Final Results
Macfarlane Group PLC
31 March 2004
31 March 2004
2003 LOSSES BEFORE TAXTION IN LINE WITH MARKET EXPECTATIONS
Significant reduction in trading losses anticipated in 2004
First quarter's trading in 2004 confirms expectations of improvement
All 15 regional distribution centres now fully operational
Sale of Braehead property for £8.6m with a gain of £3.8m to be recorded in 2004
Intention to declare special interim dividend for 2004 of 0.75p per share
following Braehead disposal
Expectation to be cash positive from trading in 2004
Archie Hunter, Chairman of Macfarlane Group PLC, today said:
'I am heartened to be able to report to you initial but clear indications of
recovery in Macfarlane Group's trading operations. These are early days and
there is a lot of work yet to be done but there are now positive signs that the
Group's concentration on basic business processes is beginning to produce
results.
We welcomed Peter Atkinson into his role as Group Chief Executive at the
beginning of October. He set about a review of the Group's business operations
and presented his conclusions to the Board in January. Broadly these were to the
effect that Macfarlane Group has good growth and performance improvement
potential. The Chief Executive's review concluded that the reorganisation of the
previous two years, particularly in the distribution business had been seriously
disruptive and had diverted attention from satisfying customers. What was
essential was a concentration on customer service, new business, supplier
relationships and cost reduction. I can report that these areas have become and
will remain the focus of management attention and the early indications are that
the effort is well directed.
The Board believes that the Chief Executive's review gives realistic pointers to
Group potential. However I am conscious that before addressing these prospects I
must report on a year, which has borne the heavy brunt of restructure and
change. In line with market expectations and our January statement, the
operating loss in 2003 prior to exceptional operating charges of £4.7m amounted
to £9.4m, on group turnover down from £149.6m in 2002 to £131.0m in 2003.
In the distribution business, the number of customers serviced fell through the
restructuring period from 22,000 to 17,000 with a consequential fall in
turnover. This was a major factor in the Group trading loss but a further
element was in our packaging business, which had to contend with the migration
of computer manufacture and assembly business from Scotland. Our labels business
based in Kilmarnock continued to perform well. Our International business made
little contribution but showed prospects for development. Our injection moulding
business in Ireland struggled in 2003 but has been boosted in 2004 by securing a
significant new business contract. For Brands it was a frustrating year as
demand for the company's accredited software proved as sluggish as in the
previous twelve months. A more detailed trading review is set out in the trading
performance section following my statement.
In October 2003, predominantly as a consequence of the loss of the computer
related activity from Scotland we reported the disposal of our Scottish
packaging manufacturing capacity at a loss of £3.2m including related asset
write-downs. In January we reported that, as a consequence of the Chief
Executive's review, we would be making provision in the 2003 accounts for
exceptional restructuring charges of £3.4m to cover head-count reductions and
the write-down of assets no longer used.
The total effect of all of these features is a loss before taxation of £18.6m, a
loss per share for 2003 of 14.98p and deduction from reserves of £17.2m, by any
measure a significant figure but one which would have been so much more
difficult to report were it not for the positive indications of recovery.
Property disposals and Dividends
It is the declared intention of the Board to reduce borrowings and significant
steps have been taken to do so. Group net debt, which stood at £24.8m at June
2003 has reduced to £16.9m at 31 December 2003. The Board has already stated its
conviction that nothing should be allowed to interfere with the establishment of
the strongest possible platform for recovery and return to profitability.
Consistent with this, cash generated from disposals and trading will be used
with care in fostering sound trading opportunities. The trading operations for
the Group are expected to be cash positive for 2004.
I am pleased to report that we have now concluded terms for sale of the site at
Braehead near Glasgow, which does not have a part to play under the new plans
for the Group, for a consideration of £8.6m. £6.0m of the consideration will be
paid in 2004 with the remaining consideration of £2.6m paid in instalments in
2005 and 2006. The transaction will give rise to a gain on disposal of £3.8m in
Macfarlane Group's accounts in 2004. Since the end of the year one additional
site has been disposed of for a further £0.5m. We now expect that the proceeds
from sale of five surplus sites in 2004 and 2005 will now modestly exceed the
indication of £10.0m given in December 2003.
