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Swallowfield PLC (BAR)

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Thursday 27 February, 2003

Swallowfield PLC

Interim Results

Swallowfield PLC
27 February 2003



In my report of 5 September 2002, I suggested a positive outlook for the first
half of this financial year based upon good order levels for aerosols and gift
packs. Additionally I cautioned that high demand levels were putting a strain on
our existing infrastructure. In our trading statement of 22 November 2002, we
explained the reasons for not achieving the expected level of profits in this
period and, despite a 32% increase in turnover over the same period last year,
profit before tax was £1.5m lower at £0.7m.

Turnover in the Cosmetics business increased 6% from £7.5m to £8.0m and this
business made an operating loss of £0.5m against an operating profit of £0.6m in
the prior year. In the Aerosols business, turnover increased by 43% from £17.4m
to £24.9m and operating profit decreased from £1.7m to £1.4m.

During the last six months, we suffered a combination of severe margin erosion,
cost increases and short-term capacity constraints caused by an unexpectedly
rapid build up in customer demand. We were unable to speed up our planned
capacity improvements sufficiently to meet this extreme ramp-up in business
volumes. Consequently efficiency levels dropped as we frequently changed
programmes in making every effort to maintain vitally important customer service
levels, and this also required a substantial increase in the use of contract

Net debt levels have increased to £7.0m as a result of investments in plant and
machinery, the Wellington factory extension and working capital. These are
required to support our long-term growth plans, and we continue to emphasise
tight management of our financial resources. Traditionally there is an outflow
of cash in the second half as we build stocks for the Autumn/Winter gift season.
We expect the same pattern to continue this year.

Action Plan

Looking forward, we have put plans in place to improve the Group's profitability
and increase capacity across both sites. These include a profit improvement plan
that focuses on cost reduction, price increases and capacity planning.

Our production departments are focussed on long-term capacity planning and are
developing plans to limit the impact of capacity overloads in the future. At the
same time, we are stressing to all our customers, the importance of working in
partnership from an early stage, in order to guarantee quality, improve lead
times and deliver strong overall service levels.

We are ever mindful of the continuing deflationary attitude of the high street,
which is at odds with inflationary pressures within our cost base. Our customer
portfolio has been notified of our need for increased prices, and further
discussions continue.

A fundamental part of our business strategy is to focus on the development and
manufacture of high value added innovative products. We have implemented a new
development review process from which we expect an increased flow of new product
ideas over the medium term. These new product developments will improve the
margin mix and help alleviate the severe margin pressure, which exists on
commodity products and gift packs.

This margin pressure has increased as retailers continue to reduce prices and
competition from the Far East, particularly in the Cosmetics business,
intensifies.  We are also, therefore, actively exploring ways to reduce input
costs and, for example, we are now seeking to widen our commercial involvement
in China, from where we have purchased components for some years.


Order books at both businesses were higher at the start of January than at the
same time last year although they have softened since.

The current political and economic backdrop is uncertain and there is recent
evidence of a weakening in the underlying economic situation, particularly as it
affects the high street. A recent CBI survey noted that retailers are cutting
back on orders placed with suppliers in the face of their highest stock levels
since May 1997.

Against this background, but taking into account the actions we are presently
taking, we expect a more evenly balanced trading performance between the first
and second halves of this year than we have experienced in recent years.
Provided that retail sales and the overall economic environment do not soften
further, we still anticipate that the Group will finish the financial year at a
better running rate than last year. We expect margins to remain subdued
throughout this period and the weakness in the Cosmetics business to continue
until the fourth quarter when recent contract wins should start to have an
impact on activity levels.

As confirmation of our long-term confidence, we have continued to invest in new
equipment and infrastructure. We have invested £1.6m in plant and equipment at
Wellington to improve operating efficiencies and further increase our capacity
to manufacture bag-in-can products. The new building at Wellington is now
complete; the office accommodation is fully occupied and we have already seen
benefits from improved despatch facilities and material flow.


