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Swallowfield PLC (BAR)

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Thursday 14 September, 2006

Swallowfield PLC

Final Results

Swallowfield PLC
14 September 2006

                                SWALLOWFIELD PLC


Chairman's Statement


The trading results below cover a 53 week period to 30 June 2006 (2005: 52

•      Net debt reduced by 15.5% to £7.13m (2005: £8.44m);
•      Turnover increased by 12.5% to £49.00m (2005: £43.54m);
•      EBITDA (pre exceptional costs) increased by 14.6% to £2.10m (2005:
•      Operating profit before exceptional items increased by 44.8% to £0.60m
       (2005: £0.41m);
•      Exceptional costs £0.56m (2005: £nil);
•      Loss before taxation £0.45m (2005: loss £0.20m);

These results show that the first stage of the turnaround, underpinning
profitability, strengthening the balance sheet, and rebuilding confidence, is

Results and Background

Operating profit before exceptional items for the year was £0.60m which, after
an interest charge of £0.49m and net exceptional costs of £0.56m, resulted in a
loss before taxation of £0.45m.  These results are slightly better than

The business environment has been challenging for the last 18 months.  Cost
pressures from utilities, and oil and metal related raw material prices, have
continued.  Retail spending has remained weak in our sector, and competitive
pressures have limited our ability to pass on all of these increased costs.

During the second half, operating profit before exceptional items was £0.62m and
this compares favourably to the operating loss before exceptional items of
£0.02m in the first half of this year and the operating loss of £0.43m made in
the second half of last year.  Many of the restructuring and efficiency
improvements that we put into place at the turn of the year, are beginning to
deliver results.  At the same time, we commenced the supply of cosmetics to a
major new customer which should provide an annualised turnover of around £2m.

Our operation in China continues to be a positive addition to the Group, both in
terms of profitability enhancement and sourcing capability.  We have recently
shipped our first accessory products from China to the UK and we see this as a
growth area for us in the medium to long-term.

Cash and Net Debt

Continued focus on working capital management, together with a reduction in our
capital expenditure programme, enabled us to reduce net debt by £1.31m to
£7.13m, from £8.44m last year.  This is an encouraging result, particularly
taken against a background of having paid £0.68m in restructuring costs.

Following a comprehensive and competitive tendering process, we recently changed
the Group's main bankers to Barclays Bank plc from Royal Bank of Scotland plc.
The change was made to take advantage of the improved facility structure and
quantum on offer from Barclays.

Cosmetics Division

At 30 June 2006, the Cosmetics division was utilising £6.4m of net assets, a
reduction of £1.2m over the previous year.  Even though the division has
generated operating cash flow of £1.3m before corporate cost allocations over
the last 2 years, it has not been making a satisfactory return on net assets.

Following the recent strategic review, the Board has set a hurdle level of
return on assets (before corporate cost allocations) of 12% for this division.
We have concluded that, at present, we would be unable to realise the net asset
value of this division by means of either a trade sale or a wind-up and are
determined to enhance shareholder value through a combination of profitability
improvement and robust asset management.

This strategy will be vigorously pursued and includes a combination of overhead
reductions, lower unit labour costs through automation, additional outsourcing
of production to the Far East, and a continued move to reduce assets used.  To
date, annual overhead costs have been cut by a further £0.3m.  Net assets will
decrease by £1.1m from year-end levels, by the end of January 2007, following
the close-out of the M&S colour cosmetics contract.  Our relationship with M&S,
however, remains strong and our business in Household and Toiletries is growing.

As an additional step towards this strategy, we have reached agreement to
establish a long-term partnership with a Chinese manufacturer for them to supply
colour cosmetic products to us for sale into our European market.  Our partner
will build a factory to our required standards and provide us with exclusivity
of supply into Europe.  In return we will supply them with intellectual property
in respect of formulations, quality standards and manufacturing know-how.  We
will update you on progress in due course.

