RNS Number:1950M
SWP Group PLC
26 October 2001
SWP GROUP PLC
PRELIMINARY ANNOUNCEMENT
FOR THE YEAR ENDED 30 JUNE 2001
CHAIRMAN'S STATEMENT
Corporate Review
We report to you at a time of considerable uncertainty in economic and
financial markets across the world.
Whilst it is much too soon for a considered assessment to be made of the
likely consequences of the events which have unfolded since 11th September, it
is already evident that the nervousness which existed in the global investment
community prior to the New York and Washington attacks has been exacerbated.
In last year's report we set out what we believed to be a sound strategy for
the delivery of shareholder value. Our objective was to dispose of the
Group's existing businesses and to acquire, probably through a reverse
take-over, a large business operating in a sector more highly rated by
investors and investment analysts alike.
Unfortunately the nervousness and uncertainty to which we have already
referred has meant that to date we have not received offers for any of our
existing businesses which reflect the value which we ascribe to them and we do
not consider it to be in shareholders' interests for us to agree disposals
unless proper value is unlocked by so doing.
Accordingly, it is our present intention to put our strategy on hold and to
concentrate our full attention on the development of our three existing
businesses. Given our view, recorded below, that each of these businesses has
the potential to achieve sales and profit growth, this is by no means a
retrograde step and we still anticipate that we will be able to build
shareholder value by this route. If an offer is forthcoming for one of the
businesses which we believe will deliver proper shareholder value, then we
certainly would give such an offer very serious consideration. More
information about the prospects for each of the businesses is provided below.
Results
In the year to 30 June 2001 the Group recorded a loss of #249,000
(2000: # 20,000 loss) on sales of #13,316,000 (2000: #13,548,000).
Although it is disappointing for us to report an increased loss it was at
least encouraging that before exceptional items our continuing businesses
produced an increased operating profit of #432,000 (2000: #42,000) with
Fullflow producing a strong performance during the period.
Once again, however, the main drag on the Group's performance was the
substantial loss recorded by DRC Polymer Products. Despite the significant
cuts which had been made to this subsidiary's overhead base towards the end of
the previous financial year, sales levels continued to fall well below
break-even. Further comment on DRC's situation is provided below.
In addition the Group suffered from increased financing costs, mainly on
account of a higher average working capital requirement. Interest costs for
the year amounted to #409,000 (2000: #341,000) and overall net bank and
ancillary debt at the year-end stood at #4,682,000 (2000: #3,613,000).
Review of Operations
The Group continues to operate through three autonomous trading subsidiaries
each of which is a supplier of specialist products to the construction
industry. Fullflow Group, which is based in Sheffield, designs, manufactures
and installs syphonic roof drainage systems and is, we believe, the leading
British company in this field. Crescent of Cambridge, which is based in St
Ives, is also a market leader, its main focus being the manufacture and
installation of custom-designed spiral and helical staircases. DRC Polymer
Products, which is based in Soham, Cambridgeshire, is a supplier of
polymer-based sheet materials, generally for use in the roofing and structural
waterproofing industries but also for more specialised applications such as
fireproofing.
Fullflow Group
Following a year of consolidation in 2000, Fullflow delivered an encouraging
result for the period under review.
Sales showed a marginal increase and operating profit more than doubled,
reflecting both the benefits accruing from the changes made to the structure
of the business during the preceding twelve months and also a policy decision
not to engage in low-margin business except in specific circumstances.
In the UK Fullflow maintained its pre-eminence in the rainwater management
market and continued to develop close links with its major customers. Among a
number of significant projects completed during the year were those at
Piccadilly Station, Manchester, Sellafield nuclear power station in Cumbria,
Princess Margaret Hospital in Swindon and a new IKEA distribution warehouse in
Doncaster.
In Europe considerable progress was made during the year in terms of securing
the various formal technical product approvals which are necessary if the
business is to achieve its full potential. Fullflow now has full syphonic
certification in France and is confident of gaining the relevant approvals in
Belgium, Holland, Spain and Portugal in the near future. These processes have
been - and remain - both expensive and time-consuming but represent an
important investment in the Company's future.
Meanwhile, the absence of formal accreditation has not hindered Fullflow's
sales drive across the Continent and a number of major projects have been
successfully completed, including two major car assembly plants in France.
Fullflow's ability to provide a full turnkey service has been enthusiastically
received by a number of Europe's largest contractors and the enquiry flow in
recent months has been very encouraging. With a view to providing local
support for its Spanish operations the Company has recently opened an office
in Madrid and it is anticipated that a further base will be established on the
outskirts of Paris in the near future.
