Last checked at 3 Mar 2009 07:00
3 March 2009
MACFARLANE GROUP ANNUAL RESULTS FOR THE YEAR TO 31 DECEMBER 2008
Profit before tax from continuing operations up 50% to £3.7 million
Turnover from continuing operations up 10% to £131.4 million
Net operating margins in 2008 increase to 3.6% from 2.6% in 2007
Re-shaping the Group gives a sharper focus on core activities
Net debt of £7.2 million compared to £3.1 million in 2007
Further dividend of 1p confirmed giving total of 2p.
Archie Hunter, Chairman of Macfarlane Group PLC today said: -
2008 was a year of further significant progress for Macfarlane Group as we continued to re-shape the business and sharpen our focus on core activities, substantially increasing profits from our continuing operations in the process.
The benefits of the strategy that we set out three years ago are evident now and we have shown that we can grow the business significantly, through both organic growth and the acquisitions of Online Packaging Limited ("Online") in January 2008 and Allpoint Packaging Limited ("Allpoint") in October 2008.
The shape and structure of Macfarlane Group is now established for the medium-term and, while the current economic climate is unwelcome, we have identified opportunities to continue to grow the business further in time and we see the potential for more progress.
Trading
Pre-tax profits from continuing operations increased to £3.7 million (2007: £2.5 million).
In our Packaging Distribution business, turnover increased by 12% from £92.7 million to £103.7 million with operating profits increasing from £1.3 million in 2007 to £2.9 million in 2008. The acquisitions of Online for £5.0 million in January 2008 and Allpoint for £4.3 million in October 2008, inclusive of deferred consideration, have demonstrated what targeted acquisitions can achieve and we are seeing increasing benefit from our growing scale and market presence
Our Manufacturing Operations' turnover grew by 3%, with operating profits increasing from £1.7 million to £1.8 million. The link between our Packaging Distribution and Packaging Manufacturing businesses in the UK is becoming more important and valuable each year. We believe there is significant opportunity for these two businesses to work even more closely in the future. Our Labels business, benefiting from efficiency improvements and strong Euro-dominated sales had a better year in 2008, with turnover up 6%.
Our Plastics business, which is treated as discontinued, saw turnover increase to £7.1 million (2007: £6.2 million) aided by a strong Euro, with operating profits of £0.3 million (2007: £0.2 million).
The net loss on discontinued operations in 2008 amounted to £1.1m.
Group earnings per share from continuing operations were 2.56p per share (2007: 3.06p per share).
Cash and Dividends
During 2008 our borrowings increased due to our planned acquisition activity costing £7.9 million. Cash and debt control was effective however and at the year-end our net debt was £7.2 million. We received the proceeds from the disposal of our Plastics business realising £1.4 million, after attributable expenses, at the start of 2009.
The Board continues to recognise the importance to shareholders of a regular and reliable dividend stream. I am pleased to report that, in addition to the dividend of 1p per share paid in October, it is the intention of the Board to declare a further dividend of 1p per share, payable in June 2009.
Future Prospects
Trading in early 2009 is in line with our expectations and continues to display the benefits of the restructuring Macfarlane Group has undertaken over the last three years. Trading predictions in the current climate are very difficult but the Board expects that the broad range of industries we serve and our continued focus on improving operational performance will enable the business to withstand the difficult economic conditions. Indeed we believe that the Group's stability, reliability and strong market position will be viewed by our 20,000 customers as compelling strengths as they seek to ensure continuity of supply for their packaging and labelling needs, through this period of economic uncertainty.
A lot has been achieved in recent times but we are very conscious that there is more to be done as we continue to generate better returns principally through aligning our businesses with the developing needs of our customers. Recent acquisitions have increased our geographic spread and have added considerably to our customer offering and to our talent pool. Also, the disposal of our businesses outside the UK has freed up the time of senior executives to concentrate on internal efficiencies, business innovation and expansion.
The development of Macfarlane Group into an increasingly robust and progressive business has demanded substantial effort and considerable personal commitment from management and staff alike. The Board very much appreciates the energy and enthusiasm shown so clearly by our people and would like to take this opportunity to thank them all for their contribution to our progress.
Further enquiries:
| Macfarlane Group | Tel: 0141 333 9666 |
| Archie Hunter Chairman | |
| Peter Atkinson Chief Executive | |
| John Love Finance Director | |
| | |
| Spreng & Co | Tel: 0141 229 0482 |
| Callum Spreng | Mob: 07803 970103 |
Notes to Editors:
Macfarlane Group PLC is a UK-based group of companies focused on packaging related activities. The Packaging Distribution business is the leading UK distributor of a comprehensive range of packaging consumable products. The Manufacturing Operations comprise two businesses, the manufacture of transit packaging and the manufacture of self-adhesive and re-sealable labels.
Headquartered in Glasgow, Scotland, Macfarlane Group employs 750 people at 22 sites, principally in the UK and Ireland, servicing 20,000+ customers, in a wide range of sectors including: consumer goods; logistics; electronics; food manufacturing and retailing; internet and home retailing.
