13th Dec 2005 07:00
SWP Group PLC13 December 2005 SWP Group PLC Preliminary results for the year ended 30 June 2005 CHAIRMAN'S STATEMENT Corporate Review The year which ended on 30 June 2005 was essentially one of consolidation. Inthe wake of the disastrous results of the previous year, our management teamswere charged with the task of reviewing both their business plans and the shapeand structure of their organisations and although we must report a further lossfor the year as a whole, the scale of it is greatly reduced. Turnover for the year as a whole increased by 6.7% but it is noteworthy that inthe second half of the year sales were 15.3% ahead of the corresponding period ayear earlier. More importantly, however, each of our subsidiaries is nowcarrying significantly lower overhead costs than has been the case and they areall now in a better position to compete in markets where, despite widespreadmedia comment about the increasing prevalence of partnering arrangements basedon life-cycle costs and service levels, price is still of critical importance inthe decision-making process. We are also pleased to report that on the basis of recent independent valuationsof the Group's property assets the Directors have increased the value ofproperties by £828,000 which provides significant additional substance to ourbalance sheet. Results For the year to 30 June 2005 the Group recorded an overall loss of £521,000(2004: £2,717,000) on sales of £16,007,000 (2004: £15,006,000). At the operatinglevel the loss was £325,000 (2004: £1,816,000) but this was offset byexceptional net operating income of £373,000 (2004: £292,000 cost) arising fromthe legal action which we had initiated in relation to the acquisition of DRCPolymer Products. Net interest costs amounted to £569,000 (2004: £609,000). Review of Operations The Group continues to operate through three principal subsidiaries each ofwhich is a supplier of specialist products to the construction industry.Fullflow Group, which is based in Sheffield and has subsidiary operations inParis, Madrid and Rotherham, designs, manufactures and installs rainwatermanagement systems with a particular emphasis on syphonic roof drainage systemsfor large roofs. Through its Rotherham operation it also manufactures anddistributes pipework fittings and fabrications and related items to a wide rangeof customers working mainly in the gas, water and petrochemical industries.Crescent of Cambridge is based in St Ives, Cambridgeshire and is the UK'sleading manufacturer of spiral and other custom-built steel staircases. DRCPolymer Products is based in Soham, Cambridgeshire and manufacturespolymer-based sheet materials for use in a wide variety of structuralwaterproofing applications and other specialist markets such as fireproofing andsoundproofing. Fullflow Group Although Fullflow incurred further losses during the year under review much wasachieved in terms of reshaping and re-organising the company's four operations.Clearly defined management structures were introduced, new sales policiesimplemented, enhanced control procedures adopted and a more inclusive system ofdecision-making applied throughout the company. The overall result of thesechanges has been the emergence of a business which, at least in principle, isfar better placed than before to realise the potential which its market-leadingtechnology and many years of experience have created. In the UK the first half of the year was spent dealing with the problems causedby the scatter-gun sales strategy which had been in place previously and hadproduced large numbers of small orders spread all over the country. This periodwas characterised by inefficiencies and service failures but although there wasplenty of pain in financial terms Fullflow's reputation remained largelyunscathed meaning that no long-term relationships were affected. Thankfully thesecond half of the year brought considerable efficiency improvements and areturn to the service levels on which Fullflow has built its reputation over theyears. As reported in our interim announcement average order values haveincreased significantly and although the number of orders received has shown adecline each order is now processed in a much more focused and organised way. Ata time when competitive pressures in the market are intensifying, Fullflow'sability to achieve the highest possible standards of customer service has neverbeen so important. As ever Fullflow has been involved in some of the country's most prestigiousprojects. Passengers using Heathrow's new Terminal 5 when it opens will beprotected by a Fullflow rainwater system as will those spectators watchingManchester United's home matches from the new seating areas in the corners ofOld Trafford. And although the last day of the recent Ashes series was badlyaffected by rain those enjoying the spectacle from the eye-catching new stand atthe Vauxhall End stayed dry thanks to the Fullflow system which had beeninstalled towards the end of 2004. In France things were much more difficult. Weak market conditions at thebeginning of the year, coupled with the emergence of an aggressive newcompetitor, had a serious effect on order intake and although there was a markedimprovement in the second half of the year, margins remained under pressure withthe result that losses were incurred for a large part of the year, a situationwhich was in stark contrast