Interim Results
Macfarlane Group PLC
23 August 2000
MACFARLANE GROUP DELIVERS DOUBLE DIGIT EARNINGS GROWTH
CONFIDENT OF CONTINUED PROGRESS
Pre-tax profit increases by 10.4% from £6.0 million to £6.7
million before disposal
Profit on disposal of £0.5m from sale of remaining business under
strategic review
Interim dividend increased to 1.60p
Earnings per share up 10.2% to 3.67p, excluding profit on
disposal
Cash generated of £1.3m and interest cover remains at over twenty
times
Further acquisitions in Plastics' and Labels' Divisions
==============
John Ward, Chairman of Macfarlane Group PLC today said:
'The results for the first six months of 2000 are in line with
our objective to achieve double-digit earnings growth. A number
of our businesses are showing strong top-line growth in
competitive markets and this is being supported by carefully
targeted incremental acquisitions which enhance our capability
and reduce capital expenditure requirements.
The benefits from the restructuring and rebranding programme are
now evident and underpin our aspirations to achieve top-line and
bottom-line growth. We now have four Divisions each achieving
upper quartile performance in their individual sectors and with
strong management teams seeking to improve performance levels
still further and driving their businesses forward.
Our executive team has already delivered on a number of tough
commitments set by the Board and demonstrated its ability to meet
new challenges and achieve improved earnings growth. We continue
to investigate innovative ways to serve customers better and both
our telesales and our e-commerce initiatives are progressing
well. The development of our strategic planning process is on
track and the Board intends to develop strategic options in
support of our objectives to deliver shareholder value.'
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 020 7930 0453
Macfarlane Group PLC announces its interim results for the six
months ended 30 June 2000.
Financial Headlines
The profit before tax for the six months ended 30 June 2000,
prior to the gain of £0.5 million recorded on the disposal of Flo-
pak (UK) Limited, increased from £6.0m to £6.7m. Earnings per
share before disposals were 3.67p compared with 3.33p for 1999.
Turnover in the period increased from £91.3m to £98.2m, with good
increases in turnover achieved in most Divisions.
The Directors have declared an interim dividend of 1.60p, an
increase on the 1.58p declared last year. The dividend will be
paid on Thursday 5 October 2000 to those shareholders on the
register on Monday 4 September 2000.
Trading performance Six months ended Six months ended
30 June 2000 30 June 1999
Operating Operating
Sales Profit Sales Profit
/(loss)
£000 £000 £000 £000
Merchanting 28,030 1,634 24,754 1,528
Packaging 31,052 1,633 26,708 1,189
Plastics 31,857 2,702 26,859 2,735
Labels 7,044 1,004 8,212 1,638
Under strategic review 191 17 4,758 (658)
98,174 6,990 91,291 6,432
Trading Activities
The performances achieved in Merchanting and Packaging were
particularly encouraging whilst the Plastics Division responded
well to tough trading conditions. Following the renegotiation of
a number of long-term contracts at reduced margins in the final
quarter of 1999, our Labels Division recently took advantage of
two opportunities to conclude acquisitions, which will secure new
technology and stimulate top-line growth with major new
customers. All our teams responded well to the pressure on
margins evident in a competitive market and have maintained
strict control of overheads to produce double-digit earnings
growth in the first half of 2000.
Merchanting
Trading in our Merchanting Division remains strong with good
sales growth despite competition in the market place. In the
first half of 2000, the Division signed agreements with a small
number of premium brand partners to distribute their products in
the UK on an exclusive or preferred basis. Other similar
agreements are being considered and the product offering to
customers is being expanded.
The management team in the Division is reviewing all aspects of
the cost to serve model to ensure that the best possible service
is provided to customers with the most appropriate cost base. E-
commerce initiatives are being pursued to develop a customer-
focused solution to provide the range of products required,
whilst at the same time ensuring that a more general e-commerce
solution is also made available for customers with less
specialist requirements.
Macfarlane Merchanting Limited aims to build on its 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 clear expertise in distribution and supply
chain logistics are vital to the Group's future development.
Packaging
Our Packaging Division has made a good start in 2000 with
efficiency improvements and continued strong demand from new and
existing customers in the electronics and telecoms sectors.
