13th Mar 2006 07:01
Swallowfield PLC13 March 2006 Swallowfield plc Interim Report 2006 Chairman's Statement Results For the first 28 weeks of the current financial year, the Group made anoperating loss before exceptional items of £23k which, after restructuring costsamounting to £677k and a net interest charge of £274k, resulted in a loss beforetaxation of £974k. The difficult business environment outlined in our trading update of 20 December2005 remains and the retail environment has continued to weaken. Input costs,particularly utility costs and oil and gas related raw material prices remainunder some pressure. Commercial pressures have limited our ability to pass onthese increased costs because of the highly competitive nature of the marketsector today. We have also incurred £95k of non-recurring costs in respect of anaborted acquisition. Sales revenues in the Aerosol Division increased by 21% to £21.9m, primarily dueto the commencement of a 3 year contract with PZ Cussons. However, operatingprofit before restructuring costs decreased from £742k to £503k, reflecting thecost and competitive pressures previously noted. Sales revenue in the Cosmetics Division decreased by 6% to £6.3m, reflecting theweaker retail environment and the division made an operating loss of £526kcompared to an operating profit of £96k in the same period last year. Cash and net debt Improved working capital management and a reduction in capital expenditure hasenabled a further reduction in the Group's net debt requirement which, at thehalf year end, stood at £4.6m. The Group's net debt position has improved by£0.6m compared with the same time last year and by £3.8m compared with 30 June2005. Update on restructuring The Board has been reviewing its structure and composition since 20 December2005 and announced on 3 February 2006 the result of this review. I am pleased tosay that this restructuring is now complete. Ian Mackinnon was appointed ChiefExecutive Officer on 1 March 2006 following the retirement of Tony Wardell andwe are in the process of recruiting a new Group Finance Director. After almostsix years of committed service as Chairman, James Espey retired and myappointment as Chairman was confirmed on 1 March 2006. Tony Wardell wasappointed as a non-executive Director on the same date. The Board has decidedthat it is not necessary to fill the position of Group Operations Directorpreviously held by Brian Williamson, who left the company on 3 January 2006. Other restructuring activities described in the trading update issued on 20December 2005, primarily involving management and administration functions inthe Aerosols Division, have also been substantially completed. The costs associated with these restructuring activities amounted to £677k, some£177k higher than our original estimates and these have been charged against thefirst half results. However, I am very pleased to say that, as a result of theadditional restructuring activities undertaken, we now anticipate ongoing annualsavings of £800k against the £600k originally expected. Transfer of listing to AIM The Board has sent a circular to all shareholders with this interim report,seeking approval to transfer the listing of the Company's shares from the fulllist to AIM. The Board believes that an AIM listing is more appropriate giventhe current size of the company and the lower level of regulatory costsassociated with maintaining an AIM listing. The Board has therefore convened anExtraordinary General Meeting to be held on 5 April 2006 at Swallowfield Houseand recommends that shareholders approve the proposal. Dividends In the trading update issued on the 20 December, we noted that the Board haddecided not to declare an interim dividend. Trading conditions in the past twomonths have not altered the view that this is the appropriate decision at thepresent time. We will continue to closely monitor the situation and are workingtowards being in a position to resume dividend payments within 18 months. Looking forward We expect that the weak market background we are currently experiencing willcontinue for some while yet and, apart from a small number of specific newbusiness opportunities, we are not anticipating the market to show anyimprovement for the remainder of the year. We expect business volumes in theAerosols Division to be lower in the second half of the year reflecting theseasonality of the business and an increase in volumes of the CosmeticsDivision, in part following first production runs for a major new customer. Costimprovements from the restructuring plans and other operational efficiencyimprovements will begin to come through in the second half and we expect theresult for the year, before restructuring costs, to be broadly breakeven. Following the restructuring of the Board and the Aerosol Division, we haveremoved a layer of management in order to increase the speed of communicationand decision making. The new management team is undertaking a review of keyoperational activities to increase margins and reduce net debt. Our strategicreview of all business segments and their attendant profitability continues; anearly outcome of this is a decision to produce a significantly higher proportionof next year's gift programme in the Far East. Our strategic review hasunderlined the need to refocus key customer relations to improve serviceflexibility and speed to market. In addition, we are reviewing the Company'sbalance sheet with a view to improving asset utilisation and financialeffectiveness. Whilst the Company has had a difficult and demanding eighteen months, we areconfident that the changes we have made during the last two months, togetherwith the ongoing review will, in the medium term, restore our profitability. International Accounting Standards These interim results have been prepared using International AccountingStandards (IFRS) and include restated amounts for prior periods. The notes tothe accounts include reconciliations of profits and equity, previously reportedunder UK Generally Accepted Accounting Principles (GAAP), to those now