TIDMSWL
RNS Number : 9891X
Swallowfield PLC
28 February 2017
Swallowfield plc
("Swallowfield" or the "Group")
Interim results
Swallowfield plc, a market leader in the development,
formulation, and supply of personal care and beauty products,
including its own portfolio of brands, announces its interim
results for the 28 weeks ended 7 January 2017
GBPm unless otherwise stated 2017 2016
------------------------------- --------- ---------
Reported results (1)
------------------------------- --------- ---------
Revenue GBP39.7m GBP27.5m
------------------------------- --------- ---------
Revenue (constant currency) GBP37.9m -
(2)
------------------------------- --------- ---------
Adjusted operating profit GBP2.54m GBP0.64m
(1)
------------------------------- --------- ---------
Adjusted basic earnings per
share (1) 11.3p 4.1p
------------------------------- --------- ---------
Statutory results
------------------------------- --------- ---------
Revenue GBP39.7m GBP27.5m
------------------------------- --------- ---------
Operating profit GBP2.20m GBP1.19m
------------------------------- --------- ---------
Basic earnings per share 9.7p 8.5p
------------------------------- --------- ---------
Total dividend per share 1.7p 0.8p
------------------------------- --------- ---------
Net debt GBP5.5m GBP4.9m
------------------------------- --------- ---------
(1) Adjusted operating profit and adjusted earnings per share
are calculated before exceptional items.
(2) Revenue translated at 2016 exchange rates.
Financial highlights
-- Strong revenue growth of +44% (+12% excluding The Brand
Architekts acquisition) to GBP39.7m (2016: GBP27.5m), sterling
weakness benefits the top-line with revenue growth on a constant
currency basis of +38% and +7% respectively.
-- Owned brands now representing 25% of revenues.
-- Adjusted operating profit increased by 297% year on year to GBP2.54m (2016: GBP0.64m).
-- Adjusted EPS increased by 176% year on year to 11.3 pence (2016: 4.1 pence).
-- Net Debt of GBP5.5m (2016: GBP4.9m), inclusive of GBP2.0m
additional term-loan funding to support acquisition.
-- Interim dividend increased by 113% to 1.7 pence (2016: 0.8 pence).
Operational highlights
-- The Brand Architekts acquisition now successfully integrated
with continuing strong growth momentum driven by several successful
new product launches and excellent sell through of Christmas
gifting ranges.
-- Original Swallowfield brands also showing strong growth and extending retail distribution.
-- Manufacturing business performing robustly underpinned by
successful launches for global brand owners.
-- Strong financial performance allowing investment in brand
support and organisational capability whilst still delivering
significantly improved profitability.
-- Cost optimisation projects progressing as planned.
Brendan Hynes, Non-executive Chairman, commented:
"The first half year has seen further, significant progress made
in repositioning Swallowfield plc as a stronger, more profitable
business with greater control over its own destiny. The completion
of the transformational acquisition of The Brand Architekts,
combined with the strong performance of our Manufacturing business,
means Swallowfield is well positioned for the future."
Chris How, Chief Executive, commented:
"It has been a very successful first half. We are delighted with
the way that the Swallowfield and Brand Architekts teams have
worked together to further accelerate growth. The exciting
potential of combining our resources identified at the time of
acquisition is now being realised. We are also very pleased that
our capability within the manufacturing business to satisfy the
innovation, service and quality requirements of our customer base
is being rewarded with good growth and a steady stream of new
business wins and contract renewals."
For further information please contact:
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Swallowfield plc
----------------------- -------------------------- --------------
01823 662
Chris How Chief Executive Officer 241
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01823 662
Mark Warren Group Finance Director 241
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0207 496
Alex Price N+1 Singer 3000
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Josh Royston / Hilary
Buchanan Alma PR 07780 901979
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Business review
Revenue showed growth of 44% at GBP39.7m (2016: GBP27.5m) and,
12% excluding the acquisition of The Brand Architekts which
completed on 27 June 2016. The weakness of Sterling has increased
sales revenue by GBP1.8m, with GBP1.1m of this coming from US
dollar denominated sales and GBP0.7m from the Euro, so revenue
growth on a constant currency basis would have been 38%, and 7%
excluding the acquisition.
Direct contribution margins - defined as net sales less
materials, direct labour, and other direct costs - increased to
31.7% (prior year 31.3%). The favourable currency impact on revenue
has been offset by an adverse currency impact on costs of goods,
reflecting the Group's natural hedge profile, plus inflationary
pressures on GBP purchases. This maintained position reflects the
success of our Product Category Prioritisation, the introduction of
a number of innovative new products in our manufacturing business
and the contribution of our portfolio of Swallowfield owned
brands.
The overall re-shaping of the business towards stronger growth
and margins has enabled us to deliver a three-fold increase in
adjusted operating profit at a time when we have also increased
investment in organisational capability and brand support.
The net effect is that the Group made an adjusted operating
profit of GBP2.54m (2016: GBP0.64m). Adjusted profit before tax
increased to GBP2.38m (2016: GBP0.51m).
The exceptional item of GBP0.34m in the current period relates
to "one off" costs incurred in the acquisition of The Brand
Architekts Ltd. In 2016 there was an exceptional credit of GBP0.55m
relating to the closure to future accrual of the defined benefit
pension scheme.