The Board made clear in January 2004 that the consideration of a dividend would
be dependent both on clear improvements in trading performance and progress in
realising cash from property disposals. Our expectation in relation to trading
performance is currently being met and the disposal of the Braehead site was
concluded last night. After careful consideration of the Group's trading and
investment requirements and as an expression of its confidence in the progress
being made, the board intends to declare a special interim dividend for 2004 of
0.75p per share. No dividend will be declared in respect of 2003. As to the
future, dividends will be determined by reference to profits earned.
Pensions
The transitional arrangements of Financial Reporting Standard 17 on retirement
benefits have again been adopted, requiring certain disclosures at 31 December
2003 of the net pension scheme deficit. Our UK defined benefits pension scheme
has a deficit, net of tax, of £12.1m (2002 Deficit - £11.6m). The employer
contribution rate increased from 13.5% to 15.5% of pensionable salary, and the
employee contribution rate increased from 5.0% to 7.0% of pensionable salary
with effect from 1 July 2002 which is expected to reverse the actuarial deficit
over the estimated remaining service lives of the employees.
Board changes and Corporate Governance
As shareholders will be aware, the recommendations of the Higgs and Smith
reports have been incorporated into new corporate governance regulations, which
apply with effect from 2004. The Board intends that we will comply with all
aspects of the recommendations except to the extent that it is not practicable
for us to do so; and in these instances we will explain the approach we are
adopting.
Sir John Ward retired from his position as executive chairman and from the board
last Autumn, with Peter Atkinson's arrival. In his seven years on the Board, Sir
John never stinted in his efforts on behalf of the Group and we wish him well.
In terms of the new governance regulations the Group has a need to strengthen
the independent presence at Board level by the recruitment of two independent
non-executive directors and this is currently being progressed.
Future prospects
The feature of greatest encouragement from Peter Atkinson's review was that
Macfarlane Group had clear potential for profitable growth. That is the focus of
Group attention and we will retain our present range of services and businesses
as long as we can achieve sustainable performance and returns.
Our packaging distribution business in the UK is more than double the size of
our nearest competitor and it is significant that we receive encouragement both
from our manufacturing suppliers and our customers. We intend to be a strong and
profitable leader in the packaging distribution industry. In our other
businesses there are realistic growth prospects - some of them quite exciting
but not yet secure. We will not count our gains until they are confirmed.
Through the whole period of restructuring, our staff have displayed loyalty and
our shareholders have displayed a patience without which we would not now have
the prospect of recovery. Some of our staff have endured pressures well beyond
those which would normally be considered acceptable. On behalf of the Board I
express, to them all, my very great appreciation.
The Board indicated in January that it expected to see a significant reduction
in trading losses in 2004 and that, since most of its expected capital
expenditure needs had now been met, it expected trading operations, before
property disposals, to be cash positive in 2004. There is no change to these
indications and the board will tackle the challenges of 2004 and beyond with
commitment and growing confidence.'
Further information: Archie S. Hunter Chairman 0141 333 9666
Peter D. Atkinson Chief Executive 0141 333 9666
John Love Finance Director 0141 333 9666
Trading performance
Distribution
Macfarlane's Distribution business is the leading UK distributor of packaging
products, supplying in excess of 17,000 customers through 15 Regional
Distribution Centres ('RDCs'). We enable customers to cost effectively package
their products through the provision of a comprehensive product range, single
source supply, just-in-time delivery and tailored stock management programmes.
The results for the Distribution business in 2003 were particularly
disappointing as the impact of the extensive reorganisation reduced levels of
customer service and resulted in customer erosion, low levels of new business
and high staff turnover. However the relative performance improved in the second
half of 2003 and particularly in the final quarter with service levels reaching
an acceptable level, meant the business was experiencing positive trends that
indicated our performance improvement targets in Distribution for 2004 were
realistic.
