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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Interim Results
Macfarlane Group PLC
11 September 2007



                                                               11 September 2007

               MACFARLANE GROUP'S INTERIM RESULTS TO 30 JUNE 2007

          Group profit before taxation from continuing operations 
                         for the six months of £0.5m

               Sales growth of 12% from continuing operations

             Increasing focus being brought to Group activities

        Net debt of £9.5m at June 2007, Group expects to be strongly 
                    cash positive in second half of 2007

                         Dividend intentions maintained


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


'I am pleased to be able to report continuing improvement in Macfarlane Group's
trading performance in the six months to 30 June 2007 and significant progress
in bringing increased focus to the activities of the Group.

In the six months to 30 June 2007, pre-tax profit from the Group's continuing
operations was £0.5 million compared with a loss of £0.4 million for the six
months to 30 June 2006 on sales up 12% from £51.2 million to £57.4 million.

Our Packaging Distribution business is now benefiting from the investments made
last year in the management team and in new business development resources. The
outcome is an operating profit for the half year of £0.3 million against a loss
of £0.5 million a year ago on sales 15% ahead of the same period in 2006. Our
market-leading position creates clear potential for profitable growth in this
business both organically and by acquisition. The operating profit from all of
our Manufacturing Operations was £0.4 million, a similar level to the previous
year.

The Board has concluded that the Group's interests would be best served by the
concentration of management's attention on those business activities where we
have developed good market positions and growth potential. Accordingly
discussions with prospective purchasers for certain non-strategic activities
within Manufacturing Operations are being pursued. As a result, these activities
require to be categorised as discontinued operations in this statement with
comparative figures amended accordingly. Given the commercial sensitivities of
these discussions, the Board believes that it would not be in the Group's
interests to say anything further at this time. Further announcements will be
made when appropriate.

The discontinued operations referred to above are expected to give rise to an
impairment loss of £1.8 million for which provision has been made, however they
will have a considerable positive cash impact. This, together with anticipated
net cash generation from trading activities in the six months to 31 December
2007 indicates that the Group will largely eliminate bank borrowings by the end
of the year. The Board is actively seeking acquisitions to complement its
strategic activities.

As previously indicated, an interim dividend of 1p per share will be paid on
Thursday 25 October 2007 to those shareholders on the register at 28 September
2007.

It has been an active six months and the Board is satisfied that progress is
being made. The second half of 2007 has maintained the momentum of the first
half with trading in July and August in line with our expectations. There are
considerable opportunities to be pursued and in each of our business activities
we are undertaking initiatives aimed at delivering sustained profitable growth.'







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

Trading performance


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 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
programmes.

In the first half of 2007, Packaging Distribution recorded an operating profit
of £0.3m, compared to a loss of £0.5m in the same period in 2006. Our objective
in the remainder of the year is to strengthen our position in the UK market
through organic growth and targeted acquisitions.

In the first half of 2007 sales are 15% ahead of the same period in 2006.
Organic growth is 10% ahead of 2006 with the benefits of the investments in our
RDC managers and the New Business Development team beginning to be demonstrated.
Packaging2u.co.uk, our web-based packaging business, is continuing to make good
progress.

In the second half of 2006 we acquired Bloomfield Supplies. The business traded
successfully in the first half of 2007 and its performance is in line with our
expectations. During the second half of 2007 we will fully integrate the
Bloomfield business into the Macfarlane RDC network.

We currently have nine of our RDCs performing at acceptable levels of return.
Four RDCs are demonstrating levels of improvement in line with our expectations
and the three underperforming RDCs are progressing and will be major
beneficiaries of the integration of the Bloomfield business, which will enable
them to exit the year in profit.

The pricing environment remains volatile, however despite this pressure, our
gross margin in the first half of 2007 at 30.5% showed an encouraging
improvement on the 29.9% recorded in the same period in 2006. Gross margin
improvement continues to be a key area of management focus.


Our priorities for the Distribution business in the second half of 2007 are to:


   •Accelerate the current strong sales momentum, particularly through the
    New Business Development and National Account teams;
   •Successfully integrate Bloomfield Supplies into the Macfarlane RDC
    network;
   •Continue to ensure effective recovery of supplier price increases to
    protect our gross margin;
   •Maintain the level of performance improvement in the underperforming
    RDCs;
   •Ensure the Packaging2u.co.uk business accelerates its current momentum;
    and
   •Enhance current organic growth with targeted acquisitions.



