Final Results

SWP Group Plc

("SWP" or the "Group")

Final Results for the year ended 30 June 2012

SWP Group (AIM: SWP), the industrial engineering group, is pleased to announce its final results for the year ended 30 June 2012.

Financial Highlights

n Earnings per share increased by 25% to 0.30p (2011 - 0.24p)

n Profits before tax £0.835M (2011 - £0.548M)

n Operating profits before exceptional costs, amortisation, share based payments and royalty charge £1.52M (2011- £2.04M).

n Operating profits after exceptional costs £1.12M (2011- £0.85M).

n Group sales declined by 14.7% to £20.92M (2011 - £24.53M).

n Crescent returned to profits of 6.7% net on sales which increased by 27% compared to 2011.

n Plasflow achieved record sales (up 34% on 2011) due to the flow of nuclear related activity.

n Dividend maintained at 0.075p per share (2011 - 0.075p per share).

Operational Highlights

n Borrowings reduced by 18.4% at 30th June 2012 and a further 37% by 31st October 2012.

n Gross margins overall increased by 3% due to operating efficiencies and improved business practices via improved contracts management.

n Tighter cost controls applied to all business units. Additional risk management controls applied.

n Ulva sales penetration into new international territories. Divisional sales up 3.6%.

n Underperforming activities in Fullflow Spain and DRC reduced in scale and/or exited from market. As a consequence Fullflow turnover down 23%.

n Recruitment of key executives to promote international sales growth within the key brands of Ulva and Fullflow.

Chairman's Statement

Business Review

At last year's Annual General Meeting I was at pains to point out to shareholders that the "project" led nature of our businesses and in particular Ulva's in various parts of the world had led to peaks and troughs in the timing of invoiced sales over which we had little or no control. At that time we had only just learned of the deferment of a major insulation supply contract in the Caspian until 2014/2015 which we had expected would feature prominently in the results for the year to 30th June 2012. This postponement where our Ulvashield product is specified adversely impacted the half year results to 31st December 2011 which, as already reported, were little more than break even.

It is therefore pleasing to be able to report to shareholders that in the second half of the year Ulva was able to deliver a range of supply contracts that have allowed the Polymer Membrane Division to record strong results which have contributed to the overall respectability of the results for the Group as a whole for the year ended 30th June 2012.

The activities of your Group continue to centre around the leading niche brands of Ulva and Fullflow. Since 2008 it is fair to say that Fullflow's home markets in the UK, France and particularly Spain have been severely affected by economic recession with the building and construction sectors having suffered more than most. This has necessitated prompt and regular action to adjust the cost base of each business in the face of weakening demand. It has also forced management to assess and evaluate even more thoroughly the "risks" involved in doing business in jurisdictions where it is increasingly difficult to obtain credit insurance to ensure that we receive payment for the work that we carry out.

Ulva is a leading niche player in the supply of polymer based engineering solutions in the field of CUI management (Corrosion Under Insulation) to an increasing number of oil and gas majors all over the world. As Ulva continues to be specified for international projects the introduction of our Site Services Team has enabled us to play a greater role in the quality assurance aspects of the projects, typically working directly for the specifying end user to assist in the management and support of the application contractor to ensure that precisely what is envisaged within discerning specifications is delivered on the projects.

Fullflow as a leading supplier of siphonic roof drainage systems by way of rainwater management has experienced a difficult year in highly challenging market conditions. Recession hangs over its main markets in the UK, France and in Spain where demand has declined significantly. Fullflow's overall result at break even represents its worst result in years and yet during the period significant progress has been made in a number of critical areas which will stand the business in good stead in the future. New senior management has taken control of the business and considerable progress has been made in terms of developing effective contracts and risk management as well as improvements to operating efficiencies. Significantly, Fullflow's horizons have extended beyond the home markets into international territories which offer potential for growth through strategic alliances in chosen markets where there is a demonstrable appetite for Fullflow's products and expertise.