to the previous year when France had tradedprofitably while the rest of Fullflow ran up heavy losses. Against this background we have taken a long hard look at the medium andlong-term prospects for the French business and we have concluded that it islikely to be very much in our interests to ride out what we regard as short-termdifficulties. In recent weeks order levels have strengthened considerably,bolstered by a €700,000 project for car manufacturer Renault, and although thereremain a number of difficulties associated with organising and managinginstallation teams across a country as large as France, we are confident thatthe local management team have the necessary experience, technical expertise andcommitment to return the business to profit in the near future. In Spain, significant progress was achieved in terms of sales growth but anumber of factors, including staff changes and labour problems, combined toproduce a disappointing financial result. However, action has been taken toaddress these issues and we continue to see Spain as a market with majorpotential. Enquiry levels continue to show a strong upward trend and there is agrowing stream of evidence to suggest that the majority of the main players inthe commercial and industrial sectors of Spain's construction industry now havea preference for the Fullflow option. This positive momentum extends to othersectors as well and we are now better placed than ever to take advantage of thistrend. For the first time ever it appears likely that at some stage in themonths ahead Fullflow sales in Continental Europe will exceed those in the UK. Progress was also achieved at Plasflow, albeit at a slower pace than we hadhoped for. Although Plasflow provides an important manufacturing service to theother Fullflow businesses it requires significant third party sales to realiseits full potential and much remains to be done in this respect. However,following a period of lacklustre performance, business levels did improve in thesecond half of the year and this trend has accelerated since the year-end. Interms of quality, professionalism and efficiency, Plasflow has raised itsstandards to new levels of excellence and this should ensure high levels ofcustomer retention in a market where service levels are of the utmostimportance. Internationally there is little to report at this stage but we remain committedto establishing partnering/franchising arrangements in a number of countrieswhere we believe there to be an opportunity for Fullflow to exploit itsintellectual property assets without exposing the Group to the risks associatedwith establishing a direct presence. Crescent of Cambridge Following a disappointing year in 2004, Crescent bounced back strongly to recorda very satisfactory result during the year under review. Sales increased bynearly 7% and the new CNC machines finally started to produce the cost savingson which their purchase had been predicated. Although Crescent is mainly known for its expertise and market-leading positionin the manufacture of spiral staircases, strenuous efforts have been made inrecent years to increase its share of the commercial and industrial market forstraight staircases, which has traditionally been served by a large number oflocal suppliers, the majority of whom have a much lower cost base than doesCrescent. Until recently, these efforts had achieved only limited success but asa result of an energetic and focused marketing campaign during the year Crescenthas managed to reach the point where straight stairs account for 35% of thecompany's workload, meaning that it is now less reliant on the spirals marketthe growth potential of which is likely to be limited. On the cost side, significant savings have been made in the company's overheadstructure and with the year-end order book standing at an all-time recordCrescent is well-placed to achieve further progress in the current year. DRC Polymer Products Following a considerable period of decline, sales at DRC finally stagedsomething of a recovery, ending up at a level 15% higher than the previous year.However, this improvement fell short of expectation and the result was yetanother loss for the year, although once again the level of loss was lower thanbefore. Sales of roofing materials into the modular building market exhibited a markedincrease during the year and DRC has now re-established itself as the marketleader in this field. On the other hand sales of the special soundproofingproduct once again fell well below the levels which had been anticipated byDRC's customer. Following a decision to exit the automotive sector, DRC's business is nowfocused exclusively on the manufacture of a broad portfolio of products targetedat the civil engineering, construction and petrochemical industries where itsrole is often that of manufacturing partner for a product distributor. Duringthe year progress was made in relation to a number of these arrangements and itis pleasing to report that DRC's well-established expertise in materialstechnology has enabled it to make a positive contribution to the task ofensuring that the materials which it manufactures remain competitively priced inthe global markets which they serve. Two new products were brought to market during the last quarter of the year,firstly a roof membrane suitable for use in both adhered and mechanically-fixedapplications and secondly a lining