The overall effective rate of Group taxation for the period was
19.6% (2016: 10.0%) of pre-tax profits. The prior year benefitted
from brought-forward UK tax losses which were fully utilised in the
last financial year. The current year tax charge reflects standard
UK and the Czech Republic rates of taxation.
This results in adjusted earnings per share of 11.3p (2016:
4.1p).
Progress vs strategy
'Creating for Tomorrow, Delivering for Today'
Since 2014, we have been successfully executing on the four
strategic pillars of 'Creating for Tomorrow' represented by:
-- Product category focus
-- Core business innovation
-- Swallowfield owned brands
-- Cost base optimisation
The acquisition of The Brand Architekts in June 2016 has
accelerated the owned brands pillar and brought critical mass to
our owned brands portfolio, representing 25% of Group revenues in
the period. We have also introduced two reportable business
segments, manufacturing and brands, so have therefore evolved the
strategic pillars of 'Creating for Tomorrow' to reflect this
change.
Within our manufacturing business, which remains focused on the
development, formulation and production of quality products for
many of the world's leading personal care and beauty brands the
three pillars have evolved to:
-- Innovation, quality and service to global brand owners
-- Drive category focus
-- Cost base optimisation
Within our owned brands business, the three pillars will
become:
-- New product development (NPD)
-- Leverage Swallowfield resources
-- International Expansion
The following is a review of progress against these evolved
strategic pillars in the period:
Owned brands
The integration, and indeed performance, of The Brand Architekts
has been very positive. The team at Teddington is settled and
well-focused on continuing the excellent growth story that
attracted us prior to the acquisition, and the ability to bring
relevant new products to retailer shelves at pace remains hugely
impressive. Pre-acquisition growth momentum is continuing and even
further improving with all key brands in growth. The sell through
of Christmas gift ranges was particularly strong. The founders are
also working extremely well in their consultancy capacity.
Original Swallowfield owned brands (Real Shaving Company, Bagsy,
MR., Tru) are also performing well, showing a combined revenue
growth of c.50%, albeit from a modest base. We have relocated the
management of these brands to our Teddington office ahead of
schedule and they are benefitting from being managed in such a
brand and retailer focused environment.
New product development (NPD)
Fast paced NPD that quickly identifies and responds to market
trends is a core element of The Brand Architekts business model. We
are pleased that this responsiveness continues as part of the
Swallowfield Group and that retailer appetite remains as high as
ever. 35 new products were launched in the reporting period across
9 different brands. Particular successes include the indulgent
Senspa Thai Rituals and Argan+ Moroccan Spice ranges and the more
performance driven Dr. Ceuticals Foot Rescue SOS cream and Good
Things Pore-fectly Clear range. Impressively a new brand, Hill
& Noble hand-care, was created, designed, produced and shipped
within 12 weeks to realise an opportunity in a leading national
retailer.
Progress also continues on the original Swallowfield brands. The
Bagsy Savannah Miller collection was launched in November. The Real
Shaving Company new gift range was launched and sold well over the
Christmas period which contributed to a very positive year on year
sales growth. MR., our premium male hair loss brand, has doubled
its rate of sale on a year on year basis and looks set to continue
its strong growth trend on the back of some innovative digital
marketing activity. In the value sector, our small portfolio of
brands such as Tru, are also showing significant year on year
growth (from modest beginnings) and we have extended retail
distribution.
Leverage Swallowfield resources
At the time of acquisition of The Brand Architekts, we
identified a number of opportunities to either drive revenue growth
or create savings by leveraging the existing resources and
capabilities of the parent business. We are pleased to have started
to realise many of these opportunities in the first six months of
operating together.
The first Swallowfield produced products (Body Sprays and
Fragrance for Dirty Works) are now on shelf. Several others will
follow in the second half. Much work has been completed to build
improved web sites and e-commerce capability for key acquired
brands such as Dirty Works, Kind Natured and Quick Fix, we have
also consolidated PR agencies across the brand portfolio to create
better quality coverage at a lower cost. Margin improvement
programmes with pre-existing suppliers to Brand Architekts are in
process and are expected to bring benefits in H2 and beyond. We are
leveraging our materials and packaging sourcing network (including
our China purchasing office), our knowledge of best practice
production processes, and our expertise in product design and
formulation to drive cost improvements. Further, we have identified
quite significant annual savings in freight and duty on shipments
from China by combining our expertise and our buying power.
International Expansion
Growth in international revenues has been strong, led in
particular by export sales to the USA and Turkey. Across the full
portfolio of our brands, international sales now account for 23% of
total and we are investing to grow this further still. We have put
in place dedicated resource to grow this area and are pleased to
have opened new distributors in the period in Austria, Netherlands,
and Chile. In February and March respectively, we are participating
at major trade fairs in Monaco and Bologna, with an expectation of
building further new business.
Manufacturing
Innovation
Our manufacturing business relies on our ability to bring
innovative new products to our customer base. In the period, we
introduced 92 Swallowfield developed new products and expect a
similar amount to be launched in the second half. This level of
innovation activity compares favourably to prior year. Volumes on
our innovative Plastic aerosol products continued to grow in the
period and we are pleased to be working on two projects which may
see the technology introduced by other customers in the future.
