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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Final Results
Macfarlane Group PLC
27 March 2007

                                                                   27 March 2007


     Profit for the year, after tax and gains on discontinued operations, 
                              totals £2.05m

                 Net bank borrowings reduced to £5.55m

                 Dividend intentions for 2007 reconfirmed

          Profit before tax from continuing operations of £1.52m

        Sales growth and margin recovery continues to date in 2007

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

'I have to report to shareholders that the Group has produced profit before tax
from continuing operations for 2006 of £1.52m, that dividend payment intentions
for 2007 are as previously expressed and that our key businesses continue to


Profit for the year, after tax and including gains from discontinued operations,
was £2.1 million compared with £3.4 million for 2005. Earnings per share were
1.82p in 2006 compared to 3.01p in 2005. The 2006 result was achieved despite
trading disappointments in the middle of 2006.

Having returned to profit in 2005, the priority for the Group in 2006 was sales
growth. This has been achieved with increases in turnover in Distribution of 8%
and UK Packaging Manufacture of 12%, offsetting reductions of 12% in both the
Labels and US/Mexico Packaging businesses so that overall sales increased by 2%
to £130.1 million.

During 2006 there were significant industry-wide supplier-driven cost increases.
It proved difficult to pass these on to our customers in a timely fashion and
the impact was a reduction in our gross margin from 33.1% to 32.0% in the year.
Actions were taken immediately in the second half of the year to tighten margin
controls and these actions have seen a recovery in margins in the final quarter
of the year.

Despite these margin pressures, we continued our programme of investment in the
second half of the year with a number of revenue investments in Distribution's
e-commerce capability, new business development and strengthening of the
management team. The costs of these actions were more than covered by planned
asset disposal gains and non-recurring credits as set out in the operating
review of our manufacturing operations. We also commenced our acquisition
programme in Distribution with the purchase of Bloomfield Supplies Limited,
which generated a contribution of £0.1m in the final quarter.

We have maintained our market leading position in Distribution, being three
times larger than our nearest competitor, and our market share of just over 10%
demonstrates the potential for further growth.

More detailed comments on trading are set out in the operating review, following
my statement.

Cash and Dividends

Bank borrowings net of cash balances reduced to £5.6 million at 31 December 2006
and further improvements are expected in 2007. On top of this stock market and
assumed bond yield movements together with increased payments made during 2006
have seen a reduction in our recorded pension deficit, net of deferred taxation,
from £16.1 million to £11.1 million.

The Board recognises the importance which shareholders attach to the dividend
stream. A year ago I said that, subject to continued satisfactory trading, the
intention of the board was to establish in each year, the payment of an interim
dividend in October and a final dividend in June, following the Annual General
Meeting. Having already paid an interim dividend for 2006 of 1p per share it is
the intention of the Board to declare a final dividend for 2006 of 1p payable in
June 2007, subject to shareholder approval at the AGM in May this year. The
Board expects to pay a dividend of 2p per share for 2007 of which 1p will be
paid as an interim dividend in 2007.

Future Prospects

The Board believes that that the Group has gained from the experiences of 2006
and its response to them. It is confident that the key businesses on which we
will concentrate in 2007 have been strengthened. Further acquisitions will be

A major element of the investment programme undertaken in 2006 related to
building the management team in terms of both numbers and competency. The
objective is to ensure that we have the necessary management strength to take
advantage of the business opportunities which we have identified. On behalf of
the Board I wish them every success.

We have recorded continued growth in sales and recovery in margins in 2007 to
date with a resultant increase in profitability compared to 2006.

We plan further profitable growth in 2007 and beyond.'

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

Operating review
Group Segment                            Revenue    Revenue    Result   Result
                                            2006       2005     2006      2005
                                            £000       £000     £000      £000

Packaging Distribution                    80,853     73,915      590       409
Manufacturing Operations                  49,214     53,332    1,656     2,267
                                        ________    _______   ______    ______

Continuing activities                    130,067    127,247    2,246     2,676
                                        ========    =======

Net finance costs                                               (731)   (1,086)
                                                              ______    ______

Profit from continuing trading                                 1,515     1,590
Gain on disposal of properties                                     -     1,300
Discontinued activities (Manufacturing
Operations)                                                      849       782
                                                              ______    ______

Profit before taxation                                         2,364     3,672
Tax Continuing activities                                       (313)     (161)
Discontinued activities                                            -      (126)
                                                              ______    ______

Profit for the year                                            2,051     3,385
                                                              ======    ======

The results for 2006 show the Group recording profits from continuing trading
operations of £1.5 million, a performance broadly in line with 2005.

