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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Final Results
Macfarlane Group PLC
25 March 2003

                                                                   25 March 2003


     MACFARLANE GROUP READY TO DELIVER BENEFITS OF RESTRUCTURING PROGRAMME


Pre-exceptional losses of £2.4m and net exceptional items of £3.3m, give a loss
                            before taxation of £5.7m

Final dividend maintained at 3.20p per share, giving full year dividend of 5.00p
                                   as in 2001

    Cash restructuring costs of £1.6m and exceptional property cost of £0.7m
                      incurred to streamline the business

  Assets gains of £2.3m generated £8.5m cash, with £12.0m cash generation from
                        asset disposals expected 2003/04

  11 of the 15 regional sites now fully operational with the remainder due to
                                complete in 2003

Completed sites demonstrate readiness to benefit from the strategy and create a
                              platform for growth


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

'Macfarlane Group's 2002 results reflect the ongoing transition within our
distribution business, which will conclude in 2003. Recently issued economic
statistics, identifying lower levels of activity in the manufacturing sector in
the first two months of this year, are confirmed by our activity levels. The
difficult market conditions, referred to in my previous statements, continue
with no indication of improvements in the short-term. Management effort
continues to focus on the transition programme to change fundamentally the shape
and scope of our business, enabling the Group to provide best in class service
to all our customers whilst at the same time seeking reductions in overheads to
right-size our cost structure to match prevailing levels of activity. The
majority of this programme is now completed and the teams in our new locations
are now ready and eager to deliver the expected benefits.

Your Board remains fully committed to the strategic direction 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
centres coupled with two manufacturing centres of excellence, providing a solid
platform for future growth. Although we made the expected progress towards our
objectives in the second half of the year, with 11 of the 15 locations now fully
operational and our new management information system in place at all UK
locations, the transition has taken longer to achieve and caused greater costs
and disruption in the business than originally envisaged, with a consequent
impact on results. Consolidation at four remaining locations, originally
scheduled in 2002, will now take place in 2003. The considerable dislocation of
the business, which is inevitable during a programme of such magnitude, is now
starting to recede enabling our staff to focus on increasing market share. As
announced last October the Chief Executive will continue to focus on the
recovery in the Distribution business. The Board has now initiated a process to
recruit a Chief Operating Officer with wide business experience, who should have
the potential to become Chief Executive.

As I have stated previously, this is a bold and challenging realignment of our
business, particularly in the current economic climate. The programme will
complete this year with further disposals of surplus properties continuing to
deliver cash and earnings to support the costs of the transition. As reported in
previous statements, although the benefits are taking longer to achieve than
originally envisaged, your Board remains confident that Macfarlane Group can
secure a strong market position, particularly once the trading cycle starts to
show signs of improvement. We are not relying on the economy to make any
recovery in 2003 and consequently we are cautious in terms of the immediate
trading outlook, nevertheless your Board expects to make further progress
streamlining the business in the current year.'

Further information:
Sir John Ward, Chairman                           0141 333 9666
Iain Duffin, Chief Executive                      0141 333 9666
John Love, Finance Director                       0141 333 9666

Press and Media
Gordon Beattie                                    01698 787878
Ann-marie Wilkinson                               0207 398 3301


                                                            2002                                     2001
Trading performance
                                                 Sales         Profit/(loss)               Sales         Profit/(loss)
                                                  £000                  £000                £000                  £000

Continuing                                     149,618               (1,951)             159,623                 8,234
Discontinued                                         -                     -              38,577                 2,767
                                               149,618               (1,951)             198,200                11,001
Net finance charge                                                     (398)                                     (418)
(Loss)/profit before exceptional items                               (2,349)                                    10,583
Gain on disposal of properties                                         2,145                                       822
                                                                       (204)                                    11,405
Operating exceptional charges - see below                            (5,044)                                  (10,058)
Loss on disposal of business                                           (410)                                   (2,770)
Pre-tax loss                                                         (5,658)                                   (1,423)

                                                                                            2002                  2001
Operating exceptional charges                                                               £000                  £000

Cash costs: Programme to restructure distribution business                                   144                 1,400
Duplicate property costs/costs to vacate empty premises                                      705                     -
Cost of headcount reductions                                                               1,475                 1,463
Non-cash costs: Charges for impairment of goodwill                                         2,720                 5,178
Asset impairment charges and other asset write-downs                                           -                 2,017
                                                                                           5,044                10,058

The loss before tax for the year to 31 December 2002 was £5.7m, compared to
£1.4m in 2001. The loss per share, as restated for the effects of applying FRS
19 'Deferred Tax', totalled 3.25p compared with 3.63p in the previous year.
Turnover reduced to £149.6m in 2002 from £198.2m during 2001, reflecting the
disposal of the Plastics business in 2001 and the challenging market conditions
with lower levels of activity apparent particularly from electronics and
manufacturing customers.

