167892 600 Group R&A (Cover)_167892 600 Group R&A (Cover) 31/08/2016 15:07 Page 1 The 600 Group PLC Union Street Heckmondwike West Yorkshire WF16 0HL T: +44 (0)1924 415000 W: www.600group.com ANNUAL REPORT & ACCOUNTS 2016 The 600 Group PLC Contents Chairman’s statement Strategic report 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 income statement Company statement of comprehensive income Company statement of financial position Company statement of changes in equity Company cash flow statement Company accounting policies Notes relating to the company financial statements 1 3 11 14 15 19 20 21 22 23 24 25 31 6 4 65 66 67 68 69 70 Chairman’s statement I am pleased to report that we have continued to implement structural changes in both our operating divisions to give the Group a greater opportunity to grow in existing and new markets from a reduced cost base. The financial benefits of these actions began to be evident in the final few months of the 2016 financial year. The improvement in profitability was, however, delayed by a number of factors including the expanded integration programme for the TYKMA Electrox business and the costs associated with staff reductions in the UK. In addition, like many other companies in the sector, we were also affected by the challenging market conditions in the machine tool sector with a much weaker than expected performance in the UK and Europe. The integration of the two laser businesses has reduced their overall cost base significantly and we have achieved further efficiencies by revising the supply chain and closing down the Electrox manufacturing operation in Letchworth, UK. We consolidated the two businesses onto a single site in Ohio, USA and whilst this proved to be more disruptive and expensive than we first envisaged it is now trading satisfactorily under David Grimes, who became a significant shareholder in the 600 Group following the acquisition of the remaining 20% of TYKMA not already owned in late March 2016. The integration of TYKMA and Electrox has given the Industrial lasers division worldwide credibility and initial sales have already been made to a number of multi-national corporations. The joint TYKMA Electrox brand now provides laser solutions across a number of industrial laser applications including marking, engraving and micro-material processing. The performance of our US and Australian machine tool businesses in the period matched their performance of last year which we consider to be quite an achievement considering the difficult state of the markets. However, business conditions in the UK and Europe were very fragile and we took the necessary steps to restructure our activities and reduce our cost base accordingly. I’m pleased to report that following the appointment of Don Haselton as Managing Director for the machine tools division in August 2015 we have had a good initial response in establishing the Clausing brand of machine tools in the UK, European and Australian markets. Additional resources have been put into sales and marketing for the Colchester, Harrison, Clausing, Pratt Burnerd and Gamet brands and we expect to see continuing improvement in market penetration and revenues as a result of these initiatives. Since the start of the new financial year our Australian machine tool business has experienced a significant increase in activity. We have expanded our distribution network in the Australian state of Victoria, along with new distributors in Thailand, Vietnam and Malaysia and strengthened our existing distribution relationships in Singapore and the Philippines. We expect these improvements in Australia and South East Asia to continue throughout the fiscal year. The UK and European markets continue to be challenged by weak economic growth and depressed commodity prices. We have restructured the production operation to provide resources to strengthen the sales and marketing organization. We have seen improvements in market share for the Colchester and Harrison brands in addition to the introduction of the Clausing brand. We expect these improvements to also continue throughout the current fiscal year. The US market has also been challenged by weak economic growth. The AMT (Association for Manufacturing Technology) reports Manufacturing Technology Orders on a monthly basis. This report shows a decrease in order activity of 17.5% in 2015 with an additional decrease of 16.4% through June 2016. The U.S. Presidential campaign has created further uncertainty. Despite these economic headwinds, the US machine tool business continues to increase market share. Utilisation of contract manufacturing has enabled Clausing to capitalise upon the successful introduction of US built drills with the addition of sawing products. US production of additional product lines is planned for the next few years. We have signed an updated supply agreement with our important Taiwanese machine tool supplier and, in addition, entered into a supply and distribution agreement with an Indian manufacturer for supply of machine tools and manufacture and distribution under licence in India of our branded products. These important initiatives reduce risk, expand our product offering and increase market coverage of our brands. Although it is very early to speculate on the effect that the UK leaving the EU may have in the coming year, we would ask shareholders to consider a number of important factors which we believe reduce the risks for the Group associated with this new trading environment. Over 60% of the Group’s activity is currently conducted in the USA and these businesses are the main profit drivers of the Group. Furthermore, the dollar income we receive gives us a natural hedge against the majority of our purchases which are in dollars. In the last year only 13% of Group sales were to EU countries and as I have outlined above we are firmly focused on developing new markets outside of this area particularly in South East Asia. Over 15% of our total revenues are derived from the supply of spares parts and services and this is not dependent on achieving new sales but simply servicing our existing client base. Lastly, the growth of our global industrial laser systems business is largely driven by legislative changes and the requirement for traceability both of which are increasing worldwide irrespective of the situation in the UK. 1 Chairman’s statement Financial Overview Revenue from continuing operations was £45.3m (2015: £43.8m) a 3.4% increase on the previous year. After taking account of interest, taxation, pensions credits and other special items, the Group profit for the financial year was £1.15m (2015: £2.35m). Underlying profit (before special items) amounted to £1.54m (2015: £1.85m) resulting in underlying earnings of 1.69p per share (2015: 2.09p) and total earnings were 1.26p per share (2015: 2.66p). At the end of the financial year, group net indebtedness stood at £13.89m (2015: £10.80m), and gearing was 34% (2015: 31%). In addition to the acquisition of the remaining 20% of TYKMA during the year we have invested in new facilities, products and working capital to support our strategic growth plans. At the end of the year the group had financial headroom on the then existing borrowing facilities of £3.30m and had complied with all financial covenants in place throughout the year. I am pleased to report that following the disposal of the Letchworth premises we restructured our UK banking arrangement and new increased facilities were agreed with HSBC in the UK in August 2016 which will provide more flexible support for the Group going forward. In the USA Bank of America have continued to be very supportive, providing facilities to fund the $1.8m cash element of the TYKMA 20% acquisition and renewal of ongoing working capital facilities for both TYKMA and Clausing. Acquisitions At the end of March 2016 we acquired the remaining 20% of TYKMA, the US based industrial laser business we had acquired 80% of in February 2015. The consideration for this was satisfied by the issue of 12m shares in the Group and $1.8m in cash. TYKMA has been fully integrated with Electrox, the 600 Group’s original laser business, during the current financial year and the combined business now operates under the TYKMA Electrox brand. Facilities In the USA we successfully re-located the Clausing machine tools business to new purpose built leasehold premises in Kalamazoo, Michigan and TYKMA re-located, again to purpose built leasehold premises, in Chillicothe Ohio. These new sites are better located with excellent road links and significantly improved facilities. To the credit of our management teams and their planning there was no significant impact on trading during the period of the moves. At the beginning of July we completed the sale of our Letchworth long leasehold site for £2.0m, with the much reduced UK laser operation moving to a new leasehold site in Letchworth. People On behalf of the Board I would like to thank all our employees for their ongoing support, commitment and dedication to The 600 Group which has been so important in the last year and I look forward to working with them again in the coming year. Dividends The Board continues to believe that the retention of earnings for deployment in the business is the most appropriate use of available financial resources. Accordingly they do not recommend the payment of a dividend at the present time. Outlook Trading in the period since the FY16 financial year end has been in line with the Board’s expectations. The 600 Group is in the process of leveraging our industry recognised brands through an increased worldwide distribution network to accelerate revenue growth. We expect that the actions taken to reduce overheads and become more efficient will yield better margins on increased sales in the future. Paul Dupee Chairman 31 August 2016 2 Strategic report Our business The 600 Group PLC ("the Group") is a leading engineering group with a world class reputation in the design and distribution of machine tools, precision engineered components and the design, manufacture and distribution of industrial laser systems. The Group operates these businesses from locations in North America, Europe and Australia selling into more than 180 countries worldwide. During the 53 week period ended 2 April 2016 31% of revenues came from the sale of metal turning machine tools, with a further 17% from other machine tools and 11% from the sale of precision engineered components. Sales of Industrial laser equipment amounted to 26% with the remaining 15% of revenues being from after sales support, spare parts and services from both divisions. Group businesses serve customers across a broad range of industry sectors, from niche markets for technical education of young engineering apprentices through to high volume production of automotive, aerospace and defence equipment. A high proportion of revenue is derived from sales via third party distribution channels, in respect of which it is more difficult to track the industry dispersion of end-user customers. The Group benefits from a high degree of loyalty and repeat business via established distributors in many countries and territories. In the year ended 2 April 2016 the top 20 customers, of which 17 were distributors, contributed less than 26% of revenues. By geographical territory of destination Revenues are generated across many diverse geographical territories, with the principal markets in: Percentage of worldwide revenues (by destination) United States of America United Kingdom Europe (excluding UK) Rest of the World Total 2016 % 60 19 13 8 100 2015 % 55 18 16 11 100 Macroeconomic and industry trends Machine tools and precision engineered components The worldwide machine tool industry is estimated at over $70bn in annual sales and is determined by the investment intentions of manufacturers, and is sensitive to changes in the economic and financial climate. Demand responds to economic trends and typically lags the main cycle of the economy. Gardner Research identified the largest five producer countries of machine tools to be China, Germany, Japan, South Korea and Italy with the largest five countries ranked by consumption as China, USA, Germany, Japan and South Korea. The global consumption of machine tools was reported as being negative at 10.3% in the latest Oxford Economics data for the year to December 2015 against a relatively flat 2014. In our most important markets USA was -15.6%, Germany -11.9% and UK -8.3%. Industrial laser systems Industry use of industrial lasers for material processing has continued to expand worldwide. Laser systems have now become a mainstream manufacturing process covering the areas of laser machining including cutting and drilling, marking, ablation and a host of other niche applications. Industry spending for the entire global industrial laser market is reported to be $3.3bn and growing between 4% and 6% each year. The laser marking and micro-materials subset of the overall laser industry continues to grow due to enhanced techniques in the speed, cost and quality of the systems being implemented and legislative changes driving a requirement for greater traceability. 3 Strategic report Results Machine tools and precision engineered components This division operates from Heckmondwike in the UK, Kalamazoo Michigan in the USA, and Sydney and Brisbane in Australia. It designs and develops metal processing machine tools sold under the brand names Colchester, Harrison and Clausing and designs and manufactures precision engineering components under the brand names Pratt Burnerd and Gamet. There is also a spares, accessories and service operation to support the significant number of machines sold over the Group’s long history of supplying quality equipment. Sales are made worldwide, with direct sales operations in North America, Europe, and Australia and a network of distributors in all other key end-user markets. The financial results of these activities, before special items, were as follows: 2016 £’000 32,127 2,073 6.5% 2015 £’000 34,747 2,931 8.4% Revenues Operating profit Operating margin Revenues overall fell by 7.5% with a 16% fall in the UK and European business and 22% fall in Australia. Revenues and operating profit in our North American operations remained level with the prior year which we consider to be a significant achievement given a 15% industry-wide fall in US consumption. Although the Australian business had a difficult year and was forced to reduce overheads and preserve cash by operating on a four day week basis it has since the financial year end returned to full time working to cope with increased demand and has traded profitably so far this financial year. The Australian operation is also leading the expansion into the South East Asian markets and is responsible for signing up the new distributors in Malaysia, Thailand and Vietnam and it is clear there remains brand recognition in these markets with orders and quotations actively being undertaken. The UK and European operation experienced difficult market conditions, particularly in Germany, where the weakness of the Euro added pricing pressure. In response to these difficult conditions direct and overhead costs were reduced and the mix of products manufactured in the UK revised during the second half of the financial year. The fall in volume was concentrated on the higher margin component product resulting in a disproportionate fall in operating margins. This was the principal reason for the division’s poor overall performance. Since his appointment as Divisional Managing Director of the machine tool division in August 2015 Don Haselton has been focusing on the introduction to the UK and Europe of the Clausing product range of drills, mills, saws and grinders which are now becoming a regular feature of the package of products we supply in the UK and Europe. The Clausing range of products has been one of the key reasons behind the sustained growth in the North American operations and represent over 1/3 of their product sales compared to a figure of just 4% for the UK and European operation at present. 