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Macfarlane Group PLC (MACF)

Macfarlane Group PLC

Half Yearly Report
RNS Number : 6560R
Macfarlane Group PLC
26 August 2010
 



 

 

26 August 2010

MACFARLANE GROUP'S INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2010

Ÿ Profit before tax and exceptional items from continuing operations of £0.72m (2009: £0.45m)

Ÿ Profit after tax and exceptional items of £1.4m (2009: £0.2m)

Ÿ Actions taken reduced pension liabilities by £1.2m in the first half of 2010

Ÿ Sales from continuing operations of £64.1m (2009: £59.1m)

Ÿ Net debt of £9.7m at June 2010 (2009 - £9.6m), Group expects trading to be cash generative in second half of 2010

Ÿ Interim dividend proposed of 0.5p payable October 2010

                                                                                                                                                                                                                                                                                                                       

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

"The first six months of 2010 have seen a period of further performance improvement for Macfarlane Group PLC in challenging circumstances.  There has been considerable focus on sales pricing levels with existing customers, seeking out new business opportunities, reducing costs and addressing underperforming parts of the business, and Macfarlane Group is emerging stronger as a result.

Group turnover in the first half of 2010 grew by 9% to £64.1m, (2009: £59.1m) largely attributable to passing on a number of substantial supplier price increases.  However, not all such price increases can be passed on immediately and there was an inevitable resultant impact on gross margins, which reduced to 31.2% for 1H 2010 from 32.2% for the same period in 2009.  Significant effort is being made to restore this position in the second half of the year. Our Packaging Distribution business saw an increase in turnover of 9% to £51.3m (2009: £47.1m), reflecting supplier price increases and a degree of increased demand in some target sectors with operating profit before exceptional costs maintained at £1.2m (2009: £1.2m). Our Manufacturing Operations grew turnover by 7% to £12.8m (2009: £12.0m) as a result of some recovery in demand, particularly in the industrial manufacturing sector.  Management had previously taken action to improve the performance of this business and I am pleased to report that 1H 2010 saw a return to operating profit before exceptional items for our Manufacturing Operations of £0.1m (2009: £0.1m loss before charging restructuring costs).  Consequently, the Group recorded a significant increase in profit before tax and exceptional items from continuing operations to £0.72m (2009: £0.45m) for the period.

I outlined earlier this year the Board's strategy to reduce the Group's pension deficit and today's statement reflects the results of actions to put in place an earnings cap that will curtail the ongoing accrual of benefits by active members. While we are very sensitive to the implications, we have had to take this action due to the size of the deficit.  As a result, today's statement shows an exceptional gain of £1.2m following this action.  The Group's pension deficit at 30 June 2010 was £20.0m (31 December 2009: £20.4m), however investment values have recovered by over £1.0m since then with a positive impact on the deficit.  Further measures to reduce the deficit are planned.

Net debt at 30 June 2010 at £9.7m, is marginally higher than at 30 June 2009 at £9.6m, and the Group is again expected to be cash generative in the second half of the year, which will result in debt levels reducing at the year-end.

In accordance with our previously announced policy of paying a fuller final dividend with a lower interim dividend, and against the background of continuing economic uncertainty, the Board has proposed that the interim dividend be maintained at its 2009 level of 0.5p per share, to be paid on 14 October 2010.

Trading in the second half of 2010 has started satisfactorily.  Our Distribution business's concentration is on performance improvement from existing business with additional focus on the development of the business in the third party logistics sector, the roll-out of presentational packaging and the growth of online sales, while Packaging Manufacturing is making good progress in the aerospace sector and Labels continues to see growth potential in its Reseal-it™ labels range. The focus of the Group is on the growth of market share predominantly from within.  The Board expects the Group to continue to deliver to its expectations in the second half of 2010."

 

Further enquiries:

Macfarlane Group

Tel: 0141 333 9666


Archie Hunter               Chairman



Peter Atkinson              Chief Executive



John Love                     Finance Director





 

Spreng & Co

Tel: 0141 229 0482


Callum Spreng

Mob: 07803 970103

 

 

Notes to Editors:

Macfarlane Group PLC is a UK-based group of companies focused on packaging-related activities.  The Packaging Distribution business is the leading UK distributor of a comprehensive range of packaging consumable products.  The Manufacturing Operations comprise two businesses, the manufacture of transit packaging and the manufacture of self-adhesive and re-sealable labels.  Headquartered in Glasgow, Scotland, Macfarlane Group employs 700 people at 22 sites, principally in the UK and Ireland, servicing 20,000+ customers, in a wide range of sectors including: consumer goods; logistics; electronics; food manufacturing and retailing; internet and home retailing.



Interim Results - Management Report

Macfarlane Group's trading activities continue to comprise two divisions, Packaging Distribution and Manufacturing Operations.

 

Packaging Distribution

The Macfarlane 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 market share approaching 20%. The business operates through 17 Regional Distribution Centres (RDCs) supplying customers on a local, regional and national basis.  We benefit customers by enabling them to ensure their products are cost-effectively protected in transit and storage by providing them with a comprehensive product range, single source supply, just in time delivery and tailored stock management programmes.

