Final Results
Swallowfield PLC
13 September 2007
Swallowfield Plc
Creating and Delivering Solutions for our Customers' Success
Preliminary Results for the year ended 30 June 2007.
Swallowfield plc is pleased to announce its preliminary results for the year
ended
30 June 2007 and the resumption of dividend payments.
Financial Highlights
• Net Debt £4.88m, down 32% (2006: £7.13m);
• Operating Profit (pre exceptional items), up 122% to £1.32m (2006:
£0.60m);
• Earnings per share 3.9p (2006: loss per share of 2.4p); and
• Recommended dividend of 1.3p per share.
Operational Highlights
• Second half trading better than anticipated following a strong trading
performance in the first half;
• We have won a greater share of high quality business through our focus
on our core competencies;
• New filling and packing operation in Czech Republic on track for
January 2008 production;
• Chinese cosmetics joint venture signed - exclusive access to European
markets and royalty on sales using our technology;
• Cosmetics division restructure moving towards target return with
operating profit of £0.30m and operating cash flow of £1.53m; and
• Sale and Leaseback in progress.
Outlook
• Expected improvement in full year despite a slower first half;
• New products and ranges developed over the last year will launch in
the second and third quarters of calendar year 2008;
• Strategy of continuous improvement in Quality, Cost, Service and
Innovation showing progress and achieving recognition from existing and new
customers;
• Sale and leaseback and the sale of property at Bideford will enable
further reductions in net debt; and
• Capital expenditure investment directed towards improvements in
efficiency and the new operation in the Czech Republic.
Shena Winning, Non-executive Chairman, commented:
'This has been a year of major progress, and reflects the ability of our new
management team and the high calibre of all staff who work at Swallowfield. The
increasing strength of the balance sheet and the improved profitability have
enabled the board to recommend a modest dividend for the year. The board
recognises that this early success must be repeated in order to realise the
company's potential.'
Enquiries:
Swallowfield Plc.
Ian Mackinnon, Chief Executive Officer 01823 662 241
Peter Houston, Group Finance Director 01823 662 241
Mike Coe Blue Oar Securities plc 0117 933 0020
Alan Bulmer, Performance Communications 0117 907 6514
James Harris, 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 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
Key Achievements
The results for the year to June 2007 are better than expected and indicate that
we have made good progress in strengthening the balance sheet and restoring the
profitability of the Group. Earnings per share increased to 3.9p from a loss of
2.4p last year and were higher than the market expectations set at the time of
our interim results.
Following a strong trading performance in the first half of the year, trading in
the last 6 months was higher than anticipated. Operational efficiencies
continued to improve and cost control was better than expected. At the same
time, our focus on core competencies has allowed us to win a greater share of
higher quality business opportunities.
The improved trading together with lower levels of net debt enabled us to record
a profit before tax and exceptional costs of £0.93m compared with £0.11m in the
previous year.
Business Review
Toiletries Division
During the year, we continued to drive our core activities and competencies thus
directing our creative efforts towards higher quality business. Revenues
declined 7.8% to £33.50m but operating profit before corporate cost allocations
increased by 30% to £2.36m.
We captured the total overhead savings which we initiated and planned for 18
months ago and have seen real progress and substantive cost reductions from the
implementation of a lean programme which continues to add benefits in all our
business activities. The benefits expected from our China operation are also
evident and we now source over 90% of our gift packs from the Far East.
The toiletries division remains a highly creative and robust business which
focuses on delivering a broad range of services to international customers.
Whilst the majority of revenues come from UK based customers, a significant
proportion of our production is sold in international markets. Customer service
levels are vital for our ongoing success and the continuous improvement
activities undertaken over the last year have had real benefits. For example we
recently won an award from one of our major customers for being the most
improved supplier of the year.
Cosmetics Division
Significant progress has been made on the restructuring of this division.
During the year the division made an operating profit of £0.30m before corporate
cost allocations and, importantly, generated £1.53m of operating cash flow.
Over the last two years this division has generated £2.9m of operating cash.
Our plans for the cosmetics business have not changed. Our aim is to achieve a
12% return on assets or, if this is not possible, to continue to downsize the
division in a controlled way which enhances shareholder value, provides real
service to customers and allows us to respond to growth opportunities. Recent
ranges we have launched exemplify the high standard of service we offer our
customers and we see a long-term benefit in this division.
Czech Republic
We are making good progress in establishing our filling and packing operation in
the Czech Republic. The building is scheduled for handover in mid November and
we have recruited a high quality and experienced manager to run the factory.
