TIDMMACF
RNS Number : 6204Y
Macfarlane Group PLC
23 August 2018
23 August 2018
MACFARLANE GROUP'S INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE
2018
Financial Highlights 2018 2017 Year on Year Change
GBP000
Group turnover GBP102,007 GBP89,824 +14%
Profit before tax GBP3,526 GBP2,535 +39%
Interim dividend 0.65p 0.60p +8%
Diluted earnings per
share 1.81p 1.52p +19%
Stuart Paterson, Chairman of Macfarlane Group PLC, today said:
-
"Macfarlane Group has performed well in the first half of 2018.
Group sales of GBP102.0m, were 14% ahead of the comparable period
last year and profit before tax of GBP3.5m, was 39% higher than in
2017. This strong performance in the first six months of 2018,
supplemented by the expected seasonal uplift from the e-commerce
sector in the second half of the year, gives the Board confidence
that its full year expectations for 2018 will be achieved.
Packaging Distribution grew its sales by 14% in the first half
of 2018, with 5% achieved from organic growth and the remainder
from the 2017 acquisition of Greenwoods, which is performing well.
Gross margin in Packaging Distribution rose to 29.3%, (2017:
29.0%). Operating profit for the division at GBP3.7m was GBP1.0m
ahead of 2017, an increase of 39%.
Sales in our Manufacturing Operations were 11% above 2017, with
strong demand for composite packs for export markets. Both
manufacturing businesses experienced lower gross margins as a
result of increased raw material prices and unfavourable sales mix,
resulting in operating profit of GBP0.2m, slightly below that
achieved in 2017.
After charging net interest of GBP0.4m, (2017: GBP0.4m), the
Group profit before tax grew by 39% to GBP3.5m (2017: GBP2.5m).
Net debt at 30 June 2018 was GBP11.1m, GBP3.6m below the level
of GBP14.7m at 31 December 2017. The Group is operating well within
its existing bank facility of GBP30.0m. Consistent with our normal
pattern, we expect to be strongly cash generative from trading in
the second half of 2018, enabling us to finance up to GBP4.0m in
deferred consideration as forecast, relating to the acquisitions of
Nelsons for Cartons and Packaging Limited and Greenwoods Stock
Boxes, made in earlier years. Both of these companies are
continuing to trade strongly.
On 31 July 2018 and 2 August 2018, we concluded the acquisitions
of Tyler Packaging (Leicester) Limited ("Tyler") and Harrisons
Packaging Limited ("Harrisons"), two successful packaging
distributors, based in Leicester and Leyland respectively. The
maximum net cash consideration including deferred payments for both
acquisitions is estimated to be GBP3.5m.
The pension scheme deficit reduced to GBP9.4m at 30 June 2018
from GBP11.8m at 31 December 2017, mainly due to the continued
payment of deficit reduction contributions during the six month
period.
The Board is recommending an 8% increase in the interim dividend
to 0.65p per share to be paid on 11 October 2018 to shareholders on
the register as at 21 September 2018 (2017: 0.60p per share).
Our strategy is to deliver sustainable profit growth by focusing
on added value products and services in our target market sectors,
combined with the execution of value-enhancing acquisitions.
Macfarlane Group's performance in the first half of 2018 reflects
the successful implementation of our strategy and we are confident
that the Group will continue to make further progress in the
remainder of 2018."
Further enquiries: Macfarlane Group Tel: 0141 333 9666
Stuart Paterson Chairman
------------------------------- -------------------
Peter Atkinson Chief Executive
------------------------------- -------------------
John Love Finance Director
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Spreng Thomson Tel: 0141 548 5191
------------------------------- -------------------
Callum Spreng Mob: 07803 970103
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Notes to Editors:
-- Macfarlane Group PLC is headquartered in Glasgow, Scotland,
listed on the London Stock Exchange (LSE: MACF) in the Industrials
Sector and has more than 60 years' experience in the UK packaging
industry
-- Macfarlane Group's businesses are:
o Macfarlane Packaging is the leading UK distributor of a
comprehensive range of protective packaging products
o Labels designs and prints high quality self-adhesive and
resealable labels, principally for FMCG companies
o Packaging Design and Manufacture designs and produces
protective packaging for high value, fragile products
-- Macfarlane Group employs over 900 people at 31 sites,
principally in the UK, but also in Ireland and Sweden
-- The company has 20,000+ customers in the UK, Europe and USA
providing 600,000+ lines to a wide range of industry sectors
including: consumer goods; food manufacturing; logistics; internet
retail; mail order; electronics; defence and aerospace
Legal Entity Identifier (LEI): 213800LVRYDERSJAAZ73
Interim Results - Management Report
Macfarlane Group's trading activities comprise two divisions,
Packaging Distribution and Manufacturing Operations.
Macfarlane's Packaging Distribution business is the UK's leading
specialist distributor of protective packaging materials.
