Half Yearly Report

RNS Number : 6433H

Swallowfield PLC

25 February 2010

 



Swallowfield plc

Interim Results for the 28 weeks ended 9 January 2010

Swallowfield plc is pleased to announce its interim results for the 28 weeks ended 9 January 2010

Highlights

·          Revenues ahead 15.3% to £29.12m (2009: £25.24m)

·          Profit before tax ahead 26.7% to £0.74m (2009: £0.59m before exceptional items)

·          Interim dividend per share increased by 22.2% to 2.2p (2009: 1.8p)

·          Adjusted earnings per share up 30.5% to 4.7p (2009 3.6p)

·          Net Debt reduced to £2.2m (Year end 30 June 2009: £3.4m)

·          Successfully developing existing and new client relationships across a widening geographic spread

Outlook

·          Strong  balance sheet with a continued focus on working capital management during a period of growth

·          Economies of major markets expected to remain weak for some while

·          Continue to widen geographic spread and develop new client relationships

·          Strong order book in volume terms compared with the same period last year

·          Expectations for the full year remain unchanged

Chairman's foreword

These interim results, with revenue growth of 15.3%, earnings per share growth of 30.5% and a strong balance sheet, underline Swallowfield's position as one of the few truly full service organisations in its sector. 

The Company enters the second half of the year with a good order book and continues to pursue its strategy of driving profitable sustainable sales growth through the broadening of its geographic footprint, widening of its product range and continuous improvement in quality, efficiency, service and innovation. During the first half, we have begun to see success from our development of new markets and new and evolving product development.

Markets continue to be highly competitive and the economies of our major geographic sales areas remain very fragile but we remain confident in the outlook for the remainder of the year.

Shena Winning

Non-executive Chairman

Chief Executive's Statement

Results

These results indicate that our strategy of delivering profitable, sustainable growth is beginning to be realised. Our growing reputation and position as a true full-service provider to the personal care market is enabling us to both widen and deepen our relationships with brands and retailers within our sector.

During the 28 weeks ended 9 January 2010 revenue increased by 15.3% to £29.12m (2009: £25.24m) reflecting our continued focus on developing existing and new client relationships across a broadening geographic spread.

Operating profit before exceptional items increased by 11.9% to £0.83m (2009: £0.74m). Operating margins have continued to be adversely affected by the significant increases in raw material costs from a year ago. However, prices of raw materials now appear to have stabilised. Product mix was less favourable than last year, in part due to the impact of the severe recession and in part as a result of toiletry products forming an increasing proportion of our sales. We remain focused on improving operating margins by rebalancing product sales, developing higher margin products and increased operational efficiencies.

Net financing costs of £0.09m (2009: £0.16m) comprised interest expense of £0.05m (2009: £0.11m) and non-cash UK pension plan charges of £0.04m (2009: £0.05m).

Profit after tax excluding the after tax impact of exceptional items increased by 31% to £0.53m (2009: £0.41m). This year there are no factors which are expected to fundamentally affect tax charges compared to the standard UK rate.

Net debt & cash flow

Net debt was reduced to £2.20m (2009: £2.66m) down from £3.36m at 30 June 2009.

Against a background of growing revenues, continued focus on the management of working capital has generated operating cash flow of £2.47m (2009: £1.43m) despite an increase in inventories of £1.4m. This inventory increase is partly to cover growth in business volumes and is partly a result of operational difficulties presented by the extreme weather conditions in the last week of the period.

Capital expenditure was £0.62m, marginally below depreciation in the first half as the investment in our new manufacturing room will be in the second half.

Pension scheme

The defined benefit pension scheme was closed to new entrants in April 2009 and all new employees are now offered a defined contribution scheme.

The pension deficit, calculated in accordance with IAS 19, remains broadly in line with the year end position at £2.4m. The underlying position has improved slightly from 30 June 2009, with a 23.7% increase in the value of scheme assets being partly offset by a 17.1% increase in liabilities as a result of reductions in the market level of discount rates.

Board changes

Following a period of handover with Patrick Gaynor, Richard Organ resigned from the Board in October 2009. Peter Houston resigned from the Company on 31 December 2009 and was replaced as Group Finance Director with effect from 1 January 2010 by Mark Warren. Mark brings extensive financial, commercial and operational management experience from across a range of customer oriented businesses operating in global markets.

We would like to thank both Richard and Peter for their support, sound advice and dedication over the years and to welcome Mark to the Board.

Strategy & outlook

The work we have done over the last few years makes Swallowfield stand out as one of the few truly full-service organisations operating in our sector. 