The 15 new RDCs are now fully operational, with 34 sites having been closed to
achieve this. As each new RDC has become operational, internal problems have
gradually receded and staff turnover and customer service levels have recovered.
In recent months service levels measured by On-Time-In-Full ('OTIF') deliveries
have continued to improve and this improvement in performance is being reflected
in customer retention and new business figures. This has made the business
considerably more stable and provides a much steadier platform for future
growth.
As we see service levels improve the reputation of Macfarlane in the market is
being re-established and this gives us confidence in our ability to retain,
develop and grow the base of customers. Our supplier base is also beginning to
recognise the benefit that Macfarlane's Distribution business offers as a key
'sell through' channel to the market. There are ongoing opportunities to reduce
the cost base of the business and this will be achieved in 2004 through
eliminating duplication in the internal supply chain and implementing best
practice across the 15 RDCs.
The priority for management in 2004 is to deliver significantly improved
performance through the effective implementation of 'business basics' to build
sales momentum, whilst at the same time effectively implementing plans to reduce
the cost base. The early signs for 2004 are promising with the business meeting
sales targets and costs running below forecast levels.
Packaging
Macfarlane's Packaging business currently operates from two UK sites at Grantham
and Westbury. The business manufactures a range of custom designed packaging
solutions to improve product storage, protection and presentation. Customers
benefit from the ability to cost effectively source low volume, custom designed
packaging solutions through flexible design and assembly capability.
The results in 2003 were particularly disappointing, primarily from our Northern
operation based at Govan. On 4 November 2003, the Group confirmed the disposal
of the business, certain assets and liabilities of the Northern packaging
manufacturing operations in Dundee, Govan and North Shields, for a cash
consideration of £1.0m. A book loss on disposal of £3.2m was recorded in the
accounts to 31 December 2003, primarily due to asset write-downs. The business
had made losses for some time and the results are disclosed as discontinued
operations. The decision to exit this business was made because we could not
return the business to profitability following the loss of revenue resulting
from the erosion of the IT manufacturing industry in Scotland.
The plan for the packaging business in 2004 is to drive performance improvements
in the Grantham and Westbury operations through continued close control of costs
and a focus on building new business.
Labels & Injection Moulding
Macfarlane Group's Labels and Plastic Injection Moulding businesses operate from
locations in the UK, Ireland and Sweden and continue to provide high quality
self-adhesive labels and plastic closures primarily for a range of major
international customers in the FMCG sector. Both businesses provide innovative
solutions with a high design component and strong emphasis on quality and
service delivery.
Considerable progress was made in 2003 to grow sales with existing customers and
develop new markets. Results in 2003 showed the labels business producing a
satisfactory performance however the injection moulding business suffered from
lower volumes. In overall terms, 2004 has started well with strong demand from
existing customers and we are confident of making a number of new business
breakthroughs in 2004.
International
The continuing erosion of manufacturing activities in the UK led us to support
international companies, as they service their customers in the UK, USA and
Europe from remote lower cost assembly locations. Our international operations
comprise packaging manufacturing and distribution operations in the US and in
Hungary, which are strategically positioned to service key customers. The
businesses provide tailored packaging solutions for key international customers
using Macfarlane design and assembly know-how. These businesses also help
enhance our relationships with key strategic suppliers in markets outwith the
UK.
Our international operations have suffered pressure on margins, but have both
improved their performance in the second half of 2003. The recovery in the
performance of our operation in Hungary reflects particularly well on our team
managing this operation. 2004 has started with an improvement in trading results
over that achieved in 2003. Further improvements from all overseas' operations
are expected in 2004.
Brands
Brands was acquired with the strategic objective of developing a new business,
offering key customers operating in the electronics and IT equipment sectors,
web-based project management control and tracking covering spare parts and
warranty returns. The benefit of the Brands service is to allow customers to
cost effectively control and manage their supply chain through the visibility of
spare parts and warranty returns using Brands' unique proprietary software
package.