The other elements of the project plan are broadly on track and we still expect
to start production by the beginning of January 2008. We have already begun to
market this new facility to our existing customers who have provided very
encouraging feedback to us.
China
We have signed the heads of terms agreement for our Chinese cosmetics joint
venture and expect this transaction to be concluded on within the next two
months. The terms of the intended joint venture are that we will provide
technology including formulations and quality systems, in return for exclusive
access to European markets and a small royalty on all sales made by the joint
venture using our specialist knowledge. Swallowfield will hold a 10% stake in
the joint venture company and have a seat on the board for a price of
approximately £40,000. In addition to creating potential new sales
opportunities in Europe, it gives us and our customers' even greater assurance
over the quality and standards of products which we source from China.
Financial Results
We have continued to make significant reductions in net debt and, at 30 June,
net debt was £4.88m - its lowest level for 5 years. These reductions are a
direct result of the planned shift in the business from stock holding accounts
to contract accounts, improved working capital management and lower levels of
capital expenditure. As discussed below, some of the capital expenditure
originally planned for the financial year just ended, will be made in the
current financial year.
Pension Scheme
At the 30 June 2007, the pre-tax pension scheme deficit recorded in the
Company's balance sheet amounted to £2.7m. Good investment returns and robust
management have created an unrecognised surplus of £2.16m which, under
international accounting standards, is not included in the balance sheet. This
improved position could be eroded by further stock market turbulence and
recognition of changes in assumptions for life expectancy.
Sale & Leaseback of Lowmoor Warehouse
Due to a number of technicalities, the sale process is taking longer than
anticipated. It is still our intention to complete this transaction as soon as
possible and we continue to work with the original potential buyer. In the
meantime, we have applied for planning permission for the extension and thus far
have received no negative feedback.
Strategy & Outlook
As noted earlier in the year, we planned to withdraw from certain non core
product areas and reduce the proportion of business which is dependent on stock
holding - we have been successful in these regards. At the same time, many of
the new products and ranges we have been working on for some time will not
launch until the second and third quarters of calendar year 2008. Consequently,
we expect the first half of the new financial year to be weaker than the same
period in the year just ended, but expect to see continued improvements for the
year as a whole. Our strategy of continuous improvement in Quality, Cost,
Service and Innovation is beginning to show signs of success and this has been
recognised by both existing and new customers.
The impact of the sale and leaseback, the sale of property at Bideford and our
strategy of reducing dependency on stockholding accounts will provide further
reductions in net debt over the next 12 months. We plan an increase in capital
expenditure levels from the low levels of the year just ended to something
closer to current depreciation levels. In part this reflects some expenditure
originally planned for the year just ended being delayed into the new financial
year. The expenditure is directed towards cost reductions and improvements in
efficiency, together with some increases required for the new operation in the
Czech Republic.
Dividends
The Board considers that sufficient progress has been made in strengthening the
Group's balance sheet to resume the payment of dividends. Our strategy, as
explained previously, is to pay dividends using a cautious dividend cover of
three times, with a progressive approach to future dividend cover over time.
Accordingly, the Board is proposing to pay a final dividend of 1.3p per share.
If approved at the Annual General Meeting, the final dividend will be paid on 30
November 2007 to shareholders on the register at 16 November 2007. The shares
will go ex-dividend on 14 November 2007.