Trading performance

The restructuring of the distribution business continued throughout the year,
with 23 sites closed by the end of 2002, in most cases simply eliminating
duplication of sites in key regions, consolidating all these sites into 11
large, more efficient centres providing a platform for future growth. In 2003
there are a further 4 consolidations on to new sites, with the closure of a
further 7 sites during the year.

Whilst economic conditions have impacted our ability to achieve profitability in
the Distribution business in the final quarter of 2002 and in the opening months
of 2003, the steps being taken to right-size the overhead base in the business,
and reduce breakeven points, are expected to bear fruit as the advantages of our
new capability provides the opportunity to increase market share. However given
current economic conditions, it is likely to take until the final quarter of
2003 to achieve profitable trading across the business as a whole.

Our Labels and Plastic Injection Moulding businesses 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. Whilst
our strategy and focus continues to shift from selling only what we
traditionally manufactured to sourcing what customers request, we will maintain
and invest in value added manufacturing and assembly businesses where this is
determined to be of strategic benefit in providing the required service to our
customers.

All our overseas locations continued to trade in line with expectations
throughout 2002, with particularly strong performances recorded in Ireland and
Hungary. Macfarlane Western Foam Inc., our business based in California,
acquired the trade and assets of a smaller competitor in the same geographical
area and is now starting to reap the benefits of the additional scale in its
operations.

In July 2002 we acquired Tom Brands Electrical Services Limited ('Brands'),
supporting our strategy to provide a wider range of services to key customers.
The acquisition provides opportunities to meet the requirements of major
customers seeking partners who can demonstrate a capability to meet outsourcing
needs both in the UK, USA, Latin America and Europe. Brands' operation in Mexico
and our Hungarian operation are good examples of the opportunity to develop this
strategy overseas.

The Board believes that there are considerable opportunities from the
acquisition of Brands, both in approaching Brands' own customers and supporting
the service offering to Macfarlane Group's customers. This acquisition is now
being integrated into the Group to support the service offering to customers
using Brands' sophisticated track and trace software. The potential is being
tested through a number of enquiries, which will help quantify the opportunity
for future sales, but given current economic conditions the timing of the
conversion of these opportunities is uncertain and as a result the Directors
consider that it would be inappropriate to maintain the goodwill of £2.8m, which
arose on acquisition.

Property disposals

Your Board has consistently articulated that part of its strategy of reshaping
the business is to fund the transition through the earnings and cash generated
from property disposals. This is reflected in our 2001 and 2002 results and even
as we near the end of the programme, will continue into 2003 and 2004 with
projected net proceeds from disposals in these two years in excess of £12.0m.

Dividend

The directors recommend payment of a final dividend of 3.20p to be paid on 29
May 2003 to shareholders on the register at 25 April 2003, which together with
the interim dividend of 1.80p per share paid on 10 October 2002 makes a total of
5.00p for the year (2001 - 5.00p).

Whilst your Board remains cautious of immediate trading prospects as market
conditions continue to be challenging, we are well aware of the importance of
dividends to shareholders and would intend to use funds from property disposals
to support existing levels of dividend. However, the level of dividend payments
will, as always, require to be considered as prospective trading performance
becomes clearer, allowing the Board to assess the immediate and longer-term
ability to underpin dividend payments.

Finance

Shareholders approved two special resolutions on 9 May 2001 and 14 May 2002
giving the company authority to buy back shares in the company. During 2002, the
company bought back 4,256,000 ordinary shares, representing 3.57% of the
company's called up share capital for a total consideration of £2,608,000 for
cancellation. The purchases took place at a number of dates between 14 January
2002 and 13 November 2002. The prices paid for the shares ranged from 381/2p per
share to 87p per share. It is the Directors' intention to seek shareholder
approval to renew this authority at the AGM on 13 May 2003 to continue to have
the flexibility to buy back shares should this be appropriate.