Trading performance


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
components.


Macfarlane Labels operates from two plants, Kilmarnock and Dublin, supplying
design and production of high quality self-adhesive and re-sealable labels for
consumer packs.

In the first half of 2007 Labels sales were broadly in line with the same period
in 2006 and showed signs of stabilisation following the 11% reduction in 2006.
During the first half sales improved in self-adhesive labels and a slowed
slightly in re-sealable labels. However with our first US customer now
operational we expect re-sealable label sales to strengthen in the second half
of the year.

The cost savings implemented in the second half of 2006 are enabling the
business to operate with a lower cost base and the profitability of the Labels
business in the first half of 2007 was ahead of the same period in 2006.


Macfarlane Plastics operates from Wicklow in Ireland designing and producing
injection-moulded closures and dispensers primarily used in the packaging of
powdered consumer products. The Plastics business experienced sales in the first
half of 2007 around the same level as 2006. However weaker margins resulted in
first half profits being slightly down on the equivalent period in 2006.


We operate Packaging Manufacturing operations from two UK sites - Grantham and
Westbury, both of which manufacture custom-designed packaging solutions for
customers looking for cost-effective methods of protecting higher-value products
in storage and transit.

Sales in our UK Packaging Manufacturing operations were ahead of the same period
in 2006 with good growth in sales to Macfarlane Distribution and new business.
However pressure on raw material pricing and planned overhead investments
resulted in first half profits only slightly ahead of the same period in 2006.


Our US operations in California and Mexico focus on foam-based packaging
components primarily for use in the electronics, healthcare and fresh produce
sectors. First half sales in the US/Mexico were down on the same period in 2006
primarily due to unfavourable market conditions. In order to counteract the weak
demand, cost reduction programmes have been implemented including the increased
use of our low-cost manufacturing facility in Tijuana. Despite these actions the
US/Mexico business made a loss in the first half of 2007 compared with a small
profit in the equivalent period in 2006.


Our priorities for Manufacturing Operations in the second half of 2007 are to:

   • Maintain our momentum in the strategic repositioning of the
    self-adhesive labels business;
   • Improve our penetration in the re-sealable labels market, particularly
    in the USA;
   • Penetrate new geographic markets in our Plastics business through the
    leveraging of our strong relationships with global customers;
   • Utilise the strong relationship with Macfarlane Distribution to
    strengthen sales in UK Packaging Manufacture;
   • Ensure the planned overhead investments in UK Packaging Manufacture
    reflect in improved profitability; and
   • Fully utilise the lower cost benefits of our new Tijuana manufacturing
    facility to improve profitability in our US/Mexico foam business.

Future Outlook

The first half of 2007 has demonstrated an encouraging uplift in profit
performance primarily driven by our Packaging Distribution business. The
momentum we have created should strengthen in the second half of the year based
on the effective implementation of planned management actions.

Macfarlane Group is intent on giving greater focus to the Group's activities in
order to concentrate management resources on accelerating growth and financial
returns from the key businesses.






INDEPENDENT REVIEW REPORT TO MACFARLANE GROUP PLC





Introduction


We have been instructed by the company to review the financial information for
the six months ended 30 June 2007, which comprises the group income statement,
the group statement of recognised income and expense, the group reconciliation
of movements in equity, the group balance sheet, the group cash flow statement
and related notes 1 to 11. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.


This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.


Directors' responsibilities


The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.


Review work performed


We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.


Review conclusion


On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.



