Interim Results

Swallowfield PLC
13 March 2006

Swallowfield plc



Interim Report 2006



Chairman's Statement



Results

For the first 28 weeks of the current financial year, the Group made an
operating loss before exceptional items of £23k which, after restructuring costs
amounting to £677k and a net interest charge of £274k, resulted in a loss before
taxation of £974k.



The difficult business environment outlined in our trading update of 20 December
2005 remains and the retail environment has continued to weaken. Input costs,
particularly utility costs and oil and gas related raw material prices remain
under some pressure. Commercial pressures have limited our ability to pass on
these increased costs because of the highly competitive nature of the market
sector today. We have also incurred £95k of non-recurring costs in respect of an
aborted acquisition.



Sales revenues in the Aerosol Division increased by 21% to £21.9m, primarily due
to the commencement of a 3 year contract with PZ Cussons. However, operating
profit before restructuring costs decreased from £742k to £503k, reflecting the
cost and competitive pressures previously noted.



Sales revenue in the Cosmetics Division decreased by 6% to £6.3m, reflecting the
weaker retail environment and the division made an operating loss of £526k
compared to an operating profit of £96k in the same period last year.



Cash and net debt

Improved working capital management and a reduction in capital expenditure has
enabled a further reduction in the Group's net debt requirement which, at the
half year end, stood at £4.6m. The Group's net debt position has improved by
£0.6m compared with the same time last year and by £3.8m compared with 30 June
2005.



Update on restructuring

The Board has been reviewing its structure and composition since 20 December
2005 and announced on 3 February 2006 the result of this review. I am pleased to
say that this restructuring is now complete. Ian Mackinnon was appointed Chief
Executive Officer on 1 March 2006 following the retirement of Tony Wardell and
we are in the process of recruiting a new Group Finance Director. After almost
six years of committed service as Chairman, James Espey retired and my
appointment as Chairman was confirmed on 1 March 2006. Tony Wardell was
appointed as a non-executive Director on the same date. The Board has decided
that it is not necessary to fill the position of Group Operations Director
previously held by Brian Williamson, who left the company on 3 January 2006.



Other restructuring activities described in the trading update issued on 20
December 2005, primarily involving management and administration functions in
the Aerosols Division, have also been substantially completed.



The costs associated with these restructuring activities amounted to £677k, some
£177k higher than our original estimates and these have been charged against the
first half results. However, I am very pleased to say that, as a result of the
additional restructuring activities undertaken, we now anticipate ongoing annual
savings of £800k against the £600k originally expected.



Transfer of listing to AIM

The Board has sent a circular to all shareholders with this interim report,
seeking approval to transfer the listing of the Company's shares from the full
list to AIM. The Board believes that an AIM listing is more appropriate given
the current size of the company and the lower level of regulatory costs
associated with maintaining an AIM listing. The Board has therefore convened an
Extraordinary General Meeting to be held on 5 April 2006 at Swallowfield House
and recommends that shareholders approve the proposal.




Dividends

In the trading update issued on the 20 December, we noted that the Board had
decided not to declare an interim dividend. Trading conditions in the past two
months have not altered the view that this is the appropriate decision at the
present time. We will continue to closely monitor the situation and are working
towards being in a position to resume dividend payments within 18 months.



Looking forward

We expect that the weak market background we are currently experiencing will
continue for some while yet and, apart from a small number of specific new
business opportunities, we are not anticipating the market to show any
improvement for the remainder of the year. We expect business volumes in the
Aerosols Division to be lower in the second half of the year reflecting the
seasonality of the business and an increase in volumes of the Cosmetics
Division, in part following first production runs for a major new customer. Cost
improvements from the restructuring plans and other operational efficiency
improvements will begin to come through in the second half and we expect the
result for the year, before restructuring costs, to be broadly breakeven.



Following the restructuring of the Board and the Aerosol Division, we have
removed a layer of management in order to increase the speed of communication
and decision making. The new management team is undertaking a review of key
operational activities to increase margins and reduce net debt. Our strategic
review of all business segments and their attendant profitability continues; an
early outcome of this is a decision to produce a significantly higher proportion
of next year's gift programme in the Far East. Our strategic review has
underlined the need to refocus key customer relations to improve service
flexibility and speed to market. In addition, we are reviewing the Company's
balance sheet with a view to improving asset utilisation and financial
effectiveness.



