Final Results

RNS Number : 8130Y

Swallowfield PLC

10 September 2009

 



Swallowfield Plc

Creating and Delivering Solutions for our Customers' Success

Preliminary Results for the year ended 30 June 2009

Financial Highlights

•	Adjusted earnings per share (pre exceptional items) up 4% to 9.6p (2008: 9.2p);
•	Revenues increase by 10% to £49.13m (2008: £44.82m);
•	Operating profit broadly maintained at £1.52m (2008: £1.54m);
•	Recommended final dividend of 4.1p per share; full year up 7% to 5.9p (2008: 5.5p); and
•	Gearing held at low level of 26% (2008: 20%).

Operational Highlights

•	Revenue growth in second half of 12% compared to same period last year;
•	Czech Republic operational efficiencies increasing and new business won;
•	Chinese strategic investment now an established Group supplier;
•	New sales office in France; and
•	Strategy refined and new objectives set.

Outlook

•	Expecting continued progress in 2010 - profit focused growth strategy;
•	Economic backdrop expected to remain challenging;
•	Reinforced emphasis on global capabilities;
•	Continued international focus including planned opening of a sales office in USA; and
•	Capital expenditure directed towards technology enhancements and environmental efficiencies.

Ian Mackinnon, CEO, commented:

'The last 12 months have been tumultuous for the wider UK economy, but the careful and sustained progress we have made over the previous three years has enabled us to weather the worst of this economic storm.  Swallowfield has demonstrated that it is a strong resilient business, with an excellent customer base.  Our plans to deliver organic growth have begun to be achieved with revenues increasing by 10% and adjusted earnings per share up by 4%.  The Board has been able to recommend a 7% increase in total dividends paid to shareholders during the year.'

For further information:

Swallowfield plc.
Ian Mackinnon,	Chief Executive Officer	01823 662 241
Peter Houston,	Group Finance Director	01823 662 241
Barrie Newton,	Smith & Williamson Corporate Finance	0117 376 2213
Nick Reeve,	Smith & Williamson Corporate Finance	0117 376 2213
Alan Bulmer,	Performance Communications	0117 907 6514
Chris Lawrence,	JBP Public Relations	0117 907 3400

Ian Mackinnon and Peter Houston will be in London on 14 September and Bristol/Exeter on 10/11 September for investor meetings.

Notes to Editors:

Swallowfield plc is a market leader in the development, formulation, manufacture and supply of cosmetics, toiletries and related household products to the own label and branded sectors.  We pride ourselves on being a customer orientated, innovative, flexible and responsive company and combine high quality, competitive products with strong customer service - developing close partnerships with our customers and an in depth knowledge of their requirements.

Chairman's Statement

Financial Summary

Swallowfield has delivered a robust set of results including a 4% growth in adjusted (pre-exceptional) earnings per share to 9.6p for the year to June 2009, in spite of a highly challenging global economic environment.  The Group has also increased its revenues, maintained pre-exceptional operating profits in line with the prior year, and retained its strong balance sheet. 

Total revenue was 10% ahead of last year at £49.13m (2008: £44.82m), reflecting the fact that new business we have been developing over the previous year, is starting to come through. Gross profits were level at £6.30m (2008: £6.32m), as benefits from revenue growth and improvements in efficiencies and product engineering, were offset by severe raw material inflation, particularly up to the Interim results. Management continued to focus on tight control of overhead costs but these were affected by significantly higher utility charges and increased expense in the Czech Republic. Interest costs were high this year as they included a £89k adverse movement in non-cash pension related charges.

Operating profit before exceptional items was broadly level with last year at £1.52m (2008: £1.54m). Profit before tax, including exceptional items, was £1.34m (2008: £2.34m which included the exceptional profit on the sale and leaseback of a warehouse). 

Net debt at the year end was £3.36m compared to £2.42m last year, from a peak of £8.78m in 2004. The increase in net debt resulted primarily from the need to fund working capital for the high volumes of business in the last two months of the year. There has been a slight deterioration in our net terms of trade as a result of customers' focus on their balance sheets, although there has been no deterioration in overdue debts.