Cash outflow from operating activities was £0.3m (2001 cash inflow - £17.7
million) and the Group's financing requirements have been met by short-term
borrowings. Following acquisitions and capital expenditure totalling £14.4m
during the year and share buy-backs costing £2.6m the Group had net debt of
£14.0m at 31 December 2002, compared to net funds of £2.7m the previous year.
There was a net interest charge of £0.4 million, the same as in 2001. Macfarlane
Group still faces modest investments to establish an appropriate base for future
growth but our executive remains confident that, by a continued realignment of
the asset base, the necessary investments can be funded in a cash neutral
manner.

The transitional arrangements of Financial Reporting Standard 17 on retirement
benefits have again been adopted, requiring certain disclosures at 31 December
2002 of the net pension scheme asset or deficit. Our UK defined benefits pension
scheme has a deficit net of tax of £11.6m (2001 - Deficit £4.8m). The ongoing
funding of the pension scheme is determined by a full actuarial valuation
performed by the Group's independent actuary. As a result of the valuation
carried out on 1 May 2002, the final salary scheme was closed to new entrants
and the employer contribution rate increased from 13.5% to 15.5% of pensionable
salary, and the employee contribution rate increased from 5.0% to 7.0% of
pensionable salary with effect from 1 July 2002. This contribution level is
expected to reverse the deficit over the estimated remaining service lives of
the employees.

Management and employees

Delivering the benefits from such a fundamental transition programme in our
business is no easy task. We have a number of good management teams with a
wealth of experience in packaging as well as some exciting new talent. All our
management teams and employees deserve our continuing gratitude for their
commitment in addressing the 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

Sir John Ward concluded: -

Macfarlane Group's strategy is to be a leading packaging distributor and value
add service provider. Investments in manufacturing will be made 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.

Our property divestment programme continues and is expected to generate
additional profits and cash in 2003 to offset the costs of transition. Major
progress has been made in recent months to exit vacant premises and this will
have a major impact in our efforts to reduce our cost base. 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, our people are ready to
deliver the benefits of the strategy. Your Board believes that our distribution
business will benefit in 2003 from the actions being taken to streamline the
business.

Market activity, particularly in recent months, remains at lower than expected
levels. Whilst trading conditions remain challenging and the prospects of
economic growth in 2003 are limited, much of our recent activity has been of
necessity inward focused given the need to concentrate our activities on our
people, new premises and the introduction of the new information systems. As the
greater part of this activity is now behind us, our teams have a real appetite
and a clear opportunity to focus on increasing our market share.

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 robust business is created, which can not only withstand market
uncertainty, but also gain market share by providing the highest levels of
service to our customers.'

                              Macfarlane Group PLC

                          Year ended 31 December 2002

                      Consolidated profit and loss account

                                             Before                                Before
                                        exceptional Exceptional         2002  exceptional  Exceptional        2001
                                               £000        £000                      £000         £000
                                                                        £000                                  £000
TURNOVER                                                                                               As restated

                                                                                                         (See note
                                                                                                                2)
Continuing                                  142,370           -      142,370      159,623            -     159,623
Acquisitions                                  7,248           -        7,248            -            -           -

                                            149,618           -      149,618      159,623            -     159,623
Discontinued operations                           -           -            -       38,577            -      38,577

Total turnover                              149,618           -      149,618      198,200            -     198,200
Cost of sales                                99,819           -       99,819      129,532            -     129,532

Gross profit                                 50,429           -       50,429       68,668            -      68,668
Net overheads                                52,380       5,044       57,424       57,667       10,058      67,725

OPERATING (LOSS)/PROFIT                     (1,951)     (5,044)      (6,995)       11,001     (10,058)         943

OPERATING (LOSS)/PROFIT
Continuing                                    (729)     (2,241)      (2,970)        8,234     (10,058)     (1,824)
Acquisitions                                (1,222)     (2,803)      (4,025)            -            -           -

                                            (1,951)     (5,044)      (6,995)        8,234     (10,058)     (1,824)
Discontinued operations                           -          -             -        2,767            -       2,767

OPERATING (LOSS)/PROFIT                     (1,951)     (5,044)      (6,995)       11,001     (10,058)         943
Exceptional items
Gain on disposal of fixed assets                  -      2,145        2,145             -          822         822
Loss on disposal of business                      -       (410)        (410)            -      (2,770)     (2,770)

