18th Dec 2007 07:01
SWP Group PLC18 December 2007 SWP Plc Preliminary results for the year ended 30 June 2007 Chairman's Statement Corporate Review When we last reported our interim results to shareholders on 29th March 2007 weexpressed disappointment at having to report a small loss for the six months to31st December 2006. This was due almost entirely to the absence of revenuestreams at our DRC subsidiary whose relationship with its single biggestcustomer had broken down requiring resolution before the Law Courts. In a year which has seen record performances from both the Fullflow Group andCrescent of Cambridge, the DRC litigation has dominated the commercial calendarfor a significant period of time. Considerable management resource has beendevoted to this important case. We are therefore delighted to report toshareholders that the outcome of this litigation, and the events which followed,have resulted in the most positive outcome imaginable both for DRC and the Groupas a whole. Following a trial of the issue, the High Courts of Justice found infavour of DRC and on 20th July 2007 awarded DRC "substantial damages" to beassessed by experts and ratified by the Court by way of secondary trial. Beforethe quantum of damages could be finally determined by the Court and pursuant tobreaches of the Companies Act by the directors of the defendant counterparty theopportunity to acquire the business assets including the intellectual propertyrights as well as negotiating the level of agreed damages at £800,000 was seizedupon by SWP's directors. On 29th November 2007 SWP and its subsidiary DRC became the proprietors of theULVA brand and all other relevant assets which support Ulva's global reach asone of the world's leading specialist suppliers of non-metallic insulationcladding used predominantly by the oil, gas and petrochemical industries inproviding thermal insulation to any pipe or vessel configuration. In this regardshareholders are encouraged to interrogate Ulva's website on www.ulva.co.uk togain a fuller understanding of the anticipated systems which we are now in aposition to manufacture and distribute to customers located in all corners ofthe world. This acquisition for nominal consideration, particularly when viewedagainst our damages claim which has been agreed in the amount of £800,000 islikely to produce a significant transformation in the financial prospects of DRCfrom the beginning of 2008 onwards. We look forward to updating shareholders asto the significant returns which DRC is expected to make now that the Ulva brandfeatures so prominently in its product portfolio and where our productionfacilities are in the process of being integrated with the advantages of brandleadership. Results Overall sales for the year to 30th June 2007 increased by 12.5% to £20,844,000(2006:£18,521,000) whilst operating profits advanced 43% to £1,068,000 (2006:£748,000). Profits on ordinary activities before taxation increased to £472,000(2006:£232,000). These results in themselves demonstrate improvement but areunderscored by losses at that time at DRC as explained above. The scale ofimprovement at both Fullflow and Crescent to which reference is made belowspeaks volumes for the high level of competence displayed by the managementteams at both these growing businesses which continue to operate in a highlycompetitive environment where market conditions remain extremely demanding. Yourdirectors are keen to exploit the opportunity created by the purchase of Ulvaand the future delivery of significant profit streams at DRC which for so manyyears has had an enduring negative impact on the results of the Group as awhole. The prospect of all three operating subsidiaries growing profitably inspecialist supply niches and generating high levels of cash is something for allshareholders to savour and to look forward to. Interest and Finance Charges at £597,000 (2006:£518,000) reflect the increasedcost of borrowing imposed by the Bank of England since August 2006 and the needfor greater levels of working capital required to fund Fullflow's rate of growthparticularly at Plasflow, France and Spain. Here again from January 2008 onwardsit is envisaged that the Group will have the capacity to generate much greaterlevels of cash and it will be one of our foremost objectives to reduce ourlevels of indebtedness as rapidly as possible going forward. Review of Operations Fullflow Group Following two years of significantly improved performance, Fullflow continuedits progress during the year under review. Total third party sales increased by27% to £14,837,000 (2006: £11,652,000) and this excellent level of furtherrevenue growth delivered an operating profit of £969,000 (2006: £719,000) Generally the market sectors in which Fullflow operates continued to exhibitsome considerable strength during the year as the demand for larger and largerdistribution warehouses continued. Our sustained presence in this sector hasbeen underpinned by a number of key customers and it is the maintenance of thesebusiness relationships which will be critical to future success in the UK. Fullflow UK continues to enjoy the confidence of