Interim Results
Macfarlane Group PLC
01 September 2004
1 September 2004
PROFIT BEFORE TAXATION OF £1.3M COMPARED TO A LOSS OF £6.8M IN 2003
Significant reduction in operating losses from £6.5m to £1.9m in first half of
2004
Major businesses now demonstrating sales recovery and good performance
improvements
Programmes to grow sales, enhance margins and reduce costs all having a positive
impact
All 15 regional distribution centres showing improvement over the comparable
period in 2003
Future of Brands under review given continuing losses
Expectation to be cash positive from trading activities in 2004 reconfirmed
Sale of Braehead property for £8.6m generated a gain of £3.8m in the first half
Archie Hunter, Chairman of Macfarlane Group PLC, today said:
'I am pleased to report to you that the group recovery is progressing to plan.
In my statement with last year's results I said that the board had targeted a
significant reduction in operating losses in 2004. In the six months to 30 June
2004 the group operating loss was £1.9m, against £6.5m for the six months to
June 2003. After gains on property sales, the 2004 pre-tax result was a profit
of £1.3m compared with a loss of £6.8m in the six months to 30 June 2003.
Earnings per share amounted to 1.16p compared with a loss per share of 6.01p in
the first half of 2003. Turnover from continuing activities has risen in the
first half of 2004, representing the first increase in recent years.
The other headline target for 2004 was that the group should be cash positive
from its trading operations. I can report that the group is on course to achieve
this. Group debt at 30 June 2004 stood at £18.0m compared with £24.8m a year
earlier and £16.9m at December 2003. The first six months of the calendar year
is normally a period of cash outflow and a considerable reduction in net debt is
expected by the end of December 2004 both from trading activities and from
property disposal proceeds.
Trading
I previously reported the efforts, which our Chief Executive Peter Atkinson was
leading, within our packaging distribution business to concentrate attention on
growing sales through improved customer service and reducing costs through
increased efficiency. It is very encouraging for all of us that these efforts
are proving effective, as demonstrated by the results to 30 June and the trends,
which have been maintained into July and August.
One of our most exciting challenges is to secure the advantages which our
position as market leader can deliver and it is therefore gratifying to see
early positive customer responses to our progress. It is significant that every
one of our fifteen new regional distribution centres is showing improvement over
the comparable period in 2003.
The progress being made in our other businesses is set out in the trading
performance section following my statement. It is particularly pleasing to see
the continuing strong results in our labels business. It is also encouraging to
report the improving performance of our business in central Europe and the
actions taken in our other businesses to deliver improved results in the second
half of the year.
The disappointing feature is that the Brands business based in the UK has not
developed as anticipated. While the business's basic commercial proposition has
generated customer interest, it has been unable to secure the major contract
wins needed to cover its high overhead base. A major element of this base is due
to certain onerous property contracts, which were entered into prior to Brands'
acquisition by Macfarlane Group. The performance of Brands under these contracts
has not been guaranteed by any other Macfarlane Group company. Brands business
had assets of £1.2m at 30 June 2004 and incurred an operating loss of £0.8m in
the first six months of the year.
The Board has decided it cannot continue to sustain this level of loss in the
Brands business. The Board is considering a range of options, including exit,
to determine the future of the business and Brands is in active dialogue with
its various stakeholders including its major property creditor. The
expectation is that this matter will be resolved during the final quarter of
2004.
Dividends
As an expression of its confidence in the progress being made, the board paid a
special interim dividend for 2004 of 0.75p per share in May 2004. No further
interim dividends will be declared in respect of 2004. As to the future,
dividends will be determined by reference to profits earned and cash generated.
The board has already stated that nothing will be allowed to interfere with the
establishment of the strongest possible platform for recovery, in order to
return the business to profitability and recommence dividend payments.
Future prospects
The past six months have reinforced the growing confidence within the group,
which I referred to in March. The board is convinced that this confidence is
soundly based and that the group can expect to return to profitable growth in
2005. That returning confidence is evident across our business and the
enthusiasm with which our staff are responding to the chief executive's
leadership and the improving prospects is very heartening. I thank them all for
their considerable efforts.'
Further information: Archie S. Hunter Chairman 0141 333 9666
Peter D. Atkinson Chief Executive 0141 333 9666
John Love Finance Director 0141 333 9666
The interim report will be sent to shareholders on 10 September 2004 and be
available to members of the public at the Company's Registered Office, 21 Newton
Place, Glasgow G3 7PY from 14 September 2004.
Trading performance
Packaging Distribution
Macfarlane's Distribution business is the leading UK distributor of packaging
materials, supplying a wide range of 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 the first half of 2004 have been
encouraging reflecting year-on-year sales growth of 3%, consistent levels of
customer service in excess of 85% as measured by On-Time-In-Full deliveries,
margin improvement initiatives and the successful implementation of a series of
cost reduction programmes which have reduced the overhead to sales ratio by 5%
in the first half of the year. It is gratifying to see early positive customer
response to our sales growth plans, one of which, a new catalogue of our
products and services, clearly demonstrates the scale and coverage of our range.