4 Strategic report Industrial laser systems Following the acquisition of 80% of TYKMA Inc. in early February 2015, both the TYKMA and Electrox operations were merged into a single industrial laser systems business under a unified management structure. The remaining 20% of TYKMA was purchased at the end of March 2016 just before the financial year end. The integration of the two businesses continued throughout the year with all manufacturing operations centered in a new purpose built facility in Chillicothe, Ohio USA. In the UK we took steps to expand our UK sales presence by signing a distribution agreement with Needham Coding based in Shropshire. This new relationship provides a customer centric operation and increased presence throughout the UK and Ireland and is in addition to the TYKMA Electrox sales and service center located in Letchworth Garden City. As a result of these actions, operating efficiencies and savings (including those from supplier consolidation) are evidenced in the increased margins we saw towards the end of the financial year. In addition, the restructuring of our entire global sales structure resulted in reduced overall costs and sales operations coming under common leadership. The worldwide industrial laser systems business now operates under the TYKMA Electrox brand. Industrial laser system solutions are sold for a variety of applications including marking, engraving and micro-material processing to a wide range of industries which includes small companies to large multi-national corporate customers. The enlarged industrial laser systems division is headed up by David Grimes, the previous CEO of TYKMA, who became a substantial shareholder in the Group as a result of the purchase of the remaining 20% of TYKMA Inc. by the Group at the end of March 2016. Revenues in this division increased by 43% following the TYKMA contribution being included for a full year for the first time. Operating profit increased substantially but with only the last few months benefitting from the integration of the two companies. We expect this trend will continue to grow and show through in increased margins in the first few months of the current financial year. Results for the financial year before special items were as follows: 2016 £ 000 13,142 1,179 8.9% 2015 £ 000 9,229 304 3.3% Revenues Operating profit Operating margin Group revenue Revenue from continuing operations increased by 3.4% to £45.3m (2015: £43.8m) which although representing only a modest increase over last year was achieved despite the difficult market conditions experienced in the machine tools business in the UK and Europe where turnover fell by 16% and in Australia which suffered a 22% decline. Costs and margins Gross margins in the Industrial laser systems division improved as the year progressed and the benefits of the TYKMA Electrox business integration began to take effect. Margins in machine tools were however inevitably affected by the reduced volumes in the UK and European operation, particularly in the higher margin precision components. 5 Strategic report Profit before taxation Group profit before tax was £1.00m (2015: £3.68m) and the underlying profit figure before special items was £1.48m (2015: 2.02m). Special items During the financial year, the Group had a number of transactions, which in the opinion of the directors should be reported seperately for a better understanding of the underlying trading performance of the Group. A credit of £0.94m (2015: £2.35m) is included in operating profit as a result of the work by the trustees of the UK pension scheme and the company in reducing pension liabilities. A number of transactions took place over the previous and current year including a pension increase exchange, commutation of small pensions and other flexible retirement options. This resulted in actuarial adjustments to the pension liabilities, which are processed through the Consolidated Income Statement. In addition, as a result of the scheme being in surplus on an accounting basis, a credit of £1.17m (2015: £0.86m) is recorded in interest. No cash was paid to or received from the scheme in respect of these transactions. As a result of the settlement of the contingent deferred consideration on the acquisition of the remaining 20% of TYKMA Inc. a credit is recorded within financial income of £2.03m. The acquisition occurred earlier than was originally envisaged under the put and call options in place and consequently the amount paid was less than that accrued based on the earnings of the combined industrial laser systems division over the next few years. Costs incurred on the acquisition of the remaining 20% of TYKMA Inc. amounted to £0.2m. Redundancy and restructuring costs incurred on the integration of the Electrox and TYKMA businesses and the overhead and operating cost reduction in Head Office and UK machine tools business amounted to £1.72m. During the integration process of TYKMA and Electrox it became clear that the capitalised cost of the software developed by Electrox was not going to be realised as originally envisaged ,would not be sold as a distinct product and that further work would be required to integrate the software with existing systems. As a result it has been decided to impair the value of the work so far and an impairment charge of £2.39m has been shown within special items. In addition share option costs, amortisation of intangible assets and amortisation of loan note costs which are non-cash costs to the Group have been included in special items. Taxation The current year resulted in a small credit for taxation (2015: charge of £1.32m). Deferred taxation is provided on the pension credits of £2.11m at a rate of 35%, being the rate applicable to any refund from a pension scheme. The UK businesses continue to benefit from the substantial previous tax losses and no taxation is payable in the UK. The US businesses are subject to taxation on their profits at a rate of 35%. Net profit and earnings per share The total profit attributable to equity holders of the parent for the current financial year amounted to £1.16m (2015: £2.33m). Underlying earnings from continuing operations before special items and related taxation was 1.69p per share (2015: 2.09p) and basic earnings per share was 1.26p (2015: 2.66p) Financial position and utilisation of resources Cash flow Cash generated from operations before working capital movements was £3.03m (2015: £3.02m). Working capital movement was largely due to a reduction in creditors of which part was professional costs relating to the original purchase of 80% of TYKMA towards the end of the prior financial year. £0.94m was expended on redundancy and restructuring costs which largely consisted of redundancy payments at Electrox, UK machine tools and head office, including to the previous CEO. 6 Strategic report Interest paid has increased to £0.96m as a result of a full year of interest paid on the loan notes with the final tranche of £806k of loan notes issued in August 2015. Capital expenditure included replacement machinery for the UK machine tools business and the fit out costs and plant, machinery and fixtures of the two new facilities in the USA; Clausing machine tools in Michigan and TYKMA in Ohio. Net borrowings Group net debt at 2 April 2016 stood at £13.89m (2015: £10.8m) comprising net bank and finance lease indebtedness of £6.2m (2015: £4.0m) and the amount outstanding on the new loan notes of £7.70m (2015: £6.78m). The amount outstanding is net of unamortised costs and amounts disclosed in equity reserve of £0.8m in the current financial year (2015: £0.7m). New increased facilities were agreed with HSBC in the UK in August 2016 following the sale of the Letchworth property. A package of facilities to support the working capital of the UK machine tools business and a term loan secured on the remaining freehold site in Colchester have been put in place totaling £4.95m. In the USA Bank of America supported the 20% TYKMA acquisition in March 2016 with an additional term loan of $1.8m in addition to their existing term and working capital facilities. The Group has a mixture of term loans and revolving working capital facilities with maturities between 1 and 5 years. Headroom on bank facilities was £3.2m at the year-end (2015: £4.2m) and all financial covenants in place were met during the year. During August 2015 the Group issued the remaining £806k of New 8% loan notes with a maturity of February 2020 to bring the total gross amount issued to the £8.5m agreed under the loan note programme. These loan notes also entitled holders to warrants of equal value to subscribe for new ordinary shares at 20p. Gearing amounted to 34% of aggregate net assets (2015: 31%) Going concern In accordance with FRC guidelines, the Board has assessed the Group’s funding and liquidity position. The directors confirm that, after having made appropriate enquiries, 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. Retirement benefits The accounting surplus at 2 April 2016 was £40.94m (2015: £34.29m). This surplus has been calculated in accordance with the scheme rules and recognised accounting requirements. As a result of liability reduction exercises undertaken by the UK scheme’s Trustees in conjunction with the company, a credit has been taken in the period in the Income Statement of £0.97m to reflect the actuarial reduction in scheme liabilities. In accordance with the current legislation on taxation of pension surplus returns to a company, deferred taxation has been provided for on the pension entries at 35% as opposed to the normal 20% rate. In October 2013 the Company reached agreement with the Trustees of the scheme regarding the funding position on a more prudent Technical Provisions basis as at 31 March 2013, which indicated a funding deficit of £25.4m at that date, and estimated a deficit on a full buy-out basis of £51.1m. It was further agreed that the Technical Provisions deficit would be resolved by an outperformance of the investment returns on the scheme assets of 1% above the return on UK gilts, and that no cash contributions would be required until at least the next funding valuation due as at 31 March 2016. The formal Actuarial Technical Provisions calculation for 31 March 2016 is currently in progress but it is expected that a similar agreement will be reached with the Trustees following its completion. At 2 April 2016, the subsequent performance of the scheme assets,changes in the underlying market conditions and the various liability reduction exercises, indicate that the estimated deficit on a Technical Provisions basis had reduced to £10.6m. On a full buy-out basis the estimated deficit had reduced to £44m by the end of March 2016. The directors and the Trustees work together on a collaborative basis to continue to monitor investment performance and market conditions closely, to mitigate the risk of mis-matching assets and liabilities to a tactically appropriate level, and to pursue opportunities to secure a full or partial buy-out of UK pension liabilities when conditions permit. 7 Strategic report The US retiree health scheme and pension fund deficits reduced slightly during the year due to changes in actuarial assumptions to £1.04m (2015: £1.10m.) Electrox site As a result of the merger of TYKMA and Electrox, and the centralisation of manufacturing in the USA, the long leasehold UK site in Letchworth became too large for the remaining sales and service operation which has moved to smaller leased premises. The sale of the existing site for a net £2.0m was completed on 11 July 2016 with proceeds used to reduce the UK senior bank debt. A reduction in valuation of £0.45m down to the net proceeds has been taken in the revaluation reserve at the year-end and the property has been classified as an asset held for sale within current assets in the Consolidated Statement of Financial Position. Share capital and reserves Share capital and share premium reflect the exercise of 2.75m of share options by Nigel Rogers in August 2015 and the issue of 12m shares at the end of March 2016 in part settlement of the consideration for the remaining 20% of TYKMA Inc. Key performance indicators (KPI’s) The Group monitors performance against key financial objectives that the directors judge to be effective in measuring the delivery of strategic aims, and managing and controlling the business. These focus at Group level on profit, together with its associated earnings per share, forward order book and cash generation. At individual business unit level, KPI’s also include working capital control, and customer related performance measures such as on-time delivery, minimisation of warranty concerns, and measured levels of overall customer satisfaction. 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. 8 Strategic report The Group’s recent performance against financial KPI’s is set out as follows: KPI Revenue (annual growth rate) Book-to-bill ratio Order book (months) Gross margin (% of revenue) EBIT margin (% of revenue) Working capital (% of revenue) Inventory turns Receivables (days) All figures are pre special items Key business risks Benchmark Target >10% >110% 2.0 - 3.0 >33% >7.5% <25% >3.5 x < 60 2016 2015 2014 2013 2012 3.4% 107% 1.5 34% 5.2% 5% 97% 1.4 32.9% 5.6% 25.9% 23.3% 2.6x 57 2.7x 58 (0.2)% 101.8% 1.9 33.2% 5.6% 20.0% 3.3x 54 11.2% 89.4% 2.0 4.2% n/a 3.9 31.7% 32.3% 2.3% 0.6% 21.5% 20.7% 2.8x 55 2.8x 63 The board of directors has identified the main categories of business risk in relation to the implementation of the Group’s strategic aims and objectives, and has considered reasonable steps to prevent, mitigate or manage these risks. The principal areas noted during this review are summarised as follows: Macro-economic – the Group’s businesses are active in markets which can be cyclical in nature as the overall level of market demand is dependent upon capital investment intentions. Economic or financial market conditions determine global demand and could adversely affect our customers, distributors, operations, suppliers, and other parties with whom we transact. The directors seek to ensure that our overall risk is mitigated by avoiding excessive concentration of exposure to any given geographical or industry segment, or to any individual customer. Market conditions, lead indicators and industry forecasts are monitored for any early warning signs of changes in overall market demand, and measures to exploit opportunities or manage elevated risks are taken as appropriate. Production and supply chain – the continuity of the Group’s business activities is dependent upon the cost effective supply of products for sale from our own facilities, and those of our key vendors. Supply can be disrupted by a variety of factors including raw material shortages, labour disputes and unplanned machine down time. In particular, the directors are mindful that a small number of key manufacturing outsource partners are located in relatively close proximity to each other in Taiwan. Taiwan is ranked by Gardner Research as the seventh largest producer nation of machine tools, with global production valued at almost US$5 billion. Taiwanese suppliers represent approximately one third of the total cost of sales for the Group. Group businesses mitigate against such risk by carefully selecting high quality vendors, and maintaining long term constructive and open relationships. The effectiveness of such mitigation would be limited, however, in certain catastrophic circumstances (for example, extreme weather or seismic activity in the vicinity), against which the Group carries appropriate insurance. Laws and regulations – Group businesses may unknowingly fail to comply with all relevant laws and regulations in the countries in which they operate and contract business. There is a risk of breach of legal, safety, environmental or ethical standards which can be more difficult to identify, comprehend, or monitor in certain territories than others. The directors have taken all reasonable steps to ensure that operations are conducted to high ethical, environmental and health and safety standards. Controls are in place to keep regulatory and other requirements under careful review, and scrutinise any identified instances of elevated risk. Information Technology (“IT”) – The Groups IT systems and the information they contain are subject to security risks including the unexpected loss of continuity from virus or other issues, and the deliberate breach of security controls for commercial gain or mischief. Any such occurrences could have a significant detrimental effect on the Group’s business activities. These risks are mitigated by the utilisation of physical and embedded security systems, regular back-ups and comprehensive disaster recovery plans. 9 Strategic report 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, TYKMA Inc. and 600 Australia Pty Limited are reported in United States dollars and Australian dollars respectively and translated into Sterling, and as a result the Group’s Statement of Financial Position and trading results can be affected by movements in these currencies. Part of this exposure is naturally hedged by entering into borrowing 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 on to 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. Alternative sources of supply in different geographic regions are also being pursued. 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. Proactive steps are taken to identify and implement cost effective activities to mitigate the pension scheme deficit. 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. Neil Carrick Finance Director 31 August 2016 10 Report of the directors Directors Paul Dupee Appointed to the Board as a non-executive Director on 2 February 2011, appointed Chairman on 14 September 2011 and appointed Executive Chairman on 30 April 2015. A private investor and currently Managing Partner of Haddeo Partners LLP. 