In the first six months of 2010 operating profit from Macfarlane Packaging Distribution before exceptional items was £1.2m, consistent with the same period in 2009. The major feature of 1H 2010 was the significant impact in the market of supplier price increases, particularly on paper and polymer related products, where price increases versus 2009 of c30% were experienced in some key product categories.  Management of these levels of increase and working with the customer base to offset their impact were the key priorities in the first half of the year. 

 

The main features of our 1H 2010 performance were:

 

l Sales at £51.3m were 9% above the same period in 2009, reflecting price inflation as well as a modest recovery in demand across a number of the key customer sectors we supply;

l New business revenue was in line with our 2009 performance;

l Supplier price inflation has been significant in 1H 2010 and, due to the normal time lag in passing through these price increases, our gross margin reduced to 29.9% compared with 31.3% in 1H 2009. As is traditionally the case, we would expect gross margin to begin to recover in 2H 2010;

l Our Telford RDC was closed at the end of 2009 and has been integrated into our network, primarily benefiting the Coventry and Manchester RDCs;

l Our operating costs (before exceptional items) increased by almost 5% compared to 2009, primarily driven by incremental expenditure to support business growth.  Overheads as a percentage of sales are lower than 2009;

l The integration of Allpoint Packaging into the Macfarlane Distribution network is progressing satisfactorily; and

l There has been good progress on a number of the key strategic initiatives with momentum building particularly in our development into the third party logistics sector, the increasing importance of our web-based presence through macfarlanepackaging.com and some early success in the launch of our presentational packaging business.

 

We do not expect demand conditions to improve in the second half of 2010 and therefore we will retain our focus on a number of key areas:

 

l We have created strong new business momentum and we will look to strengthen this further in 2H 2010, expanding our focus in specific industry sectors, which would benefit from Macfarlane's national coverage;

l Supplier pricing remains volatile and we will work closely both with our suppliers and customers to recover gross margin in 2H 2010;

l All areas of our cost structure will be examined with the objective of eliminating any costs that are not adding value;

l Our web-based packaging service, macfarlanepackaging.com, will be enhanced to increase market visibility of our offering to existing and potential customers;

l We will accelerate the development of our key strategic initiatives, particularly our penetration of the third party logistics sector and the roll out of our presentational packaging business; and

l The implementation of productivity improvement initiatives to ensure all RDCs are operating to their full profit potential will continue.

 

Manufacturing Operations

Macfarlane has two manufacturing businesses, Labels producing self-adhesive and re-sealable labels and Packaging Manufacturing producing bespoke, composite transit packaging and protective packaging components.

In the first half of 2010 the Manufacturing Operations recorded an operating profit before exceptional items of £0.1m, compared with a loss of £0.1m in the first half of 2009. Key features of the performance in the first six months of 2010 were:

l Sales increased by 7% versus 2009 as we experienced some recovery in demand, particularly in the industrial manufacturing sector; and

l Gross margins increased to 36.4% compared with 35.7% in 1H 2009 reflecting our margin recovery programmes in both businesses.

Macfarlane Labels operates from two plants, Kilmarnock and Dublin, designing and producing high quality self-adhesive and re-sealable labels primarily for consumer packs.

In the first half of 2010 sales revenue was 1% ahead of the same period in 2009 reflecting an increase in volume of 6% but a lower value per label.  This lower value per label is due to a change in customer mix as the weakness in the UK economy reduced sales to the branded sector offset by increased sales to the own-brand sector.  We made some progress in sales of re-sealable labels, particularly through our US distributor where sales have almost doubled, but as a premium product, changing consumer preferences in weak economic conditions have reduced demand for this product range in Europe.

The Labels business experienced significant cost increases from the supplier base in 2009 and in the current environment it has still not been possible to pass on these price increases fully to our customer base. As a result profit in the first half of 2010 was below that achieved in the same period in 2009.

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

Sales in our UK Packaging Manufacturing operations were 21% ahead of the same period in 2009 as demand recovered in a number of the key sectors of UK industry we serve. This increase came from both customers of our Packaging Distribution business and our directly serviced customers. Packaging Manufacturing recorded a small profit in 1H 2010 compared to a significant loss in 2009 and this improvement reflects the benefits of the restructuring carried out during 2009.

Our priorities for the Manufacturing Operations in the second half of 2010 are to:

l Work with our customer base in Labels to recover supplier price increases;

l Increase our new business momentum in the UK self-adhesive labels market, particularly in the branded sectors in order to create a more balanced customer portfolio;

l Accelerate the Reseal-it™ growth momentum in the US market and extend the range of Reseal-it™ products to improve competitiveness versus the alternatives;

l Focus on both operational and customer service improvements at our Westbury Packaging Manufacturing site;

l Accelerate current Packaging Manufacturing sales momentum, particularly in the aerospace sector; and

l Continue to strengthen the relationship between our Packaging Manufacturing operations and Packaging Distribution operations to create both sales and cost synergies.

