 1p each on issue at end of period (2011: 57,933,679 ordinary shares of 1p each on issue at end of period) Deferred shares of 24p each: 57,233,679 deferred shares of 24p each on issue at start of period (2011: nil) 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 57,233,679 deferred shares of 24p each on issue at end of period Total Allotted, called-up and fully paid at the end of period — 58 2 639 (13,736) — 7 579 13,736 — 13,736 — 13,736 13,736 14,375 14,315 The Company has one class of ordinary shares which carry no rights to fixed income. The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company. During the year 205,000 of these warrants have been exercised and as a result share capital has increased by £2,050 and share premium by £38,950. In addition, an institutional placing of 5,787,574 in April 2011 resulted in share capital increasing by £57,876 and share premium by £1,707,334. During the prior period each issued ordinary share of 25p was sub-divided and converted into one new ordinary share of 1p and one deferred share of 24p. Each of the unissued ordinary shares of 25p was also sub-divided into 25 ordinary shares of 1p. During the prior period a £2.5m related party loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 1p shares (at a price of 20p per share) or to purchase 1p shares for cash consideration (at a price of 20p per share). 24. RECONCILIATION OF NET CASH FLOW TO NET DEBT Increase/(decrease) in cash and cash equivalents Increase in debt and finance leases Increase in net debt from cash flows Net debt at beginning of period Exchange effects on net funds Net debt at end of period 46 0_600_ar12.indd 46 2012 £000 1,861 (4,988) (3,127) (4,795) (72) (7,994) 2011 £000 1,466 (1,933) (467) (4,328) — (4,795) 46 07/09/2012 10:19:05 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 23. SHARE CAPITAL Authorised 626,391,704 ordinary shares of 1p each 57,233,679 deferred shares of 24p each Allotted, called-up and fully paid: Ordinary shares of 1p each 25p each on issue at start of period) 57,933,679 ordinary shares of 1p each on issue at start of the period (2011: 57,233,679 ordinary shares of 579 14,308 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 5,787,574 ordinary shares of 1p each issued in institutional placing 205,000 ordinary shares of 1p each issued under exercised warrants (2011: 700,000 ordinary shares of 1p each issued under exercised warrants) 63,926,253 ordinary shares of 1p each on issue at end of period (2011: 57,933,679 ordinary shares of 1p — 58 2 639 (13,736) — 7 579 each on issue at end of period) Deferred shares of 24p each: 57,233,679 deferred shares of 24p each on issue at start of period (2011: nil) 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 57,233,679 deferred shares of 24p each on issue at end of period Total Allotted, called-up and fully paid at the end of period 13,736 — 13,736 — 13,736 13,736 14,375 14,315 The Company has one class of ordinary shares which carry no rights to fixed income. The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company. During the year 205,000 of these warrants have been exercised and as a result share capital has increased by £2,050 and share premium by £38,950. In addition, an institutional placing of 5,787,574 in April 2011 resulted in share capital increasing by £57,876 and share premium by £1,707,334. During the prior period each issued ordinary share of 25p was sub-divided and converted into one new ordinary share of 1p and one deferred share of 24p. Each of the unissued ordinary shares of 25p was also sub-divided into 25 ordinary shares of 1p. During the prior period a £2.5m related party loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 1p shares (at a price of 20p per share) or to purchase 1p shares for cash consideration (at a price of 20p per share). 24. RECONCILIATION OF NET CASH FLOW TO NET DEBT Increase/(decrease) in cash and cash equivalents Increase in debt and finance leases Increase in net debt from cash flows Net debt at beginning of period Exchange effects on net funds Net debt at end of period 2012 £000 1,861 (4,988) (3,127) (4,795) (72) (7,994) 2011 £000 1,466 (1,933) (467) (4,328) — (4,795) 2012 £000 6,264 13,736 20,000 2011 £000 6,264 13,736 20,000 25. ANALYSIS OF NET DEBT Cash at bank and in hand Term deposits (included within cash and cash equivalents on the balance sheet) Overdrafts Debt due within one year Debt due after one year Shareholder loan Finance leases Total At 2 April Exchange 2011 £000 952 100 (2,957) (1,905) (374) — (1,957) (559) (4,795) movement Cash flows £000 (73) — — (73) 1 — — — £000 (570) — 2,431 1,861 (1,388) (3,638) (95) 133 (72) (3,127) At 31 March 2012 £000 309 100 (526) (117) (1,761) (3,638) (2,052) (426) (7,994) 26. FINANCIAL INSTRUMENTS OVERVIEW The Group has exposure to the following risks from its use of financial instruments: • credit risk; • liquidity risk; and • market risk. This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing exposure to these. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board is responsible for developing and monitoring the Group’s risk management policies. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group actively manages and monitors capital across the different businesses within the Group. Targets in relation to return on capital are considered as part of the annual budgeting process. During the prior year a shareholder loan was raised which had 12.5m warrants attached to it. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. During the prior year 700,000 of these warrants were exercised for a cash. A further 205,000 shares were issued on exercise of warrants for cash and as a result share capital has increased by £2,050 and share premium by £38,950. The Directors determine the appropriate capital structure of the Group between funds raised from equity shareholders (equity), through the issue of shares and retention of profits generated, and funds borrowed from financial institutions, other businesses, individuals and preference shareholders (debt) in order to finance the Group’s activities both now and in the future. The Board’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns to Shareholders and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Directors have decided that it has not been possible to pay a dividend to equity shareholders. In addition, on 5 April 2011 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. The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by head office staff undertaking both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. 46 0_600_ar12.indd 47 47 47 07/09/2012 10:19:05 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED CREDIT RISK Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Geographically, there is no significant concentration of credit risk. The Board has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, where available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Board; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The carrying value of financial assets represents the maximum credit exposure. The maximum exposure at the reporting date was: Trade receivables Cash and cash equivalents The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: UK Other European countries North America Africa Australasia 2012 £000 5,392 409 5,801 2012 £000 3,229 107 1,811 — 245 5,392 2011 £000 7,535 1,052 8,587 2011 £000 3,360 122 1,344 2,219 490 7,535 48 0_600_ar12.indd 48 48 07/09/2012 10:19:05 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED CREDIT RISK Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. Geographically, there is no significant concentration of credit risk. The Board has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, where available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Board; these limits are reviewed quarterly. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis. Goods are sold subject to retention of title clauses, so that in the event of non-payment the Group may have a secured claim. The Group does not require collateral in respect of trade and other receivables. The carrying value of financial assets represents the maximum credit exposure. The maximum exposure at the reporting date was: Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED LIQUIDITY RISK Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Due to banking facilities being held with different banks in USA, Australia and South Africa certain restrictions on the repatriation of funds to the UK may be imposed by the local bank or in the case of South Africa the Central Reserve Bank as at the period-end date. Typically the Group ensures that it has sufficient cash or overdraft facilities on demand to at least meet any unexpected operational expenses; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The following are the contractual maturities of financial liabilities, including interest payments: The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other Bank overdrafts receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Bank loan Other loan The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Trade receivables Cash and cash equivalents UK Other European countries North America Africa Australasia 2012 £000 5,392 409 5,801 2012 £000 3,229 107 1,811 — 245 5,392 2011 £000 7,535 1,052 8,587 2011 £000 3,360 122 1,344 2,219 490 7,535 Finance lease obligations Interest bearing financial liabilities Trade and other payables Financial liabilities Bank overdrafts Bank loan Other loan Finance lease obligations Interest bearing financial liabilities Trade and other payables Financial liabilities Contractual Less than 2012 carrying amount £000 526 5,399 2,052 426 8,403 5,776 cash flows £000 526 5,399 2,052 426 8,403 5,776 14,179 14,179 1 year £000 526 1,761 — 292 2,579 5,776 8,355 1–2 years 2–5 years £000 — 640 — 134 774 — 774 £000 — 2,998 2,052 — 5,050 — 5,050 2011 carrying amount £000 2,957 374 1,957 559 5,847 7,399 Contractual Less than cash flows £000 2,957 374 1,957 649 5,937 7,399 1 year £000 2,957 374 — 298 3,629 7,399 13,246 13,336 11,028 1–2 years 2–5 years £000 £000 — — — 351 351 — 351 — — 1,957 — 1,957 — 1,957 MARKET RISK Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. 