Final Results - Year Ended 31 December 1999

Macfarlane Group PLC 14 March 2000 MACFARLANE GROUP IN LINE WITH EXPECTATIONS HIGHLIGHTS Initial strategic review completed in line with December announcement Profit of £14.1m before restructuring costs in line with expectations Restructuring costs confirmed at £4.9m, programme will deliver benefits in 2000 Disposal of loss-making Daniel Montgomery complete, 1999 charge of £6.6m Cost of restructuring and disposals is cash neutral Final dividend increased to 3.00p per share ============== Profit before exceptional charges down 6.6% by £1.0 million to £14.1 million Earnings per share before restructuring charges and disposals down to 7.48p from 8.37p Group sales up 2.2% to £196.3 million Strong balance sheet and high interest cover John Ward, Chairman of Macfarlane Group PLC today said: 'The results for 1999 are in line with expectations, a very creditable performance given the competitive trading conditions referred to in our statement last December. The restructuring programme has progressed well and will be completed within the cost levels previously outlined. The benefits will be as previously indicated and are already becoming apparent. Both companies highlighted as under strategic review in September 1999 have now been sold. We also achieved our key objective in the second half of the year by creating four focused business divisions under the Macfarlane Group brand. Our medium term aim is to concentrate on value added products and services, building on the acquisition programme seen in 1999. The more immediate aims are to increase operating efficiencies still further and reduce costs to enable Macfarlane Group to be a competitive player in its selected activities and an attractive profit generator. Following the conclusion of the initial strategic review in September 1999, the Board is now reviewing in detail our four Divisions to develop the most appropriate directions for growth and shareholder value creation.' Further information: John M. Ward Chairman 0141 333 9666 Iain D. Duffin Chief Executive 0141 333 9666 John Love Finance Director 0141 333 9666 Press and Media: Gordon Beattie Beattie Media 01698 787878 Ann-marie Wilkinson Beattie Media 0171 930 0453 Financial Headlines In line with our trading statement in December 1999, profit before restructuring charges and the loss on disposal of businesses for the year ended 31 December 1999 decreased from £15.1m to £14.1m. Earnings per share before restructuring charges and disposals were 7.48p compared with 8.37p for 1998. Total sales in the period increased by 2.2% from £192.1m to £196.3m. The Directors have declared a final dividend of 3.00p, an increase on the 2.95p paid in 1999, reflecting the Group's strong cash generation and the minimal cash impact of the restructuring programme and disposals. The dividend will be paid on Thursday 25 May 2000 to those shareholders on the register at 14 April 2000. Initial strategic review and restructuring programme The initial strategic review of the group's operations by Iain Duffin is now substantially complete. Our four focused operating divisions are in place following the restructuring of the company announced in September 1999. The cost of the restructuring programme outlined in December 1999 is in line with the £4.9m indicated and the resultant benefits will be realised in 2000 and beyond. Both of the companies highlighted as under strategic review in September 1999, Daniel Montgomery & Son Limited and Flo- pak (UK) Limited, have now been sold. Macfarlane Group Merchanting Division Trading in our Merchanting Division remained strong in 1999 despite considerable competition and the first two months of 2000 have continued this trend. The Division has continued to outperform its competitors and provides a secure distribution channel for products manufactured in the Group. The management team reviewed the existing branch network in the second half of 1999 and is now consolidating a small number of selected operations into fewer larger sites, some where improved telesales operations and other Division-wide support operations will be introduced. A new procurement team is in place and already delivering benefits not just to the Division but also throughout the Group. The costs to vacate the properties and headcount reductions in 1999 are as envisaged, a total