All businesses within the Group, with the exception of our business in US/
Mexico, were profitable in 2006. Profitability was achieved despite unfavourable
market conditions during 2006 in the majority of the markets in which we operate
due to consistent and considerable cost pressures on raw materials, fuel and

Group debt continued to reduce during 2006.

We have demonstrated in 2006 an ability to sustain profitability and create a
solid foundation. The focus of our plans for 2007 and beyond is to build on this
base and grow the business both organically and through acquisition.

Packaging Distribution

Macfarlane's Packaging Distribution business is the leading UK distributor of a
comprehensive range of packaging consumable products. In a highly fragmented
market, Macfarlane is the market leader with a 10% market share. The business
operates through 16 Regional Distribution Centres (RDCs) supplying customers on
a local, regional and national basis. The business enables customers to package
their products cost effectively by providing them with a comprehensive product
range, single source supply, just in time delivery and tailored stock management

In 2006 Packaging Distribution recorded a profit of £0.6m, compared to £0.4m the
previous year. There were a number of factors that contributed to these results:

   • Sales revenue increased by 7% on an organic basis, partly driven by
     price increases and partly through volume growth.
   • The first half of 2006 was a significant period for supplier price
     increases due to inflation in raw materials, energy and oil related costs.
     This difficult pricing environment caused delays in passing through fully
     supplier increases to customers, resulting in the gross margin being 1%
     lower than for the same period in 2005;
   • In 2006 our On-Time-In-Full ('OTIF') deliveries averaged 92% compared
     with 91% in 2005 and 85% in 2004;
   • In 2006 we increased product range penetration in our existing customer
     base to an average 8.6 lines per customer compared with 8.2 in 2005 and 8.0
     in 2004;
   • During 2006 we opened 2,505 new customer accounts;

Operating review

Packaging Distribution

   • We commenced in 2006 a programme to rationalise our supplier base to
     source products more cost-effectively. Our current supplier base consists 
     of 646 companies, a reduction of 46 vs. 2005;
   • Our headcount in 2006 stabilised at just over 400 and our overhead to
     sales ratio reduced by 1.2% from 2005, although overheads increased by £1.1
     million partly due to investments in e-commerce capability, new business
     development and strengthening of management;
   • In 2006, 80 major customers commenced trading with us electronically
     using our new Customer Connect service;
   • Our 2006 customer satisfaction survey showed 86% of customers rating our
     service above average (2005 - 79%) and of these, 33% rated our service as
     excellent (2005- 27%);
   • Packaging2U our new web based packaging service had a successful start
     up year and has enabled us to access a number of market segments where
     traditionally Macfarlane has not had a presence. We expect Packaging2U to
     become profitable in 2007;
   • During 2006 we invested in a dedicated new business team to accelerate
     sales growth and we will see the benefits from this investment in 2007; and
   • In the final quarter of 2006, we made the first acquisition in the
     distribution business for five years. Bloomfield Supplies Limited
     ('Bloomfield') has performed well since acquisition, contributing £0.1m in
     the final quarter of the year and this gives us encouragement to pursue
     further similar acquisitions in 2007.

Within our current network of 16 RDCs, based on our 2006 results we had 6 RDCs
performing at acceptable levels, 7 RDCs demonstrating improvements that indicate
their ability to achieve acceptable performance levels and 3 RDCs where
performance is not at the acceptable level. During the final quarter of 2006 we
have made investments to strengthen our RDC management team and this should help
drive significant performance benefits in 2007.

The plan for 2007 is to focus our management actions in the following areas:

   • Recover the gross margin erosion experienced in 2006 through more
     effective management and recovery of supplier price changes;
   • Accelerate sales growth through effective deployment of the new business
     development team;
   • Improve the returns from the 3 underperforming RDCs;
   • Ensure the Packaging2U business builds on a successful start up year and
     contributes positively to 2007 profitability;
   • Deliver the benefits from the full year contribution of the Bloomfield
     acquisition; and
   • Following the successful acquisition of Bloomfield in 2006 we will look
     to accelerate market penetration through additional acquisitions in 2007.

