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RNS
Swallowfield PLC  -  SWL   

Half-year Report

Released 07:00 27-Feb-2018

RNS Number : 9763F
Swallowfield PLC
27 February 2018
 

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 6 January 2018

 

 £m unless otherwise stated

2018

2017




 Reported results ¹



 Revenue

£40.0m

£39.7m

 Underlying operating profit ¹

£3.40m

£3.07m

 Adjusted basic earnings per share ¹

13.7p

11.8p

 Statutory results



 Revenue

£40.0m

£39.7m

 Operating profit

£3.00m

£2.20m

 Basic earnings per share

13.1p

9.7p

 Total dividend per share

2.0p

1.7p

 Net debt

£7.0m

£5.5m

¹ Underlying operating profit is calculated before exceptional items, amortisation of acquisition related intangibles and LTIP charges.  Adjusted earnings per share is calculated using adjusted operating profit, which is underlying operating profit less LTIP charges.

 

Financial highlights

·      Group revenues increased to £40.0m (2017: £39.7m), as expected and against a strong comparative period, driven by strong growth (+25%) in owned brands.

·      Owned brands now representing 31% of Group revenues.

·      Manufacturing sales decreased by 6% against strong prior year comparators as prior year launch volumes normalised as previously signalled.

·      Contribution margin % improved, primarily due to increased owned brand sales.

·      Underlying operating profit increased by 11% year on year to £3.40m (2017: £3.07m).

·      Adjusted EPS increased by 16% year on year to 13.7 pence (2017: 11.8 pence).

·      Net Debt of £7.0m (2017: £5.5m), after final payment of £1.85m deferred consideration on The Brand Architekts ("Brand Architekts") acquisition.

·      Interim dividend increased by 18% to 2.0 pence (2017: 1.7 pence).

 

CEO Succession and Acquisition

·      A well-planned CEO succession process has been put in place following Chris How's decision to step down from the Board to pursue a non-executive portfolio career later in the year. His successor, Tim Perman (currently group Brand Director, PZ Cussons plc), will become Chief Executive on 1 July 2018. Chris will continue full time until the end of the current financial year during which he will assist and support the Company and Tim through the handover process.

·      Acquisition of men's grooming brand 'Fish', a well-established and successful style-led brand with distribution in many UK retailers, financed via a new term loan.

Brendan Hynes, Non-executive Chairman, commented: "The first half year has seen further, positive progress which continues to make Swallowfield plc a stronger, more profitable business and provides a solid platform for a well-planned CEO succession. Strong momentum in our branded business, which will be enhanced by the acquisition of the Fish brand and the steady underlying performance in our manufacturing business, means Swallowfield is well positioned to maintain its positive momentum."

Chris How, Chief Executive, commented: "We are pleased with the continuing strong performance of the Group. Brand Architekts is performing positively and combining well with the supply chain expertise of Swallowfield to deliver, at pace, a stream of consumer relevant new products to market which has translated into improved profit margins for the Group. The exciting acquisition of the Fish brand will further accelerate this positive momentum. The capability within the manufacturing business to satisfy the innovation, service and quality requirements of our customer base has enabled us to secure a number of new contracts in the period. This positions the manufacturing business to quickly return to growth following the well signalled normalisation in sales for this six-month period against strong prior year comparatives."

Operational highlights

 

·      Strong growth momentum continued in our portfolio of owned-brands, boosted by strong Christmas gifting performance, further retail distribution gains in the UK and Western Europe, and several successful new product launches.

·      Manufacturing business maintained % contribution margins as cost optimisation programmes and drive category focus offset materials and labour inflationary pressure.

·      A number of significant new manufacturing contracts have been secured and work progressed in the period in readiness for launches in the second half.

·      Increase in working capital driven by stock build to support new launches and later Christmas deliveries.

·      Further increase in Brand Architekts products produced in Swallowfield sites.

·      Further investment in brand marketing support (particularly digital), organisational capability and operating efficiencies that positions the business for sustained future growth.

·      E-commerce sales continued to grow significantly, albeit from a relatively modest base.

 

 

 For further information please contact:


Swallowfield plc



Chris How

 Chief Executive Officer

 01823 662 241

Matthew Gazzard

 Group Finance Director

 01823 662 241

Alex Price / Jen Boorer

 N+1 Singer

 0207 496 3000

Josh Royston / Hilary Buchanan / Sam Modlin

 Alma PR

 07780 901979

 

 

Business review

 

Group revenue growth in the period was 1% at £40.0m (2017: £39.7m). This was driven by 25% growth in our owned brands business offset by a 6% revenue decline in our manufacturing business.

