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Swallowfield PLC (BAR)

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Friday 02 March, 2007

Swallowfield PLC

Interim Results

Swallowfield PLC
02 March 2007

                                Swallowfield plc

                              Interim Report 2007

Chairman's Statement


The financial highlights for the 28 week period to 13 January 2007 compared with
the same period last year are as follows:

•   Net Debt down by 10.6% to £4.1m (2006: £4.6m);

•   EBITDA (pre exceptional items) up by 109.9% to £1.6m (2006: £0.8m);

•   Operating Profit (pre exceptional items) up by £0.9m to £0.9m (2006:
    loss £0.02m);

•   Profit Before Taxation up by £1.4m to £0.4m (2006: loss £1.0m);

•   Earnings per share 2.3p (2006: loss per share of 6.2p).

Results and Background

We are pleased to report that the plan we initiated 12 months ago, to restore
the Company's profitability and balance sheet strength, has started well.  The
actions taken to date have reduced overhead costs, improved operating
efficiencies and strengthened the focus on our core skills and capabilities.
This has enabled us to improve the management of the margin mix resulting in the
planned elimination of some less profitable business.  The combination of secure
execution of our strategic plan and greater seasonality than in the recent past,
has meant that these results are better than we originally expected.

Our operation in the Far East continues to work well for us with more than 90%
of our Autumn and Christmas season gift packs being manufactured in China.
Additionally, our recent success with accessory products leads us to see our Far
East business as a new growth opportunity in the medium to long-term.

Both the Toiletries and Cosmetics divisions have traded well in the 28 weeks
under review.  As a result of a focus on core capabilities and higher margin
sales, revenues in the Toiletries division saw a planned reduction to £18.8m,
with profits 69% higher at £0.9m.  Revenues in the Cosmetics division increased
by 10% to £6.9m, as replacement business overlapped the close out of the Marks
and Spencer ('M&S') Cosmetics contract.  Operating profit for the division was
more than £0.5m higher than the same period last year.

Cash and Net Debt

Continued focus on working capital management, a carefully directed capital
expenditure programme and an improved profit performance have delivered a £0.5m
reduction in net debt to £4.1m, from £4.6m last year.  Subsequent to the half
year-end, further receipts of £0.7m from M&S for the final shipments of
cosmetics inventory have been received.

Cosmetics Division

On 31 January 2007, we made an announcement regarding our Cosmetics division.
The main points of this were as follows:

•   70% of the lost M&S cosmetics business has already been replaced;

•   Two-thirds of targeted annualised overhead reductions of £0.9m were
    achieved by the end of the first half;

•   Investment of £0.2m in automated packing lines (with an eight-month
    payback) was approved;

•   Further development of Eastern Europe and Far East production
    capacity; and

•   A reduction in capital employed through lower inventories and fewer

The exceptional costs associated with this exercise have been charged in these
accounts.  This division is expected to meet the 12% hurdle level of return on
assets, before corporate cost allocations, in the next full financial year.

Our plan will result in a more flexible operation, capable of responding to
growth opportunities.  We are determined to improve shareholder value through a
combination of profitability enhancement and robust asset management in this

Looking Forward

We have not yet seen any general improvement in the business environment,
although we continue to notice early signs of customers looking for new product
development ideas to create growth for their businesses.  If it continues, this
trend will be positive for us, as creativity and product development are key
strengths of Swallowfield.  The recent strategic review has re-iterated the need
for us to focus on these opportunities from within the many areas in which we
have a real core competence.  We expect the pressures we are currently
experiencing on raw material and component prices to remain for a while,
although the recent decreases in the oil and other commodity prices should help
alleviate these trends in the longer-term.

We continue to drive operating efficiencies and reductions in overhead costs and
our strategic actions are increasingly focussed on the challenges of delivering
profitable sales growth.  We are confident that we can achieve profitable sales
growth in the medium term and customers are responding positively to our
strategy of championing customer intimacy as our core value discipline.

We will improve the strength of the Group's balance sheet and expect that we can
reduce our net debt position at the June year-end.  The Group has recently
announced that it is reviewing its property portfolio in Bideford.  It is also
carrying out a similar review in the rest of its business.

The Group has, in principle, agreed headline terms for the sale and leaseback of
its freehold warehouse at Lowmoor, Wellington.  Current indications are that
contracts will be finalised within the next few weeks.  The contract requires
the purchaser which has a proven track record in this work, to extend the
warehouse allowing the Group to further consolidate its inventory storage

The improvement in the results and the current activity levels give us cause for
optimism in the foreseeable future and, although we have made good progress thus
far, we recognise that there is still more to do.  During the next six months
the business will be more seasonal than in recent years and trading results will
be weaker than the equivalent period last year whilst the actions we have put in
place for the Cosmetics division come to fruition.  Overall, the trading results
for the full year to 30 June 2007 (before any exceptional costs or profits) are
expected to be in line with market expectations.

