13th Sep 2007 07:01
Swallowfield PLC13 September 2007 Swallowfield Plc Creating and Delivering Solutions for our Customers' Success Preliminary Results for the year ended 30 June 2007. Swallowfield plc is pleased to announce its preliminary results for the year ended 30 June 2007 and the resumption of dividend payments. Financial Highlights • Net Debt £4.88m, down 32% (2006: £7.13m); • Operating Profit (pre exceptional items), up 122% to £1.32m (2006:£0.60m); • Earnings per share 3.9p (2006: loss per share of 2.4p); and • Recommended dividend of 1.3p per share. Operational Highlights • Second half trading better than anticipated following a strong tradingperformance in the first half; • We have won a greater share of high quality business through our focuson our core competencies; • New filling and packing operation in Czech Republic on track forJanuary 2008 production; • Chinese cosmetics joint venture signed - exclusive access to Europeanmarkets and royalty on sales using our technology; • Cosmetics division restructure moving towards target return withoperating profit of £0.30m and operating cash flow of £1.53m; and • Sale and Leaseback in progress. Outlook • Expected improvement in full year despite a slower first half; • New products and ranges developed over the last year will launch inthe second and third quarters of calendar year 2008; • Strategy of continuous improvement in Quality, Cost, Service andInnovation showing progress and achieving recognition from existing and newcustomers; • Sale and leaseback and the sale of property at Bideford will enablefurther reductions in net debt; and • Capital expenditure investment directed towards improvements inefficiency and the new operation in the Czech Republic. Shena Winning, Non-executive Chairman, commented: "This has been a year of major progress, and reflects the ability of our newmanagement team and the high calibre of all staff who work at Swallowfield. Theincreasing strength of the balance sheet and the improved profitability haveenabled the board to recommend a modest dividend for the year. The boardrecognises that this early success must be repeated in order to realise thecompany's potential." Enquiries: Swallowfield Plc.Ian Mackinnon, Chief Executive Officer 01823 662 241Peter Houston, Group Finance Director 01823 662 241 Mike Coe Blue Oar Securities plc 0117 933 0020Alan Bulmer, Performance Communications 0117 907 6514James Harris, JBP Public Relations 0117 907 3400 Creating and Delivering Solutions for our Customers' Success Swallowfield plc is a market leader in the development, formulation and supplyof cosmetics, toiletries and related household products to the own label andbranded sectors. We pride ourselves on being a customer orientated, innovative,flexible and responsive company and combine high quality, competitive productswith strong customer service - developing close partnerships with our customersand an in depth knowledge of their requirements. Chairman's Statement Key Achievements The results for the year to June 2007 are better than expected and indicate thatwe have made good progress in strengthening the balance sheet and restoring theprofitability of the Group. Earnings per share increased to 3.9p from a loss of2.4p last year and were higher than the market expectations set at the time ofour interim results. Following a strong trading performance in the first half of the year, trading inthe last 6 months was higher than anticipated. Operational efficienciescontinued to improve and cost control was better than expected. At the sametime, our focus on core competencies has allowed us to win a greater share ofhigher quality business opportunities. The improved trading together with lower levels of net debt enabled us to recorda profit before tax and exceptional costs of £0.93m compared with £0.11m in theprevious year. Business Review Toiletries Division During the year, we continued to drive our core activities and competencies thusdirecting our creative efforts towards higher quality business. Revenuesdeclined 7.8% to £33.50m but operating profit before corporate cost allocationsincreased by 30% to £2.36m. We captured the total overhead savings which we initiated and planned for 18months ago and have seen real progress and substantive cost reductions from theimplementation of a lean programme which continues to add benefits in all ourbusiness activities. The benefits expected from our China operation are alsoevident and we now source over 90% of our gift packs from the Far East. The toiletries division remains a highly creative and robust business whichfocuses on delivering a broad range of services to international customers.Whilst the majority of revenues come from UK based customers, a significantproportion of our production is sold in international markets. Customer servicelevels are vital for our ongoing success and the continuous improvementactivities undertaken over the last year