 

Branded sales growth was driven in particular by UK growth of key brands Dirty Works, Dr.Salts and SuperFacialist and another very successful Christmas gifting period. Internationally, good growth in Western Europe was offset by softer sales in North America. Increased focus on supply chain efficiency and an improved mix resulting from a clearer brand portfolio prioritisation strategy, supported an increase in contribution margin.

 

Sales in our manufacturing business reflect the well signalled normalisation of volumes on a number of major new product launches for global brand owners that peaked in the first half of the prior year. Outside of this normalisation effect we were pleased to see solid growth across the remainder of the customer base and a good performance at the contribution margin level being maintained as continued focus on our drive product categories and a series of cost optimisation projects were able to offset broader inflationary pressures on materials.

 

We are very pleased that during the period a number of significant new contracts and product launches have been confirmed and we have either commenced production or received purchase orders in the weeks since the period end.

 

The net effect is that the Group made an underlying operating profit of £3.40m, an 11% increase on the comparable period (2017: £3.07m). Adjusted profit before tax increased by 19% to £2.84m (2017: £2.38m).

 

The overall effective rate of Group taxation for the period was 19.0% (2017: 19.6%) of pre-tax profits. The current year tax charge reflects standard UK and the Czech Republic rates of taxation.

 

This resulted in adjusted earnings per share of 13.7p (2017: 11.8p). An increase of 16%.

 

Progress vs strategy

 

Our business strategy, which is now well established, is to drive growth by building two complementary value streams, Manufacturing and Owned Brands, that leverage the common capability platform of Group resources.

Our owned brands business develops and markets a portfolio of personal care and beauty brands that are distributed across major retailers in the UK and internationally. In this business we focus on three strategic pillars:

 

·      New product development

·      Leverage Swallowfield resources

·      International expansion

 

Our manufacturing business formulates and manufactures personal care and beauty products for a customer base that includes many of the world's leading beauty brands. Within this business we also focus on three strategic pillars:

 

·      Innovation, quality and service to global brand owners

·      Drive category focus

·      Cost base optimisation

 

The following is a review of progress against these strategic pillars in the period:

 

Owned brands

 

The performance of The Brand Architekts portfolio acquired in June 2016 continues to be very positive. The momentum is continuing with all key brands in growth. The sell through of Christmas gift ranges was particularly strong.

 

One of the key opportunities presented by the acquisition was the critical mass it provided through a proven brand management team. The original Swallowfield owned brands (Real Shaving Company, Bagsy, MR., Tru) have prospered under this brand and retailer focused environment and we are pleased to report strong combined revenue growth of c. 50% across this part of the portfolio

 

New product development

Fast paced new product development that quickly identifies and responds to market trends is a core element of the Brand Architekts business model. 47 new products were launched in the reporting period across 9 different brands. Particular successes include SuperFacialist Hyluronic and Retinol ranges, Dirty Works Foaming Sugar Scrub, which was one of only 3 winners in the Sainsbury's Beauty Awards, and Quick Fix Facials Black Peel Mask.

 

Leverage Swallowfield resources

Further products in the Brand Architekts range have been produced at Swallowfield Group sites in the period. A major initiative to take further products into in-house manufacture is already underway and will follow in the second half. On an annualised basis we expect to be producing in excess of 1.5m units of the acquired Brand Architekts brands at Swallowfield sites in the next financial year.

 

Further investment and improvements in relation to our e-commerce capability for key brands such as Dirty Works, SuperFacilaist, Dr.Salts, Kind Natured and Quick Fix, is in place with a dedicated team based in our new Exeter office driving strong sales growth and developing engaging digital marketing activities.

 

We continue to leverage 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 significant annual savings in freight and duty on shipments from China by combining our expertise and our buying power.

 

International Expansion

Highlights in the period include the launch of Dirty Works in France and Belgium and the extension of our Bagsy brand in France. This growth has been more than offset by some trading challenges in North America.

 

Following our participation in major trade shows in 2017 there are a number of new opportunities being progressed that we expect will bring new customers and geographies in the months ahead.

