Half Yearly Report

RNS Number : 6692I

SWP Group PLC

17 March 2010

 

 

 

 

SWP Group plc (the "Group")

 

Half Year Report

 

for the six months ended 31 December 2009

 

 

Chairman's Statement

 

 

Corporate Review

 

When I last wrote to shareholders in November 2009 in respect of the year's trading to 30th June 2009 I described the difficult market conditions in which we were operating as "a year of containment". The subsequent six month period to 31st December 2009 has not witnessed any material improvement in the economic climate whereas your Group has made significant progress within its two main operating businesses, namely, at Fullflow a leader in rainwater management as well as at Ulva which has recorded further growth in the supply of materials for the management of corrosion under insulation ("CUI") to an increasing number of oil and gas majors operating in a wide range of international territories.

 

Our other operating subsidiaries at Crescent of Cambridge (metal staircases) and DRC Polymer Products (membranes) which continue to serve primarily the construction sector have continued to mark time in depressed market conditions through rigorous cost containment against a background of reduced levels of activity and demand.

 

 

Financial Highlights

 

Under the above circumstances we are entitled to be very pleased with the results achieved for the six month period to 31st December 2009. With overall sales largely flat at £12,349,000 (2008: £12,864,000) the quality of our earnings has been enhanced due to the favourable mix of business which has been skewed in favour of our Ulva brand thereby increasing average gross margins to 41.3% from 38.4% recorded in the corresponding period in 2008. Operating profits before amortisation of acquired intangibles amounted to £1,140,000 (2008: £863,000) an increase of 63.4%. With lower interest rates and reduced debt levels finance costs fell to £149,000 as compared to £294,000 for the corresponding period in 2008. Pre tax profits advanced to £1,178,000 (2008: £452,000) an increase of 160% compared to the same period one year earlier.

 

Profits attributable to shareholders amounted to £858,000 (2008: £407,000) after taking into account a full tax charge made up of current corporation tax (see Note 5) of £99,000 and the release of deferred tax assets of £221,000 booked in earlier years in compliance with IAS12.

 

The Group is utilising its losses carried forward from earlier years in an efficient and effective manner thereby limiting the cash impact of corporation tax liabilities incurred as a result of improved profitability.

 

 

	Unaudited six months ended 31.12.09 £'000		Unaudited six months ended 31.12.08 £'000
Turnover	12,349		12,864
Operating Profit	1,327		746
Profit before tax	1,178		452
Profit after tax	858		407
Profit per share	4.78p		2.30p

 

Financial Structure

 

At the Group's Annual General Meeting held in London on 13th January 2010 shareholders approved the various resolutions placed before them including, inter alia, the bonus issue of ten new shares in addition to each share currently held ranking pari passu as well as the elimination of our share premium account through its transfer to pure equity and retained earnings. The formal ratification for this is currently passing through the Courts and we anticipate that by year end the entire process of strengthening the Group's balance sheet will have been completed. Based on the Group's trading performance to date this year your directors expect to be in a position to declare a maiden dividend for the year ending 30th June 2010 if the momentum which has been created is successfully maintained.

 

 

Operational Highlights

 

 

Fullflow

 

Against a backdrop of generally depressed market conditions, Fullflow produced a very satisfactory result for the period. Although sales suffered an overall decrease, a combination of efficiency improvements, material cost reductions and overhead savings meant that Fullflow's operating profit increased significantly compared to the equivalent period last year.

 

Fullflow is increasingly an international business, and UK sales, including those of Plasflow, accounted for less than 40% of total sales in the period. This was partly due to the impact of the large projects being undertaken at Doha Airport in Qatar and Madrid Barajas Airport in Spain, but progress was achieved on a number of other fronts and with UK construction markets likely to remain at a low ebb for the foreseeable future it is important that Fullflow continues to develop its international operations.

 

In this regard it is expected that progress will be achieved on three main fronts: firstly by winning more major international projects (such as Airports for example) which Fullflow will take on directly, secondly by helping its existing international partners to generate extra business and thirdly by extending its network of international partners. Already there is movement on at least some of these fronts and Fullflow has just secured its first order for a project in Vietnam. There is even the possibility of one of our partners entering the vast and potentially lucrative market in China.

