Brand Architek. Regulatory News (BAR)

31 Jan 2007 07:01

Swallowfield PLC31 January 2007 Swallowfield plc Strategic and Trading Update Swallowfield plc announces an update on trading for the first six months of thefinancial year and the results of the review of its Cosmetics Division. Trading Update: Trading in the first half of the current financial year was ahead of ourexpectations with the business having more seasonality than in the recent past.This gives us confidence to leave our expectations for the year to 30 June 2007broadly unchanged. Compared with the same period last year, improved focus onour core skills has allowed us to eliminate some unprofitable turnover andimprove gross margins. The cost containment measures introduced in the last 12months have come through as anticipated. Cosmetics Division: In our update of 14 September 2006, we explained a complete review of theCosmetics division was being undertaken in the context of a 12% hurdle level ofreturn on assets before corporate cost allocations. This has now been completed. Over the last year, we have successfully replaced in the region of 70% of thelost M&S cosmetics business with other customers but, at the same time, havetaken clear steps to reduce the capital employed and improve overallproductivity. On this basis, we are confident that the division will meet orexceed the hurdle rate of return in our next full financial year. The importantactions in this regard are: • At today's date we have completed actions to reduce annual overheadsby over £0.6m and have concrete plans in place to make further ongoing annualreductions of £0.3m before the end of the current financial year. As part ofthese reductions, we will have reduced the number of non line employees by closeto 30%. • A reduction in annual labour costs of £0.3m through investment of£0.2m in automated packing lines. We are examining other opportunities toimprove competitiveness through the use of automation. • Continued development of the Far Eastern manufacturing agreementmentioned in our update of 14 September 2006. We will increase the proportionof our goods manufactured in the Far East and we will use this competitiveadvantage to develop new business opportunities. • A reduction in inventory levels of £1m following final shipment of theM&S stock - full payment of which will be received within the next few weeks.Further inventory reductions are under examination. • A reduction in our property footprint at Bideford from five buildingsto three. We will exit one short leasehold building, with 7 months remaining onthe lease, before the end of February. The freehold property, having a bookvalue of approximately £0.2m, will be disposed of in around 12 months time whenlogistics and alternatives have been arranged. • Establishment of a low cost filling operation in Eastern Europe whichis complementary to our UK operations for both cosmetics and other businessareas. We will update shareholders in due course. This approach is intended to enhance shareholder value, avoiding the majorwrite-offs that would be associated with any precipitate action. Restructuringcosts of £0.2m associated with this plan, will be charged in the first half.Our plan will result in a more flexible operation, capable of responding togrowth opportunities whilst allowing further controlled downsizing if that werenecessary. The board has determined that the right strategy for the Group is to improveshareholder value through a combination of profitability enhancement and robustasset management and is generally seeking to reduce its overall capital employedand property investment. We expect the interim results for the half year to 12 January 2007 to bepublished on 1 March 2007. For Further Information: Swallowfield plc:Ian Mackinnon Chief Executive Officer +44 (0)1823 662241Peter Houston Finance Director +44 (0)1823 662241Corporate Synergy plc:Barrie Newton +44 (0)1225 424666Mike Coe +44 (0) 117 9330020 Swallowfield plc: "Creating and Delivering Solutions for our Customers' Success" Notes to Editors: Swallowfield formulates, manufactures and packages fine quality household goods,toiletries and cosmetics across the whole spectrum of consumer markets for ownlabel and brand names. This information is provided by RNS The company news service from the London Stock Exchange