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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Interim Results
Macfarlane Group PLC
10 September 2002


    £0.7m profit achieved despite incurring restructuring costs of £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

                 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

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)
                                            £000            £000         £000         £000         £000             £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 £0.7m, compared to
£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 £72.9m in the first half of 2002 from £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 £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.


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.


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 £1.3m,
compared to a net debt position of £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 £0.1m in the first half of 2002 compared to £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 £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 £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
                                                                                     £000           £000            £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%


    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 £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 £0.59m at 30 June 2001 and £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 £0.60m and £0.94m

                              Macfarlane Group PLC
                                  30 June 2002

Consolidated balance sheet (unaudited)
                                                                                As at          As at               As at
                                                                              30 June        30 June                  31
                                                                                 2002           2001                2001
                                                                                 £000           £000                £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
                                                                                    £000            £000            £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                                                            £000            £000            £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                                                      £000            £000             £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.

                      This information is provided by RNS
            The company news service from the London Stock Exchange
Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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