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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Interim Results
Macfarlane Group PLC
01 September 2004

                                                                1 September 2004


 Significant reduction in operating losses from £6.5m to £1.9m in first half of

     Major businesses now demonstrating sales recovery and good performance

Programmes to grow sales, enhance margins and reduce costs all having a positive

  All 15 regional distribution centres showing improvement over the comparable
                                 period in 2003

               Future of Brands under review given continuing losses

  Expectation to be cash positive from trading activities in 2004 reconfirmed

Sale of Braehead property for £8.6m generated a gain of £3.8m in the first half


Archie Hunter, Chairman of Macfarlane Group PLC, today said:

'I am pleased to report to you that the group recovery is progressing to plan.

In my statement with last year's results I said that the board had targeted a
significant reduction in operating losses in 2004. In the six months to 30 June
2004 the group operating loss was £1.9m, against £6.5m for the six months to
June 2003. After gains on property sales, the 2004 pre-tax result was a profit
of £1.3m compared with a loss of £6.8m in the six months to 30 June 2003.
Earnings per share amounted to 1.16p compared with a loss per share of 6.01p in
the first half of 2003. Turnover from continuing activities has risen in the
first half of 2004, representing the first increase in recent years.

The other headline target for 2004 was that the group should be cash positive
from its trading operations. I can report that the group is on course to achieve
this. Group debt at 30 June 2004 stood at £18.0m compared with £24.8m a year
earlier and £16.9m at December 2003. The first six months of the calendar year
is normally a period of cash outflow and a considerable reduction in net debt is
expected by the end of December 2004 both from trading activities and from
property disposal proceeds.


I previously reported the efforts, which our Chief Executive Peter Atkinson was
leading, within our packaging distribution business to concentrate attention on
growing sales through improved customer service and reducing costs through
increased efficiency. It is very encouraging for all of us that these efforts
are proving effective, as demonstrated by the results to 30 June and the trends,
which have been maintained into July and August.

One of our most exciting challenges is to secure the advantages which our
position as market leader can deliver and it is therefore gratifying to see
early positive customer responses to our progress. It is significant that every
one of our fifteen new regional distribution centres is showing improvement over
the comparable period in 2003.

The progress being made in our other businesses is set out in the trading
performance section following my statement. It is particularly pleasing to see
the continuing strong results in our labels business. It is also encouraging to
report the improving performance of our business in central Europe and the
actions taken in our other businesses to deliver improved results in the second
half of the year.

The disappointing feature is that the Brands business based in the UK has not
developed as anticipated. While the business's basic commercial proposition has
generated customer interest, it has been unable to secure the major contract
wins needed to cover its high overhead base. A major element of this base is due 
to certain onerous property contracts, which were entered into prior to Brands' 
acquisition by Macfarlane Group. The performance of Brands under these contracts 
has not been guaranteed by any other Macfarlane Group company.  Brands business 
had assets of £1.2m at 30 June 2004 and incurred an operating loss of £0.8m in 
the first six months of the year.

The Board has decided it cannot continue to sustain this level of loss in the
Brands business. The Board is considering a range of options, including exit,
to determine the future of the business and Brands is in active dialogue with 
its various stakeholders including its major property creditor.  The
expectation is that this matter will be resolved during the final quarter of


As an expression of its confidence in the progress being made, the board paid a
special interim dividend for 2004 of 0.75p per share in May 2004. No further
interim dividends will be declared in respect of 2004. As to the future,
dividends will be determined by reference to profits earned and cash generated.
The board has already stated that nothing will be allowed to interfere with the
establishment of the strongest possible platform for recovery, in order to
return the business to profitability and recommence dividend payments.

Future prospects

The past six months have reinforced the growing confidence within the group,
which I referred to in March. The board is convinced that this confidence is
soundly based and that the group can expect to return to profitable growth in
2005. That returning confidence is evident across our business and the
enthusiasm with which our staff are responding to the chief executive's
leadership and the improving prospects is very heartening. I thank them all for
their considerable efforts.'

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

The interim report will be sent to shareholders on 10 September 2004 and be
available to members of the public at the Company's Registered Office, 21 Newton
Place, Glasgow G3 7PY from 14 September 2004.

Trading performance

Packaging Distribution

Macfarlane's Distribution business is the leading UK distributor of packaging
materials, supplying a wide range of customers through 15 Regional Distribution
Centres ('RDCs'). We enable customers to cost effectively package their products
through the provision of a comprehensive product range, single source supply,
just-in-time delivery and tailored stock management programmes.