Plasflow through its state of the art pipe welding facility based in Rotherham has enjoyed its most successful trading year to date on the back of a number of new contract successes in the nuclear industry. This demonstrates Plasflow's ability to provide engineering solutions which sets it apart from its competition. A policy of continuous improvement has led to the award of ISO 14001 in respect of the Environmental Standard. Projects involve most of the nuclear plants in the UK including Hinkley Point, Torness and Hunterston with plans being made for major works to be carried out at EDF Sizewell in Spring 2013. Plasflow's activity levels look set to continue including, inter alia, fabrication to support Fullflow's projects in the UK and Northern France. The management team at Plasflow well deserve their recent success.

Crescent as one of the country's leading suppliers of metal staircases has enjoyed a return to profit which resulted from sheer drive, enthusiasm and the team's ability to innovate in market conditions which remain seriously depressed. By broadening the skill base within the product offering at Crescent the company has taken on a larger share of the fabrication and finishing works within certain projects which has allowed Crescent to compete where in earlier years this would not have been possible. Well led by new management greater emphasis is now being placed on focussed sales and certain geographic target areas within the United Kingdom. Against a background of muted demand and competitive pressures the management team at Crescent is hungry for success and is striving to maintain the momentum that has been created during this past year.

Results

Turnover in the year to 30th June 2012 fell by 14.7% to £20.92M (2011: £24.53M) due to lower activity within the Fullflow Group across the board but in particular due to the downturn in Spain and DRC's withdrawal from the roofing sector during the year. Despite the postponement of a major supply contract by over two years the Polymer Membrane Division managed to maintain sales volume with an increase of 3.6.%

Operating profits of £1.119M were recorded as compared to £850K in the previous year (after the one time write off of royalties). Under IFRS accounting these figures are stated after adjustments relating to the amortisation of intangible assets (£165K: 2011 £165K) and non-cash related share options (£42K: 2011 £38K). After financial interest and related derivative charges for Letters of Credit and Performance Bonds of £284K (2011: £318K) pre tax profits increased by 52% to £835K (2011 £548K).

Earnings per share after taxation advanced by 25% to 0.30p per share (2011: 0.24p).

There are no further royalty payments to be made. The royalty payments made in 2011 of £701,000 remain refundable by the Liquidator of the Ulva business prior to the Group's acquisition of Ulva on 28th November 2007. The terms are set out in an Asset Purchase Agreement of that date and although the amount of royalties paid remains a contingent asset which is not recognised in these financial statements, we remain optimistic that they will be recovered either in full or in part now that as expected all creditors (including DRC) have received dividends of 100p/£ in respect of their debts.

Borrowings

A feature of SWP's corporate objectives remains the retirement of debt. Bank debt at 30th June 2012 has fallen to £3.18M (2011: £3.9M) or by 18.4%. More importantly strong cash generation post 30th June 2012, at which time strong fourth quarter sales had not yet been received in cash, has resulted in net debt falling by 31st October 2012 to around £2M or by a further 37%. This trend is likely to continue into 2013. Given that our debt exceeded £7.5M at the onset of the recession in early 2008 we regard this as a major achievement against a background of economic uncertainty and a reflection of the robust nature of the business model to which we are operating.

The Group's Statement of Financial Position reflects a strong balance sheet on which the future development of our brands will be based. Both creditor and debtor days have reduced as has the continued absorption of deferred tax assets and liabilities. Generally, more effective cash management of working capital assets and particularly a reduction in inventories has contributed towards our aim of continuing our debt reduction programme to a conclusion.

Dividend

Shareholders will recognise that we have a progressive dividend policy at SWP. The continuing recessionary climate and the difficulties faced in Fullflow's various home markets persuades your Board to act with caution. We are not only committed to achieving a debt free status but have plans to further invest in process equipment within our Polymer Membrane Division which will upgrade existing manufacturing efficiency as well as capacity and extend Ulva's product offering to a wide array of international customers. This future investment is designed to facilitate growth.