Despite continuing raw material price pressures in the first half
of 2000, margins are being maintained. Our American subsidiary
Macfarlane Western Foam continues to trade well.
The management team has completed the restructuring programme
within the cost levels previously outlined. The programme
resulted in the closure of the premises at Brackley and the
transfer of selected business to other locations in the Division.
Our Packaging Division will now concentrate on providing bespoke
packaging solutions to meet customers' requirements and as a
result no longer manufactures commodity-based corrugated
packaging.
Recent developments have included the opening of a unit in
Hungary, working closely with a range of top-name suppliers, to
service one of our major customers. This is an effective, low-
risk method of expanding alongside major customers overseas and
this business model may well be used in other countries with
major customers. In the UK, two significant new customers are
pilot-testing schemes with our Division to manage their packaging
requirements. Macfarlane Packaging Limited is building on its
existing expertise to become a full-service packaging provider
for large businesses liaising closely with customers' supply
chains to manage their requirements efficiently and effectively.
Plastics
The well-documented hardening of raw material prices continued to
be a feature and despite particularly tough trading conditions in
the first two months, the Division has responded well and
achieved the upper quartile levels of profitability that we would
expect from its strong and experienced management team.
All the previously self-standing subsidiaries are now fully
integrated under the Macfarlane Plastics Limited name. There
remains strong competition for business in 2000, reflecting a
trading environment with high material costs and overcapacity in
the market and whilst this had an impact on profitability in
January and February, the Division recovered strongly in the
second quarter and is well placed to reap further benefits.
The Division acquired Marpak Limited, a profitable extruder and
converter based in Leeds, and Monospec Limited an extruder and
printer based in Wrexham, for an aggregate cash consideration of
£2.6m in the second quarter of 2000. These acquisitions are
consistent with our strategy of bolt-on acquisitions in place of
capital expenditure to expand the product portfolio in the
Division with new products, which will achieve good levels of
profitability.
Our management team has consistently bought good quality existing
capacity and integrated it quickly into the Division, achieving
overhead savings and leveraging benefits through scale. Further
opportunities are being sought to increase the product and
service offering to customers.
Labels
As previously indicated, our Labels Division is trading below the
levels of profitability achieved in 1999 but at levels still
representing upper quartile performance for the UK labels
industry, reflecting the renegotiation of long-term contracts
with major customers at reduced margins. Macfarlane Labels
Limited provides quality self-adhesive labels to major customers
in the UK particularly in the beauty-care, healthcare,
pharmaceutical and food industries.
In July 2000 the Division acquired Reseal-It Sweden AB, a Swedish
company owning intellectual property for resealable labels and
related machinery and Abbot Labels Limited, a top quality label
printer based in Ireland specialising in the manufacture of
Reseal-It's resealable labels for the food industry. The combined
consideration for both acquisitions was £5 million and will
maintain the Division's position at the forefront of
technological applications for label-based solutions for major
customers with branded products, thereby providing a solid base
for future growth.
Completion of initial strategic review
The initial strategic review of Macfarlane Group's operations by
the Chief Executive, Iain Duffin is now complete. Iain and the
management team have successfully changed the focus of the Group
by selling non-core activities, restructuring to reduce the
overhead base and rebranding under the Macfarlane Group name.
The four operating divisions are trading well following the
restructuring of the company announced last year. The cost of
the restructuring programme is in line with the £4.9m indicated
in December 1999 and the resultant benefits will be realised, as
anticipated, in 2000 and beyond. Both companies highlighted as
under strategic review in September 1999, Daniel Montgomery & Son
Limited and Flo-pak (UK) Limited, have now been sold.
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 has been recorded in the results for 2000. The operating
profit achieved by the company in 1999 was £0.4m on a turnover of
£3.3m. For the period from 1 January 2000 to the date of
disposal, Flo-pak contributed turnover of £0.2 million and
operating profits of £17k.
Finance
We have continued to invest where there are key needs to meet
future growth plans. In the first six months of 2000, capital
expenditure, net of disposals, amounted to £1.6 million,
reflecting our objectives to pursue incremental acquisitions as
an alternative to significant capital expenditure as a means of
combining new capacity to the Group with a ready-made customer
base.