We are in ongoing negotiations on four specific contract opportunities which, in
aggregate, would enable the division, on a fully established basis, to go well
beyond meeting the hurdle rate of return.  We will be rigorous in our evaluation
of these and any other opportunities, and have set a target that by the end of
January 2007, we will be in a position to categorically decide on future plans
and update shareholders accordingly.

Looking Forward

We do not anticipate any upturn in the general business environment and do not
expect the market for our products, particularly in Western Europe, to grow at
any significant rate and, as a consequence, our current planning horizons take
this into account.

The first phase of our turnaround is ongoing and our renewed focus on margin
improvement and product capabilities will lead to a reduction in turnover in the
coming year.  Additionally, internal targets to improve efficiencies throughout
the business and to reduce material costs should ensure that our operating
results show continued improvement in profit.

The next phase of the turnaround can now begin in earnest.  Our corporate
purpose has been amended to 'Creating and Delivering Solutions for our
Customers' Success'.  Over the next year, in support of this purpose, we will
extend product capabilities in China and other low cost locations; we will
initiate plans to ensure we have a team which is trained and capable; we will
concentrate on continuously improving our cost base and service levels.  These
actions should enable us to deliver profitable sales growth in the medium term.

We continue to review the Group's balance sheet and expect that we can further
reduce our net debt position in the coming year.

At the same time, it is imperative that we continue to maximise the use of our
skills to focus on developing products for our customers that consumers want to
buy.  We are determined to stay ahead of our competition, whilst looking to
broaden our offering of products which we do not manufacture.

Dividend Policy

It is the Board's intention to resume dividend payments as soon as is reasonably
possible after achieving our first priority of strengthening the Group's balance
sheet.  Following this, we expect to resume dividend payments using an
approximate dividend cover of three times with a progressive approach to future
dividends over time.

S J Winning
14 September 2006

For the year ended 30 June 2006
(Results for 2005 have been restated for IFRS)
                                                                          2006                2005
Continuing Operations                             Notes                  £'000               £'000

Revenue                                             1                   48,995              43,539
Cost of sales                                                         (42,779)            (37,227)

Gross profit                                                             6,216               6,312
Commercial and administrative costs                                    (5,621)             (5,901)

Operating profit before exceptional items                                  595                 411
Exceptional items
                  reorganisation costs                                   (684)
                  renegotiation of Jubilee costs                           431
                  other exceptional costs                                (310)

                                                                         (563)                   -

Operating profit                                    2                       32                 411
Finance income                                                               6                   7
Finance costs                                                            (488)               (615)

Loss before taxation                                                     (450)               (197)
Taxation                                            3                      182                 102

Loss for the year                                                        (268)                (95)

Attributable to equity shareholders                                      (268)                (95)

Loss per share
    - basic and diluted                             4                   (2.4p)              (0.8p)

For the year ended 30 June 2006

                                                                           2006              2005
                                                                          £'000             £'000
Loss for the year                                                         (268)              (95)
Total recognised income and expense for the year                          (268)              (95)

As at 30 June 2006

                                                                          2006            2005
                                                                         £'000           £'000
Non-current assets
Property, plant and equipment                                           12,324          13,035
Intangible assets                                                           66              65
                                                                        12,390          13,100
Current assets
Inventories                                                              7,347           9,312
Trade and other receivables                                              9,518           8,822
Assets held for sale                                                        51               -
Current tax receivable                                                       -              74
Cash and cash equivalents                                                   10              25
Total current assets                                                    16,926          18,233

Total assets                                                            29,316          31,333

Current liabilities
Trade and other payables                                               (9,555)         (9,191)
Interest-bearing loans and                                             (2,526)         (2,052)
Total current liabilities                                             (12,081)        (11,243)