 

One of the characteristics of Fullflow is that its management teams consist in the main of relatively young and highly committed individuals. These teams have now been in place for some years and we believe that there is now an excellent blend of youth and experience which has the potential to drive the business on to further success. In addition both Fullflow and Plasflow are widely respected for the quality of their products and the service levels which they provide and even at a time when market conditions mean that price has assumed a higher level of importance than ever, these assets provide the best possible platform from which to build lasting relationships and sustainable success.

 

 

Crescent of Cambridge

 

Crescent's UK market has remained static and whilst enquiry levels have been strong, too few projects have attracted the necessary funding. The Crescent team is patiently awaiting recovery whist maintaining vigorous cost control.

 

Crescent has always provided a premium product to the more discerning end of the market and continues to do so today without compromise on issues of quality, service and compliance despite the difficult market conditions which have seen some contractors installing non-compliant stairs procured solely on price.

 

Despite the difficult conditions, investment has continued in the enhancement of the design automation software which is now fully integrated with the manufacturing system and providing front end tendering cost information based on current live costs. This is especially helpful when negotiating in price sensitive market conditions. This key investment is expected to underpin Crescent's ability to grow revenues whilst containing the cost base when recovery begins.

 

Revenues and profitability have been in line with expectation following the restructuring, which was completed in the last financial year, with the exception of one bad debt flowing from the Haymills insolvency which impacted profit by £46,000.

 

 

DRC Polymer Products

 

DRC Polymer Products has a number of challenges with which its management team are preoccupied. Specialist chemicals and raw materials are used in the production of most of DRC's products which are sourced from all over the world. The weakness of sterling is therefore of concern to us in terms of cost control and the protection of sustainable margins. In addition to this there are a number of technical projects in which DRC is currently investing which are being profiled on the company's equipment, all of which are designed to enhance the company's product offering to a wide range of valued customers. Technical development is likely to command greater levels of time, commitment and resources in future and is constantly under review.

 

Modular Build

 

Hylam Uniroof remains the product of choice for the sector and DRC's focus remains on providing a high level of service to its loyal customers, some of which are operating at quite markedly reduced activity levels. Overall, the activity continues at an acceptable level and the team is ready to ramp-up volume when the market picks-up.

 

 

Hylam IQ

 

A fourth UK water utility adopted the Hylam IQ intelligent membrane system in the period under review awarding DRC contracts for three reservoirs. Elsewhere activity has been limited pending the commencement of the new five year AMP period in April 2010. The outlook for Hylam IQ is positive with a number of key projects in the pipeline.

 

 

FPA Membrane

 

The Drinking Water Inspectorate (DWI) approved Hylam FPA membrane range has been extended to meet specific client driven requirements and has been selected for a number of substantial projects in the UK and international markets. Sales in the period under review have been steady but the outlook is positive for this niche engineered membrane.

 

Ulva

 

DRC continues to provide Ulva with a constant stream of high quality Ulvashield with good efficiency and low levels of waste, which will grow in line with the development of the Ulva business. Ulva and DRC are also working collaboratively on the further enhancement of the Ulvashield compound.

 

 

Ulva Insulation Systems

 

Corrosion Under Insulation (CUI) continues to be a subject in sharp focus for many of the Oil, Gas and Petrochemical multinationals and operators. The extension of Ulva's presence and reach with effective sales offices in Houston and Kuala Lumpur and the appointment of local agents in key markets has been well received and rewarded with the inclusion of the system in a number of additional corporate specifications and a number of key new project specifications. Projects have been completed or agreed for new customers in Japan, Brazil and two countries in South East Asia.

 

Ulva's offering has been extended to include full time site presence to assist the end client and installation contractor in areas such as the achievement of best practice, quality assurance procedures and training. This service is currently being utilised on two major projects for the Norwegian sector under construction in Korea and Holland.

Business performance for the period under review was very much in line with expectation and the outlook remains positive.

 

 

Earnings per share

 

Shareholders will be pleased to note that EPS has increased from 2.30p per share in the first half of 2008 to 4.78p per share for the six month period to 31st December 2009 which equates to an increase (after tax) of 108%. This augers well for the future and supports the Board's aspirations to enter the dividend list later this year.

 

 

Staff

 

The severity of the economic climate dictates that all employees within our Group are charged with the responsibility of making stringent efforts to maximise the performance of the Group. In this regard we are grateful to staff at all levels without whose dedication and commitment these vastly improved results would not have been possible.