Macfarlane operates from 23 Regional Distribution Centres ("RDCs")
and 3 satellite sites, supplying customers with a comprehensive
range of protective packaging materials and services on a local,
regional and national basis. Macfarlane meets the needs of
customers by enabling them to ensure their products are
cost-effectively protected in transit and storage by offering a
comprehensive product range, single source supply, Just-In-Time
delivery, tailored stock management programmes, electronic trading
and independent advice on both packaging materials and packing
processes.
2018 2017
GBP000 GBP000
Sales 89,119 78,055
Cost of sales 62,976 55,427
Gross margin 26,143 22,628
Overheads 22,430 19,958
Operating profit 3,713 2,670
The main features of our first half performance in 2018
were:
l Sales growth of 14% comprised 5% organic growth and additional
sales growth of 9% from our 2017 acquisition;
l Strong progress in the development of our National Account
business in the industrial sector with incremental business from
existing customers in H1 2018;
l Sales to internet retailers accounted for 19% of business in
H1 2018. We continue to develop and win business in this key growth
sector and our Innovation Lab in Milton Keynes has supported our
sales growth in 2018;
l The Third-party Logistics ("3PL") sector represents 10% of our
total business as we continue to strengthen our partnerships with
key 3PL operators;
l Gross margin is 29.3% (2017 - 29.0%) reflecting favourable
margins in our 2017 acquisition and the recovery of industry-wide
input price increases on paper-based products in Q2 2018; and
l Overhead increases in the current year are primarily due to
the impact of acquisitions; meanwhile the strong cost control ethos
throughout the business remains.
We expect sales to continue to be weighted towards H2 2018
reflecting the proportion of internet retailers in our customer
base. The key areas we shall focus on to support this are:
l Maintaining our focus on the growth potential for protective
packaging in key market segments - the e-commerce sector, National
Accounts in the industrial sector and 3PL operators;
l Providing UK and pan-European customers requiring our
capabilities on a European basis with access to our offering and
where appropriate, utilising the benefits of our NovuPak
membership;
l Improving our sourcing through stronger relationships with our
existing supplier base;
l Continuing the price recovery programme for paper-related
input price increases;
l Rolling out the new products introduced to the business from
recent acquisitions, particularly Airsac and Shelf-Ready
Packaging;
l Pursuing cost-reduction opportunities from productivity
improvements and in our property portfolio;
l Maintaining the focus on working capital management to
facilitate future growth; and
l Supplementing organic growth by the identification and
completion of further suitable high-quality acquisitions. Our
recent acquisitions, Tyler and Harrisons, are good local businesses
with a strong customer focus, which are expected to integrate well
into the Macfarlane network.
Macfarlane's Manufacturing Operations comprise Packaging Design
& Manufacture and Labels.
2018 2017
GBP000 GBP000
Sales 14,989 13,553
Cost of sales 10,037 8,650
Gross margin 4,952 4,903
Overheads 4,751 4,625
Operating profit 201 278
We operate the Packaging Design & Manufacture business from
two UK sites - Grantham and Westbury - where we design, manufacture
and assemble custom-designed packaging solutions for customers
requiring cost-effective methods of protecting high value products
in storage and transit. We differentiate ourselves through our
technical expertise, design capability, industry accreditations and
national capability through the partnership with Macfarlane
Packaging Distribution.
Packaging Design & Manufacture sales increased by 16% from
last year's levels, with strong growth from customers focusing on
export markets. Actions to reduce operating costs were implemented,
which, with the benefit of stronger sales, resulted in profit in H1
2018 being above the same period in 2017.
Our Labels business designs and prints self-adhesive labels for
major FMCG customers in the UK and Europe and resealable labels for
major customers in the UK, Europe and the USA. The business
operates from production sites in Kilmarnock and Wicklow and a
sales and design office in Sweden, which focuses on the development
and growth of our resealable labels business, Reseal-it. More
product sectors are adopting the re-sealable label format and this
is a key strategic focus for the Labels management team.
In H1 2018 sales at Macfarlane Labels were 6% higher than in
2017 reflecting growth in pre-applied labels in FMCG sectors.
Profit in the first half of 2018 was below that achieved in 2017,
due to an unfavourable sales mix, but showed an improved run-rate
in the second quarter.
The priorities for the Manufacturing Operations in the second
half of 2018 are to:
l Maintain Packaging Design & Manufacture sales growth,
particularly in key sectors e.g. Defence, Aerospace and
Medical;
l Continue to improve operational efficiency at both Packaging
Design & Manufacture sites;
l Prioritise new sales activity on higher added value bespoke
composite pack product range;
l Continue to strengthen the relationship between our Packaging
Design & Manufacture operations and our Packaging Distribution
business to create both sales and cost synergies;
l Accelerate the Reseal-it growth momentum through improved
geographic penetration, extending the product range and introducing
Reseal-it to new product sectors; and
l Increase self-adhesive label sales with key brands to create a
more balanced customer portfolio.
Summary and Future Prospects
Macfarlane Group's businesses all have strong market positions
with differentiated product and service offerings. We have a
flexible business model and a clear strategic plan incorporating a
range of actions, which is being effectively implemented and is
reflected in consistent, profitable growth and cash-flow generation
in recent years.