Deloitte & Touche LLP

Chartered Accountants

Glasgow

United Kingdom

11 September 2007


                              MACFARLANE GROUP PLC

                       GROUP INCOME STATEMENT (UNAUDITED)

                     FOR THE SIX MONTHS ENDED 30 JUNE 2007
                                      Six months to  Six months to       Year to
                                       30 June 2007   30 June 2006   31 December
                                                                            2006
                                Note         £000           £000          £000
Continuing operations
Revenue                          3         57,389         51,249       106,313
Cost of sales                             (38,978)       (35,019)      (72,522)
                                            -------        -------       -------

Gross profit                               18,411         16,230        33,791

Distribution expenses                      (2,998)        (2,742)       (5,490)
Administrative expenses                   (14,674)       (13,674)      (26,294)
                                            -------        -------       -------

Operating profit/(loss)          3            739           (186)        2,007
Finance costs                    4         (1,758)        (1,816)       (3,296)
Investment income                4          1,472          1,562         2,762
                                            -------        -------       -------

Profit/(loss) before tax                      453           (440)        1,473
Tax                              5           (187)          (278)         (315)
                                            -------        -------       -------

Profit/(loss) for the
period from continuing
operations                       8            266           (718)        1,158

Discontinued operations          7
(Loss)/profit for the
period from discontinued
operations                                 (1,989)           990           893
                                            -------        -------       -------

(Loss)/profit for the
period                           8         (1,723)           272         2,051
                                            =======        =======       =======

Earnings/(loss) per
ordinary share of 25p            8
From continuing operations
Basic                                        0.24p         (0.64p)        1.03p
                                            =======        =======       =======

Diluted                                      0.24p         (0.63p)        1.02p
                                            =======        =======       =======

From continuing and
discontinued operations
Basic                                       (1.53p)         0.24p         1.82p
                                            =======        =======       =======

Diluted                                     (1.53p)         0.24p         1.81p
                                            =======        =======       =======



                              MACFARLANE GROUP PLC

          GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED)

                     FOR THE SIX MONTHS ENDED 30 JUNE 2007

                        Six months to        Six months to             Year to 31
                         30 June 2007              30 June          December 2006
                                                   2006
                  Note         £000                 £000                   £000

Exchange
difference on
translation of
foreign operations            (135)                (390)                  (764)
Actuarial gains on
defined benefit
pension schemes   10         2,055                2,186                  5,835
Tax on items
taken directly
to equity                     (842)                (655)                (1,751)
                           ---------            ---------               --------

Net income
recognised
directly in
equity                       1,078                1,141                  3,320
(Loss)/profit
for the period              (1,723)                 272                  2,051
                           ---------            ---------               --------

Total
recognised
income and
expense for
the period                    (645)               1,413                  5,371
                           =========            =========               ========


                              MACFARLANE GROUP PLC

            GROUP RECONCILIATION OF MOVEMENTS IN EQUITY (UNAUDITED)

                     FOR THE SIX MONTHS ENDED 30 JUNE 2007


                           Six months to      Six Months to           Year to 31
                                 30 June            30 June        December 2006
                                  2007               2006
                Note              £000               £000                 £000

(Loss)/profit
for the period                  (1,723)               272                2,051
Dividends to
equity holders
in the period     6             (1,125)            (1,125)              (1,125)
Exchange
differences on
translation of
foreign
operations                        (135)              (390)                (764)
Actuarial
gains on
pension
schemes          10              2,055              2,186                5,835
Taxation on
items taken
direct to
equity                            (842)              (655)              (1,751)
Credit in
respect of
share based
payments                            59                  -                  140
                                --------          ---------             --------

Movements in
equity in the
period                          (1,711)               288                4,386
Opening equity                  29,825             25,439               25,439
                                --------          ---------             --------

Closing equity                  28,114             25,727               29,825
                                ========          =========             ========





MACFARLANE GROUP PLC

                GROUP BALANCE SHEET AT 30 JUNE 2007 (UNAUDITED)
                                                     As at      As at   As at 31
                                                                        December
                                                   30 June    30 June     2006
                                                    2007       2006
                                                    £000       £000       £000
Non-current assets                        Note
Goodwill                                          18,646     17,195     18,973
Property, plant and equipment                      9,303     13,360     13,112
Investment property                                1,701      1,701      1,701
Other receivables                                  1,059      1,049      1,057
Deferred tax asset                         11      3,610      5,806      4,560
                                                  --------   --------   --------

Total non-current assets                          34,319     39,111     39,403
                                                  --------   --------   --------

Current assets
Inventories                                        8,261      9,016      9,811
Trade and other receivables                       27,180     29,235     29,508
Cash and cash equivalents                            890        942      2,195
                                                  --------   --------   --------