material for a branded pre-fabricatedguttering system. Both products are being distributed by market leaders in theirrespective sectors and both are regarded as having considerable potential. One notable exception to these partnering arrangements is the material which wereferred to in last year's Report as the "Intelligent Membrane". This material,which DRC now markets under the brand name "Hylam IQ" is a loose-laid membraneused to line reservoir roofs. The advantages of loose-laid systems for suchapplications, particularly in terms of cost, are well known but they have oftenbeen overshadowed by concerns over long-term integrity and the difficulty oflocating the source of any leaks. However, based on the use of a network ofsensors and a sophisticated built-in system of interrogating, detecting andmapping changes in the relationship between these sensors, Hylam IQ enables anydamage to the membrane to be pinpointed to within a very small area of theoverall installation. This product has been developed over a number of years and its introduction tothe market has been eagerly anticipated for some time. The first commercialinstallation took place in January at the Demings Moss reservoir near Haweswaterin Cumbria, and it is fair to say that the weather and ground conditions meantthat this test was as demanding as it was possible to be. However, all wententirely to plan and the customer - United Utilities - was suitably impressedwith the result. It would simply not have been possible for a lining based onthe use of liquid coatings to have been installed at that time of year. The system is now being actively marketed to a wider audience and is alreadyattracting significant interest both in the UK and internationally and webelieve that its potential is considerable. Indeed it has already been specifiedon several forthcoming projects in the UK water industry and should provide thebasis of significant additional turnover for DRC in the current year and beyond. Finance As mentioned in the Corporate Review we commissioned a revaluation of theGroup's property assets during the year the result of which has been an increaseof £828,000 to the values reflected in our balance sheet and a correspondingincrease in net assets. At 30 June our net bank borrowings amounted to £7,004,000, which was well withinthe limits agreed with our Bankers whose support we continue to enjoy. As is clear from Note 12 to the Financial Statements we maintained our pledge torestrict capital expenditure to the bare minimum and in principle we remaincommitted to this regime. However, should a situation arise where a relativelymodest investment would provide a significant short-term payback we are sureshareholders would want us to grasp the nettle. Litigation No litigation of a material nature is either in process or pending. Employees Your company's greatest asset is its employees and once again we thank them onyour behalf for their commitment, resourcefulness and energy. Wherever possibleit is our policy to promote from within and we are pleased that during the yearwe have been able to apply this policy in a number of instances. We willcontinue to seek to provide career-enhancing opportunities for those employeeswho are ready and willing to respond to the challenges involved. Current Trading We are pleased to report that all three of our subsidiaries have enjoyed asignificantly better start to the current year than to the previous one. Crescent in particular has produced a very strong result in the first quarterand Fullflow's UK businesses have also performed very creditably. DRC hasfinally reached break-even point and after years of losses this represents avery welcome turn of events. Disappointingly Fullflow's French and Spanishbusinesses continue to register losses but as we comment below there is everyreason to believe that these losses will not last for much longer. Future prospects In light of past disappointments we are somewhat reluctant to express overlyoptimistic sentiments under this heading. However, there are a number of genuine reasons for us to look to the future withconfidence. In particular order intake in recent months has generally been verybuoyant: in both France and Spain Fullflow's order intake has already exceededthe levels achieved in the whole of the previous year and Plasflow's third partysales have at long last reached a significantly higher level which we believe tobe sustainable. Crescent's order intake has also remained strong and we are extremely pleased bythe response of Crescent's management team to the challenge which we set them ofinstilling new momentum into their business. At DRC, progress continues to be made and if, both in the UK and abroad, demandfor the ground-breaking Hylam IQ reaches the levels which we regard as possible,then the rate of progress ought to accelerate very rapidly. Just as importantly costs remain under close control in all of our businessesmeaning that we retain more of the sales margins which we generate and also thatwe can be more competitive on the pricing front when necessary. In last year's report we stated that the future of the Group would be shaped bythe success which we achieve in generating revenue growth. At least at presentall the evidence suggests that our sales teams are making good progress on thisfront and against this background we feel justified in expressing an optimisticview of