Our future performance is largely dependent on our own efforts
to grow sales, increase efficiencies and bring high quality
acquisitions into the Group. With a focus on the most attractive UK
market sectors for our products and services, combined with our
successful track record of growth and acquisitions, we expect 2018
to be another successful year for Macfarlane Group.
Risks and Uncertainties
The principal risks and uncertainties, which could impact on the
performance of the Group, were outlined in our Annual Report and
Accounts for 2017 (available on our website at
www.macfarlanegroup.com) together with the mitigating actions.
These remain substantially the same for the remaining six months of
the current financial year and are summarised below:
l The Group's businesses are impacted by commodity-based raw
material prices and manufacturer energy costs, with profitability
sensitive to supplier price changes. The Group works closely with
its supplier and customer base to manage effectively the scale and
timing of these price movements and any resultant impact on
profit;
l Given the multi-site nature of its business the Group has an
extensive property portfolio comprising 3 owned sites and 34 leased
sites, 3 of which are sub-let. The portfolio can give rise to risks
in relation to ongoing lease costs, dilapidations and fluctuations
in value. The Group adopts a proactive approach to managing
property costs and exposures;
l The Group has a significant investment in working capital in
trade receivables and inventories. There is a risk that this
investment is not fully recovered. Rigour is applied to the
management of trade receivables and inventories throughout the
Group to mitigate these risks;
l The Group needs continued access to funding to meet its
trading obligations and to support organic growth and acquisitions.
There is a risk that the Group may be unable to obtain funds or
that such funds will only be available on unfavourable terms. The
Group's borrowing facility comprises a committed facility of GBP30
million with Lloyds Bank PLC, available until June 2022, which
finances our trading requirements and supports controlled
expansion, providing a medium-term funding platform for growth;
l In Packaging Distribution, the business model reflects a
decentralised approach with a high dependency on effective local
decision-making. There is a risk that local decisions may not
always meet overall corporate objectives. This is closely monitored
in the Group with regular reviews of performance and prospects for
all locations;
l The Group's defined benefit pension scheme is sensitive to a
number of key factors; investment returns, discount rates used to
calculate the scheme's liabilities and mortality assumptions. Small
changes in these assumptions could cause significant movements in
the pension deficit. The Group has sought to manage the volatility
of the pension scheme deficit caused by these factors by
undertaking exercises to reduce liabilities, more effectively match
the investment profile with the liability profile and making
contributions to reduce the deficit; and
l The Group's growth strategy includes acquisitions as a key
component. There are risks that the availability of acquisition
candidates may reduce, or that acquisitions may not perform as
expected either after acquisition or on integration into the Group.
Having made nine acquisitions since 2014, the Group has
well-established due diligence and integration processes and
procedures and seeks to acquire quality businesses which will
perform well in the Group.
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
relating to operations, performance and financial status. Such
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will occur in the future
and 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.
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. Nothing in this Interim Results
Statement should be construed as a profit forecast or an invitation
to deal in the securities of the Group.
Statement of Directors' Responsibilities
The Directors of Macfarlane Group PLC are
S.R. Paterson Chairman
P.D. Atkinson Chief Executive
J. Love Finance Director
M.R. Arrowsmith Non-Executive Director/Senior Independent Director
J.W.F. Baird Non-Executive Director
R. McLellan Non-Executive 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 as adopted by
the EU;
(ii) the interim management report includes a fair review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Approved by the Board of Directors on 23 August 2018 and signed
on its behalf by
................................ ...........................
Peter D. Atkinson John Love
Chief Executive Finance Director
INDEPENT REVIEW REPORT TO MACFARLANE GROUP PLC
Conclusion
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 2018 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
changes in equity, the condensed consolidated balance sheet, the
condensed consolidated cash flow statement and the related
explanatory notes.
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 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
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
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) 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.
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 DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
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.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this 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
reached.
