Final Results
Macfarlane Group PLC
28 March 2006
28 March 2006
MACFARLANE GROUP RETURNS TO PROFITABILITY
Macfarlane Group announces a profit for the year of £3.4m
All businesses showing improvement over 2004
Bank borrowings significantly reduced
Intention to restore regular dividend payments
Sales growth of 3.7% during 2005 from continuing operations
Strong platform for growth, with all businesses having capacity for further
performance improvements
Archie Hunter, Chairman of Macfarlane Group PLC today said:-
'I am very glad to report that after four years of losses, Macfarlane Group has
returned to profit in 2005.
After trading losses of £(10.4) million in 2003 *
and £ (2.4) million in 2004 **
we have recorded a trading profit of £ 2.6 million in 2005 **
Earnings per share from all businesses in 2005 were 3.01p and group turnover
from continuing businesses has increased in the year by £5 million to £127
million.
The turnaround in trading and asset disposals has had the expected positive
impact on our cash position. The Group generated cash of £7 million in 2005 and
as a result there has been further significant reduction in group borrowings,
which stood at £6 million at 31 December 2005 compared to a high point of £32
million at 30 September 2003. The Board anticipates further cash generation from
trading in 2006.
All of this has been achieved by disciplined executive action to a demanding
plan set by the Board two years ago. The platform has now been created for
further profitable development and the payment of dividends to our shareholders.
Trading
The results improvement has been achieved in the face of a difficult market for
Packaging Distribution in the UK. The highlights have been the retention of
margins and the return to profitability. The drive for profitable growth is now
our priority. Future sales growth in this business should be accompanied by
strong profit generation given the levels of operational gearing in our UK wide
network.
In 2005, within our Manufacturing Operations, our Labels business had to respond
to increasingly demanding customer requirements. Significant raw material price
increases had an inevitable impact on our Plastics business, which showed
improvements but continued to be loss making. The Group's operations in
California and Mexico returned to profit in 2005. They show good potential with
strong customer and supplier relationships. Both our UK Packaging Manufacturing
locations produced profits in 2005 and further improvement is expected this
year.
In line with the Group's strategy to concentrate on and develop its core
businesses, Macfarlane Group announced an agreement in January 2006 to sell its
Hungarian packaging manufacture and assembly operation. The Directors estimate
that the disposal will produce a realised gain of £0.9 million in the financial
year to 31 December 2006.
More detailed comments on trading are set out in the operating review, following
my statement.
International Financial Reporting Standards ('IFRSs')
These are the first annual accounts requiring to be prepared in line with IFRSs.
These new standards have had a significant impact on the balance sheet.
In common with many companies we had to incorporate a net pension scheme deficit
in the balance sheet, which at 31 December 2005 amounted to £16 million, net of
attributable deferred taxation of £7 million. Without taking action, the
incorporation of this deficit would have prevented the payment of dividends by
the company in the short-term. In 2005 therefore the Board sought and received
the agreement of shareholders and the court to restructure the company's capital
base and the effect of the restructuring is shown in the parent company balance
sheet. I would like to emphasise that it is out of the distributable reserves of
the parent company that dividends are paid to shareholders and at 31 December
2005, these amounted to £4.4 million.
A plan of payments to fund the deficit over future years has been agreed with
the Trustees of the pension scheme. The Board is considering what further steps
should be taken to address the pension deficit and mitigate the future effect of
pensions on the Group's distributable reserves.
Cash and Dividends
For the past two years the Board has been clear that alongside the restoration
of profitable trading, a significant reduction in Group borrowings was a
priority. With these objectives now realised, this allows the Board to address
the establishment of an appropriate pattern of dividend payment to our
shareholders. The Board believes that shareholders can expect to hear now of the
Board's intentions in this regard.
Subject to continued satisfactory trading, the Board plans to establish the
payment of an interim dividend in October of each year and a final dividend in
June each year, following the Annual General Meeting. In my statement dated 6
September 2005, I indicated that no further dividend would be declared in
respect of 2005. In respect of 2006, the Board's current intention is that the
dividend should be at the rate of 2p per share, 1p for each of the interim and
final dividend. However in view of the interval since the last dividend payment
in September last year, the Board intends acceleration of the 2006 interim
payment from October to June 2006, with the final dividend of 1p being declared
and approved by shareholders at the Annual General Meeting in June 2007.
