Half Yearly Report

SWP Group plc (the "Group")

Half Yearly Results

for the six months ended 31 December 2015

Financial Highlights

n Group sales on a like for like basis decreased by 9% to £5.68M (2014: £6.27M).

n Operating profit before exceptional costs and amortisation of intangible assets fell by 31% to £457K (2014: £663K).

n Profits before tax decreased by 48% to £277K (2014: £530K).

n Earnings per share decreased to 0.12p per share (2014: 0.14p).

n Group bank debt reduced by 16% to £723K (2014: £859K).

n Finance lease obligations decreased by 17% to £792K (2014: £954K).

n Profit attributable to associate company decreased by 27% to £60K (2014: £82K).

n Capital expenditure in period decreased to £88K (2014: £703K).

Operational Highlights

n Production line at ULVAShield in Telford operating to high levels of efficiency, margin generation, yield and quality.

n Production line facilities for ULVAGRP in West Bromwich on hold pending the design, manufacture and commissioning of new machine following the failure of the machine produced in Germany.

n ULVA pipeline impacted by timing issues. Final Investment Decisions (FID) by asset owners subject to delays, postponement and/or cancellations due to oil price falling into the range of US$28-40. Difficult to predict activity levels for FY2019 and beyond.

n Fullflow in the UK progressing in accordance with budget and planned profit improvement. Operating efficiencies and execution of contracts/installations optimised.

n Nuclear sales on hold and/or deferred due to difficulties experienced by EDF as reported in the media. Significant adverse impact on Plasflow's revenue streams and operating profits.

n Serious commitment to R&D innovation and new processes at Fullflow as well as product development at ULVAGRP ahead of the market launch by the end of calendar year 2016.

n Cost control exercised throughout the continuing businesses.

Alan Walker, Executive Chairman, commented:

"The results for the interim period to 31 December 2015 are considered to be disappointing due to the adverse impact of the timing associated with ULVA supply contracts and the deferment of pipe supply solutions to EDF by Plasflow. Fortunately the second half of the year will produce, as last year, a significant upturn in revenues at ULVAShield whereas Plasflow's nuclear revenues will be deferred for between 18 to 24 months due to EDF's austerity plans. Fullflow in the UK continues to make good progress and the development plans at ULVAGRP are back on track after the hiatus caused in May 2015 by the German supplier's failure to deliver a machine that was fit for purpose. Management focus is now entirely concentrated and directed towards the ongoing development of the Fullflow and ULVA brands".

Chairman's Statement

Corporate Review

As recently as 11 January 2016, at our latest Annual General Meeting, my colleagues and I were able to debate with shareholders the implications arising for a listed company of being engaged in entirely project led activities. The unpredictable timing of revenues has been exacerbated by the impact of dramatic falls in oil prices over the last 18 months.

Following extensive reorganisation in the period to 30 June 2015 in which we closed our loss making Fullflow operations in Paris and sold off the various assets engaged in the peripheral metal staircase business at Crescent of Cambridge the Group now comprises two distinct brand-led niche businesses both of which are technically advanced in their respective areas of expertise. Fullflow remains a leading supplier of rainwater management systems to the UK domestic construction sector and also internationally on large scale industrial sites which fall within Fullflow's chosen areas of specialisation. These include stadia, car manufacturing plants, airport terminals, industrial complexes and Energy from Waste. ULVA remains a leading supplier of soft jacketing insulation systems to the oil, gas and petrochemical sectors to prevent corrosion under insulation ("CUI") for a wide range of oil and gas majors.

Financial Results

Market conditions in the UK construction sector have remained fairly buoyant allowing Fullflow to make headway in securing a sound order book across a wide selection of industrial sites. Plasflow, who deliver the fabrication needs of Fullflow as well as supplying its own third party range of customers in addition to pipe solutions to the nuclear sector, has experienced muted demand in the period particularly in the nuclear sector to which I refer below. Notwithstanding the dramatic falls in oil prices since the summer of 2014 which is having a devastating impact on jobs and future investment within the oil and gas sector ULVA has chartered a course which, although producing disappointing results for the six month period under review due to the phasing of major projects, will see a significant recovery in revenues in the second half of the financial year. The lumpy nature of ULVA's revenues is a regular feature of the business with which management has become familiar and is adept at handling the necessary adjustments which are required in times of both feast and famine. The results which are detailed below are considered to be disappointing but in line with activity level forecast for the period.

Revenue in the period for continuing operations declined to £5.68M (2014: £6.27M) with operating profits before exceptional costs and amortisation of intangible assets falling to £457K (2014: £663K) or by 31%. Profits before taxation fell to £277K (2014: £530K). Profits after the elimination of discontinued operations fell to £240K (2014: £278K).

Group Bank Debt

Notwithstanding these flat line and disappointing results the Group continues to generate cash from its trading activities albeit during a period of constrained capital expenditure. Bank debt has reduced to £723K (2014: £859K) or by 16% and is expected to be eliminated on or around the end of the financial year to 30 June 2016. Short and long term lease obligations have reduced to £792K (2014: £954K) or by 17% and will continue to fall rapidly over the next three year period.