Manufacturing Operations

Macfarlane operates a range of manufacturing businesses, producing self adhesive
and re-sealable labels, plastic injection moulded closures and dispensers,
bespoke composite transit packaging and foam based packaging and protective

In 2006 Macfarlane Group's Manufacturing Operations recorded a profit of £1.7
million, a reduction of £0.6 million on the previous year.

The key features of the Manufacturing Operations performance in 2006 were:

   • Sales were 4% down versus 2005 primarily due to sales reductions at
     Labels as we transitioned away from low margin own brand food business and
     weaker trading conditions in the US;
   • Gross margin was 0.7% down versus 2005 with the major reductions at
     Labels due to customer price pressure and Plastics where raw material price
     increases could not be fully passed onto customers; and
   • The overhead to sales ratio was 0.4% ahead of last year reflecting the
     nature of the fixed cost base of the manufacturing businesses. However 
     total overheads reduced by over £1.0 million benefiting from reduced 
     depreciation in Labels of £0.2 million following changes in estimates of 
     residual values of machinery and gains on disposal of machinery of 
     £0.2 million primarily in the Labels business.

Operating review

Manufacturing Operations


The principal activity of the Labels business is the production of self-adhesive
and re-sealable labels for major FMCG customers primarily in European markets.
The business operates from two production sites in Kilmarnock and Dublin and a
sales and design office in Sweden which focuses on the development and growth of
our re-sealable labels business - Reseal-it(TM).

During 2006 the Macfarlane Labels business continued to experience the price and
margin pressure that has been a consistent feature over recent years. In
response the business has been transitioning itself away from the volatile lower
margin own brand food related business to more secure margin high-quality
branded products. This led to a 13% reduction in sales of which 10% was a
reduction in volume from 2005 and a consequential reduction in profit. This
transition programme will continue during the first half of 2007 and it is
expected that volumes will begin to recover in the second half of 2007.

In response to the market place pressures further production efficiencies have
been sought to mitigate the impact of margin reduction. Production capacity has
been reduced with three low efficiency machines being sold and a number of
redundancies made in both the Dublin and Kilmarnock plants.

Reseal-it(TM) continues to progress well. The first machine sale in North 
America is expected in the first half of 2007 and other applications for the 
Reseal-it (TM) technology are being explored.

The priorities in 2007 are to:-

   • Accelerate organic growth plans particularly in the branded products
   • Improve operational efficiencies to counterbalance retail price
   • Introduce Reseal-it(TM) to the US market; and
   • Broaden the re-sealable label product range.


The principal activity of the company is the manufacture of injection moulded
plastic packaging and dispensing components particularly lids and scoops for the
baby food market.

Business performance improved in 2006 compared to 2005 with a small increase in
volume leading to sales growth of over 4%. This was achieved in difficult market
conditions with raw material prices increasing by over 20% during the course of
the year. Relationships with key customers in Europe and Asia continue to be

The overall result was a move from an operating loss in 2005 to a profit in
2006, with the business continuing to be highly cash generative. Further
improvements in infrastructure and hygiene procedures are planned for 2007 with
the objective of securing ISO22000 accreditation.

During 2007 the management team will focus on:-

   • Building on the operational improvements achieved in 2006 in order to
     maintain profitability;
   • Upgrading the manufacturing facility in response to customer
     expectations; and
   • Establishing new lower cost raw material sources.

Packaging Manufacture

The principal activity of the business is the design and manufacture/assembly of
bespoke composite packaging for use in protecting goods in transit. The primary
components are corrugate, timber and foam. The business operates from two
manufacturing sites in Grantham and Westbury. The business supplies goods
directly to customers and via the Group's Distribution business focusing on such
sectors as aerospace, medical equipment, electronics and automotive.

Operating review

Manufacturing Operations

Packaging Manufacture

The business had a very successful year in 2006 building on the operational
improvements achieved during the last two years. Strong sales momentum was
achieved with one significant customer win and good growth via the Macfarlane
Distribution channel. The sales momentum achieved in 2006 was effectively
translated into good year on year profit growth. Total sales grew by 12% with
above average growth in sales through the distribution channel. This channel now
comprises approximately 25% of total sales and this is expected to grow still
further in future years. Margins were broadly flat despite volatility in raw
material prices.