Hugh Harvie
for and on behalf of KPMG LLP
Chartered Accountants
319 St Vincent Street
Glasgow G2 5AS
23 August 2018
MACFARLANE GROUP PLC
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2018
Six Six Year
months months to 31
to to December
30 June 30 June 2017
2018 2017 GBP000
GBP000 GBP000
Note
Continuing operations
Revenue 3 102,007 89,824 195,991
Cost of sales (70,912) (62,293) (135,687)
Gross profit 31,095 27,531 60,304
Distribution costs (4,324) (4,000) (8,208)
Administrative expenses (22,857) (20,583) (42,007)
Operating profit 3 3,914 2,948 10,089
Finance costs 4 (388) (413) (828)
Profit before tax 3,526 2,535 9,261
Tax 5 (675) (443) (1,837)
Profit for the period 3 2,851 2,092 7,424
Earnings per share 7
Basic 1.81p 1.53p 5.22p
Diluted 1.81p 1.52p 5.22p
MACFARLANE GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2018
Six Six Year
months to months to 31
30 June to December
2018 30 June 2017
GBP000 2017 GBP000
GBP000
Items that may be reclassified Note
to profit or loss
Foreign currency translation differences (26) 35 45
Items that will not be reclassified
to profit or loss
Remeasurement of pension scheme
liability 10 979 (505) (223)
Tax recognised in other comprehensive
income
Tax on remeasurement of pension
scheme liability 11 (166) 86 38
Other comprehensive income/(expense)
for the period, net of tax 787 (384) (140)
Profit for the period 2,851 2,092 7,424
Total comprehensive income for
the period 3,638 1,708 7,284
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2018
Share Share Revaluation Translation Retained
Capital Premium Reserve Reserve Earnings Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2018 39,387 12,975 70 299 4,479 57,210
Comprehensive income
Profit for the period - - - - 2,851 2,851
Foreign currency translation
differences - - - (26) - (26)
Remeasurement of pension
scheme liability 10 - - - - 979 979
Tax on remeasurement
of pension scheme liability 11 - - - - (166) (166)
Total comprehensive income - - - (26) 3,664 3,638
Transactions with shareholders
Dividends 6 - - - - (2,363) (2,363)
Total transactions with
shareholders - - - - (2,363) (2,363)
At 30 June 2018 39,387 12,975 70 273 5,780 58,485
MACFARLANE GROUP PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2017
Share Share Revaluation Translation Retained
Capital Premium Reserve Reserve Earnings Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2017 34,084 4,641 70 254 274 39,323
Comprehensive income
Profit for the period - - - - 2,092 2,092
Foreign currency translation
differences - - - 35 - 35
Remeasurement of pension
scheme liability 10 - - - - (505) (505)
Tax on remeasurement
of pension scheme liability 11 - - - - 86 86
Total comprehensive income - - - 35 1,673 1,708
Transactions with shareholders
Dividends 6 - - - - (1,909) (1,909)
Credit for share-based
payments - - - - 54 54
Total transactions with
shareholders - - - - (1,855) (1,855)
At 30 June 2017 34,084 4,641 70 289 92 39,176
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2017
Share Share Revaluation Translation Retained
Capital Premium Reserve Reserve Earnings Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2017 34,084 4,641 70 254 274 39,323
Comprehensive income
Profit for the year - - - - 7,424 7,424
Foreign currency translation
differences - - - 45 - 45
Remeasurement of pension
scheme liability 10 - - - - (223) (223)
Tax on remeasurement
of pension scheme liability 11 - - - - 38 38
Total comprehensive income - - - 45 7,239 7,284
Transactions with shareholders
Dividends 6 - - - - (2,854) (2,854)
Share-based payments - - - - (180) (180)
Issue of share capital 12 5,303 8,334 - - - 13,637
Total transactions with
shareholders 5,303 8,334 - - (3,034) 10,603
At 31 December 2017 39,387 12,975 70 299 4,479 57,210
MACFARLANE GROUP PLC
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AT 30 JUNE
2018
30 June 30 June 31 December
2018 2017 2017
Note GBP000 GBP000 GBP000
Non-current assets
Goodwill and other intangible assets 56,160 43,330 57,234
Property, plant and equipment 8,647 7,961 8,630
Other receivables 189 358 296
Deferred tax assets 11 1,998 2,691 2,407
Total non-current assets 66,994 54,340 68,567
Current assets
Inventories 15,384 12,848 15,465
Trade and other receivables 48,555 42,880 52,578
Cash and cash equivalents 9 2,576 1,212 2,013
Total current assets 66,515 56,940 70,056
Total assets 3 133,509 111,280 138,623
Current liabilities
Trade and other payables 48,444 39,943 49,100
Current tax payable 604 563 741
Finance lease liabilities 9 151 398 245
Bank borrowings 9 13,478 15,259 16,346
Total current liabilities 62,677 56,163 66,432
Net current assets 3,838 777 3,624
Non-current liabilities
Retirement benefit obligations 10 9,418 13,419 11,823
Deferred tax liabilities 11 2,882 1,577 3,048
Trade and other payables 27 778 13
Finance lease liabilities 9 20 167 97
Total non-current liabilities 12,347 15,941 14,981
Total liabilities 75,024 72,104 81,413
Net assets 3 58,485 39,176 57,210
Equity
Share capital 39,387 34,084 39,387
Share premium 12,975 4,641 12,975
Revaluation reserve 70 70 70
Translation reserve 273 289 299
Retained earnings 5,780 92 4,479
Total equity 58,485 39,176 57,210
MACFARLANE GROUP PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
FOR THE SIX MONTHSED 30 JUNE 2018
Six Six months Year
months to to 31
to 30 June December
30
June
2018 2017 2017
Note GBP000 GBP000 GBP000
Net cash inflow from operating
activities 9 6,730 4,427 6,482
Investing activities
Acquisitions 8 - (246) (8,337)
Proceeds on disposal of property, plant
and equipment 24 18 210
Purchases of property, plant and
equipment (789) (829) (1,740)
Net cash used in investing activities (765) (1,057) (9,867)
Financing activities
Dividends paid 6 (2,363) (1,909) (2,854)
Proceeds from issue of share capital
(net of issue expenses) - - 7,637
Repayment of bank facility (2,868) (1,947) (860)
Repayment of finance lease liabilities (171) (232) (455)
Net cash (used in)/generated by financing
activities (5,402) (4,088) 3,468
Net increase/(decrease) in cash and
cash equivalents 563 (718) 83
Cash and cash equivalents at beginning
of period 2,013 1,930 1,930
Cash and cash equivalents at end
of period 9 2,576 1,212 2,013
MACFARLANE GROUP PLC
SIX MONTHSED 30 JUNE 2018
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of preparation
Macfarlane Group PLC is a public company listed on the London
Stock Exchange, incorporated and domiciled in the United Kingdom.
