Hurdles that pushed 600 Group to half-year losses

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600 Group blamed striking workers, integration delays, higher costs and a glut of exceptional charges for deep half-year losses, but insisted its outlook is bright.

The Leeds-based engineering group, which specialises in machine tools and laser marking, posted pre-tax losses of £6.4m, including “special items”, in the 26 weeks to October 1. The losses compared with profits of £1.5m a year earlier.

Revenues increased eight per cent to £24.7m, and the company said its order book is 35 per cent bigger than a year ago.

Late last year 600 Group bought a factory in Poland to take a significant proportion of its manufacturing in-house. It bought a machine tool company in Tarnow, Poland, from weapons group Bumar for 1m euros.

Among the special items were £3.6m of restructuring costs related to the acquisition, including moving machine tool manufacturing to Poland and streamlining its head office. The company also wrote down £1.4m of obsolete and old stock.

In its laser marking division, the group was also forced to a £1.9m writedown of stock and intangibles. These resulted in a total £6.9m charge for special items.

Stripping out exceptional items, 600 Group broke even at operating profit level, marginally down on a year ago.

Chief executive David Norman said the strike, which affected its South African business, was settled in August. Its Polish business is beginning to produce more revenue, he added, after “timing” issues. Margins are improving in the United States, said Mr Norman, where it was hit by higher input costs.

“Given our current order book, but taking into account the worsening economic sentiment in Europe, we remain cautiously optimistic with regard to the second half,” he said.

Turnover in its main machine tools division increased to £15.3m from £13.9m, with operating profits broadly level at £305,000.

Turnover in its laser marking business increased to £3.6m from £3.1m, with operating profits of £341,000, down from £354,000 a year earlier. The company said it is developing its next generation of technology and software.

600 Group’s South African mechanical handling and waste arm reported flat revenues of £5.8m. However, its operating profits fell to £72,000 from £416,000 a year ago, after strikes hampered performance.

David Buxton, analyst at house broker Finncap, said the group’s trading results were in line with its expectations.

“Second half profitability should rebound on a lower cost base, a 35 per cent increase in the order book, rising production rates and a more favourable production mix,” he said.

“We maintain forecasts and the shares remain attractive... We see good upside as the group concentrates on improving returns in its machine tools core.”