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. Currently a non-executive director of a number of companies including Amiad Water Solutions Ltd (AIM Listed),,Hotel Urbano Viagens e Turismo SA, and a previous vice-chairman of KPMG LLP. Stephen Fiamma* Appointed to the Board as a non-executive Director on 13 May 2015. Until 2014 a partner in the tax practice of Allen & Overy LLP. * Non-executive Director and member of the Audit Committee and member of the Remuneration Committee. SECRETARY Neil Carrick REGISTERED OFFICE 1 Union Works Union Street Heckmondwike West Yorkshire WF16 0HL REGISTERED NUMBER 196730 REGISTRARS Capita Asset Services 34 Beckenham Road Beckenham Kent BR3 4TU AUDITOR KPMG LLP BANKERS HSBC Bank plc Bank of America, N.A. BROKER Finncap NOMINATED ADVISORS Spark Advisory Partners 11 Report of the directors The directors present their report to the members, together with the audited financial statements for the 53 week period ended 2 April 2016, which should be read in conjunction with the Chairman’s Statement on the affairs of the Group (pages 1 to 2), and the Strategic Report (pages 3 to 10). The Consolidated Financial Statements incorporate financial statements, prepared to the Saturday nearest to the Group’s accounting reference date of 31 March, of the Company and all subsidiary undertakings (the Group). The results for 2016 are for the 53-week period ended 2 April 2016. The results for 2015 are for the 52-week period ended 28 March 2015. ACTIVITIES OF THE GROUP The Group is principally engaged in the manufacture and distribution of machine tools, precision engineered components and industrial laser systems. 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 20. BUSINESS REVIEW A balanced and comprehensive analysis of development and performance of the Group is contained in the Chairman’s Statement and the Strategic Report on pages 1 to 10. This analysis includes comments on the position of the Group at the end of the financial period, consideration of the principal risks and uncertainties facing the business and the key performance indicators which are monit ored in relation to the achievement of the strategy of the business. RESEARCH AND DEVELOPMENT Group policy is to design and develop products that will enable it to retain and improve its market position. INTERESTS IN SHARE CAPITAL At 14 August 2016, 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 LLP Mr D Grimes Mr A Perloff and the Maland Pension Fund Trustees Schroder Investment Management CriSeren Investments Limited Percentage of issued ordinary Number share capital 23,492,535 22.51 7,500,000 6,800,000 3,671,320 3,178,379 7.19 6.52 3.52 3.05 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 18 March 2015 shareholders approved the issue of up to 43,950,000 new warrants to subscribe for ordinary shares at a price of 20p per share. Subscribers to the new loan notes issued in February, March and August 2015 were issued with warrants totalling 34,755,000. In addition 9,195,000 new warrants were issued as replacements for the same number of old warrants granted as part of the old shareholder loan arrangements to those old shareholder loan note holders who agreed to roll over their notes into the new loan issue. 2,400,000 old shareholder loan warrants remained in issue at the start of the financial year but expired on 27 August 2015. 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 9,235,796 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 17 September 2015. This authority remains valid until the conclusion of the next Annual General Meeting. 12 Report of the directors DIRECTORS Details of the current directors of the Company are shown on page 11. There are no directors retiring by rotation this year. The beneficial interests of the directors in the share capital of the Company at 2April 2016 are shown in the Remuneration Report on pages 15 to 18. No director has a beneficial interest in the shares or debentures of any other Group undertaking. 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. 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. QUALIFYING THIRD PARTY INDEMNITY The Company has provided an indemnity for the benefit of certain of its current directors which is a qualifying third party indemnity provision for the purpose of the Companies Act 2006. On behalf of the Board NEIL CARRICK DIRECTOR 31 AUGUST 2016 13 Statement of directors’ responsibilities in respect of the strategic report, the directors’ report and the financial statements The directors are responsible for preparing the Strategic Report, the Directors’ 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) including FRS101 Reduced Disclosure Framework. 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 t o 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 31 AUGUST 2016 14 Remuneration report As an AIM listed company The 600 Group plc is not required to prepare a remuneration report in accordance with Directors Repo rt 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, but the table of directors emoluments on page 17 does form part of the audited accounts. THE REMUNERATION COMMITTEE The Remuneration Committee (the Committee) is responsible for determining the salary and benefits of executive directors. It currently consists of three non-executive directors. The members of the Committee during the year have been: S E Fiamma (Committee Chairman) S J Rutherford D Zissman The Committee held two 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. • the formal grant of awards under the share plans; and • a review of directors’ salaries. 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. 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 currently participate in a discretionary bonus scheme linked to the achievement of annual financial and personal performance targets. LONG-TERM INCENTIVE PLANS 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. Options were granted on 19 November 2012 which are exercisable at 10p between three and ten years after grant date and further options excercisable at 17p were issued on 7 April 2014 and at 18p on 18 August 2015 BENEFITS IN KIND Executive directors’ benefits include a car allowance and medical insurance for self and family. 15 Remuneration report SERVICE CONTRACTS Mr N R Carrick has a service contract dated 27 May 2016 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. In the event of a change of control the notice period will be extended to 24 months, reducing back to 12 months over a 12 month 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 have contracts of service terminable on 3 months’ notice and are not eligible for pension benefits. FIVE YEAR TOTAL SHAREHOLDER RETURN This graph shows the Total Shareholder Return (TSR) of the Company (grey line) from 3 April 2011 to 2 April 2016 compared with the AIM Index (black line), 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 the most appropriate index against which the TSR of the Company should be measured. RELATIVE PERFORMANCE OF FTSE AIM ALL SHARE INDEX TO 600 GROUP APRIL 2011 TO APRIL 2016 16 Remuneration report DIRECTORS’ INTERESTS IN SHARES The interests of directors holding office at 2 April 2016 in the ordinary shares of the Company were as follows: P R Dupee S J Rutherford N R Carrick D Zissman At 2 April 2016 Number At 28 March 2015 Number 23,492,535 22,792,535 20,000 113,404 400,000 20,000 113,404 300,000 P R Dupee’s interest in the 23.5m shares arises from his position as Managing Partner of Haddeo Partners LLP, which owns these shares. In addition, Haddeo Partners LLP holds 5,050,000 warrants and Mr Carrick 250,000 warrants which can be used to either convert their loan notes into shares or to purchase shares for a cash consideration. DIRECTORS’ EMOLUMENTS Audited P R Dupee N F Rogers N R Carrick D Zissman S J Rutherford S E Fiamma Total . Salary Fees Pension Bonus in kind £ £ £ £ £ All benefits Total 2016 £ Total 2015 £ 234,167 16,667 172,500 — — — — — 15,300 — — — 33,000 33,000 29,171 — — — 423,334 95,171 15,300 — — — — — — — — 234,167 60,000 1,627 18,294 201,585 17,832 205,632 226,732 — — — 33,000 33,000 33,000 33,000 29,171 — 19,459 553,264 554,317 Mr S Fiamma was appointed on 13 May 2015. Mr N Rogers resigned on 30 April 2015 and a termination payment of £230,000 was paid to Mr Rogers at that time. 17 Remuneration report DIRECTORS’ SHARE OPTIONS Details of share options at 2 April 2016 and 28 March 2015 for each Director who held office during the year are as follows: N Carrick P Dupee N Rogers S Rutherford D Zissman S Fiamma Number of options at 28 March 2015 Granted Exercised Number of options at 2 April 2016 Lapsed/ forfeited 3,150,000 1,000,000 4,750,000 500,000 500,000 — — — — — — 500,000 — — — — 3,150,000 1,000,000 (2,750,000) (2,000,000) — — — — — — — 500,000 500,000 500,000 Options were all granted under the 600 Group PLC Deferred Share Plan and are exercisable between 3 and 10 years from date of grant.. 4,500,000 options with an exercise price of 10p were granted on 19 November 2012, 5,400,000 options with an exercise price of 17p on 7 April 2014 and 500,000 options with an exercise price of 18p on 6 August 2015. On 30 April 2015 Mr N Rogers resigned as a Director. 2,750,000 options with an exercise price of 10p were agreed to become immediately exercisable by Mr N Rogers and 2,000,000 options with an exercisable price of 17p were forfeit. The charge to the Income Statement in respect of share based payments was £64,000 (2015: £131,000). The share price at 2 April 2016 was 9.25p and the highest and lowest prices during the period were 18.875p and 7.375p respectively. On behalf of the Board NEIL CARRICK DIRECTOR 31 AUGUST 2016 18 Independent auditor’s report To the members of The 600 Group PLC 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 2 April 2016 set out on pages 20 to 82. 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) including FRS 101 Reduced Disclosure Framework. 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 14, 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 s tandards require us to comply with the Auditing Practices Board’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 Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. 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 2 April 2016 and of the group’s profit 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; 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 Strategic Report and 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. Nick Plumb (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Sovereign Square Sovereign Street Leeds LS1 4DA 31 August 2016 19 Consolidated income statement For the 53-week period ended 2 April 2016 Notes 1 2,3 3,4 6 6 3 7 Continuing Revenue Cost of sales Gross profit Net operating expenses Operating profit/(loss) Financial income Financial expense Contingent consideration settlement Profit/(loss) before tax Income tax credit/(charge) Profit/(loss) for the period Attributable to equity holders of the parent Attributable to non controlling interests Before Special Items After Before Special Special Special Special Items Items Items Items After Special Items 53 weeks 53 weeks 53 weeks 52 weeks 52 weeks 52 weeks ended 2 April 2016 £000 ended 2 April 2016 £000 2015 £000 ended ended ended 28 March 28 March 28 March ended 2 April 2016 £000 45,269 (29,899) 15,370 - 45,269 43,794 (894) (894) (30,793) (29,374) 14,476 14,420 (13,014) (2,626) (15,640) (11,956) 2,356 (3,520) (1,164) 2,464 2015 £000 - - - 958 958 2015 £000 43,794 (29,374) 14,420 (10,998) 3,422 859 (606) - 10 (890) - 1,171 (150) 2,032 1,181 (1,040) 2,032 2 (451) - 857 (155) - 1,476 (467) 1,009 2,015 1,660 3,675 65 1,541 1,552 (11) 1,541 72 (395) (395) - (395) 137 1,146 1,157 (11) 1,146 (166) (1,159) (1,325) 1,849 501 2,350 1,832 17 1,849 501 - 501 2,333 17 2,350 Basic earnings per share 1.69p (0.43)p 1.26p 2.09p 0.57p 2.66p Diluted earnings per share 1.68p (0.43)p 1.25p 2.03p 0.55p 2.58p Company Number 00196730 The accompanying accounting policies and notes on pages 25 to 63 form part of these Financial Statements. 52 weeks ended 28 March 2015 £000 43,794 (29,374) 14,420 (11,998) 3,422 859 (606) 3,675 (1,325) 2,350 2,333 17 2,350 20 Consolidated statement of comprehensive income for the 53-week period ended 2 April 2016 Profit for the period Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement: Impact of changes to defined benefit asset limit Deferred taxation Total items that will not be reclassified to the Income Statement: Items that are or may in the future be reclassified to the Income Statement: Foreign exchange translation differences Fair valuation of assets held for sale Fair valuation of investments Total items that are or may in the future be reclassified to the Income Statement: Other comprehensive income for the period, net of income tax Total comprehensive income for the period Attributable to: Equity holders of the Parent Company Non controlling interests Total recognised income Notes 30 14 53-week 52-week period ended period ended 2April 28 March 2016 £000 1,146 4,436 (515) 3,921 286 (450) (29) (193) 3,728 4,874 4,885 (11) 4,874 2015 £000 2,350 12,188 (4,296) 7,892 462 656 (622) 496 8,388 10,738 10,721 17 10,738 The accompanying accounting policies and notes on pages 25 to 63 form part of these Financial Statements. 21 Consolidated statement of financial position As at 2 April 2016 Company Number 00196730 As at As at 2 April 2016 28 March 2015 Notes £000 £000 Non-current assets Property, plant and equipment Goodwill Other Intangible assets Investments Deferred tax assets Employee benefits Current assets Inventories Trade and other receivables Assets classified as held for sale Cash and cash equivalents Total assets Non-current liabilities Loans and other borrowings Trade and other payables Deferred tax liabilities Current liabilities Trade and other payables Income tax payable Provisions Loans and other borrowings Total liabilities Net assets Shareholders’ equity Called-up share capital Share premium account Revaluation reserve Available for sale reserve Equity reserve Translation reserve Retained earnings Non-controlling interests Total equity 11 12 12 13 14 30 15 16 17 18 19 20 14 20 21 19 23 3,235 7,144 322 496 3,832 40,937 55,966 11,271 6,771 1,999 765 20,806 76,772 (11,376) - (14,538) (25,914) (6,318) - (425) (3,275) (10,018) (35,932) 40,840 1,044 1,013 1,273 (651) 139 1,714 36,308 40,840 - 40,840 5,159 7,144 2,347 525 3,022 34,292 52,489 11,036 7,070 - 902 19,008 71,497 (8,405) (4,175) (13,358) (25,938) (6,792) (135) (611) (3,295) (10,833) (36,771) 34,726 896 - 1,494 (622) 124 1,428 31,270 34,590 136 34,726 The financial statements on pages 25 to 63 were approved by the Board of Directors on 31 August 2016 and were signed on its behalf by: NEIL CARRICK GROUP FINANCE DIRECTOR 31 AUGUST 2016 22 Consolidated statement of changes in equity As at 2 April 2016 Company Number 00196730 Ordinary Share Capital Available Non share premium Revaluation redemption for sale Translation Equity Retained Controlling Total capital account reserve reserve[1] reserve reserve reserve Earnings Total Interest Equity £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 14,581 16,885 862 2,500 — 938 180 (13,401) 22,545 — 22,545 14,581 16,885 862 2,500 938 180 (13,401) 22,545 — 22,545 — — — — — — — — — — — — — — — — — — — 2,333 2,333 17 2,350 (24) — — 656 — 632 — — — — — — — — (622) — — (622) 490 — — — — — — — — — — 490 (4) 462 — 462 12,188 12,188 — 12,188 — — (622) 656 — — (622) 656 (4,296) (4,296) — (4,296) 10,221 10,721 17 10,738 At 29 March 2014 At 30 March 2014 Profit for the period Other comprehensive income: Foreign currency translation Net defined benefit asset mvmt Fair value of Investments Revaluation of properties Deferred tax Total comprehensive income Transactions with owners: Share capital subscribed for 51 1,094 Cancellation in period (13,736) (17,979) — — — (2,500) Equity element of shareholder loan issued in period Credit for share-based payments — — — — Total transactions with owners (13,685) (16,885) Non controlling interest At 28 March 2015 At 29 March 2015 Profit for the period Other comprehensive income: Foreign currency translation Net defined benefit asset mvmt Fair valuation of Investments Fair valuation of assets held for sale Transfer on revalued properties Deferred tax Total comprehensive income Transactions with owners: — 896 896 — — — — — — — — — — — — — — — — — — — Share capital subscribed for 148 1,013 Equity element of shareholder loan issued in period Acquisition of NCI Credit for share-based payments — — — — — — Total transactions with owners 148 1,013 — — — — 1,494 1,494 — — — — (450) 229 — (221) — — — — — At 2 April 2016 1,044 1,013 1,273 — — (2,500) — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,145 — 34,215 — (56) 104 48 — 131 131 (56) 34,450 1,324 — — — — — — — — 1,145 — 48 131 1,324 — — — 119 119 (622) 1,428 124 31,270 34,590 136 34,726 (622) 1,428 124 31,270 34,590 136 34,726 — — — — (29) — — — 286 — — — — — (29) 286 — — — — — — — — — — — — — — — — — — — 15 — 15 1,157 1,157 (11) 1,146 — 286 4,436 4,436 — (29) — (450) (229) — (515) (515) — — — — — — 286 4,436 (29) (450) — (515) 4,849 4,885 (11) 4,874 — 1,161 — 15 — — 1,161 15 — 64 — — 125 125 (125) 64 64 — 189 1,365 (125) 1,240 (651) 1,714 139 36,308 40,840 — 40,840 The accompanying accounting policies and notes on pages 25 to 63 form part of these Financial Statements. 