Blackfriar: Focus pays off for engineer and could do same for Tesco

Under its new management it has reversed the decision to open up manufacturing plants abroad and returned to its Yorkshire heartland.

Yesterday the group’s decision appeared to be paying off with the news that full-year revenues rose by more than 10 per cent despite tough trading conditions.

The Heckmondwike-based group is enjoying strong sales in the US, where a focus on service has paid off.

But it’s been tough times for the company with job losses being paid as the price of previous management mistakes.

Under the leadership of new chief executive Nigel Rogers, the former Stadium Group boss, 600 has been restructuring and streamlining.

He made the decision to sell off a South African waste-handling machinery business, cut jobs at the Heckmondwike factory, and quit manufacturing in Poland which only started two years ago.

The group has used cash raised from disposals and the proceeds from last year’s share issue to invest in design and development – an absolute must if 600 is to stay at the top of its game.

The group has to continually improve and relaunch its tools in order to stay relevant.

600 has redesigned a number of its tools including the Tornado turning centre which is now assembled in Heckmondwike.

At the same time the factory has been refurbished to bring it up to date.

Mr Rogers believes customers can see the benefit of the investment which is boosting confidence and future sales.

The group will be showcasing its new products and better facilities over the coming weeks.

Mr Rogers has streamlined and simplified manufacturing, letting Taiwanese contractors make its lower-margin metal turning machines.

Instead, 600 is now focusing on its bespoke computer-controlled lathes, which can sell for up to six figures, plus its precision components and laser marking business.

“My first impression was that there was a great business waiting to get out,” said Mr Rogers, clearly a believer in UK manufacturing.

“We’ve managed that programme of extraction and have a great business ready to grow.”

Customers’ patience was “tested to the limit but not over it”, said Mr Rogers.

The next step is to utilise its listing to deliver significant growth, including acquisitions.

Analyst David Buxton at house broker FinnCap believes that the new management has taken strong steps to stabilise the business and now has considerable scope to improve returns.

“The group has announced an encouraging update with progress on a number of levels since the change in management, disposals and placing,” he said.

“Working capital levels have normalised and the Heckmondwike site has been refurbished with improved manufacturing facilities.

“Investment has also occurred in the new product pipeline and distributor marketing events (which will occur shortly), and should help sustain sales growth momentum.”

Mr Buxton sees a considerable bounce in profitability coming through in 2014, driven by internal measures, particularly the elimination of losses from disposed of operations.

“While we concede that investor sentiment needs to be rebuilt following several knocks (under previous management), we see this interim management statement as being reassuring and a step on the road to rebuilding confidence,” he added.

By focusing on what it does best, 600 Group is beginning to live up to its potential.

The shares have yet to reflect improvements in both trading and finances and could well be worth a punt.

Analysts were divided by Tesco’s annual results yesterday.

Clive Black at Shore Capital said: “Philip Clarke, the chief executive of Tesco, may look back on the year to February 2013 with mixed feelings.

“Yes this was the year that margins in the core business in the UK contracted. Yes, this was the year that the group’s international ‘jewel’, South Korea, hit a brick wall of sorts in the local regulator, so delivering a body blow to Asian returns, and yes, Tesco has reported a material 12.7 per cent reduction in group trading profits to £3,284m.”

However the general belief is that Mr Clarke will turn the Tesco juggernaut around.

Mr Black reckons that despite the astronomical £2.3bn writedown, this has been a year of considerable underlying progress for Mr Clarke and Tesco.

While this is good news for Tesco and the UK economy, it will increase the pressure on Dalton Philips at Bradford-based Morrisons who will have to come up with a convincing recovery this year if the market is to bear with him.

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