The Board intends to present a special resolution to shareholders at the
forthcoming AGM to restore the authority to buy-back shares of the company in
the market. The Board has no present intention to use this authority but we
believe that it is now appropriate for the Company to have the authority in case
specific circumstances develop, where it would be in the best interests of
shareholders for the Company to purchase its own shares. If passed, it is the
intention of the Board that this authority would be used sparingly.
Future Prospects
I am glad to report a positive start to 2006 and the Board anticipates for the
full year a significant advance in profits over 2005.
Our objectives for 2006 are profitable growth in our major businesses. We intend
to achieve this by playing to our strengths. Our Packaging Distribution business
is the UK leader, almost three times the size of our nearest competitor. We
intend to use that strength to further develop our presence, which we estimate
currently to be about 10% of the UK market. In each of our other businesses we
have created opportunities and we plan to take advantage of them.
Having come through a most difficult period the challenge facing our staff is
now a very different one. Through their efforts, the reputation and standing of
Macfarlane Group has been very significantly restored. The platform we asked for
has been created. The challenge will not diminish but it is one that is now
exciting and uplifting. On behalf of the Board I thank them all for what has
been achieved.
I am confident we have in the business the leadership and the determination that
we need.'
Further information: Archie S. Hunter Chairman 0141 333 9666
Peter D. Atkinson Chief Executive 0141 333 9666
John Love Finance Director 0141 333 9666
* Loss from continuing and discontinued operations per UK GAAP
** Profit/(loss) from continuing and discontinued trading operations
Operating review
Revenue Revenue Result Result
2005 2004 2005 2004
Group Segment £000 £000 £000 £000
Packaging Distribution 73,915 74,095 661 (769)
Manufacturing Operations 53,332 48,610 2,267 864
-------- -------- -------- --------
Continuing activities 127,247 122,705 2,928 95
Discontinued activities (Manufacturing
Operations) 3,618 4,634 750 (845)
-------- -------- -------- --------
130,865 127,339 3,678 (750)
======== ========
Net interest payable (1,054) (1,678)
-------- --------
Profit/(loss) from continuing &
discontinued trading operations 2,624 (2,428)
Gain on disposal of properties 1,048 3,566
Loss on disposal of discontinued
operations - (1,400)
-------- --------
Profit/(loss) before taxation 3,672 (262)
Tax Continuing activities (161) 26
Discontinued activities (126) -
-------- --------
Profit/(loss) for the year 3,385 (236)
======== ========
Our objective in 2005 was to return Macfarlane Group to profitability following
four years of losses. The results for 2005 show the Group recording profits from
trading operations of £2.6 million, an improvement of £5.1 million on the
previous year. The return to profitability combined with good cash generation
and lower levels of debt reflect favourably on the actions we have taken across
all Group businesses to grow sales, improve margins, lower costs and increase
productivity.
All businesses within the Group, with the exception of our Plastics business in
Ireland, were profitable in 2005. The return to profitability was achieved
despite unfavourable market conditions in the majority of the markets in which
we operate and increasing cost pressures on raw materials, fuel and energy.
We have demonstrated in 2005 our ability to implement the relevant action plans
to return Macfarlane Group to profitability and a solid foundation has now been
established. The focus of our plans for 2006 and beyond is to build on this base
and grow the business both organically and through acquisition.
Packaging Distribution
The Macfarlane Packaging Distribution business is the leading UK distributor of
a comprehensive range of packaging consumable products. In a highly fragmented
market, Macfarlane currently has a 10% market share and through its 15 Regional
Distribution Centres (RDCs) supplies customers on a local, regional and national
basis. The business enables customers to cost effectively package their products
by providing them with a comprehensive product range, single source supply,
just-in-time delivery and tailored stock management programmes.
In 2005 Macfarlane Packaging Distribution recorded a profit of £0.7m, an
improvement of £1.4m on the previous year. There were a number of factors that
contributed to the improvement in results:-
• Although sales revenue was flat on 2004, our 2005 sales performance from
the top 10 RDCs showed 5.3% growth versus the previous year in a market
that by common consent in 2005 was at best flat;
• In 2005 our On-Time-In-Full ('OTIF') deliveries averaged 92% compared
with 85% in 2004 and only 71% in 2003. This clearly demonstrates the
progress we are making in improving the service to our customers;
• In 2005 we increased product range penetration in our existing customer
base to an average 8.2 lines per customer compared with 8.0 in 2004 and 7.0
in 2003;
• During 2005 we opened 2,875 new customers, an increase of 12 % vs. 2004;
• We commenced in 2005 a programme to rationalise our supplier base to
more cost-effectively source products. Our current supplier base consists of
670 companies, a reduction of 90 vs. 2004;
• Our headcount in 2005 stabilised at 400 and our overhead to sales ratio
reduced by 1.8% from 2004;
• In 2005, 30 major customers commenced trading with us electronically
using our new Customer Connect service; and
• Our 2005 customer satisfaction survey showed 79% of customers rating our
service above average (2004 - 74%) and of these, 27% rating our service as
excellent (2004 - 24%).