23 Consolidated cash flow statement For the 53-week period ended 2 April 2016 Cash flows from operating activities Profit for the period Adjustments for: Amortisation of development expenditure Depreciation Net financial income Net pension credit Other Special Items Equity share option expense Income tax (credit)/expense Operating cash flow before changes in working capital and provisions Decrease in trade and other receivables Decrease/(increase) in inventories Decrease in trade and other payables Restructuring and redundancy expenditure Employee benefits contributions Cash generated in 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 Purchase of TYKMA Inc. Investment in Prophotonix Purchase of property, plant and equipment Development expenditure capitalised Refinancing expenditure Net cash flows from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Proceeds from issue of Loan Notes Net Repayment of external borrowing Net Finance lease income/(expenditure) Net cash flows from financing activities Net decrease 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 53-week 52-week period ended period ended 2April 2016 £000 1,146 122 548 (141) (940) 2,363 64 (137) 3,025 463 106 (1,682) (807) (130) 975 (964) (3) 8 10 — (1,378) — (1,522) (297) — (3,187) 275 806 1,883 67 3,031 (148) 902 11 765 Notes 24 18 28March 2015 £000 2,350 133 450 (253) (2,347) 1,231 131 1,325 3,020 203 (1,051) (1,626) (170) — 376 (414) (205) (243) 2 460 (3,802) (1,147) (944) (299) (487) (6,217) 1,145 7,694 (2,505) (107) 6,227 (233) 1,149 (14) 902 24 The accompanying accounting policies and notes on pages 25 to 63 form part of these Financial Statements. 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 2016 are for the 53-week period ended 2 April 2016. The results for 2015 are for the 52-week period ended 28 March 2015. 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. The Company has elected to prepare its parent company financial statements in accordance with FRS 101; these are presented on pages 64 to 82. 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 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 was agreed with the Trustees of the UK 600 Group Pension Scheme on 28 September 2012 allowing the accounting surplus on the scheme to be included on the Group balance sheet under IFRIC 14. 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: International Financial Reporting Standards: IFRS 9 Financial Instruments (not yet adopted by the EU) IFRS 15 Revenue from Contracts with Customers (not yet adopted by the EU) Effective for accounting periods starting on or after: 1 January 2018 1 January 2018 The Group is currently reviewing the potential impact of the above standards. Preliminary indications are that the impact would not be significant. The same is true of the following new or amended standards: IFRS 14 Regulatory Deferral Accounts; Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11); Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38); Defined Benefit Plans: Employee Contributions (Amendments to IAS 19); Annual Improvements to IFRSs 2010-2012 Cycle; and Annual Improvements to IFRSs 2011-2013 Cycle. 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 31. 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 page 1 to 2 and the Strategic Report on pages 3 to 10. New increased facilities were agreed in the UK in August 2016 with HSBC following the sale of the Letchworth property. A package of facilities to support the working capital of the UK machine tools business and a term loan on the remaining freehold site in Colchester have been put in place totalling £4.95m. In the USA Bank of America supported the 20% TYKMA acquisition in March 2016 with an additional term loan of $1.8m in addition to their existing term and working capital facilities. The Group has a mixture of term loans and revolving working capital facilities with maturities between 1 and 5 years. Headroom on bank facilities was £3.2m at the year-end (2015: £4.2m) and all financial covenants in place were met during the year. 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 facilities. 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. 25 Group accounting policies 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 reset the translation reserve to £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 or title passes to customers, depending on the respective terms of sale. 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 other than in respect of storage for customers’ goods. 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. 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. OPERATING PROFIT, SPECIAL ITEMS AND DISCONTINUED OPERATIONS 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 share based payments and amortisation of intangible assets acquired and non cash pension transactions are separately identified. Special Items include exceptional costs relating to reorganisation, redundancy, restructuring, acquisition costs, impairment of development expenditure and inventory, and pension scheme costs and credits. 26 Group accounting policies 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. The UK defined benefit scheme was closed to future accrual on 31 March 2013 after a period of consultation with employees and the agreement of the scheme trustees. 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 net asset or liability of the scheme – calculated by reference to the net scheme asset or liability and discount rate at the beginning of the period.. WITHIN THE STATEMENT OF COMPREHENSIVE INCOME • actuarial gains and losses arising on the assets and liabilities of the scheme. 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. 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 rate used is 20%. INVESTMENTS Investments in quoted shares are classified as Available for sale and measured at fair value. Movements in fair value are recorded in the Available for sale reserve until the shares are sold, in which case the Available for sale reserve is recycled to the income statement. 27 Group accounting policies 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 2015 the Group’s properties were revalued. The valuations were performed by independent valuers, Sanderson Weatherall, and the valuations were determined by market rate for sale with vacant possession. Revalued amounts are reflected in the balance sheet with resulting credits taken to revaluation reserve and debits, after reversing previous credits, taken to the consolidated income statement. Profits or losses on disposals are calculated using the carrying value in the balance sheet. 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 whe n 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 de scribed 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 financi al liability is reclassified to equity; no gain or loss is recognised on conversion. 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 Black Scholes option-pricing model, based upon publicly available market data at the point of grant. 28 Group accounting policies 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 based on market valuations obtained. 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 recognit ion, 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 CLASSIFIED AS 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. 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 acquiree: plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree: less The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. 29 Group accounting policies 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 23. Share premium account The share premium reserve comprises the premium paid over the nominal value of shares for shares issued. This was cancelled during the period following shareholder approval and a High Court process in 2015 and subsequent additions relate to shares issued during the year ended 2 April 2016. 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.This was cancelled during the previous period following shareholder approval and a High Court process. 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 loan notes which include convertible warrants, the value of which is recognised in equity. 30 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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. The Executive Directors consider there to be two continuing operating segments being machine tools and precision engineered components and industrial laser systems. 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. The following is an analysis of the Group’s revenue and results by reportable segment: 53 Weeks ended 2 April 2016 Segmental analysis of revenue Revenue from external customers Inter-segment revenue Total segment revenue Less: inter-segment revenue Total revenue Continuing Machine tools & precision engineered components Industrial laser systems Head Office & unallocated £000 £000 £000 32,127 13,142 — — 32,127 13,142 — — 32,127 13,142 — — — — — Segmental analysis of operating profit/(loss) before Special Items Special Items 2,073 1,179 282 (3,212) (896) (590) Group profit/(loss) from operations 2,355 (2,033) (1,486) Total £000 45,269 — 45,269 — 45,269 2,356 (3,520) (1,164) Other segmental information: Reportable segment assets Reportable segment liabilities Fixed asset additions Depreciation and amortisation 26,630 5,970 44,172 76,772 (22,078) (3,048) (10,806) (35,932) 605 293 1,214 457 — — 1,819 750 31 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 1. SEGMENT INFORMATION (CONTINUED) 52 Weeks ended 28 March 2015 Segmental analysis of revenue Revenue from external customers Inter-segment revenue Total segment revenue Less: inter-segment revenue Total revenue Segmental analysis of operating profit/(loss) before Special Items Special Items Group profit/(loss) from operations Other segmental information: Reportable segment assets Reportable segment liabilities Fixed asset additions Depreciation and amortisation Machine tools & precision engineered components Industrial laser systems £000 34,747 — 34,747 — 34,747 2,931 1,965 4,896 £000 9,047 182 9,229 (182) 9,047 304 (772) (468) 29,443 6,622 (19,614) (2,619) 919 305 353 278 Head Office & unallocated £000 — — — — — (771) (235) (1,006) 35,432 (14,538) — — Total £000 43,794 182 43,976 (182) 43,794 2,464 958 3,422 71,497 (36,771) 1,272 583 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 us ed for more than one period. Geographical segmental analysis of revenue is shown by origin and destination in the following two tables: Segmental analysis by origin Gross sales revenue: UK North America Australasia Total Revenue 2016 £000 14,851 28,936 1,482 45,269 2015 % £000 % 32.8 63.9 3.3 100.0 20,806 21,083 1,905 43,794 47.5 48.1 4.4 100.0 32 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 1. SEGMENT INFORMATION (CONTINUED) Segmental analysis by destination: Gross sales revenue: UK Other European North America Africa Australasia Central America Middle East Far East 2016 2015 £000 % £000 % 8,498 5,905 27,291 162 1,438 163 733 1,079 45,269 18.8 13.0 60.3 0.4 3.2 0.4 1.6 2.3 100.0 8,043 7,045 24,087 187 1,709 148 893 1,682 43,794 18.4 16.1 55.0 0.4 3.9 0.3 2.1 3.8 100.0 There are no customers that represent 10% or more of the Group’s revenues. 2. NET OPERATING EXPENSES – administration expenses – distribution costs Total net operating expenses 2016 £000 13,061 2,579 15,640 2015 £000 8,099 2,899 10,998 33 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 3. 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 by virtue of their size or incidence, are considered to be one off in nature. In addition the charge for share based payments, amortisation of intangible assets acquired and non cash pension transactions have also been separately identified. Special items include acquisition costs, gains and losses on the sale of properties and assets, exceptional costs relating to reorganisation, redundancy and restructuring, asset impairments, legal disputes and inventory, asset and intangibles impairments. Items included in operating profit: Pensions credit Property valuation adjustment Redundancy and reorganisation Impairment of intangible assets Acquisition costs Share option costs Amortisation of intangible assets acquired Items included in financial (income)/expense: Pensions interest on surplus Amortisation of loan note expenses Items included in contingent consideration settlement: TYKMA deferred consideration settlement 2016 £000 (940) — 1,729 2,390 197 64 80 2015 £000 (2,347) 462 434 — 335 131 27 3,520 (958) (1,171) 150 (1,021) (2,032) (2,032) (857) 155 (702) — — During the year the Group incurred further costs with regard to the acquisition of TYKMA Inc. Property disposals in both the UK and US and the revaluation of properties led to losses. Reorganisation and restructuring costs were principally related to the integration of TYKMA Inc. and the Electrox Laser marking division. The pension credit relates to liability reduction exercises undertaken by the trustees of the main scheme including p ensions increase exchange. During the prior year the Group incurred costs with regard to the abortive acquisition of the Group by Qinddao D&D Investment Group Co. Ltd. Costs were also incurred with regard to the granting of share options. The contingent consideration settlement of £2.03m related to the acquisition of the final 20% of TYKMA Inc. 34 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 4. OPERATING PROFIT/(LOSS) Operating profit/(loss) is after charging/(crediting) : – depreciation of assets held under finance leases – amortisation of development expenditure and trademarks – research and development expensed as incurred – hire of plant – other operating lease rentals – loss on sale of property, plant and equipment 2016 £000 26 202 - 7 240 - 2015 £000 34 133 297 6 108 3 Special Items –Acquisition costs,reorganisation and restructuring, inventory and property write-downs, property disposals and abortive transaction costs (note 3) 3,520 (958) Auditor’s remuneration: – audit of these financial statements – amounts receivable by auditor and its associates in respect of: – auditing of accounts of subsidiaries 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 70 27 24 - 77 55 15 8 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) 2016 £000 7,258 983 373 12 64 2015 £000 8,292 1,142 415 16 131 8,690 9,996 In addition to the above staff costs, redundancy costs of £586,000 were incurred during the year (2015: £84,000). Director’s emoluments including disclosure of the highest paid director are included in the Director’s Emoluments table contained within the Remuneration report. 35 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 5. PERSONNEL EXPENSES (CONTINUED) The average number of employees of the Group (including Executive Directors) during the period was as follows: 2016 Number 2015 Number Management and administration Production Sales Total . 6. FINANCIAL INCOME AND EXPENSE Bank and other interest Interest on pensions surplus Financial income Bank overdraft and loan interest Shareholder loan interest Other loan interest Other finance charges Finance charges on finance leases Amortisation of shareholder loan expenses Financial expense 52 98 84 234 2016 £000 10 1,171 1,181 (155) — (721) (3) (11) (150) (1,040) 39 97 76 212 2015 £000 2 857 859 (174) (238) (22) — (17) (155) (606) 36 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 7. TAXATION Current tax: Corporation tax at 20% (2015: 21%): – current period Overseas taxation: – current period Total current tax charge Deferred taxation: – current period – prior period Total deferred taxation credit/(charge) (Note 14) Taxation charged to the income statement 2016 £000 2015 £000 — 53 53 79 5 84 — (339) (339) (1,060) 74 (986) 137 (1,325) TAX RECONCILIATION The tax charge assessed for the period is lower than the standard rate of corporation tax in the UK of 20% (2015: higher than standard rate of 21%). The differences are explained below: Profit before tax Profit before tax multiplied by the standard rate of corporation tax in the UK of 20% (2015: 21%) Effects of: 2016 £000 1,009 % 202 20.0 –income not taxable and/or expenses not deductible (205) (20.3) – overseas tax rates – pension fund surplus taxed at higher rate – property disposals – state taxes – deferred tax prior period adjustment – (unrecognised losses utilised)/tax not recognised on losses – impact of rate change Taxation charged to the income statement The corporation tax rate reduced to 20% from 1 April 2015 Deferred taxation balances are analysed in note 14. 