The first commercial development is in progress in Mexico to establish the
financial viability of the offering and is progressing well. In the UK, the
company has continued to make losses into 2004 and although new contracts in UK/
Europe have been secured in the area of computer assembly and repair, the
opportunity to develop the potential of the proprietary software continues as
the principal strategic option. There is an extensive pipeline of potential
customers for this service offering and management is focused in 2004 on
developing the new business required to bring the Brands operation into
profitability.
Macfarlane Group PLC
Year ended 31 December 2003
Consolidated profit and loss account
Before Exceptional 2003 Before Exceptional 2002
exceptional £000 £000 Exceptional £000 £000
£000 £000
TURNOVER
Continuing 123,100 - 123,100 134,754 - 134,754
Discontinued operations 7,871 - 7,871 14,864 - 14,864
Total turnover 130,971 - 130,971 149,618 - 149,618
Cost of sales 88,757 310 89,067 99,189 - 99,189
Gross profit 42,214 (310) 41,904 50,429 - 50,429
Net overheads 51,593 4,370 55,963 52,380 5,044 57,424
OPERATING LOSS (9,379) (4,680) (14,059) (1,951) (5,044) (6,995)
OPERATING LOSS
Continuing (8,401) (4,468) (12,869) (1,013) (4,367) (5,380)
Discontinued operations (978) (212) (1,190) (938) (677) (1,615)
OPERATING LOSS (9,379) (4,680) (14,059) (1,951) (5,044) (6,995)
Exceptional items
(Loss)/gain on disposal of fixed - (239) (239) - 2,145 2,145
assets
Loss on disposal of business - (3,235) (3,235) - (410) (410)
LOSS BEFORE INTEREST (9,379) (8,154) (17,533) (1,951) (3,309) (5,260)
Investment income 152 215
Interest payable and similar charges (1,203) (613)
LOSS BEFORE TAXATION (18,584) (5,658)
Tax on loss on ordinary (1,354) (1,836)
activities
LOSS FOR FINANCIAL YEAR (17,230) (3,822)
Dividends on equity shares - 5,745
LOSS FOR FINANCIAL YEAR (17,230) (9,567)
Basic and diluted loss per ordinary share (14.98p) (3.25p)
Dividends per share Nil 5.00p
Corporation tax rate 7.3% 32.4%
Notes:
1. Earnings per share are calculated on the basis of the weighted average of
115,019,000 shares in issue (31 December 2002 - 117,605,351). As the diluted
loss per share reduces the loss per share the original loss per share has
been reflected as the diluted figure in the accounts.
2. The figures for 2003 are extracted from those shown in the statutory accounts
on which the auditors will issue an unqualified report today and which will
not contain a statement under s237(2) or (3) of the Companies Act 1985. A
copy of the full accounts for 2002 on which the auditors have issued an
unqualified report, has been filed with the Registrar of Companies. The
figures for 2002 are derived from the published accounts as restated for the
effects of applying UITF 38 as set out in note 3 to the consolidated balance
sheet.
3. The corporation tax rate varies significantly from the UK standard rate of
30% due to the accumulation of tax losses in 2003, which have been carried
forward and are available for offset against future profits.
Macfarlane Group PLC
31 December 2003
Consolidated balance sheet
As at As at 31December
31December 2002
2003 £000
£000
As restated
(See note 3)
Fixed assets
Intangible assets 17,054 18,250
Tangible assets 28,613 35,951
45,667 54,201
Current assets
Stocks 9,919 12,883
Debtors 28,901 37,055
Cash at bank and in hand 2,026 2,915
40,846 52,853
Creditors: amounts falling due within one year 45,780 48,196
Net current (liabilities)/assets (4,934) 4,657
Total assets less current liabilities 40,733 58,858
Creditors: amounts falling due after more than one year 683 1,080
Provisions for liabilities and charges 180 115
Total net assets 39,870 57,663
Operating assets
Operating assets 56,781 71,674
Net debt (16,911) (14,011)
Net assets 39,870 57,663
Notes:
1. Audited accounts will be sent to shareholders on or about 13 April 2004 and
will be available to members of the public at the Company's Registered
Office, 21 Newton Place, Glasgow, G3 7PY from 15 April 2004.