Total current assets                              36,331     39,193     41,514
Non current assets classified as held
for sale                                    7      8,149          -          -
                                                  --------   --------   --------

                                                  44,480     39,193     41,514
                                                  --------   --------   --------
                                                  --------   --------   --------

Total assets                                      78,799     78,304     80,917
                                                  ========   ========   ========

Current liabilities
Trade and other payables                          22,551     24,334     26,710
Tax liabilities                                      220        726        663
Obligations under finance leases                      41         39         44
Bank overdrafts and loans                         11,107      7,368      7,747
Liabilities directly associated with
assets classified as held for sale          7      3,551          -          -
                                                  --------   --------   --------

Total current liabilities                         37,470     32,467     35,164
                                                  --------   --------   --------

Net current assets                                 7,010      6,726      6,350
                                                  --------   --------   --------

Non-current liabilities
Retirement benefit obligations             10     13,180     20,035     15,873
Obligations under finance leases                      35         75         55
                                                  --------   --------   --------

Total non-current liabilities                     13,215     20,110     15,928
                                                  --------   --------   --------
                                                  --------   --------   --------

Total liabilities                                 50,685     52,577     51,092
                                                  ========   ========   ========
                                                  --------   --------   --------
Net assets                                        28,114     25,727     29,825
                                                  ========   ========   ========

Equity
Share capital                                     28,755     28,755     28,755
Revaluation reserve                                  167        167        167
Own shares held by employee share trust           (1,406)    (1,406)    (1,406)
Translation reserve Continuing
activities                                          (149)      (425)      (800)
Discontinued activities                             (787)         -          -
Retained earnings                                  1,534     (1,364)     3,109
                                                  --------   --------   --------

Total equity                                      28,114     25,727     29,825
                                                  ========   ========   ========


                              MACFARLANE GROUP PLC

GROUP CASH FLOW STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2007

                                 Six months to      Six months to     Year to 31
                                       30 June            30 June       December
                       Note             2007               2006           2006
                                        £000               £000           £000

Net cash
(outflow)/infl
ow from
operating
activities              9             (2,518)            (2,291)           160
                                      --------           --------       --------

Investing activities
Interest
received                                  11                  -              9
Disposal of
subsidiary
undertaking             7                  -              2,174          2,102
Acquisition of
subsidiary
undertaking                                -                  -         (1,262)
Proceeds on
disposal of
property,
plant and
equipment                                 29              1,522          1,472
Purchases of
property,
plant and
equipment                               (288)              (417)          (604)
                                      --------           --------       --------
                                      --------           --------       --------
Net cash (used
in)/from
investing
activities                              (248)             3,279          1,717
                                      --------           --------       --------

Financing activities
Dividends paid                        (1,125)            (1,125)        (1,125)
Repayments of
obligations
under finance
leases                                   (23)              (253)          (268)
Increase/(decr
ease) in bank
overdrafts                             3,370               (462)           (83)
                                      --------           --------       --------
                                      --------           --------       --------
Net cash used
in financing
activities                             2,222             (1,840)        (1,476)
                                      --------           --------       --------

Net decrease
in cash and
cash
equivalents                             (544)              (852)           401

Cash and cash
equivalents at
beginning of
period                                 2,195              1,794          1,794
                                      --------           --------       --------
                                      ========           ========       ========
Cash and cash
equivalents at
end of period                          1,651                942          2,195
                                      ========           ========       ========


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

1. General information

The information for the year ended 31 December 2006 does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985, but has
been extracted from the Group's statutory accounts which have been filed with
the Registrar of Companies. The auditors' report on these statutory accounts was
unqualified pursuant to Section 235 of the Companies Act 1985 and did not
contain a statement under sub-section 237 of that Act.

2. Basis of preparation

These interim financial statements for the six months ended 30 June 2007 have
been prepared on the basis of the accounting policies set out in the Group's
2006 statutory accounts and which were approved by the Board of Directors on 11
September 2007. The Group has not applied IAS 34 'Interim Financial Reporting'
which is not mandatory for UK groups in the preparation of these interim
financial statements. The financial statements have been prepared in accordance
with the recognition and measurement criteria of IFRS and the disclosure
requirements of the Listing Rules. The interim financial statements are
unaudited but have been formally reviewed by the auditors and their report to
the Company is set out on page 4.


