Trading Statement

Macfarlane Group PLC
23 January 2004
                                                                 23 January 2004


              REVIEW OF OPERATIONS BY PETER ATKINSON, THE NEW CEO

Key businesses have good market positions with growth potential and performance
                           improvement opportunities

     Actions have been identified to realise the strategic potential of all
                                   businesses

                   2003 trading expectations remain unchanged

Exceptional charges of £3.5m to be incurred in 2003 to deliver benefits in 2004

   Major improvement in trading performance and significant reduction in debt
                              anticipated in 2004


As set out on 19 December 2003, the Board of Macfarlane Group is providing
details of the review of group operations completed by Peter Atkinson, the Chief
Executive, who joined the group in October 2003. This is part of a pre-close
trading update ahead of our preliminary announcement, which will be issued in
the week commencing 29 March 2004. The Board's expectations of the trading
results for 2003, prior to the restructuring programme set out by the Chief
Executive in this statement, remain unchanged.


The conclusion of the review is that the key businesses comprising Macfarlane
Group have good growth potential and significant opportunities to improve their
trading performance.


The reorganisation process that has taken place in the Distribution business
over the last two years, which involved the integration of two major
acquisitions, moving from 45 local sites to 15 regional distribution centres,
implementation of a new IT system and the disposal of our loss-making Northern
packaging manufacturing operations, has been particularly demanding, diverting
attention from customer service.


That process is now largely complete and the immediate objective is to drive
performance improvement through focus and effective implementation of a
'business basics' programme. This will involve:-


  • Comprehensive sales coverage to protect and develop the existing customer
    base

  • Implementation of new sales and marketing initiatives to improve new
    business generation

  • Rebuilding supplier relationships to reduce material costs and present
    Macfarlane as a key sell-through channel to major manufacturers

  • Ongoing cost reduction through best practice implementation and
    streamlining the supply chain


To execute this programme, exceptional restructuring charges of £3.5m will be
incurred in 2003, of which £1.7m is a cash cost relating primarily to headcount
reductions and site closures; the non-cash element relates to the write-down of
certain assets, which the company no longer uses. The benefit of the
restructuring and the actions planned will deliver a significant and sustainable
improvement in the trading performance in 2004 and beyond.


Peter Atkinson Chief Executive of Macfarlane Group said, 'Macfarlane Group has
significant potential, with good positions in a number of key market sectors.
The substantial changes, which have taken place over the last two years have
caused major disruption in the business and seriously impacted the financial
performance. Our intention is to refocus management in the business on the
effective implementation of the basics: customer service, new business, supplier
relationships and cost reduction. The early signs are that this new approach is
beginning to have a positive impact with improving service levels, stability in
the customer base, some early success in recovering lost customers and a number
of major account wins pending. The expectation for 2004 is significant
performance improvement.'


Archie Hunter, Chairman of Macfarlane Group since November 2003 today said, 'The
Board fully endorses the outcome of Peter Atkinson's pragmatic review. The
Board's conviction is that nothing should be allowed to interfere with the
establishment of the strongest possible platform for recovery and return to
profitability. The CEO's review indicates that group trading operations will
deliver a significant improvement and will be cash positive in 2004. The
property disposal programme to divest surplus sites from former trading
activities is proceeding in line with plan and there is interest in a number of
the sites. Our progress against the objectives set in this review and the
property disposal programme will be a key aspect of dividend consideration in
our March 2004 announcement.'



Further information:     Archie S. Hunter      Chairman            0141 333 9666
                         Peter D. Atkinson     Chief Executive     0141 333 9666



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