2. The Annual General Meeting will be held on Tuesday 11 May 2004.
3. The results for the year ended 31 December 2002 have been restated for the
effects of applying UITF Abstract 38 'Accounting for ESOP trusts'. The value
of the shares held at 31 December 2002, £825,000, has been re-categorised
from investments and reflected as a reduction from shareholders' funds.
Accordingly shares purchased during 2003 totalling £581,000 have been
treated in the same manner.
Macfarlane Group PLC
Year ended 31 December 2003
Consolidated cash flow statement
Year ended Year ended
31 December 31
December
2003 2002
£000 £000
Net cash outflow from operating activities (note 1) (492) (281)
Cash outflow from returns on investments and servicing finance (974) (318)
Tax received/(paid) 1,415 (3,780)
Net cash inflow from capital expenditure & financial investment 88 735
Net cash inflow/(outflow) from acquisitions and disposals 706 (4,422)
Equity dividends paid (3,643) (5,917)
Net cash outflow before liquid resources and financing (2,900) (13,983)
Net cash outflow from financing (604) (4,116)
Decrease in cash in the year (note 2) (3,504) (18,099)
Notes:
1. Reconciliation of operating loss to net cash outflow Year ended Year ended
from operating activities 31 December 31 December
2003 2002
£000 £000
Operating loss (14,059) (6,995)
Depreciation and impairment of tangible assets 8,000 4,964
Amortisation and impairment of intangible assets 905 3,699
Gain on disposal of tangible assets (566) (145)
Decrease in stocks 2,274 1
Decrease in debtors 4,936 2,529
Decrease in creditors (1,982) (4,334)
Net cash outflow from operating activities (492) (281)
2. Reconciliation of net cash flows to movement in net debt
Decrease in cash in the period (3,504) (18,099)
Cash inflow from decrease in debt and lease financing 604 1,508
(2,900) (16,591)
Borrowings acquired with subsidiaries - (143)
Movement in net debt in the year (2,900) (16,734)
Opening (net debt)/funds (14,011) 2,723
Closing net debt (16,911) (14,011)
Macfarlane Group PLC
Year ended 31 December 2003
Reconciliation of movements in shareholders' funds
Year ended Year ended
31 December 31 December
2003 2002
£000 £000
As restated
Loss for the financial year (17,230) (3,822)
Dividends on equity shares - (5,745)
(17,230) (9,567)
Purchase of ordinary shares - (2,608)
Movement in own shares (581) (825)
Exchange movement on retranslation of overseas subsidiaries 18 (6)
Net reduction in shareholders' funds (17,793) (13,006)
Opening shareholders' funds as previously stated 58,488 70,669
Prior year adjustment (825) -
Opening shareholders' funds as restated 57,663 70,669
Closing shareholders' funds 39,870 57,663
Macfarlane Group PLC
Year ended 31 December 2003
Details of exceptional costs in the year
EXCEPTIONAL COSTS Year ended Year ended
31 December 31 December
2003 2002
£000 £000
Cash costs
Cost of headcount reductions 1,369 1,475
Costs to maintain and vacate empty properties 1,747 705
External programme to restructure distribution - 144
Non-cash costs
Impairment of goodwill - 2,720
Impairment of tangible assets 1,254 -
Other asset write-downs 310 -
Exceptional operating costs 4,680 5,044
Loss/(gain) on disposal of fixed assets 239 (2,145)
Loss on disposal of business 3,235 410
Total exceptional costs 8,154 3,309
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 14th May 2024
COMPANIES COVERED:
Latest directors dealings
- 3 minutes ago Taseko Mines Limited NPV (DI)
- 3 minutes ago Taseko Mines Limited NPV (DI)
- 3 minutes ago Synectics
- 3 minutes ago ICG Enterprise Trust
- 12 hours ago Intercede Group