Drive category focus
In the reporting period, we have seen particularly strong growth
in Personal Care Aerosols, Cosmetic Pencils, and Premium Liquids.
In each case, recently won contracts to support new product
launches have been a major contributor, underlining our position as
a reliable partner for major global brand owners. The success of
our partnership with a major European cosmetics company has
supported a project which is now in progress to increase wood
pencil capacity and cost efficiency to meet growing demand. Further
improvements in capacity and cost competitiveness are being planned
with particular focus on Personal Care aerosols.
Cost base optimisation
Energy saving improvements continue at the Wellington site and
line efficiency programmes continue to contribute to margin
improvement across all sites. The investment in pencil automation
in Bideford decreases cost per unit and increases capacity. The
flexibility of our site footprint has enabled us to accommodate the
needs of a major customer who needed to transfer sourcing from a
dollar denominated supply chain out of China to a euro-denominated
supply chain.
Work is ongoing to assess in-house production of selected Brand
Architekts products and is expected to bring financial benefits in
FY18.
Net debt and cash flow
Net debt increased from a year-end position of GBP4.3m to
GBP5.5m (2016: GBP4.9m). This includes an additional GBP2m
five-year term loan facility taken out to support the acquisition
of The Brand Architekts Ltd. The components of working capital
reflect the impact of the four major product launches in our
manufacturing business across the June year-end and into this first
half, plus the statement of financial position now includes The
Brand Architekts working capital components. The increase in tax
paid reflects the payment of The Brand Architekts prior-year
corporation tax, and the re-introduction of quarterly instalments
across the enlarged Group.
Financing costs of GBP0.16m (2016: GBP0.12m) comprised interest
expense of GBP0.09m (2016: GBP0.07m) plus a pension scheme notional
finance charge of GBP0.07m (2016: charge GBP0.05m).
Capital expenditure was GBP0.5m which was GBP0.2m below
depreciation. We expect capital expenditure to be broadly in line
with depreciation in this financial year as we have made a number
of investments to improve line efficiencies and support incremental
new customer contracts which will impact the second-half.
Defined benefit pension scheme
The defined benefit pension scheme underwent its last triennial
valuation as of 5 April 2014. The deficit on a statutory funding
basis was GBP1.3m and the Group entered into a revised deficit
recovery plan and schedule of contributions in July 2015. The
deficit reduction payment will be GBP108k per annum (previously
GBP111.5k per annum) for ten years. The scheme was subsequently
closed to future accrual with effect from 31 December 2015.
For accounting purposes at 7 January 2017, the Group recognised
under IAS19 'employee benefits', a deficit of GBP8.75m (25 June
2016: GBP4.50m). The Accounting Standards require the discount rate
to be based on yields on high quality (usually AA-rated) corporate
bonds of appropriate currency, taking into account the term of the
relevant pension scheme's liabilities. Corporate bond indices are
used as a proxy to determine the discount rate. At the reporting
date, the yields on bonds of all types were lower than they were at
25 June 2016. This has resulted in lower discount rates being
adopted for accounting purposes compared to last year, which has
been coupled with an increase in expectations of long term
inflation, with the combination materially increasing the fair
value of the scheme liabilities, with the strong investment return
performance only partially mitigating. This has translated into an
increased liability under the IAS19 methodology.
Dividends
The Board is pleased to announce that it has approved an interim
dividend of 1.7 pence per share (2016: 0.8 pence). This dividend
will be paid on 26 May 2017 to shareholders on the register on 5
May 2017. The Shares will go ex-dividend on 4 May 2017.
The Directors' intention is to have a progressive dividend
policy that aligns future dividend payments to the underlying
earnings and cash flow of the business, taking in to account the
gearing and the operational requirements of the business.
Outlook
We have delivered another significant improvement in performance
in the first half year helped by the acquisition of The Brand
Architekts and four major new product launches in our Manufacturing
business.
We expect the strong momentum in our branded business to
continue, supported by a steady stream of new products, that signal
not only continuing innovation flow, but also continued strong
support for our brands across our retail customers.
In our Manufacturing business, the outlook is solid with a
steady flow of new contract wins and launches. This needs to be
balanced against the expected normalisation of volumes in the
second half of this year and the first half of next year, having
had the benefit of four major launches during calendar 2016, which
will be hard to repeat and which have created strong
comparators.
In line with the Industry, both business segments are being
challenged by increasing material and packaging costs resulting
from the fall in sterling and global inflationary pressures. Whilst
this does bring some uncertainty in the months ahead, we remain
confident that our strong overall trading momentum will compensate
in the current year.
We therefore expect to see further sales and profitability
growth for the full year, as planned.
Having successfully integrated Brand Architekts, we continue to
be alert to further acquisition opportunities should they offer the
potential to build incremental shareholder value.