The Group currently believes the retention of an in-house manufacturing
capability allows it to differentiate its offering from other distributors and
to be able to offer comprehensive design and manufacturing services for bespoke
packaging solutions. During 2006 we strengthened the management in the business
and this strengthening will continue in 2007.

The priorities for 2007 are to:

   • Improve the overall returns from the business;
   • At Grantham the focus will be on growing sales partly through the
     Distribution network;
   • Our Westbury location is focused on maintaining sales momentum while at
     the same time introducing productivity improvement initiatives that were
     effective at Grantham in 2006; and
   • We will continue to strengthen the management team.


Macfarlane has packaging manufacturing and assembly operations in California and
Mexico. There are two plants in Mexico and two in California. The business is
focussed on foam based packaging components supplying the electronics,
healthcare and food and drink sectors of the market.

Following the return of the business to profitability in 2005, the performance
in 2006 was disappointing:-

   • Sales in 2006 were below 2005 partly due to slower demand and there was
     some sales impact from west-coast based customers re-locating their
     manufacturing facilities to the east coast; and
   • Margin erosion was experienced as there were difficulties in fully
     recovering supplier price increases, resulting in a small loss for the year.

The new operation in Tijuana was successfully established and returned a profit
in the year as customers in Southern California were supplied from this new
lower cost facility and new customers were gained in Northern Mexico.

Our priorities in 2007 are to:

   • Fully utilise the lower cost benefits of the new manufacturing facility
     in Tijuana;
   • Strengthen our relationships with the key US brokers/distributors;
   • Create more direct customer relationships particularly in the medical
     and food and drink segments;
   • Work more effectively with our supplier base to control and manage
     changes to raw material pricing; and
   • Develop added value foam applications where there is less vulnerability
     to competitive pricing.

Future Outlook

Following the return to profitability of the Macfarlane Group in 2005, 2006 was
a difficult year particularly due to the pressure on raw material prices. It is
pleasing therefore that we have demonstrated our ability to maintain Group
profitable trading in these testing market conditions.

In human resource terms the Group is now stronger. All of the businesses are
demonstrating improving levels of customer service and beginning to demonstrate
the ability to grow market share organically and through targeted acquisition.

Over the coming years we will build on the strong foundation that has been
created. Our priority is to continue the process of giving greater focus to the
Group's activities. This will enable us to concentrate management resources on
accelerating growth and financial returns from the key businesses.

                              Macfarlane Group PLC

                         Consolidated income statement

                      For the year ended 31 December 2006

                                                              2006        2005
                                                   Note       £000        £000

Continuing operations
Revenue                                              2     130,067     127,247
Cost of sales                                              (88,500)    (85,122)
                                                           _______     _______

Gross profit                                                41,567      42,125
Distribution costs                                          (6,519)     (6,521)
Administrative expenses                                    (32,802)    (32,928)
                                                           _______     _______

Operating profit before property transactions        3       2,246       2,676
Gain on disposal of properties                       4           -       1,300
                                                           _______     _______

Operating profit                                             2,246       3,976
Finance income                                       5       2,762       2,383
Finance expense                                      5      (3,493)     (3,469)
                                                           _______     _______

Profit before tax                                            1,515       2,890
Tax                                                  6        (313)       (161)
                                                           _______     _______

Profit for the year from continuing operations               1,202       2,729

Discontinued operations
Profit for the year from discontinued operations               849         656
                                                           _______     _______

Profit for the year                                          2,051       3,385
                                                           =======     =======

Earnings per share                                   8

From continuing operations
Basic                                                         1.07p       2.43p
                                                           =======     =======
Diluted                                                       1.06p       2.41p
                                                           =======     =======

From continuing and discontinued operations
Basic                                                         1.82p       3.01p
                                                           =======     =======

Diluted                                                       1.81p       2.99p
                                                           =======     =======

                              Macfarlane Group PLC

            Consolidated statement of recognised income and expense

For the year ended 31 December 2006

                                                                2006      2005
                                                                £000      £000

Exchange difference on translation of foreign operations        (764)      144
Actuarial gains/(losses) on defined benefit pension schemes    5,835    (5,553)
Tax on items taken directly to equity                         (1,751)    1,666
                                                             _______    ______

Net income/(expense) recognised directly in equity             3,320    (3,743)
Profit for the year                                            2,051     3,385
                                                             _______    ______

Total recognised income and expense for the year               5,371      (358)
                                                             =======    ======