Following the acquisition of Marpak Limited and Monospec Limited
in the second quarter of 2000, at a cash cost of £2.6 million
with inherited borrowings of £1.4 million, net debt remains
modest at £9.0 million at the end of June 2000. The effect on
profits is a net interest charge of £0.3 million compared to £0.4
million in the same period last year and interest cover at over
twenty times remains very strong.
Dividend
The Board has declared an interim dividend of 1.60p per share
(1999 1.58p per share). The directors will review the level of
the final dividend in the light of the Group's continued progress
for the year as a whole.
Prospects
John Ward concluded: - 'It continues to be an exciting time
within the re-invigorated and expanding Macfarlane Group. The
Board draws considerable encouragement from the range of
packaging products and the manufacturing capability in Macfarlane
Group. The combination of quality manufacturing processes and
merchanting is a key strength, which should enable the company to
continue to produce good top-line and earnings growth. Our key
objective in reshaping Macfarlane Group is to produce a Company
which has the capacity to provide shareholder value by delivering
double-digit earnings growth.
Your Board remains confident for the future of Macfarlane Group
and expects to make further progress in the second half of 2000.
There is a new and enthusiastic Executive Team in place and our
restructuring programme has progressed well. Sales continue to
grow in line with expectations in spite of cost and competitive
pressures. In spite of the competitive trading conditions in the
year to date the Board has not altered its expectations for the
full year.
Our Executive Team has demonstrated its ability to effectively
absorb incremental acquisitions into our existing activities, as
a means of supplementing organic growth and as an alternative to
capital expenditure. The balance sheet and cash flow position of
the Group remains strong, allowing the Executive Team to make
further investment to support plans for organic growth and take
advantage of acquisition opportunities.
We shall not shirk from tough decisions to deliver additional
shareholder value. The reshaped Macfarlane Group will provide
leadership in selected markets through the innovative delivery of
total packaging solutions to our customers. Macfarlane Group
intends to be a competitive player and an attractive profit
generator capable of delivering superior shareholder returns.'
Unaudited accounts will be sent to shareholders on 25 August 2000
and will be available to members of the public at the Company's
Registered Office, 21 Newton Place, Glasgow, G3 7PY from 29
August 2000.
Macfarlane Group PLC
Six months ended 30 June 2000
Consolidated profit and loss account (unaudited)
Six Months Six Months Year
ended 30 ended 30 ended 31
June June December
2000 1999 1999
£000 £000 £000
Turnover continuing activities 96,242 91,291 196,341
acquisitions 1,932 - -
Total turnover 98,174 91,291 196,341
Cost of sales 66,207 57,270 127,058
Gross profit 31,967 34,021 69,283
Net overheads recurring (24,977) (27,589) (54,347)
restructuring - - (4,917)
Operating profit 6,990 6,432 10,019
Operating profit
continuing activities 6,802 6,432 10,019
acquisitions 188 - -
6,990 6,432 10,019
Gain/(loss) on disposal of business 500 - (6,580)
Profit before interest 7,490 6,432 3,439
Interest receivable and similar income 17 18 62
Interest payable and similar charges (340) (414) (883)
Profit on ordinary activities before
taxation 7,167 6,036 2,618
Tax on profit on ordinary activities 2,160 1,810 3,016
Profit/(loss) for the financial period 5,007 4,226 (398)
Dividends on equity shares 2,029 2,004 5,809
Retained profit/(loss) for the period 2,978 2,222 (6,207)
Earnings per ordinary share of 25p 3.95p 3.33p (0.31p)
Diluted earnings per ordinary share 3.95p 3.33p (0.31p)
Earnings per share before
restructuring/disposals 3.67p 3.33p 7.48p
Dividends per share 1.60p 1.58p 4.58p
Corporation tax rate 30.2% 30.0% 32.8%
1.Earnings per share are calculated on the basis of the weighted
average of 126,828,240 shares in issue (30 June 1999 -
126,828,240, 31 December 1999 - 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. (30 June 1999 - 127,012,664, 31 December
1999 - 126,828,240).
2.Taxation has been provided at 30.2% for the six months to 30
June 2000, the expected tax rate for the full year.