8. DIVIDENDS No dividend was paid in the period (2015: no dividend paid). 19 321 (52) 75 (5) (600) 108 (137) 1.9 31.8 (5.2) 7.4 (0.5) (59.5) 10.7 (13.6) 2015 £000 3,675 772 252 114 454 - (74) (193) - 1,325 % 21.0 6.9 3.1 12.3 - (2.0) (5.2) - 36.1 37 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 9. EARNINGS PER SHARE The calculation of the basic earnings per share of 1.26p (2015: 2.66p) is based on the earnings for the financial period attributable to the Parent Company’s shareholders of a profit of £1,157,000 (2015: £2,333,000) and on the weighted average number of shares in issue during the period of 91,684,103 (2015: 87,771,514). At 2 April 2016, there were 6,150,000 (2015: 9,900,000) potentially dilutive shares on option with a weighted average effect of 583,333 (2015: 2,783,270) shares giving a diluted profit per share of 1. 25p (2015: 2.58p) 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 Total post tax earnings Share Option Costs Pensions Interest Amortisation of Shareholder loan expenses Pensions credit Credit on settling deferred consideration Impairment of intangible assets Amortisation of intangible assets acquired Property sales and revaluation Other special items Acquisition costs Associated Taxation Underlying Earnings before tax Underlying Earnings after tax Underlying EPS 2016 2015 89,607,957 84,430,346 2,076,146 3,341,168 91,684,103 87,771,514 £000 1,146 64 (1,171) 150 (940) (2,032) 2,390 80 — 1,729 197 (72) 1,476 1,541 1.69p £000 2,350 131 (857) 155 (2,347) — — 27 462 434 335 1,159 2,015 1,849 2.09p 38 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 10. EMPLOYEE SHARE OPTION SCHEMES The Group has granted share options to employees under The 600 Group PLC Deferred Share Plan 2011. Options under the DSP were granted to senior executives and directors on 19 November 2012 at 10p per share, on 7 April 2014 at 17p per share and at 18p on 6 August 2015. These options are exercisable between 3 and 10 years from the grant date. The schemes are equity-settled. SHARE-BASED EXPENSE The Group recognised a total charge of £64,000 (2015: £131,000) 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 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 2016 DSP 2015 DSP 9,900,000 1,000,000 (2,000,000) (2,750,000) 6,150,000 1,750,000 4,500,000 5,400,000 — — 9,900,000 — On 19 November 2012 4,500,000 options with an exercise price of 10p were granted. On 7 April 2014 5,400,000 options with an exercise price of 17p were granted and on 6 August 2015 1,000,000 shares with an exercise price of 18p were granted. All options are exercisable between 3 and 10 years from the date of grant. On 30 April 2015 Mr N Rogers resigned as a director. 2,750,000 options with an exercise price of 10p were agreed to become immediately exercisable by Mr N Rogers and 2,000,000 options with an exercisable price of 17p were forfeit. 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 2011 DEFERRED SHARE PLAN (DSP) The fair value of awards granted under these Share Plans are determined using the Black Scholes valuation model. The fair val ue 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 2015 Grant £000 £0.04 £0.18 18p 0% 50% 2014 Grant £000 £0.05 £0.17 17p 0% 25% 2013 Grant £000 £0.04 £0.13 10p 0% 50% 3.0 years 3.0 years 3.0 years 1.36% 4.08% 4.08% 1,000,000 3,400,000 1,750,000 39 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 11. PROPERTY, PLANT AND EQUIPMENT Land and buildings Plant and Fixtures, fittings, tools and Freehold Leasehold machinery equipment £000 £000 £000 £000 Total £000 Cost or valuation At 29 March 2015 Exchange differences Transfer to assets classified as held for resale Additions during period Disposals during period At 2 April 2016 At professional valuation At cost Depreciation At 29 March 2015 Exchange differences Transfer to assets classified as held for resale Charge for period Disposals during period At 2 April 2016 Net book value At 2 April 2016 At 28 March 2015 1,186 2,676 10,994 2,074 22 — — — 1,208 1,208 — 1,208 16 — — 18 — 34 1,174 1,170 6 (2,556) 383 (120) 389 389 — 389 78 (1) (107) 61 (25) 6 383 2,598 40 — 758 (1,445) 10,347 — 10,347 10,347 92 — 382 (166) 2,382 — 2,382 2,382 16,930 160 (2,556) 1,523 (1,731) 14,326 1,597 12,729 14,326 10,099 1,578 11,771 36 — 314 (1,168) 9,281 1,066 895 72 — 155 (35) 1,770 612 496 107 (107) 548 (1,228) 11,091 3,235 5,159 During March 2016 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 Letchworth Garden City long leasehold property was being actively marketed at the year-end and as result this property was transferred to assets classified as held for resale. 40 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 11. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) The net book value of property, plant and equipment includes £156,028 (2015: £172,814) of assets held under finance leases. The depreciation charged in the period against assets held under finance leases was £26,092 (2015: £34,266). During March 2015 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. Various properties with a net book value of £3,555,000 (2015: £3,777,000) are charged as security for borrowing facilities. Cost or valuation At 29 March 2014 Exchange differences Revaluation Acquisitions during period Additions during period Disposals during period At 28 March 2015 At professional valuation At cost Depreciation At 29 March 2014 Exchange differences Acquisitions during period Charge for period Disposals during period At 28 March 2015 Net book value At 28 March 2015 At 29 March 2014 Land and buildings Plant and Fixtures, fittings, tools and Freehold Leasehold machinery equipment £000 £000 £000 £000 Total £000 969 (14) (269) — 782 (282) 1,186 1,186 — 1,186 147 18 — 19 (168) 16 1,170 822 2,406 18,627 2,019 24,021 1 647 117 — (495) 2,676 2,558 118 2,676 56 — 19 126 (7,834) 10,994 — 10,994 10,994 126 — 670 65 (806) 2,074 — 2,074 2,074 169 378 806 973 (9,417) 16,930 3,744 13,186 16,930 124 17,484 1,918 19,673 — 20 38 (104) 78 2,598 2,282 56 18 342 (7,801) 10,099 895 1,143 115 299 51 (805) 1,578 496 101 189 337 450 (8,878) 11,771 5,159 4,348 41 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 12. GOODWILL AND OTHER INTANGIBLE ASSETS Cost At 28 March 2015 Additions Disposals Impairment Foreign exchange At 2 April 2016 Amortisation and impairment At 28 March 2015 Amortisation Disposals Impairment Foreign exchange At 2 April 2016 Net book value At 2 April 2016 At 28 March 2015 Goodwill Trademarks Expenditure £000 £000 £000 Development 7,144 — — — — 7,144 — — — — — — 7,144 7,144 445 32 (94) — 22 405 71 92 (60) — 9 112 293 374 2,271 264 — (2,500) — 35 298 110 (292) (110) — 6 29 1,973 Total £000 9,860 296 (94) (2,500) 22 7,584 369 202 (352) (110) 9 118 7,466 9,491 The additions to Development Expenditure of £264k in the period and £299k in the prior period related primarily to internal development. The goodwill related to the acquisition of TYKMA Inc and more details on this can be found in note 32. Goodwill Trademarks Expenditure £000 £000 £000 Development Cost At 29 March 2014 Acquisitions Additions Fair value adjustment Foreign exchange At 28 March 2015 Amortisation and impairment At 29 March 2014 Acquisitions Amortisation Foreign exchange At 28 March 2015 Net book value At 28 March 2015 At 29 March 2014 — 7,144 — — — 7,144 — — — — — 7,144 — — 231 1 207 6 445 — 42 28 1 71 374 — Amortisation and impairment charges are recorded in the following line items in the income statement: Operating expenses Total £000 1,973 7,375 299 207 6 1,973 — 298 — — 2,271 9,860 193 — 105 — 298 1,973 1,780 193 42 133 1 369 9,491 1,780 2016 £000 202 2015 £000 133 42 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 12. GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) IMPAIRMENT OF GOODWILL Goodwill of £7.1m arose on the acquisition of TYKMA Inc.and its carrying value has been tested for impairment at the year-end with no provisions deemed necessary. 13. INVESTMENTS Cost: At 28 March 2015 Additions in the period Disposals in the period At 2 April 2016 Provisions: At 28 March 2015 Impairment in the period At 2 April 2016 Net book values At 2 April 2016 At 28 March 2015 Shares In listed investments £000 Total £000 1,147 1,147 — — — — 1,147 1,147 622 29 651 496 525 622 29 651 496 525 On 3 August 2014 the Company acquired 26.3% of the ordinary share capital of ProPhotonix Limited through the issue of ordinary shares in the Company representing 5.5% of the enlarged share capital of 600 Group Plc. The share exchange was carried out following presentations with three London-based institutional investors, each of whom indicated support for the exchange. ProPhotonix Limited is AIM listed, although registered in Delaware, and designs and manufactures LED arrays and laser diode modules in the UK and Ireland. It has a strong base of technology and applications knowledge, applicable to high growth sectors including niche industrial, security and medical markets. We continue to engage with the board of Prophotonix in constructive dialogue to pro mote closer co-operation. The initial investment of £1.15m was adjusted down to a fair value of £0.50m at 2 April 2016 (2015: £0.53m). The £0.03m write down was taken to the Statement of comprehensive income and expense. During the year 600 Group Inc acquired the remaining 20% of the shares of TYKMA Inc. Further details can be found in note 32 of the Group accounts. The principal subsidiary undertakings of The 600 Group PLC and their countries of incorporation are: ENGLAND& WALES: 600 UK Limited*; The 600 Group (Overseas) Limited*; Electrox Laser Limited; Pratt Burnerd International Limited; Electrox Limited; The Colchester Lathe Company Limited; Crawford Collets Limited; 600 Machine Tools Limited; 600 Controls Limited; Pratt Gamet Limited; Gamet Bearings Limited; T S Harrison & Sons Limited; The Richmond Machine Tool Company Limited; 600 Lathes Limited; 600 SPV1 Limited*; 600 SPV2 Limited*; Coborn Insurance Company Limited and The 600 Group Pension Trustees Limited*. US: 600 Group Inc Clausing Industrial, Inc TYKMA Inc REST OF THE WORLD: 600 Machinery Australia (Pty) – (Australia) 600 Group Equipment Limited - (Canada) 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. 43 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 14. DEFERRED TAX ASSETS AND LIABILITIES RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities are attributable to the following: Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Employee benefits Revaluations and rolled over gains Research and development Net tax assets/(liabilities) Assets Liabilities Net 2016 £000 1,236 347 1,505 744 — — — 2015 £000 819 316 1,187 700 — — — 2016 £000 — — — — (14,296) (242) — 3,832 3,022 (14,538) 2015 £000 — — — — (12,013) (1,246) (99) (13,358) 2016 £000 1,236 347 1,505 744 (14,296) (242) — 2015 £000 819 316 1,187 700 (12,013) (1,246) (99) (10,706) (10,336) 44 As at 2April 2016 £000 1,236 347 1,505 744 (14,296) (242) — (10,706) 2015 £000 819 316 1,187 700 (12,013) (1,246) (99) — 12 — 33 16 — — 61 — 24 — 73 39 — — Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 14. DEFERRED TAX ASSETS AND LIABILITIES (CONTINUED) MOVEMENT IN DEFERRED TAX DURING THE PERIOD As at Statement of 29 March Income comprehensive Exchange statement Acquisitions income Fluctuations £000 £000 £000 Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Employee benefits Revaluations and rolled over gains Research and development 2015 £000 819 316 1,187 700 (12,013) (1,246) (99) (10,336) £000 417 19 318 11 — — — — — — — — (796) — (1,503) 16 99 84 — — — 988 — (515) MOVEMENT IN DEFERRED TAX DURING THE PRIOR PERIOD As at Statement of As at 30 March Income comprehensive Exchange 28 March statement Acquisitions income Fluctuations £000 £000 Accelerated capital allowances Short-term timing differences Tax losses Overseas tax losses Employee benefits Revaluations and rolled over gains Research and development 2014 £000 689 301 1,137 596 (6,653) (985) (99) (5,014) £000 306 (9) 50 31 £000 (176) — — — — — — — (1,103) — (4,296) — — — — (261) — (986) (176) (4,296) 136 (10,336) Deferred taxation at 35% is applied to pension assets, being the rate applicable to refunds from a scheme, as opposed to the normal rate of 20% The rate of UK corporation tax reduced to 20% in April 2015. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April 2020) were substantially enacted on 26 October 2015. The deferred tax assets and liabilities at the balance sheet date have been calculated based on these rates. US deferred tax is provided at 35%. No provision is made for taxation that would arise if reserves in overseas companies were to be distributed. 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. 2016 £000 1,670 4,626 2015 £000 1,670 4,295 45 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 15. INVENTORIES Raw materials and consumables Work in progress Finished goods and goods for resale 2016 £000 546 955 9,770 11,271 2015 £000 311 760 9,965 11,036 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 inventory provisions have increased by £46,000 (2015: increased by £424,000). Following the impairment provisions, inventories are valued at fair value less costs to sell rather than at historical cost. 16. 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 2016 £000 5,534 189 1,048 6,771 2016 £000 135 3 (19) 88 207 2015 £000 6,074 160 836 7,070 2015 £000 252 15 (171) 39 135 46 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 16. TRADE AND OTHER RECEIVABLES (CONTINUED) The ageing analysis of gross trade receivables, before provisions, is as follows: Current (not overdue) Overdue: – 0–3 months overdue – 3–6 months overdue – 6–12 months overdue – more than 12 months overdue Total gross trade receivables before provision 2016 £000 4,456 968 208 30 79 2015 £000 5,159 698 233 7 112 5,741 6,209 As at 2 April 2016, 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 other classes of debtors do not contain impaired assets. 17. ASSETS CLASSIFIED AS HELD FOR SALE Transferred from property plant and equipment - cost Transferred from property plant and equipment - depreciation Impairment 2016 £000 2,556 (107) (450) 1,999 The above leasehold property was written down to its net realisable value at the year-end with the £0.45m reduction in its carrying value taken to the revaluation reserve, removing a previous valuation uplift on the same property. On 11 July 2016 the sale of the Letchworth property was completed for net proceeds of £2.0m. 18. CASH AND CASH EQUIVALENTS Cash at bank Short-term deposits Cash and cash equivalents per statement of financial position and per cash flow statement 19. LOANS AND OTHER BORROWINGS CURRENT: Bank loans Other loans Obligations under finance leases (note 22) 2016 £000 665 100 765 2016 £000 3,114 — 161 3,275 2015 £000 — — — — 2015 £000 802 100 902 2015 £000 3,096 110 89 3,295 47 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 19. LOANS AND OTHER BORROWINGS (CONTINUED) NON-CURRENT: Bank loans 8% Loan Notes Obligations under finance leases (note 22) 2016 £000 3,596 7,699 81 11,376 2015 £000 1,539 6,783 83 8,405 The £8.5m of Loan Notes in place at the year-end were issued in three tranches in February, March and August 2015 with 43.95m convertible warrants attached to them. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. The loan has both debt and equity components and £139,000 is shown in equity reserve and the balance after deduction of associated costs of £662,000, is shown in non current borrowings. Costs are amortised to the income statement over the term of the loan. A Term Loan of £927,000 included within Bank loans was scheduled to be repaid on a quarterly basis with payments of £153,846 on 30 June 2016 through to 30 November 2017. A further Term Loan of £612,000, also included within Bank loans, was scheduled to be repaid on a quarterly basis with payments of £18,000 on 30 June 2016 through to 30 June 2019 and a final payment of £378,000 on 31 May 2019. £1,300,000 included within non–current borrowings related to a RCF facility with a termination date of 31 May 2017.Following the disposal of the Letchworth property in July 2016 these borrowings with Santander were reduced by the net proceeds of £2m and on the change of bank to HSBC in August 2016 the balance of all these facilities were repaid and replaced by facilities from HSBC. US Dollar denominated loans of £1,984,000 are repaid on a monthly basis through to April 2021. 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. 