Group Statement of Comprehensive Income
28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
Continuing operations Notes GBP'000 GBP'000 GBP'000
Revenue 2 39,708 27,507 54,455
Cost of sales (32,264) (23,538) (46,393)
------------------------------- ------ ------------ ------------ ----------
Gross profit 7,444 3,969 8,062
Commercial and administrative
costs (4,905) (3,333) (6,269)
------------------------------- ------ ------------ ------------ ----------
Operating profit
before exceptional
items 2,539 636 1,793
Exceptional items 3 (343) 554 645
------------------------------- ------ ------------ ------------ ----------
Operating profit 2,196 1,190 2,438
Finance income 1 - 55
Finance costs 4 (163) (123) (219)
Profit before taxation 2,034 1,067 2,274
Taxation (398) (107) (273)
------------------------------- ------ ------------ ------------ ----------
Profit after taxation 1,636 960 2,001
Other comprehensive
(loss) / income for
the period:
Re-measurement of
defined benefit liability (3,469) (1,290) (2,160)
Items that will be
reclassified subsequently
to profit or loss
Exchange differences
on translating foreign
operations 79 70 162
Gain on available
for sale financial
assets 256 93 170
Other comprehensive
(loss) for the period (3,134) (1,127) (1,828)
------------------------------- ------ ------------ ------------ ----------
Total comprehensive
(loss) / income for
the period (1,498) (167) 173
=============================== ====== ============ ============ ==========
Profit attributable
to:
------------------------------- ------ ------------ ------------ ----------
Equity shareholders 1,636 960 2,001
------------------------------- ------ ------------ ------------ ----------
Total comprehensive
(loss) / income attributable
to:
------------------------------- ------ ------------ ------------ ----------
Equity shareholders (1,498) (167) 173
------------------------------- ------ ------------ ------------ ----------
Earnings per share
- basic 5 9.7p 8.5p 17.7p
- diluted 5 9.5p 8.3p 17.4p
Dividend
Paid in period (GBP'000) 388 226 317
Paid in period (pence
per share) 2.3p 2.0p 2.8p
Proposed (GBP'000) 6 287 90 388
Proposed (pence per
share) 1.7p 0.8p 2.3p
Group Statement of Changes in Equity
Share Share Available Exchange Net Retained Total
Capital Premium for Reserve defined Earnings Equity
Sale benefit
Financial liability
Assets
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- --------- ----------- --------- ----------- ---------- --------
Balance as
at June 2016 566 3,830 416 (290) (2,197) 10,467 12,792
--------------------- --------- --------- ----------- --------- ----------- ---------- --------
Dividends - - - - - (388) (388)
Issue of new
shares 278 7,914 - - - - 8,192
Share based
payments - - - - - 28 28
Transactions
with owners 278 7,914 - - - (360) 7,832
--------------------- --------- --------- ----------- --------- ----------- ---------- --------
Profit for
the period - - - - - 1,636 1,636
Other comprehensive
income:
Re-measurement
of defined
benefit liability - - - - (3,469) - (3,469)
Exchange difference
on translating
foreign operations - - - 79 - - 79
Gain on available
for sale financial
assets - - 256 - - - 256
Total comprehensive
income for
the year - - 256 79 (3,469) 1,636 (1,498)
--------------------- --------- --------- ----------- --------- ----------- ---------- --------
Balance as
at 7 January
2017 844 11,744 672 (211) (5,666) 11,743 19,126
--------------------- --------- --------- ----------- --------- ----------- ---------- --------
Balance as
at June 2015 566 3,830 246 (452) (37) 8,771 12,924
--------------------- ---- ------ ---- ------ -------- ------ --------
Dividends - - - - - (226) (226)
Share based
payments - - - - - 8 8
Transactions
with owners - - - - - (218) (218)
--------------------- ---- ------ ---- ------ -------- ------ --------
Profit for
the period - - - - - 960 960
Other comprehensive
income:
Re-measurement
of defined
benefit liability - - - - (1,290) - (1,290)
Exchange difference
on translating
foreign operations - - - 70 - - 70
Gain on available
for sale financial
assets - - 93 - - - 93
Total comprehensive
income for
the year - - 93 70 (1,290) 960 (167)
--------------------- ---- ------ ---- ------ -------- ------ --------
Balance as
at 9 January
2016 566 3,830 339 (382) (1,327) 9,513 12,539
--------------------- ---- ------ ---- ------ -------- ------ --------
Balance as
at June 2015 566 3,830 246 (452) (37) 8,771 12,924
--------------------- ---- ------ ---- ------ -------- ------- --------
Dividends - - - - - (317) (317)
Share based
payments - - - - - 12 12
Transactions
with owners - - - - - (305) (305)
--------------------- ---- ------ ---- ------ -------- ------- --------
Profit for
the year - - - - - 2,001 2,001
Other comprehensive
income:
Re-measurement
of defined
benefit liability - - - - (2,160) - (2,160)
Exchange difference
on translating
foreign operations - - - 162 - - 162
Gain on available
for sale financial
assets - - 170 - - - 170
Total comprehensive
income for
the year - - 170 162 (2,160) 2,001 173
--------------------- ---- ------ ---- ------ -------- ------- --------
Balance as
at June 2016 566 3,830 416 (290) (2,197) 10,467 12,792
--------------------- ---- ------ ---- ------ -------- ------- --------
Group Statement of Financial Position
As at As at As at
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant
and equipment 10,754 11,087 10,852
Intangible assets 9,231 1,153 1,167
Deferred tax assets 1,472 600 710
Investments 816 483 560
--------------------------- ------ ------------ ------------ ----------