We continue to execute our growth strategy by driving sales which satisfy our key margin requirement; broadening our geographic footprint; widening our product range and by further enhancing our operational capability through continuous improvement in quality, cost, service and innovation. As described above, we are focused on improving operating margins in line with our strategy. Our sales support office in France continues to generate new opportunities for us and we are winning new business, albeit relatively small at present, in new overseas markets such as India. We are developing strategies to increase revenues generated directly from overseas markets and our US sales support office should go live in May this year.

Our capital expenditure plans remain focused on strengthening our product capabilities, efficiency improvements, environmental benefits and cost reduction. We will continue to seek ways to improve management of our working capital, a necessary part of our long-term plans and this will help to offset the pressure being exerted from certain customers for an increase in payment terms.

The economies of our major markets; the UK, Europe, US and Japan are still fragile and we expect this to continue for at least the next year. However, our strategy of continuous improvement together with our growing emphasis on business development will, in the long-run, ensure we can continue to develop and grow. At this stage, assuming there is no double dip recession, we remain confident of the outlook for the remainder of the year.

Dividend

The Board has approved a dividend for the half year of 2.2p per share representing a 22% increase on the 1.8p paid last year. This payment is in line with the Board's stated aim to pay dividends on the basis of a 1.5 times cover on adjusted earnings. The interim dividend will be payable on 28 May 2010 to shareholders on the register at 7 May 2010. The shares will go ex-dividend on 5 May 2010.

People

As ever, I am immensely proud of the entire workforce at Swallowfield. They continue to focus on executing the strategy with energy, determination and belief.

Ian Mackinnon

Chief Executive Officer

25 February 2010

For further information please contact:
Swallowfield plc
Ian Mackinnon	Chief Executive Officer	01823 662 241
Mark Warren	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

Notes to Editors:

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.

 

Group Statement of Comprehensive Income

		28 weeks ended	28 weeks ended	12 months ended
		09 Jan 2010	10 Jan 2009	30 June 2009
		(unaudited)	(unaudited)	(audited)
Continuing operations	Notes	£'000	£'000	£'000
Revenue	2	29,116	25,242	49,129
Cost of sales		(25,619)	(22,273)	(42,830)
Gross profit		3,497	2,969	6,299
Commercial and administrative costs		(2,668)	(2,228)	(4,777)
Operating profit before exceptional items		829	741	1,522
Exceptional items		-	58	26
Operating profit		829	799	1,548
Finance income	3	8	-	-
Finance costs	3	(96)	(156)	(209)
Profit before taxation		741	643	1,339
Taxation		(208)	(194)	(245)
Profit for the period		533	449	1,094
Other comprehensive income:
Exchange differences on translating foreign operations		127	6	(46)
Other comprehensive income/(loss) for the period		127	6	(46)
Total comprehensive income for the period		660	455	1,048
Profit attributable to:
Equity shareholders		533	449	1,094
Total comprehensive income attributable to:
Equity shareholders		660	455	1,048
Earnings per share
- basic and diluted	4	4.7p	4.0p	9.7p
Dividend
Paid in period (£000's) Paid in period (pence per share)		464 4.1	462 4.1	664 5.9
Proposed (£000's) Proposed (pence per share)	5	248 2.2	203 1.8	462 4.1

Group Statement of Changes in Equity

	Share Capital	Share Premium	Exchange Reserve	Retained Earnings	Total Equity
	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2009	563	3,796	-	8,357	12,716
Dividends	-	-	-	(464)	(464)
Issue of share capital	3	34	-	-	37
Transactions with owners	3	34	-	(464)	(427)
Profit for the period	-	-	-	533	533
Other comprehensive income:
Exchange difference on translating foreign operations	-	-	127	-	127
Total comprehensive income for the period	-	-	127	533	660
Balance as at 9 January 2010	566	3,830	127	8,426	12,949

	Share Capital	Share Premium	Exchange Reserve	Retained Earnings	Total Equity
	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2008	563	3,796	46	7,927	12,332
Dividends	-	-	-	(462)	(462)
Transactions with owners	-	-	-	(462)	(462)
Profit for the period	-	-	-	449	449
Other comprehensive income:
Exchange difference on translating foreign operations	-	-	6	-	6
Total comprehensive income for the period	-	-	6	449	455
Balance as at 10 January 2009	563	3,796	52	7,914	12,325

	Share Capital	Share Premium	Exchange Reserve	Retained Earnings	Total Equity
	£'000	£'000	£'000	£'000	£'000
Balance at 1 July 2008	563	3,796	46	7,927	12,332
Dividends	-	-	-	(664)	(664)
Transactions with owners	-	-	-	(664)	(664)
Profit for the year	-	-	-	1,094	1,094
Other comprehensive income:
Exchange difference on translating foreign operations	-	-	(46)	-	(46)
Total comprehensive income for the year	-	-	(46)	1,094	1,048
Balance as at 30 June 2009	563	3,796	-	8,357	12,716

