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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