S J Winning
Chairman
13 September 2007
GROUP INCOME STATEMENT
For the year ended 30 June 2007
2007 2006
Continuing Operations Notes £'000 £'000
Revenue 1 44,715 48,995
Cost of sales (38,411) (42,779)
Gross profit 6,304 6,216
Commercial and administrative costs (4,986) (5,621)
Operating profit before exceptional items 1,318 595
Exceptional items 2 (244) (563)
Operating profit 1,074 32
Finance income 24 6
Finance costs (411) (488)
Profit/(loss) before taxation 2 687 (450)
Taxation 3 (248) 182
Profit/(loss) for the year 439 (268)
Attributable to equity shareholders 439 (268)
Earnings/(loss) per share
- basic and diluted 4 3.9p (2.4p)
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 30 June 2007
2007 2006
£'000 £'000
Profit/(loss) for the year 439 (268)
Total recognised income and expense for the year 439 (268)
GROUP BALANCE SHEET
As at 30 June 2007
2007 2006
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11,032 12,324
Intangible assets 77 66
11,109 12,390
Current assets
Inventories 6,062 7,347
Trade and other receivables 7,711 9,518
Cash and cash equivalents 185 10
Derivative financial 6 -
instruments
13,964 16,875
Assets held for sale 854 51
Total current assets 14,818 16,926
Total assets 25,927 29,316
LIABILITIES
Current liabilities
Trade and other payables (7,508) (9,555)
Interest-bearing loans and (1,153) (2,526)
borrowings
Total current liabilities (8,661) (12,081)
Non-current liabilities
Interest-bearing loans and (3,920) (4,612)
borrowings
Post retirement benefit (2,717) (2,677)
obligations
Deferred tax liabilities (476) (228)
Derivative financial - (4)
instruments
Total non-current liabilities (7,113) (7,521)
Total liabilities (15,774) (19,602)
Net assets 10,153 9,714
EQUITY
Share capital 563 563
Share premium 3,796 3,796
Other reserve - 96
Profit and loss account 5,794 5,259
Total equity 10,153 9,714
GROUP CASH FLOW STATEMENT
For the year ended 30 June 2007
2007 2006
£'000 £'000
Cash flows from operating activities
Profit/(loss) before taxation 687 (450)
Depreciation 1,205 1,389
Amortisation 36 28
Loss/(profit) on disposal of equipment 25 (1)
Impairment of property, plant and equipment 42 84
Impairment of intangible assets - 2
Finance income (24) (6)
Finance costs 411 488
Decrease in inventories 1,285 1,965
Decrease/(increase) in trade and other 1,807 (696)
receivables
(Decrease)/increase in trade and other payables (2,055) 486
Decrease in other long-term employee benefits - (482)
Increase in retirement benefit obligations 55 15
Cash generated from operations 3,474 2,822
Finance expense paid (428) (583)
Taxation recovered - 101
Net cash flow from operating activities 3,046 2,340
Cash flow from investing activities
Finance income received 24 6
Purchase of property, plant and equipment (834) (813)
Purchase of intangible assets (47) (31)
Sale of property, plant and equipment 51 1
Net cash flow from investing activities (806) (837)
Cash flow from financing activities
Capital element of finance lease liabilities (291) (230)
Repayment of loans (147) (1,421)
Dividends paid - (225)
Net cash flow from financing activities (438) (1,876)
Net increase/(decrease) in cash and cash equivalents 1,802 (373)
Cash and cash equivalents at beginning of year (2,110) (1,737)
Cash and cash equivalents at end of year (308) (2,110)
Cash and cash equivalents consist of:
Cash 185 10
Overdraft (493) (2,120)
Cash and cash equivalents at end of year (308) (2,110)
NOTES:
1. Revenue and Segmental Analysis
2007 2006
Revenue Profit before Net assets Revenue Profit/(loss) Net assets
tax before tax
Class of business £'000 £'000 £'000 £'000 £'000 £'000
Toiletries products 33,497 2,362 11,103 36,318 1,818 11,481
Cosmetics products 11,218 299 5,169 12,677 205 6,396
44,715 2,661 16,272 48,995 2,023 17,877
Corporate costs (1,343) (1,428)
Operating profit 1,318 595
before exceptional
items
Exceptional items (244) (563)
Operating profit 1,074 32
Net finance costs (387) (482)
Profit/(loss) 687 (450)
before taxation
Unallocated net (6,119) (8,163)
liabilities
Group net assets 10,153 9,714
Cash Cash
generated generated
from from
operations operations
£'000 £'000
Toiletries 2,740 2,992
Cosmetics 1,526 1,374
Geographic segment
By destination:
UK 37,471 41,001
Other Europe 7,021 7,754
Rest of World 223 240
44,715 48,995
All turnover is derived from operations established in the UK.
Unallocated net liabilities comprise bank loans, overdrafts, finance leases and
taxation.
2. Profit/(loss) before taxation
2007 2006
£'000 £'000
(a) This is stated after charging:
Depreciation of property, plant and equipment:
Leased assets 200 261
Purchased assets 1,005 1,128
Amortisation of intangible assets 36 28
Impairment of property, plant and equipment 42 84
Impairment of intangible assets - 2
Research and development 627 726
Foreign exchange losses 50 4
Operating leases:
Hire of plant and machinery 88 82
Rent of buildings 51 77
Auditors' remuneration:
Audit services 41 44
Non-audit services 31 58
2007 2006
£'000 £'000
(b) Exceptional items:
Reorganisation 244 684
Renegotiation of Jubilee costs - (431)
Other exceptional costs - 310
244 563
Exceptional items relate to non-operational costs associated with the end of Cosmetics' Marks &
Spencer contract (2006: Other exceptional items relate to legal and professional fees for an
abortive acquisition and other non-recurring items).