During 2005 we had stable trading patterns in 12 of our 15 RDCs. These RDCs have
experienced and capable management leading effective teams with low staff
turnover. Collectively the profit improvement from the stable RDCs was £1.2
million over 2004. However there remain 3 RDCs, which did not perform to the
expected levels during 2005. Actions have been taken to strengthen and focus
management in these RDCs and we are expecting significant performance
improvement in 2006.
The plan for 2006 is to focus our management actions on growing the business,
with a particular emphasis on extending the range of products and services
supplied to our existing customers and the winning of new customers. During 2006
we will create a dedicated new team focused on winning new business. We will
also increase our accessibility to new customers through our web-based service
Packaging2U. Our intention is also to enable a wider range of our customers to
benefit from trading with us electronically through the Customer Connect
service.
We will maintain our attention to cost control and through the ongoing programme
of supplier rationalisation and the strength of our strategic supplier
relationships expect to maintain our gross margin in 2006.
Our current RDC network allows us to effectively access 85% of the UK market and
we are currently operating at ca. 70% of the RDC network capacity. During 2006
we will evaluate potential acquisition opportunities to improve market access
and make more effective use of our existing capacity.
Manufacturing Operations
In 2005 Macfarlane Group's Manufacturing Operations recorded a profit of £2.3m,
an improvement of £1.4m on the previous year. All operations showed improvements
on 2004.
Both Macfarlane Labels and Macfarlane Plastics businesses supply major FMCG
customers primarily, but not exclusively, based in the UK and Ireland. Labels
operate from two plants, Kilmarnock and Dublin, supplying design and production
of high quality self-adhesive and re-sealable labels for consumer packs.
Plastics operate from Wicklow in Ireland designing and producing
injection-moulded closures and dispensers primarily used in the packaging of
powdered consumer products. The key features of the Labels performance in 2005
were:-
• A profit performance broadly in line with 2004 despite the market for
self-adhesive labels being particularly competitive with strong retail
pressure for supplier price reductions;
• Good volume growth of 27% in re-sealable labels and self-adhesive label
volumes at last year's levels;
• Cost reductions and programmes to improve productivity were implemented
at both our plants with the aim of offsetting the selling price pressures;
• There have been initial moves to develop the re-sealable labels business
in the USA, following encouraging feedback from potential customers and
there are new versions of the re-sealable label being trialled which will
enable its use in a number of additional product sectors.
Our priorities in 2006 are to continue to improve operational efficiencies in
order to offset retail price pressure, to broaden the appeal of the re-sealable
label offering and to accelerate our growth plans in our chosen sectors of the
self-adhesive label market. We also see potential opportunities to accelerate
growth through acquisition.
Manufacturing Operations
The Plastics business reduced its operating losses significantly in 2005 but did
not achieve the break-even level that was targeted. The key features of the 2005
performance were:-
• Sales volume growth vs. 2004 and the operating loss was reduced versus
2004;
• Continued rises in raw material prices, which were not fully recovered,
from the customer base;
• We experienced increased cost pressures particularly on transport and
energy; and
• Towards the end of 2005 a number of senior management changes were
implemented
The strengthened management team is now fully focused on building on the
improvements achieved in 2005 to restore a break-even position in 2006.
Macfarlane's Packaging Manufacture business operates from two UK sites in
Grantham and Westbury. The business produces a range of low volume,
custom-designed packaging solutions using corrugate, timber and foam materials.
The range of products is particularly focused on the electronics, medical and
automotive markets where product protection, for both storage and transportation
are key requirements. The highlights of the 2005 performance were:-
• Both sites returning to profitability in 2005 following losses in 2004;
• At Grantham the introduction of a 'lean manufacturing programme' produced
cost reductions and improved productivity;
• Customer retention levels increased through improved customer service;
and
• At Westbury the profit recovery was primarily driven by good sales
growth.
The priority for 2006 is to improve the returns from this business. At Grantham
the focus in 2006 will be on growing sales particularly through the Macfarlane
Packaging Distribution network. Our Westbury location is focused on maintaining
sales momentum while at the same time introducing a number of the productivity
improvement initiatives that were effective at Grantham in 2005.
