Final Results
Swallowfield PLC
09 September 2004
SWALLOWFIELD PLC
ANNOUNCEMENT OF PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2004
CHAIRMAN'S STATEMENT
Results
I am very pleased to report that trading in the second half of the year was in
line with the expectations I presented in my report of 26 February 2004 and,
shows a healthy turnaround from last year's results.
In our strategic update of 6 April 2004, we presented a restructuring plan aimed
at increasing annual profit before tax during 2005 by £0.4m at a cost of £0.4m.
Accordingly, we have now charged this year's profit and loss account with £0.4m
of restructuring costs, as predicted. Excluding these costs, profit before tax
increased by 60% from £1.0m to £1.6m on an 11% reduction in turnover. Including
restructuring costs, profit before tax increased by 19% to £1.2m.
The objectives that we set ourselves for the financial year were to improve
operating margins, reduce overhead costs and to drive a big improvement in the
profitability of the cosmetics business. We have achieved these objectives,
against a background of a weak market and continued pricing pressure, by
concentrating on our product development strengths, cost efficiencies, improved
pricing control and improved customer service.
Turnover in the Cosmetics business reduced by 11% from £13.8m to £12.2m but last
year's operating loss of £0.8m was improved to a break-even position. This
represents a very creditable turnaround of £0.8m in terms of operating profit
during the year. The business was profitable before the impact of corporate
overheads.
Turnover in the Aerosol business declined by 11% from £40.8m to £36.5m whilst
operating profit fell by 11% from £2.2m to £2.0m. During the year, we launched
a new bag-on-valve product and produced significant volumes of this for a major
customer. Our investment in plant and machinery made during 2003 helped to
ensure the success of this project.
Cash and Net Debt
Net debt at the year end was broadly unchanged on the previous year even though
trade working capital increased significantly. This increase, arising from
debtors, was primarily due to a single customer contract with extended payment
terms, offset in part by extended supplier terms on components purchased for
this same contract.
As outlined in our interim report, during the year we restructured our financing
arrangements to better align our facilities with the Group's funding
requirements, and to reduce our interest rate margin by 0.25%.
Corporate Governance
We continue to strengthen our approach to Corporate Governance and, in
accordance with best practice, have described our approach to the new Combined
Code within this year's Corporate Governance statement contained in the
published Report and Accounts 2004. We have also published terms of reference
for the Audit, Remuneration and Nomination Committees on our web site and have
issued a whistle-blowing policy to our employees.
Strategic Update
As announced on 6 April 2004, we have completed the first phase of our strategic
review of the business, which was directed at actions to increase the
profitability of the Cosmetics business, and improve the total profitability of
the Group. The long-term target we have set ourselves is to achieve a return on
shareholders' equity of 12% by 30 June 2006, and 15% by 30 June 2009. Excluding
restructuring costs, the return on shareholders equity for the current year was
9%.
On the same date, we announced that we would be opening a procurement office in
the Peoples' Republic of China. I am pleased to say that this office is now
operational, and we plan to increase the resources directed to this office, in
order to speed up the benefits we expect to receive. Whilst the cost of this
office will be in the region of £0.4m per annum, we anticipate the investment
should begin to break even in the 4th quarter of our 2005 financial year and to
generate net savings in the year ended 30 June 2006.
In our strategic plan, we include the acquisition of businesses that have
complementary product capabilities, and that provide us with the opportunity to
obtain synergistic benefits with our current customer base. As ever, we
continue to be discerning in terms of the financial returns required form any
such acquisition, and whilst we have examined a number of opportunities,
financial prudence mitigated against further action.
Looking Forward
We do not anticipate any improvement in the market for personal care products
over the next 12 months and expect consumer spending on our products to remain
subdued. The pricing pressure we have experienced over the past few years is
likely to continue in most areas of our business, as retailer competition
continues to squeeze the supply chain and the impact of Far Eastern sourcing
intensifies.
Despite this background, we plan to raise shareholder returns by driving down
total input costs, improving manufacturing efficiencies, presenting new and
exciting product ranges and improving our pricing strategies.
