Interim Results

Macfarlane Group PLC
26 August 2003



26 August 2003



INTERIM RESULTS 2003

Board review of activities now complete, following unacceptable results and the
departure of the CEO

Half-year loss of £6.8m broadly in line with expectations

As a result of continuing poor results, no interim dividend will be paid

Immediate actions being taken to tackle loss-making activities and reduce fixed
overheads

New CEO appointment expected to be announced at the beginning of October

Customer service levels significantly improving with sales levels stabilising



Sir John Ward, Chairman of Macfarlane Group PLC, today said:

'Following the unacceptable results and business trends and the departure of the
Chief Executive, the Board committed at the Annual General Meeting earlier this
year to a three month review of the company's activities. The main components of
the review are now complete, with a number of actions taken or in progress to
tackle loss-making activities and to reduce excess fixed overheads in the
company, thereby improving the company's trading performance. We continue to
look for additional opportunities to reduce our cost base, actions which will
prepare the ground for our new Chief Executive to commence executive leadership
of Macfarlane Group.

The initial conclusion of the review is that the strategy to consolidate the
Distribution business and achieve scale and leadership in the industry remains
sound and continues to be supported by the Board. The investments to achieve
this are substantially in place. The challenge for the new Chief Executive will
be to deliver the improved performance, which these investments should enable
Macfarlane Group to achieve. The Board is pleased to report that service levels
have improved significantly in the last six months and that sales levels are
stabilising, setting a base on which the business can build future success.
Nevertheless the performance has been unacceptable and much work remains to be
done. The review also concluded that the progress of the labels and plastics
businesses should continue to be supported by appropriate investments. These
businesses are performing at acceptable levels given the constraints of current
challenging trading conditions.

The second conclusion, which in the Board's opinion primarily caused the
unacceptable results and failure to meet expectations is that there were
implementation failures in delivering the Distribution and Packaging strategies.
The scale and pace of change throughout 2002 was significant and successfully
meeting this challenge was made more difficult by management decisions based on
overly optimistic timescales and forecasting, causing disruption to customers
and placing strain on operating personnel. The Board recognises the commitment
and hard work of all staff over this period, which is increasingly reflected in
improved customer service levels and other business trends.



The Board has implemented a range of immediate initiatives to tackle the
challenges and these are outlined in this statement. As stability continues to
be restored, further actions will be necessary in the Distribution and Packaging
businesses to begin to bring capacity and fixed costs into line with realistic
market assumptions and to support the ability of our people to provide excellent
customer service. Our objective is now to build on these encouraging trends,
increase sales and reverse the unacceptable results.

In the light of the company's current operating performance, the Directors do
not consider it appropriate to pay an interim dividend. The dividend for the
year as a whole will be considered in the light of progress made on improving
operating performance and on property disposals. Our objective is to achieve
sufficient progress to enable a dividend to be paid for the current year but any
dividend is likely to be modest and will not exceed 2p per share. Your Board
expects trading in the second half of the year to show an improvement on the
first half.'


Further information:                                              Press and Media:
Sir John Ward,      Executive Chairman       0141 333 9666        Gordon Beattie            01698 787878
John Love, Finance Director                  0141 333 9666        Nick King                 01698 787878

Trading performance

The restructuring of the distribution business is approaching its conclusion
with 13 of the 15 Regional Distribution Centres now operational. Since acquiring
National Packaging and A1 in 2001, 31 sites have been closed, with the final
sites due for closure in the second half of 2003, all being consolidated into
larger, more efficient sites, providing a platform for future growth.

Standardisation of best practices has been implemented with a common information
system now in place at all RDCs. 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. As each new RDC has become
operational, internal problems have gradually receded and staff turnover and
customer service levels are recovering to those achieved prior to the transition
programme. Nevertheless the considerable sales erosion has left the business
with excess fixed overheads and actions are being taken to address this.

