Final Results

RNS Number : 1898D

Swallowfield PLC

11 September 2008

Swallowfield Plc

Creating and Delivering Solutions for our Customers' Success

Preliminary Results for the year ended 30 June 2008

Financial Highlights

Recommended final dividend of 4.1p per share, making 5.5p for the full year (2007: 1.3p);
Net Debt £2.42m, down 50% (2007: £4.88m);
Pre-tax profit (pre exceptional items), up 42% to £1.32m (2007: £0.93m);
Headline earnings per share 21.6p (2007: 3.9p) ; and
Adjusted earnings per share 9.2p, up 70% on 2007 result of 5.4p.

Operational Highlights

Revenue growth in second half up 12% compared to same period last year;
New filling and packing operation in Czech Republic operational and new business won;

Chinese cosmetics strategic alliance finalised;
Search for a new non-executive director at an advanced stage;
Cosmetics division exceeds 12% target rate of return; and
Strategy refined and communicated.

Outlook

Expect continued progress in 2009 - organic growth strategy beginning to take effect;
Inflationary pressures and economic backdrop will require careful management;
Further development of Chinese strategic alliance and Czech operation;
Continue to widen international focus including opening of a sales office in France;
Sale of small warehouse following inventory consolidation; and
Capital expenditure investment directed towards improvements in efficiency, inventory consolidation and additional technology.

1. Adjusted earnings per share are calculated after allowing for exceptional items and one-off credits from changes in the basis of taxation (Note 4(b)).

Shena Winning, Non-executive Chairman, commented:

'Swallowfield has a committed and enthusiastic management team and, under Ian Mackinnon's leadership, Swallowfield has transformed itself from a contract manufacturer to a service provider working very closely with customers to deliver market-leading and innovative products. With the reductions in net debt and improvements in the Company's competitive position, the Board has been able to achieve its target dividend policy ahead of schedule and increase the proportion of underlying profits paid to shareholders.'

For further information:

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
Chris Lawrence,	JBP Public Relations	0117 907 3400

Ian Mackinnon and Peter Houston will be in London on 11 September and Bristol/Exeter on 12 September for investor meetings.

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.

Chairman's Statement

I am pleased to report that Swallowfield has continued the positive progress of the previous two years, delivering pre-tax profits ahead of market expectations for the year to June 2008 and a further significant strengthening of its Balance Sheet.

Operating profit before exceptional items has increased on last year by 17% to £1.54m. Profit before tax including exceptional items was £2.34m.

Total revenue for the year was slightly ahead of last year at £44.8m and gross margins remained in line. This reflects continued improvements in efficiencies and focus on added-value opportunities to offset raw material inflation. This, in combination with tight management of overhead and interest costs, secured the improved profits.

Basic earnings per share were 21.6p against 3.9p last year and underlying earnings per share after adjustment for exceptional items and one-off credits from changes to the basis of taxation, were 9.2p, an increase of 70% on last year's 5.4p.

Significantly, net debt, at the year end, was down to £2.42m - less than half the level of the opening position of £4.88m.

The Board is recommending a final dividend of 4.1p per share. Together with the interim dividend of 1.4p per share, the total dividend for the year will be 5.5p per share representing a dividend cover of 1.5 times fully-taxed underlying profits, and a substantial increase on the 1.3p per share declared last year. If approved at the Annual General Meeting, the final dividend will be paid on 28 November 2008 to shareholders on the register at 14 November 2008. The shares will go ex-dividend on 12 November 2008.

Business Review

During the year the Company continued to strengthen its reputation and position as a service company, providing customers with options ranging from market analysis, formulation, design and packaging development through to product manufacture, sourcing and logistics. This, in conjunction with the increased geographic diversity of operational facilities and sales offices, makes the distinction between the traditional Toiletries and Cosmetics activity less clear and will lead to a reassessment of the Company's segmental analysis in future.

Cosmetics

The Cosmetics division, which continues to be monitored against our stated 12% hurdle rate of return, delivered a 13% return on average net assets after exceptional items for the year.

Czech Republic

The new operating facility in the Czech Republic, established to fill and finish cosmetic and toiletry products, was completed on time and production was underway a month ahead of schedule. The transfer of production lines from the UK will be complete by October. This facility which now employs approximately 90 permanent members of staff, has been enthusiastically welcomed by new and existing customers. It is well placed to serve the forecast growth in demand for cosmetic and toiletry products from Eastern European consumers.