48 0_600_ar12.indd 49 49 49 07/09/2012 10:19:06 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED CURRENCY RISK The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective currencies of Group entities, primarily the Euro (€) and US Dollars ($). The Group’s exposure to foreign currency risk may be summarised as follows: Trade receivables Trade payables Balance sheet exposure The following exchange rates applied during the year: US Dollar Polish zloty Euro US Dollar PLN 000 276 (1,479) (1,203) 2012 US Dollars $000 1,811 (533) 1,278 Euro €000 95 (1,142) (1,047) 2011 US Dollars $000 89 (226) (137) PLN 000 122 (866) (744) 2012 Average rate 1.600 4.83 1.160 Year end spot rate 1.598 4.983 1.200 2011 Average rate 1.556 4.637 1.169 Euro €000 117 (1,291) (1,174) Year end spot rate 1.603 4.566 1.133 Change if appreciated/ depreciated Net assets by 25% in foreign against local currency currency 4,062 1,016 The Group has operations around the world and is therefore exposed to foreign exchange risk arising from net investments in foreign operations. Where cost effective, the exposures arising from the translation of the net assets of the Group’s foreign operations are managed through the use of borrowings or cross-currency swaps in the relevant foreign currency. Some Group operations on occasion also enter into commercial transactions in currencies other than their functional currencies. Exposures arising from the translation of foreign currency transactions are continually monitored and material exposures are managed where necessary through the use of forward contracts or options once cash flows can be identified with sufficient certainty. Exposures arising from the translation of intra-group lending are managed through the use of borrowings in the relevant foreign currency. 50 0_600_ar12.indd 50 50 07/09/2012 10:19:06 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED CURRENCY RISK The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective currencies of Group entities, primarily the Euro (€) and US Dollars ($). The Group’s exposure to foreign currency risk may be summarised as follows: Trade receivables Trade payables Balance sheet exposure The following exchange rates applied during the year: US Dollar Polish zloty Euro US Dollar PLN 000 276 (1,479) (1,203) 2012 US Dollars $000 1,811 (533) 1,278 Euro €000 95 (1,142) (1,047) 2011 US Dollars $000 89 (226) (137) PLN 000 122 (866) (744) 2012 Average rate 1.600 4.83 1.160 Year end spot rate 1.598 4.983 1.200 2011 Average rate 1.556 4.637 1.169 Euro €000 117 (1,291) (1,174) Year end spot rate 1.603 4.566 1.133 Change if appreciated/ depreciated Net assets by 25% in foreign against local currency currency 4,062 1,016 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED The following table shows the impact (due to the retranslation of non-functional currency monetary assets and liabilities in the Group's operations) of a, reasonably possible, 10% movement in the Group’s principal foreign currency exchange rates at the year-end date. 31 March 2012 US$ AUD 2 April 2011 US$ AUD 10% increase Effect on profit before tax 10 % decrease Effect on profit before tax Effect on shareholders’ equity Effect on shareholders’ equity (399) (70) (341) (146) (399) (70) (341) (146) 488 86 418 178 488 86 418 178 The effect on profit before taxation is due to the retranslation of trade receivables, cash and cash equivalents, borrowings, trade payables and derivative financial assets and liabilities denominated in non-functional currencies. The effect on shareholders’ equity is due to the effect on profit as well as the effect of financial assets and liabilities denominated in foreign currencies qualified as either cash flow or net investment hedges. INTEREST RATE RISK The Group holds a mixture of both fixed and floating interest borrowings to control its exposure to interest rate risk although it has no formal target for a ratio of fixed to floating funding. The level of debt is continually reviewed by the Board. The sensitivity analysis is set out below: The Group has operations around the world and is therefore exposed to foreign exchange risk arising from net investments in foreign operations. Where cost effective, the exposures arising from the translation of the net assets of the Group’s foreign operations are managed through the use of borrowings or cross-currency swaps in the relevant foreign currency. Some Group operations on occasion also enter into commercial transactions in currencies other than their functional currencies. Exposures arising from the translation of foreign currency transactions are continually monitored and material exposures are managed where necessary through the use of forward contracts or options once cash flows can be identified with sufficient certainty. Exposures arising from the translation of intra-group lending are managed through the use of borrowings in the relevant foreign currency. US Dollar South African Rand AUS Dollar Polish Zloty CAD Dollar Net cash/ Change if in foreign interest rates borrowings in foreign in foreign Currency currency £’000 (288) 614 121 19 16 change by 1% £’000 (3) 6 1 — — The impact of interest rate risk on the Group's result is due to changes in interest rates on net floating rate cash and cash equivalents and borrowings. At 31 March 2012, if interest rates on the Group's net floating rate cash and cash equivalents and borrowings had been 100 basis points higher, a reasonably possible movement, with all other variables held constant, the effect on profit before taxation in the year would have been a credit of £0.06m (2011: charge of £0.03m). A reduction of 100 basis points would have the equal and opposite effect. There is no further impact on shareholders' equity. 50 0_600_ar12.indd 51 51 51 07/09/2012 10:19:06 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED HEDGING OF FLUCTUATIONS IN FOREIGN CURRENCY The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than Sterling. The Group uses on occasion forward exchange contracts to hedge its commercial foreign currency risk. The Group does not apply a policy of hedge accounting. Most of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity. In respect of other monetary assets and liabilities held in currencies other than Sterling, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. At the period-end there were no outstanding derivative contracts in place. SENSITIVITY ANALYSIS In managing interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings. FINANCIAL INSTRUMENTS The Group’s financial instruments include bank loans, overdrafts and cash. These financial instruments are used for the purpose of funding the Group’s operations. In addition, the Group enters into forward currency derivative transactions on occasion which have been used in the management of risks associated with currency exposure. There were no contracts in place at the period-end. ASSETS AND LIABILITIES The Group does not hedge account but uses derivative financial instruments to hedge its commercial exposure to foreign exchange. These instruments are recognised at fair value. Any gain or loss is immediately recognised in the income statement. The fair value of forward exchange contracts used at 2 April 2011 was a liability of £nil (Note 18) (2010: liability of £nil) and the movement has been recognised within cost of sales. FINANCIAL ASSETS The Group’s financial assets comprise cash, trade receivables and derivative contract assets. The profile of the financial assets at 31 March 2012 and 2 April 2011 was: Currency Sterling US Dollars Australian Dollars Euros Polish Zloty Canadian Dollars South African Rand 2012 Financial assets 2011 Financial assets Floating rate Fixed rate on which Floating rate Fixed rate on which financial financial no interest financial financial no interest assets £000 11 345 291 — 5 3 — assets is earned £000 100 — — — — — — £000 3,118 2,851 312 — 276 — — Total £000 3,229 3,196 603 — 281 3 — 655 100 6,557 7,312 assets £000 15 86 202 — 19 16 614 952 assets is earned £000 100 — — — — — — 100 £000 3,752 1,981 490 — 336 — 2,361 8,920 The weighted average interest rate on floating rate financial assets is: Currency US Dollars Australian Dollars South African Rand Polish Zloty Canadian Dollars Total £000 3,867 2,067 692 — 355 16 2,975 9,972 % 2.0% 2.5% 7.0% 0.0% 0.0% Sterling fixed-rate financial assets are centrally controlled. At 31 March 2012 the weighted average interest rate on these deposits was 1.0% (2010: 3.0%). The floating rate financial assets comprise other deposits that earn interest based on short-term deposit rates. 