30th Mar 2005 07:00
SWP Group PLC30 March 2005 SWP Group PLC Interim Report 2004 for the six months ended 31 December 2004 Chairman's Statement Results Following the tribulations experienced in the year to June 2004, the first halfof the new financial year was essentially a period of consolidation. On slightly lower sales of £7,748,000 (2003: £7,843,000) we incurred anoperating loss before exceptional items of £335,000 (2003: £871,000) offset byexceptional income of £420,000 (2003: £234,000 costs) resulting in an operatingprofit of £85,000 (2003: loss £1,105,000). The exceptional income relates to thenet proceeds of the litigation referred to in the 2004 Annual Report andAccounts and represents a one-off benefit to the Group. Net interest costs of£273,000 (2003: £290,000) give rise to a net loss attributable to shareholdersof £188,000 (2003: loss £1,395,000) which means that no dividend can be declaredat this time. Review of Operations Despite reporting further losses at the operating level we believe that we haveachieved some significant progress during the period under review. As thedetailed commentaries which follow demonstrate we have done much to positionboth Fullflow Group and DRC Polymer Products for growth both in the short termand beyond and at Crescent there is major effort under way to find a way ofincreasing the return on capital we derive from a business which is perhapsunlikely to deliver significant top line growth in the near future. Fullflow Group Following the various upheavals which occurred during the previous financialyear the major focus at Fullflow has been geared towards increasing sales andimproving customer satisfaction levels. In the UK the strategy of targeting medium to large projects is starting toproduce the desired results in terms of both order intake levels and operationalefficiency. For most of the period to December the performance of the businesswas still being adversely affected by an excess of small projects spread aroundthe country, which led to inefficient working, poor customer satisfaction levelsand a whole raft of extra costs. However in recent months the average ordervalue has increased by around 60% and although the number of orders received bythe company has actually declined, total order intake levels have increasedsharply: and while order margins on the larger projects inevitably tend to belower it is much more likely that those margins can be achieved in practice andperhaps even improved upon. With overall demand for syphonic roof drainage continuing to grow, Fullflow's UKoperation is well placed to capitalise on its position as market leader. Recentorder intake levels have been very encouraging and, with a number of majororders in the pipeline, turnover is set to rise significantly. Just asimportantly, service levels are being restored to their previous highs and thiscan only serve to bolster customer confidence and lead to follow-on business. In France order intake during the review period was weak, affected both bysluggish market conditions and also the emergence of an aggressive newcompetitor. The shortage of new orders inevitably fed through to reduced saleslevels and for the period as a whole a loss was registered, the first for somewhile. However in recent weeks the sales outlook has improved considerably. The markethas strengthened, the competitive pressures referred to above have eased and wehave helped ourselves by putting in place extra resources to support our salesand marketing effort. Order intake levels have improved significantly andalthough the business is currently suffering from widespread site delays, noneof which are attributable to any failings at our end, prospects overall lookmuch better. In Spain the newly constituted management team is continuing with its endeavoursto create a platform for growth by broadening its customer base and extendingits geographical reach. Some successes have been achieved in the Basque countryfollowing the appointment of a sales agent and we are attempting to replicatethis arrangement elsewhere. In recent months order intake has been patchy butthere is no doubt that an increasing number of Architects, developers andcontractors in Spain appreciate the advantages which they can derive by usingFullflow's drainage systems and there is a real expectation that enquiry andorder levels will exhibit a steady rise going forward. Meanwhile, as with anyembryonic business, we have to be prepared to support the business until itreaches breakeven point. At Plasflow, third party sales continued to disappoint. Although the companyprovides an important manufacturing service to the three other businesses withinFullflow Group, the major capital investment programme implemented at the newRotherham facility was very much targeted at