of £0.72m. The resultant benefits in 2000 will be £0.35m. Macfarlane Merchanting aims to build on a long-standing reputation for customer service in the nation-wide distribution of packaging materials, whilst maximising profitability from its UK-wide branch network. The high levels of service achieved in this division and the clear expertise in distribution and supply chain logistics are considered vital to the Group's future development. Macfarlane Group Packaging Division Our Packaging Division had a good finish to 1999 despite raw material price pressures in the second half of the year, with demand in particular from the electronics and telecoms sectors. Trading has continued with year on year improvements in the first quarter of 2000. The management team has reviewed all manufacturing sites in the Division. The costs of closure and the costs to exit two rented storage sites have resulted in write-downs to assets in 1999 of £2.04m and headcount reductions costing £1.75m. The resultant benefits will reach £0.95m on an annualised basis, with £0.50m expected to be delivered in 2000. The restructuring will allow operations at other locations in the Division to be refocused on specialised areas of manufacturing expertise, concentrating on value-added products. Macfarlane Western Foam, acquired in September 1999 and based in California, is trading well and has brought new processes in the approach to market and its knowledge base which will be applied throughout the Group. Recent developments in the UK include moves by larger customers to partially or fully outsource packaging supply chain management. Two significant new customers are pilot-testing schemes with our Packaging Division to manage their packaging supply chain in a similar manner to that used by our Merchanting Division for their customers. Our Packaging Division is developing a strategy to provide bespoke packaging solutions to meet customers' requirements. We are building on our existing expertise to become a full-service packaging provider for large businesses liaising closely with the customers' supply chain to manage packaging requirements efficiently and effectively. Macfarlane Group Plastics Division Having had an excellent first six months in 1999 our Plastics Division continued to performed well in the second half of 1999, despite the well-documented hardening of raw material prices throughout the year. The last two increases in October and November proved particularly difficult to recover from customers, particularly in the price-down environment which is now prevalent. Orion Flexo Limited, acquired in February for £1.7m, had a difficult year, being the company hardest hit by increased raw material costs. The more recent acquisition of Ketts Products Limited for £0.9m introduced a high quality extruder based in Norwich, providing valuable additional turnover of £2m to the Division. The company has traded well since acquisition. Similar bolt-on acquisitions continue to be targeted as an alternative to capital expenditure driven organic growth and further efforts are being made to increase the product and service portfolio offered to customers. Macfarlane Plastics is recognised as one of the market leaders in the UK plastics industry. All six of the previously self- standing subsidiaries are now fully integrated under the Macfarlane Plastics trading name. The costs to reduce the layers of management in individual subsidiaries were as envisaged at £0.40m with resultant benefits of £0.35m expected in 2000. There is strong competition for business in 2000, reflecting a trading environment with high material costs and overcapacity. Whilst this has had an impact on profitability at the start of 2000 we expect the Division to recover strongly, particularly when raw material prices reduce. Macfarlane Group Labels Division Our Labels Division performed well in 1999 in a very competitive market environment. Pricing pressures remain but Macfarlane Labels is responding well to all business opportunities and has secured a number of substantial long-term contracts from existing customers despite strong competition. Whilst there will be an impact on short-term profitability in 2000 from the renewal of contracts, securing the business for extended periods enables the Division to participate in new projects with customers. The Division needs