LOSS BEFORE INTEREST                        (1,951)     (3,309)      (5,260)       11,001     (12,006)     (1,005)
Investment income                               215          -           215        1,172            -       1,172
Interest payable and similar charges          (613)          -         (613)      (1,590)            -     (1,590)

LOSS BEFORE TAXATION                        (2,349)     (3,309)      (5,658)       10,583     (12,006)     (1,423)

Tax on loss on ordinary activities                                   (1,836)                                 3,071

LOSS FOR FINANCIAL YEAR                                              (3,822)                               (4,494)
Dividends on equity shares                                             5,745                                 6,050

LOSS FOR FINANCIAL YEAR                                              (9,567)                              (10,544)

Loss per ordinary share                                              (3.25p)                               (3.63p)

Diluted loss per ordinary share                                      (3.25p)                               (3.63p)

Dividends per share                                                    5.00p                                 5.00p

Corporation tax rate (2001 excluding exceptional items)                32.4%                                 16.4%


    Notes:

    1.     Earnings per share are calculated on the basis of the weighted
    average of 117,605,351 shares in issue (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 117,882,668
    shares. (31 December 2001 - 124,680,084). As 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.


    2.    The figures for 2002 are extracted from those shown in the statutory 
    accounts on which the auditors will issue an unqualified report today and 
    which will not contain a statement under s237(2) or (3) of the Companies 
    Act 1985. A copy of the full accounts for 2001 on which the auditors have 
    issued an unqualified report, has been filed with the Registrar of 
    Companies. The figures for 2001 are derived from the published accounts 
    as restated for the effects of applying FRS19 'Deferred Tax' as set out in 
    note 3 to the consolidated balance sheet.




                              Macfarlane Group PLC

                                31 December 2002

                           Consolidated balance sheet
                                                                              As at 31        As at 31
                                                                              December        December

                                                                                  2002            2001

                                                                                  £000            £000
                                                                                           As restated
                                                                                         
                                                                                           (See note 3)
Fixed assets
Intangible assets
                                                                               18,250            19,084

Tangible assets
                                                                               35,951            39,511

Investments
                                                                               825               -



                                                                               55,026            58,595


Current assets
Stocks
                                                                               12,883            11,175

Debtors
                                                                               37,055            37,755

Cash at bank and in hand
                                                                               2,915             7,501



                                                                               52,853            56,431


Creditors: amounts falling due within one year
                                                                               48,196            41,135


Net current assets
                                                                               4,657             15,296


Total assets less current liabilities
                                                                               59,683            73,891


Creditors: amounts falling due after more than one year
                                                                               1,080             1,763


Provisions for liabilities and charges
                                                                               115               1,459


Total net assets
                                                                               58,488            70,669


Operating assets by division
Continuing
                                                                               66,947            67,946

Acquisitions
                                                                               5,552             -


Operating assets
                                                                               72,499            67,946

Net (debt)/funds
                                                                               (14,011)          2,723


Net assets
                                                                               58,488            70,669




        Notes:


 1. Audited accounts will be sent to shareholders on or about 4 April 2003 and
    will be available to members of the public at the Company's Registered
    Office, 21 Newton Place, Glasgow, G3 7PY from 11 April 2003.

 2. The Annual General Meeting will be held on Tuesday 13 May 2003 and the final
    dividend payable to shareholders on the register at close of business on 25
    April 2003 will be paid on 29 May 2003.

 3. The results for 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 have been restated and consequently reserves have decreased and
    provisions increased by £0.25m at 31 December 2001. The tax charge for the
    financial year ended 31 December 2001 as shown in the profit and loss
    account reduced by £0.94m.




                              Macfarlane Group PLC

                          Year ended 31 December 2002

                        Consolidated cash flow statement
                                                                                Year ended 31        Year ended
                                                                                     December
                                                                                                    31 December
                                                                                         2002              2001

                                                                                         £000              £000

Net cash (outflow)/inflow from operating activities (note 1)                            (281)            17,726

Cash outflow from returns on investments and servicing finance                          (318)             (990)

Tax paid                                                                              (3,780)           (3,654)

Net cash inflow from capital expenditure & financial investment                           735            11,357

Net cash (outflow)/inflow from acquisitions and disposals                             (4,422)            16,588

Equity dividends paid                                                                 (5,917)           (6,230)

Net cash (outflow)/inflow before liquid resources and financing                      (13,983)            34,797