Operations Review
| Trading performance Group Segment | Revenue 2008 £000 | Revenue 2007 £000 | Profit 2008 £000 | Profit 2007 £000 |
| | | | | |
| Packaging Distribution | 103,655 | 92,654 | 2,902 | 1,338 |
| Manufacturing Operations | 27,755 | 27,083 | 1,806 | 1,727 |
| | | | | |
| Revenue from continuing operations | 131,410 | 119,737 | | |
| | | | | |
| Operating profit | | | 4,708 | 3,065 |
| Net finance costs | | | (1,006) | (598) |
| | | | | |
| Profit before tax from continuing operations | | 3,702 | 2,467 | |
| | | | | |
2008 has been a year of major change for Macfarlane Group. Despite continuing cost pressures on raw materials, fuel, energy and a clear slowing down of demand due to the weakening of the UK economy, the businesses within Macfarlane Group have demonstrated good progress in 2008 in terms of the financial results, operational performance and strategic development.
The uncertainty in the UK economy will present many challenges in 2009 but as a more focused business we have greater capability to address the challenges and are also well positioned to benefit from the opportunities, which will arise.
Packaging Distribution
The Business
The Macfarlane Packaging Distribution business is the leading UK distributor of packaging consumable products. In a highly fragmented market, Macfarlane is the market leader with a market share in the UK in excess of 15%. The business operates through 18 Regional Distribution Centres (RDCs) supplying customers on a local, regional and national basis. The business enables customers to ensure their products are cost-effectively protected in transit and storage by providing them with a comprehensive product range, single source supply, just-in-time delivery and tailored stock management programmes.
2008 Performance
In 2008 Packaging Distribution recorded an operating profit of £2.9 million, more than double that achieved in 2007. There were a number of factors contributing to these results:
Packaging Distribution
Performance Potential
Each of the sites within our current network of 18 RDCs is a profit centre and based on our 2008 results we had eight RDCs performing at levels comparable with the best industry standards. An additional eight RDCs are operating profitably and continuing to demonstrate improvements that indicate their ability to achieve best industry standard performance levels. There are currently two RDCs where performance is not at the acceptable level and appropriate actions are being implemented.
Acquisitions
A key component of our Packaging Distribution strategy is the acquisition of quality businesses in order to increase geographic penetration and to more effectively utilise our current RDC infrastructure. During 2008 we evaluated a number of acquisition opportunities and completed the acquisition of Online Packaging in January 2008 and Allpoint Packaging in October 2008.
Online Packaging is a well-established successful regional packaging distributor based in Gloucester with additional sites in Wakefield and Hinckley. Since the acquisition we have improved utilisation of our RDC network through the integration of Hinckley into Macfarlane's Coventry RDC and Wakefield has been re-located to the Macfarlane Wakefield site. The Online Gloucester RDC has improved our market presence in the West and Midlands. The business performance is in line with our plans.
Allpoint Packaging is also a well-established successful regional packaging distributor based in Hayes with an additional location in Basingstoke. The acquisition of Allpoint improves our market presence in West London and gives us new penetration into the M3/M4 corridor. In addition Allpoint has created a supplier network in the Far East, which offers the potential to bring additional benefits to the existing Macfarlane Group customer base. In the early months since acquisition the business has performed well.
Business Risks
The key risks associated with the Packaging Distribution business are detailed below:
As a distributor in a market where products are vulnerable to commodity-based raw material prices and manufacturer energy costs, profitability is sensitive to supplier price changes. Macfarlane works closely with its supplier base to effectively manage the scale and timing of price increases to end-users and we have extensive IT support to monitor and measure our effectiveness in transferring supplier price changes to our customer base;
Competition in the distribution market is primarily from local companies with good local connections and capability. Macfarlane competes effectively on a local basis through its strong focus and regular monitoring of customer service, its breadth and depth of product offer and the recruitment and retention of staff with good local market knowledge; and
Macfarlane Group's Packaging Distribution business is decentralised with a high dependency on effective local decision-making. In order to ensure management control of local decision-making, there is a comprehensive management information system with all key sales, margin and working capital measures monitored consistently and regularly.
Packaging Distribution
Future Plans
The weakness of the UK economy will undoubtedly continue to have an effect on slowing down demand levels in 2009. In this context, our plan for 2009 is to focus our management actions in the following areas:
Manufacturing Operations
Macfarlane operates two manufacturing businesses; Labels producing self-adhesive and resealable labels, and Packaging Manufacturing producing bespoke composite transit packaging and protective components.
In 2008 Macfarlane Group's Manufacturing Operations recorded a profit of £1.8 million, slightly ahead of the performance achieved in 2007. Key features of the Manufacturing Operations performance in 2008 were:
Manufacturing Operations
Labels
The principal activity of the Labels business is the production of self-adhesive and resealable labels for major fast moving consumer goods ("FMCG") customers primarily in European markets. The business operates from two production sites in Kilmarnock and Dublin and a sales and design office in Sweden which focuses on the development and growth of our resealable labels business - Reseal-it™.
Business Performance
During 2008 the Macfarlane Labels business continued to experience the price and margin pressure that has been a consistent feature over recent years as the competition in the retail FMCG market intensifies. In response Macfarlane Labels has focused on improving productivity and working closely with its customer base to manage the impact of supplier-led price changes.
2008 sales at Labels showed a 6% increase versus 2007 partly driven through volume growth, partly through price and there was also a benefit from sales to Euro-denominated customers. The growth in revenues combined with productivity improvements enabled Labels to deliver an improved return on sales more in line with both historic and industry performance levels. There was an encouraging improvement in new business particularly during the second half of 2008 and it is expected that this will continue in 2009.
Reseal-it™ continued to progress well in 2008. Although we are experiencing some slowdown in interest in Europe for this product range there is a growing level of interest from North American customers, which is being managed in partnership with our US distributor Printpack.