3.The figures for year ended 31 December 1999 are derived from
the published accounts. A copy of the accounts for 1999 on
which the auditors issued an unqualified report, has been
filed with the Registrar of Companies.
4.The interim financial statements have been prepared using
accounting policies consistent with those adopted in the 1999
financial statements. No impact arises as a consequence of
the adoption of FRS 15 and FRS 16.
Macfarlane Group PLC
30 June 2000
Consolidated balance sheet (unaudited)
As at As at As at 31
30 June 30 June December
2000 1999 1999
£000 £000 £000
Fixed assets
Intangible assets 7,056 1,670 5,542
Tangible assets 58,542 71,517 61,615
65,598 73,187 67,157
Current assets
Stocks 12,296 12,689 11,670
Debtors 47,611 42,336 45,094
Cash at bank and in hand 3,059 1,752 1,674
62,966 56,777 58,438
Creditors: amounts falling due within
one year 55,248 50,720 55,518
Net current assets 7,718 6,057 2,920
Total assets less current liabilities 73,316 79,244 70,077
Creditors: amounts falling due after
more than one year 645 153 95
Provisions for liabilities and charges 2,272 2,807 2,295
Total net assets 70,399 76,284 67,687
Operating assets by division
Merchanting 18,485 19,527 19,036
Packaging 29,924 29,026 30,403
Plastics 27,465 19,571 20,951
Labels 3,534 4,638 3,580
Strategic review - 15,555 3,383
Operating assets 79,408 88,317 77,353
Net debt (9,009) (12,033) (9,666)
Net assets 70,399 76,284 67,687
Macfarlane Group PLC
Six months ended 30 June 2000
Consolidated cash flow statement (unaudited)
Six Six Year
Months months ended
ended 30 ended 30 31
June June December
2000 1999 1999
£000 £000 £000
Net cash flow from operating activities 7,799 6,590 19,147
(see note 1 below)
Cash outflow from returns on investments and
servicing finance (315) (449) (819)
Tax paid (1,523) (566) (4,469)
Cash outflow from capital expenditure and
financial investment (1,577) (537) (980)
Net cash inflow/(outflow) from acquisitions
and disposals 1,031 (1,732) (4,564)
Equity dividends paid (3,805) (3,741) (5,745)
Net cash inflow/(outflow) before liquid
resources and financing 1,610 (435) 2,570
Management of liquid resources - - -
Net cash outflow from financing (266) (491) (930)
Increase/(decrease) in cash in the period
(see note 2 below) 1,344 (926) 1,640
Notes:
1. Reconciliation of operating profit to net 2000 1999 1999
cash flow from operating activities £000 £000 £000
Operating profit 6,990 6,432 14,936
Restructuring costs - - (4,917)
Depreciation 3,467 4,362 8,336
Amortisation of intangible assets 179 40 145
Gain on disposal of assets (487) (62) (146)
(Increase)/decrease in stocks (357) 271 447
(Increase)/decrease in debtors (2,128) 251 (2,578)
Increase/(decrease) in creditors 135 (4,704) 2,924
Net cash inflow from operating activities 7,799 6,590 19,147
2. Reconciliation of movement in net debt
Increase/(decrease) in cash in the period 1,344 (926) 1,640
Cash inflow from decrease in debt and lease
financing 266 491 930
Cash outflow from decrease in liquid resources - - -
1,610 (435) 2,570
Net debt acquired on acquisitions (1,437) (182) (199)
Net debt divested on disposals 484 - -
New finance leases and loan notes - - (621)
Movement in net debt in the period 657 (617) 1,750
Opening net debt (9,666)(11,416) (11,416)
Closing net debt (9,009)(12,033) (9,666)
Macfarlane Group PLC
Six months ended 30 June 2000
Analysis of turnover and operating profits by division
Six months ended 30 June 2000
Strategic
Merchanting Packaging Plastics Labels review 2000