our prospects for the current year and beyond. Board of Directors Shareholders will be aware that for some time I have been planning to retirefrom the Group as Non-executive Chairman. However, as a Board of Directors wehave been ruthlessly determined to turn around the fortunes of the Group and Ihave been keen to oversee this process and to ensure delivery. Significantprogress has been made since our refinancing in May 2004 and I am confident thatthe potential of each of the operating subsidiaries to achieve enhancedprofitability on the back of record order books has never been better. AlanWalker, who has a considerable amount of public company experience and whoplayed a pivotal role in the refinancing and restructuring of the Group'sfinances will succeed me, albeit in the capacity of Executive Chairman. He inturn will be replaced by David Pett as Group Financial Director in addition tohis present role as Company Secretary. The Board is in the process of recruiting a new Non-executive Director andintends to invite a member of the Bell family, who are the Group's largestshareholders, to join the Board with a view to further developing the Group'sprofitable organic growth. I would also like to express my thanks on your behalf to my fellow Directors,Alan Smith and Alan Walker, for their efforts during the year. As promised inlast year's report both of them are working without remuneration and there canbe few public companies where such a situation prevails.Finally I would draw your attention to the forthcoming Annual General Meetingwhich is scheduled to be held in London on 24th January 2006. In the past thismeeting has not been especially well attended and we hope that more shareholdersthan before will elect to come to this year's meeting and express their opinionsto us. We would actively welcome some engagement with those of you who havechosen to invest in our Company. R M MuddimerChairman12th December 2005 Consolidated Profit and Loss Account Year ended 30 June 2005 2005 2004 Notes £'000 £'000 Turnover 2 16,007 15,006 Cost of sales (10,591) (9,806) -------- --------Gross profit 5,416 5,200 -------- --------Administrative expenses before (5,741) (7,016)exceptional items Exceptional items 373 (292) -------- --------Total administrative expenses (5,368) (7,308) -------- -------- -------- --------Operating loss before exceptional items (325) (1,816)Exceptional items 3 373 (292) -------- -------- Total operating profit / (loss) 48 (2,108) Interest receivable 2 3Interest payable and similar charges (571) (612) -------- --------Loss on ordinary activities before 2 (521) (2,717)taxation Taxation on loss on ordinary activities - - -------- --------Loss on ordinary activities after (521) (2,717)taxation being loss for the financial ======== ========yearBasic loss per share (pence) 4 (3.30)p (0.70)p ======== ========Diluted loss per share (pence) 4 (3.30)p (0.70)p ======== ======== The results are wholly derived from continuing operations in both years. Statement of Total Recognised Gains and Losses Year ended 30 June 2005 The Group 2005 2004 £'000 £'000 Loss for the financial year (521) (2,717)Revaluation of fixed assets 828 - -------- --------Total profit / (losses) recognised since last 307 (2,717)annual report -------- -------- Note of Historical Cost Profit and Losses Year ended 30 June 2005The Group 2005 2004 £'000 £'000 Loss on ordinary activities before taxation (501) (2,717)Difference between a historical cost depreciation 20 20charge and the actual depreciation charge of the -------- --------year calculated on the revalued amountHistorical cost loss on ordinary activities before (481) (2,697)taxation ======== ========Historical cost loss for the financial year (481) (2,697) ======== ======== Reconciliation of Movements in Shareholders' Funds Year ended 30 June 2005 The Group 2005 2004 £'000 £'000Loss for the financial year (521) (2,717) Revaluation of fixed assets 828 -New share capital subscribed, net of expenses - 3,091 -------- --------Net increase to shareholders' funds 307 374Opening shareholders' funds 557 183 -------- --------Closing shareholders' funds 864 557 -------- -------- Consolidated Balance Sheet At 30 June 2005 2005 2004 £'000 £'000 £'000 £'000Fixed assetsIntangible assets 19 27Tangible assets 4,423 3,906 -------- -------- 4,442 3,933Current assetsStocks 2,829 2,731 -------- ------- -------- --------Debtors falling due within one 5,482 4,766yearDebtors falling due after more 337 249than one year -------- ------- -------- --------Total debtors 5,819 5,015 -------- -------- 8,648 7,746Creditors: amounts falling due (9,123) (7,888)within one year -------- --------Net current liabilities (475) (142) ------- --------Total assets less current 3,967 3,791liabilities ======= ======== Financed by:Creditors: amounts falling due 3,306 3,437after more than one year Provision for liabilities and (203) (203)chargesCapital and reservesCalled up share capital 79 79Share premium account 11,134 11,134Capital reserve 41 41Revaluation reserve 1,479 671Profit and loss account (11,869) (11,368) -------- --------Equity shareholders' funds 864 557 ------- -------- 3,967 3,791 ======= ======== The financial statements were approved by the Board of Directors on 12thDecember 2005 and were signed on its behalf by J.A.F. WalkerDirector of Finance Consolidated Cash Flow Statement Year ended 30 June 2005 2005 2004 Notes £'000 £'000 £'000 £'000Net cash outflow from operating 5(a) (614) (224)activitiesReturns on investments and servicingof financeInterest received 2 3Bank and loan interest paid (476) (487)Hire purchase interest (37) (51) ------- ------- (511) (535) Capital expenditure and financialinvestmentPayments to acquire tangible fixed (110) (179)assetsPayments to acquire intangible fixed (5) (13)assetsReceipts from sales of tangible 20 144fixed assets ------- ------- (95) (48) ------- -------Net cash outflow before financingFinancing (1,220) (807)Issue of ordinary share capital net - 3,091of expensesBank loans received - 129Bank loan repayments (129) (250)Other loan repayments - (1,046)Capital element of finance lease and (260) (327)hire purchase payments ------- ------- (389) 1,597 ------- ------- (Decrease) / Increase in cash after 5(b) (1,609) 790financing ======= ======= Parent Company's Balance Sheet At 30 June 2005 2005 2004 £'000 £'000 £'000 £'000Fixed assetsTangible assets 1,120 625Investments 8,151 8,151 ------- ------- 9,271 8,776Current assetsDebtors 7,691 6,712 Creditors: amounts falling due within (4,466) (3,678)one year ------- -------Net current assets 3,225 3,034 ------ ------Total assets less current liabilities 12,496 11,810 ------ ------ Financed by:Creditors: amounts falling due after 2,925 2,925more than one yearCapital and reservesCalled up share capital 79 79Share premium account 11,134 11,134Revaluation revenue 500 -Profit and loss account (2,142) (2,328) ------- -------Equity shareholders' funds 9,571 8,885 ------ ------ 12,496 11,810 ====== ====== The financial statements were approved by the Board of Directors on 12thDecember 2005 and signed on its behalf by J.A.F. WalkerDirector of Finance Notes to the Financial Statements 1. ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group's financial statements. Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules modified to include 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 taxation and net assets is set out below: 2005 2004 Profit/ Profit/ (loss) (loss) Turn- before Net Turn- before Net over taxation assets over taxation assets £'000 £'000 £'000 £'000 £'000 £'000Syphonic drainage 9,193 (438) 74 8,809 (1,535) (646)Staircases 3,826 267 1,334 3,632 94 1,240Polymer sheet 2,988 (122) (125) 2,565 (252) 55materials ------- -------- ------- ------- ------- ------- 16,007 (293) 1,283 15,006 (1,693) 649 ------- -------Operating exceptional 373 (292)income (costs)Other charges/ (32) (419) (123) (92)liabilities -------- -------Profit/(loss) before 48 (2,108)interestNet interest payable (569) (609) -------- -------Loss before taxation (521) (2,717) -------- ------- ------- -------Total net assets 864 557 ======= ======= The Group operates predominantly within the United Kingdom. The geographicalanalysis of the Group's turnover by destination is as follows:- 2005 2004 £'000 £'000 United Kingdom 12,962 10,019Europe 3,009 4,848North America - 72Far East - 45Africa and Middle East 36 22 ------- -------- 16,007 15,006 ------- -------- 3. EXCEPTIONAL ITEMS Exceptional items comprise the following: 2005 2004 £'000 £'000 Direct costs and legal expenses in respect of - (96)the litigation with the principal vendor of DRCHoldings LtdNet proceeds from litigation against Group's 373 -former advisorsRationalisation costs in respect of Fullflow's - (142)activities in UK, France and SpainLegal costs in respect of termination of agency - (54)agreement ------- -------- 373 (292) ======= ======== 4. LOSS PER SHARE The loss per share calculation for the year ended 30 June 2005 is based on the weighted average of 15,769,546 (2004: 386,523,706) ordinary shares in issue during the year and the loss of £521,000 (2004: loss of £2,717,000). 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) from operating activities 2005 2004 £'000 £'000 Operating profit / (loss) 48 (2,108)Depreciation charges 473 569Amortisation of trade names and patents 13 15(Profit)/loss on sale of tangible fixed assets (11) 8Increase in stocks (98) (87)(Increase)/decrease in debtors (804) 459(Decrease)/increase in creditors (235) 920 ------- -------- (614) (224) ======= ======== (b) Reconciliation of net cash flow to movement in net debt 2005 2004 £'000 £'000 (Decrease) / increase in cash in period (1,609) 790Cash outflow from increase in debt and lease 389 448financing ------- --------Change in net debt resulting from cash flows (1,220) 1,238New finance leases (61) (36) ------- --------Movement in net debt in period (1,281) 1,202Net debt at 30 June 2004 (5,956) (7,158) ------- --------Net debt at 30 June 2005 (7,237) (5,956) ======= ======== (c) Analysis of net debt At 30 Non At 30 June Cash cash June 2004 Flow changes 2005 £'000 £'000 £'000 £'000Overdrafts (2,145) (1,609) - (3,754)Debt due within one year (129) 129 - -Debt due after one year (3,250) - - (3,250)Finance leases and hire (432) 260 (61) (233)purchase -------- ------- ------- --------Total (5,956) (1,220) (61) (7,237) ======== ======= ======= ======== The 2005 figures have been abridged from the audited statutory accounts for theyear which will be posted to shareholders on 19thDecember 2005. The figures for2004 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: J A F WalkerDirector of Finance Tel Office: 020 7379 7181Mobile: 07900 445623 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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