Business Risks
The specific risks facing the business are:
There is a high level of dependency on a small number of major customers. Management work closely with these key customers to ensure high levels of service and introduce product and service development initiatives to create competitive differentiation;
In order to offset the margin pressure driven by the intensity of competition in the retail FMCG sector our sales team is focused on working closely with customers to manage price increases and ensuring a mix of customers where the added value of the Macfarlane Labels' offering is clear;
Raw material price increases have been less volatile than in other parts of the manufacturing segment but increased prices have impacted margins and further increases are a risk. Where possible increases are mitigated through price negotiations and production efficiencies but some margin erosion is likely if material prices increase. There is a level of dependence on a small number of suppliers, therefore alternative sources of material are being investigated in conjunction with major customers, consistent with maintaining quality and service; and
Currency - some Labels' customers reside in the Euro-zone and this means there is some currency risk. This is considered within the context of Macfarlane Group's overall currency management framework.
Future Plans
The priorities for the Labels business in 2009 are to: -
Manufacturing Operations
Packaging Manufacturing
The principal activity of the business is the design, manufacture and assembly of bespoke composite packaging for use in protecting goods in storage and transit. The primary raw materials are corrugate, timber and foam. The business operates from two manufacturing sites - in Grantham and Westbury - supplying through established channels both directly to customers and also via the Group's Distribution business. Key customer sectors serviced are aerospace, medical equipment, electronics and automotive.
23% of Packaging Manufacturing sales are channelled through the Macfarlane Packaging Distribution business and the combination of in-house manufacturing and distribution allows Macfarlane to differentiate its offering in the market.
Business Performance
The 2008 sales performance was at a similar level to last year. Sales growth via the Macfarlane Packaging Distribution channel was 5% ahead of 2007. Margins were broadly flat despite volatility in raw material prices. During the final quarter of 2008 the weakness in the UK economy particularly in the automotive and electronics sectors began to impact the business and this resulted in 2008 profits being lower than 2007.
Business Risks
The specific risks facing the business are:
Raw material prices - the primary material components are corrugate, timber and foam. Both corrugate and timber have seen significant price increases in the last 12 months. The business works extensively with suppliers to minimise increases and re-engineers products for customers in order to mitigate the increase but maintain margins; and
Market risk - the main customer sectors are UK-based manufacturers and industrial companies who need to protect their products in transit. Certain industries such as aerospace are large users of this type of packaging solution. To the extent that there is any significant decline in the UK industrial and manufacturing sector then this would be expected to have an impact on the Packaging Manufacturing business. This can be mitigated to some extent by accessing new customers using the extensive customer base in our Packaging Distribution business.
Future Plans
The priorities for 2009 are to:
Discontinued Manufacturing Operations
The principal activity of the business treated as discontinued was the manufacture of injection-moulded plastic packaging and dispensing components particularly lids and scoops for the baby food market.
Following a strategic review in the first half of 2007, the Board decided that it was appropriate to exit our Plastics business in Ireland. This operation had not made any significant return in recent years and consumed executive management time. Accordingly the Board decided to consider offers for the business although recognising that current market conditions were likely to result in a loss on disposal.
On 8 January 2009, the Group completed the final and formal arrangements for the sale of its Ireland-based plastics business, Macfarlane Plastics Limited to Procap Holdings SA. The agreement had been substantively completed on 31 December 2008. Accordingly for accounting purposes 31 December 2008 has been treated as the effective date of disposal and the date on which control passed. The net loss from discontinued operations in 2008 was £1.1 million as set out in note 9.
2008 Summary
Our objectives in 2008 were to continue progress in improving Group profitability, bring a greater focus to the activities of the Group and build both organically and through acquisition our UK market-leading position in Packaging Distribution.
In overall terms we are pleased with what has been achieved in 2008:
2009 Outlook
The outlook for the UK economy in 2009 is one showing lower levels of demand and it is clear that trading conditions will be extremely challenging. However the actions taken over recent years to restructure and refocus Macfarlane Group means that today we have significantly greater capability and confidence to address the future market challenges.
Macfarlane Group continues to have a number of operational improvement opportunities available in order to deliver to its full potential. The implementation of these will be of the highest priority in 2009.
In these uncertain times customers will look for suppliers who can demonstrate consistency, certainty and upon whom they can rely. The fragmented nature of our markets means that Macfarlane Group is extremely well positioned with the borrowing facilities in place that it requires until 28 February 2010 and has a good opportunity to benefit from customers who are looking for a supply partner they can trust.
Through a mixture of continuing operational improvement and positioning ourselves as a supply partner upon whom customers can depend, Macfarlane Group is focused on 2009 being another year of positive progress.
Going Concern
The Directors, in their consideration of going concern, have reviewed the Group's future cash flow forecasts and revenue projections, which they believe are based on prudent market data and past experience.
The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Operations Review.
The Group's principal financial risks in the medium term relate to liquidity and credit risk. Liquidity risk is managed by ensuring that the Group's day-to-day working capital requirements are met by having access to banking facilities with suitable terms and conditions to accommodate the requirements of the Group's operations. Credit risk, which is heightened as a result of the difficulties customers may face in the current climate, is managed by applying considerable rigour in managing the Group's trade receivables. The Directors believe that the Group is adequately placed to manage its financial risks effectively despite the current uncertain economic outlook.