52 0_600_ar12.indd 52 52 07/09/2012 10:19:06 26. FINANCIAL INSTRUMENTS CONTINUED HEDGING OF FLUCTUATIONS IN FOREIGN CURRENCY Sterling. The Group is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than The Group uses on occasion forward exchange contracts to hedge its commercial foreign currency risk. The Group does not apply a policy of hedge accounting. Most of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at maturity. In respect of other monetary assets and liabilities held in currencies other than Sterling, the Group ensures that the net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. At the period-end there were no outstanding derivative contracts in place. SENSITIVITY ANALYSIS FINANCIAL INSTRUMENTS funding the Group’s operations. ASSETS AND LIABILITIES In managing interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. Over the longer term, however, permanent changes in foreign exchange and interest rates would have an impact on consolidated earnings. The Group’s financial instruments include bank loans, overdrafts and cash. These financial instruments are used for the purpose of In addition, the Group enters into forward currency derivative transactions on occasion which have been used in the management of risks associated with currency exposure. There were no contracts in place at the period-end. The Group does not hedge account but uses derivative financial instruments to hedge its commercial exposure to foreign exchange. These instruments are recognised at fair value. Any gain or loss is immediately recognised in the income statement. The fair value of forward exchange contracts used at 2 April 2011 was a liability of £nil (Note 18) (2010: liability of £nil) and the movement has been recognised within cost of sales. FINANCIAL ASSETS March 2012 and 2 April 2011 was: The Group’s financial assets comprise cash, trade receivables and derivative contract assets. The profile of the financial assets at 31 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 26. FINANCIAL INSTRUMENTS CONTINUED FINANCIAL LIABILITIES Financial liabilities comprise short-term loans, overdrafts, trade payables, obligations under finance leases, other creditors more than one year, forward exchange contract liabilities and other provisions for liabilities and charges (excluding accrued post-retirement health care accrual and deferred tax provision). The profile of the Group’s financial liabilities at 31 March 2012 and 2 April 2011 was: 2012 Financial liabilities 2011 Financial liabilities Floating rate Fixed rate on which Floating rate Fixed rate on which financial financial no interest financial financial no interest liabilities liabilities is paid Currency Sterling US Dollars South African Rand Australian Dollars Canadian Dollars £000 3,025 1,064 — — — 4,089 £000 298 — — 128 — 426 £000 7,776 1,519 — 261 21 Total £000 11,099 2,583 — 389 21 liabilities liabilities £000 2,957 374 — — — £000 478 — — 81 — is paid £000 7,365 1,287 2,810 423 267 Total £000 10,800 1,661 2,810 504 267 9,577 14,092 3,331 559 12,152 16,042 The floating rate financial liabilities comprise bank borrowings and overdrafts that bear interest rates based on local currency base interest rates. BORROWING FACILITIES At 31 March 2012 and 2 April 2011 the Group had undrawn committed borrowing facilities as follows: Floating rate Fixed rate on which Floating rate Fixed rate on which financial financial no interest financial financial no interest assets is earned assets is earned 2012 Financial assets £000 100 — — — — — — £000 3,118 2,851 312 — 276 — — assets £000 11 345 291 — 5 3 — 655 100 6,557 7,312 Total £000 3,229 3,196 603 — 281 3 — assets £000 15 86 202 — 19 16 614 952 2011 Financial assets £000 100 — — — — — — 100 £000 3,752 1,981 490 — 336 — 2,361 8,920 UK US Australia South Africa FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Trade receivables Cash and cash equivalents Bank overdrafts Bank loan Other loans Finance lease obligations Trade payables Fair value of derivative contracts The weighted average interest rate on floating rate financial assets is: 2012 ‘000 £200 $800 AUD$900 R16,000 2011 ‘000 £400 $1,000 AUD$900 R2,600 2012 £000 5,392 409 (526) (5,399) (2,052) (426) (5,776) — 2011 £000 7,535 1,052 (2,957) (374) (1,957) (559) (7,399) — (8,378) (4,659) Sterling fixed-rate financial assets are centrally controlled. At 31 March 2012 the weighted average interest rate on these deposits was 1.0% The floating rate financial assets comprise other deposits that earn interest based on short-term deposit rates. Given the nature of the Group’s financial assets and liabilities, it is the Directors’ opinion that there is no material difference between their reported book values and estimated fair values. 0_600_ar12.indd 53 53 53 07/09/2012 10:19:06 Currency Sterling US Dollars Australian Dollars Euros Polish Zloty Canadian Dollars South African Rand Currency US Dollars Australian Dollars South African Rand Polish Zloty Canadian Dollars (2010: 3.0%). Total £000 3,867 2,067 692 — 355 16 2,975 9,972 % 2.0% 2.5% 7.0% 0.0% 0.0% 52 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 27. CONTINGENT LIABILITIES Third-party guarantees 2012 £000 86 2011 £000 60 These guarantees and letters of credit are entered into in the normal course of business. A liability would only arise in the event of the Group failing to fulfil its contractual obligations. 28. CAPITAL COMMITMENTS Capital expenditure contracted for but not provided in the accounts 2012 £000 — 2011 £000 — 29. OPERATING LEASE COMMITMENTS The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows: Land and buildings Within one year More than one year and less than five years Over five years Other Within one year More than one year and less than five years 2012 £000 33 49 — 82 31 4 35 2011 £000 239 652 49 940 116 45 161 30. EMPLOYEE BENEFITS The Group operates a number of defined benefit pension schemes throughout the world. The assets of these schemes are held in separate trustee-administered funds. The benefits from these schemes are based upon years of pensionable service and pensionable remuneration of the employee as defined under the respective scheme provisions. The schemes are funded by contributions from the employee and from the employing company over the period of the employees’ service. Contributions are determined by independent qualified actuaries based upon triennial actuarial valuations in the UK and on annual valuations in the US. UK In relation to the fund in the UK, the Group’s funding policy is to ensure that assets are sufficient to cover accrued service liabilities allowing for projected pay increases. The most recent triennial full valuation was carried out as at 31 March 2007. During the prior period, a credit of £2.57m arose in respect of changes to the assumptions within the Group’s pension and healthcare plans and was primarily as a result of using the consumer price index as the measure of price inflation as opposed to the retail price index due to the UK Government’s announcement that the former will be used from April 2011 onwards. The directors have taken the view that the actions of the company in the past have created a valid expectation for scheme members to receive RPI-linked benefits. The scheme booklet refers specifically to the RPI and deferred benefit statements sent to members also refers to RPI-linked benefits. The directors believed that the announcement of the change to CPI by the government and subsequent changes to payments made by the Company changed this constructive obligation and so the gain was recognised under UITF 48 as a benefit change through the consolidated income statement in the prior period. US In relation to the fund in the US, the funding policy is to ensure that assets are sufficient to cover accrued service liabilities allowing for projected pay increases. In addition, the Group operates a retirement healthcare benefit scheme for certain of its retired employees in the US, which is also treated as a defined benefit scheme. The scheme has 37 members (2011 – 39) who are retired employees. The most recent annual valuation was carried out as at 2 April 2011. The disclosures for the US schemes that follow refer to the US defined benefit scheme and the retirement healthcare benefit scheme. 