 

Summary and Future Outlook

The outlook for the UK economy remains uncertain and it is clear that trading conditions will continue to be challenging. The immediate priority is to ensure we successfully manage through this period of intensive supplier-lead price inflation to ensure margin stability, whilst growing sales and keeping a tight control of costs.

The future progress of the business will be maintained through the successful execution of our plans in respect of strategic improvement opportunities.  To date there is good momentum in these plans and this will be accelerated in 2H 2010.

The Macfarlane business is well positioned and focused for both the short and medium term. There is a range of both operational and strategic initiatives being implemented, which will improve financial performance and enable the business to deliver to its full potential.


Risks and Uncertainties

The principal risks, which could impact on the performance of the Group, were outlined in our Annual Report and Accounts for 2009 (available on our website at www.macfarlanegroup.net). These risks and uncertainties remain substantially the same for the remaining six months of the financial year and are summarised below: -

l Profitability is sensitive to supplier price changes, whether caused by movements in commodity-based raw material price movements or in manufacturers' energy and fuel costs;

l In Packaging Distribution, our recruitment and retention of staff with good local market knowledge is vital to compete in local and regional markets;

l In our Manufacturing Operations, there is a high level of dependency on a small number of major customers;

l Both our businesses serve a wide range of customers in the UK.  The customer base covers a range of UK market sectors, therefore a prolonged UK economic slowdown would adversely affect the Group's results; and

l The Company's pension scheme deficit is very sensitive to movements in interest rates, inflation and longevity assumptions.

The Group operates a formal framework for the identification and evaluation of the major business risks faced by each business and determines an appropriate course of action to manage these risks.

 

Cautionary Statement

This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategy and the potential for the strategy to succeed.  It should not be relied on by any other party or for any other purpose.

This announcement contains certain forward-looking statements.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this announcement.  Such statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.  These statements should be treated with caution as there are a number of factors, including both economic and business risk factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.

 

Statement of Directors' Responsibilities

The Directors of Macfarlane Group PLC are

A.S. Hunter      Chairman

P.D. Atkinson   Chief Executive

G. Bissett          Non-Executive Director

J. Love             Finance Director

K.D. Mellor      Non-Executive Director and Senior Independent Director

 

The directors confirm that, to the best of their knowledge

(i)         the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

(ii)        the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(iii)       the interim management report includes a fair review of the information required under DTR 4.2.8R (disclosure of related party transactions and material changes therein).

 

Approved by the Board of Directors on 26 August 2010 and signed on its behalf by

 

 

………………….                                 ………………………

Peter D Atkinson                               John Love

Chief Executive                                  Finance Director



 

INDEPENDENT REVIEW REPORT TO MACFARLANE GROUP PLC

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2010, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 14.  We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the condensed set of financial statements.

 

This report is made solely to the Company in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" 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 half yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 2 the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in the half yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of the persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

 

Deloitte LLP

Chartered Accountants and Statutory Auditors

Glasgow

United Kingdom

26 August 2010



MACFARLANE GROUP PLC

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2010

 

 

Six months

to 30 June

2010

before

exceptional

items

£000

 

 

 

 

Exceptional

items

£000

 

 

Six months to 30 June 2010

£000

Six months

to 30 June

2009

before

exceptional

items

£000

 

 

 

 

Exceptional

items

£000

 

 

Six

months to

30 June

2009

£000

 

 

 

Year to 31

December

2009

£000


Note

 

(see Note 5)

 


(see Note 5)



 

 

 

 

Continuing operations

 

 

 

 





Revenue

3

64,121

-

64,121

59,078

-

59,078

123,596

Cost of sales


(44,093)

-

(44,093)

(40,037)

-

(40,037)

(83,473)



 

 

 

 

 

 

 

Gross profit


20,028

-

20,028

19,041

-

19,041

40,123

Distribution costs


(3,228)

-

(3,228)

(3,165)

-

(3,165)

(5,890)

Administrative expenses


(15,522)

1,150

(14,372)

(14,795)

(421)

(15,216)

(30,526)



 

 

 

 

 

 

 

Operating profit

3

1,278

1,150

2,428

1,081

(421)

660

3,707

Investment income

4

1,348

-

1,348

1,171

-

1,171

2,331

Finance costs

4

(1,903)

-

(1,903)

(1,802)

-

(1,802)

(3,554)



 

 

 

 

 

 

 

Profit before tax


723

1,150

1,873

450

(421)

29

2,484

Tax

6

(186)

(322)

(508)

(125)

117

(8)

(514)



 

 

 

 

 

 

 

Profit for the period from continuing operations


 

 

537

 

 

828

 

 

1,365

 

 

325

 

 

(304)

 

 

21

 

 

1,970



 

 

 





Discontinued operations


 

 

 





Profit for the period from discontinued operations

 

 

7

 

 

-

 

 

-

 

 

-

 

 

175

 

 

-

 

 

175

 

 

351


 

 

 

 

 

 

 

 

Profit for the period

9

537

828

1,365

500

(304)

196

2,321

 

 

 

 

 

 

 

 


 

 

 

 





Earnings per ordinary share

 

9

 

 

 





From continuing operations

 

 

 

 





Basic and diluted

 