Dividend Policy

We remain committed to our intention to resume dividend payments as soon as is
reasonably possible. The prerequisites for resuming dividend payments are debt
reduction and a strengthening of the Group's balance sheet and we have made
tangible progress during the last 12 months.  When we consider that the balance
sheet is sufficiently strong, we expect to resume dividend payments using a
cautious dividend cover of three times, with a progressive approach to future
dividend cover over time.

S J Winning
1 March 2007

Group Income Statement

                                                        28 weeks ended      28 weeks ended      12 months ended
                                                           13 Jan 2007          7 Jan 2006         30 June 2006
                                                           (unaudited)         (unaudited)            (audited)
Continuing operations                      Notes                 £'000               £'000                £'000

Revenue                                        2                25,720              28,156               48,995
Cost of sales                                                 (22,021)            (24,566)             (42,779)

Gross profit                                                     3,699               3,590                6,216
Commercial and administrative costs                            (2,844)             (3,613)              (5,621)

Operating profit/(loss) before                                     855                (23)                  595
exceptional items
Exceptional items                              2                 (244)               (677)                (563)

Operating profit/(loss)                                            611               (700)                   32
Finance income                                                      21                  15                    6
Finance costs                                                    (251)               (289)                (488)

Profit/(loss) before taxation                                      381               (974)                (450)
Taxation                                                         (126)                 279                  182

Profit/(loss) for the period                                       255               (695)                (268)

Attributable to:
Equity shareholders                                                255               (695)                (268)

Earnings/(loss) per share
- basic and diluted                            3                  2.3p              (6.2p)               (2.4p)

Group Statement of Changes in Equity

                                                  Issued share       Share       Other     Retained       Total
                                                       capital     premium     reserve     earnings      equity
                                                         £'000       £'000       £'000        £'000       £'000
Balance at 30 June 2005 (audited)                          563       3,796         110        5,738      10,207
Loss for the period                                          -           -           -        (695)       (695)
Equity dividends                                             -           -           -        (225)       (225)
Transfer of excess depreciation
on revalued assets                                           -           -         (7)            7           -

Balance at 7 January 2006 (unaudited)                      563       3,796         103        4,825       9,287
Profit for the period                                        -           -           -          427         427
Transfer of excess depreciation
on revalued assets                                           -           -         (7)            7           -

Balance at 30 June 2006 (audited)                          563       3,796          96        5,259       9,714
Profit for the period                                        -           -           -          255         255
Transfer of excess depreciation
on revalued assets                                           -           -         (7)            7           -

Balance at 13 January 2007 (unaudited)                     563       3,796          89        5,521       9,969

Group Balance Sheet

                                                                      As at             As at             As at
                                                                13 Jan 2007        7 Jan 2006      30 June 2006
                                                                (unaudited)       (unaudited)         (audited)
                                                 Notes                £'000             £'000             £'000
Non-current assets
Property, plant and equipment                                        10,928            12,657            12,324
Intangible assets                                                        62                68                66

Total non-current assets                                             10,990            12,725            12,390
Current assets
Inventories                                                           6,288             7,011             7,347
Trade and other receivables                                           8,181             6,428             9,518
Derivative financial instruments                                         13                 -                 -
Cash and cash equivalents                                               561                 6                10
                                                                     15,043            13,445            16,875
Non-current assets held for sale                     5                  854                 -                51

Total current assets                                                 15,897            13,445            16,926

Total assets                                                         26,887            26,170            29,316

Current liabilities

Trade and other payables                                              9,197             8,955             9,555
Interest-bearing loans and borrowings                                   159               929             2,526

Total current liabilities                                             9,356             9,884            12,081

Non-current liabilities
Interest-bearing loans and borrowings                                 4,514             3,675             4,612
Post-retirement benefit obligations                                   2,694             2,670             2,677
Other long term employee benefits                                         -               522                 -
Deferred tax liabilities                                                354               109               228
Derivative financial instruments                                          -                23                 4

Total non-current liabilities                                         7,562             6,999             7,521

Total liabilities                                                    16,918            16,883            19,602

Net assets                                                            9,969             9,287             9,714

Share capital                                                           563               563               563
Share premium                                                         3,796             3,796             3,796
Other reserve                                                            89               103                96
Retained earnings                                                     5,521             4,825             5,259

Total equity                                                          9,969             9,287             9,714