Plasflow, Fullflow Group's pipework supply and fabrication business, also
delivered a good set of results during the year. Following a significant
investment in new machinery Plasflow was able for the first time to provide a
solution to the needs of the large diameter pipefittings market and has
already managed to generate promising levels of business in this area.
As Fullflow Group continues to expand, further investment in production
capacity will be essential and we are currently considering a number of
options in this respect.
Crescent of Cambridge
After registering a solid performance in the first nine months of the year
Crescent suffered a significant fall-off in sales in the fourth quarter and
this reversal had a marked impact on the Company's results for the year.
However by the end of the year order intake levels had improved to such an
extent that the Company's order book had eclipsed all previous records leaving
Crescent well placed to regain the momentum generated in recent years.
Following a focused advertising campaign, enquiries for helical staircases
exhibited a substantial increase, thereby reinforcing the view of Crescent's
management that by demonstrating the art of the possible the Company can
create a market for its own products.
In order both to underpin Crescent's competitiveness and also increase its
production capacity - particularly in relation to large complex staircases
some of which have to be partially assembled in the factory before being
dismantled and reassembled on site- approval has recently been given for the
purchase of two new CNC machines and these should be fully operational by the
fourth quarter.
DRC Polymer Products
Reference has already been made to the disappointing performance produced by
DRC in the period under review. The relative optimism which we expressed this
time last year proved to be misplaced and sales levels across the board failed
to achieve budget.
In some areas DRC was unfortunate: for example sales of structural
waterproofing products were affected by restrictions placed on access to
reservoirs on account of foot-and-mouth disease. Export sales were also
affected by the collapse of a Korean contractor whose role in a large
infrastructure project was so pivotal that the project had to be put on hold.
Elsewhere sales of certain of the Company's private label products (goods
manufactured by DRC but marketed by others) fell short of the levels which had
been anticipated leaving DRC frustrated on account of its inability to
influence matters.
On a more positive note, there were a number of promising signs for the
future. During the year two new products developed by the Company in
partnership with others came to commercial fruition and although for a variety
of reasons sales of these products failed to accelerate as quickly as might
have been hoped, there is every reason to believe that the foundations for
future success have been laid. One of these products is a fire-resistant
material for use in the petrochemical industry and the other is a mat used to
provide cushioning for livestock in cowsheds. In both instances the goods are
derivatives of products which already enjoy prominent positions in the markets
which they serve. DRC's involvement in the re-engineering process has helped
to enhance end user value and it is hoped that this will result in higher
levels of off-take. At this stage the signs are encouraging.
As we have remarked previously a feature of DRC's business is its high level
of operational gearing. This means that if sales progress beyond break-even
the Company has the potential to increase profits relatively quickly and
against this background we remain of the view that the Company's prospects are
such as to merit our support for the time being.
Litigation
Progress in relation to the various legal issues which we have mentioned in
previous reports has been slow but our case against the principal vendor of
DRC Holdings has been scheduled for trial early in the New Year. In
accordance with the conservative accounting principles all legal costs
incurred to date have been written off against the Group's profit and loss
account although we are of course hopeful of a successful outcome to the
litigation.
Action against the Group's previous Directors and advisers is still pending
and in part will be affected by the outcome of the above-mentioned case.
Employees
On behalf of shareholders we wish to record our appreciation of the efforts of
the Group's employees during the past year. In the UK today, manufacturing
companies face a wide range of pressures and it is to the credit of our
employees that in circumstances which have not been entirely propitious our
businesses have all managed to achieve progress in recent months.
Current trading and future prospects
It is now nearly three years since the present Group board was appointed.
During that period we have had to deal with a wide range of difficult and
time-consuming problems left to us by our predecessors and although we have
achieved significant progress in a number of areas we have so far not been
able to deliver the overall level of profit performance which we believe
shareholders are entitled to expect.
We are therefore pleased to be able to report not only that all three of the
Group's businesses started the new financial year with record order books but
that trading in the current period is well ahead of last year.
Fullflow is operating in line with a challenging expansionary budget and is
continuing to achieve widespread success in Europe and the UK. Crescent is
enjoying strong levels of sales and order intake and losses at DRC have
reduced to manageable proportions with the real likelihood of further
improvement ahead.
Accordingly, and notwithstanding both the uncertainty which we referred to at
the beginning of this report and also the possibility that recessionary
conditions will start to affect some of our main markets, we believe that the
prospects for the Group are better than they have been at any time since we
assumed office.