For the above reasons and notwithstanding the Group's ability to generate cash we have concluded that the reduced dividend that was declared and paid last year should be maintained this year. The Board therefore wishes to recommend the payment of a dividend of 0.075p per share (2011: 0.075p)

Taxation

As in earlier years the Group continues to benefit from the utilisation of losses incurred before 2007 albeit on a reducing basis as a consequence of the continuing underlying profitability of the Group's activities. The tax charge referred to reflects to a large extent UK corporation tax of £217K out of a total charge of £227K, the difference being the net movement on overseas tax and deferred tax which has been computed by reference to the downward adjustment to the rate of corporation tax now applicable in the UK.

Strategy

The Group's strategic development has been influenced by the depth of the recession within Fullflow's markets in the UK, France and Spain plus the need to restructure and optimise controls within each Fullflow business including Plasflow. This has taken time to achieve and has required considerable effort on the part of the Group's senior management to procure.

The business development at Ulva was always going to take time for the seeds which were sown over the past three or four years to reach an appropriate stage for harvesting. Ulva is a highly differentiated business operating in niche markets to a high level of technical competence and requires the relevant technical resources to support its development.

With the support of our brands at Plasflow and Crescent it remains our strategic aim to place significant resources behind our principal brands at Ulva and Fullflow both of whom have the capabilities, ambitions and technical expertise to grow in international markets where there are signs of considerable appetite for the products and services which we offer. For this reason shareholders can expect that the Group will continue to pursue opportunities in the established home markets but that further growth is likely to be derived from expansion abroad.

Corporate Governance

Wherever practical the Group is committed to the principles set out in the UK Corporate Governance Code to the extent that they are relevant to a business of our size. Staff appraisal reports are prepared annually at each operating unit, our Remuneration and Audit Committees meet at least on two occasions each financial year whilst monthly management meetings at subsidiary level are enhanced by Group Board meetings held on a quarterly or as required basis.

People

It is perhaps in these difficult times when management is put to the ultimate test. The recession has been long and arduous but in many ways SWP has weathered this difficult period well and established a relatively mean and lean organisation as a platform for the future. Over the past twelve months SWP has strengthened its various management teams with new experienced, as well as talented, executives and as referred to in the Operational Review below is committed to professional selling on an international basis and to providing the necessary support and training to achieve a professional approach to specification selling.

To all of our loyal and hard working employees we as a Board offer our thanks for the innovation, resilience and determination to succeed in difficult market conditions. Their dedication is much appreciated. We have many challenges in front of us and even more opportunities for the profitable development and enhancement of our Group.

Earnings per share

Basic and fully diluted earnings per share increased by 25% to 0.30p (2011 - 0.24p).

Prospects

The results for the year to 30th June 2012 whilst not up to our original expectations were highly respectable given the disappointment caused by the postponement until 2014/2015 of a major contract we had been expecting Ulva to deliver in the first half of the year.

The recovery in the second half of the year was highly encouraging and the level of cash generated during the year and indeed after the year end provides the confidence that we shall achieve our ambition to be debt free or in net cash before long.

The Group is poised for growth. We have shed underperforming activities and adopted effective controls to the way in which we choose to conduct business going forward. New talent is making an impact and we are investing in resources to back and promote our principal brands to grow internationally.

Whilst we aspire to grow our businesses globally on an organic basis we recognise that the forging of strategic alliances and the conversion of specifications into orders and sales takes time. Much of our current focus is dedicated to the delivery of medium to long term growth in our chosen areas of expertise.

The current year is expected to be no less challenging than in recent times. It may follow a similar trading pattern to 2011/2012 with delivery of a series of projects over which we have transparency in the second half of year. Despite the many economic uncertainties in global markets and in particular Europe the Group has made improvements to the operating efficiencies within the businesses and we are looking forward with confidence to making further progress in the year ahead.