Group Statement of Financial Position

		As at	As at	As at
		09 Jan 2010	10 Jan 2009	30 June 2009
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		11,194	11,333	11,307
Intangible assets		76	136	101
Deferred tax asset		143	-	143
Investments		46	46	46
Total non-current assets		11,459	11,515	11,597
Current assets
Inventories		7,633	6,015	6,218
Trade and other receivables		9,661	9,590	11,132
Cash and cash equivalents		510	196	473
		17,804	15,801	17,823
Assets held for sale	6	167	183	167
Total current assets		17,971	15,984	17,990
Total assets		29,430	27,499	29,587
LIABILITIES
Current liabilities
Trade and other payables		11,049	9,633	10,298
Interest-bearing loans and borrowings		1,555	1,523	2,357
Current tax payable		293	213	294
Total current liabilities		12,897	11,369	12,949
Non-current liabilities
Interest-bearing loans and borrowings		1,154	1,334	1,471
Post-retirement benefit obligations		2,429	2,427	2,450
Deferred tax liabilities		1	44	1
Total non-current liabilities		3,584	3,805	3,922
Total liabilities		16,481	15,174	16,871
Net assets		12,949	12,325	12,716
EQUITY
Share capital		566	563	563
Share premium		3,830	3,796	3,796
Exchange reserve		127	52	-
Retained earnings		8,426	7,914	8,357
Total equity		12,949	12,325	12,716

Group Cash Flow Statement

	28 weeks ended	28 weeks ended	12 months ended
	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Cash flows from operating activities
Profit before taxation	741	643	1,339
Depreciation	719	655	1,246
Amortisation	27	33	69
Loss on disposal of equipment	-	-	11
Impairment of property, plant and equipment	1	2	4
Finance income	(8)	-	-
Finance cost	96	156	209
(Increase)/decrease in inventories	(1,415)	533	330
Decrease/(increase) in trade and other receivables	1,471	(21)	(1,563)
Increase/(decrease) in trade and other payables	902	(352)	244
Contributions to defined benefit plans	(184)	(302)	(416)
Current service cost	121	96	224
Cash generated from operations	2,471	1,443	1,697
Finance expense paid	(54)	(107)	(151)
Taxation paid	(212)	(121)	(260)
Net cash flow from operating activities	2,205	1,215	1,286
Cash flow from investing activities
Purchase of property, plant and equipment	(622)	(876)	(1,438)
Purchase of intangible assets	-	(74)	(75)
Purchase of investments	-	(46)	(46)
Net cash flow from investing activities	(622)	(996)	(1,559)
Cash flow from financing activities
Proceeds from share issue	37	-	-
Proceeds from new loan	-	-	611
Repayment of loans	(421)	(333)	(568)
Dividends paid	(464)	(462)	(664)
Net cash flow from financing activities	(848)	(795)	(621)
Net increase/(decrease) in cash and cash equivalents	735	(576)	(894)
Cash and cash equivalents at beginning of period	(1,312)	(418)	(418)
Cash and cash equivalents at end of period	(577)	(994)	(1,312)
Cash and cash equivalents consist of:
Cash	510	196	473
Overdraft	(1,087)	(1,190)	(1,785)
Cash and cash equivalents at end of period	(577)	(994)	(1,312)

Notes to the Accounts

Note 1 Basis of preparation

The Group's interim results for the 28 week period ended 9 January 2010 are prepared in accordance with the Group's accounting policies which are based on the recognition and measurement principles of International Financial Reporting Standards (IFRS) as adopted by the EU and effective at 30 June 2010 or are expected to be adopted and effective at 30 June 2010. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS34 'Interim Financial Reporting'.

These interim financial statements do not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited.  The unaudited interim financial statements were approved by the Board of Directors on 24 February 2010.

The consolidated financial statements are prepared under the historical cost convention as modified to include the revaluation of certain non-current assets.  The accounting policies used in the interim financial statements are consistent with IFRS and those which will be adopted in the preparation of the Group's Annual Report and Financial Statements for the year ended 30 June 2010.  The statutory accounts for the year ended 30 June 2009, which were prepared under IFRS, have been filed with the Registrar of Companies.  These statutory accounts carried an unqualified Auditors Report and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.

Note 2 Segmental analysis

The Group has previously reported 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 products, and the Group's production units are increasingly able to offer a range of solutions.