The Group's principal banking facilities of £12.5 million have been renewed until 28 February 2010 and the Directors are of the opinion that the Group's cash forecasts and revenue projections, taking account of reasonably possible changes in trading performance given current market and economic conditions, show that the Group should be able to operate within its current facilities and comply with its banking covenants.
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Responsibility Statement Of The Directors
To the best of the knowledge of the Directors (whose names and functions are set out below), the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole; and
Pursuant to Disclosure and Transparency Rules, Chapter 4, the Directors' Report of the Company's annual report includes a fair review of the development and performance of the business and the position of the Company, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.
Peter Atkinson John Love
Chief Executive Finance Director
Macfarlane Group PLC
Consolidated income statement
For the year ended 31 December 2008
| 2008 | 2007 | ||
| Note | £000 | £000 | |
| Continuing operations | |||
| Revenue | 2 | 131,410 | 119,737 |
| Cost of sales | (89,272) | (81,442) | |
| Gross profit | 42,138 | 38,295 | |
| Distribution costs | (6,421) | (5,791) | |
| Administrative expenses | (31,009) | (29,453) | |
| Non-recurring net property gains | 4 | - | 14 |
| Operating profit | 4,708 | 3,065 | |
| Finance income | 5 | 3,124 | 2,947 |
| Finance expense | 5 | (4,130) | (3,545) |
| Profit before tax | 3,702 | 2,467 | |
| Tax | 6 | (824) | 979 |
| Profit for the year from continuing operations | 2,878 | 3,446 | |
| Discontinued operations | |||
| Loss for the year from discontinued operations | 2 / 9 | (1,083) | (1,616) |
| Profit for the year | 1,795 | 1,830 | |
| Earnings per share | 8 | ||
| From continuing operations | |||
| Basic | 2.56p | 3.06p | |
| Diluted | 2.56p | 3.06p | |
| From continuing and discontinued operations | |||
| Basic | 1.60p | 1.63p | |
| Diluted | 1.60p | 1.62p | |
Macfarlane Group PLC
Consolidated statement of recognised income and expense
For the year ended 31 December 2008
| 2008 £000 | 2007 £000 | ||
| Exchange differences on translation of overseas operations | 1,291 | 78 | |
| Exchange differences realised on disposal of subsidiary companies | (733) | 670 | |
| Exchange difference on translation of foreign operations | 558 | 748 | |
| Actuarial (losses)/gains on defined benefit pension schemes | (4,167) | 393 | |
| Tax on items taken directly to equity actuarial loss/(gain) | 1,167 | (111) | |
| long-term rate change | - | (270) | |
| Net (expense)/income recognised directly in equity | (2,442) | 760 | |
| Profit for the year | 1,795 | 1,830 | |
| Total recognised income and expense for the year | (647) | 2,590 | |
Macfarlane Group PLC
Consolidated reconciliation of movements in shareholders' equity
For the year ended 31 December 2008
| Note | 2008 £000 | 2007 £000 | |
| Profit for the year | 1,795 | 1,830 | |
| Dividends to equity holders in the year | 7 | (2,252) | (2,252) |
| Net (expense)/income recognised directly in equity (as above) | (2,442) | 760 | |
| Credit in respect of share based payments | 52 | 82 | |
| Movements in equity in the year | (2,847) | 420 | |
| Opening equity | 30,245 | 29,825 | |
| Closing equity | 27,398 | 30,245 | |
Macfarlane Group PLC
Consolidated balance sheet at 31 December 2008
| Note | 2008 £000 | 2007 £000 | |
| Non-current assets | |||
| Goodwill | 24,399 | 18,646 | |
| Other intangible assets | 2,871 | - | |
| Property, plant and equipment | 9,771 | 9,637 | |
| Other receivables | 869 | 872 | |
| Deferred tax asset | 4,810 | 3,917 | |
| Total non-current assets | 42,720 | 33,072 | |
| Current assets | |||
| Inventories | 8,464 | 8,095 | |
| Trade and other receivables | 31,178 | 31,108 | |
| Deferred tax asset | 1,225 | 1,665 | |
| Cash and cash equivalents | 777 | 348 | |
| Total current assets | 41,644 | 41,216 | |
| Non-current assets classified as held for sale | 9 | - | 4,238 |
| 41,644 | 45,454 | ||
| Total assets | 84,364 | 78,526 | |
| Current liabilities | |||
| Trade and other payables | 30,056 | 28,087 | |
| Current tax liabilities | 464 | 407 | |
| Obligations under finance leases | 208 | 182 | |
| Bank overdrafts and loans | 7,254 | 3,252 | |
| Liabilities directly associated with assets classified as held for sale | 9 | - | 1,409 |
| Total current liabilities | 37,982 | 33,337 | |
| Net current assets | 3,662 | 12,117 | |
| Non-current liabilities | |||
| Retirement benefit obligations | 12 | 17,477 | 14,272 |
| Deferred tax liabilities | 832 | - | |
| Other creditors | 153 | 169 | |
| Obligations under finance leases | 522 | 503 | |
| Total non-current liabilities | 18,984 | 14,944 | |
| Total liabilities | 56,966 | 48,281 | |
| Net assets | 27,398 | 30,245 | |
| Equity | |||
| Share capital | 28,755 | 28,755 | |
| Revaluation reserves | 70 | 70 | |
| Own shares | (1,406) | (1,406) | |
| Translation reserves | 506 | (52) | |
| Retained earnings | (527) | 2,878 | |
| Total equity | 27,398 | 30,245 | |
Macfarlane Group PLC
Consolidated cash flow statement
For the year ended 31 December 2008
| Note | 2008 £000 | 2007 £000 | |
| Net cash from operating activities | 11 | 4,160 | 4,025 |
| Investing activities | |||
| Interest received | 67 | 46 | |
| Disposal of subsidiary undertaking | (595) | 3,088 | |
| Acquisition of subsidiary undertakings | 10 | (7,410) | (800) |
| Proceeds on disposal of property, plant and equipment | 2,428 | 44 | |
| Purchases of property, plant and equipment | (466) | (988) | |
| Net cash (outflow)/inflow from investing activities | (5,976) | 1,390 | |
| Financing activities | |||
| Dividends paid | 7 | (2,252) | (2,252) |
| Repayments of obligations under finance leases | 14 | (34) | |
| Increase/(decrease) in bank overdrafts | 4,002 | (4,495) | |
| Net cash generated from/(used in) financing activities | 1,764 | (6,781) | |
| Net decrease in cash and cash equivalents | (52) | (1,366) | |
| Cash and cash equivalents at beginning of year | 829 | 2,195 | |
| Cash and cash equivalents at end of year | 777 | 829 | |
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2008
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 2008 and 31 December 2007 respectively. The information for the year ended 31 December 2007 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. 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 the statutory financial statements for the year ended 31 December 2008 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.