the country's leadingarchitects, consultants and contractors. Passengers at the recently openedEurostar terminal at St Pancras International Train Station will be protected bya Fullflow rainwater management system as will shoppers at the Athlone TownCentre development which opened its doors to the public in November. Theseprojects demonstrate our ability and continued expertise to leave us well placedto further enhance our position generally and acquire work in other specialistsectors. At a time when competitive pressures in the market are intensifying,Fullflow's ability to achieve the highest possible standards of customer servicehas never been so important and achieving this should ensure our customers willfind it very hard to contemplate going elsewhere as a partnership relationshipis built on trust and cooperation. Recent economic trends might suggest less merger and acquisitions activity and adrop in overall confidence levels. Should this occur there will almost certainlybe a fall in investment resulting in fewer new factories, offices and warehousesbeing built. Clearly this trend will have a direct impact on the constructionindustry and whilst there is still a reasonable degree of momentum in the marketat the moment Fullflow must be prepared for this possibility. In France the year under review proved to be difficult. A significant number ofprojects were delayed due to a variety of client related reasons. Whilst this isnormal in construction the sheer number of delays proved to be highlyproblematic. However, during this period order levels remained high leavingFullflow with a record order book at the beginning of the current financialyear. Order levels have increased even further since the year end and Fullflowcan look forward with great confidence to the future. The client base continues to increase with a number of new clients and thesectors in which Fullflow operate have diversified to include Isseane, thelargest European recycling centre on the outskirts of Paris, together with theLaser MegaJoule, a nuclear testing plant project near Bordeaux. Margin levelshave remained comparatively stable in France which, coupled with the expectedincrease in turnover, are expected to return France back into profit. In Spain gross margins increased significantly across a very solid andbroadening portfolio of customers leading them to return an healthy profit aftersome years of losses. This increase is underpinned by a high proportion oflogistic projects returning better margins through improved efficiencies on siteand better working practices imposed by local management. Future growth isexpected to be achieved by increasing our market penetration through exploitingthe geographical advantages of localised selling teams across the IberianPeninsula. Despite these positive trends, syphonic rainwater system awareness is stillrelatively low in Spain, however, the publicity generated by projects such asExpo Zaragoza 2008, Airbus Seville and the IKEA logistics centre in Tarragonawill significantly raise the profile of Fullflow. The Construmat exhibition inBarcelona proved successful in reinforcing existing customer relationships andintroduced the system to a great number of potential future clients, includingarchitects, engineers and consultants. Confidence in the future is highlightedby the recent 50% increase in premises space in Madrid. Progress at Plasflow over the financial year significantly exceeded sales andprofit expectations. Plasflow are working to develop their niche in the marketof polyethylene fabrications for complex civil engineering contracts. With afacility having the capabilities to cut and weld up to 1200mm diameter pipe,quality assurance to ISO 9001:2000 and a team of experienced welders capable ofwelding plastics to international standards they are able to undertake projectsfor the most demanding client applications. Very significant contracts have been received for bespoke fabrications deliveredto tight timescales for the British Nuclear industry, the successful completionof which has led to enquiries from the conventional power generation sectorwhere companies are looking to move away from coated steel pipework topolyethylene to take advantage of lower 'Whole Life' costs. More than 25 largediameter specialist fabrications were made in Rotherham for the Jumeirah Palmproject in Dubai. It is significant that a very low proportion of Plasflow's third party salesdepend on private sector investment and there is every reason to believe thatPlasflow can achieve further meaningful growth in the niche markets which it hasidentified. As ever Plasflow continues to supply Fullflow's pipe fittingrequirements. We will continue to invest in our most important asset, our employees. Throughconstant review and challenging our policies at every level, we intend toreinforce Fullflow's long established market leading position and to ensure thatour quality, strength and experience are maintained and prevail over short-termprice considerations. To do this we must remain vigilant and responsive tochanges in the industry and deliver a focused, professional, high qualityservice which will