Macfarlane had packaging manufacturing and assembly operations in California,
Hungary and Mexico during 2005. These plants provided corrugate, foam and timber
packaging solutions primarily to the electronics sector. The US operations focus
particularly on foam based products in relation to their position in the
electronics sector and have recently diversified into the healthcare and fresh
produce display sectors of the market.
The US business had a particularly successful year in 2005.
• During 2005 the US business suffered major raw material price increases
both as a result of the oil price pressure and also due to supply chain
issues with certain key vendors following the extraordinary weather
conditions. However both of these difficulties were effectively managed and
had no material impact on the business in 2005.
• The sales momentum created in the second half of 2004 was maintained
throughout the year resulting in annual sales growth of 27%
• The business returned to profitability following losses in 2004
• The absorption of the foam packaging activities of a key customer that
took place at the end of 2004 was successfully integrated in 2005 and
contributed 12% of the sales growth.
• We also created and strengthened a number of significant major customer
relationships during 2005 in both the medical and electronics sectors and
these provide a solid platform for further growth in 2006; and
• At the end of 2005 we made the decision to establish a new facility in
Tijuana, which will enable us to more cost-effectively service our
customers in Southern California and give access to new customers in
Northern Mexico.
Our priorities in 2006 are to build on our current strong market position and
our key customer relationships in California in the medical and electronics
sectors. The opening of the new facility in Tijuana will enable us to enhance
our production capacity while at the same time becoming more cost-effective and
more accessible to key local markets and customers particularly in the Northern
Mexico region.
Manufacturing Operations
The decision to establish a business in Hungary was made in 2000, when IBM, a
key customer of our Westbury facility relocated to Budapest. Although our
business in Hungary continued to be successful in 2005, we became increasingly
concerned at the over-dependence on this one customer. In 2005 Nefab AB, a
Swedish based company, expressed an interest in acquiring our business in
Hungary. Following a strategic review the decision was made to sell the
business. The transaction was completed early in January 2006 at a price of
£2.3m, a £0.9m premium to net asset value and the activities have been disclosed
as discontinued in the financial statements.
Future Outlook
During 2005 we have demonstrated our ability to return the group to
profitability. We have also improved cash generation and significantly
strengthened the balance sheet. Our priority is now to continue the process of
giving greater focus to the Group's activities, accelerating growth in the key
businesses and continuing to improve financial performance in the niche
businesses.
The Group has a range of businesses, all of which have good potential and
operate in highly fragmented markets with opportunities for consolidation. Our
market positions particularly in UK Packaging Distribution and Labels are sound
and can be strengthened through both organic and acquisition-lead growth. In
addition we have a number of other good geographic and product niches, most of
which are now profitable and offer continued potential for profit improvement.
The businesses are all developing their operational capability and
cost-effectiveness. We consistently see our customer service improving
dramatically and our key customer and supplier relationships are strengthening.
A key component of our future plans is to accelerate the efforts of all our
businesses to become more customer-focused.
Following a particularly difficult period over the last three years, Macfarlane
Group has now established a strong foundation. Management is now focused on
using this foundation to further develop, strengthen and grow the Group's key
businesses.
