13th Dec 2006 07:01
SWP Group PLC13 December 2006 SWP Group PLC Preliminary results for the year ended 30 June 2006 CHAIRMAN'S STATEMENT Corporate Review Following a sustained period of losses we are pleased to advise shareholdersthat in the year to 30 June 2006 the Group returned to profit, buoyed by anexcellent performance from staircase manufacturer Crescent of Cambridge and asignificant turnaround at rainwater drainage specialist Fullflow Group. In general the momentum which we had managed to create in the second half of theprevious year was sustained and turnover for the year increased by more than15%, mainly due to rapid sales growth posted by Fullflow's European operations. Although the markets which our businesses serve remain strong, they continue tobe highly price-driven and this will mean that our next challenge - that ofdriving returns to significantly higher levels - will not be easy to achieve.However we have a clear view as to what actions need to be taken in pursuit ofour objectives and we are already implementing a number of these initiatives. Results For the year to 30 June 2006 the Group recorded a profit (before and after tax)of £232,000 (2005: £521,000 loss). At the operating level, the extent of therecovery was even more pronounced, with a profit of £748,000 replacing the lossof £325,000 incurred the previous year. Net interest costs amounted to £516,000(2005: £569,000) thanks mainly to lower average interest rates. There were noexceptional items of any nature in the year under review (2005:£373,000 netexceptional operating income). The net profit recorded by the Group equates to1.43p per ordinary share (2005: 3.30p loss). Review of Operations The Group continues to operate through three principal subsidiaries each ofwhich is a supplier of specialist products to the construction and/or civilengineering industries. The largest subsidiary is Fullflow Group which is based in Sheffield and hassubsidiary operations in Paris, Madrid and Rotherham. Fullflow's main businessinvolves the design, manufacture and installation of rainwater managementsystems, with a particular emphasis on syphonic drainage systems for largeroofs, but through its Rotherham operation it also manufactures and distributespolyethylene pipework fittings and fabrications to a customer base serving thegas, water and petrochemical industries. Next in terms of size is Crescent of Cambridge which is based in St Ives,Cambridgeshire and is the UK's leading manufacturer of spiral and othercustom-built steel staircases. Finally there is DRC Polymer Products which is based in Soham, Cambridgeshireand manufactures a wide range of polymer-based sheet materials for use in avariety of structural waterproofing applications and other more specialistmarkets such as fireproofing and soundproofing. Fullflow Group Following a significantly improved performance in 2005, Fullflow continued itsprogress during the year under review. Total third party sales increased by 27 %to £11,652,000 (2005: £9,193,000) and this healthy level of revenue growthhelped to deliver an operating profit of £719,000 (2005: loss £438,000). Generally the market sectors in which Fullflow operates exhibited considerablestrength during the year, with an increase in the quantity of imported goods andeconomies of scale combining to produce a burgeoning demand for largedistribution warehouses on the part of logistics operators and retailers alike.Even the most casual observer must have noticed the pace at which these hugebuildings are being constructed along the motorway networks of the UK and Francein particular and this sector of the construction industry accounts for asignificant element of Fullflow's revenues. However it is in this sector, where entry costs are low and contractors tend tohold the key to decision-making, that competitive pressures are greatest,particularly in the UK, and Fullflow has had little option but to acceptbusiness at lower margins to protect its market share. Fortunately Fullflow'stechnical design and project management skills enable it to acquire work inother, more challenging sectors such as airports, offices, rail terminals,stadia and shopping centres and while the work involved in designing andinstalling systems in such buildings tends to be much more demanding, margins dotend to be somewhat higher. It is of critical importance that the balancebetween the two types of work is managed to ensure an efficient and profitabledeployment of resources. In France our decision to ride out the period of poor trading experienced in2005 was fully vindicated, with sales more than doubling and the losses replacedby a small profit. During the period under review much effort was expended inimproving and streamlining the company's operations and the results of thisinput are now becoming evident in the form of higher margins and enhancedcustomer satisfaction levels. At a time when business levels