The results for the Distribution business in the first half of 2004 have been
encouraging reflecting year-on-year sales growth of 3%, consistent levels of
customer service in excess of 85% as measured by On-Time-In-Full deliveries,
margin improvement initiatives and the successful implementation of a series of
cost reduction programmes which have reduced the overhead to sales ratio by 5%
in the first half of the year. It is gratifying to see early positive customer
response to our sales growth plans, one of which, a new catalogue of our
products and services, clearly demonstrates the scale and coverage of our range.
Most importantly all 15 RDCs are showing improvement over the comparable period
in 2003 and we expect this improvement to continue in the second half of the
year, with a majority of the RDCs in profit by the year end.

Considerable duplication in the internal supply chain has been eliminated in the
year to date, supported by our key suppliers and this is expected to continue in
the second half of the year. Although raw material prices have risen during the
first six months, early indications are that these are being managed without any
significant erosion of our margin.

Staff turnover levels have reduced significantly and are now more in line with
the average for service industries. The headcount in the business has reduced
from over 500 at 30 June 2003 to 425 at 30 June 2004. Our recovery in
performance has enabled us to attract new sales and management talent to the

The priority in the remainder of 2004 is to accelerate the current level of
sales momentum, whilst at the same time converting additional opportunities to
further reduce the cost base. We expect the business to return to profitability
in the final quarter of the year and this will give us a strong foundation on
which to build in 2005.

Packaging Manufacture

Macfarlane's Packaging Manufacturing business currently operates from two UK
sites at Grantham and Westbury. The business manufactures a range of custom
designed packaging solutions to improve product storage, protection and
presentation. Customers benefit from the ability to cost effectively source low
volume, custom designed packaging solutions through flexible design and assembly

The performance improvements in this business anticipated in 2004 have not yet
been realised primarily due to operational difficulties at our Grantham site.
These are being addressed and we remain confident that the expected improvements
will materialise in the final quarter of the year. One particularly unprofitable
contract has been exited in July 2004 which will contribute an improvement in
profitability in the second half of the year.

Labels & Injection Moulding

Macfarlane Group's Labels and Plastic Injection Moulding businesses operate from
locations in the UK, Ireland and Sweden and continue to provide high quality
self-adhesive labels and plastic closures primarily for a range of major
international customers in the FMCG sector. Both businesses provide innovative
solutions with a high design component and strong emphasis on quality and
service delivery.

The first half of 2004 has seen the labels business producing improved profits
due to strong demand from existing customers for new product lines. Volume
growth of 5% was achieved in the period. Further progress is expected in the
second half of the year.

The injection moulding business suffered from volumes 26% lower than those
achieved in the first half of 2003 and has taken steps to reduce its fixed cost
base. Planned new business gains in the second half of the year should allow
sales volumes to recover by the end of 2004.


Our international operations comprise packaging manufacturing and distribution
operations in the US and in Hungary, which are strategically positioned to
service key customers. The businesses provide tailored packaging solutions to
key international customers using Macfarlane design and assembly know-how. These
businesses also enhance our relationships with key global strategic suppliers.

Our US operations have achieved strong sales growth in excess of 10% in the
first half of the year. However operational difficulties have prevented the
sales growth being reflected in the results and the business incurred a loss in
the first half of the year, albeit at a significantly reduced level from that
achieved in 2003. A new management team is addressing these operational issues
and the business is expected to exit the year in profit.

Our operation in Hungary again traded strongly in the first half of 2004, with
profits ahead of those achieved last year.


Brands was acquired in 2002 with the strategic objective of developing a new
business, offering key customers operating in the electronics and IT equipment
sectors, web-based project management control and tracking covering spare parts
and warranty returns. The benefit of the Brands service is to allow customers to
cost effectively control and manage their supply chain through the visibility of
spare parts and warranty returns using Brands' proprietary software package.

Despite management efforts to develop Brands, losses have continued in 2004. In
line with its previously-stated commitment to reduce trading losses during 2004,
Macfarlane Group is reviewing a range of options to determine the future of the
Brands business.