Properties

The sale and leaseback of our Lowmoor warehouse was completed in December 2007 during a very challenging period in the commercial property sector. The building has been enlarged and the extension was completed in August 2008. This will enable further property rationalisation in the Cosmetics division with the sale of a small warehouse planned within the next six months. We will continue to explore ways to enhance shareholder value from our remaining property portfolio including our main facility in Wellington, Somerset. Any such opportunities, if available, are likely to be medium to long term.

China

Final contracts were signed for the strategic alliance in China enabling Swallowfield to strengthen its presence in that country. The new agreement gives our customers even greater assurance with regard to the quality and standards of products being sourced and produced in China and creates potential new sales opportunities in Europe.

Pension

The triennial revaluation of the defined benefit pension scheme is currently in progress. The updated valuation will incorporate the effect of the most recent life expectancy assumptions and, at present, we do not anticipate any significant impact on the scheme's ongoing funding.

We will continue to manage the scheme to ensure that its value to the Company as an employee incentive continues to deliver positive value for our shareholders.

Dividends

The Company resumed its payment of an interim dividend in the year. With the reduction in net debt and improvements in its competitive position the Board, in line with the statement in the last Annual Report, will improve the target dividend cover to 1.5 times normal post tax earnings, delivering an increase in average dividend payments.

Board Changes

The Board continues to review its structure and composition and in recognition of the need to maintain the strength of independent contribution is undertaking a search for a new non-executive director. The search is at an advanced stage and we confidently expect to announce an appointment in the near future.

Richard Organ has indicated that after a period of handover he wishes to resign from the Board in 2009.

LTIP

In order to further align the interests of executive directors with those of the shareholders, the Remuneration Committee is developing a Long Term Incentive Plan which will be presented to shareholders at the AGM.

Strategy and Outlook

Over the last 2½ years under Ian Mackinnon's leadership Swallowfield has transformed itself from a contract manufacturer to a service provider working very closely with customers to deliver market-leading and innovative products. This is now beginning to deliver tangible results and we expect this to begin to be translated into organic sales growth in the coming year. We plan to continue to develop our new operations in China and the Czech Republic and open a sales office in France.

Current levels of net debt have allowed us to invest carefully in new plant and equipment and this investment will continue during 2009 to improve efficiencies, add new technologies and consolidate our holding of inventories.

The global economic outlook continues to deteriorate with slowing growth rates and increasing inflation rates across the majority of our market places. Raw material costs are increasing rapidly but we are resisting the impact of this by focussing our efforts on finding cheaper sources and through product engineering. These activities are crucial to success both in the pursuit of ongoing profitability and in support of our customers' own commercial efforts.

Management continue to pursue the four key elements of strategy;

sales growth driven by continuous improvement in Quality, Cost, Service and Innovation;
broadening our geographic footprint;
widening our product range; and
considering acquisitions that may be supportive of the other strategic elements.

I am confident that these in combination with the ongoing development of our strategy will support future growth.

On behalf of all shareholders I thank Ian and the whole Swallowfield team who have worked so determinedly to deliver the service to customers that has driven a strong recovery, enabling a robust foundation for the future.

S J Winning

Chairman

11 September 2008

GROUP INCOME STATEMENT

For the year ended 30 June 2008

			2008	2007
Continuing Operations		Notes	£'000	£'000

Revenue		1	44,820	44,715
Cost of sales			(38,501)	(38,411)

Gross profit			6,319	6,304
Commercial and administrative costs			(4,782)	(4,986)

Operating profit before exceptional items			1,537	1,318
Exceptional items		2	1,024	(244)

Operating profit			2,561	1,074
Finance income			55	24
Finance costs			(272)	(411)

Profit before taxation		2	2,344	687
Taxation		3	93	(248)

Profit for the year			2,437	439

Attributable to equity shareholders			2,437	439

Earnings per share
	- basic and diluted	4	21.6p	3.9p

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 June 2008

	2008	2007
	£'000	£'000
Profit for the year	2,437	439
Exchange differences on translation of foreign operations	46	-
Total recognised income and expense for the year	2,483	439