The interim report will be sent to shareholders on 17 September 2007 and be
available to members of the public at the Company's Registered Office, 21 Newton
Place, Glasgow G3 7PY from 19 September 2007.



3. Segmental information

The Group's activities are centred around two principal activities, with those
Manufacturing Operations being classified as discontinued in the current and
prior years disclosed separately.

(i)                      Packaging Distribution

The distribution of packaging materials from a network of 16 Regional
Distribution Centres in the UK.

(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.


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

3.              Segmental information (continued)

Packaging Distribution       Six months to     Six Months to          Year to 31
------------------------           30 June      30 June 2006       December 2006
                                    2007
                        ---
                                    £000              £000                £000

Revenue                           44,329            38,491              80,853
Cost of sales                    (30,793)          (26,984)            (56,650)
                                  --------         ---------            --------

Gross profit                      13,536            11,507              24,203

Net operating
expenses                         (13,268)          (11,982)            (23,767)
                                  --------         ---------            --------

Operating
profit/(loss)                        268              (475)                436
                                  ========         =========            ========

Manufacturing Operations      Six months to     Six Months to         Year to 31
--------------------------          30 June      30 June 2006      December 2006
                                     2007
                         ---
                                     £000              £000               £000

Revenue                            13,060            12,758             25,460
Cost of sales                      (8,185)           (8,035)           (15,872)
                                   --------         ---------           --------

Gross profit                        4,875             4,723              9,588
Net operating
expenses                           (4,404)           (4,434)            (8,017)
                                   --------         ---------           --------

Operating
profit                                471               289              1,571
                                   ========         =========           ========

Trading results         Six months to        Six Months to            Year to 31
                              30 June         30 June 2006         December 2006
                               2007
Group segment                  £000                 £000                  £000

Packaging
Distribution                 44,329               38,491                80,853
Manufacturing
Operations                   13,060               12,758                25,460
                             --------            ---------              --------

Revenue cont
inuing
operations                   57,389               51,249               106,313
                             ========            =========              ========

Packaging
Distribution                    268                 (475)                  436
Manufacturing
Operations                      471                  289                 1,571
                             --------            ---------              --------

Operating
profit/(loss)
continuing
operations                      739                 (186)                2,007
                             ========            =========              ========

Net assets                    30 June         30 June 2006           31 December
                                                                            2006
                               2007
Group segment                  £000                 £000                  £000

Packaging
Distribution                 16,729               11,784                16,425
Manufacturing
Operations                    6,787               13,943                13,400
                             --------            ---------              --------

Continuing
operations                   23,516               25,727                29,825
Discontinued
operations                    4,598                    -                     -
                             --------            ---------              --------

Net assets                   28,114               25,727                29,825
                             ========            =========              ========


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

4. Finance costs    Six months to          Six Months to              Year to 31
                          30 June           30 June 2006           December 2006
                           2007
                           £000                   £000                    £000

Interest on
bank loans and
overdrafts                 (206)                  (305)                   (292)
Interest on
obligations
under finance
leases                       (4)                    (8)                    (12)
Interest cost
of pension
scheme
liabilities              (1,548)                (1,503)                 (2,992)
                         --------              ---------               ---------
                         --------              ---------               ---------
Total finance
costs                    (1,758)                (1,816)                 (3,296)
                         --------              ---------               ---------

Expected
return on
pension scheme
assets                    1,453                  1,364                   2,631
Investment
income                       19                    198                     131
                         --------              ---------               ---------
Total
investment
income                    1,472                  1,562                   2,762
                         --------              ---------               ---------

                         --------              ---------               ---------

Net finance
costs                      (286)                  (254)                   (534)


5. Tax                Six months to         Six Months to             Year to 31
                            30 June               30 June          December 2006
                             2007                  2006
                             £000                  £000                   £000
Current tax
UK corporation
tax                             -                     -                    (57)
Overseas
taxation                      (21)                  (51)                   (86)
Prior year                     65                     -                    186
                           --------             ---------               --------

Current tax                    44                   (51)                    43
Deferred tax                 (231)                 (227)                  (358)
                           --------             ---------               --------

          Total              (187)                 (278)                  (315)
                           ========             =========               ========

Corporation tax has been provided for the period to 30 June 2007, reflecting the
expected tax rate for the full year on overseas earnings. The deferred tax
charge of £231,000 relates to the pension deficit and includes a charge in
respect of the reduction in the long-term rate of corporation tax from 30% to
28% with effect from 31 March 2008. No tax has been provided on the UK results,
reflecting the expected tax rate for the full year.