The Board is recommending a final dividend of 4.1p (2008: 4.1p) per share. Together with the interim dividend of 1.8p (2008: 1.4p), the total dividend for the year will be 5.9p (2008: 5.5p) per share representing an annual increase of 7%, with a dividend cover of approximately 1.5 times fully-taxed underlying profits. If approved at the Annual General Meeting, the final dividend will be paid on 27 November 2009 to shareholders on the register at 13 November 2009. The shares will go ex-dividend on 11 November 2009.

Business Review

The last twelve months has been a period of almost unprecedented economic turbulence. The impact of this on the Group has been felt in sharply rising raw material, logistics and utility costs. In addition, we have faced the sales impact of very sudden and sharp destocking by customers and witnessed some pricing and payment terms pressures from customers. Despite these pressures the Group has managed to increase revenues demonstrating the success of the strategic focus on growing the business through new customers and new product development. We continue to strengthen Swallowfield's reputation and its position as a true full-service company. Our French sales office, opened in September 2008, at modest cost, is making good progress in developing new relationships and strengthening our service to existing customers. Customers continue to find the geographic diversity of operational facilities and sales offices particularly attractive. 

As highlighted in my statement last year, the organic development of the Group's operations has led to a change in the way in which the segmental analysis is presented, and the traditional analysis between Toiletries and Cosmetics business is no longer distinct.

Czech Republic

The manufacturing site in the Czech Republic has been operational for the whole year and the transfer of production lines from the UK is complete. The facility now offers the full complement of colour cosmetics, EDT, tube and liquid filling. Following a review of the long-term prospects of this facility, we decided to make additional Investments in overheads to allow for future growth despite the short-term impact on unabsorbed costs. The facility initially failed to achieve the planned efficiencies or levels of business. However, the position has now been significantly improved with net profits in the last quarter. This gives the Group a strong platform for the new business that is starting to be won for the operation. The site has approximately 120 permanent employees, and continues to be of great interest to new and existing customers. It is well placed to serve the forecast growth in demand for cosmetic and toiletry products from Central and Eastern European consumers.

China

In addition to our long established sourcing office in Shanghai, this has now been supplemented by our new strategic investment in a cosmetics manufacturer. This is now a key part of our operational activity, and this facility has become one of our top five Chinese suppliers.

Properties

The consolidation of our finished goods inventory into our Lowmoor warehouse, during the year, has released a property at Bideford which is now being marketed for sale or short-term rental. However, we have had no substantive expressions of interest during the last year.

Pension

The triennial valuation of the defined benefit pension scheme, at 6 April 2008, has now been completed. The valuation has incorporated the most recent life expectancy assumptions and there has been no significant resultant impact on the future funding of the scheme. As I reported in my Interim statement, the scheme has now been closed to new entrants, and new employees are being offered membership of a defined contribution scheme.  The IFRS deficit on the balance sheet has reduced slightly to £2.45m (2008: £2.58m).

Dividends

The Board, in line with the statement in the last Annual Report, will retain the target dividend cover of 1.5 times normalised post-tax earnings.

Board Changes

Richard Organ is completing his period of handover to Patrick Gaynor and will resign from the Board in October 2009. I would like to take the opportunity on behalf of shareholders, the Board and all the staff to thank Richard for his tremendous contribution to the Group and its performance throughout his 13 years of dedicated service in his capacity as a non-executive director. 

LTIP

The Board has developed a Long Term Incentive Plan proposal for senior executives which it intends to introduce later in the calendar year. The Plan would envisage awards of shares and cash over rolling 3 year cycles conditional on achieving challenging performance targets.

Strategy and Outlook

The last year has seen some encouraging organic sales growth and, in the absence of further dislocation in the economy, we expect to continue to improve revenues at a faster rate than the market. We have started the new trading year with a healthy order book. Our focussed Marketing programme has provided many more new customer contacts, some of which have already resulted in new business. We expect to see further increases in this conversion rate. 

Capital investment, in the year ahead, will be broadly in line with depreciation, at around £1.30m, and is planned to include a new state of the art manufacturing room at Wellington. This will facilitate a strengthening of our product capabilities, along with further investments for efficiency improvements, environmental savings and cost reduction. We expect to maintain net debt at around current levels.