Given our positive view of the future and the dividend cover we have maintained
in recent years, we see no reason at this point to reduce the dividend payment.
The Board is declaring a dividend of 2.8p for the half year, which is unchanged
from that declared at the same time last year. The dividend will be paid on 29
May 2003 to shareholders on the register on 2 May 2003.  Because of the change
in our year-end, the interim dividend payment is now the higher of the two
dividend payments. It is our policy to redress this unusual balance between the
interim and final dividend over time.

The board is indebted to all our employees for their effort and loyalty through
such a difficult and demanding period. I know that they have put tremendous
efforts into trying to maintain service levels and customer support and we
should like to thank them for this.

J S Espey


27 February 2003

                                                28 weeks ended        28 weeks ended       18 months ended

                                                   11 Jan 2003           31 Dec 2001          30 June 2002
                                                                               £'000                 £'000


Turnover                          1                     32,888                24,888                62,458

Operating profit                  1                        904                 2,368                 3,135
Interest payable                                         (219)                 (176)                 (441)

Profit on ordinary activities
before taxation                                           685                 2,192                 2,694
Tax on profit on ordinary
                                                         (205)                 (611)                 (749)

Profit attributable to                                     480                 1,581                 1,945
Dividends                                                (316)                 (316)                 (732)

Retained profit                                            164                 1,265                 1,213

Dividend per ordinary share       3                       2.8p                  2.8p                  6.5p

Earnings per ordinary share
- Basic                           4                       4.3p                 14.0p                 17.3p
- Diluted                         4                       4.3p                 14.0p                 17.2p


                                                           As at                As at                As at

                                                     11 Jan 2003          31 Dec 2001         30 June 2002

                                                     (unaudited)          (unaudited)

                                                           £'000                £'000                £'000

Tangible fixed assets                                     13,568               10,715               11,142

Stocks                                                     7,889                6,046                8,626
Debtors                                                    7,882                6,532                8,488
Cash at bank and in hand                                      30                4,209                1,306

                                                          15,801               16,787               18,420

Creditors: amounts falling due
within one year                                         (10,813)              (9,531)             (11,993)

Net current assets                                         4,988                7,256                6,427

Creditors: amounts falling due
after more than one year
                                                         (6,003)              (5,535)              (5,187)
Provisions for liabilities and
charges                                                    (770)                (716)                (770)

                                                          11,783               11,720               11,612

Share capital                                                563                  563                  563
Share premium                                              3,796                3,796                3,796
Reserves                                                   7,424                7,361                7,253

Equity shareholders' funds                                11,783               11,720               11,612


                                               28 weeks ended        28 weeks ended       18 months ended

                                                  11 Jan 2003           31 Dec 2001          30 June 2002
                                                                              £'000                 £'000

Net cash inflow from operating
activities (note 1)                                     1,918                 4,409                 3,670

Returns on investments and
servicing of finance                                    (219)                 (176)                 (441)

Corporation tax paid                                    (532)                 (425)                 (823)

Capital expenditure:
Purchase of tangible fixed assets                     (3,055)                 (602)               (2,463)
Sale of tangible fixed assets                              25                    45                    77

Equity dividends paid                                   (225)                 (192)                 (788)

Net cash (out)/inflow before                          (2,088)                 3,059                 (768)

Increase/(decrease) in long and short-term
loans                                                     837                 (494)                   137
Capital element of finance lease
                                                        (185)                 (207)                 (482)

                                                          652                 (701)                 (345)

(Decrease)/increase in cash                           (1,436)                 2,358               (1,113)