6. Dividends                          Six months to Six Months to     Year to 31
                                            30 June       30 June  December 2006
                                             2007          2006
                                             £000          £000           £000
Amounts recognised as distributions
to equity holders in the period
Final dividend
in respect of
the year ended
31 December
2006 (1.00p
per
share) (2006
Interim 1.00p
per share)                                  1,125         1,125          1,125
                                           ========     =========       ========

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

The interim dividend payable on 25 October 2007 was declared on 11 September
2007 and has therefore not been included as a liability in these financial
statements.


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

7. Discontinued operations


The results for current and comparative periods are as follows:-
                            Six months to       Six Months to            Year to
                                  30 June             30 June
                                   2007                2006          31 December
                                                                          2006
                                   £000                £000               £000

Revenue                          10,836              13,154             23,753
Cost of sales                    (7,183)             (8,921)           (15,977)
                                 --------           ---------          ---------

Gross profit                      3,653               4,233              7,776
Net operating
expenses                         (3,742)             (4,096)            (7,537)
                                 --------           ---------          ---------

Operating
(loss)/profit                       (89)                137                239
Net interest paid                  (100)               (115)              (197)
Impairment loss on
remeasurement of
discontinued
operations                       (1,800)                  -                  -
Gain on disposal of
subsidiary
undertaking                           -                 920                849
                                 --------           ---------          ---------

(Loss)/profit before
tax                              (1,989)                942                891
Tax                                   -                  48                  2
                                 --------           ---------          ---------

Post-tax
(loss)/profit from
discontinued
operations                       (1,989)                990                893
                                 ========           =========          =========

Non-current assets held for sale

The major classes of assets and liabilities comprising the operations classified
as held for sale at 30 June 2007 are as follows:-
                                                                         30 June
                                                                          2007
                                                                          £000

Property, plant and equipment                                            2,078
Inventories                                                              1,148
Trade and other receivables                                              4,162
Cash and cash equivalents                                                  761
                                                                        --------

Total assets classified as held for sale                                 8,149
Total liabilities associated with assets classified as held for sale    (3,551)
                                                                        --------

Net assets classified as held for sale                                   4,598
                                                                        ========



                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

7. Discontinued operations (continued)

In January 2006, the Group's Hungarian subsidiary was sold, with the resultant
gain on disposal being disclosed in the financial statements for 2006. The
amounts treated as disposed of in the comparative periods are as follows:-
                                                   Six Months to         Year to
                                                         30 June
                                                          2006       31 December
                                                                          2006
                                                          £000            £000

Cash consideration (net of attributable
expenses)                                                2,174           2,102
Deferred consideration                                     186             187
                                                       ---------       ---------
Total consideration (net of attributable
expenses)                                                2,360           2,289
                                                       ---------       ---------

Assets sold                                              1,925           1,925
Liabilities directly associated with assets
held for sold                                             (485)           (485)
                                                       ---------       ---------
                                                       ---------       ---------
                                                         1,440           1,440
                                                       ---------       ---------
                                                       ---------       ---------
Gain on disposal of subsidiary undertaking                 920             849
                                                       =========       =========

8. Earnings/(loss) per share          Six months to Six Months to        Year to
                                            30 June       30 June
                                             2007          2006      31 December
                                                                            2006
Earnings                                     £000          £000           £000
Earnings from
continuing and
discontinued
operations for the
purposes of earnings
per share being net
profit attributable
to equity holders of
the parent                                 (1,723)          272          2,051
Add/(less):
Loss/(profit) for
the year from
discontinued
operations                                  1,989          (990)          (893)
                                           --------      --------      ---------

Earnings/(loss) from
continuing
operations for the
purposes of earnings
per share being net
profit/(loss)
attributable to
equity holders of
the parent                                    266          (718)         1,158