Following the high levels of the previous two years, we have significantly
reduced our expenditure on fixed assets in the year just ended. During the
coming year, we expect an affordable increase in capital expenditure as we
restart our longer term investment plans aimed at cost reduction and the
enhancement of good manufacturing practices across the Group.
We expect that the split of profitability between the first and second halves of
the current financial year will be more balanced than the year just ended, but
as ever, this is dependent on the final dates for new product launches. The
first two months of the new financial year have been slightly ahead of last year
and, despite our expectations for an unhelpful market background, we are
positive for the future as we continue to use our acknowledged skills to best
advantage.
Dividend
Our policy over the last 18 months has been to maintain dividend payments,
notwithstanding short-term reductions in the level of dividend cover. We
continue to believe that our medium-term aim of pursuing a progressive dividend
policy is correct, but recognise that in the short term we must continue to
rebuild the level of dividend cover and increase the strength of our balance
sheet. Therefore, the Board is proposing to pay a final dividend of 2.0p per
share making a total dividend of 4.8p per share for the year, unchanged from
that paid in the previous year. If approved at the Annual General Meeting, the
final dividend will be paid on 29 October 2004 to shareholders on the register
at 15 October 2004. The shares will go ex-dividend on the 13 October 2004.
The past year has been one of great challenge in our business. These results
are a credit to all of our employees and managers and would not have been
possible without their hard work and commitment. We would like to extend our
thanks to them.
J S Espey
Chairman
9 September 2004
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 30 June 2004
Operations
before
exceptional Exceptional
Notes costs costs 2004 2003
£000 £000 £000 £000
Turnover 1 48,763 - 48,763 54,663
Cost of sales (40,722) - (40,722) (46,701)
Gross profit 8,041 - 8,041 7,962
Net operating expenses 2 (6,061) (396) (6,457) (6,543)
Operating profit 1,980 (396) 1,584 1,419
Interest receivable - - - 10
Interest payable (419) - (419) (454)
Profit on ordinary activities before 1,561 (396) 1,165 975
taxation
Tax on profit on ordinary activities (467) 118 (349) (257)
Profit attributable to shareholders 1,094 (278) 816 718
Dividends (541) - (541) (541)
Transferred to reserves 553 (278) 275 177
Earnings per share
- basic 3 9.7p 7.2p 6.4p
- diluted 3 9.7p 7.2p 6.4p
GROUP STATEMENT OF RECOGNISED GAINS AND LOSSES
for the year ended 30 June 2004
2004 2003
£000 £000
Profit for the financial year 816 718
There are no gains or losses other than the profit for the financial year, or in
the previous year.
GROUP AND COMPANY BALANCE SHEETS
as at 30 June 2004
Group Company
2004 2003 2004 2003
£000 £000 £000 £000
Fixed assets
Tangible assets 12,382 13,174 12,382 -
Investments - - 2,494 6,072
Current assets
Stocks 7,982 7,616 7,982 -
Debtors 14,219 9,267 15,155 8,255
Cash at bank and in hand 94 21 7 608
22,295 16,904 23,144 8,863
Creditors: amounts falling due within one year (14,998) (11,032) (18,502) (3,928)
Net current assets 7,297 5,872 4,642 4,935
Total assets less current liabilities 19,679 19,046 19,518 11,007
Creditors: amounts falling due after more than (6,668) (6,413) (6,668) (5,400)
one year
Provisions for liabilities and charges (947) (844) (947) -
12,064 11,789 11,903 5,607
Capital and Reserves
Called up share capital 563 563 563 563
Share premium 3,796 3,796 3,796 3,796
Revaluation reserve 124 138 - -
Capital reserve - - 467 467
Profit and loss account 7,581 7,292 7,077 781
Equity shareholders' funds 12,064 11,789 11,903 5,607
GROUP STATEMENT OF CASH FLOWS
for the year ended 30 June 2004
2004 2003
Notes £000 £000
Net cash inflow from operating activities 4(a) 1,897 1,069
Returns on investments and servicing of finance
Interest received - 10
Interest paid (364) (404)
Interest element of finance lease rentals (55) (50)