Whilst the Company has had a difficult and demanding eighteen months, we are
confident that the changes we have made during the last two months, together
with the ongoing review will, in the medium term, restore our profitability.



International Accounting Standards

These interim results have been prepared using International Accounting
Standards (IFRS) and include restated amounts for prior periods. The notes to
the accounts include reconciliations of profits and equity, previously reported
under UK Generally Accepted Accounting Principles (GAAP), to those now reported
under IFRS.





S J Winning

Chairman

13 March 2006



Summarised Group Income Statement


                                                                                         Restated under IFRS
                                                                  28 weeks                28 weeks            12 months
                                                                     ended                   ended                ended
                                                                7 Jan 2006              8 Jan 2005         30 June 2005
                                                               (unaudited)             (unaudited)          (unaudited)
                                                                     £'000                   £'000                £'000

Revenue                                                             28,156                  24,677               43,539


Operating (loss)/profit before

exceptional items                                                     (23)                     838                  411
Exceptional items                                                    (677)                       -                    -

Operating (loss)/profit                                              (700)                     838                  411

Finance income                                                          15                       4                    7
Finance costs                                                        (289)                   (335)                (615)

(Loss)/profit before taxation                                        (974)                     507                (197)
Taxation                                                               279                   (154)                  102

(Loss)/profit for the period                                         (695)                     353                 (95)

Attributable to:
Equity shareholders                                                  (695)                     353                 (95)

Basic earnings per share                                            (6.2p)                    3.1p               (0.8p)
Diluted earnings per share                                          (6.2p)                    3.1p               (0.8p)







Group Statement of Changes in Equity

(Unaudited)


                                            Issued                               Re-
                                             share            Share        Valuation       Retained         Total
                                           capital          premium          Reserve       earnings        equity
                                             £'000            £'000            £'000          £'000         £'000

Balance at 30 June 2004                        563            3,796              124          6,360        10,843

Transfer of excess depreciation
on revalued assets                               -                -              (7)              7             -
Profit for the period                            -                -                -            353           353
Equity dividends                                 -                -                -          (541)         (541)
Balance at 8 January 2005                      563            3,796              117          6,179        10,655


Transfer of excess depreciation on
revalued assets                                  -                -              (7)              7             -
Loss for the period                              -                -                -          (448)         (448)
Equity dividends                                 -                -                -              -             -
Balance at 30 June 2005                        563            3,796              110          5,738        10,207


Transfer of excess depreciation
on revalued assets                               -                -              (7)              7             -
Loss for the period                              -                -                -          (695)         (695)
Equity dividends                                 -                -                -          (225)         (225)
Balance at 7 January 2006                      563            3,796              103          4,825         9,287







Group Balance Sheet


                                                                                        Restated under IFRS
                                                                    As at                  As at                  As at
                                                               7 Jan 2006             8 Jan 2005           30 June 2005
                                                              (unaudited)            (unaudited)            (unaudited)
                                                                    £'000                  £'000                  £'000
Assets
Property, plant and equipment                                      12,657                 13,406                 13,044
Intangible assets                                                      68                     57                     56

Total non-current assets                                           12,725                 13,463                 13,100
Inventories                                                         7,011                  7,705                  9,312
Trade and other receivables                                         6,428                  7,130                  8,822
Cash and cash equivalents                                               6                     69                     25
Current tax receivable                                                  -                      -                     74
Total current assets                                               13,445                 14,904                 18,233


Total assets                                                       26,170                 28,367                 31,333

Trade and other payables                                            8,955                  8,505                  9,191
Interest-bearing loans and borrowings                                 929                    717                  2,052
Current tax payable                                                     -                    258                      -
Dividend creditor                                                       -                    316                      -
Total current liabilities                                           9,884                  9,796                 11,243


Interest-bearing loans and borrowings                               3,675                  4,514                  6,379
Pension deficit                                                     2,670                  2,536                  2,605
Other long-term employee benefits                                     522                    473                    482
Deferred tax liabilities                                              109                    376                    380
Derivative financial instruments                                       23                     17                     37