The Group's annual financial statements are prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the EU. Other than as disclosed below, as required by the
Disclosure and Transparency Rules of the Financial Conduct
Authority, this condensed set of financial statements has been
prepared applying the accounting policies that were applied in the
preparation of the company's published consolidated financial
statements for the year ended 31 December 2017. This condensed set
of financial statements has been prepared in accordance with IAS 34
Interim Financial Reporting as adopted by the EU.
This is the first set of Group financial statements where IFRS
15 and IFRS 9 have been applied, both with effect from 1 January
2018.
(i) The adoption of IFRS 15 Revenue from Contracts with
Customers has not resulted in significant changes to the revenue
recognition policy applied in the Group's financial statements for
the year ended 31 December 2017. This is due to the nature of the
majority of existing customer contracts entered into by the Group
recognising revenue at the point of transfer of goods to the
customer, consistent with the revenue recognition framework in IFRS
15. As a result, no adjustments have been made to the 31 December
2017 balance sheet nor to opening retained earnings at 1 January
2018.
(ii) IFRS 9 Financial Instruments contains provisions for the
calculation of impairment losses for doubtful trade receivables.
This has not resulted in any significant changes to the existing
methodology used to calculate provisions applied in the Group's
2017 financial statements. As a result, no adjustments have been
made to the 31 December 2017 balance sheet nor to opening retained
earnings at 1 January 2018.
The Directors are in the process of evaluating the impact of
IFRS 16 Leases in the Group's 2019 financial statements. The
Group's financial commitments under all operating leases at 31
December 2017 are set out in note 22 to the 2017 financial
statements. From 1 January 2019 all operating leases will be
reclassified as finance leases under IFRS 16. Adoption of this
standard will result in an increase in gross assets and gross
liabilities on the balance sheet and reclassifications of
expenditure between operating costs and finance costs in the income
statement. There will be no net cash flow impact arising from the
new accounting standard and the Group does not currently intend to
alter its approach as to whether assets should be leased or
acquired outright going forward.
Judgements, assumptions and estimation uncertainties
In preparing the condensed financial statements, management has
made judgements, estimates and assumptions, which affect the
application of the Group's accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from the amounts estimated. Estimates and underlying
assumptions are reviewed on an ongoing basis, with revisions to
estimates recognised prospectively.
Information about judgements, assumptions and estimation
uncertainties made in applying accounting policies that have the
most significant effect on the amounts recognised in these
financial statements and therefore have the most significant risk
of resulting in a material adjustment are as follows:-
(i) Trade and Other Receivables The provision for doubtful receivables
is based on judgemental estimates
over the recoverable amounts
(ii) Retirement Benefit Obligations The valuation of the pension deficit
is affected by key actuarial assumptions
Business activities, risks and financing
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 1 to
6.
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 committed banking facilities with suitable terms
and conditions to accommodate the requirements of the Group's
operations. Credit risk 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 in the current economic climate.
The Group's banking arrangements with Lloyds Bank PLC comprise a
committed facility of GBP30 million, expiring in June 2022, secured
over part of Macfarlane Group's trade receivables and bearing
interest at commercial rates. The facility has financial covenants
for interest cover and over trade receivables headroom.
The Directors are of the opinion that the Group's cash and
revenue projections, which they believe are based on prudent market
data and past experience taking 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.
In assessing the going concern basis, the Directors have
considered the Group's business activities, the financial position
of the Group and the Group's risks and uncertainties. The Directors
have a reasonable expectation that, despite the current uncertain
economic environment, the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. For this reason this condensed set of financial statements
have been prepared on the going concern basis.
Approval and review of condensed financial statements
These condensed financial statements were approved by the Board
of Directors on 23 August 2018.
This condensed set of financial statements is unaudited but has
been formally reviewed by the auditor and their Independent Review
Report to the Company is set out on page 7.
2. General information
Comparative figures for the financial year ended 31 December
2017 are extracted from Macfarlane Group's statutory accounts for
2017. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
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. 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 USA and the design, manufacture and assembly
of timber, corrugated and foam-based packaging materials in the UK
comprise one segment headed Manufacturing Operations. No individual
business segment within Manufacturing Operations represents more
than 10% of Group revenue or profit in each period presented.