Macfarlane Group PLC
Consolidated income statement
For the year ended 31 December 2005
2005 2004
Note £000 £000
Continuing operations
Revenue 2 127,247 122,705
Cost of sales (85,122) (82,200)
--------- ---------
Gross profit 42,125 40,505
Distribution costs (6,521) (6,829)
Administrative expenses (32,676) (33,581)
--------- ---------
Operating profit before property transactions 3 2,928 95
Gain on disposal of properties 4 1,048 3,566
--------- ---------
Operating profit 3,976 3,661
Investment income 103 94
Finance costs 5 (1,189) (1,772)
--------- ---------
Profit before tax 2,890 1,983
Tax 6 (161) 26
--------- ---------
Profit for the period from continuing operations 2,729 2,009
--------- ---------
Discontinued operations
Profit/(loss) for the period from discontinued
operations 656 (845)
Loss on disposal of discontinued operations - (1,400)
--------- ---------
Total profit/(loss) for the period from discontinued
operations 656 (2,245)
--------- ---------
--------- ---------
Profit/(loss) for the year 3,385 (236)
========= =========
Earnings/(loss) per share 8
From continuing operations
Basic 2.43p 1.79p
========= =========
Diluted 2.41p 1.78p
========= =========
From continuing and discontinued operations
Basic 3.01p (0.21p)
========= =========
Diluted 2.99p (0.21p)
========= =========
Macfarlane Group PLC
Consolidated statement of recognised income and expense
For the year ended 31 December 2005
2005 2004
£000 £000
Exchange difference on translation of foreign operations 144 (180)
Actuarial (losses)/gains on defined benefit pension schemes (5,553) 222
Tax on items taken directly to equity 1,666 (67)
--------- ---------
Net expense recognised directly in equity (3,743) (25)
Profit/(loss) for the year 3,385 (236)
--------- ---------
Total recognised income and expense for the year (358) (261)
========= =========
Macfarlane Group PLC
Consolidated reconciliation of movements in shareholders' equity
For the year ended 31 December 2005
Note 2005 2004
£000 £000
Profit/(loss) for the year 3,385 (236)
Dividends to equity holders in the year 7 (844) (844)
Net expense recognised directly in equity (3,743) (25)
--------- ---------
Movements in equity in the year (1,202) (1,105)
Opening equity 26,641 27,746
--------- ---------
Closing equity 25,439 26,641
========= =========
Macfarlane Group PLC
Consolidated balance sheet at 31 December 2005
Note 2005 2004
£000 £000
Non-current assets
Goodwill 17,182 17,054
Property, plant and equipment 14,608 17,601
Investment property 1,701 1,701
Other receivables 863 2,242
Deferred tax asset 6,651 5,013
-------- --------
Total non-current assets 41,005 43,611
-------- --------
Current assets
Inventories 8,803 8,689
Trade and other receivables 29,639 28,611
Cash and cash equivalents 1,203 2,018
-------- --------
Total current assets 39,645 39,318
Non-current assets classified as held for sale 9 1,925 3,580
-------- --------
41,570 42,898
-------- --------
Total assets 82,575 86,509
======== ========
Current liabilities
Trade and other payables 24,681 26,777
Current tax liabilities 796 595
Obligations under finance leases 272 479
Bank overdrafts and loans 7,830 14,226
Liabilities directly associated with assets classified
as held for sale 9 485 -
-------- --------
Total current liabilities 34,064 42,077
-------- --------
Net current assets/(liabilities) 5,581 (2,759)
-------- --------
Non-current liabilities
Retirement benefit obligations 11 22,977 17,424
Obligations under finance leases 95 367
-------- --------
Total non-current liabilities 23,072 17,791
-------- --------
Total liabilities 57,136 59,868
======== ========
-------- --------
Net assets 25,439 26,641
======== ========
Equity
Share capital 28,755 28,755
Capital redemption reserve - 2,952
Share premium account - 7,547
Revaluation reserves 167 274
Own shares (1,406) (1,406)
Translation reserves (36) (180)
Retained earnings (2,041) (11,301)
-------- --------
Total equity 25,439 26,641
======== ========
Macfarlane Group PLC
Consolidated cash flow statement
For the year ended 31 December 2005
Note 2005 2004
£000 £000
Net cash from operating activities 10 1,990 2,170
-------- --------
Investing activities
Interest received 119 93
Proceeds on disposal of property, plant and equipment 6,255 6,563
Purchases of property, plant and equipment (869) (3,925)
-------- --------
Net cash from investing activities 5,505 2,731
-------- --------
Financing activities
Dividends paid 7 (844) (844)
Repayments of obligations under finance leases (479) (469)
Decrease in bank overdrafts (6,396) (3,596)
-------- --------
Net cash used in financing activities (7,719) (4,909)
-------- --------
Net decrease in cash and cash equivalents (224) (8)
Cash and cash equivalents at beginning of year 2,018 2,026
-------- --------
Cash and cash equivalents at end of year 1,794 2,018
======== ========
Macfarlane Group PLC
For the year ended 31 December 2005
Notes to the consolidated accounts
1. General information
The financial information set out in this preliminary announcement does not
constitute the Group's statutory financial statements as defined in Section 240
of the Companies Act 1985 and has been extracted from the full statutory
accounts for the years ended 31 December 2005 and 31 December 2004 respectively.
The information for the year ended 31 December 2004 does not constitute the
Group's statutory financial statements as defined in Section 240 of the
Companies Act 1985. A copy of the statutory accounts for that year has been
delivered to the Registrar of Companies and these accounts have now been
restated under IFRS. The auditors' report on those accounts was unqualified
pursuant to Section 235 of the Companies Act 1985 and did not contain a
statement under sub-section 237 (2) or (3) of that Act.