                                      30 June       30 June       31 December
                                                                  2006
                                             2007          2006

Weighted average
number of ordinary
shares in issue '000                      115,019       115,019        115,019
Own shares in
Employee Share
Ownership Trusts
'000                                       (2,491)       (2,491)        (2,491)
                                           --------      --------      ---------

Weighted average
number of shares in
issue for the                             112,528       112,528        112,528
Purposes of basic earnings per share
'000
Effect of dilutive
potential ordinary
shares due to share
options                                       192           970            601
                                           --------      --------      ---------
                                           ========      ========      =========
Weighted average
number of shares in
issue for the                             112,720       113,498        113,129
Purposes of diluted earnings per
share '000                                 ========      ========      =========


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

9. Notes to the cash flow statement   Six months to Six Months to     Year to 31
                                            30 June       30 June  December 2006
                                             2007          2006
                                             £000          £000           £000

Operating
profit/(loss)
Continuing
operations                                    739          (186)         2,007
Discontinued
operations                                    (89)          137            239
                                           --------      --------      ---------
Profit/(loss)
from
operations                                    650           (49)         2,246
Adjustments for:
Depreciation
of property,
plant and
equipment                                   1,048         1,521          2,136
Gain on
disposal of
property,
plant and
equipment                                     (24)           (2)          (191)
                                           --------      --------      ---------

Operating cash
flows before
movements in
working
capital                                     1,674         1,470          4,191

Decrease/(incr
ease) in
inventories                                   402          (213)          (681)
(Increase)/dec
rease in
receivables                                (1,834)         (913)            58
Decrease in
payables                                   (1,338)       (1,296)          (999)
Adjustment for
pension scheme
funding                                      (736)         (736)        (1,630)
                                           --------      --------      ---------

Cash generated
by operations                              (1,832)       (1,688)           939
Income taxes
paid                                         (389)         (123)          (195)
Interest paid                                (297)         (480)          (584)
                                           --------      --------      ---------

Net cash
(outflow)/infl
ow from
operating
activities                                 (2,518)       (2,291)           160
                                           ========      ========      =========

Cash outflows in respect of the discontinued operations for operating activities
amounted to £509,000 for 2007 (2006, Inflow of £83,000 in the six months to 30
June 2006 and an inflow of £1,277,000 for the year to 31 December 2006). Cash
outflows in respect of investing activities totalled £121,000 (2006, £65,000 in
the six months to 30 June 2006 and £440,000 for the year to 31 December 2006).
                           Six months to      Six Months to           Year to 31
                                 30 June            30 June        December 2006
                                  2007               2006
Movement in
net debt                          £000               £000                 £000

(Decrease)/inc
rease in cash
and cash
equivalents in
period                            (544)              (852)                 401
(Increase)/dec
rease in bank
overdrafts                      (3,370)               462                   83
Cash flows
from debt and
lease
financing                           23                253                  268
                                --------           --------            ---------

Movement in
net debt in
the year                        (3,891)              (137)                 752
Opening net
debt                            (5,651)            (6,403)              (6,403)
                                --------           --------            ---------

Closing net
debt                            (9,542)            (6,540)              (5,651)
                                ========           ========            =========

Net debt comprises:-
Cash and cash
equivalents                        890                942                2,195
Cash and cash
equivalents in
business held
for resale                         761                  -                    -
Bank
overdrafts in
business held
for resale                         (10)                 -                    -
Bank
overdrafts and
loans                          (11,107)            (7,368)              (7,747)
Obligations
under finance
leases                             (76)              (114)                 (99)
                                --------           --------            ---------

Closing net
debt                            (9,542)            (6,540)              (5,651)
                                ========           ========            =========

Cash and cash equivalents (which are presented as a single class of assets on
the face of the balance sheet) comprise cash at bank and other short-term highly
liquid investments with maturity of three months or less.