The Consolidated Statement of Financial Position reflects a strong balance sheet with investment in state of the art plant and equipment and a working capital model which has been brought into line with the reduced level of activities. Active attention is being directed towards the real estate assets which have been liberated as a result of the reorganisation and are deemed to be surplus to our operating requirements. These are on course to deliver attractive returns over time.

Operational Highlights

ULVA

At the Annual General Meeting on 11 January 2016, the Board indicated that for the ULVA business unit the current financial year and the next two financial years were expected to be broadly in line with the revenues for FY2015 despite the crisis in the oil and gas sectors. It was also indicated that beyond that, the outlook was difficult to predict.

Subsequent to the AGM there have been a number of significant movements to key projects for which ULVA is specified which will impact upon activity levels.

n A major project for a Floating Liquefied Natural Gas (FLNG) vessel, under construction in Korea has been placed on hold for two years despite the hull construction being 80% complete. This is a significant blow to ULVA's medium term prospects.

n A new construction platform project for the Gulf of Mexico has adopted aluminium cladding rather than the specified ULVAShield system. Aluminium cladding is not at all suitable for offshore applications but is a third of the cost of ULVASheild and the project is focussed entirely on capital cost. The increased operating costs associated with the premature failure of the aluminium has not been a factor in the decision making process.

n A new build platform for the North Sea, for a US major, has been deferred indefinitely and a second delayed by at least one year.

n A major project for the Middle East has been cancelled.

n Maintenance activity in the North Sea has halved.

At the half year, revenues at £2,403K were 90% of revenues for the same period in the prior year. Not unlike the prior year, the second half is more heavily loaded and it is anticipated that revenues for the year as a whole will be broadly similar to FY 2015. At this point in time, expectations for FY 2017 are not significantly impacted by the above and activity levels are expected to be similar to FY 2015 and 2016. FY 2018, however, has been significantly impacted by the above and expectations have softened markedly as investment decisions are deferred or cancelled.

There is a good pipeline of future projects beyond this time scale, which are specified for ULVAShield, however, a number are awaiting Final Investment Decision (FID). FID at an oil price above $80 is relatively straightforward, current oil prices make FID more challenging which may result in further delays or postponements. Against this background it is difficult to predict activity levels for FY 2019 and beyond.

The design phase of the UK GRP process line, which is being developed as an alternative to the failed German process line, is approaching completion. The design principles of this line have been tested and evaluated at an institute for composites technology with positive results, which has allowed the design to be optimised. Certain components of the system are on a longer lead time than had been anticipated, pushing the project back by a few months but full production is anticipated by the end of calendar year 2016. The failure of the German process line to meet contractual performance criteria in the spring of 2015 has prevented ULVA from entering the market with the result that the opportunity to supply material to three major projects has been lost. The intention is to enter the market in a controlled manner from the start of 2017 and prove competency and capability ahead of the first targeted major project, supply to which is anticipated for FY 2019.

Fullflow Group

Following changes to senior management in February 2015 Fullflow's performance for FY2015 improved considerably allowing respectable results to be posted. I am pleased to report that this momentum has been sustained for the six month period under review with the UK construction sector enjoying a buoyant period of activity across both the public and private sectors. This has resulted in the award of contracts across a wide range of industrial activities including, inter alia, airports, car plants, energy from waste (EFW), retail, distribution, industrial factories and educational establishments. As an innovator and leader Fullflow has been investing in new installation techniques and in the provision of bespoke outlets designed to improve operational efficiencies on offer to discerning users in search of technical solutions to drain their extensive roofs. Market conditions remain both challenging and competitive but Fullflow is well equipped to grow market share through its respected quality of installation and service to increasingly receptive main contractors who recognise the key advantages to be gained from the installation of rainwater management systems designed and installed by Fullflow. The operating efficiencies and project execution within the business continue to improve as we strive for excellence whilst there is a significant shift in promoting the sales pipeline through technical selling resulting in a better conversion rate. Revenues for FY 2016 are likely to reflect the impact of the positive trend in which the business is developing.

Fullflow International 

The brand continues to gain traction in a number of key international territories. Whilst the economic outlook in the UK has been favourable with construction activity to the fore the same cannot be said abroad where there has been an economic downturn in a number of countries including Brazil where deep recession has taken root notwithstanding the eminency of the 2016 Olympic Games this summer. A number of projects have been successfully completed using our adopted business model of supplying design, components to order and project management allied to the utilisation of international partners with proven competence to undertake installation on a local basis. The results at the interim stage are somewhat behind budget expectation but activity in the second half of FY 2016 may produce revenues that are similar to the previous year. This business continues to be well managed and remains a key ingredient in Fullflow's strategic international development going forward.