The auditors' report on these statutory financial statements for the year ended
31 December 2005 was unqualified pursuant to Section 235 of the Companies Act
1985 and did not contain a statement under sub-section 237 (2) or (3) of that
Act.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with IFRSs, this announcement does not of itself
contain sufficient information to fully comply with IFRSs. The company expects
to publish full financial statements that comply with IFRSs in April 2006.
2. Split between continuing and discontinued activities
Continuing Discontinued 2005 Continuing Discontinued 2004
£000 £000 £000 £000 £000 £000
Turnover 127,247 3,618 130,865 122,705 4,634 127,339
Cost of (85,122) (2,082) (87,204) (82,200) (2,540) (84,740)
sales -------- ---------- ------ -------- ---------- -------
Gross profit 42,125 1,536 43,661 40,505 2,094 42,599
Distribution
costs (6,521) (104) (6,625) (6,829) (427) (7,256)
Administration
costs (32,676) (682) (33,358) (33,581) (2,512) (36,093)
-------- ---------- ------ -------- ---------- -------
Profit/(loss)
before
property
transactions 2,928 750 3,678 95 (845) (750)
Gain on
property
disposals 1,048 - 1,048 3,566 - 3,566
-------- ---------- ------ -------- ---------- -------
Operating
profit/(loss) 3,976 750 4,726 3,661 (845) 2,816
Investment
income 103 32 135 94 - 94
Finance (1,189) - (1,189) (1,772) - (1,772)
costs -------- ---------- ------ -------- ---------- -------
Profit/(loss)
before tax 2,890 782 3,672 1,983 (845) 1,138
Tax (161) (126) (287) 26 - 26
Loss on
business
disposal - - - - (1,400) (1,400)
-------- ---------- ------ -------- ---------- -------
Profit/(loss)
after tax 2,729 656 3,385 2,009 (2,245) (236)
======== ========== ====== ======== ========== =======
3. Segmental information
The Group's activities are centred around two principal activities, with those
manufacturing operations discontinued in the current and prior years disclosed
separately.
(i) Packaging Distribution
The distribution of packaging materials from a network of 15 Regional
Distribution Centres in the UK.
(ii) Manufacturing Operations
The manufacture and supply of self-adhesive and resealable labels and
plastic-injection moulded products to a variety of FMCG customers in
the UK and Europe and the manufacture, assembly and supply of timber,
corrugated and foam based packaging materials in the UK and US/Mexico.
(iii) Discontinued Operations
The operations in Hungary were sold at the start of 2006 and are
classified as discontinued in the financial statements for 2005.
2005 2004 2005 2004
Sales Sales Result Result
Group Segment £000 £000 £000 £000
Packaging Distribution 73,915 74,095 661 (769)
Manufacturing Operations 53,332 48,610 2,267 864
---------- ------------- ---------- -------
Continuing activities 127,247 122,705 2,928 95
Discontinued operations 3,618 4,634 750 (845)
---------- ------------- ---------- -------
130,865 127,339 3,678 (750)
========== =============
Profit from discontinued operations (750) 845
---------- -------
Profit before property transactions 2,928 95
Gain on disposal of properties 1,048 3,566
---------- -------
Operating profit 3,976 3,661
Investment income 103 94
Finance costs (1,189) (1,772)
---------- -------
Profit before tax 2,890 1,983
Tax (161) 26
Profit/(loss) from discontinued operations
after tax 656 (845)
Loss on disposal of discontinued
operations - (1,400)
---------- -------
Profit/(loss) after tax and discontinued
operations 3,385 (236)
========== =======
4. Gain on disposal of properties
Three properties were sold during 2005 for a combined consideration of
£4,880,000. On 4 February 2005, the Group sold its vacant premises at Govan near
Glasgow for a consideration after attributable expenses of £2,715,000, giving
rise to a gain of £1,300,000. On the same date the Group announced the disposal
of a six-bay distribution site in Grantham. Sale proceeds from the site of
£1,935,000 after expenses equated to book value. In April 2005 the Group sold
its vacant site at Glenrothes for a consideration of £230,000 after expenses,
which equated to book value.
In 2004, the Group sold its premises at Braehead near Glasgow for a
consideration of £8,625,000. The disposal gave rise to a gain of £3,845,000 in
the financial statements for 2004.
The costs to operate vacant properties in the year amounted to £252,000 (2004 -
£279,000) and were offset against the gains arising on disposal.