0.47p

0.73p

1.20p

0.29p

(0.27p)

0.02p

1.74p


 

 

 

 

 

 

 


 

 

 

 





From continuing and discontinued operations

 

 

 

 





Basic and diluted

 

0.47p

0.73p

1.20p

0.45p

(0.27p)

0.18p

2.05p


 

 

 

 

 

 

 

 

 

MACFARLANE GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2010

 

 

 

 

 

 

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

 

Note

£000

£000

£000  






Exchange difference on translation of foreign operations

(140)  

(273)  

(170)  

Actuarial losses on defined benefit pension schemes

12

(1,685)  

(3,380)  

(4,282)  

Tax on items taken directly to equity - actuarial loss

13

472  

946  

1,199  



 

 

 

Other comprehensive expense for the period

(1,353)  

(2,707)  

(3,253)  

Profit for the period

1,365  

196  

2,321  



 

 

 

Total comprehensive income/(expense) for the period

12  

(2,511)  

(932)  



 

 

 

 

 

MACFARLANE GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2010

 


 

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009


Note

£000

£000

£000  






Profit for the period

1,365

196

2,321

Dividends to equity holders in the period

8

(1,134)

(1,125)

(1,688)

Other comprehensive expense for the period

(1,353)

(2,707)

(3,253)

Transfer of own shares to pension scheme

-

-

149

Credit in respect of share-based payments

2

4

34



 

 

 

Movements in equity in the period

(1,120)

(3,632)

(2,437)

Opening equity

24,961

27,398

27,398



 

 

 

 

 

Closing equity

23,841

23,766

24,961



 

 

 

 

 



MACFARLANE GROUP PLC

CONSOLIDATED BALANCE SHEET AT 30 JUNE 2010 (UNAUDITED)



30 June

2010

30 June

2009

31 December

2009


Note

£000

£000

£000

Non-current assets

 

 

 

 

Goodwill

24,151

24,124

24,199

Other intangible assets

2,408

2,728

2,561

Property, plant and equipment

8,471

9,286

8,904

Other receivables

856

870

856

Deferred tax asset

13

5,556

5,716

5,655



 

 

 

Total non-current assets

41,442

42,724

42,175

 

 

 

Current assets

Inventories

9,525

7,970

8,882

Trade and other receivables

30,720

26,903

30,107

Deferred tax asset

13

921

1,139

900

Cash and cash equivalents

11

272

756

536



 

 

 

41,438

36,768

40,425



 

 

 



 

 

 

Total assets

3

82,880

79,492

82,600



 

 

 

Current liabilities

Trade and other payables

28,244

23,873

28,558

Current tax liabilities

8

38

1

Obligations under finance leases

11

273

183

272

Bank overdrafts and loans

11

9,200

9,267

6,908



 

 

 

Total current liabilities


37,725

33,361

35,739



 

 

 

Net current assets

3,713

3,407

4,686



 

 

 

Non-current liabilities

Retirement benefit obligations

12

19,993

20,688

20,366

Deferred tax liabilities

13

670

757

712

Other creditors

129

48

136

Obligations under finance leases

11

522

872

686



 

 

 

Total non-current liabilities


21,314

22,365

21,900



 

 

 



 

 

 

Total liabilities

59,039

55,726

57,639



 

 

 



 

 

 

Net assets

3

23,841

23,766

24,961



 

 

 






Equity





Share capital

28,755

28,755

28,755

Revaluation reserve

70

70

70

Own shares

(943)

(1,406)

(943)

Translation reserve

196

231

336

Retained earnings

(4,237)

(3,884)

(3,257)



 

 

 

Total equity

23,841

23,766

24,961



 

 

 



MACFARLANE GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2010

 

 

 

 

Six months

to 30 June

Six months

to 30 June

Year to 31

December

 

 

Note

2010

£000

2009

£000

2009

£000






Net cash (outflow)/inflow from operating activities

11

(1,099)

(2,063)

1,744



 

 

 






Investing activities





Interest received


2

2

6

Disposal of subsidiary undertaking


-

1,565

1,916

Acquisition of subsidiary undertaking

 

10

-

(440)

(1,190)

Proceeds on disposal of property, plant and equipment


-

-

119

Purchases of property, plant and equipment


(162)

(298)

(466)



 

 

 

Net cash (used in)/from investing activities


(160)

829

385



 

 

 






Financing activities





Dividends paid

 

8

(1,134)

(1,125)

(1,688)

Repayments of obligations under finance leases


(163)

325

(336)

Increase/(decrease) in bank overdrafts


2,292

2,013

(346)



 

 

 

Net cash generated from/(used in) financing activities

995

1,213

(2,370)



 

 

 






Net decrease in cash and cash equivalents


(264)

(21)

(241)






Cash and cash equivalents at beginning of period


536

777

777



 

 

 

Cash and cash equivalents at end of period

11

272

756

536



 

 

 



MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2010

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

1.       General information

The information for the year ended 31 December 2009 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, 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 498 of the Companies Act 2006 and did not contain a statement under either Section 498 (2) or Section 498 (3) of that Act.