As the transition programme has progressed, it has become clear that there are
major opportunities to improve our internal supply chain mechanisms, eliminate
duplication between the RDC's and central teams and thereby reduce costs. In the
first half of 2003 some transport and headcount reductions through natural
wastage have been achieved. This process will continue in the second six months
and can again be accommodated by normal staff turnover with significant savings
achievable. We have also exited a number of surplus sites in the first half of
the year, either by sale of owned properties or by surrender, assignation or
sub-let of leasehold premises. This process continues and the charge for
duplicate or empty sites will reduce in the second half of 2003. The target is
to take £3m out of the fixed costs going rate by the end of 2004.

Our packaging manufacturing activities in Scotland have declined due to the loss
of several customers primarily in the electronics and related industries and we
continue to look at all aspects of this business to significantly reduce its
losses by the end of the year. Our packaging activities in Grantham and Westbury
remain successful as a result of having access to wider markets. We will
maintain and invest in value added manufacturing and assembly businesses where
satisfactory returns can be achieved.

Our labels and plastic injection moulding businesses continue to provide
innovative solutions for major customers with branded products. Both businesses
have made considerable efforts to grow sales with existing customers and develop
new markets and have performed satisfactorily in the first half of 2003
responding to economic pressures on volume and prices.

The continuing erosion of manufacturing activities in the UK led us to extend
the strategy to support international companies, as they service their customers
in the UK, USA and Europe from remote assembly locations. Brands' Mexican site
and our existing operation in Hungary were directed at extending the Group's
capability to offer solutions to these international customers. Our
international operations suffered pressure on margins, but are expected to
improve their performance in the second half despite the current economic
constraints.

Brands was acquired with the strategic objective of offering to manufacturing
customers, who had moved facilities to low cost countries, web-based project
management capability for warranty returns, product visibility and financial
management using its proprietary software package 'Viper'. The first commercial
development is in progress in Mexico to establish the financial viability of the
offering. The company continues to make losses and although new contracts have
been secured in the area of computer build and repair, the future direction of
the business is under review with the Brands' management team.

Our property disposal programme progresses with two smaller sites now sold and a
further two sites under offer. The disposal of larger sites, which by their
nature yield the highest gains, has been a much longer and more complex process,
with roads solutions and political considerations often inherent in any planning
consents and contract for sale. Although the exact timing of these larger
disposals cannot yet be determined, we shall not accelerate gains where this
would unacceptably reduce proceeds and shall seek to optimise the benefit for
shareholders. Our team continues to work through these external processes to
conclude contracts with disposal terms, which are satisfactory to the Board.

Finance

Net debt at 30 June 2003 is £24.8m, compared to a net debt position of £1.3m at
30 June 2002, reflecting the trading performance of the company and recent
capital expenditure. Our property disposal programme and the actions to reduce
the fixed costs in the company are expected to reduce our debt significantly by
the end of 2004. Net finance costs amounted to £0.5m in the first half of 2003
compared to £0.1m in the first half of 2002.

Board composition

I am currently acting as Executive Chairman, supported by the corporate team of
Graham Casey, Andrew Cotton and John Love. Progress is being made with the
recruitment of a new Chief Executive and I expect to be able to announce an
appointment at the beginning of October. At that stage the composition of the
Board will be considered in line with latest Corporate Governance practice.

Bob Speirs, formerly our senior independent director, has intimated his
intention to reduce his external commitments and will step down as a director on
1 September 2003. The Board wishes to thank Bob for his input over the last five
years and wishes him a long and healthy retirement. On 1 September 2003, Michael
Clark will join the Board as a non-executive director. Until 19 September 2001
Mike was an Executive Director in charge of our Plastics Division but left
Macfarlane Group when the business was sold to Tyco International Inc. At the
start of 2003 he retired from Tyco. The Board is delighted that Mike has
accepted appointment as a non-executive director, which will give the company
the benefit of his extensive industry knowledge. As a result of these changes,
Archie Hunter will now be Macfarlane Group's senior independent director.