attempt to exceed the expectations of our customers. The other element of our strategy is to roll out the Fullflow brand across theglobe through selected strategic alliances and licences. We are exploring anumber of possible openings at present and will be extremely disappointed if atleast some of these do not come to fruition in the next twelve months. Inprevious reports we highlighted that we had begun to forge links in both Indiaand the Middle East. Progress in both of these markets has proved slower thananticipated but we still believe that these markets offer strong potential forFullflow rainwater systems in the future. Crescent of Cambridge Crescent continues to be the leading producer and installer of steel fabricatedspiral and straight staircases in the United Kingdom. The year under review to30th June 2006 has produced a record performance that has exceeded ourexpectations. Sales increased by more than 18% to £4,749,000 (2006:£4,020,000)with operating profits reaching £605,000 (2006:£379,000) an increase of 59% onthe previous year. The reasons for the improved operating results can beexplained through a combination of the introduction of new management withmodern production and management control techniques allied to greater capacityutilisation of existing facilities in market conditions which although demandingwere ideally suited to Crescent's reputation for design innovation, flexibilityand quality. Margins have been improved by greater levels of efficiency whilstoverheads and costs have been tightly controlled. A programme of managementsuccession has been underway for sometime and much remains to be done tooptimise Crescent's undoubted potential for future growth. As a market leaderwhich commands respect from architects, specifiers, designers and large scalecontractors scope remains for further improvement in management systems,computer aided design techniques and the ability to produce "right first time"to a discerning and demanding customer base who place an increasing burden ofreliance on Crescent to design, produce, deliver and install in accordance withthe customer's timetable. A number of key initiatives are likely to beintroduced at Crescent in early 2008 with a view to maintaining performancelevels which had not been previously available to Crescent but which we nowexpect management adhere to. In this regard it is envisaged that Crescent willbecome IS09001 accredited. DRC Polymer Products Over the past two or three years DRC has approached a break-even status withoutactually turning a profit. The main driver behind this was the exclusive supplyagreement entered into back in 2003 to supply Ulva with its hypalon basedmembrane for onward delivery to the oil, gas and petrochemical customers aroundthe globe. The ownership of the Ulva brand did not vest in DRC who were one stepremoved from the sharp end of the market place as all sales and marketing wascarried out by the owners of Ulva whilst DRC was contacted to produce anddeliver the base membrane material. In reality breaches of contract occurredfrom October 2005 and throughout 2006 thereby denying DRC the ability to sellproduct which it was contractually entitled to do under this exclusive supplyagreement. The Court's confirmation of these breaches has now resulted in DRC'sentitlement to an agreed quantum of damages in the amount of £800,000 inclusiveof legal costs and expenses (of this amount £500,000 has been credited tooperating profit being the Directors estimate of the damages as at 30 June2007). Pursuant to the breakdown of the supplier relationship action was takento restructure DRC in any event so that it could achieve profitability on itsown merits without having to place reliance on producing material for Ulva. Thiswas a difficult, painful and time consuming exercise (giving rise to costs of£47,000) involving as in the case of Crescent the need to introduce newleadership as well as modern management techniques so that greater levels ofefficiency could be delivered in the areas of production, technical andadministration with improved service levels to customers. In addition to thisthe replacement of senior management allowed the introduction of improved salesand marketing initiatives designed to achieve greater market awareness andpenetration as well as a pragmatic assessment of what DRC could realisticallyachieve in its particular field of expertise. It is pleasing to note thatcurrently the new DRC business model has reached a better than break-evenposition for the past 3 month before taking cognisance of the newly acquiredUlva business which is likely to transform the results of DRC going forward.This business now comprises three principal business areas:- • Modular build - traditional products mainly supplied into the roofing and structural waterproofing industries based on long standing hypalon based technology. • Leak detection Hylan IQ - new sophisticated system for the accurate detection of leaks toreservoir roofs to enable the major water utility companies greater security andprotection from unidentified leaks. Orders are now flowing on a project byproject basis with Hylan IQ specified