what was considered to be a majorbusiness opportunity outside the Group and recent sales levels have failed bysome distance to achieve the benchmarks required to generate economic returns. However during the period much effort was expended to re-establish Plasflow as aprofessional and reliable presence in the marketplace and we are finallystarting to see the benefits of this input. Those customers who have placedbusiness with us have been impressed by the quality and speed of our responseand we are confident that if we can source a regular flow of new business weshould be able to build a loyal customer base. Further afield Fullflow continues to seek out international growthopportunities. Our preferred strategy for exploiting such opportunities iseither to develop partnerships or create franchises and we are hopeful that inthe coming months at least two new arrangements of this nature will be put inplace. These should help the company establish its name as a genuinely globalbrand and also to sell its products and expertise in countries or regions whichit would be uneconomic to target directly. Crescent of Cambridge Sales at Crescent were slightly lower than for the corresponding period lastyear but an overall improvement in gross margins produced a slightly higheroperating profit. In previous reports we have highlighted the need for Crescent to develop a newpathway to growth but despite favourable market conditions this challenge isproving to be a difficult one. As a business Crescent enjoys many characteristics which should work in itsfavour: the experience of its management team, the strong skillbase of itsemployees and the new CNC machines which it is now using ought to provide thebasis of strong competitive advantage and we continue to work with the companyto find ways of improving the returns which the business is currentlygenerating. DRC Polymer Products In line with the more upbeat commentary included in the 2004 Annual Report andAccounts DRC delivered a much improved performance, with sales for the periodmore than 20% ahead of last year. While this was not quite enough to push thebusiness into the black we are in no doubt that the positive sales trend issustainable and that the prospects for the business are better than ever. Probably of most significance in this context is the special new waterproofingmaterial which DRC has developed over the last year or so and which features abuilt-in leak-detection capability. This product, which we refer to as the"Intelligent Membrane", allows the user/owner of the installation to pinpointany leaks to within one square metre and given that the cost of installing it islower than the liquid coatings with which it competes it has beenenthusiastically embraced by those from within the water industry who havewitnessed the demonstrations which we have laid on. One pilot project hasalready been completed and we are hopeful of securing a much larger project inthe coming weeks. If all the current indications are correct this product hashuge potential, not only in the UK but further afield, and we are taking theappropriate steps to protect the intellectual property vested in it. Progress has also been made in a number of other product areas and although oneor two of these are still in the development phase it does appear that they haveconsiderable potential. As with Fullflow, therefore, DRC is poised deliver thesort of results which we have always believed it is capable of achieving. Current Trading Trading in the third quarter of the financial year has been mixed. The weatherhas hampered progress on a number of Fullflow's sites in the UK and France withdelays of up to a month being experienced in some instances. It is inevitablydifficult to replace turnover which is lost in such circumstances and it is forsuch reasons that Fullflow's business tends to follow a seasonal pattern. Crescent has a strong order book going forward which includes, inter alia,significant orders from the Ministry of Defence and other Government Agencies. DRC is benefiting from the success not only of its strategic partnerships butalso through the evolution of proprietorial products within the water industrywhich have enormous potential for the future profitable growth of the company. Future Prospects There is now strong evidence to suggest that the Group should make good progressin the months ahead. Across the board enquiry and order levels are healthy andwe expect these to feed through to higher levels of turnover going forward. In particular both Fullflow and DRC are well positioned in their respectivemarkets with resources being targeted at those sectors which appear to offer thebest prospects of profitable growth. Each of the businesses ought to be capable of handling a significant amount ofextra