54 0_600_ar12.indd 54 54 07/09/2012 10:19:07 2012 £000 86 2012 £000 — 2012 £000 33 49 — 82 31 4 35 2011 £000 60 2011 £000 — 2011 £000 239 652 49 940 116 45 161 The Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as 29. OPERATING LEASE COMMITMENTS follows: More than one year and less than five years Land and buildings Within one year Over five years Other Within one year More than one year and less than five years 30. EMPLOYEE BENEFITS separate trustee-administered funds. The Group operates a number of defined benefit pension schemes throughout the world. The assets of these schemes are held in The benefits from these schemes are based upon years of pensionable service and pensionable remuneration of the employee as defined under the respective scheme provisions. The schemes are funded by contributions from the employee and from the employing company over the period of the employees’ service. Contributions are determined by independent qualified actuaries based upon triennial actuarial valuations in the UK and on annual valuations in the US. UK In relation to the fund in the UK, the Group’s funding policy is to ensure that assets are sufficient to cover accrued service liabilities allowing for projected pay increases. The most recent triennial full valuation was carried out as at 31 March 2007. During the prior period, a credit of £2.57m arose in respect of changes to the assumptions within the Group’s pension and healthcare plans and was primarily as a result of using the consumer price index as the measure of price inflation as opposed to the retail price index due to the UK Government’s announcement that the former will be used from April 2011 onwards. The directors have taken the view that the actions of the company in the past have created a valid expectation for scheme members to receive RPI-linked benefits. The scheme booklet refers specifically to the RPI and deferred benefit statements sent to members also refers to RPI-linked benefits. The directors believed that the announcement of the change to CPI by the government and subsequent changes to payments made by the Company changed this constructive obligation and so the gain was recognised under UITF 48 as a benefit change through the consolidated income statement in the prior period. In relation to the fund in the US, the funding policy is to ensure that assets are sufficient to cover accrued service liabilities allowing for US projected pay increases. In addition, the Group operates a retirement healthcare benefit scheme for certain of its retired employees in the US, which is also treated as a defined benefit scheme. The scheme has 37 members (2011 – 39) who are retired employees. The most recent annual valuation was carried out as at 2 April 2011. The disclosures for the US schemes that follow refer to the US defined benefit scheme and the retirement healthcare benefit scheme. Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 27. CONTINGENT LIABILITIES Third-party guarantees Group failing to fulfil its contractual obligations. 28. CAPITAL COMMITMENTS Capital expenditure contracted for but not provided in the accounts These guarantees and letters of credit are entered into in the normal course of business. A liability would only arise in the event of the 30. EMPLOYEE BENEFITS CONTINUED MORTALITY RATES The mortality assumptions for the UK scheme are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member who retires in 2011 at age 65 will live on average for a further 21.6 years (2011: 20.5 years) after retirement if male and for a further 23.6 years (2011: 22.9 years) after retirement if female. For a member who is currently aged 45 retiring in 2030 at age 65, the assumptions are that they will live on average for a further 22.4 years (2011: 22.4 years) after retirement if they are male and for a further 24.8 years (2011: 24.8 years) after retirement if they are female. The mortality rates for the US scheme are based on the 1983 Group Annuity Mortality (GAM) tables for males and females. IAS 19 Disclosures in accordance with IAS 19 are set out below. The principal assumptions used for the purpose of the IAS 19 valuation were as follows: Inflation under RPI Inflation under CPI Rate of general long-term increase in salaries Rate of increase for CARE benefit while an active member Rate of increase to pensions in payment – LPI 5% Rate of increase to pensions in payment – LPI 2.5% Discount rate for scheme liabilities 2010 2011 UK scheme UK scheme % p.a. % p.a. 3.2 2.2 4.7 3.1 3.1 2.1 4.7 3.5 2.6 5.0 3.5 3.3 2.2 5.6 The principal assumptions for the US schemes relate to the discount rate for scheme liabilities. The discount rate used for the US defined benefit scheme was 0.68% (2011: 0.68%) and for the US medical scheme was 0.68% (2011: 0.68%). Expected return on assets UK scheme Long-term rate of return expected at Long-term rate of return Value at expected at 31 March 31 March 2012 % p.a. 8.00 8.00 3.50 3.50 4.70 3.50 6.30 2012 £m 53.61 19.39 70.69 n/a 40.97 3.12 187.78 2 April 2011 % p.a. 8.70 8.70 4.70 4.70 5.60 4.70 6.60 Long-term rate of return expected at 3 April 2010 % p.a. 9.80 10.30 4.80 4.80 6.00 4.80 6.601 Value at 2 April 2011 £m 54.20 18.95 63.82 n/a 34.64 1.42 173.03 Value at 3 April 2010 £m 45.72 10.22 62.97 21.76 16.72 14.47 171.86 Equities Property LDI funds Government bonds Corporate bonds Other Combined 1 The overall expected rate of return on scheme assets is a weighted average of the individual expected rates of return on each asset class. The Group employs a building block approach in determining the long-term rate of return on pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The assumed long-term rate of return on each asset class is set out within this note. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the scheme at 31 March 2012. The assets held within the US scheme amount to £0.89m and are held mainly in bonds. 54 0_600_ar12.indd 55 55 55 07/09/2012 10:19:07 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 30. EMPLOYEE BENEFITS CONTINUED IAS 19 CONTINUED Assumed healthcare cost trend rates have a significant effect on the amounts recognised in the income statement. From 1 November 2010 future changes in healthcare costs re the US retirement healthcare benefit scheme will be borne by the participants rather than the company. As a result the effect of healthcare cost changes are not disclosed for 2012 and 2011 year-ends. 2012 One 2011 One One One percentage percentage percentage percentage point increase point decrease point point increase decrease (Increase)/decrease in the aggregate cost of the service and interest cost (Increase)/decrease in defined benefit obligation The assets and liabilities of the schemes at 31 March 2012 and 2 April 2011 were: Assets Liabilities (Deficit)/surplus US schemes £000 885 (2,897) (2,012) £000 n/a n/a Total £000 2012 UK scheme £000 187,780 188,665 (174,840) (177,737) 12,940 10,928 £000 n/a n/a US schemes £000 922 (2,771) (1,849) £000 n/a n/a 2011 UK scheme £000 £000 n/a n/a Total £000 173,030 173,952 (168,900) (171,671) 4,130 2,281 Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 — 12,940 12,940 — 4,130 4,130 Amounts recognised in the income statement in respect of the defined benefit schemes before taxation are as follows: Included within operating profit: – current service cost – past service cost credit – curtailment cost Included within financial income: US schemes £000 22 — — 2012 UK scheme £000 260 — — Total £000 282 — — US schemes £000 33 — — 2011 UK scheme £000 310 Total £000 343 (2,570) (2,570) — — – expected return on scheme assets (44) (10,790) (10,834) (46) (10,830) (10,876) Included within financial expense: – interest cost on scheme liabilities 128 9,140 9,268 154 9,330 9,484 56 56 0_600_ar12.indd 56 07/09/2012 10:19:07 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 30. EMPLOYEE BENEFITS CONTINUED IAS 19 CONTINUED Amounts recognised in the statement of comprehensive income are as follows: Actual return on scheme assets Expected return on scheme assets Change in irrecoverable surplus – limit on paragraph 58 (b) of IAS 19 Experience gain/(loss) on liabilities Net gain/(loss) before exchange Exchange differences Amounts recognised during the period Balance brought forward Balance carried forward US schemes £000 22 (44) (22) — (152) (174) — (174) 413 239 2012 UK scheme £000 Total £000 24,570 24,592 (10,790) (10,834) 13,780 13,758 (8,810) (6,580) (1,610) — (8,810) (6,732) (1,784) — (1,610) (1,784) 1,144 (466) 1,557 (227) Changes in the present value of the defined benefit obligations before taxation are as follows: Opening defined benefit obligation Exchange differences Current service cost Past service cost credit Curtailments Interest cost Benefits paid Actuarial (gains)/losses Contributions by scheme participants US Schemes £000 2,771 9 22 — — 128 (184) 151 — 2012 UK scheme £000 Total £000 168,900 171,671 — 260 — — 9 282 — — 9,140 9,268 (10,260) (10,444) 6,580 220 6,731 220 Closing defined benefit obligations 2,897 174,840 177,737 US schemes £000 52 (46) 6 — 249 255 (7) 248 165 413 US schemes £000 3,187 (154) 33 — — 154 (200) (249) — 2,771 2011 UK scheme £000 Total £000 10,800 10,852 (10,830) (10,876) (30) (24) (4,130) 2,010 (2,150) — (4,130) 2,259 (1,895) (7) (2,150) (1,902) 3,294 1,144 3,459 1,557 2011 UK scheme £000 Total £000 173,770 176,957 — 310 (154) 343 (2,570) (2,570) — 9,330 — 9,484 (10,190) (10,390) (2,010) (2,259) 260 260 168,900 171,671 0_600_ar12.indd 57 57 57 07/09/2012 10:19:07 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 30. EMPLOYEE BENEFITS CONTINUED IAS 19 CONTINUED Changes in the fair value of the schemes’ assets before taxation are as follows: Opening fair value of scheme assets Exchange differences Expected return Actuarial gains/(losses) Contribution by scheme participants Contributions by employer Benefits paid Closing fair value of schemes’ assets Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 US schemes £000 922 2 44 (22) — — (61) 885 — 885 2012 UK scheme £000 Total £000 173,030 173,952 — 10,790 13,780 220 220 (10,260) 187,780 2 10,834 13,758 220 220 (10,321) 188,665 — — 187,780 188,665 The history of the schemes for the current and prior period before taxation is as follows: Present