28th Feb 2008 07:01
Swallowfield PLC28 February 2008 Swallowfield plc Creating and Delivering Solutions for our Customers' Success Interim Results for the 28 weeks ended 12 January 2008 Swallowfield plc is pleased to announce its interim results for the 28 weeks ended 12 January 2008 and the resumption of interim dividends. Highlights • Net Debt, down 64% at £1.49m (2007: £4.10m);• Higher gross margins on revenue of £23.53m;• Operating profit before exceptional items better than expected at £0.83m (2007: £0.86m);• Earnings per share before exceptional items 4.3p (2007: 3.8p);• Interim dividend resumed at 1.4p per share.• First half trading better than anticipated and better than analyst forecasts;• First production run from the new Czech operation in December 2007 - ahead of target;• Sale and leaseback of Lowmoor completed in spite of difficult commercial property market. Outlook • Full year trading remains in line with market expectations;• Further broadening of manufacturing base to serve a higher quality and growing customer portfolio. Shena Winning, Non-executive Chairman, commented: "The last six months have delivered further significant progress with profitsahead of original expectations and net debt down to its lowest level since 1988.These achievements have been made possible by the energy, commitment andexpertise of our management team and all of our employees. We operate in ahighly competitive environment and expect the commercial pressures of the lastfew years to continue. Despite a weaker economic outlook for 2008, theincreasing operational and financial strength of the company puts us in a strongposition for the future." Enquiries: Swallowfield plcIan Mackinnon, Chief Executive Officer 01823 662 241Peter Houston, Group Finance Director 01823 662 241 Mike Coe / Marc Davies, Blue Oar Securities Plc 0117 933 0020Alan Bulmer, Performance Communications 0117 907 6514Chris Lawrance, 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 28 weeks to 12 January 2008 are better than analystforecasts which were issued in September 2007. The overall net margin mix hasimproved compared to last year, operational efficiencies remain high and wecontinue to manage costs and assets tightly. Headline earnings per share were 14.1p benefitting from a post tax profit of£1.31m on the sale and leaseback of our Lowmoor warehouse. The results are alsostated after deducting £0.29m of exceptional costs relating to the ongoingrestructuring of the cosmetics operation and the transfer of filling andfinishing capabilities to the Czech Republic. Operating profit before exceptional items was £0.83m; a better than expectedperformance (2007: £0.86m). After allowing for interest paid, profit before taxand exceptional items was £0.66m (2007: £0.63m). Net debt was £1.49m, a reduction of £2.61m from the same period last year andthe lowest level since December 1988. Business Review The business has experienced a continuation of the blurring of boundariesbetween Toiletries and Cosmetics as a result of new product and technologydevelopments. In due course, this will lead to a reassessment of the Group'ssegmental analysis. Toiletries Division Revenue in the toiletries division, as anticipated, decreased from £18.78m to£17.02m and operating profit declined by £0.44m to £0.94m as a result ofcontract timings and new customer product launches. Cost control and efficiencyimprovements remain good in response to the pressures on margins from increasingraw materials and component costs which are hard to pass on to customers. Cosmetics Division Revenue in the cosmetics division, as anticipated, decreased from £6.94m to£6.51m whilst operating profit increased substantially from £0.20m to £0.71m.The restructuring activities of last year have reduced overhead costs, andlabour efficiencies have improved due, in part, to the automated equipmentinstalled over the last 9 months. At the same time, the division had a one-offbenefit from the completion of a contract earlier than anticipated. Czech Republic The new facility, which will fill and finish cosmetic and toiletry products, wasdelivered to us on time by the building developer and landlord. Because of thisand the high quality of the final build, we were able to make our firstproduction run in December, almost a month ahead of schedule. There is a phasedproject to transfer equipment from the UK and to install two new productionlines that have been purchased specifically for this operation. We expect all ofthe equipment to be in place and operators to be fully trained by the end ofJune 2008. The facility is of a high standard and is already generatingconsiderable interest from existing and potential new customers across a rangeof product technologies. At 12 January 2008, £0.21m of capital investment hasbeen made in Tabor, with net costs since opening of £0.07m and £0.09m treated asexceptional costs in these accounts. China Signing of the final contracts for the joint manufacturing venture in China,which is dependent on registering various matters with the local government, hasnot yet been completed. We expect this to happen within the next three months. The sourcing office in Shanghai remains in place and continues to contributewell to the overall business. Financial Results Net Debt Further