GROUP BALANCE SHEET

As at 30 June 2008

	2008	2007
	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment	11,130	11,032
Intangible assets	95	77
	11,225	11,109
Current assets
Inventories	6,548	6,062
Trade and other receivables	9,569	7,711
Cash and cash equivalents	49	185
Derivative financial instruments	-	6
	16,166	13,964
Assets held for sale	167	854
Total current assets	16,333	14,818

Total assets	27,558	25,927

LIABILITIES
Current liabilities
Trade and other payables	(10,008)	(7,508)
Interest-bearing loans and borrowings	(884)	(1,153)
Current tax payable	(121)	-
Total current liabilities	(11,013)	(8,661)

Non-current liabilities
Interest-bearing loans and borrowings	(1,583)	(3,920)
Post retirement benefit obligations	(2,584)	(2,717)
Deferred tax liabilities	(46)	(476)
Total non-current liabilities	(4,213)	(7,113)

Total liabilities	(15,226)	(15,774)

Net assets	12,332	10,153

EQUITY
Share capital	563	563
Share premium	3,796	3,796
Exchange reserve	46	-
Profit and loss account	7,927	5,794
Total equity	12,332	10,153

GROUP CASH FLOW STATEMENT

For the year ended 30 June 2008

	2008	2007
	£'000	£'000
Cash flows from operating activities
Profit before taxation	2,344	687
Depreciation	1,167	1,205
Amortisation	39	36
(Profit)/loss on disposal of property, plant and equipment	(1,263)	25
Impairment of property, plant and equipment	7	42
Finance income	(55)	(24)
Finance costs	272	411
(Increase)/decrease in inventories	(486)	1,285
(Increase)/decrease in trade and other receivables	(1,858)	1,807
Increase/(decrease) in trade and other payables	2,515	(2,055)
(Decrease)/increase in retirement benefit obligations	(133)	55
Cash generated from operations	2,549	3,474

Finance expense paid	(282)	(428)
Taxation paid	(169)	-
Net cash flow from operating activities	2,098	3,046

Cash flow from investing activities
Finance income received	55	24
Purchase of property, plant and equipment	(1,441)	(834)
Purchase of intangible assets	(57)	(47)
Sale of land and buildings	2,119	-
Sale of plant and equipment	-	51
Net cash flow from investing activities	676	(806)

Cash flow from financing activities
Capital element of finance lease liabilities	(148)	(291)
Repayment of loans	(2,432)	(147)
Dividends paid	(304)	-
Net cash flow from financing activities	(2,884)	(438)

Net (decrease)/increase in cash and cash equivalents	(110)	1,802

Cash and cash equivalents at beginning of year	(308)	(2,110)

Cash and cash equivalents at end of year	(418)	(308)

Cash and cash equivalents consist of:
Cash	49	185
Overdraft	(467)	(493)
Cash and cash equivalents at end of year	(418)	(308)

NOTES:

1. Revenue and Segmental Analysis

		2008						2007
		Revenue	Profit before tax		Net assets		Revenue		Profit before tax		Net assets
Class of business		£'000		£'000		£'000		£'000		£'000		£'000

Toiletries		34,860		2,368		10,910		33,497		2,362		11,103
Cosmetics		9,960		829		4,027		11,218		299		5,169
		44,820		3,197		14,937		44,715		2,661		16,272

Corporate costs				(1,660)						(1,343)
Operating profit before exceptional items				1,537						1,318
Exceptional items				1,024						(244)
Operating profit				2,561						1,074
Net finance costs				(217)						(387)
Profit before taxation				2,344						687

Unallocated net liabilities						(2,605)						(6,119)
Group net assets						12,332						10,153

			Cash generated from operations						Cash generated from operations
				£'000						£'000
Toiletries				2,561						2,740
Cosmetics				1,972						1,526

Geographic revenue by destination:
	UK	35,352						37,471
	Other Europe	8,507						7,021
	Rest of World	961						223
		44,820						44,715

Unallocated net liabilities comprise bank loans, overdrafts, finance leases and taxation.

2. Profit before taxation	2008	2007
	£'000	£'000
(a) This is stated after charging:
Depreciation of property, plant and equipment:
Leased assets	165	200
Purchased assets	1,002	1,005
Amortisation of intangible assets	39	36
Impairment of property, plant and equipment	7	42
Research and development	687	627
Foreign exchange (gains)/losses	(160)	50
Operating leases:
Hire of plant and machinery	105	88
Rent of buildings	143	51
Auditors' remuneration:
Audit services	37	41
Non-audit services	40	31

(b) Exceptional items
Sale and leaseback of Lowmoor	(1,312)	-
Other exceptional items	56	-
Reorganisation	232	244
	(1,024)	244

Exceptional items relate to the 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 (2007: Costs associated with the end of a cosmetics contract).