Six months Six months Year ended
to 30 June to 30 June 31 December
Trading results - continuing operations 2018 2017 2017
GBP000 GBP000 GBP000
Packaging Distribution
Revenue 89,119 78,055 171,771
Cost of sales (62,976) (55,427) (121,323)
Gross profit 26,143 22,628 50,448
Net operating expenses (22,430) (19,958) (41,012)
Operating profit 3,713 2,670 9,436
Manufacturing Operations
Revenue 14,989 13,553 28,191
Cost of sales (10,037) (8,650) (18,335)
Gross profit 4,952 4,903 9,856
Net operating expenses (4,751) (4,625) (9,203)
Operating profit 201 278 653
Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
GBP000 GBP000 2017
GBP000
Group segment - total revenue
Packaging Distribution 89,119 78,055 171,771
Manufacturing Operations 14,989 13,553 28,191
Inter-segment revenue (2,101) (1,784) (3,971)
External revenue - continuing operations 102,007 89,824 195,991
Operating profit - continuing operations
Packaging Distribution 3,713 2,670 9,436
Manufacturing Operations 201 278 653
Operating profit 3,914 2,948 10,089
Finance costs (see note 4) (388) (413) (828)
Profit before tax 3,526 2,535 9,261
Tax (see note 5) (675) (443) (1,837)
Profit for the period 2,851 2,092 7,424
The Packaging Distribution business has historically benefited
from additional demand in the final months of the year, resulting
in revenue and profitability at higher levels in the second half of
the year.
30 June 30 June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Total assets
Packaging Distribution 117,732 96,872 124,069
Manufacturing Operations 15,777 14,408 14,554
Total assets 133,509 111,280 138,623
Net assets
Packaging Distribution 50,858 32,342 49,745
Manufacturing Operations 7,627 6,834 7,465
Net assets 58,485 39,176 57,210
4. Finance costs Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
GBP000 GBP000 2017
GBP000
Interest on bank borrowings (239) (214) (462)
Interest on obligations under finance leases (11) (15) (18)
Net interest expense on retirement benefit
obligation (see note 10) (138) (184) (348)
Total finance costs (388) (413) (828)
5. Tax Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
GBP000 GBP000 2017
GBP000
Current tax
UK corporation tax (611) (327) (1,551)
Overseas tax (29) (12) (62)
Prior year adjustments 42 49 49
Total current tax (598) (290) (1,564)
Total deferred tax (See note 11) (77) (153) (273)
Total (675) (443) (1,837)
Tax for the first six months has been charged at 19.00% (2017 -
19.25%) representing the best estimate of the effective tax charge
for the full year.
6. Dividends Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
GBP000 GBP000 2017
GBP000
Amounts recognised as distributions to equity holders
in the period
Final Dividend (1.50p per share) (2017 1.40p
per share) 2,363 1,909 1,909
Interim Dividend (2017 0.60p per share) - - 945
Distributions in the period 2,363 1,909 2,854
An interim dividend of 0.65p per share, payable on 11 October
2018 was declared on 23 August 2018 and has therefore not been
included as a liability in these condensed financial
statements.
7. Earnings per share Six months Six months Year to 31
to 30 June to 30 June December
2018 2017 2017
Earnings GBP000 GBP000 GBP000
Earnings from continuing operations for
the purposes of earnings per share being
profit for the year from continuing operations 2,851 2,092 7,424
30 June 30 June 31 December
2018 2017 2017
Number of shares '000
Weighted average number of shares in issue
for the
purposes of basic earnings per share 157,548 136,335 142,228
Effect of dilutive potential ordinary shares - 967 -
due to share options
Weighted average number of shares in issue
for the
purposes of diluted earnings per share 157,548 137,302 142,228
Basic Earnings per share 1.81p 1.53p 5.22p
Diluted Earnings per share 1.81p 1.52p 5.22p
8. Acquisitions
On 21 September 2017, the Group's subsidiary, Macfarlane Group
UK Limited, acquired the packaging business and selected assets of
Almadon Limited (formerly Greenwoods Stock Boxes Limited) and 100%
of the issued share capital of Nottingham Recycling Limited, for a
total consideration of approximately GBP17.22 million. GBP7.97
million was paid in cash on acquisition, and GBP6.0 million was
settled by the issue of shares. The deferred consideration of
GBP3.25 million is payable in the final quarter of 2018, subject to
certain trading targets being met in the twelve month period ending
on 20 September 2018.
On 29 July 2016, the Group acquired 100% of Nelsons for Cartons
& Packaging Limited for a total consideration of GBP7.2
million. GBP4.7 million was paid in cash on acquisition with GBP1.0
million settled by the issue of shares. Of the deferred
consideration of GBP1.5 million, GBP0.75 million was paid in the
final quarter of 2017 and GBP0.75 million will be paid in the third
quarter of 2018.