| 2008 | 2007 | |||||
| Continuing | Discontinued | Total | Continuing | Discontinued | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Revenue | 131,410 | 7,139 | 138,549 | 119,737 | 18,312 | 138,049 |
| Cost of sales | (89,272) | (4,284) | (93,556) | (81,442) | (12,082) | (93,524) |
| Gross profit | 42,138 | 2,855 | 44,993 | 38,295 | 6,230 | 44,525 |
| Distribution costs | (6,421) | (571) | (6,992) | (5,791) | (881) | (6,672) |
| Administration costs | (31,009) | (2,018) | (33,027) | (29,453) | (5,027) | (34,480) |
| Net property gains | - | - | - | 14 | - | 14 |
| Operating profit | 4,708 | 266 | 4,974 | 3,065 | 322 | 3,387 |
| Net finance costs | (1,006) | 5 | (1,001) | (598) | (140) | (738) |
| Profit before tax | 3,702 | 271 | 3,973 | 2,467 | 182 | 2,649 |
| Tax | (824) | 24 | (800) | 979 | 2 | 981 |
| Profit after tax | 2,878 | 295 | 3,173 | 3,446 | 184 | 3,630 |
| Loss on discontinued operations | - | (1,378) | (1,378) | - | (1,800) | (1,800) |
| Profit for the year | 2,878 | (1,083) | 1,795 | 3,446 | (1,616) | 1,830 |
The Group's activities are centred on two principal activities, with those manufacturing operations discontinued in the current and prior years disclosed separately.
(i)Packaging Distribution
The Distribution of packaging materials and supply of storage and warehousing services in the UK.
(ii)Manufacturing Operations
The manufacture and supply of self-adhesive and re-sealable labels 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.
Discontinued Operations
On 8 January 2009, the Group completed the final and formal arrangements for the sale of its plastics business, to Procap Holdings SA. The agreement had been substantively completed on 31 December 2008. Accordingly for accounting purposes, 31 December 2008 has been treated as the effective date of disposal and the date on which control passed. The results of this operation for were classified as discontinued operations in the consolidated income statement. Details of the loss on discontinued activities are set out in note 9. The Manufacturing Operations in US/Mexico were classified as discontinued in the 2007 figures in the consolidated income statement.
| Packaging Distribution | 2008 £000 | 2007 £000 | ||
| Revenue | 103,654 | 92,654 | ||
| Cost of sales | (72,511) | (64,565) | ||
| Gross profit | 31,143 | 28,089 | ||
| Net operating expenses | (28,241) | (26,751) | ||
| Operating profit | 2,902 | 1,338 | ||
| Manufacturing Operations | ||||
| Revenue | 27,755 | 27,083 | ||
| Cost of sales | (16,760) | (16,877) | ||
| Gross profit | 10,995 | 10,206 | ||
| Net operating expenses | (9,189) | (8,479) | ||
| Operating profit | 1,806 | 1,727 | ||
| 2008 £000 | 2007 £000 | |||
| Packaging Distribution | 2,902 | 1,338 | ||
| Manufacturing Operations | 1,806 | 1,727 | ||
| Operating profit | 4,708 | 3,065 | ||
| Net finance costs | (1,006) | (598) | ||
| Profit before tax | 3,702 | 2,467 | ||
| Tax | (824) | 979 | ||
| Profit from continuing operations | 2,878 | 3,446 | ||
| Loss from discontinued operations after tax | (1,083) | (1,616) | ||
| Profit after tax and discontinued operations | 1,795 | 1,830 | ||
| Group segment | 2008 £000 | 2007 £000 | ||
| Packaging Distribution | 18,528 | 16,510 | ||
| Manufacturing Operations | 7,245 | 10,906 | ||
| Continuing operations | 25,773 | 27,416 | ||
| Discontinued operations | 1,625 | 2,829 | ||
| Net assets | 27,398 | 30,245 | ||
|
| ||||
An investment property was sold during 2007 for a consideration of £2,386,000 realising a gain of £539,000 which was offset by amounts totalling £525,000 due under certain of the Group's vacant properties.