value of defined benefit obligation Fair value of scheme assets (Deficit)/surplus in the scheme Experience adjustments on the scheme liabilities Experience adjustments on scheme assets Exchange differences US Schemes £000 2,897 885 (2,012) (151) (22) (8) 2012 UK Scheme £000 174,840 187,780 12,940 (6,580) 13,780 — Total £000 177,737 188,665 10,928 (6,731) 13,758 (8) Total contributions to the defined benefit schemes for 2012 are expected to be £180,000. History of asset values, defined benefit obligation and surplus/deficit in schemes: US schemes £000 960 (47) 46 7 — 16 (60) 922 — 922 US schemes £000 2,771 922 (1,849) 249 7 (8) 2011 UK scheme £000 Total £000 171,860 172,820 — 10,830 (30) 260 300 (47) 10,876 (23) 260 316 (10,190) (10,250) 173,030 173,952 — — 173,030 173,952 2011 UK scheme £000 168,900 173,030 4,130 2,010 (30) — Total £000 171,671 173,952 2,281 2,259 (23) (8) Fair value of scheme assets Defined benefit obligation Surplus/(Deficit) in schemes Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 Deficit in schemes History of experience gains and losses Experience gains/(losses) on scheme assets Experience (losses)/gains on scheme liabilities[1] 31 March 2012 £000 2 April 2011 £000 3 April 28 March 29 March 2010 £000 2009 £000 2008 £000 188,665 173,952 172,820 158,568 176,452 (177,737) (171,671) (176,957) (159,327) (152,417) 10,928 (12,940) (2,012) 2012 £000 13,758 (6,731) 2,281 (4,130) (1,849) (4,137) — (4,137) (759) (3,070) (3,829) 24,035 (27,000) (2,965) 2011 £000 2010 £000 2009 £000 2008 £000 (23) 2,259 16,275 (18,819) (19,323) (5,612) (6,190) (9,798) 1 This item consists of gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used. 58 0_600_ar12.indd 58 58 07/09/2012 10:19:07 Opening fair value of scheme assets 173,030 173,952 171,860 172,820 Exchange differences Expected return Actuarial gains/(losses) Contribution by scheme participants Contributions by employer Benefits paid Closing fair value of schemes’ assets Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 The history of the schemes for the current and prior period before taxation is as follows: — — 187,780 188,665 US schemes £000 960 (47) 46 7 — 16 (60) 922 — 922 US schemes £000 2,771 922 (1,849) 249 7 (8) 2011 UK scheme £000 — 10,830 (30) 260 300 Total £000 (47) 10,876 (23) 260 316 (10,190) (10,250) 173,030 173,952 — — 173,030 173,952 2011 UK scheme £000 168,900 173,030 4,130 2,010 (30) — Total £000 171,671 173,952 2,281 2,259 (23) (8) Total £000 2 10,834 13,758 220 220 (10,321) 188,665 Total £000 177,737 188,665 10,928 (6,731) 13,758 (8) Present value of defined benefit obligation Fair value of scheme assets (Deficit)/surplus in the scheme Experience adjustments on the scheme liabilities Experience adjustments on scheme assets Exchange differences Total contributions to the defined benefit schemes for 2012 are expected to be £180,000. History of asset values, defined benefit obligation and surplus/deficit in schemes: Fair value of scheme assets Defined benefit obligation Surplus/(Deficit) in schemes Deficit in schemes Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 History of experience gains and losses Experience gains/(losses) on scheme assets Experience (losses)/gains on scheme liabilities[1] 31 March 2012 £000 2 April 2011 £000 3 April 28 March 29 March 2010 £000 2009 £000 2008 £000 188,665 173,952 172,820 158,568 176,452 (177,737) (171,671) (176,957) (159,327) (152,417) 2,281 (4,130) (1,849) (4,137) — (4,137) (759) (3,070) (3,829) 24,035 (27,000) (2,965) 2011 £000 2010 £000 2009 £000 2008 £000 (23) 2,259 16,275 (18,819) (19,323) (5,612) (6,190) (9,798) 1 This item consists of gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used. US schemes £000 922 (22) 2 44 — — (61) 885 — 885 US Schemes £000 2,897 885 (2,012) (151) (22) (8) 2012 UK scheme £000 — 10,790 13,780 220 220 (10,260) 187,780 2012 UK Scheme £000 174,840 187,780 12,940 (6,580) 13,780 — 10,928 (12,940) (2,012) 2012 £000 13,758 (6,731) Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 30. EMPLOYEE BENEFITS CONTINUED IAS 19 CONTINUED Changes in the fair value of the schemes’ assets before taxation are as follows: Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 31. ACQUISITIONS In November 2010 the Group acquired 100% of the shares of Fabryka Maszyn Tarnow Sp z.o.o., a machine tool manufacturer, in Poland. The consideration of €1m was paid in stages with €500,000 paid upon acquisition, €250,000 paid in February 2011 and the final €250,000 paid on 31 July 2011. Consideration Consideration Consideration Cash paid Deferred consideration Total consideration €000 750 250 1,000 £000 632 211 843 The deferred consideration of £211,000 was included within Trade and other payables at the prior period-end. Identifiable assets acquired Plant and machinery €000 1,000 £000 843 The fair value of the plant and machinery was evaluated by the directors. No inventory was included in the acquisition. FMT’s revenue for the current period was £3,731,000 with a loss from operations before special items of £1,432,000 (2011 – revenue of £866,000 with a profit from operations before special items of £226,000). 32. ACCOUNTING ESTIMATES AND JUDGEMENTS Management discussed with the Audit Committee the development, selection and disclosures of the Group’s accounting policies and estimates and the application of these policies and estimates. The accounting policies are set out above on pages 24 to 29. Management considers there are no critical accounting judgements made in the preparation of the financial statements. The key sources of estimation and uncertainty are: FINANCIAL INSTRUMENTS Note 24 contains information about the assumptions and estimates and the risk factors relating to interest rate and foreign currency exposures. PENSIONS The Directors have employed the services of a qualified, independent actuary in assessing pension assets and liabilities. However they note that final liabilities and asset returns may differ from actuarial estimates and therefore the pension liability may differ from that included in the financial statements. Note 30 contains information about the principal actuarial assumptions used in the determination of the net assets for defined benefit obligations. DEFERRED TAXATION Note 13 contains details of the Group’s deferred taxation. Liabilities recognised are determined by the likelihood of settlement and the likelihood that assets are received are based on assumptions of future actions. The recognition of deferred taxation assets is particularly subjective and may be undermined by adverse economic decisions. INVENTORY VALUATION The Directors have reviewed the carrying value of inventory and believe this is appropriate in the context of current trading levels and strategic direction of the Group. DEVELOPMENT EXPENDITURE The level of development expenditure capitalised is at risk if technological advancements make new developments obsolete. However management constantly reviews the appropriateness of the product portfolio and have reviewed the carrying value of capitalised development expenditure and believe it to be appropriate given expected future trading levels and strategic direction of the Group. DISCONTINUED OPERATIONS The decision to treat closed operations as discontinued is subjective. The Directors have carefully considered the presentation of the financial statements to ensure that the users of the financial statements can gain an understanding of the financial performance of the Group and of the comparability of results between accounting periods. The decision to treat the results of 600SA as discontinued is driven from the fact that the sale of the company was being actively marketed prior to the year-end and this sale has been subsequently finalised in July 2012. 58 0_600_ar12.indd 59 59 59 07/09/2012 10:19:08 Notes relating to the consolidated financial statements For the 52-week period ended 31 March 2012 33. RELATED PARTY TRANSACTIONS Detailed disclosure of the individual remuneration of Board members is included in the Remuneration Report. There is no difference between transactions with Key Management Personnel of the Company and the Group. Mr P Dupee is the managing partner of Haddeo Partners LLP who have received £200,000 in interest payments during the financial year in respect of the Shareholder Loan of £2.5m. There have been no other transactions between Key Management Personnel and the Company. None of the directors were due any monies at the end of the current period or the prior period. The Group contributed £0.22m to the UK pension scheme during the current period (2011 - £0.30m) and no contributions were overdue at the period-end. In the US no employer contributions were made to the US pension scheme during the current period (2011 - £0.16m) and no payments were overdue at the period-end. 34. POST BALANCE SHEET EVENTS The company raised £1.47m through an institutional placing of new ordinary shares of 1p each at a price of 7.5p per share on 5 September 2012. On 3 July 2012 the Group announced that it had sold its surplus freehold property at Shepshed for £1.2m. This property has been treated as an asset held for sale in the Group Accounts at 31 March 2012. On the same day the Group announced the sale of its South African operation for a net cash consideration of £1.86m. This activity has been treated as discontinued in the financial statements and its assets and liabilities were included within assets and liabilities held for sale in the Group Accounts at 31 March 2012at fair value less costs to sell. On 10 August 2012 the Group announced that it was closing its manufacturing subsidiary FMT in Poland. This activity has been included in continuing activities at 31 March 2012 but is expected to be treated as a discontinued activity in the year to March 2013. No material claims against the group are foreseen as a result of this closure. 