5. Finance costs 2005 2004
£000 £000
Interest on bank loans and overdrafts (698) (1,183)
Interest on obligations under finance leases (43) (72)
Interest cost of pension scheme liabilities (2,728) (2,734)
-------- --------
Total interest expense (3,469) (3,989)
Expected return on pension scheme assets 2,280 2,217
-------- --------
Total finance costs (1,189) (1,772)
======== ========
6. Tax 2005 2004
£000 £000
Current tax
United Kingdom corporation tax at 30% (2004: 30%) (40) -
Foreign tax (121) (99)
Prior year adjustment - 24
-------- --------
Current tax charge (161) (75)
Deferred taxation - 101
-------- --------
Total (161) 26
======== ========
The standard rate of current tax for the year, based on the UK rate of
corporation tax is 30% (2004 - 30%). Taxation for other jurisdictions is
calculated at the rates prevailing in the respective jurisdictions.
The actual tax charge for current and previous year is less than 30% of the
results as set out in the income statement for the reasons set out in the
following reconciliation:
2005 2004
£000 £000
Profit before taxation 2,890 1,893
-------- --------
Tax on profit at 30% (867) (568)
Factors affecting tax credit for the year:-
Depreciation in excess of capital allowances 107 1,300
Non taxable gain 390 1,153
Other differences (1,000) (573)
Tax losses utilised/(unutilised) 1,281 (1,471)
Difference on overseas tax rates (72) 60
Prior year adjustment - 24
-------- --------
Current tax charge for the year (161) (75)
======== ========
2005 2004
7. Dividends £000 £000
Amounts recognised as distributions to equity holders in the
year:
Special interim dividend for the year ended 31 December 2005
of 0.75p per share (2004 - Special interim dividend
of 0.75p per share) 844 844
======== ========
Dividends are not payable on own shares held in the employee share trust.
8. Earnings/(loss) per share
From continuing and discontinued operations
The calculation of the basic and diluted earnings/(loss) per share is based on
the following data:
2005 2004
£000 £000
Earnings/(loss) from continuing and discontinued
operations for the purposes of earnings per share
being net profit attributable to equity holders of
the parent 3,385 (236)
-------- --------
Adjustments to exclude discontinued operations
(Profit)/loss for the year from discontinued (656) 845
operations - 1,400
Loss on disposal of discontinued operations
-------- --------
Earnings from continuing operations for the
purposes of earnings per share being net profit
attributable to equity holders of the parent 2,729 2,009
======== ========
Number of shares in issue for the purposes of
calculating basic and diluted earnings/(loss) per
share 2005 2004
No. of No. of
shares '000 shares '000
Weighted average number of ordinary shares in
issue 115,019 115,019
Own shares in Employee Share Ownership Trusts (2,491) (2,491)
-------- --------
Weighted average number of shares in issue for the 112,528 112,528
purposes of basic earnings/(loss) per share
Effect of dilutive potential ordinary shares due
to share options 602 69
-------- --------
Weighted average number of shares in issue for the 113,130 112,597
purposes of diluted earnings/(loss) per share
======== ========
As the diluted loss per share reduces the loss per share in 2004, the original
loss per share has been reflected as the diluted figure in the financial
statements.
9. Non-current assets and current liabilities classified as held for sale
In January 2006, the Group's Hungarian subsidiary was sold. As the decision to
sell the business was taken before 31 December 2005, consequently the results of
the subsidiary for 2005 and 2004 are classified as discontinued operations in
the consolidated income statement. The component parts of the balance sheet sold
in January 2006 are classified as non-current assets and current liabilities
held for sale at 31 December 2005.