(c) Earnings before interest, tax, depreciation and amortisation ('EBITDA')
Operating profit	2,561	1,074
Depreciation of property, plant and equipment	1,167	1,205
Amortisation of intangible assets	39	36
Impairment of property, plant and equipment	7	42
Loss on disposal of property, plant and equipment (excluding exceptional items)	2	25
EBITDA	3,776	2,382
Exceptional items	(1,024)	244
EBITDA before exceptional items	2,752	2,626

3. Taxation	2008	2007
	£'000	£'000
(a) Analysis of tax (credit)/charge in the year
UK corporation tax:
on profit for the year	290	-
adjustment in respect of previous years	(93)	64
Total current tax charge	197	64

Deferred tax:
Credit relating to change in the basis of taxation	(289)	-
Origination and reversal of timing differences:
on profit for the year	26	184
unrelieved tax losses in overseas subsidiary	(74)	-
Total deferred tax	(337)	184

Tax (credit)/charge on profit	(140)	248

The actual 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 (credit)/charge 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 29.5% (2007: 30%). The differences are reconciled below:
	2008	2007
	£'000	£'000
Profit before taxation	2,344	687
Tax at the applicable rate of 29.5% (2007: 30%)	692	206
Effect of:
Expenses not deductible for tax purposes	49	34
Capital allowances for the year in excess of depreciation	3	(14)
Income on chargeable gain giving rise to no tax liability	(445)	-
Effect of R&D tax credits	(22)	(16)
Other temporary differences	(53)	8
Deferred tax credit relating to: change in the basis of taxation	(289)	-
change in tax rate	-	(34)
Adjustment in respect of previous years	(93)	64
Differences between UK and overseas tax rates	18	-
Actual tax (credit)/charge	(140)	248

The credit arising from the change in basis of taxation occurs due to the recent decision by Her Majesty's Revenue and Customs to phase out Industrial Buildings Allowances.

4. Earnings per Share

(a) Basic and diluted	2008	2007
Profit for the year (£'000)	2,437	439
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	5,352	-
	11,261,768	11,256,416
Basic earnings per share	21.6p	3.9p
Diluted earnings per share	21.6p	3.9p

(b) Adjusted earnings per share
Basic and diluted
Profit for the year (£'000)	2,437	439
(Less)/add back: Exceptional items	(1,024)	244
Notional tax charge on exceptional items	(83)	(73)
Tax credit on change in basis of taxation	(289)	-
Adjusted profit before exceptional items	1,041	610
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	5,352	-
	11,261,768	11,256,416
Adjusted earnings per share	9.2p	5.4p
Adjusted diluted earnings per share	9.2p	5.4p

5. Notes to Statement of Cash Flows

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

	2008	2007
	£'000	£'000
(Decrease)/increase in cash and cash equivalents	(110)	1,802
Net cash outflow from decrease in borrowings	2,580	438
Change in net debt resulting from cash flows	2,470	2,240
Net debt at 1 July	(4,882)	(7,132)
	(2,412)	(4,892)
Fair value of swaps hedging fixed rate borrowing	(6)	10
Net debt at 30 June	(2,418)	(4,882)

(b) Analysis of net debt
	1 July 2007 £'000	Cashflow £'000	Fair value adjustment £'000	30 June 2008 £'000
Cash at bank and in hand	185	(136)	-	49
Bank overdraft	(493)	26	-	(467)
	(308)	(110)	-	(418)
Finance leases	(148)	148	-	-
Borrowings due within one year	(512)	95	-	(417)
Borrowings due after one year	(3,920)	2,337	-	(1,583)
	(4,888)	2,470	-	(2,418)
Fair value of swaps hedging fixed rate borrowing	6	-	(6)	-
Total	(4,882)	2,470	(6)	(2,418)

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 2008, 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 2007 have been delivered to the Registrar of Companies with an unqualified audit report thereon.

Copies of the 2008 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 Company's web site (www.swallowfield.com).