60 60 0_600_ar12.indd 60 07/09/2012 10:19:08 Company balance sheet As at 31 March 2012 Company No. 00196730 Fixed assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Current liabilities Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Equity reserve Translation reserve Profit and loss account Equity shareholders’ funds Notes 4 5 6 As at 31 March 2012 £000 1,169 8,713 9,882 34,879 6,143 41,022 7 (28,450) 12,572 22,454 (5,690) 16,764 14,375 15,645 236 2,500 167 (22) (16,137) 16,764 8 9 10 10 10 10 10 10 13 As at 3 April 2011 £000 1,197 20,110 21,307 11,690 874 12,564 (1,945) 10,619 31,926 (1,957) 29,969 14,315 13,899 236 2,500 160 (22) (1,119) 29,969 The financial statements on pages 61 to 69 were approved by the Board of Directors on 5 September 2012 and were signed on its behalf by: NEIL CARRICK GROUP FINANCE DIRECTOR 5 SEPTEMBER 2012 0_600_ar12.indd 61 61 61 07/09/2012 10:19:08 Company accounting policies BASIS OF PREPARATION As used in the financial statements and related notes, the term “Company” refers to The 600 Group PLC. The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by the Act, the separate financial statements have been prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP). BASIS OF ACCOUNTING The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements, except as detailed below. These accounts have been prepared under the historical cost convention, modified to include the revaluation of certain properties, and in accordance with applicable accounting standards. The accounts are prepared to the Saturday nearest to the Company’s accounting reference date of 31 March. The results for 2012 are for the 52-week period ended 31 March 2012. The results for 2011 are for the 52-week period ended 2 April 2011. A separate profit and loss account dealing with the results of the Company only has not been presented, as permitted by Section 408 of the Companies Act 2006. Under FRS 1 the Company is exempt from the requirement to present its own cash flow statement. NOTES ON INTERPRETATION OF ACCOUNTING STANDARDS FRS 20 “SHARE-BASED PAYMENTS” The Company has adopted FRS 20 and the accounting policies followed are in all material regards the same as the Group’s policy under IFRS 2. This policy is shown in The Group accounting policies on pages 24 to 29. REVALUATION OF FIXED ASSETS Property, plant and equipment are held at cost, subject to triennial property revaluations. In 2010 the Company adopted a policy of revaluation for properties. As a result all properties were independently revalued during March 2010. DEPRECIATION Depreciation is calculated to write off the cost (or amount of the valuation) of fixed assets less the estimated residual value on a straight-line basis over the expected useful economic life of the assets concerned. The annual rates used are generally: • freehold buildings • leasehold buildings • plant and machinery – 2 to 4% – over residual terms of the leases – 10 to 20% • fixtures, fittings, tools and equipment – 10 to 33.3% LEASES Assets financed by leasing arrangements, which give rights approximating to ownership, are treated as if they had been purchased outright and are capitalised and depreciated over the shorter of the estimated useful life of the assets and the period of the leases. The capital element of future rentals is treated as a liability and the interest element is charged against profits in proportion to the balances outstanding. The rental costs of all other leased assets are charged against profits on a straight-line basis. TAXATION The charge for taxation is based on the profit or loss for the period and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19 “Deferred tax”. CURRENCY TRANSLATION Transactions denominated in foreign currencies are translated into Sterling at the rates of exchange ruling on the date of the transaction. Monetary assets and liabilities are translated into Sterling at the year-end rates. PENSIONS AND POST-RETIREMENT HEALTH BENEFITS The Company participates in UK pension scheme providing benefits based on career average related earnings. The assets of the scheme are held separately from those of the Company. The Company is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS 17 “Retirement benefits”, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period. INVESTMENTS Investments in respect of subsidiaries are stated at cost less any impairment in value. FINANCIAL INSTRUMENTS: MEASUREMENT Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considered these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. 62 0_600_ar12.indd 62 62 07/09/2012 10:19:08 Company accounting policies Company accounting policies DIVIDENDS Dividends on non-equity shares are recognised as a liability and accounted for on an accruals basis. Equity dividends are recognised as a liability in the period in which they are declared (appropriately authorised and no longer at the discretion of the Company). FRS8 EXEMPTION As these Parent Company Financial Statements are presented together with the Consolidated Financial Statements, the Company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with wholly owned entities which form part of the Group (or investees of theGroup qualifying as related parties). BASIS OF PREPARATION BASIS OF ACCOUNTING ended 2 April 2011. Companies Act 2006. As used in the financial statements and related notes, the term “Company” refers to The 600 Group PLC. The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by the Act, the separate financial statements have been prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP). The following principal accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s financial statements, except as detailed below. These accounts have been prepared under the historical cost convention, modified to include the revaluation of certain properties, and in accordance with applicable accounting standards. The accounts are prepared to the Saturday nearest to the Company’s accounting reference date of 31 March. The results for 2012 are for the 52-week period ended 31 March 2012. The results for 2011 are for the 52-week period A separate profit and loss account dealing with the results of the Company only has not been presented, as permitted by Section 408 of the Under FRS 1 the Company is exempt from the requirement to present its own cash flow statement. NOTES ON INTERPRETATION OF ACCOUNTING STANDARDS FRS 20 “SHARE-BASED PAYMENTS” IFRS 2. This policy is shown in The Group accounting policies on pages 24 to 29. REVALUATION OF FIXED ASSETS Property, plant and equipment are held at cost, subject to triennial property revaluations. The Company has adopted FRS 20 and the accounting policies followed are in all material regards the same as the Group’s policy under In 2010 the Company adopted a policy of revaluation for properties. As a result all properties were independently revalued during March Depreciation is calculated to write off the cost (or amount of the valuation) of fixed assets less the estimated residual value on a straight-line basis over the expected useful economic life of the assets concerned. The annual rates used are generally: – over residual terms of the leases – 2 to 4% – 10 to 20% • fixtures, fittings, tools and equipment – 10 to 33.3% Assets financed by leasing arrangements, which give rights approximating to ownership, are treated as if they had been purchased outright and are capitalised and depreciated over the shorter of the estimated useful life of the assets and the period of the leases. The capital element of future rentals is treated as a liability and the interest element is charged against profits in proportion to the balances outstanding. The rental costs of all other leased assets are charged against profits on a straight-line basis. The charge for taxation is based on the profit or loss for the period and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19 “Deferred tax”. CURRENCY TRANSLATION Transactions denominated in foreign currencies are translated into Sterling at the rates of exchange ruling on the date of the transaction. Monetary assets and liabilities are translated into Sterling at the year-end rates. PENSIONS AND POST-RETIREMENT HEALTH BENEFITS The Company participates in UK pension scheme providing benefits based on career average related earnings. The assets of the scheme are held separately from those of the Company. The Company is unable to identify its share of the underlying assets and liabilities of the scheme on a consistent and reasonable basis and therefore, as required by FRS 17 “Retirement benefits”, accounts for the scheme as if it were a defined contribution scheme. As a result, the amount charged to the profit and loss account represents the contributions payable to the scheme in respect of the accounting period. INVESTMENTS Investments in respect of subsidiaries are stated at cost less any impairment in value. FINANCIAL INSTRUMENTS: MEASUREMENT Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considered these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. 