to develop by a mixture of organic growth and acquisitions to build on the excellent results achieved at our high quality operation in Kilmarnock and a number of opportunities are being explored for the Division. The Division continues to provide highest quality self-adhesive labels to major customers throughout the UK particularly in the beauty- care, healthcare and pharmaceutical industries. New market sectors are being targeted to broaden the sales base of the Division. Macfarlane Group Activities Under Strategic Review Both companies highlighted as under strategic review in September 1999 have now been sold. Daniel Montgomery & Son Limited and Flo- pak (UK) Limited were viewed as businesses which did not readily fit into our new divisional framework. Both were sold to international companies who had a very specific focus on the manufacturing activities involved, injection moulding and loosefill manufacture. As announced on 1 December 1999, the Group disposed of Daniel Montgomery for a consideration of £2m, net of expenses of sale. Macfarlane Group incurred a loss on disposal of £6.6m after all expenses of the sale were taken into account. The loss incurred in 1999 to the date of disposal was £1.2m on a turnover of £8.0m. The other company noted as under strategic review, Flo-pak (UK) Limited was sold on 11 February 2000 for a consideration of £3.6m net of expenses of sale. The purchaser assumed debt of £0.5m on acquisition. A profit on disposal of £0.5m will be recorded in the results for 2000. The operating profit incurred by the company in 1999 was £0.4m on a turnover of £3.3m. Finance We have continued to invest in order to support future growth plans. In 1999, capital expenditure was restricted to £4.3 million, reflecting our objectives to generate returns from the significant capital expenditure incurred in previous years. In addition there have been moves particularly in our Plastics Division, to use bolt-on acquisitions as an alternative to capital expenditure driven growth. Following the acquisition of Orion Flexo, Western Foam and Ketts Products, at a cash cost of £6.6m, net debt was £9.7m at the end of 1999 with strong interest cover. The effect on profits is a net interest charge of £0.8m compared to £1.3m in 1998, primarily reflecting the impact of lower interest rates. A number of our Divisions already have links in Europe and other continents to more effectively service our global customers. Whilst the strength of sterling currently disadvantages many UK manufacturing companies, there is no doubt that proximity to customers who relocate overseas will be a requirement in the medium term. Any such acquisitions will be financed from our existing borrowing facilities. At our Annual General Meeting on 22 May 2000, the Board intends to seek shareholder approval to buy back up to 10% of the shares in the company. We shall use this authority only where it is felt appropriate. The Board currently has no present intention of utilising this facility in full but believes it is right to have the flexibility to do so taking into account the company's cash position and market liquidity in the company's shares. Management and employees During the year the Board has significantly enhanced the management capability within the Group by making a number of key appointments to support the newly constituted Divisional teams in fulfilling the challenging objectives set for them. All our management teams and employees deserve our gratitude for their commitment in meeting the considerable challenges we faced during 1999, a year of significant restructuring in the Group. Year 2000 Following their initial review, the directors continue to be alert to the potential risks and uncertainties surrounding the year 2000 issue. At the date of this report, the directors are not aware of any significant factors which have arisen, or that may arise, which will affect the activities of the business; however, the situation is still being monitored. Any future costs associated with this issue cannot be quantified but are not expected to be significant. Prospects John Ward concluded:- 'This is undoubtedly a time of exciting changes within Macfarlane Group. The Board fully supports the new Executive Team in their efforts to restructure the Company. The Executive team is targeting increases in sales and improved operating