Interim Results

Macfarlane Group PLC 10 September 2002 MACFARLANE GROUP PROFITABLE AS RESTRUCTURING PROGRAMME CONTINUES Â£0.7m profit achieved despite incurring restructuring costs of Â£0.8m to streamline the business Early indications at completed sites demonstrate the benefits of the strategy and expected returns Property disposal programme progressing to plan, expected to generate cash and earnings in 2002/2003 Recent acquisition of outsourcing specialist to create opportunities with major customers Interim dividend maintained at 1.80p per share +++++++++++ John Ward, Chairman of Macfarlane Group PLC, today said: 'Macfarlane Group's results in the first half of 2002 continue to reflect the ongoing change process within our distribution business, whilst our other businesses are trading in line with expectations. The difficult market conditions referred to in my Annual General Meeting statement in May 2002, which now reflect the full impact from the downturn in electronics, continue with no indication of improvement in the short-term. Recently issued economic statistics, commenting on lower activity in manufacturing, are confirmed by our activity levels supplying this sector. Management effort in the first half of 2002 has focused on the extensive programme to fundamentally change the shape and scope of our business, seeking reductions in our cost structure to match the prevailing levels of activity. As I have stated previously, this is a bold and challenging realignment of our business, particularly in the current economic climate. The programme will be completed in 2003 with further disposals of surplus properties continuing to deliver cash and earnings to support the costs of the transition. Although the expected benefits are taking longer to achieve and causing greater costs and disruption in the business than originally envisaged, there are encouraging signs that, at individual sites where the transition has been completed, the benefits are being realised. Therefore, the Board remains fully committed to the programme, which will see the replacement of over 45 trading branches and manufacturing sites with the creation of a national network of 15, state-of-the-art, regional distribution and fulfilment centres coupled with two manufacturing centres of excellence, providing a solid platform for future growth. In parallel major investments have been made to implement advanced information systems to meet customer requirements and support our e-business initiatives. In July 2002 we acquired Tom Brands Electrical Services Limited ('Brands'), an outsourcing and customer relationship management specialist, supporting our strategy to provide a wider range of services to key customers. The acquisition provides a number of opportunities to meet the requirements of major customers seeking partners who can demonstrate a capability to meet outsourcing needs both in the UK and overseas. This is particularly true in current markets when major organisations are seeking to focus on their core activities and outsource many service-based activities to key supply partners. Macfarlane Group can now offer customers not just packaging solutions but a much wider range of outsourcing services in the UK, USA, Latin America and Europe. Macfarlane Group remains in a strong position due to the cash and earnings being generated from sale of surplus properties, which continue to strengthen our balance sheet. This enables us to take advantage of any further acquisition opportunities, whilst allowing the Company to fund share buybacks and maintain dividends. Your Board remains confident that the significant transition in our business will, on completion, deliver growth and secure a strong market position, particularly once the trading cycle starts to show signs of improvement. Although the economy has not yet made any significant recovery in 2002, the Board expects to make further progress streamlining the business in the current year.' Further information: Press and Media: John M. Ward, Chairman 0141 333 9666 Gordon Beattie 01698 787878 Iain D. Duffin, Chief Executive 0141 333 9666 Ann-marie Wilkinson 0207 398 3301 John Love, Finance Director 0141 333 9666 Macfarlane Group PLC announces its interim results for the six months ended 30 June 2002. Financial Headlines Six months ended Six months ended Year ended 30 June 2002 30 June 2001 31 December 2001 Sales Profit/(loss) Sales Profit Sales Profit/(loss) Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Continuing packaging 72,925 (71) 74,264 5,114 159,623 8,234 Discontinued plastics - - 30,842 2,122 38,577 2,767 72,925 (71) 105,106 7,236 198,200 11,001 Net finance charges (63) (238) (418) Profit before exceptional items (134) 6,998 10,583 Gain on disposal of properties 1,625 830 822 1,491 7,828 11,405 Restructuring charges (800) (675) (10,058) Loss on disposal of business - - (2,770) Pre-tax profit/(loss) 691 7,153 (1,423) Profit before tax for the six months ended 30 June 2002 was Â£0.7m, compared to Â£7.2m in 2001. Earnings per share, as restated for the effects of applying FRS 19 'Deferred Tax', totalled 0.45p compared with 4.46p