Plasflow

In contrast to the improved trading environment at Fullflow I regret to advise that Plasflow has gone backwards during the six month period under review with a consequential impact on both revenues and profits. The explanation is simple to identify and lies in the absence of any meaningful orders from the nuclear sector where Plasflow is a respected player in providing pipe solutions for most of the major nuclear plants in operation throughout the UK. Whilst it was never envisaged that the six month period under review would feature much nuclear activity we were programmed to commence substantial works on the run up to the closure of FY 2016. Shareholders will have seen adverse publicity that has emerged in the past few weeks concerning Électricité de France (EDF) casting doubt on their ability to raise the necessary funding for their share in the redevelopment of Hinkley Point in Somerset. This massive joint venture in conjunction with the Chinese and British Governments appears pivotal to the provision of nuclear energy in the UK for decades to come and is now under scrutiny in terms of its financial viability. EDF's 2015 profits fell 68% mainly due to writedowns on coal fired plants. The knock on effects have resulted in EDF unilaterally deferring a major outage project at one of their UK plants where Plasflow was scheduled to play a prominent role from April this year through to the end of FY 2016. The project has not been lost but has been deferred for up to two years on the basis that EDF is currently short of funds and cannot afford to undertake the work. This is disappointing as Plasflow was already in preparation for the planned outage. An upturn in activity from Fullflow is countered by a downturn in orders for fabrications from third party customers to such an extent that Plasflow will struggle to break even for FY 2016. Management is monitoring the EDF nuclear demand carefully as the austerity programme which is emerging from EDF may spread to other nuclear plants and lead to other deferred outages or even cancellations. This is the essence of project-led businesses which cannot rely on steady state income streams and where we are not in control of the ultimate investment decisions.

Dividend

As last year considerable debate has taken place regarding the payment of a dividend. Given the crisis facing the oil and gas sector and the need to invest heavily in the ULVAGRP project as well as the final elimination of external bank debt your Board has deferred the declaration of a dividend at this time pending the final outcome of the year as a whole and the prospects for the businesses going forward at that time.

Research & Development

Shareholders will realise that the ULVAGRP initiative which stalled in April 2015 remains a key priority for the rest of this financial year and beyond. The delay is regrettable but not of ULVA's making. Fullflow has been active in developing a number of new components designed to improve installation efficiencies. Fullflow will always attempt to be a technical innovator within the syphonic sector where such innovation sets Fullflow apart from its competitors.

Staff

Following the recession from 2008 to 2010 the staff levels within your Group were trimmed to avoid excess costs. We weathered the recession well and retired debt rapidly in the expectation of economic growth. The drama surrounding the oil price has certainly impacted our short to medium term aspirations and renders the longer term predictions something of a lottery at this time.

To our highly proficient and technically driven employees we as a Board offer our grateful thanks for their resilience, energy and professionalism during highly challenging market conditions. At both ULVA and Fullflow there is a united spirit to succeed which we consider will stand us in good stead as and when market conditions stabilise and return to some kind of level of normality.

Current Trading and Prospects

The Board is disappointed by these trading results at the interim stage. However, as in FY 2015 there is a stronger trend in revenues in the second half for FY 2016 at both ULVA and Fullflow although Plasflow will disappoint for the reasons explained above. Market conditions particularly in oil and gas remain extremely demanding and almost impossible to predict at a time of crisis within the oil and gas industry.

Shareholders should be aware that your Board is actively looking at ways in which to maximise shareholder value notwithstanding the crisis facing us in the oil and gas sector and the lack of liquidity which our shares face on the AIM sector of the London Stock Exchange. Shareholders will recognise that their interests are very much aligned with those of members of the Board who are major shareholders in their own right and that shareholders in general should be reassured that their interests are at the forefront of our strategic thinking and that we shall not allow the underlying businesses to drift.

In the short term we intend to batten down the hatches, eliminate debt, control our cost base and concentrate all of our efforts in maximising the potential contained within our sales pipelines.

J A F Walker

Chairman

23rd March 2016

Unaudited Consolidated Statement of Comprehensive Income

Unaudited Consolidated Statement of Changes in Equity

Unaudited Consolidated Statement of Financial Position

Unaudited Consolidated Statement of Cash Flows

Notes to the Interim Report

1. Basis of Preparation

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

The financial information for the six month periods ended 31 December 2015 and 31 December 2014 have 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 2015 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 interim financial statements as were applied in the preparation of the Group's financial statements for the year ended 30 June 2015 and which are expected to apply as at 30 June 2015.

2. Taxation

Interim period income tax is accrued based on the estimated average annual effective income tax rate. In reality this charge will not fall to be paid in cash due to the incidence of Annual Investment Allowances ("AIA") arising out of tax allowance on capital expenditure during the period. As a result of timing differences the payment of corporation tax is likely to be deferred thereby requiring provision for deferred tax only.

3. Segmental Reporting

4. Income Tax Expense

Recognised in the income statement

5. Earnings Per Share

Earnings per share is calculated on the basis of 194,930,006 shares (2014: 195,530,006) which is the weighted average of the number of shares in issue during the period.

The diluted earnings per share is calculated on the basis of 196,702,733 shares (2014: 197,710,837) which is the weighted average of the number of shares in issue during the period.

6. Copies of Half Yearly Report

Copies of the half yearly report are available to shareholders electronically via the Group's website at http://www.swpgroupplc.com or on request from the Group head office at Bedford House, 1 Regal Lane, Soham, Ely, Cambridgeshire, CB7 5BA.

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