Total non-current liabilities                                       6,999                  7,916                  9,883
Total liabilities                                                  16,883                 17,712                 21,126

Net assets                                                          9,287                 10,655                 10,207


Equity

Share capital                                                         563                    563                    563
Share premium                                                       3,796                  3,796                  3,796
Revaluation reserve                                                   103                    117                    110
Retained earnings                                                   4,825                  6,179                  5,738

Total equity                                                        9,287                 10,655                 10,207






Group Cash Flow Statement


                                                                                         Restated under IFRS
                                                                   28 weeks             28 weeks              12 months
                                                                      ended                ended                  ended
                                                                 7 Jan 2006           8 Jan 2005           30 June 2005
                                                                (unaudited)          (unaudited)            (unaudited)
                                                                      £'000                £'000                  £'000

Cash flows from operating activities

(Loss)/profit before tax                                              (974)                  507                  (197)
Depreciation                                                            779                  741                  1,420
Loss/(profit) on disposal of equipment                                    1                  (5)                     24
Finance income                                                         (15)                  (4)                    (7)
Finance cost                                                            256                  289                    615
Decrease/(increase) in inventories                                    2,301                  277                (1,330)
Decrease/(increase in trade and other receivables                     2,394                7,089                  5,397
Decrease in trade and other payables                                  (122)              (3,789)                (3,205)
Increase in other long-term employee benefits                            40                   29                     12
Increase in retirement benefit obligations                               65                   67                     70
Cash generated from operations                                        4,725                5,201                  2,799

Finance expense paid                                                  (367)                (340)                  (458)
Income tax received/(paid)                                               80                (162)                  (232)
Net cash flow from operating activities                               4,438                4,699                  2,109
Cash flow from investing activities

Finance income received                                                   -                    -                      7
Purchase of property, plant and equipment                             (321)                (860)                (1,204)
Sale of property, plant and equipment                                     -                    5                      4
Net cash flow from investing activities                               (321)                (855)                (1,193)

Cash flow from financing activities

Capital element of finance lease liabilities                          (166)                (181)                  (345)
Repayment of loans                                                  (2,000)              (2,003)                    (3)
Dividends paid                                                        (225)                (225)                  (541)
Net cash flow from financing activities                             (2,391)              (2,409)                  (889)

Net increase in cash and cash equivalents                             1,726                1,435                     27

Cash and cash equivalents at beginning
of period                                                           (1,737)              (1,764)                (1,764)
Cash and cash equivalents at end of period                             (11)                (329)                (1,737)

Cash and cash equivalents consists of:
Cash                                                                      6                   69                     25
Overdraft                                                              (17)                (398)                (1,762)
Cash and cash equivalents at end of period                             (11)                (329)                (1,737)





Notes to the Interim Results



1 Basis of preparation



The unaudited interim results for the 28 week period ended 7 January 2006 have
been prepared in accordance with the Listings Rules of the Financial Services
Authority. The financial information contained herein does not constitute
statutory accounts within the meaning of section 240(5) of the Companies Act
1985.



The statutory accounts for the year ended 30 June 2005, which have been
delivered to the registrar of companies, carry an unqualified Auditors' Report.



The Group has previously prepared its financial statements under UK Generally
Accepted Accounting Principles (UK GAAP). Following a directive by the European
Parliament in July 2002, the Group is required to prepare its 2005/6
consolidated financial statements in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS).



Accordingly, this interim report has been prepared using IFRS accounting
policies consistent with those management expect to apply in the Group's first
IFRS Annual Report and Financial Statements for the year ending 30 June 2006.



2 Earnings per share



The calculation of basic earnings per share is based on 11,256,416 (2005:
11,256,416) ordinary shares of 5.0p each, being the weighted average number of
ordinary shares in issue during the period, and the loss on ordinary activities
after taxation of £695,000 (2005: profit of £353,000). The potential ordinary
shares for executive share options are non-dilutive.



3 Announcement of results



These results were announced to the London Stock Exchange on 13 March 2006. 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.








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