have had real benefits. For example werecently won an award from one of our major customers for being the mostimproved supplier of the year. Cosmetics Division Significant progress has been made on the restructuring of this division.During the year the division made an operating profit of £0.30m before corporatecost allocations and, importantly, generated £1.53m of operating cash flow.Over the last two years this division has generated £2.9m of operating cash. Our plans for the cosmetics business have not changed. Our aim is to achieve a12% return on assets or, if this is not possible, to continue to downsize thedivision in a controlled way which enhances shareholder value, provides realservice to customers and allows us to respond to growth opportunities. Recentranges we have launched exemplify the high standard of service we offer ourcustomers and we see a long-term benefit in this division. Czech Republic We are making good progress in establishing our filling and packing operation inthe Czech Republic. The building is scheduled for handover in mid November andwe have recruited a high quality and experienced manager to run the factory.The other elements of the project plan are broadly on track and we still expectto start production by the beginning of January 2008. We have already begun tomarket this new facility to our existing customers who have provided veryencouraging feedback to us. China We have signed the heads of terms agreement for our Chinese cosmetics jointventure and expect this transaction to be concluded on within the next twomonths. The terms of the intended joint venture are that we will providetechnology including formulations and quality systems, in return for exclusiveaccess to European markets and a small royalty on all sales made by the jointventure using our specialist knowledge. Swallowfield will hold a 10% stake inthe joint venture company and have a seat on the board for a price ofapproximately £40,000. In addition to creating potential new salesopportunities in Europe, it gives us and our customers' even greater assuranceover the quality and standards of products which we source from China. Financial Results We have continued to make significant reductions in net debt and, at 30 June,net debt was £4.88m - its lowest level for 5 years. These reductions are adirect result of the planned shift in the business from stock holding accountsto contract accounts, improved working capital management and lower levels ofcapital expenditure. As discussed below, some of the capital expenditureoriginally planned for the financial year just ended, will be made in thecurrent financial year. Pension Scheme At the 30 June 2007, the pre-tax pension scheme deficit recorded in theCompany's balance sheet amounted to £2.7m. Good investment returns and robustmanagement have created an unrecognised surplus of £2.16m which, underinternational accounting standards, is not included in the balance sheet. Thisimproved position could be eroded by further stock market turbulence andrecognition of changes in assumptions for life expectancy. Sale & Leaseback of Lowmoor Warehouse Due to a number of technicalities, the sale process is taking longer thananticipated. It is still our intention to complete this transaction as soon aspossible and we continue to work with the original potential buyer. In themeantime, we have applied for planning permission for the extension and thus farhave received no negative feedback. Strategy & Outlook As noted earlier in the year, we planned to withdraw from certain non coreproduct areas and reduce the proportion of business which is dependent on stockholding - we have been successful in these regards. At the same time, many ofthe new products and ranges we have been working on for some time will notlaunch until the second and third quarters of calendar year 2008. Consequently,we expect the first half of the new financial year to be weaker than the sameperiod in the year just ended, but expect to see continued improvements for theyear as a whole. Our strategy of continuous improvement in Quality, Cost,Service and Innovation is beginning to show signs of success and this has beenrecognised by both existing and new customers. The impact of the sale and leaseback, the sale of property at Bideford and ourstrategy of reducing dependency on stockholding accounts will provide furtherreductions in net debt over the next 12 months. We plan an increase in capitalexpenditure levels from the low levels of the year just ended to somethingcloser to current depreciation levels. In part this reflects some expenditureoriginally planned for the year just ended being delayed into the new financialyear. The expenditure is directed towards cost reductions and improvements inefficiency, together with some increases required for the new operation in theCzech Republic. Dividends The Board considers that sufficient progress has been made in strengthening theGroup's