The AIM-listed firm said it had agreed to sell the division to Knowlton Development Corporation, one of North America’s largest cosmetics makers, in a bid to “maximise value” for its shareholders and help drive future growth in the business.
However, Swallowfield said that the disposal would itself constitute a “fundamental change” in its business, and as a result, would be proposing a name change to Brand Architekts Group PLC once the sale was completed.
This change would reflect a transformation of the company away from manufacturing and toward its owned brands business, which would become its entire focus.
Following the sale, Swallowfield said it would have around £23mln in cash on hand which would be used to “drive organic growth” and for future acquisition opportunities.
Tim Perman, chief executive, said that the company had made “significant strides” in developing its brand portfolio over the last five years and that opportunities to grow the business would be “significantly enhanced” by a simplified strategic focus following the sale of the manufacturing division.
He added that the proceeds from the disposal would provide “financial strength to invest in further organic and acquisitive growth” at the firm.
The change in direction was well received by investors, with the shares surging 21.2% higher to 234p in late-morning.
Full-year profits to be “slightly ahead”
A full-year trading update was also issued alongside the disposal news, with Swallowfield forecasting that its pre-tax profits for the year ended 29 June would be “slightly ahead” of the previous year’s figure, while revenues had increased 7% in the period compared to 5% growth in 2018.
The improved revenue figure had been boosted by what the company said was a “significant recovery” in its contract manufacturing business, which had offset a single-digit decline in its brands arm as a result of a weaker UK market.