Fullflow in particular appears to have the real potential to expand
significantly beyond its current horizons but if this potential is to be
realised, considerable investment in both fixed and working capital will be
required.
Whilst we are anxious to provide this support our ability to do so is likely
to be constrained by the Group's indebtedness and we are presently reviewing
the options open to us in this context. It may be that we will have to raise
additional equity and if so we will write to shareholders again in due course.
Finally, I have to remind shareholders that in last year's report I signalled
my intention to retire from the Group at a convenient point during the twelve
months which have just ended. However, in the event no such suitable juncture
has occurred and I have been persuaded by my fellow Directors that it is in
the Group's interests that I remain as Chairman for the time being. I am
naturally grateful for their support and am prepared to continue in office for
as long as required.
We look forward to welcoming shareholders to the forthcoming Annual General
Meeting and to communicating further with you in due course.
R.M. Muddimer
Chairman
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 30 June 2001 2001 2000
Notes #'000 #'000
Turnover
Continuing operations 1 13,316 13,548
Cost of sales (7,832) (8,464)
Gross profit 5,484 5,084
Net operating expenses (5,052) (4,763)
Operating profit before exceptional items 432 321
Net operating expenses -
exceptional items 2 (274) -
Operating profit
Continuing operations 158 42
Discontinued operations - 279
Operating profit 158 321
Interest receivable 2 -
Interest payable and similar charges (409) (341)
Loss on ordinary activities before taxation (249) (20)
Taxation on loss on ordinary activities - -
Loss on ordinary activities after
taxation 1 (249) (20)
Dividends - -
Retained loss for the financial year (249) (20)
Basic loss per share (pence) 3 (0.08)p (0.01)p
Diluted loss per share (pence) 3 (0.07)p (0.01)p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 30 June 2001
The Group
2001 2000
#'000 #'000
Loss for the financial year (249) (20)
Revaluation of freehold premises and specialised tooling - 389
Total (losses)/gains recognised since last annual report (249) 369
NOTE OF HISTORICAL COST PROFIT AND LOSSES
2001 2000
#'000 #'000
Reported loss on ordinary activities before taxation (249) (20)
Difference between a historical cost depreciation charge and the 17 -
actual depreciation charge of the year calculated on the
revalued amount
Historical cost loss on ordinary activities before taxation (232) (20)
Historical cost loss for the year retained after taxation, (232) (20)
minority interests, extraordinary items and dividends
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended 30 June 2001
The Group
2001 2000
#'000 #'000
Loss for the financial year (249) (20)
Other recognised gains and losses relating to the - 389
year (net)
New share capital subscribed 8 344
Net (decrease)/addition to shareholders' funds (241) 713
Opening shareholders' funds 983 270
Closing shareholders' funds 742 983
CONSOLIDATED BALANCE SHEET
At 30 June 2001 2001 2000
#'000 #'000 #'000 #'000
Fixed assets
Intangible assets 14 38
Tangible assets 2,942 2,953
2,956 2,991
Current assets
Stocks 1,746 1,295
Debtors falling due within one year 3,928 3,444
Debtors falling due after more than one year 188 180
5,862 4,919
Creditors: amounts falling due within one year(4,573) (5,208)
Net current assets/(liabilities) 1,289 (289)
Total assets less current liabilities 4,245 2,702
Creditors: amounts falling due after more than 3,493 1,611
one year
Provision for liabilities and charges 10 53
Capital and reserves
Called up share capital 6,352 6,344
Share premium account 1,215 1,215
Capital reserve 41 41
Revaluation reserve 542 559
Profit and loss account (7,408) (7,176)
Equity shareholders' funds 742 983
Minority interests
Non equity - 55
4,245 2,702
CONSOLIDATED CASH FLOW STATEMENT
Year ended 30 June 2001
2001 2000
#'000 #'000 #'000 #'000
Net cash flow from operating activities 4(a) (273) 492
Returns on investments and servicing of
finance
Interest received 2 -
Interest paid (320) (282)
Hire purchase interest (45) (70)
(363) (352)
Taxation
Corporation tax paid - -
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (407) (764)
Receipts from sales of tangible fixed assets 21 268
(386) (496)
Acquisitions and disposals
Purchase of minority interest (55) (70)
(55) (70)
(1,077) (426)
Financing
Issue of ordinary share capital 8 344
Bank loans received 3,500 500