(419) (444)
Corporation tax paid (190) (534)
Capital expenditure
Purchase of tangible fixed assets (696) (2,740)
Sale of tangible fixed assets 2 53
(694) (2,687)
Equity dividends paid (541) (541)
Net cash inflow/(outflow) before financing 53 (3,137)
Financing
New loans - 900
Repayment of loans (32) (97)
Capital element of finance lease rentals (351) (406)
(383) 397
Decrease in cash (330) (2,740)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Notes 2004 2003
£000 £000
Decrease in cash (330) (2,740)
Cash outflow/(inflow) from changes in debt and lease financing 383 (397)
Change in net debt resulting from cash flows 53 (3,137)
New finance leases - (820)
Movement in net debt in the year 53 (3,957)
Net debt at 1 July (8,834) (4,877)
Net debt at 30 June 4(b) (8,781) (8,834)
NOTES:
1. Turnover and Segmental Analysis
2004 2003
Profit Profit
before tax before tax
Net assets Net assets
Turnover Turnover
£000 £000 £000 £000 £000 £000
Class of business
Aerosol products 36,520 1,986 14,820 40,835 2,223 13,923
Cosmetic products 12,243 (6) 6,398 13,828 (804) 6,780
48,763 21,218 54,663 20,703
Operating profit before 1,980 1,419
exceptional costs
Exceptional costs (396) -
Net interest payable (419) (444)
Profit before tax 1,165 975
Unallocated net liabilities (9,154) (8,914)
Group net assets 12,064 11,789
Geographic segment
By destination:
UK 34,049 40,410
Continental Europe 12,545 12,043
North America 1,393 980
Far East 407 872
Other 369 358
48,763 54,663
Unallocated net liabilities comprise bank loans, overdrafts, finance leases,
taxation and proposed dividend.
2. Exceptional Costs
An analysis of exceptional costs incurred in the year ended 30 June 2004, and
their effect upon the taxation charge for the year is summarised below:
Exceptional Tax Exceptional
costs credit costs net of tax
£000 £000 £000
Aerosol products 285 (85) 200
Cosmetic products 111 (33) 78
396 (118) 278
Exceptional costs mainly comprise fees to professional advisors and redundancy
costs.
3. Earnings per Share
(a) Basic 2004 2003
Profit on ordinary activities after taxation £816,000 £718,000
Weighted average number of ordinary shares in issue during the year 11,256,416 11,256,416
Earnings per share 7.2p 6.4p
(b) Diluted
Profit on ordinary activities after taxation £816,000 £718,000
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 9,285 11,424
11,265,701 11,267,840
Diluted earnings per share 7.2p 6.4p
(c) Basic excluding exceptional costs
Profit on ordinary activities after taxation £816,000 £718,000
Exceptional costs (Note 2) £396,000 -
Tax credit on exceptional costs (£118,000) -
Profit on ordinary activities after taxation excluding exceptional costs £1,094,000 £718,000
Weighted average number of ordinary shares in issue during the year 11,256,416 11,256,416
Earnings per share 9.7p 6.4p
(d) Diluted excluding exceptional costs
Profit on ordinary activities after taxation excluding exceptional costs £1,094,000 £718,000
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 9,285 11,424
11,265,701 11,267,840
Diluted earnings per share 9.7p 6.4p
4. Notes to Statement of Cash Flows
(a) Reconciliation of operating profit to net cash inflow from operating
activities:
Group
Operations
before
exceptional Exceptional
costs costs 2004 2003
£000 £000 £000 £000
Operating profit 1,980 (396) 1,584 1,419
Depreciation 1,488 - 1,488 1,492
Profit on disposal of fixed assets (2) - (2) (17)
(Increase)/decrease in stocks (366) (366) (366) 1,010
(Increase) in debtors (4,952) - (4,952) (763)
Increase/(decrease) in creditors 3,886 259 4,145 (2,072)
Net cash inflow from operating activities 2,034 (137) 1,897 1,069
(b) Analysis of net debt
Group
Non-cash 30 June
1 July 2003 Cashflow changes 2004
£000 £000 £000 £000
Cash at bank and in hand 21 73 - 94
Bank overdraft (1,455) (403) - (1,858)
Cash (1,434) (330) - (1,764)
Loans (6,035) 32 - (6,003)
Finance leases (1,365) 351 - (1,014)
Total (8,834) 53 - (8,781)
5. Five Year Summary
The following five year summary has been produced to allow improved comparisons
to be made between the current results and those of prior years.