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

10. Retirement benefit obligations

The figures below have been based on the results of the triennial actuarial
valuation as at 1 May 2005, updated to 30 June 2007, 31 December 2006 and 30
June 2006. The assets in the scheme, the net liability position of the scheme as
calculated under IAS 19 and the principal assumptions were:
                                                 30 June    30 June  31 December
                                                  2007       2006         2006
                                                  £000       £000         £000

Fair value of assets                            44,143     41,037       43,630
Present value of scheme liabilities            (57,323)   (61,072)     (59,503)
                                                --------  ---------     --------

Pension scheme deficit                         (13,180)   (20,035)     (15,873)
Deferred tax asset                               3,689      6,011        4,762
                                                --------  ---------     --------

Pension scheme deficit net of related
deferred                                        (9,491)   (14,024)     (11,111)
tax asset                                       ========  =========     ========

The scheme's liabilities were calculated on the following bases as required
under IAS 19:
Assumptions                          30 June 2007  30 June 2006   31 December 2006
Discount rate                              5.80%         5.25%         5.25%
Rate of increase in salaries               3.20%         3.00%         2.75%
Rate of increase in pensions in          3% or 5%      3% or 5%      3% or 5%
payment                                 for fixed     for fixed     for fixed
                                        increases     increases     increases
                                     or 3.20% for  or 2.75% for  or 2.75% for
                                         LPI           LPI           LPI
Inflation
assumption                                3.20%         3.00%         2.75%
Life expectancy beyond normal
retirement date of 65
Male                                       19.5          19.5          19.5
Female                                     22.4          22.4          22.4

                            Six months to       Six Months to            Year to
                                  30 June             30 June
                                   2007                2006          31 December
                                                                          2006
Movement in scheme
deficit in the
period                             £000                £000               £000

At start of period              (15,873)            (22,977)           (22,977)
Current service cost               (149)               (221)              (353)
Employer
contributions                       798               1,116              1,925
Curtailment gains                    84                   -                 58
Net finance costs                   (95)               (139)              (361)
Actuarial gain in
the period                        2,055               2,186              5,835
                                 --------           ---------          ---------

At end of period                (13,180)            (20,035)           (15,873)
                                 ========           =========          =========


                              MACFARLANE GROUP PLC

                         SIX MONTHS ENDED 30 JUNE 2007

                    NOTES TO THE GROUP ACCOUNTS (UNAUDITED)

10. Retirement benefit obligations      Six months to Six Months to      Year to
(continued)                                   30 June       30 June
                                               2007          2006    31 December
                                                                          2006
Movement in assets
during the period                              £000          £000         £000

Assets at start of
period                                       43,630        40,776       40,776
Expected return on
assets                                        1,453         1,364        2,631
Actual less expected
return on assets                               (563)       (1,542)         203
Employer
contributions                                   798         1,116        1,925
Employee
contributions                                    98           110          248
Benefits paid                                (1,273)         (787)      (2,153)
                                             --------     ---------    ---------

Assets at end of
period                                       44,143        41,037       43,630
                                             ========     =========    =========

                     Six months to 30 June  Six Months to 30 June  Year to
                                     2007                   2006   31 December
                                                                         2006
Movement in
liabilities during
the period                           £000                   £000         £000

Liabilities at start
of period                         (59,503)               (63,753)     (63,753)
Service costs                        (149)                  (221)        (353)
Interest costs                     (1,548)                (1,503)      (2,992)
Curtailment gain                       84                      -           58
Employee
contributions                         (98)                  (110)        (248)
Actuarial gain on
liabilities in the
period                              2,618                  3,728        5,632
Benefits paid                       1,273                    787        2,153
                                   --------              ---------    ---------

Liabilities at end
of period                         (57,323)               (61,072)     (59,503)
                                   ========              =========    =========



11. Deferred tax asset                     30 June       30 June     31 December
                                                                            2006
                                            2007          2006
                                            £000          £000            £000

Deferred tax asset on pension scheme
deficit at start of period                 4,762         6,893           6,893
Charge on actuarial movement in the
period applied through statement of
recognised income and expense               (842)         (655)         (1,751)
Charge through income statement based
on payments made to reduce deficit in
the period                                  (231)         (227)           (380)
                                          --------     ---------       ---------

Deferred tax asset on pension scheme
deficit (see note 10)                      3,689         6,011           4,762
Deferred tax liabilities on timing
differences                                  (79)         (205)           (202)
                                          --------     ---------       ---------

Net deferred tax asset                     3,610         5,806           4,560
                                          ========     =========       =========






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