                              Macfarlane Group PLC

        Consolidated reconciliation of movements in shareholders' equity

For the year ended 31 December 2006

                                                     Note      2006       2005
                                                               £000       £000

Profit for the year                                           2,051      3,385
Dividends to equity holders in the year                7     (1,125)      (844)
Net income/(expense) recognised directly in equity            3,320     (3,743)
Credit in respect of share based payments                       140          -
                                                            _______    _______

Movements in equity in the year                               4,386     (1,202)
Opening equity                                               25,439     26,641
                                                            _______    _______

Closing equity                                               29,825     25,439
                                                            =======    =======

                             Macfarlane Group PLC

                 Consolidated balance sheet at 31 December 2006

                                                        Note    2006      2005
                                                                £000      £000
Non-current assets
Goodwill                                                      18,973    17,182
Property, plant and equipment                                 13,112    14,608
Investment property                                            1,701     1,701
Other receivables                                              1,057       863
Deferred tax asset                                             4,560     6,651
                                                             _______   _______

Total non-current assets                                      39,403    41,005
                                                             _______   _______

Current assets
Inventories                                                    9,811     8,803
Trade and other receivables                                   29,508    29,639
Cash and cash equivalents                                      2,195     1,203
                                                             _______   _______

Total current assets                                          41,514    39,645
Non-current assets classified as held for sale           9         -     1,925
                                                             _______   _______

                                                              41,514    41,570

Total assets                                                  80,917    82,575
                                                             =======   =======

Current liabilities
Trade and other payables                                      26,710    24,681
Current tax liabilities                                          663       796
Obligations under finance leases                                  44       272
Bank overdrafts and loans                                      7,747     7,830
Liabilities directly associated with assets classified
as held for sale                                         9         -       485
                                                             _______   _______                                          
Total current liabilities                                     35,164    34,064
                                                             _______   _______

Net current assets                                             6,350     5,581
                                                             _______   _______

Non-current liabilities
Retirement benefit obligations                          11    15,873    22,977
Obligations under finance leases                                  55        95
                                                             _______   _______

Total non-current liabilities                                 15,928    23,072
                                                             _______   _______

Total liabilities                                             51,092    57,136
                                                             =======   =======
                                                             _______   _______                                          
Net assets                                                    29,825    25,439
                                                             =======   =======

Share capital                                                 28,755    28,755
Revaluation reserves                                             167       167
Own shares                                                    (1,406)   (1,406)
Translation reserves                                            (800)      (36)
Retained earnings                                              3,109    (2,041)
                                                             _______   _______

Total equity                                                  29,825    25,439
                                                             =======   =======

                              Macfarlane Group PLC

                        Consolidated cash flow statement

                       For the year ended 31 December 2006

                                                        Note    2006      2005
                                                                £000      £000

Net cash from operating activities                      10       160     1,990
                                                              _______   _______

Investing activities
Interest received                                                  9       119
Disposal of subsidiary undertaking                             2,102         -
Acquisition of subsidiary undertaking                         (1,262)
Proceeds on disposal of property, plant and equipment          1,472     6,255
Purchases of property, plant and equipment                      (604)     (869)
                                                              _______   _______

Net cash from investing activities                             1,717     5,505
                                                              _______   _______

Financing activities
Dividends paid                                           7    (1,125)     (844)
Repayments of obligations under finance leases                  (268)     (479)
Decrease in bank overdrafts                                      (83)   (6,396)
                                                              _______   _______

Net cash used in financing activities                         (1,476)   (7,719)
                                                              _______   _______

Net increase/(decrease) in cash and cash equivalents             401      (224)

Cash and cash equivalents at beginning of year                 1,794     2,018
                                                              _______   _______

Cash and cash equivalents at end of year                       2,195     1,794
                                                              =======   =======

                              Macfarlane Group PLC

                       Notes to the financial information

                      For the year ended 31 December 2006

1. General information

The financial information set out in this preliminary announcement does not
constitute the Group's statutory financial statements as defined in Section 240
of the Companies Act 1985 and has been extracted from the full statutory
accounts for the years ended 31 December 2006 and 31 December 2005 respectively.
The information for the year ended 31 December 2005 does not constitute the
Group's statutory financial statements as defined in Section 240 of the
Companies Act 1985. A copy of the statutory accounts for that year has been
delivered to the Registrar of Companies. The auditors' report on those accounts
was unqualified pursuant to Section 235 of the Companies Act 1985 and did not
contain a statement under sub-section 237 (2) or (3) of that Act.