Management and employees

My sincere thanks go to our directors, managers and their staff, who have given
tremendous commitment in difficult circumstances, and have considerable
enthusiasm to achieve the strategic direction and improve our turnover levels to
the levels required to support our extensive national trading network.

Future prospects

Sir John Ward concluded: -

'It remains difficult to predict with accuracy the results for 2003, however we
expect to see a gradual improvement in the second half of this year. We are also
working hard to achieve property disposals but the timing of these remains
uncertain.

The Board believes the correct course for the group is to complete the current
investment programme as quickly as possible, and to focus our efforts on
satisfying our customers and growing the top-line revenues. With the majority of
the change now behind us, the focus of our teams is switching from internal
issues to external customer service and revenues. We have enthusiastic teams in
every part of the Group eager to grasp these challenges and opportunities. Our
new Chief Executive will have the full support of the Board and be able to build
on this platform and release the enormous potential of the very committed people
who work in every part of Macfarlane Group.

As I have said, our results have been very disappointing and have not achieved
the expectation set by the Board. 2003 is proving to be a challenging year for
the reasons mentioned, but as the strategic platform is completed, we expect the
company to be better positioned at the end of the year as the disruption reduces
and we begin to deliver benefits.'



The interim report will be sent to shareholders on 5 September 2003 and be
available to members of the public at the Company's Registered Office, 21 Newton
Place, Glasgow G3 7PY from 8 September 2003.

Macfarlane Group PLC

Six months ended 30 June 2003
Consolidated profit and loss account (unaudited)                         Six months to 30  Six Months to      Year to 31
                                                                                     June        30 June   December 2002

                                                                                     2003           2002
                                                                                     £000           £000            £000

Turnover                                                                           66,317         72,925         149,618
Cost of sales                                                                      44,939         47,034          99,189

Gross profit                                                                       21,378         25,891          50,429
Net overheads recurring                                                          (26,817)       (25,962)        (52,380)
restructuring                                                                     (1,052)          (800)         (5,044)

Operating loss                                                                    (6,491)          (871)         (6,995)
Gain on disposal of fixed assets                                                      200          1,625           2,145
Loss on disposal of business                                                            -              -           (410)

(Loss)/profit before interest                                                     (6,291)            754         (5,260)
Investment income                                                                      20             98             215
Interest payable and similar charges                                                (511)          (161)           (613)

(Loss)/profit before taxation                                                     (6,782)            691         (5,658)
Tax on loss on ordinary activities                                                      -            151         (1,836)

(Loss)/profit for the financial period                                            (6,782)            540         (3,822)

Dividends on equity shares                                                              -          2,102           5,745

Loss for the period                                                               (6,782)        (1,562)         (9,567)


(Loss)/earnings per ordinary share of 25p                                         (5.90p)          0.45p         (3.25p)

Diluted (loss)/earnings per ordinary share                                        (5.90p)          0.44p         (3.25p)

Dividends per share                                                                   Nil          1.80p           5.00p

Corporation tax rate excluding exceptional items                                      Nil          21.9%           32.4%


Notes

1.     Earnings per share are calculated on the basis of the weighted average of
115,019,000 shares in issue (30 June 2002 - 119,032,320, 31 December 2002 -
117,605,351). Where the diluted loss per share reduces the loss per share, the
original loss per share has been reflected as the diluted figure in the
accounts.

No tax has been provided for the period to 30 June 2003, reflecting the expected
tax rate for the full year.