Net cash outflow from financing                                                       (4,116)           (7,474)

(Decrease)/increase in cash in the period (note 2)                                   (18,099)            27,323






Notes:
1.Reconciliation of operating profit to net cash (outflow)/inflow from          Year ended 31        Year ended
operating activities                                                                 December
                                                                                                    31 December
                                                                                         2002              2001

                                                                                         £000              £000
Operating (loss)/profit before exceptional items                                      (1,951)            11,001
Gain on disposal of property                                                            2,145               822
Exceptional costs                                                                     (5,044)          (10,058)

                                                                                      (4,850)             1,765
Depreciation and impairment of tangible assets                                          4,964             6,846
Amortisation and impairment of intangible assets                                        3,699             6,205
Gain on disposal of tangible assets                                                   (2,290)             (960)
Decrease in stocks                                                                          1             2,505
Decrease in debtors                                                                     2,529             6,126
Decrease in creditors                                                                 (4,334)           (4,761)

Net cash (outflow)/inflow from operating activities                                     (281)            17,726


        2. Reconciliation of net cash flows to movement in net debt

(Decrease)/increase in cash in the period                                            (18,099)            27,323
Cash inflow from decrease in debt and lease financing                                   1,508             1,299

                                                                                     (16,591)            28,622
New finance leases                                                                          -           (1,925)
Borrowings acquired with subsidiaries                                                   (143)              (16)
Loan notes issued on acquisition of subsidiary                                              -             (800)
Finance leases disposed with business                                                       -               122

Movement in net debt in the period                                                   (16,734)            26,003
Opening funds/(net debt)                                                                2,723          (23,280)

Closing (net debt)/funds                                                             (14,011)             2,723




                              Macfarlane Group PLC

                          Year ended 31 December 2002

               Reconciliation of movements in shareholders' funds

                                                                                Year ended 31        Year ended
                                                                                     December
                                                                                                    31 December
                                                                                         2002              2001

                                                                                         £000              £000
                                                                                                    As restated

Loss for the financial year                                                           (3,822)           (4,494)
Dividends on equity shares                                                            (5,745)           (6,050)

                                                                                      (9,567)          (10,544)
Purchase of ordinary shares                                                           (2,608)           (6,175)
Exchange movement on retranslation of overseas subsidiaries                               (6)              (14)
Deferred taxation on revalued assets in revaluation reserve                                 -             (222)
Write back of goodwill on disposal of business/subsidiary                                   -            19,977

Net (reduction in)/addition to shareholders' funds                                   (12,181)             3,022


Opening shareholders' funds as previously stated                                       70,919            68,837
Prior year adjustment                                                                   (250)           (1,190)

Opening shareholders' funds as restated                                                70,669            67,647



Closing shareholders' funds                                                            58,488            70,669





                 Analysis of turnover and loss before taxation
                                                     2002                           Year ended 31 December 2001
                                                     £000              £000              £000              £000
                                               Continuing        Continuing      Discontinued             Total

Turnover: Continuing                              142,370           159,623                 -           159,623
Discontinued                                            -                 -            38,577            38,577
Acquisitions                                        7,248                 -                 -                 -

                                                  149,618           159,623            38,577           198,200
Cost of sales                                      99,189           104,666            24,866           129,532

Gross profit                                       50,429            54,957            13,711            68,668
Net overheads                                      52,380            46,723            10,944            57,667

                                                  (1,951)             8,234             2,767            11,001
Exceptional restructuring costs                   (5,044)          (10,058)                 -          (10,058)
Gain on disposal of fixed assets                    2,145               822                 -               822
Loss on disposal of businesses                      (410)                 -           (2,770)           (2,770)

Loss before interest                              (5,260)           (1,002)               (3)           (1,005)
Net interest                                        (398)               361             (779)             (418)

                                                  (5,658)             (641)             (782)           (1,423)





         Included in the current year figures are £5,630,000 (cost of sales),
    £2,840,000 (net overheads), £83,000 exceptional operating costs and
    £1,305,000 (operating loss) attributable to acquisitions, which relate to
    Tom Brands Electrical Services Limited and Brands Electronics de Mexico SA,
    de CV and Pacific Tech Products Inc.

         In 2001 the Group sold the trade assets and certain liabilities of its
    UK Plastics Division. This comprises the amounts shown in the comparative
    figures as discontinued.



                      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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