The interim report will be posted to shareholders on 8 September 2010.  Copies will be available from the registered office, 21 Newton Place, Glasgow G3 7PY from that date.

 

2.       Basis of preparation

This condensed set of financial statements for the six months ended 30 June 2010 has been prepared on the basis of the accounting policies set out in the Group's 2009 statutory accounts.  There have been no changes in accounting policies in the six months ended 30 June 2010.

The condensed set of financial statements has also been prepared in accordance with the recognition and measurement criteria of IFRS's and the Disclosure and Transparency Rules of the Financial Services Authority.  The Group has applied IAS 34 "Interim Financial Reporting" as adopted by the European Union in the preparation of this condensed set of financial statements. 

The Group adopted IFRS 8 "Operating Segments" in the year to 31 December 2009 with no change to the Group's reportable segments.

The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Interim Management Report on pages 3 to 5.

The Group's principal financial risks in the medium term relate to liquidity and credit risk.  Liquidity risk is managed by ensuring that the Group's day-to-day working capital requirements are met by having access to banking facilities with suitable terms and conditions to accommodate the requirements of the Group's operations.  Credit risk, which is heightened as a result of the difficulties customers may face in the current climate, is managed by applying considerable rigour in managing the Group's trade receivables. The Directors believe that the Group is adequately placed to manage its financial risks effectively despite the current uncertain economic outlook.

The Group's principal banking facility of £12.5 million has been renewed until 28 February 2011 and the Directors are of the opinion that the Group's cash forecasts and revenue projections, which they believe are based on prudent market data and past experiencetaking account of reasonably possible changes in trading performance given current market and economic conditions, show that the Group should be able to operate within its current facilities and comply with its banking covenants.  The Group has held preliminary discussions with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewal may not be forthcoming on commercially acceptable terms.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.  For this reason they continue to adopt the going concern basis in preparing this condensed set of financial statements.

These financial statements were approved by the Board of Directors on 26 August 2010.

This condensed set of financial statements is unaudited but has been formally reviewed by the auditors and their report to the Company is set out on page 6.

 

3.       Segmental information

The Group's principal business segment is Packaging Distribution, comprising the distribution of packaging materials and supply of storage and warehousing services in the UK.  This constitutes over 75% of the turnover and profit of Group operations and as permitted by IFRS 8, the Group has elected to combine the remaining operations for the manufacture and supply of self-adhesive and resealable labels to a variety of FMCG customers in the UK & Europe and the design, manufacture and assembly of timber, corrugated and foam-based packaging materials in the UK into one segment headed Manufacturing Operations.

 

 

 

 

Trading results continuing operations

Six months

to 30 June

2010 before exceptional items

 

 

 

Exceptional items

 

 

Six months

to 30 June

2010


£000

£000

£000

Packaging Distribution


(see note 5)


Revenue

51,317

-

51,317

Cost of sales

(35,952)

-

(35,952)


 

 

 

Gross profit

15,365

-

15,365

Net operating expenses

(14,205)

523

(13,682)


 

 

 

Operating profit

1,160

523

1,683


 

 

 





Manufacturing Operations




Revenue

12,804

-

12,804

Cost of sales

(8,141)

-

(8,141)


 

 

 

Gross profit

4,663

-

4,663

Net operating expenses

(4,545)

627

(3,918)


 

 

 

Operating profit

118

627

745


 

 

 





 

 

Six months

to 30 June

2009 before

exceptional

items

 

 

 

Exceptional items

 

 

Six months

to 30 June

2009


£000

£000

£000

Packaging Distribution


(see note 5)


Revenue

47,101

-

47,101

Cost of sales

(32,336)

-

(32,336)


 

 

 

Gross profit

14,765

-

14,765

Net operating expenses

(13,537)

(170)

(13,707)


 

 

 

Operating profit

1,228

(170)

1,058


 

 

 





Manufacturing Operations




Revenue

11,977

-

11,977

Cost of sales

(7,701)

-

(7,701)


 

 

 

Gross profit

4,276

-

4,276

Net operating expenses

(4,423)

(251)

(4,674)


 

 

 

Operating loss

(147)

(251)

(398)


 

 

 

 

3.         Segmental information (continued)

 

 

Trading results continuing operations

Year to

31 December

2009

before

exceptional

items

 

 

 

 

Exceptional items

 

 

 

Year to

31 December

2009


£000

£000

£000

Packaging Distribution


(see note 5)


Revenue

98,989

-

98,989

Cost of sales

(67,970)

-

(67,970)


 

 

 

Gross profit

31,019

-

31,019

Net operating expenses

(26,763)

(325)

(27,088)


 

 

 

Operating profit

4,256

(325)

3,931


 

 

 





Manufacturing Operations




Revenue

24,607

-

24,607

Cost of sales

(15,503)

-

(15,503)


 

 

 

Gross profit

9,104

-

9,104

Net operating expenses

(8,954)

(374)

(9,328)


 

 

 

Operating profit/(loss)

150

(374)

(224)


 

 

 

 


Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009


£000

£000

£000

Group segment - total revenue




Packaging Distribution

51,472

47,289

99,637

Manufacturing Operations

15,105

13,742

28,544

Inter-segment revenue

(2,456)