in the previous year. Turnover reduced to Â£72.9m in the first half of 2002 from Â£105.1m during the same period in 2001, reflecting the disposal of the Plastics business in 2001 and the challenging market conditions with lower levels of activity apparent from electronics and manufacturing customers. Trading performance The restructuring of the distribution business continues with 6 sites already closed in the first half of 2002 and a further 3 sites planned for closure in the remainder of the year, all being consolidated into larger, more efficient sites providing a platform for future growth. The programme is being funded by the proceeds from the sale of surplus properties, which is expected to continue in the second half of 2002. Completion of the restructuring programme will result in 21 sites being closed by the end of 2002, in most cases simply eliminating duplication of sites in key regions, with the final 4 sites scheduled for closure in the first quarter of 2003. The delay in completion of the programme has been primarily due to locating suitable quality sites to maximise the benefits from the transition. In several cases, delays in finding appropriate sites have led to an escalation in costs by having to maintain additional sites before cost savings can be achieved. The duplication of costs is estimated to be Â£1.5m for the first half of 2002 and caused the distribution business to make a loss in the first half of 2002, however this business is expected to return to profit in the second half of the year. Standardisation of best practices is being implemented and a common information system, already successfully in operation at a number of our locations, is being rolled out at all new centres. Many successful e-business relationships with key customers have been established and are being fully integrated with the new information system. Major customers are now being provided with a national offering supported by full service at a local level. By June 2002, 5 of the 7 locations, which had completed all aspects of the transition were trading profitably. It is likely to take until the second half of 2003 to achieve profitable trading at all 15 locations. Our strategy and focus continues to shift from selling only what we traditionally manufactured to sourcing what customers request. We will however maintain and invest in value added manufacturing and assembly businesses where this is determined to be strategic. Our Labels and plastic injection moulding businesses will continue to be at the forefront of technology in providing solutions for major customers with branded products. Both businesses have made considerable efforts to grow sales with existing customers and develop into new markets. Our packaging manufacturing business has continued to reduce its cost base and become more efficient. All our businesses except distribution have performed satisfactorily and traded in line with expectations in the first half of the year. The acquisition of Brands reinforces our intention to pursue opportunities to win business from major customers as they move to new locations. Brands and Macfarlane Group have a similar customer base and approach to customer service. Brands' operation in Mexico and our Hungarian operation are good examples of the opportunity to develop this strategy overseas with further opportunities likely as major customers continue to move to lower cost production countries. Dividend The Directors have maintained the interim dividend at 1.80p, given the anticipated cash generation in the second half of 2002 and throughout 2003. The dividend will be paid on Thursday 10 October 2002 to shareholders on the register on Friday 20 September 2002. Finance The realignment of the asset base has continued with the utilisation of gains to finance the prompt implementation of actions and expenditure required to streamline the business. Net debt at 30 June 2002 remains modest at Â£1.3m, compared to a net debt position of Â£39.1m at 30 June 2001, albeit the latter was prior to the disposal of the Plastics business in September 2001. Net finance costs amounted to Â£0.1m in the first half of 2002 compared to Â£0.2m in the first half of 2001. Prior to 30 June 2002, the Company repurchased 500,000 ordinary shares of 25p each, at an average price of 84p and a total cost of Â£0.4m for cancellation. Available funds have been utilised to finance acquisitions, as well as share repurchases in line with existing authorities, at the start of the second half of 2002. The acquisition of Brands on 5 July 2002 involved an initial cash consideration, including assumed debt, of Â£4.7m. A further 2,000,000 ordinary shares were bought back on 8 July 2002 at a price of 70p for cancellation. It is the intention of your Board to maintain a strong balance sheet and to use this to make tactical share buy backs provided there is a clear enhancement to earnings per share. Management and employees Our management teams and employees deserve our continuing gratitude for their commitment in meeting the considerable challenges readily evident in today's business environment as well as