2007 2006
£'000 £'000
(c) Earnings before interest, tax, depreciation and
amortisation ('EBITDA'):
Operating profit 1,074 32
Depreciation of property, plant and equipment 1,205 1,389
Amortisation of intangible assets 36 28
Impairment of property, plant and equipment 42 84
Impairment of intangible assets - 2
Loss/(profit) on disposal of non-current assets 25 (1)
EBITDA 2,382 1,534
Exceptional items 244 563
EBITDA before exceptional items 2,626 2,097
3. Taxation
2007 2006
£'000 £'000
(a) Analysis of tax charge/(credit) in the year
UK corporation tax:
on profit/(loss) for the year - -
adjustment in respect of previous years 64 (30)
Total current tax charge/(credit) 64 (30)
Deferred tax:
Origination and reversal of timing differences:
on profit/(loss) for the year 184 (152)
Total deferred tax 184 (152)
Total tax charge/(credit) on profit/(loss) 248 (182)
(b) Factors affecting current tax charge/(credit) for the
year
The tax assessed on the profit/(loss) before taxation for the year is higher than the standard
rate of UK corporation tax of 30% (2006: 30%). The differences are reconciled below:
2007 2006
£'000 £'000
Profit/(loss) before taxation 687 (450)
Profit/(loss) at the applicable rate of 30% 206 (135)
Effect of:
Expenses not deductible for tax purposes 34 38
Capital allowances for the year in excess of depreciation (14) (17)
Effect of R&D tax credits (16) (25)
Other timing differences 8 (13)
Deferred tax credit relating to change in tax rate (34) -
Adjustment in respect of previous years 64 (30)
Actual tax charge/(credit) 248 (182)
4. Earnings/(loss) per Share
2007 2006
(a) Basic and diluted
Profit/(loss) for the year (£'000) 439 (268)
Basic weighted average number of ordinary shares in issue 11,256,416 11,256,416
during the year
Dilutive potential ordinary shares - executive share options - -
11,256,416 11,256,416
Earnings/(loss) per share 3.9p (2.4p)
(b) Adjusted earnings per share
Basic and diluted
Profit/(loss) for the year (£'000) 439 (268)
Add back: Exceptional items 244 563
Notional tax charge on exceptional items (73) (169)
Adjusted profit before exceptional items 610 126
Basic weighted average number of ordinary shares in issue 11,256,416 11,256,416
during the year
Dilutive potential ordinary shares - executive share options - -
11,256,416 11,256,416
Adjusted earnings per share 5.4p 1.1p
5. Notes to Statement of Cash Flows
(a) Reconciliation of cash and cash equivalents to movement in net debt:
2007 2006
£'000 £'000
Increase/(decrease) in cash and cash equivalents 1,802 (373)
Net cash outflow from decrease in borrowings 438 1,651
Change in net debt resulting from cash flows 2,240 1,278
Net debt at 1 July (7,132) (8,443)
(4,892) (7,165)
Fair value of swaps hedging fixed rate borrowing 10 33
Net debt at 30 June (4,882) (7,132)
(b) Analysis of net debt
1 July 2006 Fair value 30 June
adjustment 2007
£'000 Cashflow
£'000 £'000
£'000
Cash at bank and in hand 10 175 - 185
Bank overdraft (2,120) 1,627 - (493)
(2,110) 1,802 - (308)
Borrowings due within one year (147) (365) - (512)
Borrowings due after one year (4,432) 512 - (3,920)
Finance leases (439) 291 - (148)
(7,128) 2,240 - (4,888)
Fair value of swaps hedging fixed rate borrowing (4) - 10 6
Total (7,132) 2,240 10 (4,882)
6. Statutory Accounts
The financial information does not constitute statutory accounts as defined in
section 240 of the Companies Act 1985, but has been extracted from the statutory
accounts for the year ended 30 June 2007, 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 2006 have been
delivered to the Registrar of Companies with an unqualified audit report
thereon.
Copies of the 2007 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.
7. Annual General Meeting
The Annual General Meeting will be held on Thursday 8 November 2007 at the
Company's Registered Office, at 12.00 noon.
This information is provided by RNS
The company news service from the London Stock Exchange
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