Both businesses are packaging distributors, accounted for in the
Packaging Distribution segment. Goodwill arising on these
acquisitions is attributable to the anticipated future
profitability of the distribution of the Group's product ranges in
the UK and anticipated operating synergies from future combinations
of activities with the existing Packaging Distribution network. All
deferred consideration is recognised in liabilities at the
respective reporting dates. Fair values assigned to net assets
acquired and consideration paid and payable are set out below:-
Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
Net assets acquired GBP000 GBP000 2017
GBP000
Other intangible assets - - 9,185
Property, plant and equipment - - 712
Inventories - - 1,109
Trade and other receivables - - 2,736
Cash and bank balances - - 625
Trade and other payables - - (1,179)
Current tax liabilities - - (12)
Deferred tax liabilities - - (1,587)
Net assets acquired - - 11,589
Goodwill arising on acquisition - - 5,627
Total consideration - - 17,216
Contingent consideration on acquisitions
Current year - - (3,250)
Prior years - 246 996
Shares - - (6,000)
Total cash consideration - 246 8,962
Net cash outflow arising on acquisition
Cash consideration - (246) (8,962)
Cash and bank balances acquired - - 625
Net cash outflow - (246) (8,337)
9. Notes to the cash flow statement Six months Six months Year to
to 30 June to 30 June 31
2018 2017 December
GBP000 GBP000 2017
GBP000
Operating profit 3,914 2,948 10,089
Adjustments for:
Amortisation of intangible assets 1,074 672 1,580
Depreciation of property, plant and equipment 762 629 1,391
Gain on disposal of property, plant and
equipment (14) (9) 5
Operating cash flows before movements in
working capital 5,736 4,240 13,065
Decrease/(increase) in inventories 81 138 (1,370)
Decrease/(increase) in receivables 4,130 5,737 (1,163)
(Decrease)/increase in payables (668) (2,905) 1,570
Employer pension contributions less current
service costs recognised in the income statement (1,564) (1,807) (3,285)
Cash generated from operations 7,715 5,403 8,817
Income taxes paid (735) (747) (1,855)
Interest paid (250) (229) (480)
Net cash inflow from operating activities 6,730 4,427 6,482
Movement in net debt
Increase/(decrease) in cash and cash equivalents 563 (718) 83
Decrease in bank borrowings 2,868 1,947 860
Cash flows from payment of finance lease
liabilities 171 232 455
Movement in net debt in the period 3,602 1,461 1,398
Opening net debt (14,675) (16,073) (16,073)
Closing net debt (11,073) (14,612) (14,675)
Net debt comprises:-
Cash and cash equivalents 2,576 1,212 2,013
Bank borrowings (13,478) (15,259) (16,346)
Net bank debt (10,902) (14,047) (14,333)
Finance lease liabilities
Due within one year (151) (398) (245)
Due outwith one year (20) (167) (97)
Closing net debt (11,073) (14,612) (14,675)
Cash and cash equivalents (which are presented as a single class
of asset on the balance sheet) comprise cash at bank and other
short-term highly liquid investments with maturity of three months
or less.
10. Retirement benefit obligations
The figures below have been prepared by Aon Hewitt and are based
on the results of the triennial actuarial valuation as at 1 May
2017, updated to 30 June 2018 and 31 December 2017 and the
actuarial valuation at 1 May 2014 updated to 30 June 2017. The
assets in the scheme and the net liability position of the scheme
as calculated under IAS 19 are as follows:
30 June 30 June 31 December
Investment class 2018 2017 2017
GBP000 GBP000 GBP000
Equities
UK equity funds 7,182 7,129 7,034
Overseas equity funds 10,704 10,354 10,660
Multi-asset diversified funds 19,865 21,872 21,533
Bonds
Liability-driven Investment funds 28,742 26,526 28,534
Other
European loan fund 6,603 6,476 6,562
Secured property income fund 6,859 6,330 6,606
Cash 288 343 31
Fair value of Scheme investments 80,243 79,030 80,960
Present value of Scheme liabilities (89,661) (92,449) (92,783)
Pension scheme deficit (9,418) (13,419) (11,823)
Deferred tax asset (see note 11) 1,601 2,281 2,010
Pension scheme deficit net of related deferred
tax asset (7,817) (11,138) (9,813)
These amounts were calculated using the following principal
assumptions as required under IAS 19:
Assumptions 30 June 2018 30 June 2017 31 December
2017
Discount rate 2.60% 2.60% 2.50%
Rate of increase in pensionable
salaries 0.00% 0.00% 0.00%
Rate of increase in pensions 3% or 5% 3% or 5% 3% or 5%
in payment for fixed increases for fixed increases for fixed increases
or 3.10% for or 3.20% for or 3.20% for
LPI LPI LPI
Inflation assumption (RPI) 3.20% 3.30% 3.30%
Inflation assumption (CPI) 2.20% 2.30% 2.30%
Life expectancy beyond normal retirement
age of 65
Male 23.8 years 22.9 years 23.7 years
Female 25.8 years 25.4 years 25.7 years
LPI represents limited price indexation applied to pensions in
payment.