 

 

 

Manufacturing

 

Innovation

Our manufacturing business relies on our ability to bring a steady stream of innovative new products to our customer base. In the period, we again increased the number of Swallowfield developed new products introduced. Our innovation capability has been key in securing our first orders with a major US global consumer group who, like others, are extending their search for fast to market New Product Development by partnering with third parties such as Swallowfield.

 

Sales of plastic aerosol products continued to grow in the period and we are pleased that this technology will be extended to another brand in the second half of the financial year.

 

A significant refurbishment of our R&D laboratory in Wellington has been completed including investment in specialist equipment which will underpin future innovation activities.

 

Drive category focus

Personal Care Aerosols, Cosmetic Pencils, and hot pour products remain our key focus. Further contract wins within the period, supported by new product launches, will deliver ongoing growth. Following new business wins last year, capital investment to increase wood pencil capacity and cost efficiency at our Bideford site has been fully completed. Further investment to deliver improvements in capacity and cost competitiveness are scheduled, with particular focus on Personal Care Aerosols which, although recording a sales decrease in the period due to a peak period of launches last year, continue to offer strong growth opportunities based on our industry leading capabilities and reputation.

 

Cost base optimisation

Investment in line efficiency and automation programmes continue to contribute to margin improvement across all sites. Of particular note has been the introduction of robotics technology at our Tabor site to manage labour costs and increase reliability. The expertise of the supply chain has delivered real cost savings in the Company's logistic requirements which have assisted in offsetting ongoing material inflationary pressures. The agility within our Group sites has led to global brand leaders recognising the value of our established expertise and manufacturing capabilities which has led to a further strengthening of our established partnerships.

 

We have continued to steadily increase the number of Brand Architekts products produced in-house and expect this to gain further momentum in the second half.

 

Net debt and cash flow

 

Net debt increased from a year-end position of £3.6m to £7.0m (2017: £5.5m) following the final contingent payment (£1.85m) in relation to the 2016 acquisition of The Brand Architekts. Working capital increased as material and component inventory increased in the manufacturing business to support future launches and ensure optimum customer service. Within the branded business there was also an increase as finished goods stocks increased to support continued growth and debtors peaked in line with the timing of Christmas gifting deliveries.

 

Financing costs of £0.17m (2017: £0.16m) comprised interest expense of £0.09m (2017: £0.09m) plus a pension scheme notional finance charge of £0.08m (2017: charge £0.07m).

 

Capital expenditure was £1.1m which was £0.4m above depreciation. We expect capital expenditure to be higher than 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 positively impact the second-half and beyond.

 

Defined benefit pension scheme

 

The defined benefit pension scheme underwent its last triennial valuation as of 5 April 2017. The deficit on a statutory funding basis was £2.6m and the Group is entering into a revised deficit recovery plan and schedule of contributions. The deficit reduction payment will continue to be £108k per annum for the current year. Whilst contributions are likely to increase next year, any increase is expected to be offset in part by the reduction in the PPF levy.

 

For accounting purposes at 6 January 2018, the Group recognised under IAS19 'employee benefits', a deficit of £5.7m (June 2017: £6.13m). 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 slightly higher than they were at 24 June 2017. This has resulted in marginally higher discount rates being adopted for accounting purposes compared to last year, which has been coupled with a small increase in expectations of long term inflation, the combined effect leaving the fair value of the scheme liabilities materially unchanged, with the strong investment return performance increasing the value of the schemes assets. This has translated into a decrease in liability under the IAS19 methodology.

 

Dividends

 

The Board is pleased to announce that it has approved an interim dividend of 2.0 pence per share (2017: 1.7 pence). This dividend will be paid on 26 May 2018 to shareholders on the register on 4 May 2018.

 

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.

 

Board succession

 

After five successful years leading Swallowfield, Chris How, Chief Executive Officer, has informed the Board of his intention to step down from his role in order to pursue a non-executive portfolio career subject to the company finding a suitable successor.

 

Advanced notice of Chris's intentions enabled the Board, including Chris, to engage in a thorough search for his successor and we are pleased to announce that Chris will be succeeded by Tim Perman.

 

Tim will be appointed Chief Executive Officer with effect from 1 July 2018. He is currently Group Category & Brand Director and Divisional Director, Global Beauty at PZ Cussons and has more than 30 years' experience in the consumer products industry. Previously, he has held senior leadership roles at Seven Seas Healthcare, Campbells Grocery Products and Bristol Myers Squibb. Tim will join the business on 2 May 2018 and work for 2 months alongside Chris to affect a smooth transition.

