2nd Mar 2007 07:30
Swallowfield PLC02 March 2007 Swallowfield plc Interim Report 2007 Chairman's Statement Highlights The financial highlights for the 28 week period to 13 January 2007 compared withthe same period last year are as follows: • Net Debt down by 10.6% to £4.1m (2006: £4.6m); • EBITDA (pre exceptional items) up by 109.9% to £1.6m (2006: £0.8m); • Operating Profit (pre exceptional items) up by £0.9m to £0.9m (2006: loss £0.02m); • Profit Before Taxation up by £1.4m to £0.4m (2006: loss £1.0m); • Earnings per share 2.3p (2006: loss per share of 6.2p). Results and Background We are pleased to report that the plan we initiated 12 months ago, to restorethe Company's profitability and balance sheet strength, has started well. Theactions taken to date have reduced overhead costs, improved operatingefficiencies and strengthened the focus on our core skills and capabilities.This has enabled us to improve the management of the margin mix resulting in theplanned elimination of some less profitable business. The combination of secureexecution of our strategic plan and greater seasonality than in the recent past,has meant that these results are better than we originally expected. Our operation in the Far East continues to work well for us with more than 90%of our Autumn and Christmas season gift packs being manufactured in China.Additionally, our recent success with accessory products leads us to see our FarEast business as a new growth opportunity in the medium to long-term. Both the Toiletries and Cosmetics divisions have traded well in the 28 weeksunder review. As a result of a focus on core capabilities and higher marginsales, revenues in the Toiletries division saw a planned reduction to £18.8m,with profits 69% higher at £0.9m. Revenues in the Cosmetics division increasedby 10% to £6.9m, as replacement business overlapped the close out of the Marksand Spencer ("M&S") Cosmetics contract. Operating profit for the division wasmore than £0.5m higher than the same period last year. Cash and Net Debt Continued focus on working capital management, a carefully directed capitalexpenditure programme and an improved profit performance have delivered a £0.5mreduction in net debt to £4.1m, from £4.6m last year. Subsequent to the halfyear-end, further receipts of £0.7m from M&S for the final shipments ofcosmetics inventory have been received. Cosmetics Division On 31 January 2007, we made an announcement regarding our Cosmetics division.The main points of this were as follows: • 70% of the lost M&S cosmetics business has already been replaced; • Two-thirds of targeted annualised overhead reductions of £0.9m were achieved by the end of the first half; • Investment of £0.2m in automated packing lines (with an eight-month payback) was approved; • Further development of Eastern Europe and Far East production capacity; and • A reduction in capital employed through lower inventories and fewer properties. The exceptional costs associated with this exercise have been charged in theseaccounts. This division is expected to meet the 12% hurdle level of return onassets, before corporate cost allocations, in the next full financial year. Our plan will result in a more flexible operation, capable of responding togrowth opportunities. We are determined to improve shareholder value through acombination of profitability enhancement and robust asset management in thisdivision. Looking Forward We have not yet seen any general improvement in the business environment,although we continue to notice early signs of customers looking for new productdevelopment ideas to create growth for their businesses. If it continues, thistrend will be positive for us, as creativity and product development are keystrengths of Swallowfield. The recent strategic review has re-iterated the needfor us to focus on these opportunities from within the many areas in which wehave a real core competence. We expect the pressures we are currentlyexperiencing on raw material and component prices to remain for a while,although the recent decreases in the oil and other commodity prices should helpalleviate these trends in the longer-term. We continue to drive operating efficiencies and reductions in overhead costs andour strategic actions are increasingly focussed on the challenges of deliveringprofitable sales growth. We are confident that we can achieve profitable salesgrowth in the medium term and customers are responding positively to ourstrategy of championing customer intimacy as our core value discipline. We will improve the strength of the Group's balance sheet and expect that we canreduce our net debt position at the June year-end. The Group has recentlyannounced that it is reviewing its property portfolio in Bideford. It is alsocarrying out a similar review in the rest of its business. The Group has, in principle, agreed headline terms for the sale and leaseback ofits freehold warehouse at Lowmoor, Wellington. Current indications are thatcontracts will be finalised within the next few weeks. The contract requiresthe purchaser which has a proven track record in this work, to extend thewarehouse allowing the Group to further consolidate its inventory storagelocations. The improvement in the results and the current activity levels give us cause foroptimism in the foreseeable future and, although we have made good progress thusfar, we recognise that there is still more to do. During the next six monthsthe business will be more seasonal than in recent years and trading results willbe weaker than the equivalent