efficiencies in all Divisions. The performance of each Division will continue to be benchmarked against a range of comparator companies to ensure that meaningful improvements in performance can be achieved. The Board will also evaluate the opportunities across our businesses to apply the use of e-commerce. Trading in 2000 has continued to be competitive and although Merchanting, Packaging and Labels are ahead of our expectations, Plastics is currently experiencing strong competition in its markets. Overall our expectations for 2000 remain unchanged. Our objective in reshaping Macfarlane Group is to produce a company which has the capacity to provide total packaging solutions in key markets and deliver double-digit earnings growth as a starting point for generating additional shareholder value.' Macfarlane Group PLC Year ended 31 December 1999 Consolidated profit and loss account Before Year Year exceptional Exceptional ended ended items items 31 31 December December 1999 1998 £000 £000 £000 £000 Turnover continuing operations 190,555 190,555 192,143 acquisitions 5,786 5,786 - 196,341 196,341 192,143 Cost of sales 127,058 127,058 122,841 Gross profit 69,283 69,283 69,302 Net overheads 54,347 4,917 59,264 52,977 Operating profit 14,936 (4,917) 10,019 16,325 Operating profit continuing operations 14,676 (4,917) 9,759 16,325 acquisitions 260 - 260 - 14,936 (4,917) 10,019 16,325 Loss on disposal of businesses - (6,580) (6,580) - Profit before interest 14,936 (11,497) 3,439 16,325 Interest receivable 62 54 Interest payable (883) (1,302) Profit before taxation 2,618 15,077 Tax on profit on ordinary 3,016 4,464 activities (Loss)/profit for the financial (398) 10,613 year Dividends on equity shares 5,809 5,745 Retained profit for the year (6,207) 4,868 (Loss)/earnings per ordinary 7.48p (7.79p) (0.31p) 8.37p share of 25p Diluted (loss)/earnings per 7.48p (7.79p) (0.31p) 8.36p ordinary share of 25p Dividends per share 4.58p 4.53p Corporation tax rate excluding disposal 32.8% 29.6% of business Notes: 1. Earnings per share are calculated on the basis of the weighted average of 126,828,240 shares in issue (31 December 1998 - 126,828,240). Diluted earnings per share are calculated on the weighted average on a diluted basis in accordance with FRS 14 Earnings Per Share of 126,828,240 shares. (31 December 1998 - 127,006,301). 2. The figures for 1999 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. The figures for 1998 are taken from the published accounts. A copy of the full accounts for that year on which the auditors have also issued an unqualified report, has been filed with the Registrar of Companies. Macfarlane Group PLC 31 December 1999 Consolidated balance sheet As at 31 As at 31 December December 1999 1998 £000 £000 Fixed assets Intangible assets 5,542 963 Tangible assets 61,615 73,342 67,157 74,305 Current assets Stocks 11,670 12,767 Debtors 45,094 42,301 Cash at bank and in hand 1,674 1,610 58,438 56,678 Creditors: amounts falling due within 55,518 53,761 one year Net current assets 2,920 2,917 Total assets less current liabilities 70,077 77,222 Creditors: amounts falling due after 95 119 more than one year Provisions for liabilities and charges 2,295 2,702 Total net assets 67,687 74,401 Operating assets by division Merchanting 19,036 18,945 Packaging 30,403 27,293 Plastics 20,951 18,622 Labels 3,580 3,812 Under strategic review 3,383 17,145 Operating assets 77,353 85,817 Net debt (9,666) (11,416) Net assets 67,687 74,401 Notes: 1. Audited accounts will be sent to shareholders on or about 17 April 2000 and will be available to members of the public at the Company's Registered Office, 21 Newton Place, Glasgow, G3 7PY from 19 April 2000. 2. The Annual General Meeting will be held on Monday 22 May 2000 and the final dividend payable to shareholders on the register at close of business on 14 April 1999 will be paid on 25 May 2000. 