                              Macfarlane Group PLC

                         Six months ended 30 June 2004
                Consolidated profit and loss account (unaudited)            Six months to  Six Months to     Year to 31
                                                                                  30 June        30 June       December 
                                                                                     2004           2003           2003
Turnover                                                 Note                        £000           £000           £000

Continuing operations                                                              62,522         61,156        123,100
Discontinued operations                                                                 -          5,161          7,871

Total turnover                                                                     62,522         66,317        130,971
Cost of sales                                                                     (41,414)       (44,939)       (89,067)

Gross profit                                                                       21,108         21,378         41,904
Net overheads: recurring                                                          (22,971)       (26,817)       (51,593)
restructuring                                               1                           -         (1,052)        (4,370)

Operating loss                                                                     (1,863)        (6,491)       (14,059)

Operating loss
Continuing operations (2003 after restructuring costs)                             (1,863)        (5,620)       (12,869)
Discontinued operations                                                                 -           (871)        (1,190)

Operating loss                                                                     (1,863)        (6,491)       (14,059)
Gain/(loss) on disposal of fixed assets                                             3,845            200           (239)
Loss on disposal of business                                                            -              -         (3,235)

Profit/(loss) before interest                                                       1,982         (6,291)       (17,533)
Investment income                                                                      29             20            152
Interest payable and similar charges                                                 (664)          (511)        (1,203)

Profit/(loss) before taxation                                                       1,347         (6,782)       (18,584)
Tax on profit/(loss) on ordinary activities                 2                         (45)             -          1,354

Profit/(loss) for the financial period                      4                       1,302         (6,782)       (17,230)

Dividends on equity shares                                                           (844)             -              -

Earnings/(loss) for the period                                                        458         (6,782)       (17,230)

Earnings/(loss) per ordinary share of 25p                   3                       1.16p         (6.01p)       (15.29p)

Dividends per share                                                                 0.75p          Nil p          5.00p

Corporation tax rate                                        2                        3.3%            Nil          (7.3%)

                              Macfarlane Group PLC

                         Six months ended 30 June 2004
         Notes to the consolidated profit and loss account (unaudited)
1.   Exceptional restructuring charges                                      Six months to  Six Months to      Year to 31
                                                                                 30  June        30 June        December
                                                                                     2004           2003            2003
                                                                                     £000           £000            £000

     Vacant property costs/costs to vacate empty sites                                  -            522           1,747
     Cost of headcount reductions                                                       -            530           1,369
     Impairment of assets and other asset write-downs                                   -              -           1,254

                                                                                        -          1,052           4,370
2.   Tax on profit/(loss) on ordinary activities

     UK corporation tax                                                                 -              -         (1,500)
     Overseas taxation                                                                 45              -             118
     Deferred taxation                                                                  -              -              28

                                                                                       45              -         (1,354)
     Corporation tax has been provided for the period to 30 June 2004, 
     reflecting the  expected tax rate for the full year on overseas earnings.

     No tax is payable on the UK results, reflecting the expected tax rate for 
     the  full year.

3.   Earnings/(loss) per share                                              Six months to  Six Months to      Year to 31
                                                                                  30 June        30 June        December
                                                                                     2004           2003            2003
                                                                                     £000           £000            £000
     Profit/(loss) for the financial period                                         1,302        (6,782)        (17,230)
     Number of shares in issue '000                                               115,019       115,019         115,019
     Own shares in Employee Share Ownership Trusts '000                            (2,491)       (2,227)         (2,358)
     Weighted average number of shares in issue '000                              112,528        112,792        112,661

     The earnings/(loss) per share figures reflect the reductions in the 
     weighted average number of shares in issue to take account of UITF Abstract 
     38 'Accounting for ESOP trusts'. As a result comparative figures have been 
     represented. For all three accounting periods above, the diluted figure is 
     equivalent to the basic earnings/(loss) per share.

4.     Reconciliation of movement in shareholders' funds                  Six months to  Six Months to       Year to 31
                                                                                30 June        30 June         December
                                                                                   2004           2003             2003
                                                                                   £000           £000             £000

        Profit/(loss) for the financial period                                    1,302         (6,782)         (17,230)

        Dividends on equity shares                                                 (844)             -                -

        Movement in own shares                                                        -           (566)            (581)

        Exchange movement on retranslation of overseas businesses                  (472)           301               18

        Net reduction in shareholders' funds                                        (14)        (7,047)         (17,793)

        Opening shareholders' funds                                              39,870          57,663          57,663

        Closing shareholders' funds                                              39,856          50,616          39,870