Most importantly all 15 RDCs are showing improvement over the comparable period
in 2003 and we expect this improvement to continue in the second half of the
year, with a majority of the RDCs in profit by the year end.
Considerable duplication in the internal supply chain has been eliminated in the
year to date, supported by our key suppliers and this is expected to continue in
the second half of the year. Although raw material prices have risen during the
first six months, early indications are that these are being managed without any
significant erosion of our margin.
Staff turnover levels have reduced significantly and are now more in line with
the average for service industries. The headcount in the business has reduced
from over 500 at 30 June 2003 to 425 at 30 June 2004. Our recovery in
performance has enabled us to attract new sales and management talent to the
business.
The priority in the remainder of 2004 is to accelerate the current level of
sales momentum, whilst at the same time converting additional opportunities to
further reduce the cost base. We expect the business to return to profitability
in the final quarter of the year and this will give us a strong foundation on
which to build in 2005.
Packaging Manufacture
Macfarlane's Packaging Manufacturing 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 performance improvements in this business anticipated in 2004 have not yet
been realised primarily due to operational difficulties at our Grantham site.
These are being addressed and we remain confident that the expected improvements
will materialise in the final quarter of the year. One particularly unprofitable
contract has been exited in July 2004 which will contribute an improvement in
profitability in the second half of the year.
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.
The first half of 2004 has seen the labels business producing improved profits
due to strong demand from existing customers for new product lines. Volume
growth of 5% was achieved in the period. Further progress is expected in the
second half of the year.
The injection moulding business suffered from volumes 26% lower than those
achieved in the first half of 2003 and has taken steps to reduce its fixed cost
base. Planned new business gains in the second half of the year should allow
sales volumes to recover by the end of 2004.
International
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 to
key international customers using Macfarlane design and assembly know-how. These
businesses also enhance our relationships with key global strategic suppliers.
Our US operations have achieved strong sales growth in excess of 10% in the
first half of the year. However operational difficulties have prevented the
sales growth being reflected in the results and the business incurred a loss in
the first half of the year, albeit at a significantly reduced level from that
achieved in 2003. A new management team is addressing these operational issues
and the business is expected to exit the year in profit.
Our operation in Hungary again traded strongly in the first half of 2004, with
profits ahead of those achieved last year.
Brands
Brands was acquired in 2002 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' proprietary software package.
Despite management efforts to develop Brands, losses have continued in 2004. In
line with its previously-stated commitment to reduce trading losses during 2004,
Macfarlane Group is reviewing a range of options to determine the future of the
Brands business.
Macfarlane Group PLC
Six months ended 30 June 2004
Consolidated profit and loss account (unaudited) Six months to Six Months to Year to 31
30 June 30 June December
2004 2003 2003
Turnover Note £000 £000 £000
Continuing operations 62,522 61,156 123,100
Discontinued operations - 5,161 7,871
Total turnover 62,522 66,317 130,971
Cost of sales (41,414) (44,939) (89,067)
Gross profit 21,108 21,378 41,904
Net overheads: recurring (22,971) (26,817) (51,593)
restructuring 1 - (1,052) (4,370)
Operating loss (1,863) (6,491) (14,059)
Operating loss
Continuing operations (2003 after restructuring costs) (1,863) (5,620) (12,869)
Discontinued operations - (871) (1,190)
Operating loss (1,863) (6,491) (14,059)
Gain/(loss) on disposal of fixed assets 3,845 200 (239)
Loss on disposal of business - - (3,235)
Profit/(loss) before interest 1,982 (6,291) (17,533)
Investment income 29 20 152
Interest payable and similar charges (664) (511) (1,203)
Profit/(loss) before taxation 1,347 (6,782) (18,584)
Tax on profit/(loss) on ordinary activities 2 (45) - 1,354
Profit/(loss) for the financial period 4 1,302 (6,782) (17,230)
Dividends on equity shares (844) - -
Earnings/(loss) for the period 458 (6,782) (17,230)
Earnings/(loss) per ordinary share of 25p 3 1.16p (6.01p) (15.29p)
Dividends per share 0.75p Nil p 5.00p
Corporation tax rate 2 3.3% Nil (7.3%)
Macfarlane Group PLC
Six months ended 30 June 2004
Notes to the consolidated profit and loss account (unaudited)
1. Exceptional restructuring charges Six months to Six Months to Year to 31
30 June 30 June December
2004 2003 2003
£000 £000 £000
Vacant property costs/costs to vacate empty sites - 522 1,747
Cost of headcount reductions - 530 1,369
Impairment of assets and other asset write-downs - - 1,254
- 1,052 4,370
2. Tax on profit/(loss) on ordinary activities
UK corporation tax - - (1,500)
Overseas taxation 45 - 118
Deferred taxation - - 28
45 - (1,354)
Corporation tax has been provided for the period to 30 June 2004,
reflecting the expected tax rate for the full year on overseas earnings.
No tax is payable on the UK results, reflecting the expected tax rate for
the full year.