 

Chris How will continue full time until the end of the current financial year on 30 June 2018 and will be available to help and support the business in the following months.

 

Brendan Hynes, Non-Executive Chairman commented:

"Chris has been instrumental in the transformation of the Swallowfield Group into a successful and growing business with strong complimentary value streams in both owned brands and contract manufacturing. He has also built a strong team who have the skills and experience to scale the business further. I would like to thank him for his outstanding contribution to the development and growth of our Company during the last five years and wish him every success as he moves into a new phase in his career.

 

I am delighted that Tim Perman will succeed Chris. Tim's deep understanding of personal care and beauty brands, combined with first-hand experience of running high quality manufacturing operations, means that he is well positioned to drive our continued success, while ensuring a seamless transition."

 

Chris How, Chief Executive, commented:

"After five happy years with the Swallowfield Group, I have taken the difficult decision to leave a highly successful business and move onto the next stage of my career. The business has changed beyond all recognition over the last five years and it has been a real pleasure to have worked with a great team and to have played a part in building the strong, successful business that we are today. I am sure that Tim will continue to develop the business further with great success."

 

Acquisition Update

 

As separately announced today, the Group has completed the earnings enhancing acquisition of the men's grooming brand 'Fish'.

 

'Fish' is a well-established, authentic, contemporary brand with a 'born in Soho' positioning reflecting a close connection with London style trends through its link to the original Fish salon in D'Arblay Street. This heritage underpins a range of high performance men's hair styling products which were launched more than 15 years ago and currently retail in Boots, Superdrug, Tesco and Waitrose and therefore have a good complementary fit to the rest of our owned brand portfolio.

 

All related trademarks have been acquired from Fish London Limited and stock, website domains, and other marketing collateral has been acquired from KMI Brands Limited.

 

The consideration for the acquisition involves an upfront cash consideration of £2.7m, with a further £0.3m 12 month performance based earn out, and was financed via a new term loan. For the year to 31 December 2017, the 'Fish' brand generated net sales of £1.7m and achieved £0.4m EBITDA.

 

The brand will be managed by our team at Brand Architekts in Teddington who will seek to leverage our growing expertise in male grooming products where our portfolio of MR., The Real Shaving Company and Tru is seeing good growth. We see many opportunities to accelerate the growth of the brand in the UK and beyond both in terms of adding innovative new products to the brand and also broadening retail distribution.

 

As we work to deliver these growth opportunities we are delighted to confirm that we have engaged the founder of the brand, Paul Burfoot, to work with us as a consultant. Paul continues to own and operate the iconic 'Fish' salon in Soho and is renowned for his innovative creativity as a trend setter in hair styling. His expertise and passion for style and product will help us drive and develop credible, ongoing innovation as well as taking an active role in supporting the digital and social media brand communication.

 

The brand's product formulations and packaging formats have a strong fit with the technical and production expertise in our manufacturing business and therefore offer further value creation opportunities on the supply side.

 

Chris How, Chief Executive Officer, commented: 

"Following the acquisitions of Real Shaving Company in 2015 and The Brand Architekts in 2016 we have been delighted to have seen strong growth momentum in our owned brand portfolio. This segment of our business showed sales growth of 25% in the first half of our current financial year and in that same period contributed 31% of Group sales. The addition of 'Fish' to this vibrant portfolio will add further strength and growth potential."

 

Outlook

 

The Board is pleased to report that trading since the end of the reporting period has been in line with expectations.

 

We expect the positive momentum seen in our owned brands business to continue, albeit without the boost from Christmas gifting experienced in the first half. Further new product launches and retail distribution gains have been secured in the UK and internationally which will contribute to growth in the second half and into the next financial year. The earnings enhancing acquisition of the 'Fish' brand will add further to this momentum,

 

In our manufacturing business, the second half will see the start-up of production on a number of significant new contract wins which will contribute positively to the second half of this year and next.

 

We are seeing upward pressure on material and operational costs but have put in place a range of projects to mitigate. This combined with strong trading momentum, leaves us well placed to achieve planned profits for the full year.