10. Notes to the cash flow statement 2005 2004
£000 £000
Operating profit
Continuing operations 3,976 3,661
-------- -------
Discontinued operations 750 (845)
-------- -------
Operating profit 4,726 2,816
Adjustments for:
Depreciation of property, plant and equipment 3,349 3,407
Gain on disposal of property, plant and equipment (1,075) (3,911)
-------- -------
Operating cash flows before movements in working capital 7,000 2,312
(Increase)/decrease in inventories (379) 1,205
(Increase) in receivables (1,981) (437)
(Decrease)/increase in payables (1,233) 36
-------- -------
Cash generated by operations 3,407 3,116
Income taxes (paid)/received (212) 744
Interest paid (1,205) (1,690)
-------- -------
Net cash from operating activities 1,990 2,170
======== =======
2005 2004
£000 £000
Decrease in cash and cash equivalents in the year (224) (8)
Decrease in bank overdrafts 6,396 3,596
Cash flows from debt and lease financing 479 469
Loan notes issued in the year - (200)
-------- -------
Movement in net debt in the year 6,651 3,857
Opening net debt (13,054) (16,911)
-------- -------
Closing net debt (6,403) (13,054)
======== ========
Net debt comprises:
Cash and cash equivalents 1,203 2,018
Cash and cash equivalents in business held for resale 591 -
Bank overdrafts and loans (7,830) (14,226)
Obligations under finance leases (367) (846)
-------- --------
Closing net debt (6,403) (13,054)
======== ========
Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with a maturity of three months or less. Cash inflows in
respect of the discontinued operations for operating activities amounted to
£531,000 for 2005, (2004 Outflow of £370,000) Cash inflows in respect of
investing activities totalled £32,000 (2004 - £7,000) and cash outflows from
financing activities amounted to £268,000 (2004 £1,003,000).
11. Pension scheme
The Group operates a pension scheme based on final pensionable salary for its UK
operations. The assets of the scheme are held separately from those of the Group
in managed funds under the overall supervision of the scheme trustees.
The contributions are determined by the scheme's qualified actuary on the basis
of triennial valuations using the projected unit method. The most recent
triennial valuation was as at 1 May 2005. The principal assumptions adopted were
that investment returns would average 7.75% per annum and that salary increases
would average 3.5% per annum. The valuation showed that the market value of the
relevant assets of the scheme was £35,259,000 and the actuarial value of these
assets represented 76% of the value of benefits that had accrued to members.
The final salary scheme was closed to new entrants during 2002 and the rate of
contributions from both employees and the employer was increased. The employer
contribution rate increased from 13.5% to 15.5% of pensionable salary, and the
employee contribution rate increased from 5% to 7% of pensionable salary from 1
July 2002 following actuarial advice.
Following the actuarial valuation, the Board has agreed with the pension scheme
trustees to make additional payments to the scheme of £0.7 million per annum for
three years commencing 2006 to reduce the net pension deficit. These additional
payments will increase the pension scheme assets; they are not a charge against
profits.
Balance sheet disclosures
The figures below have been based on the triennial actuarial valuation as at 1
May 2005, updated to the current year-end. The assets in the scheme, the net
liability position for the scheme at 31 December 2005 and the expected rates of
return were:
Asset Fair value Long-term Fair Long-term Fair Long-term
class 2005 expected rate value expected rate value expected
£000 of return 2004 of return 2003 rate of
£000 return
Equities 24,077 7.50% 19,911 7.75% 18,500 8.25%
Bonds 16,678 4.50% 15,173 5.00% 14,300 5.00%
Other (cash) 21 4.50% 37 5.00% 100 4.50%
------- ------- -------
Fair value
of assets 40,776 6.27% 35,121 6.56% 32,900 6.82%
Present value
of scheme
liabilities (63,753) (52,545) (50,212)
------- ------- -------
Deficit in
the scheme (22,977) (17,424) (17,312)
Related
deferred
tax asset 6,893 5,227 5,193
------- ------- -------
Net pension
liability (16,084) (12,197) (12,119)
======= ======= =======
Ongoing contributions to the scheme in 2005 covered current service costs and
the costs of financing the deficit, but were not at a level to cause the deficit
to reduce.
The pension scheme's assets saw a significant benefit from higher than expected
equity returns in 2005. However this benefit was more than offset by changes to
two of the major actuarial assumptions in determining the pension scheme's
liabilities, firstly significant reductions in the bond yields used to value
pension liabilities and secondly the move to more up-to-date mortality tables
used to value liabilities. Both of these factors significantly increased the
pension scheme's liabilities during 2005.
12. IFRS transitional statements
The reconciliations of equity at 1 January 2004 and 31 December 2004 and the
reconciliation of profit/(loss) for the year ended 31 December 2004, as required
by IFRS1, including significant accounting policies and notes to 31 December
2004, were included in the Group's half yearly statement to 30 June 2005 issued
on 6 September 2005.
13. Posting to shareholders and Annual General Meeting
The Annual Report and Accounts will be sent to shareholders on Friday 7 April
2006. The Annual General Meeting will take place at the Thistle Hotel, Cambridge
Street Glasgow at 12 noon on Tuesday 9 May 2006. The Annual Report and Accounts
will be available to members of the public at the Company's Registered Office,
21 Newton Place, Glasgow G3 7PY from 10 April 2006.
This information is provided by RNS
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