The auditors' report on the statutory financial statements for the year ended 31
December 2006 was unqualified pursuant to Section 235 of the Companies Act 1985
and did not contain a statement under sub-section 237 (2) or (3) of that Act.

2. Split between continuing and discontinued activities
                                 2006                                 2005
                  Continuing  Discontinued    Total    Continuing  Discontinued    Total
                      £000          £000       £000        £000          £000       £000

Revenue            130,067             -    130,067     127,247         3,618    130,865
Cost of sales      (88,500)            -    (88,500)    (85,122)       (2,082)   (87,204)
                   _______          _____   _______     _______        ______    _______

Gross profit        41,567             -     41,567      42,125         1,536     43,661
Distribution costs  (6,519)            -     (6,519)     (6,521)         (104)    (6,625)
costs              (32,802)            -    (32,802)    (32,928)         (682)   (33,610)
                   _______          _____   _______     _______        ______    _______
Operating profit 
before property
transactions         2,246             -      2,246       2,676           750      3,426
Gain on property
disposals                -             -          -      1,300              -      1,300
                   _______          _____   _______     _______        ______    _______

Operating profit     2,246             -      2,246      3,976            750      4,726
Net finance costs     (731)            -       (731)    (1,086)            32     (1,054)
                   _______          _____   _______     _______        ______    _______

Profit before tax    1,515             -      1,515      2,890            782      3,672
Tax                   (313)            -       (313)      (161)          (126)      (287)
                   _______          _____   _______     _______        ______    _______

Profit after tax     1,202             -      1,202      2,729            656      3,385
Disposal of
operations               -           849        849          -              -          -
                   _______          _____   _______     _______        ______    _______

Profit for the year  1,202           849      2,051      2,729            656      3,385

                   =======          =====   =======     =======        ======    =======

                              Macfarlane Group PLC

                        Notes to the financial information

                       For the year ended 31 December 2006

3. Segmental information

The Group's activities are centred around two principal activities, with those
manufacturing operations discontinued in the current and prior years disclosed

(i)     Packaging Distribution

The distribution of packaging materials from a network of 15 Regional
Distribution Centres in the UK. The acquired activities of Bloomfield Packaging
Supplies Limited in Gloucester.

(ii)    Manufacturing Operations

The manufacture and supply of self-adhesive and re-sealable labels and
plastic-injection moulded products to a variety of FMCG customers in the UK and
Europe and the manufacture, assembly and supply of timber, corrugated and foam
based packaging materials in the UK and US/Mexico.

(iii)  Discontinued Operations

The operations in Hungary were sold at the start of 2006 and are classified as
discontinued in the financial statements for 2005.

                                      2006         2005       2006        2005
                                   Revenue      Revenue      Result     Result
Group Segment                         £000         £000       £000        £000

Packaging Distribution              80,853       73,915        590         409
Manufacturing Operations            49,214       53,332      1,656       2,267
                                   _______      _______    _______      _______

Continuing activities              130,067      127,247      2,246       2,676
Discontinued operations                  -        3,618          -         750
                                   _______      _______    _______      _______

                                   130,067      130,865      2,246       3,426
                                   =======      =======
Profit from discontinued operations                              -        (750)
                                                           _______      _______
Operating profit before property
transactions                                                 2,246       2,676
Gain on disposal of properties                                   -       1,300

Operating profit                                             2,246       3,976
Net finance costs                                             (731)     (1,086)
                                                           _______      _______

Profit before tax                                            1,515       2,890
Tax                                                           (313)       (161)
                                                           _______      _______

Profit from continuing operations                            1,202       2,729
Profit from discontinued operations after tax                  849         656
                                                           _______      _______

Profit after tax and discontinued
operations                                                   2,051       3,385
                                                           =======      =======

4. Gain on disposal of properties

Two properties were sold during 2005 for a combined consideration of £4,880,000
and a gain of £1,300,000.