Group Statement of Comprehensive Income

 








28 weeks ended

28 weeks ended

12 months ended



6 Jan 2018

7 Jan 2017

24 June 2017



(unaudited)

(unaudited)

(audited)

Continuing operations

Notes

£'000

£'000

£'000






Revenue

2

39,962

39,708

74,314

Cost of sales


(32,012)

(32,264)

(60,404)

Gross profit


7,950

7,444

13,910

Commercial and administrative costs


(4,953)

(4,905)

(10,235)

Operating profit before exceptional items


2,997

2,539

3,675

Exceptional items

3

(25)

(343)

(343)

Operating profit


2,972

2,196

3,332

Finance income


-

1

97

Finance costs

4

(175)

(163)

(314)

Profit before taxation


2,797

2,034

3,115

Taxation


(532)

(398)

(543)

Profit after taxation


2,265

1,636

2,572

Other comprehensive income / (loss) for the period:





Re-measurement of defined benefit liability


 

407

 

(3,469)

 

(1,697)

Items that will be reclassified subsequently to profit or loss





Exchange differences on translating foreign operations


 

54

 

79

 

148

Gain on available for sale financial assets


 

158

 

256

 

675

Other comprehensive income / (loss) for the period


 

619

 

(3,134)

 

(874)

Total comprehensive income / (loss) for the period


 

2,884

 

(1,498)

 

1,698











Profit attributable to:





Equity shareholders


2,205

1,636

2,554

Non-controlling interests


60

-

18






Total comprehensive income / (loss) attributable to:





Equity shareholders


2,824

(1,498)

1,680

Non-controlling interests


60

-

18











Earnings per share





- basic

- diluted

5

5

13.1p

12.7p

9.7p

9.5p

15.2p

14.7p






Dividend





Paid in period (£'000)

Paid in period (pence per share)


590

3.5p

388

2.3p

675

4.0p

Proposed (£'000)

Proposed (pence per share)

 

6

337

2.0p

287

1.7p

590

3.5p

 

 

 

 



 

Group Statement of Changes in Equity

 

 

 

Share Capital

Share Premium

Revaluation

 of investment reserve

Exchange Reserve

Pension re-measurement reserve

 

Retained Earnings

Non-controlling interest

Total Equity

Group

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Balance as at June 2017

 

844

 

11,744

 

1,091

 

(142)

 

(3,894)

 

12,404

 

18

 

22,065

Dividends

-

-

-

-

-

(590)

-

(590)

Non-controlling interest

-

-

-

-

-

-

60

60

Share based payments

-

-

-

-

-

47

-

47

Transactions with owners

 

-

 

-

 

-

 

-

 

-

 

(543)

 

60

 

(483)

Profit for the period

-

-

-

-

-

2,205

-

2,205

Other comprehensive income:









Re-measurement of defined benefit liability

-

-

-

-

407

-

-

407

Exchange difference on translating foreign operations

-

-

-

54

-

-

-

54

Gain on available for sale financial assets

-

-

158

-

-

-

-

158

Total comprehensive income for the year

-

-

158

54

407

2,205

-

2,824

Balance as at 6 January 2018

 

844

 

11,744

 

1,249

 

(88)

 

(3,487)

 

14,066

 

78

 

24,406

 

 

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

 

11,744

 

672

 

(211)

 

(5,666)

 

11,743

 

-

 

19,126

 

 

Balance as at June 2016

566

3,830

416

(290)

(2,197)

10,467

-

12,792

Dividends

-

-

-

-

-

(675)

-

(675)

Issue of new shares

278

7,914

-

-

-

-

-

8,192

Non-controlling interest

-

-

-

-

-

-

18

18

Share based payments

-

-

-

-

-

58

-

58

Transactions with owners

278

7,914

-

-

-

(617)

18

7,593

Profit for the year

-

-

-

-

-

2,554

-

2,554

Other comprehensive income:









Re-measurement of defined benefit liability

-

-

-

-

(1,697)

-

-

(1,697)

Exchange difference on translating foreign operations

-

-

-

148

-

-

-

148

Gain on available for sale financial assets

-

-

675

-

-

-

-

675

Total comprehensive income for the year

-

-

675

148

(1,697)

2,554

-

1,680

Balance as at June 2017

844

11,744

1,091

(142)

(3,894)

12,404

18

22,065

 

Group Statement of Financial Position

 



As at

As at

As at



6 Jan 2018

7 Jan 2017

24 June 2017



(unaudited)

(unaudited)

(audited)