3. Earnings/(loss) per share Six months to Six Months to Year to 31
30 June 30 June December
2004 2003 2003
£000 £000 £000
Profit/(loss) for the financial period 1,302 (6,782) (17,230)
Number of shares in issue '000 115,019 115,019 115,019
Own shares in Employee Share Ownership Trusts '000 (2,491) (2,227) (2,358)
Weighted average number of shares in issue '000 112,528 112,792 112,661
The earnings/(loss) per share figures reflect the reductions in the
weighted average number of shares in issue to take account of UITF Abstract
38 'Accounting for ESOP trusts'. As a result comparative figures have been
represented. For all three accounting periods above, the diluted figure is
equivalent to the basic earnings/(loss) per share.
4. Reconciliation of movement in shareholders' funds Six months to Six Months to Year to 31
30 June 30 June December
2004 2003 2003
£000 £000 £000
Profit/(loss) for the financial period 1,302 (6,782) (17,230)
Dividends on equity shares (844) - -
Movement in own shares - (566) (581)
Exchange movement on retranslation of overseas businesses (472) 301 18
Net reduction in shareholders' funds (14) (7,047) (17,793)
Opening shareholders' funds 39,870 57,663 57,663
Closing shareholders' funds 39,856 50,616 39,870
Macfarlane Group PLC
30 June 2004
Consolidated balance sheet (unaudited)
As at As at As at 31
30 June 30 June December
2004 2003 2003
£000 £000 £000
(As restated
see note 3)
Fixed assets
Intangible assets 16,570 17,716 17,054
Tangible assets 23,980 38,587 28,613
40,550 56,303 45,667
Current assets
Stocks
9,850 10,442 9,919
Debtors 33,896 34,258 28,901
Cash at bank and in hand 1,951 1,590 2,026
45,697 46,290 40,846
Creditors: amounts falling due within one year 45,752 50,951 45,780
Net current liabilities (55) (4,661) (4,934)
Total assets less current liabilities 40,495 51,642 40,733
Creditors: amounts falling due after more than one year 436 903 683
Provisions for liabilities and charges 203 123 180
Total net assets 39,856 50,616 39,870
Notes
1. A copy of the accounts for 2003 on which the auditors issued an unqualified
report, has been filed with the Registrar of Companies. The figures for
year ended 31 December 2003 are derived from the published accounts.
2. The interim financial statements for 2004 have been prepared using
accounting policies consistent with those adopted in the 2003 financial
statements.
3. The figures for 30 June 2003 now reflect the prior year adjustment made in
the December 2003 accounts, which amended the accounting treatment of
shares held in Employee Share Ownership Trusts to take account of UITF
Abstract 38 'Accounting for ESOP trusts'. The value of the shares held at
31 December 2002 of £825,000 has been re-categorised from investments and
reflected as a reduction from shareholders' funds. Accordingly the shares
purchased during the first half of 2003 totalling £566,000 have been
treated in the same manner.
Total net assets as previously recorded at 30 June 2003 52,007
As above (1,391)
Total net assets as shown at 30 June 2003 50,616
4. Debtors include the deferred consideration on disposal of the Braehead site
amounting to £5,125,000, of which £2,500,000 is receivable in the second
half of 2004.
Macfarlane Group PLC
Six months ended 30 June 2004
Consolidated cash flow statement (unaudited)
Six Months Six months Year ended
ended 30 June ended 30 June 31 December
2004 2003 2003
£000 £000 £000
Net cash outflow from operating activities (note 1 below) (2,322) (2,034) (492)
Cash outflow from returns on investments and servicing finance (488) (463) (974)
Tax (paid)/received (84) (121) 1,415
Cash inflow/(outflow) from capital expenditure and financial investment 2,676 (4,502) 88
Net cash inflow from acquisitions and disposals - - 706
Equity dividends paid (844) (3,643) (3,643)
Net cash outflow before liquid resources and financing (1,062) (10,763) (2,900)
Net cash outflow from financing (233) (369) (604)
Decrease in cash in the period (note 2 below) (1,295) (11,132) (3,504)
1. Reconciliation of operating loss to net cash outflow from 2004 2003 2003
operating activities £000 £000 £000
Operating loss (1,863) (6,491) (14,059)
Depreciation of tangible fixed assets 1,658 2,518 8,000
Amortisation of intangible assets 484 534 905
Gain on disposal of assets other than properties (123) - (566)
Decrease in stocks 69 2,441 2,274
(Increase)/decrease in debtors (5,194) 2,147 4,936
Increase/(decrease) in creditors 2,647 (3,183) (1,982)
Net cash outflow from operating activities (2,322) (2,034) (492)
2. Reconciliation of movement in net debt 2004 2003 2003
£000 £000 £000
Decrease in cash in the period (1,295) (11,132) (3,504)
Cash inflow from decrease in debt and lease financing 233 369 604
Movement in net debt in the period (1,062) (10,763) (2,900)
Opening net debt (16,911) (14,011) (14,011)
Closing net debt (17,973) (24,774) (16,911)
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