have beenincreasing rapidly this represents a considerable achievement. With enquirylevels continuing to increase, there is considerable scope for Fullflow toachieve further growth in this important market and action is in hand toincrease the sales and marketing resource. In Spain revenues also increased significantly, bolstered by an influx of newcustomers and a growing appreciation on the part of existing customers of theextent of the benefits offered by Fullflow's syphonic system compared to thegravity systems which they have employed historically. In brief those benefitsinclude significantly reduced underground drainage runs, enhanced aesthetics (onaccount of there being no external downpipes), programme savings and a greatercompatibility with rainwater harvesting systems which allow rainwater to bestored and used for "grey" applications such as toilet flushing and vehiclewashing. With more and more attention being focused on sustainability issues,this last area is one which Fullflow will seek to exploit in all its markets inthe future. The year also saw further progress at Plasflow whose operations continue to beheavily reliant on internal demand generated by Fullflow's syphonic businessesbut whose third party sales are now beginning to gain some real momentum.Plasflow has one of the most modern and best equipped facilities of anypolyethylene pipework fabricator in Europe and although the bulk of its outputis destined for use in the water industry, both in the UK and further afield,sales have also been achieved in the nuclear and petrochemical industries and weanticipate further growth arising from these sectors., where Plasflow's wellestablished quality and service standards are particularly important. In previous reports we have highlighted the potential for Fullflow to extend itsreach beyond its existing markets and we are pleased to report that in recentmonths we have begun to forge links in both India and the Middle East, both ofwhich markets would appear to offer strong potential for Fullflow systems. Inboth cases it is likely that Fullflow's role will be restricted to designcoupled with the supply of specialist components but by adopting this approachwe can move much more quickly than would otherwise be feasible and at the sametime both reduce risk and avoid the substantial costs associated withestablishing an overseas operation. Obviously the choice of local partner is ofparamount importance. Another significant achievement during the year was the wholesale redevelopmentof the company's website and literature, together with the relaunch of theFullflow brand to better reflect its forward thinking, professional approach. Inthe construction industry it is becoming increasingly important to have aninformative, professional internet presence designed to optimise search enginerecognition and it is pleasing to report that, on the back of some web-focusedPR and advertising, traffic to Fullflow's UK website has increased by a factorof 15, with a reasonable proportion of that traffic emanating from abroad. Weare now intent on achieving the same sort of progress in France and Spain andsuccess in this regard ought to underpin strong enquiry flow across our Europeanmarkets in the months ahead. Crescent of Cambridge Crescent produced an outstanding result for the year under review. Following the7% sales increase in 2005, sales in the year to June 2006 rose by a further 5%and broke through the £4 million mark for the first time. Despite a competitivemarketplace, margins were maintained and with overhead costs continuing to bethe subject of rigorous control Crescent recorded an operating profit of£379,000, over 40% above the level of the previous year. Having for many years focused almost exclusively on the production of spiralstaircases, where its reputation was first established, Crescent is now makingsignificant inroads into the market for straight staircases which now accountfor nearly 40% of turnover. This particular sector of the market is served by awide range of suppliers, ranging from small operators to large steel fabricatorswho manufacture staircases as a sideline, but Crescent has been able to identifyand successfully court a number of sizeable customers who value the service andquality levels which Crescent provides. One of Crescent's strengths is that it serves more or less every sector of themarket meaning that it is less vulnerable to the vagaries of individual sectorssuch as residential and commercial. There is currently a huge wave ofconstruction investment occurring in the education, health and defence sectorsand Crescent is well placed to take advantage of this positive trend and buildon its market-leading position. Crescent is well equipped and has a design competence which is bothsophisticated and flexible enough to give Crescent a competitive advantage inrapidly changing market conditions where greater levels of efficiency