                              Macfarlane Group PLC

                       Notes to the financial information

                       For the year ended 31 December 2006

5. Net finance expense                                       2006         2005
                                                             £000         £000

Interest on bank loans and overdrafts                        (489)        (698)
Interest on obligations under finance leases                  (12)         (43)
Interest cost of pension scheme liabilities                (2,992)      (2,728)
                                                           ______       ______

Total finance expense                                      (3,493)      (3,469)
                                                           ______       ______

Expected return on pension scheme assets                    2,631        2,280
Investment income                                             131          103
                                                           ______       ______

Total finance income                                        2,762        2,383

Net finance expense                                          (731)      (1,086)
                                                           ======       ======

6. Tax                                                         2006      2005
                                                               £000      £000
Current tax
United Kingdom corporation tax at 30% (2005: 30%)               (57)      (40)
Foreign tax                                                     (97)     (121)
Adjustments in respect of prior periods                         193         -
                                                              _____     _____

Current tax charge/(credit)                                      39      (161)
Deferred taxation                                              (352)        -
                                                              _____     _____

Total                                                          (313)     (161)
                                                              =====     =====

The standard rate of tax for the year, based on the UK rate of corporation tax
is 30% (2005 - 30%). Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions. The deferred tax charge of £352,000
includes a charge of £380,000 in relation to the reversal of the deferred tax
asset on the pension deficit. This was a consequence of the payments made during
2006 to reduce the deficit.

The actual tax charge for the current and previous year is less than 30% of the
results as set out in the income statement for the reasons set out in the
following reconciliation:

                                                                2006      2005
                                                                £000      £000

Profit before taxation                                         1,515     2,890
                                                               _____     _____

Tax on profit at 30%                                            (455)     (867)

Factors affecting tax charge for the year:-
Depreciation in excess of capital allowances                    (216)      107
Tax charge on contributions to defined benefit pension scheme   (380)        -
Non taxable gain                                                   -       390
Other differences                                               (333)   (1,000)
Tax losses utilised                                              836     1,281
Difference on overseas tax rates                                  42       (72)
Adjustments in respect of prior periods                          193         -
                                                               _____     _____

Tax charge for the year                                         (313)     (161)
                                                               =====     =====

                              Macfarlane Group PLC

                       Notes to the financial information

                       For the year ended 31 December 2006

7. Dividends                                                      2006    2005
                                                                  £000    £000
Amounts recognised as distributions to equity holders in the

Interim dividend for the year ended 31 December 2006 of 1.00p
per share (2005 - Special interim dividend of 0.75p per share)   1,125     844
                                                                 =====   =====

Dividends are not payable on own shares held in the employee share trust.

The proposed final dividend of 1.00p per share is subject to approval by
shareholders at the Annual General Meeting in 2007 and has not been included as
a liability in these financial statements.

8. Earnings per share

From continuing and discontinued operations

The calculation of the basic and diluted earnings per share is based on the
following data:
                                                           2006          2005
                                                           £000          £000
Earnings from continuing and discontinued
operations for the purposes of earnings per share
being profit for the year                                 2,051         3,385
Less Profit for the year from discontinued
operations                                                 (849)         (656)
                                                          _____         _____

Earnings from continuing operations for the
purposes of earnings per share being profit for
the year from continuing operations                       1,202         2,729
                                                          =====         =====
Number of shares in issue for the purposes of
calculating basic and diluted earnings per share           2006          2005
                                                         No. of        No. of
                                                         shares        shares 
                                                           '000          '000

Weighted average number of ordinary shares in
issue                                                   115,019       115,019
Own shares in Employee Share Ownership Trusts            (2,491)       (2,491)
                                                        _______       _______

Weighted average number of shares in issue for the      112,528       112,528
purposes of basic earnings per share
Effect of dilutive potential ordinary shares due
to share options                                            601           602
                                                        _______       _______

Weighted average number of shares in issue for the      113,129       113,130
purposes of diluted earnings per share
                                                        =======       =======

                              Macfarlane Group PLC

                       Notes to the financial information

                      For the year ended 31 December 2006

9. Non-current assets and current liabilities classified as held for sale

In January 2006, the Group's Hungarian subsidiary was sold. As the decision to
sell the business was taken before 31 December 2005, consequently the results of
the subsidiary for 2005 are classified as discontinued operations in the
consolidated income statement. The component parts of the balance sheet sold in
January 2006 are classified as non-current assets and current liabilities held
for sale at 31 December 2005.