Group Cash Flow Statement

                                                       28 weeks ended      28 weeks ended      12 months ended
                                                          13 Jan 2007          7 Jan 2006         30 June 2006
                                                          (unaudited)         (unaudited)            (audited)
                                                                £'000               £'000                £'000
Cash flows from operating activities
Profit/(loss) before taxation                                     381               (974)                (450)
Depreciation                                                      717                 764                1,473
Amortisation                                                       17                  15                   30
Loss/(profit) on disposal of equipment                              -                   1                  (1)
Finance income                                                   (21)                (15)                  (6)
Finance cost                                                      251                 289                  488
Decrease in inventories                                         1,059               2,301                1,965
Decrease/(increase) in trade and other                          1,337               2,394                (696)
(Decrease)/increase in trade and other payables                 (354)               (122)                  486
Increase/(decrease) in other long-term employee                     -                  28                (482)
Increase in retirement benefit obligations                         19                  44                   15

Cash generated from operations                                  3,406               4,725                2,822

Finance expense paid                                            (257)               (367)                (583)
Taxation recovered                                                  -                  80                  101

Net cash flow from operating activities                         3,149               4,438                2,340

Cash flow from investing activities
Finance income received                                             4                   -                    6
Purchase of property, plant and equipment                       (175)               (321)                (813)
Purchase of intangible assets                                    (13)                   -                 (31)
Sale of property, plant and equipment                              51                   -                    1

Net cash flow from investing activities                         (133)               (321)                (837)

Cash flow from financing activities
Capital element of finance lease liabilities                    (198)               (166)                (230)
Repayment of loans                                              (147)             (2,000)              (1,421)
Dividends paid                                                      -               (225)                (225)

Net cash flow from financing activities                         (345)             (2,391)              (1,876)

Net increase/(decrease) in cash and
cash equivalents                                                2,671               1,726                (373)

Cash and cash equivalents at beginning of period              (2,110)             (1,737)              (1,737)

Cash and cash equivalents at end of period                        561                (11)              (2,110)

Cash and cash equivalents consist of:
Cash                                                              561                   6                   10
Overdraft                                                           -                (17)              (2,120)

Cash and cash equivalents at end of period                        561                (11)              (2,110)

Notes to the Accounts

Note 1 Basis of preparation

The Group's interim results for the 28 week period ended 13 January 2007 are
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU.

These interim financial statements do not constitute full statutory accounts
within the meaning of section 240(5) of the Companies Act 1985 and are
unaudited.  The Group has elected not to implement the early adoption of IAS 34
'Interim financial reporting'.  The unaudited interim financial statements were
approved by the Board of Directors on 1 March 2007.

The consolidated financial statements are prepared under the historical cost
convention as modified to include the revaluation of certain fixed assets and
financial instruments.  The accounting policies used in the interim financial
statements are consistent with IFRS and those which will be adopted in the
preparation of the Group's Annual Report and Financial Statements for the year
ended 30 June 2007.  The statutory accounts for the year ended 30 June 2006,
which were prepared under IFRS, have been filed with the Registrar of Companies.
These statutory accounts carried an unqualified Auditors Report and did not
contain a statement under either Section 237(2) or (3) of the Companies Act

Note 2 Segmental analysis

The Group operates in two segments which reflect the internal organisation and
management structure according to the nature of the products:
Toiletries       - Development, manufacture, marketing and sales of toiletry products
Cosmetics        - Development, manufacture, marketing and sales of cosmetic products

Details for these business reporting segments are shown below:

                                                             28 weeks ended             28 weeks ended
                                                               13 Jan 2007                7 Jan 2006

                                                             Revenue       Profit      Revenue Profit/(loss)
                                                         (unaudited)  (unaudited)  (unaudited)   (unaudited)
                                                               £'000        £'000        £'000         £'000

Toiletries                                                    18,783          852       21,878           503
Cosmetics                                                      6,937            3        6,278         (526)

Total                                                         25,720                    28,156
Operating profit/(loss) before exceptional items                              855                       (23)
Exceptional items                                                           (244)                      (677)

Operating profit/(loss)                                                       611                      (700)
Finance income                                                                 21                         15
Finance costs                                                               (251)                      (289)

Profit/(loss) before taxation                                                 381                      (974)
Taxation                                                                    (126)                        279

Profit/(loss) for the period                                                  255                      (695)

Exceptional costs relate to non-operational costs associated with the end of
Cosmetics' M&S contract (2006: Group reorganisation costs.)