by three utility companies this year upfrom one major utility company last year. • Non-metallic insulation Cladding - the manufacture of hypalon based membrane used for weather and fireprotection over thermal insulation to any pipe or vessel used in the oil gas andpetroleum industries. Conversion of sheeting into component profiles designed tobespoke customer requirements to cover bends, elbows and sleeves using advancedvacuum forming techniques. These three distinct business areas should allow DRC to drive its turnoverlevels far beyond anything that we have been able to achieve to date. Theimprovement to the core DRC business in its slimmed down format allied to therecent acquisition of Ulva means that higher levels of efficiency and capacityutilisation can be anticipated in the months to come. As in the case ofCrescent, management changes have proved necessary at DRC and we are confidentthat we have in place strong and effective management capable of driving thisbusiness to new levels as well as providing assistance to the existingmanagement acquired as part of the Ulva acquisition to achieve growth in new andexisting markets including Europe, Asia, Middle East and North America. Finance In general terms our balance sheet remains in good order although gearing levelsas at 30th June 2007 remain high. We intend to focus a great deal of attentionto this important aspect of our stewardship through the anticipated reduction inborrowings going forward into 2008. Employees The Group is heavily dependent upon its employees to deliver the growthstrategies and objectives which we have set. We are greatly indebted to ouremployees who have delivered record performances in a number of key areas thispast year within Fullflow, Plasflow and Crescent. We do not expect markets to beany less competitive in 2008 and we hope that our many valued employees are upfor the challenges which are out there as we continue in our quest for organicgrowth. Litigation We are pleased to advise that currently there is no litigation outstanding. Future Prospects We recognise that the economic climate is fairly uncertain at this time amidscenes of market volatility of an unprecedented nature. This past year has seennotable success and growth within Fullflow, Plasflow and Crescent all of whichis viewed as highly commendable and we trust sustainable but the single mostimportant achievement for the Group in the recent past is not just the award ofdamages to DRC but the potential consequential effects of acquiring the Ulvabrand to fit with our manufacturing competence which allows us to move forwardwith three profitable operations. As a consequence your directors are confidentthat shareholder value will be enhanced in the months ahead. We hope that shareholders will take the opportunity to look at the Group'svarious websites where you will be able to appreciate the specialist nature ofsome of our activities. These are listed in the Annual Report. JAF Walker Chairman 17 December 2007 Consolidated Profit and Loss Account Year ended 30 June 2007 2007 2006 Notes £'000 £'000 Turnover 2 20,844 18,521 Cost of sales (14,065) (12,071) -------- --------Gross profit 6,779 6,450 Administrative expenses (5,711) (5,702) -------- -------- Total operating profit 1,068 748 Interest receivable 1 2Interest payable and similar charges (597) (518) -------- --------Profit on ordinary activities before taxation 2 472 232 Taxation on profit on ordinary activities (44) - -------- --------Profit for the financial year 428 232 ======== ========Basic profit per share (pence) 3 2.51p 1.43p ======== ========Diluted profit per share (pence) 3 2.51p 1.43p ======== ======== The results are wholly derived from continuing operations in both years. Statement of Total Recognised Gains and Losses Year ended 30 June 2007 The Group 2007 2006 £'000 £'000 Profit for the financial year 428 232Revaluation of fixed assets 229 - -------- --------Total profit recognised since last annual report 657 232 -------- -------- Note of Historical Cost Profit and Losses ------------------------------- -------- --------Year ended 30 June 2007 2007 2006 The Group £'000 £'000 Profit on ordinary activities before taxation 472 232 -------- --------Difference between a historical cost depreciation charge andthe actual depreciation charge of the year calculated on therevalued amount 19 20 -------- --------Historical cost profit on ordinary activities before taxation 491 252 ======== ========Historical cost profit for the financial year 491 252 ======== ======== Reconciliation of Movements in Shareholders' Funds Year ended 30 June 2007 The Group 2007 2006 £'000 £'000Profit for the financial year 428 232Revaluation of fixed assets 229 -New share capital subscribed, net of expenses - 750 -------- --------Net increase to shareholders' funds 657 982Opening shareholders' funds 1,846 864 -------- --------Closing shareholders' funds 2,503 1,846 -------- -------- Consolidated Balance Sheet At 30 June 2007 2007 2006 £'000 £'000 £'000 £'000 Fixed assets Intangible assets 29 42Tangible assets 4,697 4,411 -------- -------- 4,726 4,453Current assets Stocks 3,176 