20. TRADE AND OTHER PAYABLES Current liabilities: Payments received on account Trade payables Social security and other taxes Other creditors Accruals and deferred income Non-current liabilities: Contingent deferred consideration 2016 £000 28 3,286 210 1,221 1,573 6,318 2015 £000 27 3,294 205 1,551 1,715 6,792 — — 4,175 4,175 The contingent deferred consideration of £4.175m related to the TYKMA Inc acquisition (note 31).This amount was settled in March 2016 for £2,143,000 and the subsequent credit shown in the income statement within special items. 48 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 21. PROVISIONS Provision carried forward at 28 March 2015 Exchange differences (Credited)/Charged to income statement Utilised in the period Provision carried forward at 2 April 2016 Other Warranties £000 556 17 39 (230) 382 £000 55 1 3 (16) 43 Total £000 611 18 42 (246) 425 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 pro ducts sold in the last twelve months. The typical warranty period is now twelve months. Other provisions of £382,000 relate largely to the fair value provision for the TYKMA Inc acquisition and further details on this can be found in note 31. 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 23. SHARE CAPITAL Allotted, called-up and fully paid: Ordinary shares of 1p each 89,607,957 ordinary shares of 1p each on issue at start of the period (2015: 84,491,886 ordinary shares ) 2,750,000 ordinary shares of 1p each issued to N Rogers (2015 – 190,450 ordinary shares of 1p each issued to N Rogers and N Carrick) 12,000,000 ordinary shares of 1p each issued in acquisition of remaining 20% of TYKMA Inc (2015 – 4,925,621 ordinary shares of 1p each issued in ProPhotonix Limited share acquisition) 2016 £000 128 124 (10) 242 161 81 242 2016 £000 896 28 120 104,357,957 ordinary shares of 1p each on issue at end of period (2015: 89,607,957 ordinary shares of 1p) 1,044 2015 £000 95 89 (12) 172 89 83 172 2015 £000 845 2 49 896 Deferred shares of 24p each: 57,233,679 deferred shares of 24p each on issue at start of period Cancellation of deferred shares of 24p Nil deferred shares of 24p on issue at end of period (2015 – nil) Total Allotted, called-up and fully paid at the end of period — — — 1,044 13,736 (13,736) — 896 49 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 23. SHARE CAPITAL (CONTINUED) 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 current year 2,750,000 ordinary shares of 1p each were issued to N Rogers in July 2015 pursuant to the exercise of share options. This resulted in share capital increasing by £27,500 with a corresponding share premium increase of £247,500. In addition, the Company issued 12,000,000 ordinary shares of 1p each as consideration for the purchase of the remaining 20% of shares in TYKMA Inc. During the prior year 139,780 and 50,670 ordinary shares of 1p each were issued to N Rogers and N Carrick respectively in June 2014. This resulted in share capital increasing by £1,905 with a corresponding share premium increase of £41,423. In addition, the Company issued 4,925,621 ordinary shares of 1p each as consideration for the purchase of 22,042,143 ordinary shares in ProPhotonix Limited. During the prior year the deferred shares of 24p each were cancelled by the company without compensation following approval by the shareholders at the AGM on 17 September 2014. On 28 August 2015 the Company raised an additional £0.806m through the issue of loan notes. In the prior year on 16 February 2015 and 18 March 2015 the Company raised £6.739m and £0.955m respectively through the issue of loan notes. The loan notes have 5 year maturity and carry a coupon of 8% payable quarterly in arrears. The subscribers for loan notes are also entitled to receive warrants with an expiry date of 14 February 2020 to subscribe for 43.95m ordinary shares of 1p each in the Company at a price of 20p per Ordinary Share. The issue of the warrants occurred after approval was granted by the shareholders at a general meeting on 18 March 2015. 43.95m warrants remained outstanding at the year-end. In the prior year in February 2015 the first tranche of proceeds from the issue of loan notes was used to repay in full a £2.5m related party loan. The warrants attached to this £2.5m loan allowed 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). At the prior year-end 2.4m warrants remained and these all expired on 27 August 2015 (2015:2.4m warrants remained outstanding). 24. RECONCILIATION OF NET CASH FLOW TO NET DEBT 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 Shareholder loan issue costs amortisation Cash and debt through acquisitions Exchange effects on net funds Net debt at end of period 25. ANALYSIS OF NET DEBT Cash at bank and in hand Term deposits (included within cash and cash equivalents on the balance sheet) Debt due within one year Debt due after one year Loan notes due after one year Finance leases Total 2016 £000 (148) (2,757) (2,905) (10,798) (110) — (73) 2015 £000 (233) (5,200) (5,433) (5,308) 701 (697) (61) (13,886) (10,798) At 29 March Exchange 2015 £000 802 100 902 (3,206) (1,539) (6,783) (172) movement £000 11 — 11 (82) — — (2) Other £000 — — — — — (110) — Cash flows £000 (148) — (148) 174 (2,057) (806) (68) At 2 April 2016 £000 665 100 765 (3,114) (3,596) (7,699) (242) (10,798) (73) (110) (2,905) (13,886) 50 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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. £8.5m was raised through the issue of loan notes which had 43.95m warrants attached to them. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. 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 Sharehold ers 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 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. FAIR VALUE OF FINANCIAL INSTRUMENTS Non-current asset investments The fair value of investments is based on management’s assessment of share value where the investment is not a traded security. Trade and other payables and receivables The fair value of these items are considered to be their carrying value as the impact of discounting future cash flows has been assessed as not material. Cash and cash equivalents The fair value of cash and cash equivalents is estimated as its carrying value where the cash is repayable on demand. Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Long-term and short-term borrowings The fair value of bank loans and other loans is based on the terms the Group has agreed for its variable rate debt. Short-term deposits The fair value of short-term deposits is considered to be the carrying value as the balances are held in floating rate accounts where the interest rate is reset to market rates. Fair value hierarchy The following hierarchy classifies each class of financial asset or liability depending on the valuation technique applied in determining its fair value:- Level 1: The fair value is calculated based on quoted prices traded in active markets for identical assets or liabilities. Level 2: The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of forward foreign exchange and commodity contracts is determined using quoted forward exchange rates and commodity prices at the reported date and yield curves derived from quoted interest rates matching the maturities of the forward contracts. Level 3: The fair value is based on inputs for the asset or liability that are not based on observable market data (unobservable inputs). The shares in the listed investment of Prophotonix plc is a level 1 fair value estimate, based on the quoted price of this AIM company. The warrants attached to the loan notes are a level 2 fair value estimate. The contingent consideration for TYKMA Inc. was based upon a level 3 fair value estimate. There have been no transfers between categories in the current or preceding period. The fair values of all financial instruments, throughout the reporting periods, approximate to their carrying values. 51 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 North America Australasia 2016 £000 5,534 765 6,299 2016 £000 2,278 3,012 244 5,534 2015 £000 6,074 902 6,976 2015 £000 3,199 2,797 78 6,074 52 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 and Australia certain restrictions on the repatriation of funds to the UK may be imposed by the local bank. 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: Trade finance Bank loan 8% loan notes Finance lease obligations Interest bearing financial liabilities Trade and other payables Financial liabilities Bank overdrafts Bank loan Other loan 8% loan notes Finance lease obligations Interest bearing financial liabilities Trade and other payables Financial liabilities 2016 Carrying Amount £000 646 6,064 7,699 242 14,651 6,318 20,969 2015 Contractual Less than cash flows £000 646 6,064 8,500 242 15,452 6,318 21,770 1 year £000 646 2,468 — 161 3,275 6,318 9,593 1–2 years 2–5 years £000 — 2,248 — 57 2,305 — 2,305 £000 — 1,348 8,500 24 9,827 — 9,827 Carrying Contractual Less than Amount cash flows £000 644 3,991 110 6,783 172 11,700 10,967 22,667 £000 644 3,991 110 7,694 172 12,611 10,967 23,578 1 year £000 644 2,452 110 — 55 3,261 6,792 10,053 1–2 years 2–5 years £000 — 687 — — 65 752 — 752 £000 — 852 — 7,694 52 8,598 4,175 12,773 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. 53 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 Euro US Dollar 2016 US Dollars $000 4,312 (1,607) 2,705 Euro €000 191 (292) (101) 2015 US Dollars $000 2,797 (777) 2,020 Euro €000 227 (249) (22) 2016 Average rate 1.499 1.360 Year end spot rate 1.419 1.251 2015 Average rate 1.609 1.282 Year end spot rate 1.488 1.366 Change if appreciated/ Depreciated Net assets by 25% in foreign against local currency Currency 4,406 1,101 The Group has operations around the world and is therefore exposed to foreign exchange risk arising from net investments in foreign operations. Where cost effective, the exposures arising from the translation of the net assets of the Group’s foreign operations are managed through the use of borrowings or cross-currency swaps in the relevant foreign currency. Some Group operations on occasion also enter into commercial transactions in currencies other than their functional currencies. Exposures arising from the translation of foreign currency transactions are continually monitored and material exposures are managed where necessary through the use of forward contracts or options once cash flows can be identified with sufficient certainty. Exposures arising from the translation of intra-group lending are managed through the use of borrowings in the relevant foreign currency. 54 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 26. FINANCIAL INSTRUMENTS (CONTINUED) The following table shows the impact (due to the retranslation of non-functional currency monetary assets and liabilities in the Group's operations) of a, reasonably possible, 10% movement in the Group’s principal foreign currency exchange rates at the year-end date. 2April2016 US$ AUD 28 March 2015 US$ AUD 10% increase Effect on profit before tax Effect on shareholders’ equity 10 % decrease Effect on profit before tax Effect on shareholders’ equity (923) (27) 90 17 441 226 911 132 923 27 (90) (17) (441) (226) (911) (132) 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: US Dollar AUS Dollar CAD Dollar Net cash/ Change if in foreign interest rates borrowings in foreign in foreign Currency currency change by 1% £’000 (3,172) 134 (1) £’000 (32) 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. On 2 April 2016, 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 charge of £0.06m (2015: 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. 55 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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. Forward exchange contracts generally have maturities of less than one year. There were no contracts outstanding at the period end. 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 occasionally 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 2016 was a liability of £nil (Note 18) (2015: 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 as sets at 2 April 2016 and 28 March 2015 was: 2016 Financial assets 2015 Financial assets Floating rate Fixed rate on which Floating rate Fixed rate on which financial financial no interest financial financial no interest assets assets is earned Currency Sterling US Dollars Australian Dollars Euros Canadian Dollars £000 484 — 181 — — 665 £000 100 — — — — £000 2,344 3,144 253 — — Total £000 2,928 3,144 434 — — assets £000 335 215 142 108 2 802 assets is earned £000 100 — — — — £000 3,672 3,305 93 — — Total £000 4,107 3,520 235 108 2 100 7,070 7,972 100 5,741 6,506 There is no interest received on floating rate financial assets. The floating rate financial assets comprise other deposits that earn interest based on short-term deposit rates. 56 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 2 April 2016 and 28 March 2015 was: 2016 Floating rate Fixed rate Financial liabilities on which 2015 Financial liabilities Floating rate Fixed rate on which financial Financial no interest financial financial no interest liabilities Liabilities £000 3,485 3,178 47 6,710 £000 7,787 70 83 7,940 is paid £000 3,437 2,580 302 6,319 Total £000 14,709 5,828 432 20,969 liabilities liabilities £000 3,042 1,703 — £000 6,881 — 74 is paid £000 4,505 6,264 198 4,745 6,955 10,967 Total £000 14,428 7,967 272 22,667 Currency Sterling US Dollars Australian Dollars The floating rate financial liabilities comprise bank borrowings and overdrafts that bear interest rates based on local currency base interest rates. BORROWING FACILITIES At 2April 2016 and 28 March 2015 the Group had undrawn committed borrowing facilities as follows: UK US Australia 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 2016 ‘000 £529 $3,365 2015 ‘000 £1,406 $1,949 AUD$900 AUD$900 2016 £000 6,771 765 (646) (4,871) (7,699) (242) (4,861) (10,783) 2015 £000 7,070 902 (644) (2,452) (6,893) (172) (5,009) (7,198) 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. 57 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 27. CONTINGENT LIABILITIES Third-party guarantees 2016 £000 92 2015 £000 92 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 2016 £000 — 2015 £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 2016 £000 237 861 394 2015 £000 291 901 551 1,492 1,743 49 60 109 59 23 82 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 servic e liabilities allowing for projected pay increases. The most recent triennial full valuation was carried out as at 31 March 2013. 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 most recent annual valuation was carried out as at 31 March 2016. The disclosures for the US schemes that follow refer to the US defined benefit scheme and the retirement healthcare benefit scheme. 58 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 2016 at age 65 will live on average for a further 21.6 years (2015: 21.6 years) after retirement if male and for a further 23.6 years (2015: 23.6 years) after retirement if female. For a member who is currently aged 45 retiring in 2036 at age 65, the assumptions are that they will live on average for a further 22.7 years (2015: 22.7 years) after retirement if they are male and for a further 24.6 years (2015: 24.6 years) after retirement if they are female. The mortality rates for the US scheme are based on the RP-2014 Mortality Table 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 0Rate 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 2016 2015 UK scheme UK scheme % p.a. 2.85 1.85 n/a n/a 2.80 2.05 3.60 % p.a. 2.85 1.85 n/a n/a 2.80 2.10 3.30 The principal assumptions for the US schemes relate to the discount rate for scheme liabilities. The discount rate used for t he US defined benefit scheme was 3.38% (2015: 3.24%) and for the US medical scheme was 3.38% (2015: 3.24%). Long-term rate of return expected at Expected return on assets UK scheme Long-term rate of return Long-term rate of return Value at expected at Value at expected at 2April 2016 % p.a. 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 2April 2016 £m 52.70 9.80 72.40 n/a 23.20 44.30 17.00 219.40 28 March 28 March 29 March 2015 % p.a. 3.30 3.30 3.30 3.30 3.30 3.30 3.30 3.30 2015 £m 52.80 9.90 83.30 n/a 23.20 44.80 15.20 229.20 2014 % p.a. 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 Value at 29 March 2014 £m 40.10 21.20 69.60 n/a 14.60 31.20 19.00 195.70 Equities Property LDI funds Government bonds Corporate bonds Absolute Return Other Combined The assumed long-term rate of return on each asset class is equal to the discount rate applied to liabilities. The assets held within the US scheme amount to £0.808m (2015: £0.846m) and are held mainly in bonds. 