| 5. Net finance expense | 2008 £000 | 2007 £000 |
| Interest on bank loans and overdrafts | (559) | (446) |
| Interest on obligations under finance leases | (51) | (24) |
| Interest cost of pension scheme liabilities | (3,520) | (3,075) |
| Total finance expense | (4,130) | (3,545) |
| Expected return on pension scheme assets | 3,075 | 2,900 |
| Investment income | 49 | 47 |
| Total finance income | 3,124 | 2,947 |
| Net finance expense | (1,006) | (598) |
| 6. Tax | 2008 £000 | 2007 £000 |
| Current tax | ||
| United Kingdom corporation tax at 28.5% (2007: 30%) | (57) | - |
| Foreign tax | (83) | (66) |
| Adjustments in respect of prior periods | - | (228) |
| Current tax charge | (140) | (294) |
| Deferred taxation (charge)/credit | (684) | 1,273 |
| Total tax (charge)/credit | (824) | 979 |
The standard rate of tax for the year, based on the UK average rate of corporation tax is 28.5% (2007 - 30%). Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The major feature of the 2007 tax credit related to the recognition of a deferred tax asset for the Group's corporation tax losses. A value of £1,665,000 was recognised in 2007 for the first time as it was regarded as more likely than not that these losses would be recovered within the short term.
The actual tax charge for the current and previous year is less than 28.5% (2007 - 30%) of the results as set out in the income statement for the reasons set out in the following reconciliation:
| 2008 £000 | 2007 £000 | |
| Profit before taxation | 3,702 | 2,467 |
| Tax on profit at 28.5% (2007 - 30%) | (1,055) | (740) |
| Factors affecting tax charge for the year:- | ||
| Depreciation in excess of capital allowances | 49 | 8 |
| Tax charge on contributions to defined benefit pension scheme | 269 | (385) |
| Non taxable gain | - | 162 |
| Other differences | (116) | 171 |
| Tax losses utilised | - | 299 |
| Tax losses recognised as a deferred tax asset | - | 1,665 |
| Difference on overseas tax rates | 29 | 27 |
| Adjustments in respect of prior periods | - | (228) |
| Tax credit/(charge) for the year | (824) | 979 |
| 7. Dividends | 2008 £000 | 2007 £000 |
| Amounts recognised as distributions to equity holders in the year: | ||
| Final dividend for the year ended 31 December 2007 of 1.00p per share (2007 - 1.00p per share) | 1,126 | 1,126 |
| Dividend for the year ended 31 December 2008 of 1.00p per share (2007 -1.00p per share) | 1,126 | 1,126 |
| 2,252 | 2,252 | |
Dividends are not payable on own shares held in the employee share trust.
The proposed dividend of 1.00p per share will be paid on 11 June 2009 to those shareholders on the register at 8 May 2009 and is subject to approval by shareholders at the Annual General Meeting in 2008 and has not been included as a liability in these financial statements.
From continuing and discontinued operations
The calculation of the basic and diluted earnings per share is based on the following data:
| 2008 £000 | 2007 £000 | |
| Earnings from continuing and discontinued operations for the purposes of earnings per share being profit for the year | 1,795 | 1,830 |
| Add Loss for the year from discontinued operations | 1,083 | 1,616 |
| Earnings from continuing operations for the purposes of earnings per share being profit for the year from continuing operations | 2,878 | 3,446 |
| Number of shares in issue for the purposes of calculating basic and diluted earnings per share | 2008 No. of shares '000 | 2007 No. of 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 purposes of basic earnings per share | 112,528 | 112,528 |
| Effect of dilutive potential ordinary shares due to share options | - | 166 |
| Weighted average number of shares in issue for the purposes of diluted earnings per share | 112,528 | 112,694 |
On 8 January 2009, the Group completed the final and formal arrangements for the sale of its plastics business, to Procap Holdings SA. The agreement had been substantively completed by 31 December 2008. Accordingly for accounting purposes, 31 December 2008 has been treated as the effective date of disposal and the date on which control passed. The results of this operation for 2007 and 2008 were classified as discontinued operations in the consolidated income statement. Details of the loss on discontinued activities are set out on the following page. The Manufacturing Operations in US/Mexico sold in 2007 were classified as discontinued in the comparative figures in the consolidated income statement.