Alan Walker

Chairman

Operational Review

Operations Review

The most important aspect in the development of the Group during the last twelve months has been success in recruiting a small number of employees into key leadership and selling roles. With the exception of two vacancies within the Ulva business the Group today is fully and appropriately staffed with an effective mix of "Pillars" and "Movers & Shakers". The combination of new talent and ideas with the experience base of long serving loyal employees means that for the first time since I joined the group in October 2006, I feel confident that we have the people and skills to drive the Group forward in a highly focused way. Investment is now being made in our people in terms of training and development, particularly in the area of professional selling.

The necessary investment that has been made during the past two years in restructuring the Group's construction related businesses has meant that not only have the businesses survived, whilst a number of competitors have fallen by the wayside or are at risk, but when combined with the effectiveness of smaller but smarter employee teams these businesses are equipped to reach out to new market areas at a time when domestic markets remain static at best. 

The 14.7% decline in Group revenues against the previous year is not representative of the level of preparedness of the businesses to move forward in FY 2013 and was disproportionately affected by the almost total collapse of the construction sector in Spain combined with DRC's withdrawal from the roofing sector during the year.

The project based nature of the Group's activities was again demonstrated by the quite dramatic differences between first and second half revenues, a phenomenon that has been observed previously and is very likely to be seen again. 

SWP's construction related businesses are fit and healthy and well positioned to be rewarded when their domestic markets recover. The solid foundations within these businesses are allowing management's aspirations to once again focus on growth through diversification and international markets. Ulva continues to sow the seeds for growth in order to move beyond the plateau of the last three years.

In addition to the investment in our people, capital investment is planned in new process equipment and new complementary products within Ulva and on a smaller scale within Fullflow.

Crescent

The support that has been given to this business unit in recent years was rewarded with a return to profit in the period. Revenues grew by 27% returning an operating profit on sales of 6.7%. The business is smaller in scale than it was before the recession took hold but the quality of the product, the technical competence of the engineering, manufacturing and installation staff, and the strength and reputation of the brand remain intact. The employee team has taken great pride and satisfaction in the result for the year and is motivated to consolidate this achievement, remaining viable in a reduced market.

Crescent has extended its offering along the supply chain by applying its core competences to an extended range with good project management and high quality standards very much to the satisfaction of its customers. Crescent has traditionally focussed entirely on staircase activity only but its proven expertise extends to other fabrication and finishing works and it has been the application of these additional skills in order to undertake a more substantial element of an overall project that has provided the business with its much needed boost.

There is an appetite for further success in the Crescent team with a good and well-motivated sales team eyeing an enlarged market potential. The lumpy nature of project demand suggests a slower first half and stronger second half in the year ahead.

Fullflow

The continued decline in the Spanish economy adversely impacted upon Fullflow's performance in the year under review. Overall revenues declined by 23%. A significant re-organisation of the Spanish business was undertaken during the year resulting in exceptional operating costs of £178K. Post year-end further action has been taken to limit the Group's risk exposure to the Spanish economy.

Effective new leadership of the Fullflow Group combined with a new sales force in the UK, allied to the experienced core team has generated reasons for optimism.

Great progress has been made in developing the contracts management aspects of the business in order to reduce exposure to risk, ensure payment is received and to account properly for substantial variations without "nickel and diming" customers. Customer response has been positive to this approach and when combined with Fullflow's longevity and reputation for quality, it is providing compelling reasons for customers to want to do business with Fullflow.

The UK and French businesses are on solid foundations and the Spanish business is undergoing further restructuring to place it on a similar footing. From this stable platform in its home markets Fullflow is well positioned to focus on re-developing its presence in international markets, particularly for prestigious airports and stadia.

Operational efficiencies have been gained by Plasflow providing the pre-fabrication and project kitting service to all Fullflow projects in the UK and the North of France. Significant progress has been made in value engineering the Fullflow system and negotiating reduced material prices and investment is being made in the development of a unique technology that will further substantially reduce the cost and time associated with the installation of systems on site.