3. Financial Reporting Standards 12 and 13 have been adopted in these accounts, with no effect on the current or preceding financial year. 4. There have been no changes of accounting policies during the year. Macfarlane Group PLC Year ended 31 December 1999 Consolidated cash flow statement Year Year ended ended 31 31 December December 1999 1998 £000 £000 Net cash flow from operating activities 19,147 24,609 (see note 1 below) Cash outflow from returns on investments (819) (1,252) and servicing finance Tax paid (4,469) (5,815) Net cash outflow from capital expenditure (980) (10,863) and financial investment Net cash outflow from acquisitions and (4,564) (1,777) disposals Equity dividends paid (5,745) (5,745) Net cash inflow/(outflow) before liquid 2,570 (843) resources and financing Management of liquid resources - - Net cash outflow from financing (930) (1,066) Increase/(decrease) in cash in the period 1,640 (1,909) (see note 2 below) 1999 1998 Notes: £000 £000 1. Reconciliation of operating profit to net cash flow from operating activities Operating profit 14,936 16,325 Restructuring costs (4,917) - Depreciation 8,336 9,073 Amortisation of intangible assets 145 16 Gain on disposal of assets (146) (1,074) Decrease/(increase) in stocks 447 (67) (Increase)/decrease in debtors (2,578) 2,459 Increase/(decrease) in creditors 2,924 (2,123) Net cash inflow from operating activities 19,147 24,609 2. Reconciliation of movement in net debt Increase/(decrease) in cash in the period 1,640 (1,909) Cash inflow from decrease in debt and lease 930 1,066 financing Cash outflow from decrease in liquid - - resources 2,570 (843) Borrowings acquired with subsidiaries (199) (11) New finance leases and loan notes (621) - Movement in net debt in the period 1,750 (854) Opening net debt (11,416) (10,562) Closing net debt (9,666) (11,416) Macfarlane Group PLC Year ended 31 December 1999 Analysis of turnover and operating profits by division Year ended 31 December 1999 Under strategic Merchanting Packaging Plastics Labels review 1999 £000 £000 £000 £000 £000 £000 Turnover 51,653 55,339 55,143 17,084 11,336 190,555 acquisitions - 2,248 3,538 - - 5,786 51,653 57,587 58,681 17,084 11,336 196,341 Cost of sales 34,970 38,967 38,908 9,258 4,955 127,058 Gross profit 16,683 18,620 19,773 7,826 6,381 69,283 Net overheads 13,019 15,319 14,610 4,204 7,195 54,347 3,664 3,301 5,163 3,622 (814) 14,936 Restructuring 718 3,799 400 - - 4,917 costs Operating 2,946 (498) 4,763 3,622 (814) 10,019 profit/(loss) Continuing 2,946 (702) 4,707 3,622 (814) 9,759 Acquisitions - 204 56 - - 260 Operating 2,946 (498) 4,763 3,622 (814) 10,019 profit/(loss) Loss on - - - - (6,580) (6,580) disposal Net interest 25 (382) (428) 119 (155) (821) Profit 2,971 (880) 4,335 3,741 (7,549) 2,618 before tax Year ended 31 December 1998 Under strategic Merchanting Packaging Plastics Labels review 1998 £000 £000 £000 £000 £000 £000 Turnover 47,996 56,842 56,072 15,977 15,256 192,143 Cost of 32,251 37,948 37,063 8,877 6,702 122,841 sales Gross profit 15,745 18,894 19,009 7,100 8,554 69,302 Net 12,113 13,985 13,957 3,631 9,291 52,977 overheads Operating 3,632 4,909 5,052 3,469 (737) 16,325 profit Net interest 55 (479) (868) 54 (10) (1,248) Profit 3,687 4,430 4,184 3,523 (747) 15,077 before tax Macfarlane Group PLC Year ended 31 December 1999 Segmental information on operating assets by division 31 December 1999 Under strategic Merchanting Packaging Plastics Labels review 1999 £000 £000 £000 £000 £000 £000 Fixed assets 12,417 27,402 20,033 4,098 3,207 67,157 Stocks 3,506 2,994 3,750 1,120 300 11,670 Debtors 12,798 13,203 14,865 3,523 705 45,094 Current 16,304 16,197 18,615 4,643 1,005 56,764 assets Creditors 9,625 12,401 16,708 4,734 805 44,273 Net current 6,679 3,796 1,907 (91) 200 12,491 assets Total assets less current 19,096 31,198 21,940 4,007 3,407 79,648 liabilities Deferred 60 795 989 427 24 2,295 taxation Operating 19,036 30,403 20,951 3,580 3,383 77,353 assets Net 1,327 (7,178) (6,107) 2,036 256 (9,666) (debt)/funds Total net 20,363 23,225 14,844 5,616 3,639 67,687 assets 31 December 1998 Under strategic Merchanting Packaging Plastics Labels review 1998 £000 £000 £000 £000 £000 £000 Fixed assets 14,032 24,688 16,696 4,913 13,976 74,305 Stocks 2,986 3,125 3,181 1,195 2,280 12,767 Debtors 10,552 12,843 11,887 3,628 3,391 42,301 Current 13,538 15,968 15,068 4,823 5,671 55,068 assets Creditors 8,504 12,509 12,198 5,440 2,203 40,854 Net current 5,034 3,459 2,870 (617) 3,468 14,214 assets Total assets less current 19,066 28,147 19,566 4,296 17,444 88,519 liabilities Deferred 121 854 944 484 299 2,702 taxation Operating 18,945 27,293 18,622 3,812 17,145 85,817 assets Net 406 (4,975) (5,502) 1,902 (3,247) (11,416) (debt)/funds Total net 19,351 22,318 13,120 5,714 13,898 74,401 assets

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