Management will continue to pursue its growth strategy, against the parameters set out below, by driving sales which satisfy our key margin requirement, by broadening our geographic footprint, by widening our product range, by further focus on improvements in Quality, Cos, Service and Innovation, and by making strategic acquisitions of complimentary lines of business, if suitable opportunities arise. 

These elements will be pursued with a focus on customers and the external marketplace. New product development initiatives will be accelerated by alliances with external agencies.  

Swallowfield has demonstrated that it is a strong, resilient business, with an excellent customer base. We have agreed a set of demanding but achievable targets for the three years to 2012 to generate a 7.5% return on sales and a 13.5% pre-tax return on capital employed.

On behalf of all shareholders I thank Ian and the whole Swallowfield team for their determination, hard work and loyalty in delivering excellent customer service and a stable financial performance in the toughest of economic circumstances. The year ahead will bring new challenges but we believe our strategy is sound and we are fully focussed on driving the business to achieve profitable sustainable growth and accomplish the targets for the future. 

S J Winning

Chairman

10 September 2009

GROUP INCOME STATEMENT

For the year ended 30 June 2009

				2009		2008
Continuing Operations		Notes		£'000		£'000
Revenue		1		49,129		44,820
Cost of sales				(42,830)		(38,501)
Gross profit				6,299		6,319
Commercial and administrative costs				(4,777)		(4,782)
Operating profit before exceptional items				1,522		1,537
Exceptional items		2		26		1,024
Operating profit				1,548		2,561
Finance income				-		55
Finance costs				(209)		(272)
Profit before taxation		2		1,339		2,344
Taxation		3		(245)		93
Profit for the year				1,094		2,437
Attributable to equity shareholders				1,094		2,437
Earnings per share
	- basic and diluted	4		9.7p		21.6p

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 June 2009

		2009		2008
		£'000		£'000
Profit for the year		1,094		2,437
Exchange differences on translation of foreign operations		(46)		46
Total recognised income and expense for the year		1,048		2,483

GROUP BALANCE SHEET

As at 30 June 2009

			2009		2008
			£'000		£'000
ASSETS
Non-current assets
Property, plant and equipment			11,307		11,130
Intangible assets			101		95
Deferred tax assets			143		-
Investments			46		-
			11,597		11,225
Current assets
Inventories			6,218		6,548
Trade and other receivables			11,132		9,569
Cash and cash equivalents			473		49
			17,823		16,166
Assets held for sale			167		167
Total current assets			17,990		16,333
Total assets			29,587		27,558
LIABILITIES
Current liabilities
Trade and other payables			(10,298)		(10,008)
Interest-bearing loans and borrowings			(2,357)		(884)
Current tax payable			(294)		(121)
Total current liabilities			(12,949)		(11,013)
Non-current liabilities
Interest-bearing loans and borrowings			(1,471)		(1,583)
Post retirement benefit obligations			(2,450)		(2,584)
Deferred tax liabilities			(1)		(46)
Total non-current liabilities			(3,922)		(4,213)
Total liabilities			(16,871)		(15,226)
Net assets			12,716		12,332
EQUITY
Share capital			563		563
Share premium			3,796		3,796
Exchange reserve			-		46
Retained earnings			8,357		7,927
Total equity			12,716		12,332