30 June 30 June 31 December
2018 2017 2017
GBP000 GBP000 GBP000
Movement in scheme deficit in the period
At start of period (11,823) (14,537) (14,537)
Current service cost (65) (61) (105)
Employer contributions 1,629 1,868 3,390
Net finance cost (138) (184) (348)
Remeasurement of pension scheme liability
in the period 979 (505) (223)
At end of period (9,418) (13,419) (11,823)
Sensitivity to key assumptions
Key assumptions used for IAS 19 are discount rate, inflation and
mortality. If different assumptions were used, then this could have
a material effect on the deficit. Assuming all other assumptions
are held static then a movement in the following key assumptions
would affect the level of the deficit as shown below:-
Six months Six months Year to 31
Assumptions to 30 June to 30 June December
2018 2017 2017
GBP000 GBP000 GBP000
Discount rate movement of +0.1% 1,435 1,572 1,485
Inflation rate movement of +0.1% (359) (370) (473)
Mortality movement of +0.1 year in age
rating 267 276 278
Positive figures reflect a reduction in scheme liabilities and
therefore a reduction in the scheme deficit. The sensitivity
information has been prepared using the same method as adopted when
adjusting the results of the latest funding valuation to the
balance sheet date and is consistent with the approach adopted in
previous years.
Six months Six months Year to 31
to 30 June to 30 June December
2018 2017 2017
GBP000 GBP000 GBP000
Movement in fair value of Scheme investments
Scheme investments at start of period 80,960 77,808 77,808
Interest income 1,007 1,045 2,065
Return on scheme assets (exc. amounts shown
in interest income) (877) 1,004 3,730
Contributions from sponsoring companies 1,629 1,868 3,390
Contribution from scheme members 36 36 72
Benefits paid (2,512) (2,731) (6,105)
Scheme investments at end of period 80,243 79,030 80,960
Movement in present value of defined benefit
obligations
Obligations at start of period (92,783) (92,345) (92,345)
Current service cost (65) (61) (105)
Interest cost (1,145) (1,229) (2,413)
Contribution from scheme members (36) (36) (72)
Changes in assumptions underlying the defined
benefit obligations 1,856 (1,509) (3,953)
Benefits paid 2,512 2,731 6,105
Obligations at end of period (89,661) (92,449) (92,783)
Investments
The Trustees review the scheme investments regularly and consult
with the Company regarding any proposed changes. There were no
major changes in the investment profile in the first half of
2018.
Funding
Following the completion of the triennial actuarial valuation at
1 May 2017, Macfarlane Group PLC is paying deficit reduction
contributions in agreement with the scheme trustees with a deficit
recovery period of 7 years. Contributions in 2018 are expected to
be GBP2.95m. The next triennial actuarial valuation of the scheme
is due at 1 May 2020.
11. Deferred tax Tax losses
less Other intangible Retirement
accelerated assets Benefit
capital allowances GBP000 Obligations Total
GBP000 GBP000 GBP000
At 1 January 2017 247 (1,537) 2,471 1,181
Credited/(charged) in income statement
Current period 3 120 (276) (153)
Credited in other comprehensive
income - - 86 86
At 30 June 2017 250 (1,417) 2,281 1,114
Acquisitions (25) (1,562) - (1,587)
(Charged)/credited in income statement
Current period (59) 162 (223) (120)
Credited in other comprehensive
income - - (48) (48)
At 1 January 2018 166 (2,817) 2,010 (641)
(Charged)/credited in income statement
Current period (17) 183 (243) (77)
Credited in other comprehensive
income - - (166) (166)
At 30 June 2018 149 (2,634) 1,601 (884)
Deferred tax assets 397 - 1,601 1,998
Deferred tax liabilities (248) (2,634) - (2,882)
At 30 June 2018 149 (2,634) 1,601 (884)
12. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed.
Details of individual and collective remuneration of the
Company's Directors and dividends received by the Directors for
calendar year 2018 will be disclosed in the Group's 2018 Annual
Report.
The directors are satisfied that there are no other related
party transactions occurring during the six month period which
require disclosure.
13. Post balance sheet events
On 31 July 2018, the Company's subsidiary, Macfarlane Group UK
Limited, concluded the acquisition of Tyler Packaging (Leicester)
Limited, a packaging distributor based in Leicester and on 2 August
2018 concluded the acquisition of Harrisons Packaging Limited, a
packaging distributor based in Leyland. The combined turnover for
both businesses is projected to be GBP6.0m in the year after
acquisition.
The maximum consideration for both acquisitions will be GBP4.6m.
The initial cash considerations totalled GBP3.0m. The acquisitions
have deferred considerations totalling GBP1.6m payable in the
second half of 2019, subject to certain trading targets being
achieved in the twelve month period ending on 31 July 2019.
14. Interim Report
The interim report will be posted to shareholders on 10
September 2018. Copies will be available from the registered
office, 21 Newton Place, Glasgow G3 7PY and available on the
Company's website, www.macfarlanegroup.com, from that date.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BLGDILUDBGID
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