Bank loan repayments (1,844) (403)
Capital element of finance lease and hire (42) (127)
purchase payments
1,622 314
Increase/(decrease) in cash 4(b) 545 (112)
PARENT COMPANY'S BALANCE SHEET
At 30 June 2001 2001 2000
#'000 #'000 #'000 #'000
Fixed assets
Tangible assets 640 249
Investments 7,153 7,098
7,793 7,347
Current assets
Debtors 5,607 3,687
Creditors: amounts falling due (2,362) (3,601)
within one year
Net current assets 3,245 86
Total assets less current liabilities 11,038 7,433
Creditors: amounts falling due after more than 3,350 1,412
one year
Capital and reserves
Called up share capital 6,352 6,344
Share premium account 1,215 1,215
Profit and loss account 121 (1,538)
Equity shareholders' funds 7,688 6,021
11,038 7,433
NOTES TO THE FINANCIAL STATEMENTS
1 SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
The analysis by class of business of the Group turnover, result before
taxation and net assets is set out below:
2001 2000
Profit/ Profit/
(loss) (loss)
Turn- before Net Turn- before Net
over taxation assets over taxation assets
#'000 #'000 #'000 #'000 #'000 #'000
Syphonic drainage 7,601 747 2,226 7,512 352 3,131
Staircases 3,351 141 1,610 3,636 291 1,714
Polymer sheet 2,364 (642) (2,083) 2,400 (622) (422)
material
Discontinued - - - - 279 -
operations
13,316 246 1,753 13,548 300 4,423
Operating (274) -
exceptional costs
Common credits and 186 (1,011) 21 (3,385)
net liabilities
Profit before 158 321
interest
Net interest (407) (341)
payable
Loss before (249) (20)
taxation
Total net assets 742 1,038
The Group operates predominantly within the United Kingdom. The geographical
analysis of the Group's turnover by destination is as follows:-
2001 2000
#'000 #'000
United Kingdom 12,419 12,502
Europe 826 1,033
Africa and Middle East 71 13
13,316 13,548
2. EXCEPTIONAL ITEMS
Exceptional items comprise the following:
2001 2000
#'000 #'000
Surrender premium paid in disposing of a medium term occupational 125 -
lease no longer required
Legal and professional fees pursuant to litigation in respect of
warranty claims and claims against the former Board of Directors
and their Advisers 149 -
274 -
3. LOSS PER SHARE
The loss per share calculation for the year ended 30 June 2001 is based on the
weighted average of 317,441,423 (2000: 304,408,749) ordinary shares in issue
during the year and the loss of #249,000 (2000: loss of #20,000).
The fully diluted loss per share calculation for the year ended 30 June 2001
taking account of the share options granted is based on a weighted average of
356,779,420 (2000: 317,333,793) ordinary shares and the loss of #249,000
(2000: loss of #20,000)
4. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of operating profit to net cash (outflow)/inflow from
operating activities
2001 2000
#'000 #'000
Operating profit 158 321
Depreciation charges 402 384
Amortisation of trade names and patents 24 36
(Profit)/loss on sale of tangible fixed assets (5) 74
Increase in stocks (451) (276)
Increase in debtors (492) (92)
Increase in creditors 91 45
(273) 492
(b) Reconciliation of net cash flow to movement in net debt
2001 2000
#'000 #'000
Increase/(decrease) in cash in period 545 (112)
Cash (inflow)/outflow from (increase)/decrease in debt and (1,468) 302
lease financing
Change in net debt resulting from cash flows (923) 190
New finance leases (146) (272)
Movement in net debt in period (1,069) (82)
Net debt at 30 June 2000 (3,613) (3,531)
Net debt at 30 June 2001 (4,682) (3,613)
(c) Analysis of net debt
At 30 Cash Non cash At 30 June
June Flow changes 2001
2000
#'000 #'000 #'000
Overdrafts (1,394) 545 - (849)
Debt due within one year (432) 282 - (150)
Debt due after one year (1,412) (1,938) - (3,350)
Finance leases and hire (375) 188 (146) (333)
purchase
Total (3,613) (923) (146) (4,682)
5. DIVIDEND
The Directors are not recommending the payment of a dividend.
The 2001 figures have been abridged from the audited statutory accounts for
the year which will be posted to shareholders on 12th November 2001. The
figures for 2000 have been abridged from the audited statutory accounts for
that year which have been delivered to the Registrar of Companies. The
reports of the auditor on the statutory accounts were unqualified. Further
copies of the accounts are available from the Company's registered office at
SWP Group Plc, 4th Floor, Bedford House, 3 Bedford Street, London WC2E 9HD.
For further information or enquiries please contact:
J. A. F. Walker
Director of Finance
Telephone: 020 7379 7181
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