2,969------------------------- -------- -------- -------- --------Debtors falling due within one year 6,399 5,795Debtors falling due after more than one year 543 755------------------------- -------- -------- -------- --------Total debtors 6,942 6,550 -------- -------- 10,118 9,519Creditors: amounts falling due withinone year (9,063) (8,984) -------- -------- Net current assets 1,055 535 -------- --------Total assets less current liabilities 5,781 4,988 ======== ======== Financed by: 3,481 3,345Creditors: amounts falling due aftermore than one year Provision for liabilities and charges (203) (203)Capital and reserves Called up share capital 85 85 Share premium account 11,878 11,878 Capital reserve 41 41 Revaluation reserve 1,669 1,459 Profit and loss account (11,170) (11,617) -------- --------Equity shareholders' funds 2,503 1,846 -------- -------- 5,781 4,988 ======== ======== The financial statements were approved by the Board of Directors on 18 December2007 and were signed on its behalf by D.J. Pett Director of Finance Consolidated Cash Flow Statement Year ended 30 June 2007 2007 2006 Notes £'000 £'000 £'000 £'000 Net cash inflow from 4(a) 1,346 378 operating activities Returns on investments and servicingof financeInterest received 1 2Bank and loan interest paid (512) (498)Hire purchase interest (21) (18) ------- ------- (532) (514) Capital expenditure and financialinvestmentPayments to acquire tangible fixedassets (332) (152)Payments to acquire intangible fixedassets (2) (45)Receipts from sales of tangible fixedassets 75 32 ------- ------- (259) (165) ------- -------Net cash inflow/(outflow) beforefinancing 555 (301) Financing Issue of ordinary share capital net ofexpenses - 750Other loan repayments - (95)Capital element of finance lease andhire purchase payments 47 (268) ------- ------- 47 387 ------- ------- Increase in cash after financing 4(b) 602 86 ======= ======= 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. 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: Turn-over 2007 Profit/ Net Turn-over 2006 Net (loss) before assets Profit/ assets taxation (loss) before taxation £'000 £'000 £'000 £'000 £'000 £'000Syphonicdrainage 14,691 965 1,916 11,652 719 1,102Staircases 4,749 605 2,041 4,020 379 1,457Polymersheet materials 1,404 (277) (623) 2,849 (94) (276) ------- -------- ------- ------- ------- ------- 20,844 1,293 3,334 18,521 1,004 2,283 ------- -------Othercharges/liabil ities (225) (831) (256) (437) -------- -------Profitbefore interest 1,068 748 Netinterest (596) (516)payable -------- -------Profitbefore taxation 472 232 -------- ------- ------- -------Total netassets 2,503 1,846 ======= ======= The Group operates predominantly within the United Kingdom. The geographicalanalysis of the Group's turnover by destination is as follows:- 2007 2006 £'000 £'000United Kingdom 14,130 12,857Europe 6,714 5,651Africa and Middle East - 13 ---------- ---------- 20,844 18,521 ---------- ---------- 3. PROFIT PER SHARE The profit per share calculation for the year ended 30 June 2007 is based on theweighted average of 17,019,546 (2006 16,189,199) ordinary shares in issue duringthe year and the profit of £428,000 (2006: profit of £232,000). The company's share options are not dilutive for loss per share calculations. 4. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT(a) Reconciliation of operating profit to net cash inflow/(outflow) fromoperating activities 2007 2006 £'000 £'000Operating profit 1,068 748Depreciation charges 384 366Amortisation of trade names and patents 15 22Profit on sale of tangible fixed assets (22) (5)Increase in stocks (207) (140)Increase in debtors (392) (731)Increase in creditors 500 118 -------- -------- 1,346 378 ======== ======== (b) Reconciliation of net cash flow to movement in net debt 2007 2006Increase in cash in period £'000 £'000 602 86Cash outflow/(inflow) from increase in debt and leasefinancing (47) 1,549 ------- -------Change in net debt resulting from cash flows 555 1,635New finance leases (162) (229) ------- -------Movement in net debt in period 393 1,406Net debt at 30 June 2006 (7,112) (8,518) ------- -------Net debt at 30 June 2007 (6,719) (7,112) ======= ======= (c) Analysis of net debt At 30 June Cash Non cash At 30 June 2006 Flow changes 2007 £'000 £'000 £'000 £'000 Overdrafts (3,668) 602 - (3,066)Debt due after oneyear (3,250) - - (3,250)Finance leases andhire purchase (194) (47) (162) (403) --------- ------- -------- -------- Total (7,112) 555 (162) (6,719) ========= ======= ======== ======== The 2007 figures have been abridged from the audited statutory accounts for theyear which will be posted to shareholders on 21 December 2007. The figures for2006 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 and The Company's websitewww.swpgroupplc.com. For further information or enquiries please contact: J.A.F Walker D.J. PettChairman Director of FinanceTel Office: 020 7379 7181 Tel Office: 020 7379 7181Mobile: 07900 445623 Mobile: 07940 523135 Oliver Scott KBC Peel Hunt Nominated Advisor and Broker Tel Office: 0207 418 8900 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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