Note 3 Earnings/(loss) per share

                                                      28 weeks ended      28 weeks ended      12 months ended
                                                         13 Jan 2007          7 Jan 2006         30 June 2006
                                                         (unaudited)         (unaudited)            (audited)

(a) Basic and diluted
Profit/(loss) for the period (£'000)                             255               (695)                (268)
Basic weighted average number of
ordinary shares in issue during the period                11,256,416          11,256,416           11,256,416
Dilutive potential ordinary shares:
executive share options                                            -                   -                    -
                                                          11,256,416          11,256,416           11,256,416

Earnings/(loss) per share                                       2.3p              (6.2p)               (2.4p)

Basic earnings/(loss) per share has been calculated by dividing the profit/
(loss) for each financial period by the weighted average number of ordinary
shares in issue in the period.  There is no difference for any of the reported
periods between the basic net profit/(loss) per share and the diluted net profit
/(loss) per share.

  (b) Adjusted earnings/(loss) per share
Profit/(loss) for the period (£'000)                             255               (695)               (268)
Add back: Exceptional items                                      244                 677                 563
Notional tax charge on exceptional items                        (73)               (203)               (169)

Adjusted profit/(loss)
before exceptional items                                         426               (221)                 126

Basic weighted average number of
ordinary shares in issue during the period                11,256,416          11,256,416          11,256,416
Dilutive potential ordinary shares:
executive share options                                            -                   -                   -

                                                          11,256,416          11,256,416          11,256,416

Adjusted earnings/(loss) per share                              3.8p              (2.0p)                1.1p

Profit/(loss) for the period £0.26m (2006: interim loss £0.70m; full-year loss
£0.27m) is shown after deducting £0.24m (2006: interim £0.68m; full-year £0.56m)
in respect of exceptional reorganisation and other items.  Adjusted earnings per
share has been calculated by dividing the adjusted profit of £0.43m (after
allowing for the potential tax credit on exceptional items) (2006: interim loss
£0.22m; full-year profit £0.13m) by the weighted average number of shares in
issue at 13 January 2007, 7 January 2006 and 30 June 2006 respectively.

Note 4 Dividends

The Directors have decided not to declare an interim dividend payment.

Note 5 Non-current assets held for sale
                                                               As at               As at                As at
                                                         13 Jan 2007          7 Jan 2006         30 June 2006
                                                         (unaudited)         (unaudited)            (audited)
                                                               £'000               £'000                £'000

Property, plant and equipment                                    854                   -                   51

Assets held for sale are included within the total assets of the Group's
Toiletries segment.  The assets held for sale incorporate the land and buildings
at the Group's separate warehousing facility.  The sale is expected to be
completed within three months of the balance sheet date.

Note 6 Announcement of results

These results were announced to the London Stock Exchange on 2 March 2007.  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.

Independent Review Report to Swallowfield plc

We have been instructed by the Company to review the financial information set
out on pages 3 to 8.  We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.  This report is made
solely to the Company having regard to guidance contained in Bulletin 1999/4 '
Review of interim financial information' issued by the Auditing Practices Board.
  To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our work, for this report,
or for the conclusions 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 AIM
Rules.  The Directors are also responsible for ensuring that the accounting
policies and presentation applied to the interim figures are consistent with
those which will be adopted in the annual accounts having regard to the
accounting standards applicable to such accounts.

Review work performed

We conducted our review having regard to guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom.  A review
consists principally of making enquiries of management and applying analytical
procedures to the financial information and underlying financial data and, based
thereon, assessing whether the accounting polices 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 that an audit performed in
accordance with International Standards on Auditing (UK & Ireland) 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 weeks ended
13 January 2007.

RSM Robson Rhodes LLP
Chartered Accountants
Bristol, England
1 March 2007

Corporate Directory

Directors                                                Registrars

S J Winning (Chairman)                                   Computershare Investor Services PLC
I A Mackinnon (Chief Executive Officer)                  PO Box 82
J M Fletcher (Group Sales and Marketing Director)        The Pavilions
P R V Houston (Group Finance Director)                   Bridgwater Road
R T Organ (Non-executive Director)                       Bristol
J A Wardell (Non-executive Director)                     BS99 7NH

Secretary                                                Auditors

A A Farrer-Halls FCCA                                    RSM Robson Rhodes LLP
                                                         10 Queen Square
                                                         BS1 4NT

Registered Office                                        Solicitors

Swallowfield House                                       Osborne Clarke
Station Road                                             2 Temple Back East
Wellington                                               Temple Quay
Somerset                                                 Bristol
TA21 8NL                                                 BS1 6EG

Stockbrokers and NOMAD                                   Bankers

Corporate Synergy plc                                    Barclays Bank plc
Colston Tower                                            Park House
Colston Street                                           Newbrick Road
Bristol                                                  Bristol
BS1 4RD                                                  BS34 8TN

Registered Number                                        Website Address


Financial Calendar

Preliminary announcement of 2007 results                 September 2007
2007 Annual General Meeting                              November 2007

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