59 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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. The assets and liabilities of the schemes at 2 April 2016 and 28 March 2015 were: Assets Liabilities (Deficit)/surplus 2016 US UK schemes scheme £000 £000 808 219,400 220,208 (1,844) (177,427) (179,271) (1,036) 41,973 40,937 Total £000 US schemes £000 846 (1,969) (1,123) 2015 UK scheme £000 Total £000 229,200 230,046 (193,785) (195,754) 35,415 34,292 Following a change to UK scheme rules in September 2012 the accounting surplus can now be recognised on the Group balance sheet under IFRIC 14 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 credit (Special Items) – settlements (Special Items) Included within financial income: –Interest on pension surplus 12 — — 33 2016 US UK schemes scheme £000 £000 Total £000 12 — — — (973) (973) (1,171) (1,138) US schemes £000 12 — — 38 2015 UK scheme £000 Total £000 — 12 (2,347) (2,347) — — (895) (857) 60 US Schemes £000 25 (34) (9) (79) (88) 1,175 1,087 US schemes £000 1,706 206 12 — 69 2015 UK scheme £000 44,891 (8,553) 36,338 Total £000 44,916 (8,587) 36,329 (24,062) (24,141) 12,276 12,715 24,991 12,188 13,890 26,078 2015 UK scheme £000 Total £000 175,803 177,509 — — 206 12 (2,347) (2,347) 7,658 7,727 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 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 Experience gain/(loss) on liabilities/change in assumptions Amounts recognised during the period Balance brought forward Balance carried forward US schemes £000 (4) (26) (30) 172 142 1,087 1,229 2016 UK scheme £000 4,422 (7,331) (2,909) 7,203 4,294 24,991 29,285 Total £000 4,418 (7,357) (2,939) 7,375 4,436 26,078 30,514 Changes in the present value of the defined benefit obligations before taxation are as follows: US Schemes £000 1,969 85 12 — 59 2016 UK scheme £000 Total £000 193,785 195,754 — — — 85 12 — 6,160 6,219 Opening defined benefit obligation Exchange differences Current service cost Past service cost credit Interest cost Benefits paid Settlements Actuarial (gains)/losses Contributions by scheme participants (109) (14,342) (14,451) (103) (11,391) (11,494) — (172) — (973) (973) (7,203) (7,375) — — — 79 — — — 24,062 24,141 — — Closing defined benefit obligations 1,844 177,427 179,271 1,969 193,785 195,754 61 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 30. EMPLOYEE BENEFITS (CONTINUED) IAS 19 CONTINUED Changes in the fair value of the schemes’ assets before taxation are as follows: 2016 US UK schemes scheme 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 £000 846 37 26 (30) — — (71) 808 £000 Total £000 229,200 230,046 — 7,331 (2,909) — 120 37 7,357 (2,939) — 120 (14,342) (14,413) 219,400 220,208 US schemes £000 791 90 31 (9) — — (57) 846 The history of the schemes for the current and prior period before taxation is as follows: 2016 US UK Schemes Scheme £000 £000 Total £000 US schemes £000 2015 UK scheme £000 Total £000 195,700 196,491 — 8,553 36,338 — — (11,391) 229,200 2015 UK scheme £000 90 8,584 36,329 — — (11,448) 230,046 Total £000 Present value of defined benefit obligation (1,844) (177,427) (179,271) (1,969) (193,785) (199,754) Fair value of scheme assets (Deficit)/surplus in the scheme Experience adjustments on the scheme liabilities Experience adjustments on scheme assets Exchange differences 808 219,400 220,208 (1,036) (172) (30) (48) 41,973 (7,203) (2,909) — 40,937 (7,375) (2,939) (48) 846 (1,123) 79 (9) (116) 229,200 35,415 230,046 34,292 (24,062) (23,983) 36,338 — 36,329 (116) Following the closure of the UK scheme to future accrual there will be no further payments to the scheme. Pension provision has been replaced by a money purchase arrangement in the UK. History of asset values, defined benefit obligation and surplus/deficit in schemes: Fair value of scheme assets Defined benefit obligation Surplus/(Deficit) in schemes 2April 2016 £000 28March 29 March 30March 31March 2015 £000 2014 £000 2013 £000 2012 £000 220,208 230,046 196,491 204,214 188,665 (179,271) (195,754) (177,509) (186,109) (177,737) 40,937 34,292 18,982 18,105 10,928 Unrecognised asset due to limit in paragraph 58 (b) of IAS 19 — — — — (12,940) Surplus /(Deficit) in schemes 40,937 34,292 18,982 18,105 (2,012) History of experience gains and losses Experience (losses)/ gains on scheme assets Experience gains/ (losses) on scheme liabilities 2016 £000 2015 £000 2014 £000 2013 £000 2012 £000 (2,939) 36,329 7,375 (24,141) (5,772) 5,685 13,766 (13,758) 1,404 (6,731) 62 Notes relating to the consolidated financial statements For the 53-week period ended 2 April 2016 31. 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 on pages 25 to 30. 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 26 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 14 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. 32. ACQUISITION There were no acquisitions in the current year. During the prior year the group acquired 80% of the issued share capital of TYKMA Inc., a US laser marking company. There have been no changes in the year to the fair value of net assets acquired, and therefore no change in the goodwill arising of £7,144,000. The acquisition of TYKMA Inc. included contingent consideration relating to put and call options between the group and the vendor which had a fair value at March 2015 of £4.1m. During the year the fair value was remeasured to £2.1m and was settled at this amount. The settlement comprised of US$1.8m and the issue of 12m ordinary shares in the Group with a value at that time of £0.9m. The fair value gain of £2,032,000 has been included as a special item given its size and nature. 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 £65,000 in interest payments during the financial year in respect of their respective holding of the Shareholder Loans and loan notes. At the year-end Haddeo Partners LLP held £810,000 of loan notes. In addition, the wife of Mr N Carrick, the Group Finance Director, also held £50,000 of loan notes. Further details on the loan notes can be found in note 19. Mr D Grimes, the Divisional Managing Director of Industrial Laser Systems, is party to a trust which owns the property rented by TYKMA Inc. in the US and which received $72,000 rent during the period. As part of the consideration for remaining 20% in TYKMA Inc. David Grimes became a beneficial holder of 7,500,000 ordinary shares in the Group representing 7.19% of the issued share capital at 2 April 2016. 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 £120,000 to the UK pension scheme during the current period (2015: £nil) and no contributions were overdue at the period-end. The monthly payments of £10,000 were paid by the Group to the UK pension scheme from April 2015 onwards in respect of an augmentation to benefits made in 2008/09 of £510,971. No deficit reduction payments are currently required. In the US no employer contributions were made to the US pension scheme during the current period (2015:£nil) and no payments were overdue at the period-end. 63 Company income statement For the 53-week period ended 2 April 2016 Before Special Items After Before Special Special Special Special Items Items Items Items After Special Items 53 weeks 53 weeks 53 weeks 52 weeks 52 weeks 52 weeks ended 2 April 2016 £000 2,924 (431) 2,493 464 (776) 5,670 ended 2 April 2016 £000 - (518) (518) - (150) - ended 2 April 2016 £000 2,924 (949) 1,975 464 (926) 5,670 ended ended ended 28 March 28 March 28 March 2015 £000 618 (614) 4 2 (388) 5,184 2015 £000 - (517) (517) - (135) - 2015 £000 618 (1,131) (513) 2 (523) 5,184 Other operating income Administrative expenses Operating profit 1 Notes Financial income Financial expense Income from shares in subsidiaries Profit before tax 7,851 (668) 7,183 4,802 (652) 4,150 Income tax charge Profit for the period from continuing operations (35) 7,816 - (668) (35) 7,148 - - - 4,802 (652) 4,150 Company Number 00196730 The accompanying accounting policies and notes on pages 69 to 82 form part of these Financial Statements. 64 Company statement of comprehensive income For the 53-week period ended 2 April 2016 Profit for the period Other comprehensive income/(expense) Items that will not be reclassified to the Income Statement: Total items that will not be reclassified to the Income Statement: Items that are or may in the future be reclassified to the Income Statement: Fair valuation of assets held for resale Fair valuation of investments Group property transfer Total items that are or may in the future be reclassified to the Income Statement: Other comprehensive income/(expense) for the period, net of income tax Total comprehensive income for the period Notes 53-week 52-week period ended period ended 2 April 28 March 2016 £000 7,148 - - (450) (29) - (479) (479) 6,669 2015 £000 4,150 - - 656 (622) 419 453 453 4,603 Company Number 00196730 The accompanying accounting policies and notes on pages 69 to 82 form part of these Financial Statements. 65 Company statement of financial position As at 2April 2016 Company Number 00196730 Non-current assets Property, plant and equipment Investments Current assets Trade and other receivables Assets classified as held for resale Cash and cash equivalents Total assets Non-current liabilities Trade and other payables Current liabilities Trade and other payables Total liabilites Net assets Shareholders’ equity Called-up share capital Share premium account Revaluation reserve Available for sale reserve Equity reserve Profit and loss account Notes 5 6 7 8 9 9 10 As at 2April 2016 £000 - 9,199 9,199 30,772 1,999 252 33,023 42,222 (9,487) (9,487) (1,527) (1,527) (11,014) 31,208 1,044 1,013 711 (651) 139 28,952 31,208 As at 28 March 2015 £000 2,500 9,228 11,728 23,147 - - 23,147 34,875 (7,886) (7,886) (3,690) (3,690) (11,576) 23,299 896 - 1,311 (622) 124 21,590 23,299 The financial statements on pages 64 to 82 were approved by the Board of Directors on 31 August 2016 and were signed on its behalf by: NEIL CARRICK GROUP FINANCE DIRECTOR 31 AUGUST 2016 REGISTERED OFFICE 1 Union Works Union Street Heckmondwike West Yorkshire WF16 0HL 66 Company statement of changes in equity As at 2April 2016 Company Number 00196730 Ordinary Share Available Capital share premium Revaluation for sale redemption Equity Retained capital account reserve reserve reserve[1] reserve Earnings At 29 March 2014 At 30 March 2014 Profit for the period Other comprehensive income: Group property transfer Fair value of Investments Revaluation of properties Total comprehensive income Transactions with owners: Share capital subscribed for Cancellation of deferred shares, share premium and capital redemption reserve Equity element of shareholder loan issued in the period Credit for share-based payments £000 £000 14,581 16,885 14,581 16,885 — — — — — — — — — — 51 1,094 (13,736) (17,979) — — — — Total transactions with owners (13,685) (16,885) £000 236 236 — 419 — 656 1,075 — — — — — Total £000 £000 £000 £000 £000 — — — — (622) — (622) 2,500 180 (17,010) 17,372 2,500 180 — — (17,010) 17,372 4,150 4,150 — — — — — — — — — — — 419 (622) 656 4,150 4,603 — — — — 1,145 (2,500) — 34,215 — (56) 104 — 48 — — 131 131 (2,500) (56) 34,450 1,324 — — — At 28 March 2015 At 29 March 2015 Profit for the period Other comprehensive income: Fair value of Investments Fair valuation of assets held for sale Transfer on revalued properties Total comprehensive income Transactions with owners: Share capital subscribed for Equity element of shareholder loan issued in the period Credit for share-based payments Total transactions with owners 896 896 — — — — — — — — — — — (450) (150) — (600) 148 1,013 — — — — 148 1,013 — — — — 1,311 (622) — 124 21,590 23,299 1,311 (622) — — 124 — — 21,590 23,299 7,148 7,148 — (29) — — — — (29) — — — — — — — — — — — — — 15 — — 15 — — — — (29) (450) 150 — 7,298 6,669 — — 64 64 1,161 15 64 1,240 At 2 April 2016 1,044 1,013 711 (651) 1 The capital redemption reserve was set up on cancellation and repayment of cumulative preference shares in 2001. 139 28,952 31,208 67 Company cash flow statement For the 53-week period ended 2April 2016 Company Number 00196730 Cash flows from operating activities Profit for the period Adjustments for: Depreciation Net financial income Other Special Items Income tax expense Equity share option expense Operating cash flow before changes in working capital and provisions (Increase)/decrease in trade and other receivables Decrease in trade and other payables Restructuring and redundancy expenditure Cash generated/(used) in 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 Investment in Prophotonics Net cash flows from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Proceeds from issue of Loan Notes Net Repayment of external borrowing Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period 53-week 52-week period ended period ended 2 April 2016 £000 28 March 2015 £000 Notes 7,148 4,150 51 462 454 35 64 8,214 (6,801) (1,903) (310) (800) (926) — (1,726) 464 — — 464 275 806 641 1,722 460 (208) 252 3 521 386 — 131 5,191 1,293 (9,668) (301) (3,485) (523) 32 (3,976) 2 391 (1,147) (754) 1,145 7,694 (4,473) 4,366 (364) 156 (208) 68 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 FRS101 “Reduced Disclosure Framework”. 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 proper ties, and in accordance with applicable accounting standards. The financial statements have been prepared in accordance with FRS 101 “Reduced Disclosure Framework”.The accounts are prepared to the Saturday nearest to the Company’s accounting reference date of 31 March. The results for 2016 are for the 53-week period ended 2April 2016. The results for 2015 are for the 52-week period ended 28 March 2015. . NOTES ON INTERPRETATION OF ACCOUNTING STANDARDS 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 2015. 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. 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. 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 owne d entities which form part of the Group (or investees of the Group qualifying as related parties). 69 Notes relating to the company financial statements 1. PERSONNEL EXPENSES Staff costs: – wages and salaries – social security costs – pension charges – equity share options expense 2016 £000 627 48 19 64 758 2015 £000 587 66 16 131 800 The average number of employees of the Company (including Executive Directors) during the period was as follows: Head office function 2016 Number 5 2015 Number 5 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 16 to 19. 2. EMPLOYEE SHARE OPTION SCHEMES The Group has granted share options to employees under The 600 Group PLC Deferred Share Plan 2011. Options under the DSP were granted to the Executive Directors on 19 November 2012 at 10p per share and on 7 April 2014 at 17p per share. These are exercisable between 3 and 10 years from the grant date. The schemes are equity-settled. SHARE-BASED EXPENSE The Group recognised a total charge of £64,000(2015: £131,000) 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 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 2016 DSP 2015 DSP 9,900,000 4,500,000 1,000,000 5,400,000 (2,000,000) (2,750,000) — — 6,150,000 9,900,000 1,750,000 — On 19 November 2012 4,500,000 options with an exercise price of 10p per share were granted. On 7 April 2014 5,400,000 options with an exercise price of 17p were granted. All options are exercisable between 3 and 10 years from the date of grant. On 30 April 2015 Mr N Rogers resigned as a Director. 2,750,000 options with an exercise price of 10p were agreed to become immediately exercisable by Mr Rogers and 2,000,000 options with an exercise price of 17p were forfeit. On 6 August 2015 Mr S Fiamma was awarded 500,000 options with an exercise price of 18p per share. The options will vest after 3 years. During the current and prior period, the Group has not granted equity as consideration for goods or services received. 70 Notes relating to the company financial statements 2. EMPLOYEE SHARE OPTION SCHEMES (CONTINUED) THE 600 GROUP PLC 2008 PERFORMANCE SHARE PLAN The fair values of awards granted under these Share Plans are determined using the Black Scholes 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 3. DIVIDENDS No dividend was paid in the period (2015: no dividend paid). 2015 Grant £000 £0.04 £0.18 18p 0% 50% 2014 Grant £000 £0.05 £0.17 17p 0% 25% 2012 Grant £000 £0.04 £0.13 10p 0% 50% 3.0 years 3.0 years 3.0 years 1.36% 4.08% 4.08% 1,000,000 3,400,000 1,750,000 71 Notes relating to the company financial statements 4. SPECIAL ITEMS In order for users of the financial statements to better understand the underlying performance of the Company the Board have separately disclosed transactions which by virtue of their size or incidence, are considered to be one off in nature. Special items include exceptional costs relating to reorganisation, redundancy and restructuring, the charge for share based payments and impairment of investments in fellow subsidiary undertakings. Items included in operating profit: Impairment of investments in listed investments Redundancy and reorganisation Share option costs Items included in financial expense: Amortisation of loan note expenses 5. TANGIBLE FIXED ASSETS CCost or valuation At 29 March 2015 Transfer to assets classified as held for resale At 2 April 2016 At professional valuation At cost Depreciation At 29 March 2015 Charge for period 2016 £000 29 425 64 518 150 150 2015 £000 — 386 131 517 135 135 Long Lease £000 Total £000 2,584 (2,584) 2,584 (2,584) — — — — 84 51 — — — — 84 51 Transfer to assets classified as held for resale (135) (135) At 2April 2016 Net book value At 2April 2016 At 28 March 2015 — — — — 2,500 2,500 The Letchworth Garden City leasehold property was being actively marketed at the year-end and as result the written-down value of this property was transferred to assets classified as held for resale. On 11 July 2016 the sale of the Letchworth property was completed for net proceeds of £2.0m. 