2010. DEPRECIATION • freehold buildings • leasehold buildings • plant and machinery LEASES TAXATION 62 0_600_ar12.indd 63 63 63 07/09/2012 10:19:09 Notes relating to the company financial statements 1. PERSONNEL EXPENSES Staff costs: – wages and salaries – social security costs – pension charges – equity share options (credit)/expense 2012 £000 680 79 95 (61) 793 2011 £000 728 88 33 127 976 The average number of employees of the Company (including Executive Directors) during the period was as follows: Machine tools and equipment 2012 Number 5 2011 Number 4 These staff costs related entirely to the Directors and head office staff who are all classified as administration and management. Details of Directors’ emoluments, share option schemes and pension entitlements are given in the Remuneration Report on pages 13 to 17. 2. EMPLOYEE SHARE OPTION SCHEMES The Group has granted share options to employees under The 600 Group PLC 2008 and 2009 Peformance Share Plan. On 25 August 2009, awards were made to the Executive Directors under the Performance Share Plan (the PSP). On 22 March 2011, further awards were made to the Executive Directors and other senior employees under the PSP scheme. Options are exercisable at the end of a three year performance period and are subject to performance criteria relating to TSR, EPS and average share price targets as set out in the Remuneration Report. The scheme is equity-settled. SHARE-BASED EXPENSE The Group recognised total expense of £90,000 (2011:expense of £127,000) in relation to equity-settled share-based payment transactions. The number and weighted average exercise prices of share options Number of options outstanding at beginning of period 4,711,898 2,404,669 2012 PSP 2011 PSP 2012 DSP __ Number of options granted in period Number of options forfeited/lapsed in period Number of options exercised in period Number of options outstanding at end of period Number of options exercisable at end of period 1,144,737 2,612,080 502,576 (2,099,818) (304,851) — — 3,756,817 4,711,898 — — __ — 502,576 502,576 2011 DSP — — — — — — During the current and prior period, the Group has not granted equity as consideration for goods or services received. FAIR VALUE ASSUMPTIONS OF SHARE-BASED PAYMENTS THE 600 GROUP PLC 2008 PERFORMANCE SHARE PLAN The fair value of awards granted under the 600 group plc 2008 and 2009 Performance Share Plan is determined using the monte carlo valuation model. The fair value of share options and assumptions are shown in the table below: Fair value Share price at grant Exercise price Dividend yield Expected volatility Expected life Risk-free interest rate Number of shares under option 64 0_600_ar12.indd 64 2012 £000 2011 £000 £0.1625 £0.1625 £0.28625 £0.28625 £nil 0% 50% £nil 0% 12% 3.0 years 3.0 years 5% 4.08% 2,404,669 4,711,898 64 07/09/2012 10:19:09 Notes relating to the company financial statements Notes relating to the company financial statements 1. PERSONNEL EXPENSES Staff costs: – wages and salaries – social security costs – pension charges – equity share options (credit)/expense Machine tools and equipment The average number of employees of the Company (including Executive Directors) during the period was as follows: These staff costs related entirely to the Directors and head office staff who are all classified as administration and management. Details of Directors’ emoluments, share option schemes and pension entitlements are given in the Remuneration Report on pages 13 to 17. 2. EMPLOYEE SHARE OPTION SCHEMES The Group has granted share options to employees under The 600 Group PLC 2008 and 2009 Peformance Share Plan. On 25 August 2009, awards were made to the Executive Directors under the Performance Share Plan (the PSP). On 22 March 2011, further awards were made to the Executive Directors and other senior employees under the PSP scheme. Options are exercisable at the end of a three year performance period and are subject to performance criteria relating to TSR, EPS and average share price targets as set out in the Remuneration Report. The scheme is equity-settled. SHARE-BASED EXPENSE The Group recognised total expense of £90,000 (2011:expense of £127,000) in relation to equity-settled share-based payment transactions. The number and weighted average exercise prices of share options Number of options outstanding at beginning of period 4,711,898 2,404,669 Number of options granted in period Number of options forfeited/lapsed in period Number of options exercised in period Number of options outstanding at end of period Number of options exercisable at end of period 2012 PSP 2011 PSP 1,144,737 2,612,080 502,576 (2,099,818) (304,851) 3,756,817 4,711,898 — — — — 502,576 502,576 During the current and prior period, the Group has not granted equity as consideration for goods or services received. FAIR VALUE ASSUMPTIONS OF SHARE-BASED PAYMENTS THE 600 GROUP PLC 2008 PERFORMANCE SHARE PLAN The fair value of awards granted under the 600 group plc 2008 and 2009 Performance Share Plan is determined using the monte carlo valuation model. The fair value of share options and assumptions are shown in the table below: 2012 £000 680 79 95 (61) 793 2011 £000 728 88 33 127 976 2012 Number 5 2011 Number 4 2012 DSP __ __ — 2012 £000 £nil 0% 50% 2011 DSP — — — — — — 2011 £000 £nil 0% 12% 64 £0.1625 £0.1625 £0.28625 £0.28625 3.0 years 3.0 years 5% 4.08% 2,404,669 4,711,898 Fair value Share price at grant Exercise price Dividend yield Expected volatility Expected life Risk-free interest rate Number of shares under option 3. DIVIDENDS No dividend was paid in period (2011: no dividend paid). 4. TANGIBLE FIXED ASSETS Cost or valuation At 2 April 2011 Additions At 31 March 2012 At professional valuation At cost Depreciation At 2 April 2011 Charge for period At 31 March 2012 Net book value At 31 March 2012 At 2 April 2011 Land and buildings Fixtures, fittings, tools and Long lease Short lease equipment £000 £000 £000 1,217 — 1,217 1,217 — 1,217 26 26 52 1,165 1,191 92 — 92 92 — 92 92 — 92 — — 93 1 94 — 94 94 87 3 90 4 6 Total £000 1,402 1 1,403 1,309 94 1,403 205 29 234 1,169 1,197 Historic cost disclosures are not made as, in the opinion of the Directors, unreasonable expense and delay would be incurred in obtaining the original costs. During March 2010 the Group’s properties were revalued. The valuations were performed by independent valuers, Eddisons, and the valuations were determined by market rate for sale with vacant possession. The Directors believe that these valuations remain appropriate at 31 March 2012. Revalued amounts are reflected in the balance sheet with the resulting credit taken to revaluation reserve. Various UK properties are charged as security for borrowing facilities. 5. INVESTMENTS Cost: At 2 April 2011 Additions in the period At 31 March 2012 Provisions At 2 April 2011 Impairment in the period At 31 March 2012 Net book values At 31 March 2012 At 2 April 2011 Shares In Group Undertakings £000 40,423 — 40,423 20,313 11,398 31,710 8,713 20,110 During the period the company provided in full against the carrying value of the investment in FMT-Colchester z.o.o. in Poland of £870,000 as a result of the group’s decision to close FMT-Colchester in August 2012. 0_600_ar12.indd 65 65 65 07/09/2012 10:19:09 Notes relating to the company financial statements 5. INVESTMENTS CONTINUED During the period an impairment review of the carrying values of investments in other group companies resulted in an additional increase in the provision of £10,528,000. This review comprised a comparison of the investment with its recoverable amount (the higher of net realisable value and value in use). To the extent that the carrying amount exceeds the recoverable amount, an impairment charge is recognised. Value in use calculations are based on Board approved profit forecasts and the resulting cashflows are discounted at the Group’s pre-tax weighted average cost of capital, which is adjusted for CGU risk factors, resulting in a rate of 19%. Cash flows are extrapolated beyond their term (of between 1 and 4 years) using an estimated growth rate of 2% and are appropriate because these are long term businesses. The growth rates used are consistent with the long-term average growth rates for the countries in which the CGUs are located. This has no impact on the group accounts. The principal subsidiary undertakings of The 600 Group PLC and their countries of incorporation are: ENGLAND 600 UK Limited* The 600 Group (Overseas) Limited* CONTINENTAL EUROPE FMT-Colchester z.o.o. (Poland) * US 600 Group Inc. Clausing Industrial, Inc. REST OF THE WORLD 600 Machine Tools Pty Limited (Australia) 600SA Holdings (Pty) Limited (South Africa) All undertakings marked * are 100% owned directly by the Parent Company. The others are 100% owned through intermediate holding companies. All undertakings above are included in the consolidated accounts. All other subsidiary undertakings will be shown in the company’s next annual return. 6. DEBTORS Amounts owed by subsidiary undertakings1 Other debtors Other prepayments and accrued income 1 All inter-company loans are repayable on demand and as such are recorded at their face value. 