GROUP CASH FLOW STATEMENT

For the year ended 30 June 2009

			2009		2008
			£'000		£'000
Cash flows from operating activities
Profit before taxation			1,339		2,344
Depreciation			1,246		1,167
Amortisation			69		39
Loss/(profit) on disposal of property, plant and equipment			11		(1,263)
Impairment of property, plant and equipment			4		7
Finance income			-		(55)
Finance costs			209		272
Decrease/(increase) in inventories			330		(486)
Increase in trade and other receivables			(1,563)		(1,858)
Increase in trade and other payables			244		2,515
Decrease in retirement benefit obligations			(134)		(133)
Cash generated from operations			1,755		2,549
Finance expense paid			(209)		(282)
Taxation paid			(260)		(169)
Net cash flow from operating activities			1,286		2,098
Cash flow from investing activities
Finance income received			-		55
Purchase of property, plant and equipment			(1,438)		(1,441)
Purchase of intangible assets			(75)		(57)
Purchase of investment			(46)		-
Sale of land and buildings			-		2,119
Net cash (outflow)/inflow from investing activities			(1,559)		676
Cash flow from financing activities
Capital element of finance lease liabilities			-		(148)
Proceeds from new loans			611		-
Repayment of loans			(568)		(2,432)
Dividends paid			(664)		(304)
Net cash flow from financing activities			(621)		(2,884)
Net decrease in cash and cash equivalents			(894)		(110)
Cash and cash equivalents at beginning of year			(418)		(308)
Cash and cash equivalents at end of year			(1,312)		(418)
Cash and cash equivalents consist of:
Cash			473		49
Overdraft			(1,785)		(467)
Cash and cash equivalents at end of year			(1,312)		(418)

NOTES:

1.   Segmental Analysis

The Group has previously reported it's operations in two segments (Toiletries and Cosmetics) which reflected the internal organisation and management structure according to the nature of the products manufactured and sold. This segmentation has become increasingly opaque, as customers are sourcing both types of products, and the Group's production units are increasingly able to offer a range of solutions.

The Group considers that it now operates in one reportable segment as all sales, purchasing, production and operational decisions are taken based on the overall Group operating performance. The results of this segment are as reported through the Group income statement, Group balance sheet and Group cash flow statements.

The distribution of the Group's external revenue by destination is shown below:

			2009		2008
			£'000		£'000
UK			39,420		35,352
Other European Union countries			9,161		8,507
Rest of the World			548		961
			49,129		44,820

In the year ended 30 June 2009, the Group had three customers that exceeded 10% of total revenues, being 21%, 18% and 12% respectively. In the year ended 30 June 2008, the Group had one customer which represented 18% of total revenues.

2.   Profit before taxation			2009		2008
			£'000		£'000
(a) This is stated after charging/(crediting):
Depreciation of property, plant and equipment:
Leased assets			-		165
Purchased assets			1,246		1,002
Amortisation of intangible assets			69		39
Impairment of property, plant and equipment			4		7
Research and development			771		687
Foreign exchange gains			(29)		(160)
Operating leases:
Hire of plant and machinery			107		105
Rent of buildings			337		143
Loss on disposal of plant and equipment			11		2
Auditors' remuneration:
Audit services			37		37
Non-audit services			41		40
(b) Exceptional items
Sale and leaseback of Lowmoor			-		(1,312)
Other exceptional items			-		56
Reorganisation			(26)		232
			(26)		(1,024)

Exceptional items relate to the release of prior year reorganisation provisions (2008: profit on the sale and leaseback of the Lowmoor warehouse, reorganisation costs related to opening the Tabor operation in the Czech Republic, and the transfer of some cosmetics production from Bideford to Tabor).

(c) Earnings before interest, tax, depreciation and amortisation ('EBITDA')
Operating profit			1,548		2,561
Depreciation of property, plant and equipment			1,246		1,167
Amortisation of intangible assets			69		39
Impairment of property, plant and equipment			4		7
Loss on disposal of property, plant and equipment (excluding exceptional items)			11		2
EBITDA			2,878		3,776
Exceptional items			(26)		(1,024)
EBITDA before exceptional items			2,852		2,752

3.   Taxation				2009		2008
				£'000		£'000
(a) Analysis of tax charge/(credit) in the year
UK corporation tax:
	on profit for the year			433		290
	adjustment in respect of previous years			-		(93)
Total current tax charge				433		197
Deferred tax:
Credit relating to change in the basis of taxation				-		(289)
Origination and reversal of temporary differences:
	on profit for the year			(6)		26
	property not giving rise to temporary difference			(114)		-
	unrelieved tax losses in overseas subsidiary			(68)		(74)
Total deferred tax				(188)		(337)
Tax charge/(credit)				245		(140)

The 2008 taxation credit is disclosed as a credit within the income statement of £93,000 and a credit of £47,000 within the exceptional income from the sale and leaseback of Lowmoor.