£000 £000 £000 £000 £000 £000
Turnover 28,030 31,052 29,925 7,044 191 96,242
Acquisitions - - 1,932 - - 1,932
28,030 31,052 31,857 7,044 191 98,174
Cost of sales 19,335 20,854 21,777 4,228 13 66,207
Gross profit 8,695 10,198 10,080 2,816 178 31,967
Net overheads 7,061 8,565 7,378 1,812 161 24,977
Operating profit 1,634 1,633 2,702 1,004 17 6,990
Net interest 93 (221) (271) 76 - (323)
Gain on disposal - - - - 500 500
Profit before tax 1,727 1,412 2,431 1,080 517 7,167
Six months ended 30 June 1999
Strategic
Merchanting Packaging Plastics Labels review 1999
£000 £000 £000 £000 £000 £000
Turnover 24,754 26,708 26,859 8,212 4,758 91,291
Cost of sales 16,682 17,939 16,423 4,573 1,653 57,270
Gross profit 8,072 8,769 10,436 3,639 3,105 34,021
Net overheads 6,544 7,580 7,701 2,001 3,763 27,589
Operating
profit/(loss) 1,528 1,189 2,735 1,638 (658) 6,432
Net interest 8 (183) (206) 59 (74) (396)
Profit before tax 1,536 1,006 2,529 1,697 (732) 6,036
Year ended 31 December 1999
Strategic
Merchanting Packaging Plastics Labels review 1999
£000 £000 £000 £000 £000 £000
Turnover 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
costs 718 3,799 400 - - 4,917
Operating
profit/(loss) 2,946 (498) 4,763 3,622 (814) 10,019
Net interest 25 (382) (428) 119 (155) (821)
Loss on disposal - - - - (6,580) (6,580)
Profit before tax 2,971 (880) 4,335 3,741 (7,549) 2,618
Macfarlane Group PLC
Six months ended 30 June 2000
Segmental information on operating assets by division
30 June 2000
Merchanting Packaging Plastics Labels 2000
£000 £000 £000 £000 £000
Fixed assets 12,115 26,719 22,851 3,913 65,598
Stocks 3,325 3,208 4,717 1,046 12,296
Debtors 12,187 13,821 18,731 2,872 47,611
Current assets 15,512 17,029 23,448 3,918 59,907
Creditors 9,084 13,029 17,842 3,870 43,825
Net current
assets 6,428 4,000 5,606 48 16,082
Total assets
less current
liabilities 18,543 30,719 28,457 3,961 81,680
Deferred taxation 58 795 992 427 2,272
Operating
assets 18,485 29,924 27,465 3,534 79,408
Netfunds/(debt) 2,699 (4,729) (9,806) 2,827 (9,009)
Total net assets 21,184 25,195 17,659 6,361 70,399
30 June 1999
Strategic
Merchanting Packaging Plastics Labels review 1999
£000 £000 £000 £000 £000 £000
Fixed assets 13,652 23,644 18,281 4,591 13,019 73,187
Stocks 2,952 3,320 3,442 1,026 1,949 12,689
Debtors 10,784 12,914 12,591 3,416 2,631 42,336
Current assets 13,736 16,234 16,033 4,442 4,580 55,025
Creditors 7,740 9,998 13,694 3,911 1,745 37,088
Net current
assets 5,996 6,236 2,339 531 2,835 17,937
Total assets
less current
liabilities 19,648 29,880 20,620 5,122 15,854 91,124
Deferred
taxation 121 854 1,049 484 299 2,807
Operating
assets 19,527 29,026 19,571 4,638 15,555 88,317
Net funds/(debt) 108 (6,875) (4,051) 1,620 (2,835) (12,033)
Total net assets 19,635 22,151 15,520 6,258 12,720 76,284
Macfarlane Group PLC
Six months ended 30 June 2000
Segmental information on operating assets by division
31 December 1999
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 assets 16,304 16,197 18,615 4,643 1,005 56,764
Creditors 9,625 12,401 16,708 4,734 805 44,273
Net currents
assets 6,679 3,796 1,907 (91) 200 12,491
Total assets
less current
liabilities 19,096 31,198 21,940 4,007 3,407 79,648
Deferred taxation 60 795 989 427 24 2,295
Operating
assets 19,036 30,403 20,951 3,580 3,383 77,353
Net funds/(debt) 1,327 (7,178) (6,107) 2,036 256 (9,666)
Total net
assets 20,363 23,225 14,844 5,616 3,639 67,687
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