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Swallowfield PLC (BAR)

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Wednesday 31 January, 2007

Swallowfield PLC

Trading Statement

Swallowfield PLC
31 January 2007

                                Swallowfield plc

                          Strategic and Trading Update



Swallowfield plc announces an update on trading for the first six months of the
financial year and the results of the review of its Cosmetics Division.



Trading Update:

Trading in the first half of the current financial year was ahead of our
expectations with the business having more seasonality than in the recent past.
This gives us confidence to leave our expectations for the year to 30 June 2007
broadly unchanged. Compared with the same period last year, improved focus on
our core skills has allowed us to eliminate some unprofitable turnover and
improve gross margins. The cost containment measures introduced in the last 12
months have come through as anticipated.



Cosmetics Division:

In our update of 14 September 2006, we explained a complete review of the
Cosmetics division was being undertaken in the context of a 12% hurdle level of
return on assets before corporate cost allocations. This has now been completed.



Over the last year, we have successfully replaced in the region of 70% of the
lost M&S cosmetics business with other customers but, at the same time, have
taken clear steps to reduce the capital employed and improve overall
productivity. On this basis, we are confident that the division will meet or
exceed the hurdle rate of return in our next full financial year. The important
actions in this regard are:



•         At today's date we have completed actions to reduce annual overheads
by over £0.6m and have concrete plans in place to make further ongoing annual
reductions of £0.3m before the end of the current financial year. As part of
these reductions, we will have reduced the number of non line employees by close
to 30%.

•         A reduction in annual labour costs of £0.3m through investment of
£0.2m in automated packing lines.  We are examining other opportunities to
improve competitiveness through the use of automation.

•         Continued development of the Far Eastern manufacturing agreement
mentioned in our update of 14 September 2006.  We will increase the proportion
of our goods manufactured in the Far East and we will use this competitive
advantage to develop new business opportunities.

•         A reduction in inventory levels of £1m following final shipment of the
M&S stock - full payment of which will be received within the next few weeks.
Further inventory reductions are under examination.

•         A reduction in our property footprint at Bideford from five buildings
to three. We will exit one short leasehold building, with 7 months remaining on
the lease, before the end of February. The freehold property, having a book
value of approximately £0.2m, will be disposed of in around 12 months time when
logistics and alternatives have been arranged.

•         Establishment of a low cost filling operation in Eastern Europe which
is complementary to our UK operations for both cosmetics and other business
areas.  We will update shareholders in due course.



This approach is intended to enhance shareholder value, avoiding the major
write-offs that would be associated with any precipitate action.  Restructuring
costs of £0.2m associated with this plan, will be charged in the first half.
Our plan will result in a more flexible operation, capable of responding to
growth opportunities whilst allowing further controlled downsizing if that were
necessary.



The board has determined that the right strategy for the Group is to improve
shareholder value through a combination of profitability enhancement and robust
asset management and is generally seeking to reduce its overall capital employed
and property investment.



We expect the interim results for the half year to 12 January 2007 to be
published on 1 March 2007.



For Further Information:



Swallowfield plc:
Ian Mackinnon                Chief Executive Officer          +44 (0)1823 662241
Peter Houston                Finance Director                 +44 (0)1823 662241
Corporate Synergy plc:
Barrie Newton                                                 +44 (0)1225 424666
Mike Coe                                                     +44 (0) 117 9330020



Swallowfield plc: 'Creating and Delivering Solutions for our Customers' Success'



Notes to Editors:

Swallowfield formulates, manufactures and packages fine quality household goods,
toiletries and cosmetics across the whole spectrum of consumer markets for own
label and brand names.


                      This information is provided by RNS
            The company news service from the London Stock Exchange                                                                                                                                                            

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