audited audited unaudited unaudited unaudited
Financial Financial Financial Financial Financial
Year Year Year Year Year
2004 2003 2003 2001 2000
Notes £000 £000 £000 £000 £000
First day of financial year (a) 1 July 2003 1 July 2002 17 June 2001 18 June 2000 20 June 1999
Last day of financial year (a) 30 June 2004 30 June 2003 30 June 2002 16 June 2001 17 June 2000
Number of weeks in financial year (b) 52 52 54 52 52
Profit and Loss Account
Turnover 48,763 54,663 44,404 40,425 37,600
Adjustment to 52 week basis (b) - - (1,088) - -
Adjusted turnover 48,763 54,663 43,316 40,425 37,600
Operating profit 1,980 1,419 2,628 2,177 2,205
(Exceptional costs)/income (396) - - 20 54
Interest (419) (444) (296) (354) (454)
Profit before taxation 1,165 975 2,332 1,843 1,805
Taxation (349) (257) (645) (444) (501)
Profit attributable to shareholders 816 718 1,687 1,399 1,304
Dividends (541) (541) (541) (472) (394)
Retained earnings 275 177 1,146 927 910
Balance Sheet
Fixed assets 12,382 13,174 11,142 10,228 10,516
Net current assets 7,297 5,872 6,427 6,610 5,146
Total assets less current 19,679 19,046 17,569 16,838 15,662
liabilities
Long-term creditors:
Loans and lease finance (6,668) (6,413) (5,187) (5,669) (5,243)
Deferred tax (947) (844) (770) (716) (720)
Provision for liabilities - - - - (146)
Equity 12,064 11,789 11,612 10,453 9,553
Net debt 8,781 8,834 4,877 4,777 5,825
Segmental Analysis
Aerosol products:
Turnover 36,520 40,835 31,783 28,880 25,041
Operating profit 1,986 2,223 2,710 2,400 2,470
Cosmetic products:
Turnover 12,243 13,828 11,533 11,545 12,559
Operating loss (6) (804) (82) (223) (265)
Statistics
Weighted average number of shares 11,256,416 11,256,416 11,256,416 11,256,416 11,256,416
in issue
Undiluted earnings per share 7.2p 6.4p 15.0p 12.4p 11.6p
Earnings per share excluding 9.7p 6.4p 15.0p 11.7p 11.1p
(exceptional costs)/income
Gearing 73% 75% 42% 46% 61%
Dividends per share 4.8p 4.8p 4.8p 4.2p 3.5p
Notes:
(a) For 2002 and prior years the five year summary is based on previously
reported interim and full year reports as adjusted for the retrospective
implementation of FRS19, Deferred Tax. The results for each of these
financial years comprised the interim results for the first half of the
calendar year in which the financial year ended, together with the second
half of the previous calendar year. The balance sheet and net debt numbers
are those reported at the last day of the financial year.
(b) Except for turnover, where the relevant adjustment has been shown above, no
material changes would be required to the profit and loss account to adjust
the financial year 2002 numbers to a 52 week basis.
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 2004, on which an unqualified
audit report has been issued and which will be delivered to the Registrar
of Companies following their adoption at the Annual General Meeting.
The statutory accounts for the financial period ended 30 June 2003 have
been delivered to the Registrar of Companies with an unqualified audit
report thereon.
The restated five year summary in Note 5 above which has been produced to
allow comparisons to be made between the current results and those of prior
years, is unaudited.
7. Annual General Meeting
The Annual General Meeting will be held on Thursday 14 October 2004 at the
Castle Hotel, Taunton, Somerset at 12.00 noon.
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