significant progress has been made over the last six months in reducingnet debt. At 12 January 2008 net debt stood at £1.49m and was at its lowestlevel since December 1988. Further progress was made on inventory reduction bythe focus on non-stockholding accounts, and inventories reduced by £0.46mcompared to the same period last year. The sale and leaseback referred to belowcontributed significantly to the reduction in borrowings. Pension Scheme At 12 January, the pension scheme deficit recorded in the balance sheet underIAS19 was £2.66m, although the Company had an unrealised surplus of £1.54m as abuffer against future volatility and other factors. This unrealised surplus hasreduced since 30 June 2007 due to the volatility of investment markets over thelast few months. The next Triennial valuation of the scheme is due as at 6 April2008 and it is likely that we will need to increase the life expectancyassumptions with a consequent rise in liabilities. Properties The sale and leaseback of our warehouse at Lowmoor was completed on 28 December2007 for a cash consideration of £2.12m. These interim results include anexceptional profit on the sale of £1.31m, including £0.05m of related tax timingfactors, equivalent to 11.65p per share. At this time, the Directors do notplan to enter into similar transactions with the remainder of the Group'sproperty portfolio, the book value of which is supported by its current value inuse to the business. Strategy & Outlook Swallowfield is rapidly evolving into a service company providing customers withoptions which range from market analysis, formulation, design and packagingdevelopment through to product manufacture, sourcing and logistics. Our corestrategy of customer intimacy is central to the delivery of these services andcontinuous improvement in Quality, Cost, Service and Innovation, a prerequisitefor success. Our ongoing strategy is built around strengthening and buildingupon the services we offer and broadening our product portfolio. Our plans for the coming six months include the continued roll-out of our Czechoperation and the completion of the joint venture in China. Each of theseactivities will enhance our service abilities and reduce our cost base in themedium term. In order to improve our service levels to global customers, we arecarefully examining opportunities for new overseas sales offices. As a firststep, we plan to open a small bureau in France in the next six months. We aremindful, however, of the need to avoid overstretching existing resources andincurring unnecessary overheads. The recent price increases in oil and other commodities has put pressure oninput costs and passing on these increases to customers remains difficult.However, we continue to defend against input price increases and are using ournew sourcing capabilities in China and the Czech Republic in this regard. In the second half of the financial year we expect to begin to deliver on ourlong-term mission of profitable sales growth in the toiletries business. Thecosmetics division will be focused on operating at the 12% targeted return onnet assets as we continue to restructure the business and transfer production. Overall we expect the second half of the year to show an improvement in tradingon the second half of last year. Dividends The Board laid out its strategy for the payment of dividends in the last AnnualReport. In essence this strategy is to pay dividends using a cautious dividendcover of three times, with a progressive approach to future dividend cover overtime. Accordingly, the Board will pay an interim dividend of 1.4p per share on30 May 2008 to shareholders on the register at 9 May 2008. The shares will goex-dividend on 7 May 2008. S J WinningChairman28 February 2008 Group Income Statement 28 weeks ended 28 weeks ended 12 months ended 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited)Continuing operations Notes £'000 £'000 £'000 Revenue 2 23,529 25,720 44,715Cost of sales (20,105) (22,021) (38,411)Gross profit 3,424 3,699 6,304Commercial and administrative costs (2,594) (2,844) (4,986)Operating profit before exceptional 830 855 1,318itemsExceptional items 2 1,024 (244) (244)Operating profit 1,854 611 1,074Finance income 12 21 24Finance costs (179) (251) (411)Profit before taxation 1,687 381 687Taxation (95) (126) (248)Profit for the period 1,592 255 439 Attributable to:Equity shareholders 1,592 255 439 Earnings per share- basic and diluted 3 14.1p 2.3p 3.9p DividendPaid in period (£000's) 146 - -Paid in period (pence per share) 1.3 - -Proposed (£000's) 158 - -Proposed (pence per share) 1.4 - - Group Statement of Recognised Income and Expense 28 weeks ended 28 weeks ended 12 months ended 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000Profit for the period 1,592 255 439Total recognised income and expense for the 1,592 255 439period Group Balance Sheet As at As at As at 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,940 10,928 11,032Intangible assets 75 62 77Total non-current assets 11,015 10,990 11,109Current assetsInventories 5,830 6,288 6,062Trade and other receivables 7,940 8,181 7,711Derivative financial instruments - 13 6Cash and cash equivalents 584 561 185 14,354 15,043 13,964Non-current assets held for sale 5 - 854 854Total current assets 14,354 15,897 