taking the hard decisions necessary to obtain the benefits from the restructuring programme. Future prospects John Ward concluded: - 'Macfarlane Group's strategy is to be a leading distributor and value added service provider. Manufacturing will be retained where it can provide robust and sustainable earnings while providing critical manufacturing skills to augment both the benefits of scale now within the Group and the extensive choice of products available to our 50,000 customers. Your Board believes that the recent acquisition of Brands will prove beneficial in meeting our strategic aims to strengthen the service offering to major customers. Further acquisitions will continue to be considered where it is felt that they provide the scope to enhance the breadth of service offering to our customers. We shall continue to seek value-enhancing acquisitions at sensible valuations. Our property divestment programme is proceeding as planned and expected to accelerate in the second half of 2002, generating additional profits. Although the expected benefits in our distribution business are taking longer to achieve and causing greater disruption than originally envisaged, there are encouraging signs that where the transition has been completed, the benefits are being delivered. The distribution business is expected to return to profit in the second half of 2002 as a result of the actions being taken to streamline the business. Market activity, particularly in recent months, remains at lower than expected levels. Our view for the remainder of 2002 is that the benefits usually expected in the second half, normally reflecting a significant uplift in the final quarter, can not yet be predicted with any certainty until there is a more sustained improvement in economic conditions. The Board believes that the strategic direction of the Group is sound and the continuing steps being taken to streamline the business will strengthen trading prospects by reducing the company's cost base. The Board's objective is to ensure that a more robust business is created, which can not only withstand current market uncertainty, but also position Macfarlane Group to benefit particularly once the economic cycle begins to show signs of sustainable improvement. Your Board expects to make further progress streamlining the business in the remainder of 2002 and as always shall not shirk from tough decisions to deliver additional shareholder value.' The interim report will be sent to shareholders on 17 September 2002 and be available to members of the public at the Company's Registered Office, 21 Newton Place, Glasgow G3 7PY from 20 September 2002. Macfarlane Group PLC Six months ended 30 June 2002 Consolidated profit and loss account (unaudited) Six months to 30 Six Months to Year to 31 June 30 June December 2002 2001 2001 Â£000 Â£000 Â£000 Turnover 72,925 105,106 198,200 Cost of sales 47,034 70,180 129,532 Gross profit 25,891 34,926 68,668 Net overheads: Recurring (25,962) (27,690) (57,667) Restructuring (800) (675) (10,058) Operating (loss)/profit (871) 6,561 943 Gain on disposal of fixed assets 1,625 830 822 Loss on disposal of business - - (2,770) Profit/(loss) before interest 754 7,391 (1,005) Investment income 98 755 1,172 Interest payable and similar charges (161) (993) (1,590) Profit/(loss) before taxation 691 7,153 (1,423) Tax on profit on ordinary activities* 151 2,150 4,011 Profit/(loss) for the financial period* 540 5,003 (5,434) Dividends on equity shares 2,102 2,235 6,050 (Loss)/retained profit for the period (1,562) 2,768 (11,484) Earnings/(loss) per ordinary share of 25p* 0.45p 4.46p (3.64p) Diluted earnings/(loss) per ordinary share* 0.44p 4.44p (3.64p) Earnings per share before restructuring/business disposals* 0.92p 4.84p 7.70p Dividends per share 1.80p 1.80p 5.00p Corporation tax rate excluding exceptional items* 21.9% 21.7% 18.9% Notes 1. Earnings per share are calculated on the basis of the weighted average of 119,032,320 shares in issue (30 June 2001 - 125,769,950, 31 December 2001 - 123,689,153). Diluted earnings per share are calculated on the weighted average on a diluted basis in accordance with FRS 14 Earnings Per Share of 119,858,203 shares. (30 June 2001 - 126,333,617, 31 December 2001 - 124,680,084). 2. Tax has been provided at 21.9% for the period to 30 June 2002, the expected tax rate for the full year, reflecting gains on asset sales, which are not fully taxable. 3. The interim financial statements have been prepared using accounting policies consistent with those adopted in the 2001 financial statements, except as set out in 4. below. 