(1,953)

(4,585)


 

 

 

External revenue                    continuing operations

64,121

59,078

123,596


 

 

 





Operating profit continuing operations




Packaging Distribution

1,683

1,058

3,931

Manufacturing Operations

745

(398)

(224)


 

 

 

Operating profit

2,428

660

3,707

Net finance costs (see note 4)

(555)

(631)

(1,223)


 

 

 

Profit before tax

1,873

29

2,484

Tax

(508)

(8)

(514)

Profit for the period from discontinued operations

-

175

351


 

 

 

Profit after tax and discontinued operations

1,365

196

2,321


 

 

 

3.       Segmental information (continued)

 

30 June

2010

30 June

2009

31 December

2009

Total assets

£000

£000

£000

Packaging Distribution

65,438

62,146

64,598

Manufacturing Operations

17,442

17,346

18,002


 

 

 

Total assets

82,880

79,492

82,600


 

 

 

Net assets

 

 

 

Packaging Distribution

17,510

20,270

17,804

Manufacturing Operations

6,331

3,496

7,157


 

 

 

Net assets

23,841

23,766

24,961


 

 

 

 

4.       Investment income and finance costs

 

Six months

to 30 June

2010

 

Six months

to 30 June

2009

 

Year to 31

December

2009


£000

£000

£000

Expected return on pension scheme assets

1,346

1,169

2,325

Investment income

2

2

6


 

 

 

Total investment income

1,348

1,171

2,331


 

 

 

Interest on bank loans and overdrafts

(140)

(113)

(260)

Interest on obligations under finance leases

(30)

(38)

(53)

Interest cost of pension scheme liabilities

(1,733)

(1,651)

(3,241)


 

 

 

Total finance costs

(1,903)

(1,802)

(3,554)


 

 

 


 

 

 

Net finance costs

(555)

(631)

(1,223)


 

 

 

 

5.       Exceptional items

 




Pension scheme




Curtailment gain on freezing pensionable salaries (see note 12)

1,200

-

-

Related professional costs

(50)

-

-


 

 

 


1,150

-

-

Restructuring costs




Redundancy and termination costs    Packaging Distribution

-

(140)

(222)

                                                      Manufacturing Operations

-

(251)

(374)


 

 

 


1,150

(391)

(596)

Closure costs for site consolidations in Packaging Distribution

-

(30)

(103)


 

 

 

Total exceptional items

1,150

(421)

(699)

Taxation (charge)/credit thereon

(322)

117

196


 

 

 

Exceptional gain/(loss) after related tax

828

(304)

(503)


 

 

 

During the first half of 2010 the Company concluded a consultation with the active members of the final salary pension scheme to freeze future increases in pensionable salary with effect from 30 April 2010.  The resultant curtailment gain of £1.2m has been recognised in these accounts and costs of implementing the change have been offset against the curtailment gain.

In 2009, given the ongoing uncertainty in the UK economy, action plans were implemented to reduce the cost base to ensure our infrastructure was in line with the potentially lower level of demand.  These were costs, which the directors considered related directly to these plans and are of a non-recurring nature.

 

6.       Tax

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009


£000

£000

£000

Current tax




  UK corporation tax

-

-

-

  Overseas tax

5

(30)

(32)

  Prior year

-

80

81


 

 

 

Current tax

5

50

49

Deferred tax   (See note 13)

(513)

(58)

(563)


 

 

 

Total

(508)

(8)

(514)


 

 

 

Tax for the first six months has been charged at 27% representing the best estimate of the effective tax charge for the full year.

 

7.       Discontinued operations

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

The results for current and comparative periods are as follows: -

£000

£000

£000





Profit on disposal of subsidiary undertaking

-

175

351


 

 

 

Profit before tax

-

175

351

Tax

-

-

-


 

 

 

Post-tax profit from discontinued operations

-

175

351


 

 

 

On 8 January 2009, the Group completed the final and formal arrangements for the sale of its plastic injection-moulding business.  Of the deferred consideration of £1.625m receivable at 31 December 2008 in respect of the sale of the plastic injection-moulding business, £1.565m was received in January 2009.

The profit on disposal recorded for both periods in 2009 relates to finalising adjustments in relation to disposals in previous financial periods.

Cash inflows in respect of the discontinued operations' operating activities amounted to £Nil for 2010 (2009 - £Nil).  Cash inflows in respect of investing activities totalled £Nil (2009 - £1,565,000 in the six months to 30 June 2009 and £1,916,000 for the year to 31 December 2009) and cash outflows from financing activities were £Nil (2009 - £Nil).

 

8.       Dividends

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009


£000

£000

£000

Amounts recognised as distributions to equity holders in the period




Final Dividend (1.00p per share)     (2009    1.00p per share)

1,134

1,125

1,125

Interim Dividend                             (2009    0.50p per share)

-

-

563


 

 

 

Distributions in the period

1,134

1,125

1,688


 

 

 

Dividends are not payable on shares held in the Employee Share Trust.