Plasflow made an important step forward as key nuclear energy sector projects that had been long anticipated, flowed during the year. In many ways Plasflow matured during the year, coping well with the increased activity levels, delivering a high quality standard with high customer satisfaction. The increased activity levels are projected to continue for the foreseeable future and management is searching for opportunities to take Plasflow's core competences to an enlarged market. 

Polymer Membrane Division

Ulva

The year under review describes a performance that is quite similar to the prior two years in terms of the scale of the business and the influence of the timing of major projects resulting in substantial differences between the first and second half financial performances of the year.

Ulva's revenue generation has been more or less consistent during the last three years which might attract the comment that the business has plateaued. However, it should be recognised that approximately 90% of Ulva's revenues are generated from oil and gas related new build projects. For revenues to remain constant it is necessary to continuously win new projects, which Ulva has achieved not only within its traditional markets but also with new customers and in new geographic locations. Progress to date, for example in the United States, has generated sufficient confidence for Ulva to create a trading entity with an enhanced calibre of directly employed staff.

What has become all too evident, however, is that the Ulva team is too small to deliver the growth levels that we aspire to. In effect, the business has been constrained by its resource levels with the sales team spending more time in project management roles, ensuring that the quality of application is high on existing projects, than it has generating new business. This problem was alleviated somewhat by the creation of the Site Services Team (SST), which has proven to be much in demand. However, a small number of high quality individuals are still required to enable Ulva to translate the good success that it has achieved in gaining corporate specifications into new project specifications. The available market for Ulva is substantial and there is good visibility of the pipeline of projects ahead. Investment in the right resource, and the time for it to become effective, will see Ulva grow significantly in the future.

The Ulva operations team has done particularly well to provide continuously high levels of quality and service despite the lumpy "feast and famine" pattern of demand.

The Polymer Membrane Division is planning an important investment to renew and upgrade the process line for the manufacture of Ulva products with significant advances in future capability and efficiency. Concurrently, Ulva is planning to invest in an additional and complementary range of products to further support the Group's aspirations for future growth.

DRC Polymer Products

DRC has been a business that has struggled for many years. Notwithstanding the best efforts of management, market conditions have consistently failed to reward the business.

Despite significant investment in the development of a Hylam Uniroof product based upon an alternative compound to Chlorosulphonated Polyethylene following its 140% price increase, DRC has been unable to achieve a satisfactory product performance for alternative polymers at a commercially attractive price and has been forced to exit the paper backed roofing laminate market. The exit was accelerated by the failure of DRC's marketing and distribution partner.

The concept of the Hylam IQ intelligent membrane system has failed to capture the attention of the UK water utilities in any meaningful way and the small volumes of available work were not attractive to DRC, lacking critical mass. The product has failed to become commercially viable and DRC has exited this market.

The key role of DRC today is the manufacture of Ulvashield and the Drinking Water Inspectorate (DWI) approved Hylam FPA membrane for potable water applications which is now sold exclusively through a close relationship with an application partner.

Health and Safety

SWP's Group Health and Safety team continues to 'raise the bar' and there were no reported incidents in the year under review.

Colin Stott

Group Managing Director

Consolidated Statement of Comprehensive Income

Turnover and operating profit all derive from continuing operations.

There were no recognised gains and losses for 2012 or 2011 other than those included in the Group Income Statement.

Consolidated Statement of Changes in Equity

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Year ended 30 June 2012

Notes to the Financial Statements

1. BASIS OF PREPARATION

Whilst the information included in this final results announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union and as issued by the International Accounting Standards Board, this announcement does not itself contain sufficient information to comply with IFRSs.

The final results announcement for the 12 months to 30 June 2012 has been prepared on a consistent basis with the financial accounting policies set out in the Accounting Policies section of the SWP Group Plc Annual Report and Financial Statements 2011.