demand without the need to incur additional overhead costs and this shouldmean that any sales growth which is achieved should produce improvements indivisional profitability. The efforts of our management teams are very clearly focused on what is requiredto deliver the results we believe they are capable of achieving and we look tothe future with cautious optimism. R M MuddimerChairman Enquiries To: Oliver Scott KBC Peel Hunt Ltd 020 7418 8900 Alan Walker SWP Group Plc 020 7379 7181 (Group Financial Director) Consolidated Profit and Loss AccountSix months ended 31 Dec 2004 Six months Six months ended ended Year ended 31.12.04 31.12.03 30.06.04 £'000 £'000 £'000 Turnover 7,748 7,843 15,006 --------- --------- --------- Operating loss before exceptional items (335) (871) (1,816) Net operating income/(expenses) - exceptional items 420 (234) (292) --------- --------- ---------Operating profit/(loss) 85 (1,105) (2,108Net interest payable and similar charges (273) (290) (609) --------- --------- ---------Loss on ordinary activities before taxation (188) (1,395) (2,717)Taxation - - - --------- --------- ---------Retained loss (188) (1,395) (2,717) --------- --------- ---------Loss per share - basic (1.19)p (0.41)p (0.70)p --------- --------- --------- - diluted (1.19)p (0.41)p (0.70)p --------- --------- --------- Consolidated Balance SheetAs at 31 Dec 2004 As at As at As at 31.12.04 31.12.03 30.06.04 £'000 £'000 £'000 Fixed assets Intangible assets 25 35 27Tangible assets 3,739 4,217 3,906 --------- --------- --------- 3,764 4,252 3,933 --------- --------- --------- Current assets Stocks 2,668 2,693 2,731Debtors 5,348 4,315 5,015 --------- --------- --------- 8,016 7,008 7,746 Creditors: amounts falling due within one year (8,259) (8,807) (7,888) --------- --------- --------- Net current liabilities (243) (1,799) (142) --------- --------- --------- Total assets less current liabilities 3,521 2,453 3,791 --------- --------- --------- Creditors: amounts falling due after more than one year 3,152 3,665 3,234 --------- --------- --------- Capital and reserves Called up share capital 79 6,827 79Share premium account 11,134 1,295 11,134Capital reserve 41 41 41Revaluation reserve 671 691 671Profit and loss account (11,556) (10,066) (11,368) --------- --------- --------- 369 (1,212) 557 --------- --------- --------- 3,521 2,453 3,791 --------- --------- --------- Consolidated Cash Flow StatementSix months ended 31 Dec 2004 Six months Six months ended ended Year ended 31.12.04 31.12.03 30.06.04 £'000 £'000 £'000 Net cash (outflow)/inflow from operating activities (503) 365 (224) --------- --------- --------- Returns on investments and servicing of financeNet interest paid (249) (234) (484)Hire purchase interest (36) (56) (51) --------- --------- --------- (285) (290) (535) --------- --------- --------- Investing activities Payments to acquire fixed assets (51) (99) (192)Receipts from sales of tangible fixed assets - 4 144 --------- --------- --------- (51) (95) (48) --------- --------- --------- Financing Issue of ordinary share capital net of expenses - - 3,091Bank loans received - - 129Bank loan repayments (27) (250) (250)Other loan repayments - - (1,046)Capital element of finance leases and purchase payments (118) (194) (327) --------- --------- --------- (145) (444) 1,597Net (decrease)/increase in cash (984) (464) 790 --------- --------- --------- Notes to the Interim Report 1 Financial Information The interim results are unaudited and do not constitute statutory accounts. The comparative information contained in this report for the year ended 30th June 2004 does not constitute the statutory accounts for that financial year. Those accounts have been reported on by the Group's auditor and delivered to the Registrar of Companies. The report of the Auditor was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act. 2 Taxation There is no charge in the profit and loss account for taxation due to the fact that the Group has sustained losses during the period under review. 3 Loss per share Loss per share is calculated on the basis of shares 15,770,000 2003: 341,319,198), which is the weighted average of the number of shares in issue during the period. The Company's share options are not dilutive for loss per share calculations because the share options' exercise prices are greater than the current market price. 4 Dividends The Directors are not recommending the payment of an interim dividend. 5 Copies of interim report Copies of the interim report are being circulated to shareholders. Further copies are available from the Company's registered office at SWP Group plc, 4th Floor, Bedford House, 3 Bedford Street, London WC2E 9HD. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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