period last year whilst the actions we have put inplace for the Cosmetics division come to fruition. Overall, the trading resultsfor the full year to 30 June 2007 (before any exceptional costs or profits) areexpected to be in line with market expectations. Dividend Policy We remain committed to our intention to resume dividend payments as soon as isreasonably possible. The prerequisites for resuming dividend payments are debtreduction and a strengthening of the Group's balance sheet and we have madetangible progress during the last 12 months. When we consider that the balancesheet is sufficiently strong, we expect to resume dividend payments using acautious dividend cover of three times, with a progressive approach to futuredividend cover over time. S J WinningChairman1 March 2007 Group Income Statement 28 weeks ended 28 weeks ended 12 months ended 13 Jan 2007 7 Jan 2006 30 June 2006 (unaudited) (unaudited) (audited)Continuing operations Notes £'000 £'000 £'000 Revenue 2 25,720 28,156 48,995Cost of sales (22,021) (24,566) (42,779) Gross profit 3,699 3,590 6,216Commercial and administrative costs (2,844) (3,613) (5,621) Operating profit/(loss) before 855 (23) 595exceptional itemsExceptional items 2 (244) (677) (563) Operating profit/(loss) 611 (700) 32Finance income 21 15 6Finance costs (251) (289) (488) Profit/(loss) before taxation 381 (974) (450)Taxation (126) 279 182 Profit/(loss) for the period 255 (695) (268) Attributable to:Equity shareholders 255 (695) (268) Earnings/(loss) per share- basic and diluted 3 2.3p (6.2p) (2.4p) Group Statement of Changes in Equity Issued share Share Other Retained Total capital premium reserve earnings equity £'000 £'000 £'000 £'000 £'000Balance at 30 June 2005 (audited) 563 3,796 110 5,738 10,207Loss for the period - - - (695) (695)Equity dividends - - - (225) (225)Transfer of excess depreciationon revalued assets - - (7) 7 - Balance at 7 January 2006 (unaudited) 563 3,796 103 4,825 9,287Profit for the period - - - 427 427Transfer of excess depreciationon revalued assets - - (7) 7 - Balance at 30 June 2006 (audited) 563 3,796 96 5,259 9,714Profit for the period - - - 255 255Transfer of excess depreciationon revalued assets - - (7) 7 - Balance at 13 January 2007 (unaudited) 563 3,796 89 5,521 9,969 Group Balance Sheet As at As at As at 13 Jan 2007 7 Jan 2006 30 June 2006 (unaudited) (unaudited) (audited) Notes £'000 £'000 £'000ASSETSNon-current assetsProperty, plant and equipment 10,928 12,657 12,324Intangible assets 62 68 66 Total non-current assets 10,990 12,725 12,390Current assetsInventories 6,288 7,011 7,347Trade and other receivables 8,181 6,428 9,518Derivative financial instruments 13 - -Cash and cash equivalents 561 6 10 15,043 13,445 16,875Non-current assets held for sale 5 854 - 51 Total current assets 15,897 13,445 16,926 Total assets 26,887 26,170 29,316 LIABILITIESCurrent liabilities Trade and other payables 9,197 8,955 9,555Interest-bearing loans and borrowings 159 929 2,526 Total current liabilities 9,356 9,884 12,081 Non-current liabilitiesInterest-bearing loans and borrowings 4,514 3,675 4,612Post-retirement benefit obligations 2,694 2,670 2,677Other long term employee benefits - 522 -Deferred tax liabilities 354 109 228Derivative financial instruments - 23 4 Total non-current liabilities 7,562 6,999 7,521 Total liabilities 16,918 16,883 19,602 Net assets 9,969 9,287 9,714 EQUITYShare capital 563 563 563Share premium 3,796 3,796 3,796Other reserve 89 103 96Retained earnings 5,521 4,825 5,259 Total equity 9,969 9,287 9,714 Group Cash Flow Statement 28 weeks ended 28 weeks ended 12 months ended 13 Jan 2007 7 Jan 2006 30 June 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000Cash flows from operating activitiesProfit/(loss) before taxation 381 (974) (450)Depreciation 717 764 1,473Amortisation 17 15 30Loss/(profit) on disposal of equipment - 1 (1)Finance income (21) (15) (6)Finance cost 251 289 488Decrease in inventories 1,059 2,301 1,965Decrease/(increase) in trade and other 1,337 2,394 (696)receivables(Decrease)/increase in trade and other payables (354) (122) 486Increase/(decrease) in other long-term employee - 28 (482)benefitsIncrease in retirement benefit obligations 19 44 15 Cash generated from operations 3,406 4,725 2,822 Finance expense paid (257) (367) (583)Taxation recovered - 80 101 Net cash flow from operating activities 3,149 4,438 2,340 Cash flow from investing activitiesFinance income received 4 - 6Purchase of property, plant and equipment (175) (321) (813)Purchase of intangible assets (13) - (31)Sale of property, plant and equipment 51 - 1 Net cash flow from investing activities (133) (321) (837) Cash flow from financing activitiesCapital element of finance lease liabilities (198) (166) (230)Repayment of loans (147) (2,000) (1,421)Dividends paid - (225) (225) Net cash flow from financing activities (345) (2,391) (1,876) Net increase/(decrease) in cash andcash equivalents 2,671 1,726 (373) Cash and cash equivalents at beginning of period (2,110) (1,737) (1,737) Cash and cash equivalents at end of period 561 (11) (2,110) Cash and cash equivalents consist of:Cash 561 6 10Overdraft - (17) (2,120) Cash and cash equivalents at end of period 561 (11) (2,110) Notes to the Accounts Note 1 Basis of preparation The Group's interim results for the 28 week period ended 13 January 2007 areprepared in accordance with International Financial Reporting Standards (IFRS)as adopted by the EU. These interim financial statements do not constitute full statutory accountswithin the meaning of section 240(5) of the Companies Act 1985 and areunaudited. The Group has elected not to implement the early adoption of IAS 34'Interim financial reporting'. The unaudited interim financial statements wereapproved by the Board of Directors on 1 March 2007. 