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

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

Geographical segments	28 weeks ended	28 weeks ended	12 months ended
The distribution of the Group's revenue by destination is shown below:	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
UK	24,269	20,883	39,420
Other European Union countries	4,357	3,969	9,161
Rest of the World	490	390	548
	29,116	25,242	49,129

In the 28 weeks ended 9 January 2010, the Group had two customers that exceeded 10% of total revenues, being 18% and 17% respectively.  In the 28 weeks ended 10 January 2009, the Group had three customers that exceeded 10% of total revenues, being 19%, 18% and 11% respectively.

 

Note 3 Finance income and costs	28 weeks ended	28 weeks ended	12 months ended
	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Finance income
Other interest	8	-	-
	8	-	-
Finance costs
Bank loans and overdrafts	54	107	143
Finance lease interest	-	-	8
Net pension scheme cost	42	49	58
	96	156	209

 

 

Note 4 Earnings per share	28 weeks ended	28 weeks ended	12 months ended
	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
(a) Basic and diluted
Profit for the period (£'000)	533	449	1,094
Basic weighted average number of
ordinary shares in issue during the period	11,277,035	11,256,416	11,256,416
Dilutive potential ordinary shares:
executive share options	-	4,232	4,799
	11,277,035	11,260,648	11,261,215
Basic earnings per share	4.7p	4.0p	9.7p
Diluted earnings per share	4.7p	4.0p	9.7p

Basic earnings per share has been calculated by dividing the profit for each financial period by the weighted average number of ordinary shares in issue in the period.  There is no difference for any of the reported periods between the basic net profit per share and the diluted net profit per share.

Adjusted earnings per share

(b) Basic and diluted

Profit for the period (£'000)	533	449	1,094
Less: Exceptional items	-	(58)	(26)
Notional tax credit on exceptional items	-	16	7
Adjusted profit
before exceptional items	533	407	1,075
Basic weighted average number of
ordinary shares in issue during the period	11,277,035	11,256,416	11,256,416
Dilutive potential ordinary shares:
executive share options	-	4,232	4,799
	11,277,035	11,260,648	11,261,215
Adjusted basic earnings per share	4.7p	3.6p	9.6p
Adjusted diluted earnings per share	4.7p	3.6p	9.6p

Profit for the period of £0.53m (2009: interim £0.45m; full-year £1.09m) is shown after adding £NIL (2009: interim £0.06m; full-year £0.03m) in respect of exceptional items. Adjusted earnings per share has been calculated by dividing the adjusted profit of £NIL (after allowing for the notional tax credit/(charge) on exceptional items) (2009: interim £0.42m; full-year £0.19m) by the weighted average number of shares in issue at 9 January 2010, 10 January 2009 and 30 June 2009 respectively.

Note 5 Dividends

The Directors have declared an interim dividend payment of 2.2p per ordinary share (2009: interim 1.8p; final 4.1p).

Note 6 Non-current assets held for sale	As at	As at	As at
	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Property, plant and equipment	167	183	167

Asset held for sale relates to a freehold warehouse. The sale is expected to be completed with 12 months of the balance sheet date.

Note 7 Reconciliation of cash and cash equivalents to movement in net debt

	28 weeks ended	28 weeks ended	12 months ended
	09 Jan 2010	10 Jan 2009	30 June 2009
	(unaudited)	(unaudited)	(audited)
	£000's	£000's	£000's
Increase/(decrease) in cash and cash equivalents in the period	735	(576)	(894)
Net cash outflow/(inflow) from decrease/(increase) in borrowings	421	333	(43)
Change in net debt resulting from cash flows	1,156	(243)	(937)
Net debt at the beginning of the period	(3,355)	(2,418)	(2,418)
	(2,199)	(2,661)	(3,355)
Net debt at the end of the period	(2,199)	(2,661)	(3,355)

Note 8 Announcement of results

These results were announced to the London Stock Exchange on 25 February 2010.  The Interim Report will be sent to shareholders and is available to members of the public at the Company's Registered Office at Swallowfield House, Station Road, Wellington, Somerset, TA21 8NL.

Independent review report to Swallowfield Plc

 

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the 28 weeks ended 9 January 2010 which comprises the group statement of comprehensive income, the group statement of changes in equity, the group statement of financial position, the group cash flow statement and the notes to the accounts. We have read the other information contained in the half yearly financial report which comprises only the Chairman's Foreword and Chief Executive's Statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusion we have formed.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with IFRS's as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the 28 weeks ended 9 January 2010 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.

GRANT THORNTON UK LLP

AUDITOR

Bristol

25 February 2010

 

END

 

 

IR LLFETFIISFII