balance sheet to resume the payment of dividends. Our strategy, asexplained previously, is to pay dividends using a cautious dividend cover ofthree times, with a progressive approach to future dividend cover over time.Accordingly, the Board is proposing to pay a final dividend of 1.3p per share.If approved at the Annual General Meeting, the final dividend will be paid on 30November 2007 to shareholders on the register at 16 November 2007. The shareswill go ex-dividend on 14 November 2007. S J WinningChairman13 September 2007 GROUP INCOME STATEMENTFor the year ended 30 June 2007 2007 2006Continuing Operations Notes £'000 £'000 Revenue 1 44,715 48,995Cost of sales (38,411) (42,779) Gross profit 6,304 6,216Commercial and administrative costs (4,986) (5,621) Operating profit before exceptional items 1,318 595Exceptional items 2 (244) (563) Operating profit 1,074 32Finance income 24 6Finance costs (411) (488) Profit/(loss) before taxation 2 687 (450)Taxation 3 (248) 182 Profit/(loss) for the year 439 (268) Attributable to equity shareholders 439 (268) Earnings/(loss) per share - basic and diluted 4 3.9p (2.4p) GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 30 June 2007 2007 2006 £'000 £'000Profit/(loss) for the year 439 (268)Total recognised income and expense for the year 439 (268) GROUP BALANCE SHEETAs at 30 June 2007 2007 2006 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 11,032 12,324Intangible assets 77 66 11,109 12,390Current assetsInventories 6,062 7,347Trade and other receivables 7,711 9,518Cash and cash equivalents 185 10Derivative financial 6 -instruments 13,964 16,875Assets held for sale 854 51Total current assets 14,818 16,926 Total assets 25,927 29,316 LIABILITIESCurrent liabilitiesTrade and other payables (7,508) (9,555)Interest-bearing loans and (1,153) (2,526)borrowingsTotal current liabilities (8,661) (12,081) Non-current liabilitiesInterest-bearing loans and (3,920) (4,612)borrowingsPost retirement benefit (2,717) (2,677)obligationsDeferred tax liabilities (476) (228)Derivative financial - (4)instrumentsTotal non-current liabilities (7,113) (7,521) Total liabilities (15,774) (19,602) Net assets 10,153 9,714 EQUITYShare capital 563 563Share premium 3,796 3,796Other reserve - 96Profit and loss account 5,794 5,259Total equity 10,153 9,714 GROUP CASH FLOW STATEMENTFor the year ended 30 June 2007 2007 2006 £'000 £'000Cash flows from operating activitiesProfit/(loss) before taxation 687 (450)Depreciation 1,205 1,389Amortisation 36 28Loss/(profit) on disposal of equipment 25 (1)Impairment of property, plant and equipment 42 84Impairment of intangible assets - 2Finance income (24) (6)Finance costs 411 488Decrease in inventories 1,285 1,965Decrease/(increase) in trade and other 1,807 (696)receivables(Decrease)/increase in trade and other payables (2,055) 486Decrease in other long-term employee benefits - (482)Increase in retirement benefit obligations 55 15Cash generated from operations 3,474 2,822 Finance expense paid (428) (583)Taxation recovered - 101Net cash flow from operating activities 3,046 2,340 Cash flow from investing activitiesFinance income received 24 6Purchase of property, plant and equipment (834) (813)Purchase of intangible assets (47) (31)Sale of property, plant and equipment 51 1Net cash flow from investing activities (806) (837) Cash flow from financing activitiesCapital element of finance lease liabilities (291) (230)Repayment of loans (147) (1,421)Dividends paid - (225)Net cash flow from financing activities (438) (1,876) Net increase/(decrease) in cash and cash equivalents 1,802 (373) Cash and cash equivalents at beginning of year (2,110) (1,737) Cash and cash equivalents at end of year (308) (2,110) Cash and cash equivalents consist of:Cash 185 10Overdraft (493) (2,120)Cash and cash equivalents at end of year (308) (2,110) NOTES: 1. Revenue and Segmental Analysis 2007 2006 Revenue Profit before Net assets Revenue Profit/(loss) Net assets tax before taxClass of business £'000 £'000 £'000 £'000 £'000 £'000 Toiletries products 33,497 2,362 11,103 36,318 1,818 11,481Cosmetics products 11,218 299 5,169 12,677 205 6,396 44,715 2,661 16,272 48,995 2,023 17,877 Corporate costs (1,343) (1,428)Operating profit 1,318 595before exceptionalitemsExceptional items (244) (563)Operating profit 1,074 32Net finance costs (387) (482)Profit/(loss) 687 (450)before taxation Unallocated net (6,119) (8,163)liabilitiesGroup net assets 10,153 9,714 Cash Cash generated generated from from operations operations £'000 £'000Toiletries 2,740 2,992Cosmetics 1,526 1,374 Geographic segmentBy destination: UK 37,471 41,001 Other Europe 7,021 7,754 Rest of World 223 240 44,715 48,995 All turnover is derived from operations established in the UK. Unallocated net liabilities comprise bank loans, overdrafts, finance leases andtaxation. 