7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Bank loans Other loans Trade creditors Amounts owed to subsidiary undertakings1 Corporation tax Sundry creditors Accruals and deferred income Other creditors 1 All inter-company loans are repayable on demand and as such are recorded at their face value. The 600 Group PLC has undertaken to discharge the liability for corporation tax of all UK Group undertakings. 2012 £000 2011 £000 34,673 11,523 206 — 97 70 34,879 11,690 2012 £000 824 1,042 1,852 24,700 32 — — 2011 £000 — — 416 1,054 44 149 282 28,450 1,945 66 0_600_ar12.indd 66 66 07/09/2012 10:19:09 Notes relating to the company financial statements Notes relating to the company financial statements 5. INVESTMENTS CONTINUED During the period an impairment review of the carrying values of investments in other group companies resulted in an additional increase in the provision of £10,528,000. This review comprised a comparison of the investment with its recoverable amount (the higher of net realisable value and value in use). To the extent that the carrying amount exceeds the recoverable amount, an impairment charge is recognised. Value in use calculations are based on Board approved profit forecasts and the resulting cashflows are discounted at the Group’s pre-tax weighted average cost of capital, which is adjusted for CGU risk factors, resulting in a rate of 19%. Cash flows are extrapolated beyond their term (of between 1 and 4 years) using an estimated growth rate of 2% and are appropriate because these are long term businesses. The growth rates used are consistent with the long-term average growth rates for the countries in which the CGUs are located. This has no impact on the group accounts. The principal subsidiary undertakings of The 600 Group PLC and their countries of incorporation are: ENGLAND 600 UK Limited* The 600 Group (Overseas) Limited* CONTINENTAL EUROPE FMT-Colchester z.o.o. (Poland) * US 600 Group Inc. Clausing Industrial, Inc. REST OF THE WORLD 600 Machine Tools Pty Limited (Australia) 600SA Holdings (Pty) Limited (South Africa) All undertakings marked * are 100% owned directly by the Parent Company. The others are 100% owned through intermediate holding companies. All undertakings above are included in the consolidated accounts. All other subsidiary undertakings will be shown in the company’s next annual return. 6. DEBTORS Amounts owed by subsidiary undertakings1 Other debtors Other prepayments and accrued income 1 All inter-company loans are repayable on demand and as such are recorded at their face value. 7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Amounts owed to subsidiary undertakings1 Bank loans Other loans Trade creditors Corporation tax Sundry creditors Accruals and deferred income Other creditors 1 All inter-company loans are repayable on demand and as such are recorded at their face value. The 600 Group PLC has undertaken to discharge the liability for corporation tax of all UK Group undertakings. 8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Shareholder loan Bank loans 2012 £000 2,052 3,638 5,690 2011 £000 1,957 — 1,957 The £2.5m shareholder loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. During the year 205,000 of these warrants have been exercised and as a direct result share capital has increased by £2,050 and share premium by £38,950. The loan has both debt and equity components and so the value has been split between these components. The debt element is only repayable in August 2015 and as a result the loan is classified as non-current. Deferred borrowing costs relating to the loan of £281,000 are also netted off the loan carrying value which at the period-end is £2,052,000. The Term Loan of £1,138,000 within bank loans will be repaid on a quarterly basis with payments of £160,000 starting on 30 September 2013. The revolving credit facility of £2,500,000 is repayable in June 2014. 9. SHARE CAPITAL Authorised 626,391,704 ordinary shares of 1p each 57,233,679 deferred shares of 24p each Allotted, called-up and fully paid: Ordinary shares of 1p each 57,933,679 ordinary shares of 1p each on issue at start of the period (2011: 57,233,679 ordinary shares of 25p each on issue at start of period) 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 5,787,574 ordinary shares of 1p each issued in institutional placing 205,000 ordinary shares of 1p each issued under exercised warrants (2011: 700,000 ordinary shares of 1p each issued under exercised warrants) 63,926,253 ordinary shares of 1p each on issue at end of period (2011: 57,933,679 ordinary shares of 1p each on issue at end of period) Deferred shares of 24p each: 57,233,679 deferred shares of 24p each on issue at start of period (2011: nil) 57,233,679 ordinary shares of 25p each converted into 1p ordinary shares and 24p deferred shares 57,233,679 deferred shares of 24p each on issue at end of period 34,673 11,523 34,879 11,690 2012 £000 206 — 2012 £000 824 1,042 1,852 24,700 32 — — 2011 £000 97 70 2011 £000 — — 416 44 149 282 1,054 28,450 1,945 Total Allotted, called-up and fully paid at the end of period 2012 £000 6,264 13,736 20,000 2011 £000 6,264 13,736 20,000 579 14,308 - 58 2 (13,736) - 7 639 579 13,736 - 13,736 - 13,736 13,736 14,375 14,315 The Company has one class of ordinary shares which carry no rights to fixed income. The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company. During the year 205,000 of these warrants have been exercised and as a result share capital has increased by £2,050 and share premium by £38,950. In addition, an institutional placing of 5,787,574 in April 2011 resulted in share capital increasing by £57,876 and share premium by £1,707,334. During the prior period each issued ordinary share of 25p was sub-divided and converted into one new ordinary share of 1p and one deferred share of 24p. Each of the unissued ordinary shares of 25p was also sub-divided into 25 ordinary shares of 1p. During the prior period a £2.5m related party loan was issued with 12.5m convertible warrants attached to it. These warrants allow the holders to either convert the loan into 1p shares (at a price of 20p per share) or to purchase 1p shares for cash consideration (at a price of 20p per share). 66 0_600_ar12.indd 67 67 67 07/09/2012 10:19:09 Notes relating to the company financial statements 10. RESERVES At 3 April 2010 Profit for the period Shareholder loan Exercised warrants At 2 April 2011 Loss for the period Share-based payment Shareholder loan On shares issued At 31 March 2012 Share Capital premium Revaluation redemption Equity Translation account £000 13,766 — — 133 reserve £000 236 — — — reserve £000 2,500 — — — 13,899 236 2,500 — — — 1,746 15,645 — — — — — — — — reserve £000 — — 160 — 160 — — 7 — Profit and loss Account £000 (3,148) 2,029 — — reserve £000 (22) — — — (22) (1,119) — — — — (15,108) 90 — — 236 2,500 167 (22) (16,137) In accordance with the exemption allowed under Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account but has returned a loss in the period of £15,108,,000 (2011: profit of £2,029,000). Amounts paid to the Company’s auditor in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed as the information required is instead disclosed in Note 3 to the Consolidated financial statements. 11. CONTINGENT LIABILITIES Bank guarantees in respect of Group undertakings 12. PENSION 2012 £000 86 2011 £000 43 The Company operates a multi-employer defined benefit scheme for its employees. The date of the most recent full actuarial valuation for the scheme was 31 March 2007. The Company is unable to identify its share of the underlying assets and liabilities of the fund. The surplus on the fund amounted to £12.9m at 31 March 2012. Under IFRS the surplus has not been recognised in the period (Note 30 of the Consolidated financial statements). Under FRS 17, the Company treats its contributions into these schemes as though they were defined contribution schemes. The pension contribution charge for the Company amounted to £22,000 (2011: £34,000). 13. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS Retained (loss)/profit Issued share capital/share premium Equity reserve Net increase/(reduction) in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 14. RELATED PARTY TRANSACTIONS There are no related party transactions which require disclosure. 2012 £000 (15,018) 1,806 7 (13,205) 29,969 16,764 2011 £000 2,029 140 160 2,329 27,640 29,969 15. POST BALANCE SHEET EVENT REVIEW The company raised £1.47m through an institutional placing of new ordinary shares of 1p each at a price of 7.5p per share on 5 September 2012. On 10 August 2012 the Group announced that it was closing its manufacturing subsidiary FMT in Poland. This activity has been included in continuing activities at 31 March 2012 but is expected to be treated as a discontinued activity in the year to March 2013. Certain impairments have been made as a result of this decision and included in the Group Accounts at 31 March 2012. 68 0_600_ar12.indd 68 68 07/09/2012 10:19:10 The 600 Group PLC Union Street Heckmondwike West Yorkshire WF16 0HL T: +44 (0)1924 415000 W: www.600group.com _0_600_ar12_Cover_[DB.MR_KW].indd 1 07/09/2012 10:18:44
Continue reading text version or see original annual report in PDF format above