14,818Total assets 25,369 26,887 25,927 LIABILITIESCurrent liabilitiesTrade and other payables 8,604 9,197 7,508Interest-bearing loans and borrowings 469 159 1,153Current tax payable 38 - -Total current liabilities 9,111 9,356 8,661Non-current liabilitiesInterest-bearing loans and borrowings 1,600 4,514 3,920Post-retirement benefit obligations 2,663 2,694 2,717Deferred tax liabilities 396 354 476Total non-current liabilities 4,659 7,562 7,113Total liabilities 13,770 16,918 15,774Net assets 11,599 9,969 10,153 EQUITYShare capital 563 563 563Share premium 3,796 3,796 3,796Other reserve - 89 -Retained earnings 7,240 5,521 5,794Total equity 11,599 9,969 10,153 Group Cash Flow Statement 28 weeks ended 28 weeks ended 12 months ended 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000Cash flows from operating activitiesProfit before taxation 1,687 381 687Depreciation 627 717 1,205Amortisation 22 17 36Profit on disposal of non-current asset held for (1,313) - -saleLoss on disposal of equipment 2 - 25Impairment of property, plant and equipment 6 - 42Finance income (12) (21) (24)Finance cost 179 251 411Decrease in inventories 232 1,059 1,285(Increase)/decrease in trade and other (229) 1,337 1,807receivablesIncrease/(decrease) in trade and other payables 1,094 (354) (2,055)(Decrease)/increase in retirement benefit (54) 19 55obligationsCash generated from operations 2,241 3,406 3,474Finance expense paid (171) (257) (428)Taxation paid (90) - -Net cash flow from operating activities 1,980 3,149 3,046Cash flow from investing activitiesFinance income received 12 4 24Purchase of property, plant and equipment (543) (175) (834)Purchase of intangible assets (20) (13) (47)Sale of property, plant and equipment 2,120 51 51Net cash flow from investing activities 1,569 (133) (806)Cash flow from financing activitiesCapital element of finance lease liabilities (79) (198) (291)Repayment of loans (2,432) (147) (147)Dividends paid (146) - -Net cash flow from financing activities (2,657) (345) (438)Net increase in cash andcash equivalents 892 2,671 1,802Cash and cash equivalents at beginning of period (308) (2,110) (2,110)Cash and cash equivalents at end of period 584 561 (308) Cash and cash equivalents consist of:Cash 584 561 185Overdraft - - (493)Cash and cash equivalents at end of period 584 561 (308) Notes to the Accounts Note 1 Basis of preparation The Group's interim results for the 28 week period ended 12 January 2008 areprepared in accordance with the Group's accounting policies which are based onthe recognition and measurement principles of International Financial ReportingStandards (IFRS) as adopted by the EU and effective at 30 June 2008 or areexpected to be adopted and effective at 30 June 2008. As permitted, this interimreport has been prepared in accordance with the AIM rules and not in accordancewith IAS34 'Interim Financial Reporting'. These interim financial statements do not constitute full statutory accountswithin the meaning of section 240(5) of the Companies Act 1985 and areunaudited. The unaudited interim financial statements were approved by theBoard of Directors on 28 February 2008. The consolidated financial statements are prepared under the historical costconvention as modified to include the revaluation of certain fixed assets andfinancial instruments. The accounting policies used in the interim financialstatements are consistent with IFRS and those which will be adopted in thepreparation of the Group's Annual Report and Financial Statements for the yearended 30 June 2008. The statutory accounts for the year ended 30 June 2007,which were prepared under IFRS, have been filed with the Registrar of Companies.These statutory accounts carried an unqualified Auditors Report and did notcontain a statement under either Section 237(2) or (3) of the Companies Act1985. Note 2 Segmental analysis The Group operates in two segments which reflect the internal organisation andmanagement structure according to the nature of the products: Toiletries - Development, manufacture, marketing and sales of toiletry productsCosmetics - Development, manufacture, marketing and sales of cosmetic products Details for these business reporting segments are shown below: 28 weeks ended 28 weeks ended 52 weeks ended 30 June 2007 12 Jan 2008 13 Jan 2007 Revenue Profit Revenue Profit Revenue Profit (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) £'000 £'000 £'000 £'000 £'000 £'000 Toiletries 17,019 943 18,783 1,381 33,497 2,362Cosmetics 6,510 707 6,937 198 11,218 299Total 23,529 1,650 25,720 1,579 44,715 2,661Central costs (820) (724) (1,343)Operating profit before 830 855 1,318exceptional itemsExceptional items 1,024 (244) (244)Operating profit 1,854 611 1,074Finance income 12 21 24Finance costs (179) (251) (411)Profit before taxation 1,687 381 687Taxation (95) (126) (248)Profit for the period 1,592 255 439 Exceptional items relate to the profit on disposal of property (£1.31m),including £0.05m of related tax timing factors; costs associated with theBideford reorganisation £0.23m, and other non-recurring items £0.06m (2007:non-operational costs in closing out a customer contract £0.24m.) Note 3 Earnings per share 28 weeks ended 28 weeks ended 12 months ended 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) (a) Basic and