Notes

£'000

£'000

£'000

ASSETS





Non-current assets





Property, plant and equipment


11,491

10,754

11,076

Intangible assets


9,042

9,231

9,145

Deferred tax assets


666

1,472

1,088

Investments


1,442

816

1,235

Total non-current assets


22,641

22,273

22,544

Current assets





Inventories


13,537

12,096

11,430

Trade and other receivables


17,325

15,892

16,345

Cash and cash equivalents


425

825

4,057

Current tax receivable


70

166

88

Total current assets


31,357

28,979

31,920

Total assets


53,998

51,252

54,464






LIABILITIES





Current liabilities





Trade and other payables


21,521

18,728

21,674

Deferred consideration


-

1,850

1,850

Interest-bearing loans and borrowings


541

529

534

Current tax payable


552

426

243

Total current liabilities


22,614

21,533

24,301

Non-current liabilities





Interest-bearing loans and borrowings


1,242

1,783

1,559

Post-retirement benefit obligations

8

5,665

8,745

6,132

Deferred tax liabilities


71

65

407

Total non-current liabilities


6,978

10,593

8,098

Total liabilities


29,592

32,126

32,399

Net assets


24,406

19,126

22,065






EQUITY





Share capital


844

844

844

Share premium


11,744

11,744

11,744

Revaluation of investment reserve


1,249

672

1,091

Exchange reserve


(88)

(211)

(142)

Re-measurement of defined benefit liability


(3,487)

(5,666)

(3,894)

Retained earnings


14,066

11,743

12,404

Total equity


24,328

19,126

22,047

Non-controlling interest


78

-

18

Total equity


24,406

19,126

22,065

 

 



 

Group Cash Flow Statement

 



28 weeks ended

28 weeks ended

12 months ended



6 Jan 2018

7 Jan 2017

24 June 2017



(unaudited)

(unaudited)

(audited)



£'000

£'000

£'000

Cash flow from operating activities





Profit before taxation


2,797

2,034

3,115

Depreciation


651

661

1,249

Amortisation


122

123

239

Finance income


-

(1)

(97)

Finance cost


175

163

314

(Increase) in inventories


(2,107)

(637)

(2,387)

(Increase) / decrease in trade and other receivables


(540)

1,974

(995)

(Decrease) / increase in trade and other payables


(310)

(2,818)

2,074

(Decrease) / increase in share-based payments provision


(48)

246

1,755

Contributions to defined benefit plan


(54)

(54)

(108)

Cash generated from operations


686

1,691

5,159

Finance expense paid


(97)

(89)

(165)

Taxation (paid)


(321)

(724)

(1,142)

Net cash flow from operating activities


268

878

3,852

Cash flow from investing activities





Dividend income received


-

1

97

Purchase of property, plant and equipment


(1,067)

(432)

(1,367)

Purchase of intangibles


(18)

-

(8)

Purchase of subsidiary


(1,925)

(9,378)

(9,401)

Net cash flow from investing activities


(3,010)

(9,809)

(10,679)

Cash flow from financing activities





Proceeds / (repayment) of invoice discounting facility


10

(575)

1,059

Proceeds from new loan


-

2,000

2,000

Issue of new share capital


-

8,192

8,192

Repayment of loans


(310)

(271)

(490)

Dividends paid


(590)

(388)

(675)

Net cash flow from financing activities


(890)

8,958

10,086

Net (decrease) / increase in cash and cash equivalents


(3,632)

27

3,259

Cash and cash equivalents at beginning of period


4,057

798

798

Cash and cash equivalents at end of period


425

825

4,057






 



 

Notes to the Accounts

 

Note 1 Basis of preparation

The Group has prepared its interim results for the 28-week period ended 6 January 2018 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 21 February 2018.

 

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 2018. 

 

The statutory accounts for the year ended June 2017, 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 (in 2016).

 

·      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, amortisation of acquisition-related intangibles, 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 Board of Directors, which is considered to be the CODM for the purposes of IFRS 8.