The interim financial statements have been prepared using accounting policies
consistent with those adopted in the 2002 financial statements.
4. Operating exceptional charges                                         Six months to 30  Six Months to      Year to 31
                                                                                     June        30 June        December

                                                                                     2003           2002            2002
                                                                                     £000           £000            £000
Programme to restructure distribution business                                          -              -             144
Vacant property costs/costs to vacate empty sites                                     522              -             705
Cost of headcount reductions                                                          530            800           1,475
Impairment charges for goodwill                                                         -              -           2,720
                                                                                    1,052            800           5,044

Macfarlane Group PLC

30 June 2003
Consolidated balance sheet (unaudited)                                            As at           As at         As at 31
                                                                                                                December
                                                                                30 June         30 June
                                                                                                                    2002
                                                                                   2003            2002
                                                                                                                    £000
                                                                                   £000            £000
Fixed assets
Intangible assets                                                                17,716          18,480           18,250
Tangible assets                                                                  38,587          35,418           35,951
Investments                                                                       1,391               -              825

                                                                                 57,694          53,898           55,026

Current assets
Stocks                                                                           10,442          11,713           12,883
Debtors                                                                          34,258          38,847           37,055
Cash at bank and in hand                                                          1,590           4,381            2,915

                                                                                 46,290          54,941           52,853

Creditors: amounts falling due within one year                                   50,951          36,869           48,196

Net current (liabilities)/assets                                                (4,661)          18,072            4,657

Total assets less current liabilities                                            53,033          71,970           59,683

Creditors: amounts falling due after more than one year                             903           1,530            1,080

Provisions for liabilities and charges                                              123           1,459              115

Total net assets                                                                 52,007          68,981           58,488


A copy of the accounts for 2002 on which the auditors issued an unqualified
report, has been filed with the Registrar of Companies. The figures for year
ended 31 December 2002 are derived from the published accounts.

Macfarlane Group PLC

Six months ended 30 June 2003
Consolidated cash flow statement (unaudited)                                  Six Months      Six months      Year ended
                                                                           ended 30 June   ended 30 June
                                                                                                             31 December
                                                                                    2003            2002            2002

                                                                                    £000            £000            £000

Net cash (outflow)/inflow from operating activities (note 1 below)               (2,034)           1,661           (281)

Cash outflow from returns on investments and servicing finance                     (463)            (12)           (318)

Tax paid                                                                           (121)         (3,375)         (3,780)

Cash (outflow)/inflow from capital expenditure and financial investment          (4,502)             732             735

Net cash inflow/(outflow) from acquisitions and disposals                              -           1,150         (4,422)

Equity dividends paid                                                            (3,643)         (3,805)         (5,917)

Net cash outflow before liquid resources and financing                          (10,763)         (3,649)        (13,983)

Management of liquid resources                                                         -               -               -

Net cash outflow from financing                                                    (369)         (1,434)         (4,116)

Decrease in cash in the period          (note 2 below)                          (11,132)         (5,083)        (18,099)


1. Reconciliation of operating (loss)/profit to net cash (outflow)/                 2003            2002            2002
inflow from operating activities
                                                                                    £000            £000            £000

(Loss)/profit before interest and disposal of business                           (6,291)             754         (4,850)
Depreciation                                                                       2,518           2,697           4,964
Amortisation and impairment of intangible assets                                     534             604           3,699
Gain on disposal of assets                                                         (200)         (1,625)         (2,290)
Decrease/(increase) in stocks                                                      2,441           (538)               1
Decrease/(increase) in debtors                                                     2,147           (121)           2,529
Decrease in creditors                                                            (3,183)           (110)         (4,334)

Net cash (outflow)/inflow from operating activities                              (2,034)           1,661           (281)



2. Reconciliation of movement in net debt                                           2003            2002            2002

                                                                                    £000            £000            £000

Decrease in cash in the period                                                  (11,132)         (5,083)        (18,099)
Cash inflow from decrease in debt and lease financing                                369           1,014           1,508
Cash outflow from decrease in liquid resources                                         -               -               -

                                                                                (10,763)         (4,069)        (16,591)
Borrowings acquired with subsidiaries                                                  -               -           (143)

Movement in net debt in the period                                              (10,763)         (4,069)        (16,734)
Opening net (debt)/funds                                                        (14,011)           2,723           2,723

Closing net debt                                                                (24,774)         (1,346)        (14,011)



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