600 Group losses are offset by £1.5m placing

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600 Group slumped to hefty annual losses as restructuring and the cost of quitting Polish manufacturing weighed on the machine tool maker.

But the group said a £1.5m fundraising and asset sales will cut debt, giving it a solid foundation for growth.

The Leeds-based company, which makes products including high-tech lathes for car manufacturers and giant chucks for the oil and gas sector, completed the share placing with major shareholders yesterday.

The engineer last month revealed the closure of its loss-making volume manufacturing plant in Tarnow, Poland, where costs had spiralled. About 200 jobs there are under threat.

It bought the Polish factory from weapons group Bumar in late 2010 for 1m euros, part of plans to bring a significant proportion of its manufacturing in-house.

New chief executive Nigel Rogers said the group’s problem has been “finding the optimum supply chain in order to satisfy demand”.

“It was quite difficult to keep the score, and that’s related to inventories climbing and the cost base climbing,” he said. “I recognised it had gone over a tipping point and these costs could not be supported.”

600 Group reported losses of almost £15m for the year to the end of March, compared with £2.9m profits a year earlier. Losses were driven by £12.9m of “special items”, including asset impairments, redundancies and restructuring.

However, revenues rose 8.1 per cent to £39.4m, despite constraints on working capital, and 600 Group said it now has the ability to invest in growth.

“We’ve strong order books looking forward,” said Mr Rogers, the former CEO of electronics manufacturer Stadium Group. “That’s been an overpowering positive despite the changes.

“There are clear signs that significant improvements will be evident in the second half of the financial year.”

The firm plans to move its headquarters back to Heckmondwike from Leeds, is cutting an unspecified number of jobs at its West Yorkshire factory, has offloaded surplus property in Leicestershire and sold its South African operations in July.

Net debt was £8m at the end of March, but analysts at house broker FinnCap believe the recent disposals and refinancing should reduce this to £5.2m by the end of March 2013.

“The recent closure of the loss-making factory in Poland significantly improves underlying profitability and provides a more financially stable foundation for growth,” said analyst David Buxton at FinnCap.

“New management, improving finances and recovering profitability provides a good investment story, which is attractively valued.”

Mr Rogers bought another 270,000 shares in the placing, and was yesterday handed a bonus of 666,667 shares, to give him 1.23 per cent of the company. Major backer Haddeo Parners, of which chairman Paul Dupee is a member, bought another 6.66m shares, to give it 27.3 per cent of the group.

600 Group also agreed revised debt facilities with its main banker totalling almost £4m.