9. Discontinued operations, non-current assets and current liabilities classified as held for sale
| Manufacturing Operations | 2008 £000 | 2007 £000 |
| Revenue | 7,139 | 18,312 |
| Cost of sales | (4,284) | (12,082) |
| Gross profit | 2,855 | 6,230 |
| Net operating expenses | (2,589) | (5,908) |
| Operating profit | 266 | 322 |
| Net interest paid | 5 | (140) |
| Loss on disposal of subsidiary undertaking | (1,378) | (1,800) |
| Loss before tax | (1,107) | (1,618) |
| Tax | 24 | 2 |
| Post-tax loss from discontinued operations | (1,083) | (1,616) |
| Loss on disposal of subsidiary undertaking | ||
| Goodwill | - | 327 |
| Property, plant and equipment | 1,932 | 1,107 |
| Inventories | 430 | 723 |
| Trade receivables | 1,121 | 4,022 |
| Trade payables | (1,075) | (1,109) |
| Net assets disposed of | 2,408 | 5,070 |
| Accumulated foreign exchange loss on disposal | 733 | (670) |
| Loss on disposal of subsidiary undertaking | (2,111) | (1,130) |
| Total loss on disposal | (1,378) | (1,800) |
| Total consideration | 1,030 | 3,270 |
| Cash | (595) | 3,088 |
| Deferred consideration Received 8 January 2009 | 1,625 | 182 |
| Total consideration | 1,030 | 3,270 |
| Non-current assets held for sale | 2008 £000 | 2007 £000 | |
| Property, plant and equipment | - | 2,064 | |
| Inventories | - | 455 | |
| Trade receivables | - | 1,238 | |
| Cash and cash equivalents | - | 481 | |
| Total assets classified as held for sale | - | 4,238 | |
| Trade and other payables | - | (1,290) | |
| Deferred tax liabilities | - | (119) | |
| Total net assets classified as held for sale | - | 2,829 | |
10. Acquisition of subsidiaryOn 7 January 2008, the Group acquired 100% of the issued share capital of Online Packaging, for a consideration of £5.0 million. £4.5 million of the consideration has been paid, with the deferred consideration becoming payable in the first quarter of 2009, based on certain trading targets met in 2008. The business is a Packaging Distributor and is accounted for in the Packaging Distribution segment.
On 3 October 2008, the Group acquired 100% of the issued share capital of Allpoint Packaging, for a consideration of approximately £4.3 million. £3.3 million of the consideration has been paid, with the deferred consideration becoming payable in the final quarter of 2009, subject to certain trading targets being met in the twelve months to 30 September 2009. The business is a Packaging Distributor and is accounted for in the Packaging Distribution segment.
The fair values assigned to the assets acquired and the consideration paid and payable are set out below:-
| Fair values of net assets acquired | Online | Allpoint | 2008 |
| £000 | £000 | £000 | |
| Other intangible assets | 1,266 | 1,707 | 2,973 |
| Property, plant and equipment | 221 | 146 | 367 |
| Inventories | 429 | 627 | 1,056 |
| Trade and other receivables | 1,610 | 1,820 | 3,430 |
| Cash and cash equivalents | 906 | 1 | 907 |
| Bank overdrafts | - | (463) | (463) |
| Trade and other payables | (1,758) | (1,546) | (3,304) |
| Current tax liabilities | (198) | (314) | (512) |
| Finance lease liabilities | - | (31) | (31) |
| Deferred tax liabilities | (394) | (478) | (872) |
| Total assets | 2,082 | 1,469 | 3,551 |
| Goodwill arising on acquisition | 2,904 | 2,849 | 5,753 |
| Total consideration | 4,986 | 4,318 | 9,304 |
| Satisfied by: | |||
| Cash | (4,536) | (3,318) | (7,854) |
| Deferred consideration | (450) | (1,000) | (1,450) |
| Total consideration | (4,986) | (4,318) | (9,304) |
| Net cash outflow arising on acquisition | |||
| Cash consideration | (4,536) | (3,318) | (7,854) |
| Cash and cash equivalents acquired | 906 | 1 | 907 |
| Bank overdrafts acquired | - | (463) | (463) |
| (3,630) | (3,780) | (7,410) | |
The other intangible assets arising on consolidation represent the best estimate of the values attaching to brand names and customer relationships acquired on acquisition. Goodwill arising on the acquisitions of Online Packaging and Allpoint Packaging is attributable to the anticipated future profitability of the distribution of the Group's product ranges in additional geographical markets in the UK and anticipated operating synergies from future combination of activities within our Packaging Distribution network.
Online Packaging contributed £7.3 million revenue and £0.2m to the Group's profit before tax for the period between the date of acquisition and 31 December 2008. Allpoint Packaging contributed £2.4 million revenue and £0.2m to the Group's profit before tax for the period between the date of acquisition and 31 December 2008. If both acquisitions had been completed on the first day of the financial year then revenues would have been £15.3 million and profit before tax £0.6 million. This would have increased Group sales from continuing operations for 2008 to £137.0 million and the related profit before tax from continuing operations to £3.9 million.
| 11. Notes to the cash flow statement | 2008 £000 | 2007 £000 | |||
| Operating profit Continuing operations | 4,708 | 3,065 | |||
| Discontinued operations | 266 | 322 | |||
| Operating profit | 4,974 | 3,387 | |||
| Adjustments for: | |||||
| Amortisation of intangible assets | 102 | - | |||
| Depreciation of property, plant and equipment | 1,575 | 2,094 | |||
| Gain on disposal of property, plant and equipment | (9) | (539) | |||
| Operating cash flows before movements in working capital | 6,642 | 4,942 | |||
| Decrease in inventories | 712 | 538 | |||
| Decrease/(increase) in receivables | 2,701 | (4,379) | |||
| (Decrease)/increase in payables | (3,233) | 5,433 | |||
| Adjustment for pension scheme funding | (1,407) | (1,383) | |||
| Cash generated by operations | 5,415 | 5,151 | |||
| Income taxes paid | (647) | (554) | |||
| Interest paid | (608) | (572) | |||
| Net cash from operating activities | 4,160 | 4,025 | |||
| 2008 £000 | 2007 £000 | ||||
| Decrease in cash and cash equivalents in the year | (52) | (1,366) | |||
| (Increase)/decrease in bank overdrafts | (4,002) | 4,495 | |||
| Cash flows from debt and lease financing | (45) | (586) | |||
| Movement in net debt in the year | (4,099) | 2,543 | |||
| Opening net debt | (3,108) | (5,651) | |||
| Closing net debt | (7,207) | (3,108) | |||
| Net debt comprises: | |||||
| Cash and cash equivalents | 777 | 348 | |||
| Cash and cash equivalents in business held for resale | - | 481 | |||
| Bank overdrafts and loans | (7,254) | (3,252) | |||
| Net bank debt | (6,477) | (2,423) | |||
| Obligations under finance leases Due within one year | (208) | (182) | |||
| Due outwith one year | (522) | (503) | |||
| Closing net debt | (7,207) | (3,108) | |||
Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with maturity of three months or less. Cash inflows in respect of the discontinued operations for operating activities amounted to £385,000 for 2008, (2007 - £821,000) cash outflows in respect of investing activities totalled £808,000 (2007 - inflows £2,930,000) and cash outflows from financing activities amounted toNil (2007 £268,000).