 

 

Board Changes

 

We are delighted to welcome onto the Board of our parent company Colin Stott who joined our Group back in October 2006 as a consultant and who has worked tirelessly at both Crescent and DRC prior to taking over as managing director of Ulva where he has had prime responsibility for not only its successful integration within the operating structure of this Group but for the delivery of our international strategy designed to facilitate profitable growth both in the short and longer term. Colin's considerable experience as an international operator will be invaluable to the Group in achieving our given objectives within global markets as well as the exploitation of our brand portfolio.

 

 

Current Trading and Prospects

 

Notwithstanding the disappointing economic outlook in general the current period has started strongly and together with the results posted for the first half the Board is confident that we will deliver very positive results for the financial year to 30th June 2010. Many challenges exist but with the commitment, professionalism and energy of our team we remain confident that we shall be able to exploit many of the opportunities which lie before us. The Board remains, as ever, focused on further profitable growth allied to diligent control over costs and to maximising shareholder value. We look forward with confidence to the remainder of 2009/2010 and beyond.

 

 

J A F Walker

Chairman

 

17th March 2010

 

 

 

Unaudited Consolidated Income Statement

 

 

Six months ended 31 December 2009	Six months ended 31.12.09 Unaudited £'000		Six months ended 31.12.08 Unaudited £'000		Year ended 30.06.09 Audited £'000
Revenue	12,349		12,864		24,745
Cost of sales	(7,253)		(7,928)		(14,764)
Gross profit	5,096		4,936		9,981
Operating expenses	(3,686)		(4,073)		(7,558)
	1,410		863		2,423
Exceptional operating expenses	-		-		(134)
Amortisation of intangible assets acquired through business combinations net of deferred tax	(83)		(117)		(165)
Operating profit	1,327		746		2,124
Financial income	-		-		42
Financial costs	(149)		(294)		(534)
Profit on ordinary activities before taxation	1,178		452		1,632
Income tax charge	(320)		(45)		(37)
Profit for the period attributable to equity holders of the parent	858		407		1,595
Basic earnings per share (pence)	4.78p		2.30p		9.02p
Diluted earnings per share (pence)	4.78p		2.30p		9.02p

 

 

Turnover and operating profit all derive from continuing operations.

 

Unaudited Consolidated Balance Sheet

 

 

As at 31 December 2009	As at 31.12.09 £'000		As at 31.12.08 £'000			As at 30.06.09 £'000
	£'000		£'000
Non-current assets
Intangible assets	8,936		9,170			9,045
Property, plant and equipment	5,087		5,136			5,114
Trade and other receivables	689		462			655
Deferred tax assets	924		888			1,150
	15,636		15,656			15,964
Current assets
Inventories	3,901		3,659			3,972
Trade and other receivables	9,889		10,175			9,866
	13,790		13,834			13,838
Total assets	29,426		29,490			29,802
Current liabilities
Trade and other payables	(6,363)		(8,116)			(7,410)
Current tax liabilities	(494)		(348)			(309)
Obligations under finance leases	(98)		(152)			(117)
Bank loans and overdrafts	(2,438)		(4,047)			(4,127)
	(9,393)		(12,663)			(11,963)
Non-current liabilities
Bank loans	(3,458)		(2,740)			(2,600)
Deferred tax liabilities	(2,679)		(2,739)			(2,719)
Obligations under finance leases	(24)		(19)			(47)
	(6,161)		(5,498)			(5,366)
Total liabilities	(15,554)		(18,161)			(17,329)
NET ASSETS	13,872		11,329			12,473
Capital and reserves
Called up share capital	93		89			89
Share premium account	13,205		12,534			12,534
Capital reserves	41		41			41
Revaluation reserve	229		-			229
Retained earnings	304		(1,335)			(420)
TOTAL EQUITY	13,872		11,329			12,473

 

 

Unaudited Consolidated Cash Flow Statement

 

 