2. Profit/(loss) before taxation 2007 2006 £'000 £'000(a) This is stated after charging:Depreciation of property, plant and equipment: Leased assets 200 261 Purchased assets 1,005 1,128Amortisation of intangible assets 36 28Impairment of property, plant and equipment 42 84Impairment of intangible assets - 2Research and development 627 726Foreign exchange losses 50 4Operating leases: Hire of plant and machinery 88 82 Rent of buildings 51 77Auditors' remuneration: Audit services 41 44 Non-audit services 31 58 2007 2006 £'000 £'000(b) Exceptional items:Reorganisation 244 684Renegotiation of Jubilee costs - (431)Other exceptional costs - 310 244 563 Exceptional items relate to non-operational costs associated with the end of Cosmetics' Marks &Spencer contract (2006: Other exceptional items relate to legal and professional fees for anabortive acquisition and other non-recurring items). 2007 2006 £'000 £'000(c) Earnings before interest, tax, depreciation and amortisation ("EBITDA"):Operating profit 1,074 32Depreciation of property, plant and equipment 1,205 1,389Amortisation of intangible assets 36 28Impairment of property, plant and equipment 42 84Impairment of intangible assets - 2Loss/(profit) on disposal of non-current assets 25 (1)EBITDA 2,382 1,534Exceptional items 244 563EBITDA before exceptional items 2,626 2,097 3. Taxation 2007 2006 £'000 £'000(a) Analysis of tax charge/(credit) in the yearUK corporation tax: on profit/(loss) for the year - - adjustment in respect of previous years 64 (30)Total current tax charge/(credit) 64 (30) Deferred tax:Origination and reversal of timing differences: on profit/(loss) for the year 184 (152)Total deferred tax 184 (152) Total tax charge/(credit) on profit/(loss) 248 (182) (b) Factors affecting current tax charge/(credit) for the yearThe tax assessed on the profit/(loss) before taxation for the year is higher than the standardrate of UK corporation tax of 30% (2006: 30%). The differences are reconciled below: 2007 2006 £'000 £'000Profit/(loss) before taxation 687 (450)Profit/(loss) at the applicable rate of 30% 206 (135)Effect of:Expenses not deductible for tax purposes 34 38Capital allowances for the year in excess of depreciation (14) (17)Effect of R&D tax credits (16) (25)Other timing differences 8 (13)Deferred tax credit relating to change in tax rate (34) -Adjustment in respect of previous years 64 (30)Actual tax charge/(credit) 248 (182) 4. Earnings/(loss) per Share 2007 2006(a) Basic and dilutedProfit/(loss) for the year (£'000) 439 (268)Basic weighted average number of ordinary shares in issue 11,256,416 11,256,416during the yearDilutive potential ordinary shares - executive share options - - 11,256,416 11,256,416Earnings/(loss) per share 3.9p (2.4p) (b) Adjusted earnings per shareBasic and dilutedProfit/(loss) for the year (£'000) 439 (268)Add back: Exceptional items 244 563Notional tax charge on exceptional items (73) (169)Adjusted profit before exceptional items 610 126Basic weighted average number of ordinary shares in issue 11,256,416 11,256,416during the yearDilutive potential ordinary shares - executive share options - - 11,256,416 11,256,416Adjusted earnings per share 5.4p 1.1p 5. Notes to Statement of Cash Flows (a) Reconciliation of cash and cash equivalents to movement in net debt: 2007 2006 £'000 £'000Increase/(decrease) in cash and cash equivalents 1,802 (373)Net cash outflow from decrease in borrowings 438 1,651Change in net debt resulting from cash flows 2,240 1,278Net debt at 1 July (7,132) (8,443) (4,892) (7,165)Fair value of swaps hedging fixed rate borrowing 10 33Net debt at 30 June (4,882) (7,132) (b) Analysis of net debt 1 July 2006 Fair value 30 June adjustment 2007 £'000 Cashflow £'000 £'000 £'000Cash at bank and in hand 10 175 - 185Bank overdraft (2,120) 1,627 - (493) (2,110) 1,802 - (308)Borrowings due within one year (147) (365) - (512)Borrowings due after one year (4,432) 512 - (3,920)Finance leases (439) 291 - (148) (7,128) 2,240 - (4,888)Fair value of swaps hedging fixed rate borrowing (4) - 10 6Total (7,132) 2,240 10 (4,882) 6. Statutory Accounts The financial information does not constitute statutory accounts as defined insection 240 of the Companies Act 1985, but has been extracted from the statutoryaccounts for the year ended 30 June 2007, on which an unqualified audit reporthas been issued and which will be delivered to the Registrar following theiradoption at the Annual General Meeting. The statutory accounts for the financial year ended 30 June 2006 have beendelivered to the Registrar of Companies with an unqualified audit reportthereon. Copies of the 2007 Annual Report and Accounts will be posted to shareholderswith the notice of the Annual General Meeting. Further copies may be obtainedby contacting the Company Secretary at Swallowfield plc, Swallowfield House,Station Road, Wellington, Somerset, TA21 8NL. 7. Annual General Meeting The Annual General Meeting will be held on Thursday 8 November 2007 at theCompany's Registered Office, at 12.00 noon. 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