Non-current liabilities
Interest-bearing loans and                                             (4,612)         (6,379)
Post retirement benefit                                                (2,677)         (2,605)
Other long-term employee                                                     -           (482)
Deferred tax liabilities                                                 (228)           (380)
Derivative financial                                                       (4)            (37)

Total non-current liabilities                                          (7,521)         (9,883)

Total liabilities                                                     (19,602)        (21,126)

Net assets                                                               9,714          10,207

Share capital                                                              563             563
Share premium                                                            3,796           3,796
Revaluation reserve                                                         96             110
Profit and loss account                                                  5,259           5,738
Total equity                                                             9,714          10,207

For the year ended 30 June 2006

                                                                           2006              2005
                                                                          £'000             £'000
Cash inflow from operating activities
Loss before taxation                                                      (450)             (197)
Depreciation                                                              1,389             1,397
Amortisation                                                                 28                23
(Profit)/loss on disposal of equipment                                      (1)                24
Impairment of property, plant and equipment                                  84                 -
Impairment of intangible assets                                               2                 -
Finance income                                                              (6)               (7)
Finance cost                                                                488               615
Decrease/(increase) in inventories                                        1,965           (1,330)
(Increase)/decrease in trade and other                                    (696)             5,397
Increase/(decrease) in trade and other                                      486           (3,205)
(Decrease)/increase in other long-term employee benefits                  (482)                12
Increase in retirement benefit obligations                                   15                70
Cash generated from operations                                            2,822             2,799

Finance expense paid                                                      (583)             (458)
Taxation recovered/paid                                                     101             (232)
Net cash flow from operating activities                                   2,340             2,109

Cash flow from investing activities
Finance income received                                                       6                 7
Purchase of property, plant and equipment                                 (813)           (1,204)
Purchase of intangible assets                                              (31)                 -
Sale of property, plant and equipment                                         1                 4
Net cash flow from investing activities                                   (837)           (1,193)

Cash flow from financing activities
Capital element of finance lease liabilities                              (230)             (345)
Repayment of loans                                                      (1,421)               (3)
Dividends paid                                                            (225)             (541)
Net cash flow from financing activities                                 (1,876)             (889)

Net (decrease)/increase in cash and cash equivalents                      (373)                27

Cash and cash equivalents at beginning of year                          (1,737)           (1,764)

Cash and cash equivalents at end of year                                (2,110)           (1,737)

Cash and cash equivalents consist of:
Cash                                                                         10                25
Overdraft                                                               (2,120)           (1,762)
Cash and cash equivalents at end of year                                (2,110)           (1,737)


1.         Turnover and Segmental Analysis

                                      2006                                          2005
                         Revenue      Profit/           Net        Revenue  Profit/(loss)           Net
                                       (loss)        assets                    before tax        assets
                                   before tax
Class of business          £'000        £'000         £'000          £'000          £'000         £'000

Toiletries products       36,318          819        11,481         31,788            227        12,655
Cosmetics products        12,677        (224)         6,396         11,751            184         7,565
                          48,995                     17,877         43,539                       20,220

Operating profit                          595                                         411
before exceptional

Exceptional items                       (563)                                           -
Operating profit                           32                                         411
Net finance costs                       (482)                                       (608)

Loss before tax                         (450)                                       (197)

Unallocated net                                     (8,163)                                    (10,013)

Group net assets                                      9,714                                      10,207

Geographic segment
By destination:

    UK                    41,001                                    35,394
    Other Europe           7,754                                     7,379
    Rest of World            240                                       766
                          48,995                                    43,539

All turnover is derived from operations established in the UK.