Total non-current
assets 22,273 13,323 13,289
--------------------------- ------ ------------ ------------ ----------
Current assets
Inventories 12,096 7,521 9,043
Trade and other
receivables 15,892 10,521 15,358
Cash and cash equivalents 825 928 798
Current tax receivable 166 66 104
--------------------------- ------ ------------ ------------ ----------
Total current assets 28,979 19,036 25,303
--------------------------- ------ ------------ ------------ ----------
Total assets 51,252 32,359 38,592
--------------------------- ------ ------------ ------------ ----------
LIABILITIES
Current liabilities
Trade and other
payables 18,728 15,560 20,540
Deferred consideration 8 1,850 - -
Interest-bearing
loans and borrowings 529 139 141
Current tax payable 426 14 122
--------------------------- ------ ------------ ------------ ----------
Total current liabilities 21,533 15,713 20,803
--------------------------- ------ ------------ ------------ ----------
Non-current liabilities
Interest-bearing
loans and borrowings 1,783 501 442
Post-retirement
benefit obligations 9 8,745 3,550 4,495
Deferred tax liabilities 65 56 60
Total non-current
liabilities 10,593 4,107 4,997
--------------------------- ------ ------------ ------------ ----------
Total liabilities 32,126 19,820 25,800
--------------------------- ------ ------------ ------------ ----------
Net assets 19,126 12,539 12,792
--------------------------- ------ ------------ ------------ ----------
EQUITY
Share capital 844 566 566
Share premium 11,744 3,830 3,830
Revaluation of investment
reserve 672 339 416
Exchange reserve (211) (382) (290)
Re-measurement of
defined benefit
liability (5,666) (1,327) (2,197)
Retained earnings 11,743 9,513 10,467
--------------------------- ------ ------------ ------------ ----------
Total equity 19,126 12,539 12,792
--------------------------- ------ ------------ ------------ ----------
Group Cash Flow Statement
28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Cash flow from operating
activities
Profit before taxation 2,034 1,067 2,274
Depreciation 661 615 1,152
Amortisation 123 32 67
Loss on disposal of
property, plant and
equipment - - 41
Defined benefit pension
scheme curtailment gain - (774) (870)
Finance income (1) - (55)
Finance cost 163 123 219
(Increase) in inventories (637) (1,028) (2,550)
Decrease / (increase)
in trade and other receivables 1,974 30 (4,956)
(Decrease) / increase
in trade and other payables (2,572) 1,679 7,374
Contributions to defined
benefit plan (54) (209) (321)
Current service cost
of defined benefit plan - 206 305
--------------------------------- ------ ------------ ------------ ----------
Cash generated from
operations 1,691 1,741 2,680
--------------------------------- ------ ------------ ------------ ----------
Finance expense paid (89) (71) (134)
Taxation (paid) (724) (55) (10)
--------------------------------- ------ ------------ ------------ ----------
Net cash flow from operating
activities 878 1,615 2,536
--------------------------------- ------ ------------ ------------ ----------
Cash flow from investing
activities
Finance income received 1 - 55
Purchase of property,
plant and equipment (432) (871) (1,181)
Purchase of intangibles - (4) (34)
Purchase of subsidiary 8 (9,378) - -
Net cash flow from investing
activities (9,809) (875) (1,160)
--------------------------------- ------ ------------ ------------ ----------
Cash flow from financing
activities
Proceeds from new loan 2,000 - -
(Repayment) / proceeds
of invoice discounting
facility (575) 346 (272)
Repayment of loans (271) (80) (137)
--------------------------------- ------ ------------ ------------ ----------
Net cash proceeds /
(repayment) of borrowings 1,154 266 (409)
Issue of new share capital 8,192 - -
Dividends paid (388) (226) (317)
--------------------------------- ------ ------------ ------------ ----------
Net cash flow from financing
activities 8,958 40 (726)
--------------------------------- ------ ------------ ------------ ----------
Net increase in cash
and cash equivalents 27 780 650
Cash and cash equivalents
at beginning of period 798 148 148
--------------------------------- ------ ------------ ------------ ----------
Cash and cash equivalents
at end of period 825 928 798
--------------------------------- ------ ------------ ------------ ----------
Notes to the Accounts
Note 1 Basis of preparation
The Group has prepared its interim results for the 28 week
period ended 7 January 2017 in accordance with the recognition and
measurement principles of International Financial Reporting
Standards (IFRS) as adopted by the European Union and also in
accordance with the recognition and measurement principles of IFRS
issued by the International Accounting Standards Board.
The Directors have considered trading and cash flow forecasts
prepared for the Group, and based on these, and the confirmed
banking facilities, are satisfied that the Group will continue to
be able to meet its liabilities as they fall due for at least one
year from the date of approval of the Interim Report. On this
basis, they consider it appropriate to adopt the going concern
basis in the preparation of these accounts.
As permitted, this interim report has been prepared in
accordance with the AIM rules and not in accordance with IAS34
'Interim Financial Reporting'.
These interim financial statements do not constitute full
statutory accounts within the meaning of section 434 of the
Companies Act 2006 and are unaudited. The unaudited interim
financial statements were approved by the Board of Directors on 27
February 2017.