areincreasingly required. DRC Polymer Products Disappointingly DRC was unable to sustain the improved trading performancereferred to in the Interim Report. Contractual and payment issues with a majorcustomer led to the termination of the relevant supply agreement and while thecompany did not suffer any direct financial loss as a consequence of this actionit proved impossible to make up the resultant sales shortfall. Accordingly whathad appeared to be a profitable outcome for the year as a whole quickly turnedinto an operating loss this time one of £94,000. DRC has proven over time thatthis particular product has widespread appeal with high levels of customersatisfaction. Long term benefits are likely to accrue as a result ofdistributing this product line in a more effective way. On a more positive note further significant progress was achieved with regard tothe development of Hylam IQ. This material, which enables water companies todetect the precise location of leaks in reservoir roofs, appears to haveenormous potential and many expressions of interest in it have been received.Following the successful completion of two installations for United Utilities athird, very substantial, order is awaited although the timing of contracts inthis sector is never easy to predict. Development work continues in other areas and in at least one instance it islikely that, as is the case with Hylam IQ, DRC will be in a position to offer aproduct with significant sales potential directly to distributors rather than,as has often been the case in recent years, simply manufacturing productsdeveloped and "owned" by third parties. Finance Despite the significant growth in Group sales, and the consequent pressure onworking capital requirements, net bank borrowings at 30 June 2006 were£6,918,000, a reduction of £86,000 on the level at 30 June 2005 (£7,004,000).This borrowing level was well within the limit agreed with our Bankers. Weexpect borrowings to reduce again during the current year. Employees The Group's most valuable asset is the commitment, energy and resourcefulness ofits employees and we thank them for their considerable role in returning theGroup to profit. They as much as anyone have been affected by the stressesarising from the Group's well documented problems in recent years and we aredelighted that they can now look to the future with considerably more confidencethan before. Current Trading The new financial year has started promisingly. Crescent's strong performancehas been maintained and Fullflow's recovery has accelerated with all four of itsbusinesses trading profitably. Only DRC continues to act as a drag on theGroup's overall performance but this situation is expected to change as Hylam IQsales increase and other products are brought to market both within the UK andinternationally. Future Prospects The strategic and organisational changes which we have introduced in recentyears have left our businesses well placed to achieve further success. Eachoperation has a clear vision of where it is heading and we believe that ourmanagement teams have the skills, commitment and experience to achieve the shortand medium term goals which we have agreed with them. Naturally we are dependent to some extent on the strength of the markets whichwe serve and we cannot pretend that the recent increases in UK interest ratesrepresent a positive development for us. However, if the experts are to bebelieved, base rates are unlikely to increase by any more than a small amount inthe months ahead and against this background it is our view that our marketswill continue to provide sufficient opportunities for us to achieve the salesgrowth we aspire to in the current year and beyond. In the wake of a sustained period of losses we are determined to restoreshareholder value as rapidly as possible and we will continue to work diligentlyand energetically to this end. Once again we would express the hope that shareholders will find the time toattend the Group's Annual General Meeting which will take place in London on 24January 2006. We welcome constructive dialogue with those who have invested inthe Group and as well as the formal business of the day there will be plenty oftime for shareholders to ask questions of the Directors. J.A.F. WalkerChairman Consolidated Profit and Loss Account Year ended 30 June 2006 2006 2005 Notes £'000 £'000 Turnover 2 18,521 16,007 Cost of sales (12,071) (10,591) -------- --------Gross profit 6,450 5,416+------------------------------------------------------------------------------+| ||Administrative expenses before exceptional items (5,702) (5,741)|| ||Exceptional items 3 - 373 |+------------------------------------------------------------------------------+Total administrative expenses (5,702) (5,368) -------- --------+------------------------------------------------------------------------------+|Operating profit/(loss) before exceptional items 748 (325)||Exceptional items 3 - 373 |+------------------------------------------------------------------------------+ Total operating profit 748 48 Interest receivable 2 2Interest payable and similar charges (518) (571) -------- --------Profit/(loss) on ordinary activities before taxation 2 232 (521) Taxation on profit/(loss) on ordinary activities - - -------- --------Profit/(loss) on ordinary activities after taxationbeing loss for the financial year 232 (521) ======== ========Basic profit/(loss) per share (pence) 4 1.43p (3.30)p ======== ========Diluted profit/(loss) per share (pence) 4 1.43p (3.30)p ======== ======== The results are wholly derived from continuing operations in both years. Statement of Total Recognised Gains and Losses Year ended 30 June 2006 The Group 2006 2005 £'000 £'000 Profit/(loss) for the financial year 232 (521)Revaluation of fixed assets - 828 -------- --------Total profit recognised since last annual report 232 307 -------- -------- Note of Historical Cost Profit and Losses Year ended 30 June 2006 The Group 2006 2005 £'000 £'000 Profit/(loss) on ordinary activities before taxation 232 (521) -------- --------Difference between a historical cost depreciation charge andthe actual depreciation charge of the year calculated on therevalued amount 20 20 -------- --------Historical cost profit/(loss) on ordinary activities beforetaxation 252 (501) ======== ========Historical cost profit/(loss) for the financial year 252 (501) ======== ======== Reconciliation of Movements in Shareholders' Funds Year ended 30 June 2006 The Group 2006 2005 £'000 £'000Profit/(loss) for the financial year 232 (521)Revaluation of fixed assets - 828New share capital subscribed, net of expenses 750 - -------- --------Net increase to shareholders' funds 982 307Opening shareholders' funds 864 557 -------- --------Closing shareholders' funds 1,846 864 -------- -------- Consolidated Balance Sheet At 30 June 2006 2006 2005 £'000 £'000 £'000 £'000Fixed assetsIntangible assets 42 19Tangible assets 4,411 4,423 -------- -------- 4,453 4,442Current assets Stocks 2,969 2,829+------------------------------------------------------------------------------+|Debtors falling due within one year 5,795 5,482 ||Debtors falling due after more than one 755 337 ||year |+------------------------------------------------------------------------------+Total debtors 6,550 5,819 -------- -------- 9,519 8,648Creditors: amounts falling due withinone year (8,984) (9,123) -------- -------- Net current assets/(liabilities) 535 (475) -------- --------Total assets less current liabilities 4,988 3,967 ======== ======== Financed by: Creditors: amounts falling due aftermore than one year 3,345 3,306 Provision for liabilities and charges (203) (203) Capital and reserves Called up share capital 85 79Share premium account 11,878 11,134Capital reserve 41 41Revaluation reserve 1,459 1,479Profit and loss account (11,617) (11,869) -------- --------Equity shareholders' funds 1,846 864 -------- -------- 4,988 3,967 ======== ======== The financial statements were approved by the Board of Directors on 12 December2006 and were signed on its behalf by D.J. Pett Director of Finance Consolidated Cash Flow Statement Year ended 30 June 2006 2006 2005 £'000 £'000 £'000 £'000 Net cash inflow/(outflow) from operatingactivities 378 (614) Returns on investments and servicing offinanceInterest received 2 2Bank and loan interest paid (498) (476)Hire purchase interest (18) (37) ------- ------- (514) (511) Capital expenditure and financialinvestmentPayments to acquire tangible fixed assets (152) (110)Payments to acquire intangible fixed assets (45) (5) ------- -------Receipts from sales of tangible fixed 32assets 20 ------- ------- (165) (95) ------- -------Net cash outflow before financing (301) (1,220) Financing Issue of ordinary share capital net ofexpenses 750 -Bank loan repayments - (129)Other loan repayments (95) - ------- -------Capital element of finance lease and hirepurchase payments (268) (260) ------- ------- 387 (389) ------- ------- Increase/(decrease) in cash after financing 86 (1,609) ======= ======= Parent Company's Balance Sheet At 30 June 2006 2006 2005 £'000 £'000 £'000 £'000 Fixed assets Tangible assets 1,129 1,120Investments 8,151 8,151 -------- -------- 9,280 9,271Current assets Debtors 8,555 7,691 -------- --------Creditors: amounts falling due withinone year (4,980) (4,466) -------- --------Net current assets 3,575 3,225 -------- --------Total assets less current liabilities 12,855 12,496 -------- -------- Financed by: Creditors: amounts falling due aftermore than one year 2,925 2,925 Capital and reserves Called up share capital 85 79Share premium account 11,877 11,134Revaluation revenue 500 500Profit and loss account (2,532) (2,142) -------- -------- Equity shareholders' funds 9,930 9,571 -------- -------- 12,855 12,496 ======== ======== The financial statements were approved by the Board of Directors on 12 December2006 and signed on its behalf by D.J. Pett Director of Finance Notes to the Financial Statements 1. ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing withitems which are considered material in relation to the group's financialstatements, except as noted below: In these financial statements the following new standards have been adopted forthe first time: • FRS 21 'Events after the balance sheet date'; • the presentation requirements of FRS 25 'Financial instruments: presentation and disclosure'; and • FRS 28 'Corresponding amounts'. The accounting policies under these new standards are set out below togetherwith an indication of the effects of their adoption. FRS 28 'Correspondingamounts' has had no material effect as it imposes the same requirements forcomparatives as hitherto required by the Companies Act 1985. Furthermore, therehas been no material impact from the adoption of FRS 21 and 25. The corresponding amounts in these financial statements are restated inaccordance with the new policies. Basis of preparation The financial statements have been prepared in accordance with applicableaccounting standards and under the historical cost accounting rules modified toinclude the revaluation of certain fixed assets. 2. SEGMENTAL ANALYSIS BY CLASS OF BUSINESS The analysis by class of business of the Group turnover, result before taxationand net assets is set out below: 2006 2005 Profit/ Profit/ (loss) (loss) Turn- before Net Turn- before Net over taxation assets over taxation assets £'000 £'000 £'000 £'000 £'000 £'000Syphonic drainage 11,652 719 1,102 9,193 (438) 74Staircases 4,020 379 1,457 3,826 267 1,334Polymer sheet materials 2,849 (94) (276) 2,988 (122) (125) ------- -------- ------- ------- ------- ------- 18,521 1,004 2,283 16,007 (293) 1,283 ------- -------Operating exceptional(costs)/income - 373Other charges/liabilities (256) (437) (32) (419) -------- -------Profit before interest 748 48Net interest payable (516) (569) -------- -------Profit/(loss) before taxation 232 (521) -------- ------- ------- -------Total net assets 1,846 864 ======= ======= The Group operates predominantly within the United Kingdom. The geographicalanalysis of the Group's turnover by destination is as follows:- 2006 2005 £'000 £'000United Kingdom 12,857 12,962Europe 5,651 3,009Africa and Middle East 13 36 ---------- ---------- 18,521 16,007 ---------- ---------- 3. EXCEPTIONAL ITEMS Exceptional items comprise the following: 2006 2005 £'000 £'000Net proceeds from litigation against Group's formeradvisors - 373 ------- ------- - 373 ======= ======= 4. PROFIT / (LOSS) PER SHARE The profit/(loss) per share calculation for the year ended 30 June 2006 is basedon the weighted average of 16,189,199 (2005: 15,769,546) ordinary shares inissue during the year and the profit of £232,000 (2005: loss of £521,000). The company's share options are not dilutive for loss per share calculations. 5. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of operating profit to net cash inflow/(outflow) fromoperating activities 2006 2005 £'000 £'000Operating profit 748 48Depreciation charges 366 473Amortisation of trade names and patents 22 13Profit on sale of tangible fixed assets (5) (11)(Increase) in stocks (140) (98)(Increase) in debtors (731) (804)Increase/(decrease) in creditors 118 (235) -------- ------- 378 (614) ======== ======= (b) Reconciliation of net cash flow to movement in net debt 2006 2005 £'000 £'000Increase/(decrease) in cash in period 86 (1,609)Cash outflow from increase in debt 1,549and lease financing 389 ------- -------Change in net debt resulting from cash flows 1,635 (1,220)New finance leases (229) (61) ------- -------Movement in net debt in period 1,406 (1,281)Net debt at 30 June 2005 (8,518) (7,237) ------- -------Net debt at 30 June 2006 (7,112) (8,518) ======= ======= (c) Analysis of net debt At 30 June Cash Non cash At 30 2005 Flow changes June 2006 £'000 £'000 £'000 £'000 Overdrafts (3,754) 86 - (3,668)Debt due within one year - - - -Debt due after one year (3,250) - - (3,250)Finance leases and hire purchase (233) 268 (229) (194) --------- ------- -------- --------Total (7,237) 354 (229) (7,112) ========= ======= ======== ======== The 2006 figures have been abridged from the audited statutory accounts for theyear which will be posted to shareholders on 19th December 2006. The figures for2005 have been abridged from the audited statutory accounts for that year whichhave been delivered to the Registrar of Companies. The reports of the auditor onthe statutory accounts were unqualified. Further copies of the accounts areavailable from the Company's registered office at SWP Group plc, 4th FloorBedford House, 3 Bedford Street, London WC2E 9HD. For further information or enquiries please contact: D.J. Pett Director of Finance Tel Office: 020 7379 7181 Mobile: 07940 523135 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SWP.L