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

2.         Loss before taxation
                                                                             2006             2005
                                                                            £'000            £'000
This is stated after charging:
Depreciation of tangible fixed assets:
           Leased assets                                                      261              273
           Purchased assets                                                 1,128            1,124
Amortisation of intangible assets                                              28               23
Impairment of property, plant and equipment                                    84                -
Impairment of intangible assets                                                 2                -
Research and development                                                      726              686
Foreign exchange losses/(gains)                                                 4             (31)
Operating leases:
            Hire of plant and machinery                                        82               57
            Rent of buildings                                                  77               87
Auditors' remuneration:
            Audit services                                                     44               51
            Non-audit services                                                 48               98
Other exceptional items                                                       310                -

Other exceptional items relate to legal and professional fees for an abortive acquisition and
other non-recurring items

3.         Taxation
                                                                             2006             2005
                                                                            £'000            £'000
(a)       Analysis of tax credit for the year
UK corporation tax:
                on loss for the year                                            -                -
                adjustment in respect of previous years                      (30)             (76)
Foreign tax:
                adjustment in respect of previous years                         -                5
Total current tax credit                                                     (30)             (71)

Deferred tax:
Origination and reversal of timing differences:
                on losses for the year                                      (152)             (38)
                adjustment in respect of previous years                         -                7
Total deferred tax                                                          (152)             (31)
Total tax on loss on ordinary activities                                    (182)            (102)

(b)       Factors affecting current tax credit for the year

The tax assessed on the loss on ordinary activities for the year is lower than the standard rate
of UK corporation tax of 30% (2005: 30%).   The differences are reconciled below:

                                                                             2006             2005
                                                                            £'000            £'000
Loss before tax at 30%                                                      (135)             (59)
Expenses not deductible for tax purposes                                       38               25
Effect of R&D tax credits                                                    (25)                -
Capital allowances for the year in excess of depreciation                    (17)             (45)
Other timing differences                                                    (148)               79
Tax losses carried forward                                                    287                -
Current tax credit                                                              -                -

4.         Loss per Share
                                                                            2006              2005
(a)       Basic and diluted
Loss for the year (£000)                                                   (268)              (95)
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                   -            14,970
                                                                      11,256,416        11,271,386
Loss per share                                                            
                                                                          (2.4p)            (0.8p)
(b)       Adjusted earnings/(loss) per share
Basic and diluted
Loss for the year (£000)                                                   (268)              (95)
Add back: Exceptional items                                                  563                 -
Notional tax charge on exceptional items                                   (169)                 -
Adjusted profit/(loss) before exceptional items                              126              (95)
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                   -            14,970
                                                                      11,256,416        11,271,386
Adjusted earnings/(loss) per share                                          1.1p            (0.8p)

5.         Notes to Statement of Cash Flows

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

                                                                          2006               2005
                                                                         £'000              £'000
(Decrease)/increase in cash and cash equivalents                         (373)                 27
Net cash outflow from decrease in borrowings                             1,651                348
Change in net debt resulting from cash flows                             1,278                375
Net debt at 1 July                                                     (8,443)            (8,753)
                                                                       (7,165)            (8,378)
Fair value of swaps hedging fixed rate borrowing                            33               (65)
Net debt at 30 June                                                    (7,132)            (8,443)

(b)       Analysis of net debt

                                                            1 July 2005                 Fair value   30 June
                                                                                        adjustment      2006
                                                                  £'000      Cashflow
                                                                                             £'000     £'000
Cash at bank and in hand                                             25          (15)            -        10
Bank overdraft                                                  (1,762)         (358)            -   (2,120)
Cash                                                            (1,737)         (373)            -   (2,110)
Borrowings due within one year                                        -         (147)            -     (147)
Borrowings due after one year                                   (6,000)         1,568            -   (4,432)
Finance leases                                                    (669)           230            -     (439)
                                                                (8,406)         1,278            -   (7,128)
Fair value of swaps hedging fixed rate borrowing                   (37)             -           33       (4)
Total                                                           (8,443)         1,278           33   (7,132)

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 2006, 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 2005 have been
delivered to the Registrar of Companies with an unqualified audit report

Copies of the 2006 Annual Report and Accounts will be posted to shareholders by
29 September 2006.  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 2 November 2006 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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