The consolidated financial statements are prepared under the
historical cost convention as modified to include the revaluation
of certain non-current assets. 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 June 2017.
The statutory accounts for the year ended June 2016, 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 Section 498(2) or
498(3) of the Companies Act 2006.
Note 2 Segmental analysis
The Group is a market leader in the development, formulation,
and supply of personal care and beauty products.
The reportable segments of the Group are aggregated as
follows:
-- Brands - we leverage our skilled resources to develop and
market a growing portfolio of Swallowfield owned and managed
brands. These include organically developed Bagsy, MR. and Tru,
plus the acquisitions of The Real Shaving Company (in 2015) and the
portfolio of brands included in The Brand Architekts acquisition,
acquired at the start of this financial year. This latter
acquisition brings critical mass to our owned brands and has
therefore changed the segmental analysis for this year.
-- Manufacturing - the development, formulation and production
of quality products for many of the world's leading personal care
and beauty brands.
-- Eliminations and Central Costs. Other Group-wide activities
and expenses, including defined benefit pension costs (closed
defined benefit scheme), LTIP expenses, interest, taxation and
eliminations of intersegment items, are presented within
'Eliminations and central costs'.
This is the basis on which the Group presents its operating
results to the Executive Directors, which is considered to be the
CODM for the purposes of IFRS 8.
No comparative figures are shown as it is only since the
acquisition of The Brand Architekts that this segmentation has been
adopted. Prior to this brand performance was not considered to be
sufficiently material to be separately reported.
a) Principal measures of profit and loss - Income Statement
segmental information:
28 weeks ended 7 Brands Manufacturing Eliminations Total
January 2017 and Central
Costs
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------------------- -------------- ------------------ --------------------
UK revenue 7,543 17,283 - 24,826
International revenue 2,289 12,593 - 14,882
----------------------- --------------------- -------------- ------------------ --------------------
Revenue - External 9,832 29,876 - 39,708
Revenue - Internal - 605 (605) -
----------------------- --------------------- -------------- ------------------ --------------------
Total revenue 9,832 30,481 (605) 39,708
----------------------- --------------------- -------------- ------------------ --------------------
Profit/(loss) from
operations 1,845 2,104 (1,410) 2,539
Exceptional costs - - (343) (343)
Net borrowing costs - - (162) (162)
----------------------- --------------------- -------------- ------------------ --------------------
Profit/(loss) before
taxation 1,845 2,104 (1,915) 2,034
----------------------- --------------------- -------------- ------------------ --------------------
Tax charge (398) (398)
----------------------- --------------------- -------------- ------------------ --------------------
Profit/(loss) for
the period 1,845 2,104 (2,313) 1,636
----------------------- --------------------- -------------- ------------------ --------------------
The segmental Income Statement disclosures are measured in
accordance with the Group's accounting policies as set out in note
1.
Inter segment revenue earned by Manufacturing from sales to
Brands is determined on normal commercial trading terms as if
Brands were any other third party customer.
All defined benefit pension costs and LTIP expenses are
recognised for internal reporting to the CODM as part of Group-wide
activities and are included within 'Eliminations and central costs'
above. Other costs, such as Group insurance and auditors'
remuneration which are incurred on a Group-wide basis are recharged
by the head office to segments on a reasonable and consistent basis
for all periods presented, and are included within segment results
above.
b) Other Income Statement segmental information
The following additional items are included in the measures of
profit and loss reported to the CODM and are included within (a)
above:
28 weeks ended 7 January Brands Manufacturing Eliminations Total
2017 and Central
Costs
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------------- --------------------- ------------- -----------
Depreciation 18 643 - 661
Amortisation 83 40 - 123
LTIP charges - - 434 434
c) Principal measures of assets and liabilities
The Groups assets and liabilities are managed centrally by the
CODM and consequently there is no reconciliation between the
Group's assets per the statement of financial position and the
segment assets.
d) Additional entity-wide disclosures
The distribution of the Group's external revenue by destination
is shown below:
Geographical segments 28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------ ------------ ----------
UK 24,826 18,510 31,868
Other European Union
countries 11,619 7,593 20,577
Rest of the World 3,263 1,404 2,010
------------ ------------ ----------
39,708 27,507 54,455
------------ ------------ ----------
In the 28 weeks ended 7 January 2017, the Group had two
customers that exceeded 10% of total revenues, being 11.8% and
11.2% respectively. In the 28 weeks ended 9 January 2016, the Group
had one customer that exceeded 10% of total revenues, this being
23.4%.
Note 3 Exceptional items
Under exceptional Items we have recognised costs associated with
The Brand Architekts acquisition which completed on 27 June
2016.
The prior-year reflecting an exceptional curtailment gain,
representing a reduction in liabilities on closure of the defined
benefit pension scheme to future accrual, offset by one-off costs
incurred during the process. This net amount was excluded from
adjusted Group operating profit, as this was a one-off gain and is
unrelated to the underlying performance of the Group.