The dividend of 0.50p per share, payable on 14 October 2010, was declared on 26 August 2010 and has therefore not been included as a liability in these financial statements.

 

9.       Earnings per share

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

Earnings

£000

£000

£000

Earnings from continuing and discontinued operations being net profit attributable to equity holders of the parent

 

1,365

 

196

 

2,321

Profit for the period from discontinued operations

-

(175)

(351)


 

 

 

Earnings from continuing operations for the purposes of basic earnings per share being net profit attributable to equity holders of the parent

 

 

1,365

 

 

21

 

 

1,970


 

 

 


30 June

2010

30 June

2009

31 December 2009

Number of shares '000




Weighted average number of ordinary shares in issue

115,019

115,019

115,019

Own shares in Employee Share Ownership Trusts

(1,671)

(2,491)

(1,671)


 

 

 

Weighted average number of shares in issue for the

purposes of basic earnings per share

 

113,348

 

112,528

 

113,348

Effect of dilutive potential ordinary shares due to share options

-

-

-


 

 

 

Weighted average number of shares in issue for the

purposes of diluted earnings per share

 

113,348

 

112,528

 

113,348


 

 

 

 

10.     Acquisition of subsidiary companies

On 7 January 2008, the Group acquired 100% of the issued share capital of Online Packaging Limited, for £5.0 million. The deferred consideration of £0.4 million was paid in the first half of 2009.

On 3 October 2008, the Group acquired 100% of the issued share capital of Allpoint Packaging Limited, for £4.1 million.  £3.3 million was paid in 2008, with a further £0.8 million paid in the final quarter of 2009.  The estimated additional consideration payable at 31 December 2009 of £48,000 was subsequently determined not to be payable and has been reversed with a corresponding reduction in goodwill.

Both businesses are Packaging Distributors and are accounted for in the Packaging Distribution segment.  The cash outflows relating to the considerations paid are set out below:-


Six months

to 30 June

2010

Six months

to 30 June

2009

Year to

31 December

2009


£000

£000

£000





Release of goodwill arising on acquisition

(48)

(275)

(200)


 

 

 

Total consideration

(48)

(275)

(200)


 

 

 

Satisfied by:




Cash

-

(440)

(1,190)

Deferred consideration

48

715

1,390


 

 

 

Total consideration

48

275

200


 

 

 

Net cash outflow arising on acquisition




Cash consideration

-

(440)

(1,190)


 

 

 

Net cash outflow

-

(440)

(1,190)


 

 

 

 

11.     Notes to the cash flow statement

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009


£000

£000

£000





Operating profit from continuing operations before exceptional items

 

1,278

 

1,081

 

4,406

Exceptional items                      (see note 5)

1,150

(421)

(699)


 

 

 

Operating profit

2,428

660

3,707

Adjustments for:

     Amortisation of intangible assets

153

143

310

     Depreciation of property, plant and equipment

504

578

1,155

     Gain on disposal of property, plant and equipment

-

-

(51)


 

 

 

Operating cash flows before movements in working capital

3,085

1,381

5,121

     (Increase)/decrease in inventories

(643)

494

(418)

     (Increase)/decrease in receivables

(592)

2,709

(481)

     (Decrease)/increase in payables

(1,489)

(5,469)

584

     Adjustment for pension scheme funding

(1,295)

(652)

(2,309)


 

 

 

Cash (absorbed)/generated by operations

(934)

(1,537)

2,497

     Income taxes paid

(12)

(375)

(423)

     Interest paid

(153)

(151)

(330)


 

 

 

Net cash (outflow)/inflow from operating activities

(1,099)

(2,063)

1,744


 

 

 

 


Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

Movement in net debt

£000

£000

£000





       Decrease in cash and cash equivalents in period

(264)

(21)

(241)

       (Increase)/decrease in bank overdrafts

(2,292)

(2,013)

346

       New finance leases in the year

-

-

(564)

       Cash flows from debt and lease financing

163

(325)

336


 

 

 

Movement in net debt in the period

(2,393)

(2,359)

(123)

Opening net debt

(7,330)

(7,207)

(7,207)


 

 

 

Closing net debt

(9,723)

(9,566)

(7,330)


 

 

 

Net debt comprises: -




       Cash and cash equivalents at end of period

272

756

536

       Bank overdrafts and loans

(9,200)

(9,267)

(6,908)


 

 

 

Net bank debt

(8,928)

(8,511)

(6,372)

Obligations under finance leases




       Due within one year

(273)

(183)

(272)

       Due outwith one year

(522)

(872)

(686)


 

 

 

Closing net debt

(9,723)

(9,566)

(7,330)


 

 

 

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.