 

 

 

 

a)   Principal measures of profit and loss - Income Statement segmental information:

 

 

 

28 weeks ended 6 January 2018


28 weeks ended 7 January 2017


Brands

Manufacturing

Eliminations and Central Costs

Total


Brands

Manufacturing

Eliminations and Central Costs

Total


£'000

£'000

£'000

£'000


£'000

£'000

£'000

£'000

UK revenue

10,111

17,734              

-

27,845


7,543

17,283

-

24,826








International revenue

2,186

9,931

-

12,117


2,289

12,593

-

14,882


 

12,297

              

                  

             


 

9,832

              

                  

             

Revenue - External

27,665

-  

39,962


29,876

-  

39,708


                        

 

1,037

 

(1,037)

                      


                        

 

605

 

(605)

                      

Revenue - Internal

-  

-  


-  

-  

Total revenue

12,297

28,702              

(1,037)

39,962             


9,832

30,481              

(605)

39,708             






Underlying operating profit/(loss)

 

2,575

 

1,918

 

(1,089)

 

3,404


 

1,845

 

2,104

 

(882)

 

3,067

Charge for share based payments

 

-

 

-

 

(307)

 

(307)


 

-

 

-

 

(434)

 

(434)

Amortisation of acquisition-related intangibles

 

 

-

 

 

-

 

 

(100)

 

 

(100)


 

 

-

 

 

-

 

 

(94)

 

 

(94)

Exceptional costs

-

-

(25)

(25)


-

-

(343)

(343)

Net borrowing costs

-

-

(175)

(175)


-

-

(162)

(162)

Profit/(loss) before taxation

 

2,575

 

1,918

 

(1,696)

 

2,797


 

1,845

 

2,104

 

(1,915)

 

2,034

Tax charge

(532)

(532)


(398)

(398)

Profit/(loss) for the period

 

2,575

 

1,918

 

(2,228)

 

2,265


 

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 6 January 2018

Brands

Manufacturing

Eliminations and Central Costs

Total

 

£'000

£'000

£'000

£'000

Depreciation

            6

                 645

                   -  

            651

Amortisation

             -

                   22

                   -  

            22

 

 

 

 

 

 

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 ended

28 weeks ended

12 months ended


6 Jan 2018

7 Jan 2017

24 June 2017

(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000

UK

27,845

24,826

44,732

Other European Union countries

9,156

11,619

23,012

Rest of the World

2,961

3,263

6,570


39,962

39,708

74,314

 

In the 28 weeks ended 6 January 2018, the Group had two customers that exceeded 10% of total revenues, being 12.7% and 10.4% respectively. 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.

 

 

Note 3 Exceptional items

 

There was an exceptional item for the period ended 6 January 2018 of £25k. This is in relation to the applicable proportion of the first consolidated period of trading for Sterling Shave Club Limited which amounted to a loss of £25k.

 

The prior year exceptional items charge represents the costs associated with The Brand Architekts acquisition which completed on 27 June 2016.

 

 

 

Note 4 Finance costs

28 weeks ended

28 weeks ended

12 months ended


6 Jan 2018

7 Jan 2017

24 June 2017


(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000





Finance costs




Bank loans and overdrafts

97

89

165

Notional pension scheme costs

78

74

149


175

163

314

 

 

 

 

Note 5 Earnings per share

28 weeks ended

28 weeks ended

12 months ended


6 Jan 2018

7 Jan 2017

24 June 2017


(unaudited)

(unaudited)

(audited)





Basic and diluted




Profit for the period (£'000)

2,205

1,636

2,554

Basic weighted average number of




ordinary shares in issue during the period

16,865,401

16,865,401

16,834,773

Diluted number of shares

17,413,330

17,182,330

17,382,702

Basic earnings per share

13.1p

9.7p

15.2p

Diluted earnings per share

12.7p

9.5p

14.7p

 

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 7 January 2017 between the basic net earnings per share and the diluted net earnings per share due to the LTIP share options awarded in July 2016, to give a total of 316,929 share options. The difference at 6 January 2018 includes the LTIP share options awarded in June 2017, to give a total of 547,929 share options that could be issued.

 Adjusted earnings per share

                                                                                                           

Profit for the period (£'000)

2,205

1,636

2,554

Add back: Exceptional items

25

343

343

Add back: Amortisation of Acquisition Related Intangibles

 

100

 

94

 

187

Notional tax charge on above items

                     (24)

                     (83)

(105)

Adjusted profit before exceptional items

2,306

1,990

2,979

Basic weighted average number of




ordinary shares in issue during the period

16,865,401

16,865,401

16,834,773

Diluted number of shares

17,413,330

17,182,330

17,382,702

Adjusted basic earnings per share

13.7p

11.8p

17.7p

Adjusted diluted earnings per share

13.2p

11.6p

17.1p

 

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 7 January 2017 between the basic net earnings per share and the diluted net earnings per share due to the LTIP share options awarded in July 2016, to give a total of 316,929 share options. The difference at 6 January 2018 includes the LTIP share options awarded in June 2017, to give a total of 547,929 share options that could be issued.