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. Various UK properties are charged as security for borrowing facilities. 72 Notes relating to the company financial statements 6. INVESTMENTS Cost: At 29 March 2015 Additions in the period Disposals in the period At 2 April 2016 Provisions At 29 March 2015 Impairment in the period At 28 March 2015 Net book values At 2 April 2016 At 28 March 2015 Shares In Listed Shares In Group Investments Undertakings £000 £000 Total £000 1,147 40,413 41,560 — — — — — — 1,147 40,413 41,560 622 29 651 496 525 31,710 32,332 — 29 31,710 32,361 8,703 8,703 9,199 9,228 During the period an impairment review of the carrying values of investments in other group companies was carried out with no further impairment deemed necessary. 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 8%. 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 disposal of shares in group undertakings of £10,000 in prior year related to the liquidation of Coborn Pension Trustees Limited during the year. During the year 600 Group Inc acquired the remaining 20% of the shares of TYKMA Inc following the acquisition of 80% of the s hares in the prior year. Further details can be found in note 32 of the Group accounts. On 3 August 2014 the Company acquired 26.3% of the ordinary share capital of ProPhotonix Limited through the issue of ordinary shares in the Company representing 5.5% of the enlarged share capital of 600 Group Plc. The share exchange was carried out following presentations with three London-based institutional investors, each of whom indicated support for the exchange. ProPhotonix Limited is AIM listed, although registered in Delaware, and designs and manufactures LED arrays and laser diode modules in the UK and Ireland. It has a strong base of technology and applications knowledge, applicable to high growth sectors including niche industrial, security and medical markets. We continue to engage with the board of Prophotonix in constructive dialogue to promote closer co-operation. The initial investment of £1.15m was adjusted down to a fair value of £0.50m at 2 April 2016 (2015 - £0.53m). The £0.03m (2015 - £0.62m) write down was taken to the Assets held for sale reserve. 73 Notes relating to the company financial statements 6. INVESTMENTS (CONTINUED) The principal subsidiary undertakings of The 600 Group PLC and their countries of incorporation are: ENGLAND& WALES: 600 UK Limited*; The 600 Group (Overseas) Limited*; Electrox Laser Limited; Pratt Burnerd International Limited; Electrox Limited; The Colchester Lathe Company Limited; Crawford Collets Limited; 600 Machine Tools Limited; 600 Controls Limited; Pratt Gamet Limited; Gamet Bearings Limited; T S Harrison & Sons Limited; The Richmond Machine Tool Company Limited; 600 Lathes Limited; 600 SPV1 Limited*; 600 SPV2 Limited*; Coborn Insurance Company Limited and The 600 Group Pension Trustees Limited*. US: 600 Group Inc Clausing Industrial, Inc TYKMA Inc REST OF THE WORLD: 600 Machinery Australia (Pty) – (Australia) 600 Group Equipment Limited - (Canada) 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. 7. TRADE AND OTHER RECEIVABLES Amounts owed by subsidiary undertakings1 Deferred tax 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. 8. ASSETS CLASSIFIED AS HELD FOR RESALE Transferred from property plant and equipment - cost Transferred from property plant and equipment - depreciation Impairment 2016 £000 2015 £000 29,946 22,221 749 77 — 809 117 — 30,772 23,147 2016 £000 2,556 (107) (450) 1,999 2015 £000 — — The above leasehold property was written down to its net realisable value at the year-end with the £0.4m reduction in its carrying value taken to the revaluation reserve. The sale was subsequently completed on 11 July 2016. 74 Notes relating to the company financial statements 9. TRADE AND OTHER PAYABLES Current liabilities: Bank overdraft Bank loans Trade payables Amounts owed to subsidiary undertakings1 Corporation tax Other creditors Accruals and deferred income Non-current liabilities: Shareholder loan Bank loans Deferred taxation 2016 £000 — 615 189 316 — 137 270 2015 £000 208 769 511 1,331 101 292 478 1,527 3,690 2016 £000 7,699 1,612 176 9,487 2015 £000 6,783 927 176 7,886 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. The £8.5m of Loan Notes in place at the year-end were issued in three tranches in February, March and August 2015 with 43.95m convertible warrants attached to them. These warrants allow the holders to either convert the loan into 20p shares or to purchase 20p shares for a cash consideration. The loan has both debt and equity components and £139,000 is shown in equity reserve and the balance after deduction of associated costs of £662,000, is shown in non current borrowings. Costs are amortised to the income statement over the term of the loan. A Term Loan of £927,000 included within Bank loans was scheduled to be repaid on a quarterly basis with payments of £153,846 on 30 June 2016 through to 30 November 2017. A further Term Loan of £612,000, also included within Bank loans, was scheduled to be repaid on a quarterly basis with payments of £18,000 on 30 June 2016 through to 30 June 2019 and a final payment of £378,000 on 31 May 2019. £1,300,000 included within non–current borrowings related to a RCF facility with a termination date of 31 May 2017.Following the disposal of the Letchworth property in July 2016 these borrowings with Santander were reduced by the net proceeds of £2m and on the change of bank to HSBC in August 2016 the balance of all these facilities were repaid and replaced by facilities from HSBC. Given the nature of the Company’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. 75 Notes relating to the company financial statements 10. 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 89,607,957 ordinary shares of 1p each on issue at start of the period (2015: 84,491,886 ordinary shares ) 2,750,000 ordinary shares of 1p each issued to N Rogers (2015 – 190,450 ordinary shares of 1p each issued to N Rogers and N Carrick) 12,000,000 ordinary shares of 1p each issued in acquisition of remaining 20% of Tykma Inc (2015 – 4,925,621 ordinary shares of 1p each issued in ProPhotonix Limited share acquisition 2016 £000 6,264 — 6,264 896 28 120 104,357,957 ordinary shares of 1p each on issue at end of period (2015: 89,607,957 ordinary shares of 1p) 1,044 2015 £000 6,264 — 6,264 845 2 49 896 Deferred shares of 24p each: 57,233,679 deferred shares of 24p each on issue at start of period Cancellation of deferred shares of 24p Nil deferred shares of 24p on issue at end of period (2015 – nil) Total Allotted, called-up and fully paid at the end of period — — — 1,044 13,736 (13,736 — 896 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 current year 2,750,000 ordinary shares of 1p each were issued to N Rogers in July 2015 pursuant to the exercise of share options. This resulted in share capital increasing by £27,500 with a corresponding share premium increase of £247,500. In addition, the Company issued 12,000,000 ordinary shares of 1p each as consideration for the purchase of the remaining 20% of shares in TYKMA Inc. During the prior year 139,780 and 50,670 ordinary shares of 1p each were issued to N Rogers and N Carrick respectively in June 2014. This resulted in share capital increasing by £1,905 with a corresponding share premium increase of £41,423. In addition, the Company issued 4,925,621 ordinary shares of 1p each as consideration for the purchase of 22,042,143 ordinary shares in ProPhotonix Limited. During the prior year the deferred shares of 24p each were cancelled by the company without compensation following approval by the shareholders at the AGM on 17 September 2014. On 28 August 2015 the Company raised an additional £0.806m through the issue of loan notes. In the prior year on 16 February 2015 and 18 March 2015 the Company raised £6.739m and £0.955m respectively through the issue of loan notes. The loan notes have 5 year maturity and carry a coupon of 8% payable quarterly in arrears. The subscribers for loan notes are also entitled to receive warrants with an expiry date of 14 February 2020 to subscribe for 43.95m ordinary shares of 1p each in the Company at a price of 20p per Ordinary Share. The issue of the warrants occurred after approval was granted by the shareholders at a general meeting on 18 March 2015. In the prior year in February 2015 the first tranche of proceeds from the issue of loan notes was used to repay in full a £2.5m related party loan. The warrants attached to this £2.5m loan allowed 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). At the prior year-end 2.4m warrants remained and these all expired on 27 August 2015 (2015:2.4m warrants remained outstanding). 76 Notes relating to the company financial statements 11. RECONCILIATION OF NET CASH FLOW TO NET DEBT Increase/(decrease) in cash and cash equivalents Increase in net debt from cash flows Net debt at beginning of period Shareholder loan deferred costs Net debt at end of period 12. ANALYSIS OF NET DEBT Cash at bank and in hand Debt due within one year Debt due after one year Shareholder loan due after one year Loan notes due after one year Total 2016 £000 460 (1,337) (877) (8,687) (110) (9,674) At 29 March Exchange 2015 £000 (208) (769) (927) (6,783) — (8,687) movement £000 — — — — — — Other £000 — — — (110) Cash flows £000 460 154 (685) 6,893 — (7,699) (110) (877) 2015 £000 (364) (3,766) (4,130) (5,258) 701 (8,687) At 2 April 2016 £000 252 (615) (1,612) — (7,699) (9,674) 13. FINANCIAL INSTRUMENTS OVERVIEW The Group’s exposure to the risks from its use of financial instruments is detailed in note 26 of the Group accounts. CREDIT RISK Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. As such, the Company has a minimal number of external customers and as such its credit risk is minimal. The carrying value of financial assets represents the maximum credit exposure. The maximum exposure at the reporting date was: Cash and cash equivalents 2016 £000 252 252 2015 £000 — — 77 Notes relating to the company financial statements 13. FINANCIAL INSTRUMENTS (CONTINUED) LIQUIDITY RISK Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Liquidity risk is managed on a Group-wide basis and further details can be found in note 26 of the Group accounts. The following are the contractual maturities of financial liabilities: Bank loan Loan notes Interest bearing financial liabilities Trade and other payables Financial liabilities Bank overdrafts Bank loan Shareholder loan Interest bearing financial liabilities Trade and other payables Financial liabilities 2016 Carrying Amount £000 2,227 7,699 9,926 594 Contractual Less than cash flows £000 2,227 7,699 9,926 594 1 year £000 615 — 615 594 10,520 10,520 1,209 2015 Carrying Contractual Less than 1–2 years 2–5 years £000 1,612 — 1,612 — 1,612 £000 — 7,699 7,699 — 7,699 Amount cash flows £000 208 1,696 6,783 8,687 1,281 9,968 £000 208 1,696 6,783 8,687 1,281 9,968 1 year £000 208 769 — 977 1,281 2,258 1–2 years 2–5 years £000 — 615 — 615 — 615 £000 — 312 6,783 7,095 — 7,095 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. 78 Notes relating to the company financial statements 13. FINANCIAL INSTRUMENTS (CONTINUED) CURRENCY RISK The Company is exposed to currency risk primarily on its US Dollar loan to a fellow group undertaking. This currency risk is largely managed on a Group wide basis. Further details can be found in note 26 of the Group accounts. The Company’s exposure to foreign currency risk may be summarised as follows: Intra-group receivables Trade payables Balance sheet exposure The following exchange rates applied during the year: US Dollar Euro US Dollar 2016 US Dollars $000 10,063 — 10,063 2015 US Dollars $000 4,701 — 4,701 Euro €000 — — — Euro €000 — — — 2016 Average rate 1.499 1.360 Year end spot rate 1.419 1.251 2015 Average rate 1.609 1.282 Year end spot rate 1.488 1.366 Change if appreciated/ Depreciated Net assets by 25% in foreign against local currency Currency 7,092 1,773 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. 79 Notes relating to the company financial statements 13. FINANCIAL INSTRUMENTS (CONTINUED) FINANCIAL INSTRUMENTS The Company’s financial instruments include bank loans, overdrafts and cash. These financial instruments are used for the purpose of funding the Company’s operations. In addition, the Company 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 Company does not hedge account but occasionally 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 2016 was a liability of £nil (2015: liability of £nil) and the movement has been recognised within cost of sales. FINANCIAL ASSETS The Company’s financial assets comprise cash,trade and intra-group receivables. The profile of the financial assets at 2 April 2016 and 28 March 2015 was: 2016 Financial assets 2015 Financial assets Floating rate Fixed rate on which Floating rate Fixed rate on which financial financial no interest financial financial no interest Currency Sterling US Dollars £000 252 7,092 7,344 — — — 22,854 23,106 — 7,092 22,854 30,198 assets assets is earned £000 £000 Total £000 There is no interest received on Sterling floating rate financial assets. The US Dollar floating rate financial assets relate to the loan to 600 Group Inc. assets £000 — 3,159 3,159 assets is earned £000 £000 Total £000 — — — 19,062 19,062 — 3,159 19,062 22,221 80 Notes relating to the company financial statements 13. FINANCIAL INSTRUMENTS (CONTINUED) FINANCIAL LIABILITIES Financial liabilities comprise short-term loans, overdrafts, trade payables, obligations under finance leases, and other creditors. The profile of the Company’s financial liabilities at 2 April 2016 and 28 March 2015was: 2016 Floating rate Fixed rate Financial liabilities on which 2015 Financial liabilities Floating rate Fixed rate on which financial Financial no interest financial financial no interest liabilities Liabilities £000 2,227 2,227 £000 7,699 7,699 is paid £000 596 596 Total £000 10,522 10,522 liabilities liabilities £000 1,904 1,904 £000 6,783 6,783 is paid £000 1,281 1,281 Total £000 9,968 9,968 Currency Sterling The floating rate financial liabilities comprise bank borrowings and overdrafts that bear interest rates based on local currency base interest rates. BORROWING FACILITIES At 2 April 2016 and 28 March 2015 the Company had undrawn committed borrowing facilities as follows: UK FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Trade and other receivables Cash and cash equivalents Bank overdrafts Bank loan Other loans Trade payables 2016 ‘000 £252 2015 ‘000 £1,406 2016 £000 2015 £000 30,772 23,147 252 — (2,227) (7,699) (1,209) 19,889 — (208) (1,696) (6,783) (3,690) 10,770 Given the nature of the Group’s financial assets and liabilities, it is the Directors’ opinion that there is no material diff erence between their reported book values and estimated fair values. 14. CONTINGENT LIABILITIES Bank guarantees in respect of Group undertakings 15. PENSION 2015 £000 92 2014 £000 92 The Company makes contributions to defined contribution schemes for certain employees. The pension contribution charge for the Company amounted to £19,000 (2015: £16,000). 81 Notes relating to the company financial statements 16. 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 £65,000 in interest payments during the financial year in respect of their respective holding of the Shareholder Loans and loan notes. At the year-end Haddeo Partners LLP held £810,000 of loan notes. In addition, the wife of Mr N Carrick, the Group Finance Director, also held £50,000 of loan notes. Further details on the loan notes can be found in note 19. 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 £120,000 to the UK pension scheme during the current period (2015: £nil) and no contributions were overdue at the period-end. The monthly payments of £10,000 were paid by the Group to the UK pension scheme from April 2015 onwards in respect of an augmentation to benefits made in 2008/09 of £510,971. No deficit reduction payments are currently required. 82 167892 600 Group R&A (Cover)_167892 600 Group R&A (Cover) 31/08/2016 15:07 Page 1 The 600 Group PLC Union Street Heckmondwike West Yorkshire WF16 0HL T: +44 (0)1924 415000 W: www.600group.com ANNUAL REPORT & ACCOUNTS 2016 The 600 Group PLC
Continue reading text version or see original annual report in PDF format above