reportedunder IFRS. S J Winning Chairman 13 March 2006 Summarised Group Income Statement Restated under IFRS 28 weeks 28 weeks 12 months ended ended ended 7 Jan 2006 8 Jan 2005 30 June 2005 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Revenue 28,156 24,677 43,539 Operating (loss)/profit before exceptional items (23) 838 411Exceptional items (677) - - Operating (loss)/profit (700) 838 411 Finance income 15 4 7Finance costs (289) (335) (615) (Loss)/profit before taxation (974) 507 (197)Taxation 279 (154) 102 (Loss)/profit for the period (695) 353 (95) Attributable to:Equity shareholders (695) 353 (95) Basic earnings per share (6.2p) 3.1p (0.8p)Diluted earnings per share (6.2p) 3.1p (0.8p) Group Statement of Changes in Equity (Unaudited) Issued Re- share Share Valuation Retained Total capital premium Reserve earnings equity £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2004 563 3,796 124 6,360 10,843 Transfer of excess depreciationon revalued assets - - (7) 7 -Profit for the period - - - 353 353Equity dividends - - - (541) (541)Balance at 8 January 2005 563 3,796 117 6,179 10,655 Transfer of excess depreciation onrevalued assets - - (7) 7 -Loss for the period - - - (448) (448)Equity dividends - - - - -Balance at 30 June 2005 563 3,796 110 5,738 10,207 Transfer of excess depreciationon revalued assets - - (7) 7 -Loss for the period - - - (695) (695)Equity dividends - - - (225) (225)Balance at 7 January 2006 563 3,796 103 4,825 9,287 Group Balance Sheet Restated under IFRS As at As at As at 7 Jan 2006 8 Jan 2005 30 June 2005 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000AssetsProperty, plant and equipment 12,657 13,406 13,044Intangible assets 68 57 56 Total non-current assets 12,725 13,463 13,100Inventories 7,011 7,705 9,312Trade and other receivables 6,428 7,130 8,822Cash and cash equivalents 6 69 25Current tax receivable - - 74Total current assets 13,445 14,904 18,233 Total assets 26,170 28,367 31,333 Trade and other payables 8,955 8,505 9,191Interest-bearing loans and borrowings 929 717 2,052Current tax payable - 258 -Dividend creditor - 316 -Total current liabilities 9,884 9,796 11,243 Interest-bearing loans and borrowings 3,675 4,514 6,379Pension deficit 2,670 2,536 2,605Other long-term employee benefits 522 473 482Deferred tax liabilities 109 376 380Derivative financial instruments 23 17 37 Total non-current liabilities 6,999 7,916 9,883Total liabilities 16,883 17,712 21,126 Net assets 9,287 10,655 10,207 Equity Share capital 563 563 563Share premium 3,796 3,796 3,796Revaluation reserve 103 117 110Retained earnings 4,825 6,179 5,738 Total equity 9,287 10,655 10,207 Group Cash Flow Statement Restated under IFRS 28 weeks 28 weeks 12 months ended ended ended 7 Jan 2006 8 Jan 2005 30 June 2005 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Cash flows from operating activities (Loss)/profit before tax (974) 507 (197)Depreciation 779 741 1,420Loss/(profit) on disposal of equipment 1 (5) 24Finance income (15) (4) (7)Finance cost 256 289 615Decrease/(increase) in inventories 2,301 277 (1,330)Decrease/(increase in trade and other receivables 2,394 7,089 5,397Decrease in trade and other payables (122) (3,789) (3,205)Increase in other long-term employee benefits 40 29 12Increase in retirement benefit obligations 65 67 70Cash generated from operations 4,725 5,201 2,799 Finance expense paid (367) (340) (458)Income tax received/(paid) 80 (162) (232)Net cash flow from operating activities 4,438 4,699 2,109Cash flow from investing activities Finance income received - - 7Purchase of property, plant and equipment (321) (860) (1,204)Sale of property, plant and equipment - 5 4Net cash flow from investing activities (321) (855) (1,193) Cash flow from financing activities Capital element of finance lease liabilities (166) (181) (345)Repayment of loans (2,000) (2,003) (3)Dividends paid (225) (225) (541)Net cash flow from financing activities (2,391) (2,409) (889) Net increase in cash and cash equivalents 1,726 1,435 27 Cash and cash equivalents at beginningof period (1,737) (1,764) (1,764)Cash and cash equivalents at end of period (11) (329) (1,737) Cash and cash equivalents consists of:Cash 6 69 25Overdraft (17) (398) (1,762)Cash and cash equivalents at end of period (11) (329) (1,737) Notes to the Interim Results 1 Basis of preparation The unaudited interim results for the 28 week period ended 7 January 2006 havebeen prepared in accordance with the Listings Rules of the Financial ServicesAuthority. The financial information contained herein does not constitutestatutory accounts within the meaning of section 240(5) of the Companies Act1985. The statutory accounts for the year ended 30 June 2005, which have beendelivered to the registrar of companies, carry an unqualified Auditors' Report. The Group has previously prepared its financial statements under UK GenerallyAccepted Accounting Principles (UK GAAP). Following a directive by the EuropeanParliament in July 2002, the Group is required to prepare its 2005/6consolidated financial statements in accordance with International FinancialReporting Standards as adopted by the European Union (IFRS). Accordingly, this interim report has been prepared using IFRS accountingpolicies consistent with those management expect to apply in the Group's firstIFRS Annual Report and Financial Statements for the year ending 30 June 2006. 2 Earnings per share The calculation of basic earnings per share is based on 11,256,416 (2005:11,256,416) ordinary shares of 5.0p each, being the weighted average number ofordinary shares in issue during the period, and the loss on ordinary activitiesafter taxation of £695,000 (2005: profit of £353,000). The potential ordinaryshares for executive share options are non-dilutive. 3 Announcement of results These results were announced to the London Stock Exchange on 13 March 2006. TheInterim Report will be sent to shareholders and is available to members of thepublic at the Company's Registered Office at Swallowfield House, Station Road,Wellington, Somerset, TA21 8NL. 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