Note 4 Finance costs 28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------ ------------ ----------
Finance costs
Bank loans and overdrafts 89 71 134
Notional pension scheme
costs 74 52 85
------------ ------------ ----------
163 123 219
------------ ------------ ----------
Note 5 Earnings per share 28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
------------ ------------ -----------
Basic and diluted
Profit for the period
(GBP'000) 1,636 960 2,001
Basic weighted average
number of
ordinary shares in issue
during the period 16,865,401 11,306,416 11,306,416
Diluted number of shares 17,182,330 11,531,535 11,531,535
Basic earnings per share 9.7p 8.5p 17.7p
--------------------------- ------------ ------------ -----------
Diluted earnings per
share 9.5p 8.3p 17.4p
--------------------------- ------------ ------------ -----------
Basic earnings per share has been calculated by dividing the
profit for each financial period by the weighted average number of
ordinary shares in issue in the period. There is a difference at 9
January 2016 and June 2016 between the basic net earnings per share
and the diluted net earnings per share due to the 225,119 share
options awarded. The difference at 7 January 2017 includes the LTIP
share options awarded in July 2016, to give a total of 316,929
share options that could be issued.
Adjusted earnings per share
Profit for the period
(GBP'000) 1,636 960 2,001
Add back: Exceptional
items 343 (554) (650)
Notional tax charge on
exceptional items (69) 56 83
--------------------------- ------------------------- ----------- -----------
Adjusted profit before
exceptional items 1,910 462 1,430
--------------------------- ------------------------- ----------- -----------
Basic weighted average
number of
ordinary shares in issue
during the period 16,865,401 11,306,416 11,306,416
Diluted number of shares 17,182,330 11,531,535 11,531,535
--------------------------- ------------------------- ----------- -----------
Adjusted basic earnings
per share 11.3p 4.1p 12.6p
--------------------------- ------------------------- ----------- -----------
Adjusted diluted earnings
per share 11.1p 4.0p 12.4p
--------------------------- ------------------------- ----------- -----------
Adjusted earnings per share has been calculated by dividing the
adjusted profit (after allowing for the notional tax charge on
exceptional items) by the weighted average number of shares in
issue in the period. There is a difference at 9 January 2016 and
June 2016 between the basic net earnings per share and the diluted
net earnings per share due to the 225,119 share options awarded.
The difference at 7 January 2017 includes the LTIP share options
awarded in July 2016, to give a total of 316,929 share options that
could be issued.
Note 6 Dividends
The Directors have declared an interim dividend payment of 1.7p
per share (2016: Interim: 0.8p; Final: 2.3p).
Note 7 Reconciliation of cash and cash equivalents to movement
in net debt
28 weeks 28 weeks 12 months
ended ended ended
7 Jan 2017 9 Jan 2016 25 June
2016
(unaudited) (unaudited) (audited)
GBP000's GBP000's GBP000's
------------ ------------ ----------
Increase in cash and
cash equivalents in the
period 27 780 650
Net cash outflow / (inflow)
from decrease / (increase)
in borrowings (1,154) (266) 409
------------------------------ ------------ ------------ ----------
Change in net debt resulting
from cash flows (1,127) 514 1,059
Net debt at the beginning
of the period (4,331) (5,390) (5,390)
------------------------------ ------------ ------------ ----------
Net debt at the end of
the period (5,458) (4,876) (4,331)
------------------------------ ------------ ------------ ----------
Note 8 Accounting Policies
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 June 2017.
Acquisition of subsidiary: The Brand Architekts
On 27 June 2016, the Group acquired 100% of the issued share
capital of The Brand Architekts Ltd. The total consideration for
the acquisition along with the fair value of the identified assets
and assumed liabilities is shown below:
Recognised amounts of identifiable assets acquired
and liabilities assumed
Book value Fair Value Provisional
adjustments Fair Value
7 January
2017
GBP000's GBP000's GBP000's
----------- ------------- ------------
Tangible assets
Fixed assets 30 - 30
Inventory 2,416 - 2,416
Trade and other receivables 3,332 - 3,332
Bank and cash balances 832 - 832
Trade and other payables (2,737) - (2,737)
Intangible assets - 6,737 6,737
----------------------------- ----------- ------------- ------------
Sub total 3,873 6,737 10,610
----------------------------- ----------- ------------- ------------
Goodwill - - 1,450
----------------------------- ----------- ------------- ------------
Total Fair Value recognised - 12,060
----------------------------- ----------- ------------- ------------
Net cash paid on acquisition
GBP000's
---------
Purchase of subsidiary (12,060)
Deferred consideration 1,850
Cash on acquisition 832
Net cash paid on acquisition (9,378)
-------------------------------- ---------
The acquisition consideration is subject to a deferred payment
of GBP1.85m based on a margin performance target for the 12 months
immediately following acquisition. Management believe that the
margin target will be achieved and as such the fair value of the
transaction assumes payment of this deferred consideration in full.
The acquisition costs, including due diligence costs, that relate
to the transaction have been expensed as operating costs in
compliance with IFRS3 and shown as exceptional items.
The portfolio of brand names is considered to have an indefinite
life and is tested for impairment annually. This is on the basis
that there is no foreseeable limit on the period of time over which
it is expected to contribute to cash flow. Customer relationships
are amortised on a straight-line basis over ten years.