 

 

Note 6 Dividends

 

The Directors have declared an interim dividend payment of 2.0p per share (2017: Interim: 1.7p; Final: 3.5p).

 

 

Note 7 Reconciliation of cash and cash equivalents to movement in net debt

 


28 weeks ended

28 weeks ended

12 months ended


6 Jan 2018

7 Jan 2017

24 June 2017


(unaudited)

(unaudited)

(audited)


£000's

£000's

£000's





(Decrease) / increase in cash and cash equivalents in the period

(3,632)

27

3,259

Net cash outflow / (inflow) from decrease / (increase) in borrowings

 

300

 

(1,154)

 

(2,569)

Change in net debt resulting from cash flows

(3,332)

(1,127)

690

Net debt at the beginning of the period

(3,641)

(4,331)

(4,331)

Net debt at the end of the period

(6,973)

(5,458)

(3,641)

 

 

Note 8 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 2017 and revealed a funding deficit of £2.6m.  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 £108k per annum for the current year. Contributions will subsequently increase from FY19 to a sufficient level to eliminate the deficit over the established 10 year recovery period. The magnitude of such payments will be reviewed following the next scheme funding valuation as at April 2020.

 

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 ended

6 January 2018

£000's

28 weeks ended

7 January 2017

£000's

12 months ended

24 June 2017

£000's

Company pension contributions

-

-

-

Deficit recovery payments

54

54

108

Scheme administrative expenses

51

71

144

Pension Protection Fund premium

222

240

240

Total

327

365

492

 

The amounts expensed in the Group Statement of Comprehensive Income were:

 

 

28 weeks ended

6 January 2018

£000's

28 weeks ended

7 January 2017

£000's

12 months ended

24 June 2017

£000's

In Operating profit:

 

 

 

Company pension contributions

-

-

-

Scheme administrative expenses

88

71

154

Pension Protection Fund premium

119

120

240

 

207

191

394

In Finance costs:

 

 

 

Unwinding of notional discount factor

78     

74     

149

Total

285

265

543

 

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 6 January 2018 are:

 

 

 

 

6 January 2018


 

 

£000's

Reduction in net pension and other benefit obligations


 

467

Increase in deferred tax


 

(79)

Increase in equity

 

 

388

 

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 2017. 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 a marginally increased liability. The growth in the Fair Value of scheme assets has offset this to result in a reduction in net liability.

 

 

The key assumptions used were:

 

 

 

As at 6 January 2018

As at 7 January 2017

As at 24 June 2017

Discount Rate

2.60%

2.80%

2.55%

Rate of inflation (RPI)

3.10%

3.45%

3.00%

Rate of inflation (CPI)

2.10%

2.45%

2.00%

 

 

 

 

 

 

 

The amounts recognised in the Group statement of financial position were: 

 

 

As at 6 January 2018

As at 7 January 2017

As at 24 June 2017

 

£000's

£000's

£000's

Present value of funded obligations

(29,471)

(30,891)

(29,438)

Fair value of scheme assets

23,806

22,146

23,306

(Deficit)

(5,665)

(8,745)

(6,132)

 

 

Note 9 Announcement of results

 

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 and on the Company's website.

 

 

Regulatory disclosures

 

In accordance with Schedule 2(g) of the AIM Rules, Timothy James Perman (aged 55) holds or has held in the past 5 years the following directorships and partnerships:

 

Current

Past

PZ Cussons Beauty LLP

Beauty Source Spray Booths Ltd

St Tropez Acquisition Co Limited

St Tropez Associates Ltd

St Tropez Holdings Limited


Thermocool Engineering Company Limited


Beauty Source Limited


 

Save for the disclosures above, there are no further disclosures to be made in accordance with Rule 17 and Schedule 2(g) of the AIM Rules.

Independent review report to Swallowfield plc

 

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the twenty-eight weeks ended 6 January 2018 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 guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the Group those matters we are required to state to it in a 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 IFRSs as adopted by the European Union. The financial information in the 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 financial information 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 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 financial information in the half-yearly financial report for the twenty-eight weeks ended 6 January 2018 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

Bristol
27 February 2018


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