2. SEGMENTAL REPORTING

BUSINESS SEGMENTS

The Board has determined the operating segments based on the reports reviewed by the Board that are used to make strategic decisions. The board reviews the results of each entity within the group on a regular basis and accordingly each entity is deemed to be an operating segment. The operating segments have been aggregated into the reportable segments disclosed above in accordance with IFRS 8 Operating Segments.

The Board is provided with financial reports for each of the reportable segments above on a regular basis. The United Kingdom is the home country of the group.

The Directors consider that certain entities within the group constitute an operating segment as information about each company is regularly presented to the Board.

Sales between segments are carried out at arm's length. The revenue from external parties reported to the board is measured in a manner consistent with that in the statement of comprehensive income.

The amounts provided to the Board with respect to total assets and total liabilities are measured in a manner consistent with that of the consolidated financial statements. Assets are allocated based on the operations of the segment and the physical location of the asset. Liabilities are allocated based on the operations of the segment.

Information in respect of revenues from external customers and detailed splits of revenues between individual foreign countries has not been disclosed. This type of information is not presented to the board when making strategic decisions and is not readily available.

There were no Clients or contract representing more than 10% of Group revenue in the current year within the Rainwater Management Division. There was, however, one supply agreement in the year with Ulva where the revenue was £2.7M which is more than 10% of Group revenues.

The accounting policies note for revenue gives further information about the classifications of revenue between the business segments for this and the comparative year. The rainwater management segment is construction contract based in nature and its revenue is accounted for in accordance with IAS11, Construction Contracts, additionally certain contracts included in the Polymer Membrane segment are accounted for as construction contracts. The staircases and polymer membrane segments relate principally to the supply of goods, accounted in accordance with IAS18, Revenue. The supply of services for these segments is incidental to the supply of goods.

The aggregate amount of costs incurred on construction contracts in progress at the balance sheet date is £1,464,000 (2011: £1,045,000).

The aggregate amount of recognised profits incurred on construction contracts in progress at the balance sheet date is £466,000 (2011: £444,000).

GEOGRAPHICAL SEGMENTS

The Group's operations are located in the UK, France and Spain. 

The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services

The following is an analysis of the carrying amount of segment net assets and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located.

3. ROYALTIES

Included within the Consolidated Statement of Comprehensive Income was a royalty payment of £701k in the 2011 comparatives. This payment was made under the terms of the trade and Asset Purchase Agreement for Ulva Limited entered into in 28 November 2007 and which gave rise to a £6.175m fair value gain in the June 2008 financial statements under IFRS3 (Business Combinations). Under the terms of this agreement a royalty payment related to income for the three years to 30 November 2010 would be payable in the event that sufficient assets had not been realised by the liquidator, from whom the trade and assets of Ulva Limited were purchased, to repay creditors in full.

In prior years the Directors were of the opinion that the chances of this liability crystallising were remote however during the year ended 30 June 2011 the liquidator requested payment. This amount will be repaid from any excess funds available at the conclusion of the liquidation process and hence is a contingent asset. Given the uncertainty concerning the amount of available funds the Directors do not consider it appropriate to recognise the contingent asset and have therefore expensed the payment in the year to 30 June 2011. No further amounts are due by SWP under the terms of the Asset Purchase Agreement.

4. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the year.

Diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the year shares plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

Treasury shares are deducted from total shares in issue for the purposes of calculating earnings per share.

The basic earnings per share is 0.30p (2011 - 0.24p).

The diluted earnings per share is 0.30p (2011 - 0.24p).

The basic earnings per share calculation for the year ended 30 June 2012 is based on the weighted average of 196,586,376 (2011 - 198,495,965) ordinary shares in issue during the year and the profit of £608,000 (2011 - £470,000).

The diluted earnings per share calculation for the year ended 30 June 2012 is based on the weighted average of 201,086,376 (2011 - 198,690,903) ordinary shares in issue during the year and the profit of £608,000 (2011 - £470,000).

A copy of the financial report and accounts will be dispatched to shareholders by no later than 3rd December 2012 and a copy will also be available on the Group's website, www.swpgroupplc.com