10. Notes to the cash flow statement                          2006       2005
                                                              £000       £000

Operating profit     Continuing operations                   2,246      3,976
                     Discontinued operations                     -        750
                                                            ______     ______

Operating profit                                             2,246      4,726
Adjustments for:
Depreciation of property, plant and equipment                2,136      3,349
Gain on disposal of property, plant and equipment             (191)    (1,075)
                                                            ______     ______

Operating cash flows before movements in working            
capital                                                      4,191      7,000
Increase in inventories                                       (681)      (379)
Decrease/(increase) in receivables                              58     (1,981)
Decrease in payables                                          (999)    (1,233)
Adjustment for pension scheme funding                       (1,630)      (448)
                                                            ______     ______

Cash generated by operations                                   939      2,959
Income taxes paid                                             (195)      (212)
Interest paid                                                 (584)      (757)
                                                            ______     ______

Net cash from operating activities                             160      1,990
                                                            ======     ======

                                                              2006       2005
                                                              £000       £000

Increase/(decrease) in cash and cash equivalents in the
year                                                           401       (224)
Decrease in bank overdrafts                                     83      6,396
Cash flows from debt and lease financing                       268        479
                                                            ______     ______

Movement in net debt in the year                               752      6,651
Opening net debt                                            (6,403)   (13,054)
                                                            ______     ______

Closing net debt                                            (5,651)    (6,403)
                                                            ======     ======

Net debt comprises:
Cash and cash equivalents                                    2,195      1,203
Cash and cash equivalents in business held for resale            -        591
Bank overdrafts and loans                                   (7,747)    (7,830)
Obligations under finance leases                               (99)      (367)
                                                            _______    ______

Closing net debt                                            (5,651)    (6,403)
                                                            =======    ======

Cash and cash equivalents comprise cash at bank and other short-term highly
liquid investments with maturity of three months or less. Cash inflows in
respect of the discontinued operations for operating activities amounted to £Nil
for 2006, (2005 Inflow of £531,000) cash inflows in respect of investing
activities totalled £2,102,000 (2005 - £32,000) and cash inflows (2005 -
outflows) from financing activities amounted to £Nil (2005 £268,000).

                              Macfarlane Group PLC

                       Notes to the financial information

                       For the year ended 31 December 2006

11. Pension scheme

The Group operates a pension scheme based on final pensionable salary for its UK
operations. The assets of the scheme are held separately from those of the Group
in managed funds under the overall supervision of the scheme trustees.

The contributions are determined by the scheme's qualified actuary on the basis
of triennial valuations using the projected unit method. The most recent
triennial valuation was as at 1 May 2005. The principal assumptions adopted were
that investment returns would average 7.75% per annum and that salary increases
would average 3.5% per annum. The valuation showed that the market value of the
relevant assets of the scheme was £35,259,000 and the actuarial value of these
assets represented 76% of the value of benefits that had accrued to members.

Balance sheet disclosures

The figures below have been based on the triennial actuarial valuation as at 1
May 2005, updated to the current year-end. The assets in the scheme, the net
liability position for the scheme at 31 December 2006 and the expected rates of
return were:

                                             Fair          Fair          Fair
                                            value         value         value
Asset class                                  2006          2005          2004
                                             £000          £000          £000

Equities                                   26,785        24,077        19,911
Bonds                                      16,661        16,678        15,173
Other (cash)                                  184            21            37
                                          _______       _______       _______

Fair value of assets                       43,630        40,776        35,121
Present value of scheme liabilities       (59,503)      (63,753)      (52,545)
                                          _______       _______       _______

Deficit in the scheme                     (15,873)      (22,977)      (17,424)
Related deferred tax asset                  4,762         6,893         5,227
                                          _______       _______       _______

Net pension liability                     (11,111)      (16,084)      (12,197)
                                          =======       =======       =======

During 2006, the Group made additional payments of £1.3 million to commence a
meaningful reduction in the pension scheme deficit. These payments, combined
with an improvement in equity returns and an increase from 4.75% to 5.25% in the
bond yields assumed in the valuation of the pension scheme liabilities had a
very positive impact on the deficit recorded in our balance sheet.

12. Posting to shareholders and Annual General Meeting

The Annual Report and Accounts will be sent to shareholders on Thursday 12 April
2007. The Annual General Meeting will take place at the Thistle Hotel, Cambridge
Street Glasgow at 12 noon on Tuesday 15 May 2007. The Annual Report and Accounts
will be available to members of the public at the Company's Registered Office,
21 Newton Place, Glasgow G3 7PY from 16 April 2007.

                      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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