 

12.     Retirement benefit obligations

The figures below have been based on the results of the triennial actuarial valuation as at 1 May 2008, updated to 30 June 2010, 31 December 2009 and 30 June 2009.  The assets in the scheme, the net liability position of the scheme as calculated under IAS 19 and the principal assumptions were:


30 June

2010

30 June

2009

31 December

2009


£000

£000

£000





Fair value of assets

40,632

35,892

40,622

Present value of scheme liabilities

(60,625)

(56,580)

(60,988)


 

 

 

Pension scheme deficit

(19,993)

(20,688)

(20,366)

Deferred tax asset                     (see note 13)

5,598

5,793

5,702


 

 

 

Pension scheme deficit net of related deferred tax asset

(14,395)

(14,895)

(14,664)


 

 

 

The scheme's liabilities were calculated on the following bases as required under IAS 19:

Assumptions

30 June 2010

30 June 2009

31 December 2009





Discount rate

5.50%

6.20%

5.75%

Rate of increase in salaries

0.00%

3.30%

3.50%

Rate of increase in pensions in payment

3% or 5%

for fixed increases

or 2.75% for LPI

3% or 5%

for fixed increases

or 2.75% for LPI

3% or 5%

for fixed increases

or 2.75% for LPI

Inflation assumption

3.20%

3.30%

3.50%

Life expectancy beyond normal retirement age of 65




Male

21.3 years

21.3 years

21.3 years

Female

24.0 years

24.0 years

24.0 years

 


Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

Movement in scheme deficit in the period

£000

£000

£000

At start of period

(20,366)

(17,477)

(17,477)

Normal service cost

(106)

(111)

(240)

Contributions

1,327

762

2,415

Settlement gains

24

-

134

Curtailment gains                       (see note 5)

1,200

-

-

Other finance charges

(387)

(482)

(916)

Actuarial loss in the period

(1,685)

(3,380)

(4,282)


 

 

 

At end of period

(19,993)

(20,688)

(20,366)


 

 

 

Movement in fair value of scheme assets

 

 

 

Scheme assets at start of period

40,622

35,943

35,943

Expected return on scheme assets

1,346

1,169

2,325

Actual return less expected return on scheme assets

(1,137)

(707)

3,305

Contributions from sponsoring companies

1,327

762

2,415

Contributions from scheme members

73

91

169

Benefits paid

(1,599)

(1,366)

(3,535)


 

 

 

Scheme assets at end of period

40,632

35,892

40,622


 

 

 

 

12.     Retirement benefit obligations (continued)

Six months

to 30 June

2010

Six months

to 30 June

2009

Year to 31

December

2009

£000

£000

£000

Movement in present value of defined benefit obligations

 

 

 

Obligations at start of period

(60,988)

(53,420)

(53,420)

Service costs

(106)

(111)

(240)

Interest costs

(1,733)

(1,651)

(3,241)

Settlement gains

24

-

134

Curtailment gains

1,200

-

-

Contributions from scheme members

(73)

(91)

(169)

Actuarial loss on liabilities in the period

(548)

(2,673)

(7,587)

Benefits paid

1,599

1,366

3,535


 

 

 

Obligations at end of period

(60,625)

(56,580)

(60,988)


 

 

 





13.     Deferred tax

30 June

2010

30 June

2009

31 December

2009

Deferred tax asset on pension scheme deficit

£000

£000

£000

 

At start of period

5,702

4,894

4,894

Charge on actuarial movement in the period applied through statement of comprehensive income

 

472

 

946

 

1,199

Charge through income statement based on curtailment gain in the period

 

(332)

 

-

 

-

Charge through income statement based on payments made to reduce deficit in the period

 

(244)

 

(47)

 

(391)

 

 

 

 

 

Deferred tax asset on pension scheme deficit (see note 12)

5,598

5,793

5,702

Deferred tax liabilities on other timing differences

(42)

(77)

(47)


 

 

 

Net deferred tax asset - due after one year

5,556

5,716

5,655


 

 

 

Deferred tax asset on corporation tax losses




At start of period

900

1,225

1,225

Credit/(charge) through income statement

21

(86)

(325)


 

 

 

Net deferred tax asset - due within one year

921

1,139

900


 

 

 

Deferred tax liability on other intangible assets




At start of period

(712)

(832)

(832)

Credit through income statement

42

75

120


 

 

 

Net deferred tax liability

(670)

(757)

(712)


 

 

 

 

The Finance Act 2010, which provides for a reduction in the main rate of corporation tax from 28% to 27% effective from 1 April 2011, was substantively enacted on 21 July 2010. As it was not substantively enacted at the balance sheet date, the rate reduction is not yet reflected in these financial statements in accordance with IAS 10, as it is a non-adjusting event occurring after the reporting period.

The impact of the rate reduction, which will be reflected in the next reporting period, is estimated to reduce our UK deferred tax balances provided at 30 June 2010 by a net value of £0.2 million.

The Government has also indicated that it intends to enact future reductions in the main tax rate of 1% each year down to 24% by 1 April 2014.  The future 1% main tax rate reductions are expected to have a similar impact on our financial statements as outlined above, however the actual impact will be dependent on our deferred tax position at that time.

 

14.     Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

The fair value of investments, shown in the pension scheme disclosures in note 12, include 819,506 shares in Macfarlane Group PLC at 30 June 2010 and 31 December 2009 with a value of £151,000 and £160,000 respectively.  No shares were held at 30 June 2009.

The directors are satisfied that there are no other related party transactions occurring during the six month period which require disclosure.


This information is provided by RNS
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IR PGUMCRUPUGMA
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