Six months ended 31 December 2009	Six months ended 31.12.09 Unaudited £'000		Six months ended 31.12.08 Unaudited £'000		Year ended 30.06.09 Audited £'000
Profit after tax	858		407		1,595
Adjustments for:
Net finance costs	149		294		492
Corporation tax charge	320		45		269
Depreciation of property, plant and equipment	185		209		414
Amortisation of intangible assets	123		123		243
Profit on disposal of plant and equipment	-		-		(6)
Operating cash flows before movement in working capital	1,635		1,078		3,007
Decease/(increase) in inventories	71		124		(189)
Increase in receivables	(57)		(629)		(735)
Decrease in payables	(807)		(336)		(967)
Interest paid	(147)		(310)		(612)
Interest received	-		-		2
Corporation tax paid	(191)		-		(231)
Net cash inflow from operating activities	504		(73)		275
Cash flow from investing activities
Purchase of property, plant and equipment	(158)		(180)		(384)
Purchase of intangible assets	(14)		-		(10)
Proceeds from disposals of property, plant and equipment	-		-		27
Net cash outflow from investing activities	(172)		(180)		(367)
Cash flow from financing activities
Issue of ordinary shares	675		-		(44)
Term loan conversion to euro denomination	1,443		-		-
Bank loans repaid	(247)		-		-
Purchase of treasury shares	(134)		-		-
Finance lease repayments - net	(42)		(59)		(116)
Net cash inflow/(outflow) from financing activities	1,695		(59)		(160)
Net increase/(decrease) in cash and bank overdrafts	2,027		(312)		(252)
Cash, cash equivalents and bank overdrafts at beginning of period	(3,477)		(3,225)		(3,225)
Cash, cash equivalents and bank overdrafts at end of period	(1,450)		(3,537)		(3,477)

 

 

 

Notes to the Interim Report

 

1. Basis of Preparation

 

The Condensed Interim Financial Statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting.

 

The financial information for the six month period ended 31 December 2009 and 2008 has not been audited by the Group's auditors and does not constitute accounts within the meaning of s240 of the Companies Act 2006. The financial information for the year ended 30 June 2009 is an abridged version of the Group's accounts which received an unqualified auditors' report and did not contain a statement under s237(2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

 

The same accounting policies, presentation and methods of computation are followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 30 June 2009.

 

2. Taxation

 

Interim period income tax is accrued based on the estimated average annual effective income tax rate.

 

3. Dividends

 

The Directors are not recommending the payment of an interim dividend.

 

4. Segmental Reporting

 

	Six months ended 31.12.09 Unaudited £'000		Six months ended 31.12.08 Unaudited £'000		Year ended 30.06.09 Unaudited £'000
(i) Business Segments
Revenue
Rainwater management	7,433		8,224		15,389
Metal staircases	1,034		1,541		2,757
Polymer membrane	3,882		3,099		6,599
Corporate	-		-		-
Total Revenue	12,349		12,864		24,745
Operating Profit
Rainwater management	487		209		801
Metal staircases	(106)		(149)		(350)
Polymer membrane	404		157		616
Corporate	542		529		1,057
Total operating profit	1,327		746		2,124
(ii) Geographical Segments
Revenue
United Kingdom	5,770		7,135		12,421
Europe	4,366		4,979		8,972
Far East	1,721		314		2,847
Middle East	492		436		505
Total Revenue	12,349		12,864		24,745

 

5. Income Tax Expense

 

Recognised in the income statement

	Six months ended 31.12.09 Unaudited £'000		Six months ended 31.12.08 Unaudited £'000		Year ended 30.06.09 Unaudited £'000
Current tax expense
Current year - UK corporation tax	99		45		269
Deferred tax movement	221		-		(232)
Total tax expense in income statement	320		45		37

 

6. Profit per Share

Profit per share is calculated on the basis of 17,934,296 shares (2008: 17,729,546) which is the weighted average of the number of shares in issue during the period.

 

The Group's share options are not dilutive for profit per share calculations.

 

7. Copies of Interim Report

 

Copies of the half year report will be posted to shareholders in due course and are available from the Group head office at Bedford House, 1 Regal Lane, Soham, Ely, Cambridgeshire, CB7 5BA or available to view from the Group's website at http://www.swpgroupplc.com.

 

For further information or enquiries:

 

J.A.F Walker D.J Pett R. Kauffer

Chairman Director of Finance KBC Peel Hunt

Nominated Advisor & Broker

 

Tel: 01353 723270 Tel: 01353 723270 Tel: 0207 418 8900

Mobile: 07800 951151 Mobile: 07940 523135 Mobile: 07841 673210

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