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 2007. The statutory accounts for the year ended 30 June 2006,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 13 Jan 2007 7 Jan 2006 Revenue Profit Revenue Profit/(loss) (unaudited) (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 £'000 Toiletries 18,783 852 21,878 503Cosmetics 6,937 3 6,278 (526) Total 25,720 28,156Operating profit/(loss) before exceptional items 855 (23)Exceptional items (244) (677) Operating profit/(loss) 611 (700)Finance income 21 15Finance costs (251) (289) Profit/(loss) before taxation 381 (974)Taxation (126) 279 Profit/(loss) for the period 255 (695) Exceptional costs relate to non-operational costs associated with the end ofCosmetics' M&S contract (2006: Group reorganisation costs.) Note 3 Earnings/(loss) per share 28 weeks ended 28 weeks ended 12 months ended 13 Jan 2007 7 Jan 2006 30 June 2006 (unaudited) (unaudited) (audited) (a) Basic and dilutedProfit/(loss) for the period (£'000) 255 (695) (268)Basic 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 - - - 11,256,416 11,256,416 11,256,416 Earnings/(loss) per share 2.3p (6.2p) (2.4p) Basic earnings/(loss) per share has been calculated by dividing the profit/(loss) for each financial period by the weighted average number of ordinaryshares in issue in the period. There is no difference for any of the reportedperiods between the basic net profit/(loss) per share and the diluted net profit/(loss) per share. (b) Adjusted earnings/(loss) per shareProfit/(loss) for the period (£'000) 255 (695) (268)Add back: Exceptional items 244 677 563Notional tax charge on exceptional items (73) (203) (169) Adjusted profit/(loss)before exceptional items 426 (221) 126 Basic 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 - - - 11,256,416 11,256,416 11,256,416 Adjusted earnings/(loss) per share 3.8p (2.0p) 1.1p Profit/(loss) for the period £0.26m (2006: interim loss £0.70m; full-year loss£0.27m) is shown after deducting £0.24m (2006: interim £0.68m; full-year £0.56m)in respect of exceptional reorganisation and other items. Adjusted earnings pershare has been calculated by dividing the adjusted profit of £0.43m (afterallowing for the potential tax credit on exceptional items) (2006: interim loss£0.22m; full-year profit £0.13m) by the weighted average number of shares inissue at 13 January 2007, 7 January 2006 and 30 June 2006 respectively. Note 4 Dividends The Directors have decided not to declare an interim dividend payment. Note 5 Non-current assets held for sale As at As at As at 13 Jan 2007 7 Jan 2006 30 June 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Property, plant and equipment 854 - 51 Assets held for sale are included within the total assets of the Group'sToiletries segment. The assets held for sale incorporate the land and buildingsat the Group's separate warehousing facility. The sale is expected to becompleted within three months of the balance sheet date. Note 6 Announcement of results These results were announced to the London Stock Exchange on 2 March 2007. 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. Independent Review Report to Swallowfield plc We have been instructed by the Company to review the financial information setout on pages 3 to 8. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is madesolely to the Company having regard to guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company, for our work, for this report,or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the AIMRules. The Directors are also responsible for ensuring that the accountingpolicies and presentation applied to the interim figures are consistent withthose which will be adopted in the annual accounts having regard to theaccounting standards applicable to such accounts. Review work performed We conducted our review having regard to guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the accounting polices and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope that an audit performed inaccordance with International Standards on Auditing (UK & Ireland) and thereforeprovides a lower level of assurance than an audit. Accordingly we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the 28 weeks ended13 January 2007. RSM Robson Rhodes LLPChartered AccountantsBristol, England1 March 2007 Corporate Directory Directors Registrars S J Winning (Chairman) Computershare Investor Services PLCI A Mackinnon (Chief Executive Officer) PO Box 82J M Fletcher (Group Sales and Marketing Director) The PavilionsP R V Houston (Group Finance Director) Bridgwater RoadR T Organ (Non-executive Director) BristolJ A Wardell (Non-executive Director) BS99 7NH Secretary Auditors A A Farrer-Halls FCCA RSM Robson Rhodes LLP 10 Queen Square Bristol BS1 4NT Registered Office Solicitors Swallowfield House Osborne ClarkeStation Road 2 Temple Back EastWellington Temple QuaySomerset BristolTA21 8NL BS1 6EG Stockbrokers and NOMAD Bankers Corporate Synergy plc Barclays Bank plcColston Tower Park HouseColston Street Newbrick RoadBristol BristolBS1 4RD BS34 8TN Registered Number Website Address 01975376 www.swallowfield.com Financial Calendar Preliminary announcement of 2007 results September 20072007 Annual General Meeting November 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Brand Architek.