dilutedProfit for the period (£'000) 1,592 255 439Basic weighted average number ofordinary shares in issue during the period 11,256,416 11,256,416 11,256,416Dilutive potential ordinary shares:executive share options 6,024 - - 11,262,440 11,256,416 11,256,416Basic earnings per share 14.1p 2.3p 3.9pDiluted earnings per share 14.1p 2.3p 3.9p Basic earnings per share has been calculated by dividing the profit for eachfinancial period by the weighted average number of ordinary shares in issue inthe period. There is no difference for any of the reported periods between thebasic net profit per share and the diluted net profit per share. Adjusted earnings per share (b) Basic and dilutedProfit for the period (£'000) 1,592 255 439(Less)/add back: Exceptional items (1,024) 244 244Notional tax charge on exceptional items (86) (73) (73)Adjusted profitbefore exceptional items 482 426 610Basic weighted average number ofordinary shares in issue during the period 11,256,416 11,256,416 11,256,416Dilutive potential ordinary shares:executive share options 6,024 - - 11,262,440 11,256,416 11,256,416Adjusted basic earnings per share 4.3p 3.8p 5.4pAdjusted diluted earnings per share 4.3p 3.8p 5.4p Profit for the period of £1.59m (2007: interim £0.26m; full-year £0.44m) isshown after deducting £1.02m (2007 adding: interim £0.24m; full-year £0.24m) inrespect of exceptional items. Adjusted earnings per share has been calculatedby dividing the adjusted profit of £0.48m (after allowing for the notional taxcharge on exceptional items) (2007: interim £0.43m; full-year £0.61m) by theweighted average number of shares in issue at 12 January 2008, 13 January 2007and 30 June 2007 respectively. Note 4 Dividends The Directors have decided to declare an interim dividend payment of 1.4p perordinary share. No interim dividend was paid in 2007. Note 5 Non-current assets held for sale As at As at As at 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Property, plant and equipment - 854 854 Assets held for sale were included within the total assets of the Group'sToiletries segment. The assets incorporated the land and buildings at theGroup's separate warehousing facility. The sale was completed on 28 December2007. Note 6 Reconciliation of cash and cash equivalents to movement in net debt 28 weeks ended 28 weeks ended 12 months ended 12 Jan 2008 13 Jan 2007 30 June 2007 (unaudited) (unaudited) (audited) £000's £000's £000's Increase in cash and cash equivalents in the 892 2,671 1,802periodCash inflow from movement in borrowings 2,432 147 147Movement on finance leases 79 198 291Change in net debt from cash flows 3,403 3,016 2,240Movement in fair value of derivative financial (6) 17 10instrumentsMovement in net debt in the period 3,397 3,033 2,250Net debt at the beginning of the period (4,882) (7,132) (7,132)Net debt at the end of the period (1,485) (4,099) (4,882) Note 7 Announcement of results These results were announced to the London Stock Exchange on 28 February 2008.The Interim Report will be sent to shareholders and is available to members ofthe public at the Company's Registered Office at Swallowfield House, StationRoad, Wellington, Somerset, TA21 8NL. INDEPENDENT REVIEW report to SWALLOWFIELD PLC Introduction We have been engaged by the company to review the financial information in thehalf-yearly financial report for the 28 weeks ended 12 January 2008 whichcomprises the group income statement, the group balance sheet, the groupstatement of recognised income and expense, the group cash flow statement andthe related notes 1 to 7, set out on pages 6 to 8. We have read the otherinformation contained in the half yearly financial report which comprises theChairman's Statement only and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the financialinformation. This report is made solely to the company in accordance with guidance containedin ISRE (UK and Ireland) 2410, "Review of Interim Financial Informationperformed by the Independent Auditor of the Entity". Our review work has beenundertaken so that we might state to the company those matters we are requiredto state to them in a review report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company, for our review work, for this report, or for theconclusion we have formed. Directors' Responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The AIM rules of the London Stock Exchange require that theaccounting polices and presentation applied to the interim figures areconsistent with those which will be adopted in the annual accounts having regardto the accounting standards applicable for such accounts. As disclosed in Note 1 the annual financial statements of the group are preparedin accordance with the basis of preparation. Our Responsibility Our responsibility is to express to the company a conclusion on the financialinformation in the half-yearly financial report based on our review. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the financial information in the half-yearly financial report for the 28weeks ended 12 January 2008 is not prepared, in all material respects, inaccordance with the basis of accounting described in Note 1. GRANT THORNTON UK LLPAUDITORBristol27 February 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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