                                              28 weeks ended       28 weeks ended      18 months ended

                                                 11 Jan 2003          31 Dec 2001         30 June 2002

                                                       £'000                £'000                £'000

I.      Reconciliation of operating profit to net cash inflow from operating activities

Operating profit                                         904                2,368                3,135
Depreciation                                             614                  722                2,073
(Profit) on disposal of fixed                           (10)                 (16)                 (19)
Decrease/(increase) in stocks                            737                1,091              (2,727)
Decrease/(increase) in debtors                           619                (138)              (2,295)
(Decrease)/increase in creditors                       (946)                  382                3,503

Net cash inflow from operating activities              1,918                4,409                3,670

II.    Analysis of net debt

Net cash at bank and in hand                              30                4,209                1,306
Overdrafts                                             (160)                    -                    -
Short-term loans                                       (669)                (695)                (697)
Long-term loans                                      (5,400)              (4,885)              (4,535)
Finance leases                                         (766)                (984)                (951)

                                                     (6,965)              (2,355)              (4,877)

III.   Reconciliation of net cash flow to movement in net debt

Net debt at start of the period                      (4,877)              (4,777)              (3,386)
(Decrease)/increase in cash                          (1,436)                2,358              (1,113)
(Increase)/decrease in borrowings
and finance leases
                                                       (652)                   64                (378)

Net debt at end of the period                        (6,965)              (2,355)              (4,877)


1.       Turnover & segmental analysis

                                    28 weeks ended              28 weeks ended             18 months ended

                                       11 Jan 2003                 31 Dec 2001                30 June 2002

                                         Operating                   Operating                   Operating
Class of business            Turnover       Profit       Turnover       Profit       Turnover       Profit

                                £'000        £'000          £'000        £'000          £'000        £'000

Aerosol products               24,913        1,439         17,394        1,742         45,615        3,430
Cosmetic products               7,975        (535)          7,494          626         16,843        (295)

                               32,888          904         24,888        2,368         62,458        3,135

2.            The results for the twenty-eight weeks ended 11 January 2003 and
the summary balance sheet on that date are unaudited.  The results for the 18
month period ended 30 June 2002 do not constitute full accounts within the
meaning of section 240 of the Companies Act 1985.  Full accounts for that period
together with an unqualified audit report thereon have been filed with the
Registrar of Companies.

3.            The dividend comprises an ordinary dividend of 2.8p (2001: 2.8p)
per ordinary share payable on 29 May 2003 to shareholders on the register on 2
May 2003.

4.            The calculation of basic earnings per share is based on 11,256,416
(2001: 11,256,416) ordinary shares of 5.0p each, being the weighted average
number of ordinary shares in issue during the period, and the profit on ordinary
activities after taxation of £480,000 (2001: £1,581,000).

The diluted earnings per share is based on the profit for the period of £480,000
(2001: £1,581,000) and on the weighted average number of shares in issue for the
period adjusted for shares held under unexercised options.  The adjusted number
of shares for the period was 11,275,959 (2001: 11,279,000) ordinary shares which
include 19,543 (2001: 22,584) dilutive potential ordinary shares from executive
share options.

5.            The Interim Report will be sent to shareholders and is available
to member of the public at the Company's Registered Office at Swallowfield
House, Station Road, Wellington, Somerset  TA21 8NL.



We have been instructed by the company to review the financial information for
the 28 week period ended 11 January 2003 which comprises the Group Profit and
loss Account, Group Balance Sheet, Group Statement of Cash Flows, the related
notes I to III in respect of the Group Statement of Cash Flows and notes 1 to 5
in respect of the other financial information.  We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies in the financial

This report is made solely to the company in accordance with the guidance
contained in Bulletin 1999/4 'Review of interim financial information' issued by
the Auditing Practices Board.  To the fullest extent required by the law, we do
not accept or assume responsibility to anyone other than the company, for our
work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors.  The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information 'issued by the Auditing Practices Board
for use in the United Kingdom.  A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed.  A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions.  It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit.  Accordingly we do not express an audit
opinion on the financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 28 week period
ended 11 January 2003.

Ernst & Young LLP
27 February 2003

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