12. 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 at 1 May 2008 is still in progress. The principal assumptions adopted were that investment returns would average 7.25% per annum and that salary increases would average 4.75% per annum. The provisional results of the valuation showed that the market value of the relevant assets of the scheme was £43,645,000 and the actuarial value of these assets represented 72% of the value of benefits that had accrued to members.
Balance sheet disclosures
The figures below have been based on the provisional results of the triennial actuarial valuation as at 1 May 2008, updated to the current year-end. The assets in the scheme, the net liability position for the scheme at 31 December 2008 and the expected rates of return were:
| Asset class | Fair value 2008 £000 | Fair value 2007 £000 | Fair value 2006 £000 | Fair value 2005 £000 | Fair value 2004 £000 |
| Equities | 18,332 | 28,162 | 26,785 | 24,077 | 19,911 |
| Bonds | 17,506 | 16,859 | 16,661 | 16,678 | 15,173 |
| Other (cash) | 105 | 11 | 184 | 21 | 37 |
| Fair value of assets | 35,943 | 45,032 | 43,630 | 40,776 | 35,121 |
| Present value of scheme liabilities | (53,420) | (59,304) | (59,503) | (63,753) | (52,545) |
| Deficit in the scheme | (17,477) | (14,272) | (15,873) | (22,977) | (17,424) |
| Related deferred tax asset | 4,894 | 3,996 | 4,762 | 6,893 | 5,227 |
| Net pension liability | (12,583) | (10,276) | (11,111) | (16,084) | (12,197) |
The scheme's liabilities were calculated on the following bases as required under IAS 19:
| Assumptions | 2008 | 2007 | 2006 | 2005 | 2004 |
| Discount rate | 6.25% | 5.80% | 5.25% | 4.75% | 5.25% |
| Rate of increase in salaries | 2.75% | 3.25% | 2.75% | 2.75% | 2.75% |
| Inflation assumption | 2.75% | 3.25% | 2.75% | 2.75% | 2.75% |
| Life expectancy beyond normal retirement date of 65 | |||||
| Male | 21.3 years | 21.3 years | 19.5 years | 19.5 years | 17.2 years |
| Female | 24.0 years | 24.0 years | 22.4 years | 22.4 years | 21.0 years |
| 2008 | 2007 | 2006 | 2005 | 2004 | |
| Movement in scheme deficit | £000 | £000 | £000 | £000 | £000 |
| At 1 January | (14,272) | (15,873) | (22,977) | (17,424) | (17,312) |
| Current service cost | (237) | (272) | (353) | (298) | (438) |
| Employer contributions | 1,558 | 1,571 | 1,925 | 746 | 621 |
| Curtailment gains | 86 | 84 | 58 | - | - |
| Net finance costs | (445) | (175) | (361) | (448) | (517) |
| Actuarial gain in the period | (4,167) | 393 | 5,835 | (5,553) | 222 |
| At 31 December | (17,477) | (14,272) | (15,873) | (22,977) | (17,424) |
Our UK defined benefit pension scheme has assets at current market value of £35.9 million (2007 - £45.0 million) and liabilities discounted using specified bond yields of £53.4 million (2007 - £59.3 million). On this valuation basis at 31 December 2008, there is a deficit of £17.5 million (2007 - £14.3 million), which is partially offset by a deferred tax asset of £4.9 million (2007 - £4.0 million) giving a net deficit of £12.6 million (2007 - £10.3 million).
During 2008, the pension scheme's investments in equities suffered a reduction in value of 35%, with the actual return on scheme assets £11.4m below the expected returns estimated at the end of 2007. This reduction was offset by an increase from 5.80% to 6.25% in the assumed bond yields to discount pension scheme liabilities and other actuarial assumptions, which had a positive impact of around £7.2 million on the liabilities recorded in our balance sheet. The net result was an actuarial loss of £4.2 million in 2008.
Assumptions in relation to mortality are consistent with 2007.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed. The directors are satisfied that there are no other related party transactions occurring during the year which require disclosure.
The Annual Report and Accounts will be sent to shareholders on Wednesday 25 March 2009 and will be available to members of the public at the Company's Registered Office, 21 Newton Place, Glasgow G3 7PY from 27 March 2009. The Annual General Meeting will take place at the Thistle Hotel, Cambridge Street Glasgow at 12 noon on Tuesday 5 May 2009.
MACFARLANE GROUP PLC
Cautionary Statement
This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategy and the potential for the strategy to succeed. It should not be relied on by any other party or for any other purpose.
The announcement contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report. Such statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors, including both economic and business risk factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.