SWP Group plc
("SWP", the "Company" or the "Group")
Disposal of Interest in Associate Company and Trading Update
SWP Group plc, the industrial engineering group which operates in the prevention of corrosion under insulation ("CUI") through ULVA and syphonic rainwater management systems through Fullflow, announces the following:
Disposal of Interest in Associate Company
The Group has sold its 40% shareholding in its associate company, St Cuthberts Holdings Ltd ("SCH") to Fabbrica Italiana Lapis ed Affini ("F.I.L.A.") based in Milan and listed on the STAR segment of the Milan Stock Exchange (the "Sale").
With revenues of over €275 million, F.I.L.A. has grown substantially over the past twenty years through acquisition and operates through 14 production facilities (of which two are in Italy) and 32 subsidiaries around the world. F.I.L.A. is a leader of Italian creativity in the fields of art through its colouring, drawing, modelling, writing and painting tools and owns a series of brands such as Giotto, Tratto, Das, Dido, Pongo, Lyra, Doomes, Maimeri and Daler. F.I.L.A. today sells into more than 50 countries around the world.
SCH operates through its "Mill" production facility in Wells in Somerset and has had a long tradition of producing some of the world's finest watercolour, print and digital papers sold internationally to a wide range of longstanding, loyal customers. The Mill benefits from an enviable reputation for the quality of its products and the integrity of its customer service levels.
SWP's sale of this non-core asset follows an approach from Canson (a world leading French distributor of paper to more than 100 countries) in the first quarter of 2015. F.I.L.A. later entered into an exclusive agreement to acquire Canson in October 2016 and the Directors of SWP consider after prolonged negotiations that the Sale is a logical transfer of ownership into the F.I.L.A. family where SCH will be allowed to grow and expand its activities in an environment which, in technological and product terms, is more suited than as an opportunistic but successful investment within SWP.
The Directors of SWP view the Sale as being in the best interests of all parties including the Mill's employees who will relish the new challenges they face in the future. The sale proceeds amount to approximately £2,000,000 (net of expenses) in cash, compared to a cost of acquisition of £50,000 in November 2010 and a carrying value in SWP's balance sheet of £333,000 as at 31 December 2015 which includes SWP's share of accrued profits. The Sale offers SWP a very attractive return on its initial investment as well as full repayment of the outstanding loans, including interest, advanced to SCH which was originally £400,000. The profit on disposal amounts to approximately £1,667,000.
The cash realised from the Sale will be used to fund the significant investment in the GRP equipment in which ULVA is investing. The capital equipment is due for delivery in October 2016 and it is anticipated that the factory based in the West Midlands will be in a position to enter the market in the first quarter of 2017.
In addition, a subsidiary of SWP has exchanged contracts to acquire the Mill and 7.7 acres of surrounding land. The consideration from the Sale may be used to complete the acquisition in due course. A lease of 24 years duration with SCH under its new ownership will commence on or around 31 July 2017 at an initial upwards only rent of £60,000 per annum.
Martin Bell and Alan Walker, both directors of SWP, who originally acquired a controlling share in SCH before inviting SWP to take a minority stake in the business, are also selling shares in SCH to F.I.L.A.
We last reported to shareholders on 23 March 2016 the results for the six months to 31 December 2015 which were disappointing due to the project-led nature of ULVA's business which coincided with a fallow period for major projects on which ULVA's and the Group's fortunes depend. As predicted the outcome for the second half of the year to 30 June 2016 has (as in the case of the previous year) seen improved revenues and a favourable mix of business. The revenues for the year as a whole are more or less in line with expectations with sales ahead of 2015 by approximately 5%.
As forecast we are pleased to report that the Group is now practically debt free having moved into net cash at 30 June 2016. This excludes the asset-based finance provided to fund the original capital expenditure programme for ULVAShield and secured specifically against the machine which has been of considerable benefit to the quality and efficiency of ULVA's manufacturing competence.
ULVA's project involvement occurs at the tail end of multi-year construction programmes. As a result, despite the severe difficulties in the oil and gas sector, for the current FY'17 management can rely upon revenues flowing from projects specified during the last five years. The cancellation, mothballing and lack of Final Investment Decisions ("FIDs") for new projects, combined with the severe curtailing of explorations is of concern for the medium-term.
Whilst FY'15 and FY'16 were both heavily tail-end loaded, there are a number of projects that are underway in the current half year with a downturn in activity expected around April/May 2017. Market conditions remain challenging notwithstanding the recovery in the oil price from a low of US$28 to around US$50 per barrel of crude oil. Market sentiment remains fragile and FIDs that were expected by the oil and gas majors continue to be deferred or postponed as companies balance their costs against declining revenue streams and the requirement for new capacity remains in serious doubt. The economic outlook remains uncertain.
The six months to 30 June 2016 saw improved revenues at Fullflow where in the UK we have performed strongly, whereas Fullflow International has fallen short of expectations. In the UK a radical restructuring of the technical approach to the sale of our systems has been rewarded by improved sales in an active market. The team has worked hard in highly competitive market conditions to win orders at enhanced margins and execute the delivery of the systems in a more efficient and cohesive manner. In our international business we have delivered a high number of smaller systems to the exclusion of larger scale projects on which our business model is ideally positioned. The construction industry has remained fairly buoyant and although we have started 2016/2017 with a measure of confidence, it is noteworthy that following the Brexit vote on 23 June 2016, the economic pundits have been quick to indicate that the construction industry in the UK has already entered economic recession. We remain cautiously optimistic.
Plasflow, as referred to at the half year, had a most difficult and disappointing financial year to 30 June 2016 as a result of delay and postponement of nuclear related projects absent from the trading activities of EDF. The confusion that surrounds Hinkley Point C and its future prospects is of relatively little consequence to Plasflow. This would be a massive new build project with significant cash flow consequences for EDF, whereas Plasflow thrives on the provision of technical solutions, in addition to the repair and maintenance profile designed to keep the existing sites operational in their time of need and through lifetime extensions into the future.
Management continues to work diligently in competitive markets. The ULVAGRP project is the next challenge facing our team so that we can enter into this market segment in early 2017. The success of this project will have a minor contribution in the current financial year but will, we believe, play a more important role in the year to 30 June 2018.
The information communicated in this announcement is inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
For further information or enquiries please contact:
SWP Group plc
Tel office: 01353 723270
Mobile: 07800 951151
SWP Group plc
Tel office: 01353 723270
Mobile: 07940 523135
Ranald McGregor-Smith/ Nick Lovering
Corporate Finance Advisors
Tel office: 020 7659 1234
Tim Feather / Liam Gribben
Nominated Adviser & Broker
WH Ireland Limited
Tel office: 0113 394 6600
This information is provided by RNS