                              Macfarlane Group PLC

                                  30 June 2004
                      Consolidated balance sheet (unaudited)                                                            
                                                                                  As at           As at        As at 31 
                                                                                30 June         30 June        December 
                                                                                   2004            2003            2003
                                                                                   £000            £000            £000

                                                                                           (As restated
                                                                                            see note 3)
     Fixed assets
     Intangible assets                                                           16,570          17,716          17,054
     Tangible assets                                                             23,980          38,587          28,613
                                                                                 40,550          56,303          45,667
     Current assets
                                                                                  9,850          10,442           9,919
     Debtors                                                                     33,896          34,258          28,901
     Cash at bank and in hand                                                     1,951           1,590           2,026

                                                                                 45,697          46,290          40,846

     Creditors: amounts falling due within one year                              45,752          50,951          45,780

     Net current liabilities                                                        (55)         (4,661)         (4,934)

     Total assets less current liabilities                                       40,495          51,642          40,733

     Creditors: amounts falling due after more than one year                        436             903             683

     Provisions for liabilities and charges                                         203             123             180

     Total net assets                                                            39,856          50,616          39,870


1.   A copy of the accounts for 2003 on which the auditors issued an unqualified
     report, has been filed with the Registrar of Companies. The figures for 
     year ended 31 December 2003 are derived from the published accounts.

2.   The interim financial statements for 2004 have been prepared using 
     accounting policies consistent with those adopted in the 2003 financial 

3.   The figures for 30 June 2003 now reflect the prior year adjustment made in
     the December 2003 accounts, which amended the accounting treatment of 
     shares held in Employee Share Ownership Trusts to take account of UITF 
     Abstract 38 'Accounting for ESOP trusts'. The value of the shares held at 
     31 December 2002 of £825,000 has been re-categorised from investments and 
     reflected as a reduction from shareholders' funds. Accordingly the shares 
     purchased during the first half of 2003 totalling £566,000 have been 
     treated in the same manner.

     Total net assets as previously recorded at 30 June 2003            52,007

     As above                                                           (1,391)

     Total net assets as shown at 30 June 2003                          50,616

4.   Debtors include the deferred consideration on disposal of the Braehead site
     amounting to £5,125,000, of which £2,500,000 is receivable in the second
     half of 2004.

                              Macfarlane Group PLC

                         Six months ended 30 June 2004
                  Consolidated cash flow statement (unaudited)  
                                                                              Six Months      Six months     Year ended
                                                                           ended 30 June   ended 30 June    31 December
                                                                                    2004            2003           2003
                                                                                    £000            £000           £000

     Net cash outflow from operating activities (note 1 below)                    (2,322)         (2,034)          (492)

     Cash outflow from returns on investments and servicing finance                 (488)           (463)          (974)

     Tax (paid)/received                                                             (84)           (121)         1,415

     Cash inflow/(outflow) from capital expenditure and financial investment       2,676          (4,502)            88
     Net cash inflow from acquisitions and disposals                                   -               -            706

     Equity dividends paid                                                          (844)         (3,643)        (3,643)
     Net cash outflow before liquid resources and financing                       (1,062)        (10,763)        (2,900)

     Net cash outflow from financing                                                (233)           (369)          (604)

     Decrease in cash in the period (note 2 below)                                (1,295)        (11,132)        (3,504)

1.   Reconciliation of operating loss to net cash outflow from                      2004            2003           2003
     operating activities                                                           £000            £000           £000

     Operating loss                                                               (1,863)         (6,491)       (14,059)
     Depreciation of tangible fixed assets                                         1,658           2,518          8,000
     Amortisation of intangible assets                                               484             534            905
     Gain on disposal of assets other than properties                               (123)              -           (566)
     Decrease in stocks                                                               69           2,441          2,274
     (Increase)/decrease in debtors                                               (5,194)          2,147          4,936
     Increase/(decrease) in creditors                                              2,647          (3,183)        (1,982)

     Net cash outflow from operating activities                                   (2,322)         (2,034)          (492)
2.   Reconciliation of movement in net debt                                         2004            2003           2003
                                                                                    £000            £000           £000

     Decrease in cash in the period                                               (1,295)        (11,132)        (3,504)
     Cash inflow from decrease in debt and lease financing                           233             369            604

     Movement in net debt in the period                                           (1,062)        (10,763)        (2,900)
     Opening net debt                                                            (16,911)        (14,011)       (14,011)

     Closing net debt                                                            (17,973)        (24,774)       (16,911)

                      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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