(b) Factors affecting total tax charge/(credit) for the year
The tax assessed on the profit before taxation for the year is lower than the standard rate of UK corporation tax of 28.0% (2008: 29.5%).  The differences are reconciled below:
			2009		2008
			£'000		£'000
Profit before taxation			1,339		2,344
Tax at the applicable rate of 28.0% (2008: 29.5%)			375		692
Effect of:
Expenses not deductible for tax purposes			3		49
Capital allowances for the year in excess of depreciation			(11)		3
Income on chargeable gain giving rise to no tax liability			-		(445)
Effect of R&D tax credits			-		(22)
Other temporary differences			10		(53)
Deferred tax credit relating to: change in the basis of taxation			-		(289)
Adjustment in respect of previous years			(40)		(93)
Properties not giving rise to temporary difference			(114)		-
Differences between UK and overseas tax rates			22		18
Actual tax charge/(credit)			245		(140)

4.   Earnings per Share

(a) Basic and diluted			2009		2008
Profit for the year (£'000)			1,094		2,437
Basic weighted average number of ordinary shares in issue during the year			11,256,416		11,256,416
Dilutive potential ordinary shares - executive share options			4,799		5,352
			11,261,215		11,261,768
Basic earnings per share			9.7p		21.6p
Diluted earnings per share			9.7p		21.6p
(b) Adjusted earnings per share
Basic and diluted
Profit for the year (£'000)			1,094		2,437
Less: Exceptional items			(26)		(1,024)
Notional tax charge/(credit) on exceptional items			7		(83)
Tax credit on change in basis of taxation			-		(289)
Adjusted profit before exceptional items			1,075		1,041
Basic weighted average number of ordinary shares in issue during the year			11,256,416		11,256,416
Dilutive potential ordinary shares - executive share options			4,799		5,352
			11,261,215		11,261,768
Adjusted earnings per share			9.6p		9.2p
Adjusted diluted earnings per share			9.6p		9.2p

5.   Notes to Statement of Cash Flows

(a)  Reconciliation of cash and cash equivalents to movement in net debt:

	2009		2008
	£'000		£'000
Decrease in cash and cash equivalents	(894)		(110)
Net cash (inflow)/outflow from (increase)/decrease in borrowings	(43)		2,580
Change in net debt resulting from cash flows	(937)		2,470
Net debt at 1 July	(2,418)		(4,882)
	(3,355)		(2,412)
Fair value of swaps hedging fixed rate borrowing	-		(6)
Net debt at 30 June	(3,355)		(2,418)

(b) Analysis of net debt
		1 July 2008 £'000	Cashflow £'000	30 June 2009 £'000
Cash at bank and in hand		49	424	473
Bank overdraft		(467)	(1,318)	(1,785)
		(418)	(894)	(1,312)
Borrowings due within one year		(417)	(155)	(572)
Borrowings due after one year		(1,583)	112	(1,471)
Total		(2,418)	(937)	(3,355)

6.   Statutory Accounts

The financial information does not constitute statutory accounts as defined in section 435 of the Companies Act 2006, but has been extracted from the statutory accounts for the year ended 30 June 2009 on which an unqualified audit report has been issued and which will be delivered to the Registrar following their adoption at the Annual General Meeting. 

The statutory accounts for the financial year ended 30 June 2008 have been delivered to the Registrar of Companies with an unqualified audit report and did not contain a statement under sections 237(2) or 237(3) of the Companies Act 1985. 

Copies of the 2009 Annual Report and Accounts will be posted to shareholders with the notice of the Annual General Meeting. Further copies may be obtained by contacting the Company Secretary at Swallowfield plc, Swallowfield House, Station Road, Wellington, Somerset, TA21 8NL. An electronic copy will be available, at the same time, on the Group's web site (www.swallowfield.com).

7.   Annual General Meeting

The Annual General Meeting will be held on Thursday 5 November 2009 at the Company's Registered Office, at 12.00 noon.

 

END

 

 

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