4. The results for the six months ended 30 June 2001 and the year ended 31 December 2001 have been restated for the effects of applying FRS 19 'Deferred Tax'. FRS 19 requires full provision for future corporation tax liabilities resulting in a prior year adjustment, which has decreased shareholders' funds and increased provisions by Â£0.25m at 31 December 2001. In adopting FRS 19 the Group has decided not to use the option of discounting liabilities allowed by the standard. Comparative amounts (shown above *) have been restated and consequently reserves have decreased and provisions increased by Â£0.59m at 30 June 2001 and Â£0.25m at 31 December 2001. The tax charges for the six months ended 30 June 2001 and the financial year ended 31 December 2001 have reduced by Â£0.60m and Â£0.94m respectively. Macfarlane Group PLC 30 June 2002 Consolidated balance sheet (unaudited) As at As at As at 30 June 30 June 31 December 2002 2001 2001 Â£000 Â£000 Â£000 Fixed assets Intangible assets 18,480 26,312 19,084 Tangible assets 35,418 55,506 39,511 53,898 81,818 58,595 Current assets Stocks 11,713 16,099 11,175 Debtors 38,847 54,762 37,755 Current asset investments - 6,324 - Cash at bank and in hand 4,381 3,592 7,501 54,941 80,777 56,431 Creditors: amounts falling due within one year 36,869 89,509 41,135 Net current assets/(liabilities) 18,072 (8,732) 15,296 Total assets less current liabilities 71,970 73,086 73,891 Creditors: amounts falling due after more than one year 1,530 1,568 1,763 Provisions for liabilities and charges 1,459 2,597 1,459 Total net assets 68,981 68,921 70,669 A copy of the accounts for 2001 on which the auditors issued an unqualified report, has been filed with the Registrar of Companies. The figures for year ended 31 December 2001 are derived from the published accounts, as restated for the effects of applying FRS 19 'Deferred Tax' as set out below. Restatement of net assets As previously reported 69,511 70,919 Reinstatement of opening provision for deferred taxation (1,190) (1,190) Adjustment to deferred taxation credit on the results as previously reported 600 940 Total net assets as restated 68,921 70,669 Macfarlane Group PLC Six months ended 30 June 2002 Consolidated cash flow statement (unaudited) Six Months Six months Year ended 31 ended 30 June ended 30 June December 2002 2001 2001 Â£000 Â£000 Â£000 Net cash flow from operating activities (see note 1 below) 1,661 8,530 17,726 Cash outflow from returns on investments and servicing finance (12) (484) (990) Tax paid (3,375) (1,166) (3,654) Cash inflow from capital expenditure and financial investment 732 797 11,357 Net cash inflow/(outflow) from acquisitions and disposals 1,150 (16,657) 16,588 Equity dividends paid (3,805) (3,950) (6,230) Net cash (outflow)/inflow before liquid resources and financing (3,649) (12,930) 34,797 Management of liquid resources - - - Net cash outflow from financing (1,434) (2,270) (7,474) (Decrease)/increase in cash in the period (see note 2 below) (5,083) (15,200) 27,323 1. Reconciliation of operating profit to net cash flow from 2002 2001 2001 operating activities Â£000 Â£000 Â£000 Profit before interest and disposal of business 754 7,391 1,765 Depreciation 2,697 3,122 6,846 Amortisation of intangible assets 604 453 6,205 Gain on disposal of assets (1,625) (1,334) (960) (Increase)/decrease in stocks (538) 1,411 2,505 (Increase)/decrease in debtors (121) 3,193 6,126 Decrease in creditors (110) (5,706) (4,761) Net cash inflow from operating activities 1,661 8,530 17,726 2. Reconciliation of movement in net debt (Decrease)/increase in cash in the period (5,083) (15,200) 27,323 Cash inflow from decrease in debt and lease financing 1,014 176 1,299 Cash outflow from decrease in liquid resources - - - (4,069) (15,024) 28,622 Borrowings acquired with subsidiaries - (17) (16) New finance leases and loan notes - (800) (2,725) Finance leases disposed with business - - 122 Movement in net debt in the period (4,069) (15,841) 26,003 Opening net funds/(debt) 2,723 (23,280) (23,280) Closing net (debt)/funds (1,346) (39,121) 2,723 Macfarlane Group PLC Six months ended 30 June 2002 Segmental analysis by division (unaudited) Turnover and operating profits Continuing Discontinued 2001 Six months ended 30 June 2001 Â£000 Â£000 Â£000 Turnover 74,264 30,842 105,106 Cost of sales 48,600 21,580 70,180 Gross profit 25,664 9,262 34,926 Net overheads: Recurring (20,550) (7,140) (27,690) Restructuring (675) - (675) 4,439 2,122 6,561 Gain on sale of assets 830 - 830 Profit before interest 5,269 2,122 7,391 Net interest (295) 57 (238) Profit before tax 4,974 2,179 7,153 Year ended 31 December 2001 Turnover 159,623 38,577 198,200 Cost of sales 104,666 24,866 129,532 Gross profit 54,957 13,711 68,668 Net overheads: Recurring (46,723) (10,944) (57,667) Restructuring (10,058) - (10,058) (1,824) 2,767 943 Gain on sale of assets 822 - 822 Loss on disposal of business - (2,770) (2,770) Profit before interest (1,002) (3) (1,005) Net interest 361 (779) (418) Profit before tax (641) (782) (1,423) Operating assets at 30 June 2001 (as restated) Fixed assets 58,966 22,852 81,818 Stocks 11,560 4,539 16,099 Debtors 36,742 18,020 54,762 Current asset investments - 6,324 6,324 Current assets 48,302 28,883 77,185 Creditors 33,305 15,059 48,364 Net current assets 14,997 13,824 28,821 Total assets less current liabilities 73,963 36,676 110,639 Deferred taxation 1,385 1,212 2,597 Operating assets 72,578 35,464 108,042 Net debt (16,959) (22,162) (39,121) Total net assets 55,619 13,302 68,921 The discontinued activities relate to the UK Plastics Division, which was sold on 19 September 2001. 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