Swallowfield to sell manufacturing business and become Brand Architekts
In a major announcement on Monday, Swallowfield revealed it has sold its cosmetic manufacturing business to Knowlton Development Corporation. From now on, it will focus solely on its portfolio of beauty brands.
The company owns cosmetics, fragrance and haircare brands including Super Facialist, Fish Soho, Dirty Works and Dr. Ceuticals.
Subject to shareholder and regulatory approval, the transaction will raise about £35 million, which will be used to fund investment to drive organic growth and for future acquisition opportunities.
A general meeting will be held on 31 July in London to vote on the proposal. If approved, the operation will lead to the departure of Matthew Gazzard, group finance director, and Jane Fletcher, group sales and marketing director, who will transfer with the manufacturing business.
Additionally, Swallowfield is proposing to change its name to Brand Architekts to better reflect its new focus. Swallowfield acquired Better Architekts, a portfolio of mid-premium beauty, body and haircare brands, in 2016.
“Following a strategic review process, the board concluded that the manufacturing business will be better served in a business of larger scale and that the proposed disposal is in the best interests of all of its stakeholders,” said the group in a statement on Monday.
Interestingly, the brands business experienced a 3% decline in revenue in the 52 weeks ended 29 June 2019, hit by softer UK demand and increased promotional activity. Amid challenging conditions in the UK retail market, this seems like a risky time to invest in retail brands, but Swallowfield said international sales have grown 8% in the last year and it believes there is “significant opportunity for sustained international growth".
Meanwhile, the manufacturing business saw a 15% uplift in revenues during the same period, helping the company post group revenue growth of 7%.
But the owned brands business has stronger margins than the manufacturing business and has delivered superior financial returns over the last five years, Swallowfield said.
Brendan Hynes, chairman, commented: "The proposed disposal of the manufacturing business is a transformational development for the group, which will see the owned brands business become the sole focus of operations. As announced on 5 march 2019, the board determined that the manufacturing business needed a streamlined and simplified operation, and undertook a detailed strategic review to determine the appropriate course of action. Following careful consideration of the options available, the board strongly believes that the proposed disposal enhances the long term prospects of both businesses and is in the best interests of all stakeholders.”
Tim Perman, CEO, added: “The group has made significant strides over the last 5 years developing the brands portfolio, both organically and through acquisition, and this has not only delivered superior financial returns but has also given the group greater control over its own destiny. We believe that the opportunities to grow this business will be significantly enhanced through a simplified strategic focus and we have a strong and experienced brand team to drive this forward. The proceeds from the disposal provide the group with the financial strength to invest in further organic and acquisitive growth and we are confident of being able to profitably realise further market opportunities in the future.”
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