Goodwill of GBP1.45m has been recognised on acquisition and is
attributable to future product launches and assembled workforce at
point of acquisition.
Note 9 IAS 19 'Employee Benefits'
Expected future cash flows to and from the Scheme:
The Scheme is subject to the scheme funding requirements
outlined in UK legislation. The last scheme funding valuation of
the Scheme was as at 5 April 2014 and revealed a funding deficit of
GBP1.3m. The liabilities of the Scheme are based on the current
value of expected benefit payment cash flows to members of the
Scheme over the next 60 to 80 years. The average duration of the
liabilities is approximately 20 years.
In accordance with the schedule of contributions dated 3 July
2015 the Company is expected to pay contributions to the Scheme to
make good any shortfalls in funding and has agreed to pay GBP108k
per annum for 10 years from 18 July 2015 to eliminate the deficit.
The magnitude of such payments will be reviewed following the next
scheme funding valuation as at April 2017. Prior to July 2015 the
Company was paying GBP111.5k per annum.
In addition, the Company has agreed to meet the cost of
administrative expenses and Pension Protection Fund insurance
premiums for the Scheme.
Payments made by the Company to the Scheme and in respect of
Scheme liabilities were:
28 weeks 28 weeks 12 months
ended ended ended
7 January 9 January 25 June 2016
2017 2016 GBP000's
GBP000's GBP000's
----------- ----------------- --------------
Company pension
contributions - 155 213
Deficit recovery
payments 54 54 108
Scheme administrative
expenses 71 44 101
Pension Protection
Fund premium 240 211 211
----------------------- ----------- ----------------- --------------
Total 365 464 633
----------------------- ----------- ----------------- --------------
The amounts expensed in the Group Statement of Comprehensive
Income were:
28 weeks 28 weeks 12 months
ended ended ended
7 January 9 January 25 June 2016
2017 2016 GBP000's
GBP000's GBP000's
----------- ----------------- --------------
In Operating profit:
Company pension
contributions - 206 305
Scheme administrative
expenses 71 41 86
Pension Protection
Fund premium 120 106 211
----------- ----------------- --------------
191 353 602
In Finance costs:
Unwinding of notional
discount factor 74 52 85
----------------------- ----------- ----------------- --------------
Total 265 405 687
----------------------- ----------- ----------------- --------------
IAS 19 requires a separate valuation of the Scheme on a
different basis to the funding valuation referred to above. The
effects of the application of IAS19 on the statement of financial
position at 7 January 2017 are:
7 January
2017
GBP000's
----------
Increase in pension and other
benefit obligations (4,250)
Decrease in deferred tax 761
Decrease in equity (3,489)
--------------------------------- ----------
The Accounting Standards require the discount rate to be based
on yields on high quality (usually AA-rated) corporate bonds of
appropriate currency, taking into account the term of the relevant
pension scheme's liabilities. Corporate bond indices are often used
as a proxy to determine the discount rate. At the reporting date,
the yields on bonds of all types were lower than they were at June
2016. This has resulted in lower discount rates being adopted for
accounting purposes compared to last year, this was coupled by an
increase in expectations of long term inflation, the combination of
these two factors has translated into an increased liability.
The key assumptions used were:
As at 7 January As at 9 January As at 25 June
2017 2016 2016
---------------- ---------------- --------------
Discount Rate 2.80% 3.85% 3.35%
Rate of inflation
(RPI) 3.45% 3.05% 2.90%
Rate of inflation
(CPI) 2.45% 2.05% 1.90%
The amounts recognised in the Group statement of financial
position were:
As at 7 January As at 9 January As at 25 June
2017 2016 2016
GBP000's GBP000's GBP000's
---------------- ---------------- --------------
Present value of
funded obligations (30,891) (22,975) (24,694)
Fair value of scheme
assets 22,146 19,425 20,199
---------------------- ---------------- ---------------- --------------
(Deficit) (8,745) (3,550) (4,495)
---------------------- ---------------- ---------------- --------------
Note 10 Announcement of results
These results were announced to the London Stock Exchange on 28
February 2017. 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
Introduction
We have been engaged by the Group to review the condensed set of
financial statements in the half-yearly financial report of
Swallowfield plc for the twenty eight weeks ended 7 January 2017
which comprises the Group statement of comprehensive income, the
Group statement of changes in equity, the Group statement of
financial position, the Group cash flow statement and the related
explanatory notes. We have read the other information contained in
the half-yearly financial report which comprises the Chief
Executive's Statement and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Group, in accordance with
International Standard on Review Engagements (UK and Ireland) 2410,
'Review of Interim Financial Information performed by the
Independent Auditor of the Entity' issued by the Auditing Practices
Board. Our review work has been undertaken so that we might state
to the Group those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Group for our review work, for this
report, or for the conclusion we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The AIM rules of the London
Stock Exchange require that the accounting policies and
presentation applied to the financial information in the
half-yearly financial report are consistent with those which will
be adopted in the annual accounts having regard to the accounting
standards applicable for such accounts.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial
report has been prepared in accordance with the basis of
preparation in Note 1.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the twenty eight weeks
ended 7 January 2017 is not prepared, in all material respects, in
accordance with the basis of accounting described in Note 1.
Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Southampton
27 February 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKODNFBKDBBB
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