REG - Macfarlane Group PLC - Annual Results 2022
23/02/2023 07:00
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RNS Number : 7696Q Macfarlane Group PLC 23 February 2023
23 February 2023
MACFARLANE GROUP PLC
("MACFARLANE GROUP", "THE COMPANY", "THE GROUP")
ANNUAL RESULTS 2022
Results ahead of market expectations and 2021
FINANCIAL HIGHLIGHTS
2022 2021 Increase
£000 £000 %
Continuing operations
Revenue 290,431 264,465 10%
Operating profit before amortisation(1) 25,073 23,366 7%
Operating profit 21,496 20,055 7%
Profit before tax 19,934 18,665 7%
Continuing and discontinued (2) operations
Profit for the year 15,637 12,598 24%
Interim and proposed Final dividend (pence) 3.42p 3.20p 7%
Basic earnings per share (pence) 9.89p 7.98p 24%
· Revenue from continuing operations grew by 10% versus 2021 to £290.4m.
· Profit before tax from continuing operations at £19.9m increased by 7%
which is reflected in the increase in dividend.
· Basic and diluted earnings per share were 9.89p per share (2021: 7.98p
per share) and 9.78p per share (2021: 7.90p per share) respectively.
Packaging Distribution
· Packaging Distribution achieved revenue growth of 8% to £259.7m (2021:
£239.5m) through the recovery of input prices and the benefits from the
acquisitions of Carters Packaging in March 2021 and PackMann in May 2022 which
offset reduced demand from e-commerce customers.
· In line with our strategy to support our customers by increasing our
geographic coverage we acquired PackMann in Germany in May 2022. PackMann
revenues are in line with our expectations, but operating profit has been
impacted by higher input costs.
· Gross margins are stable at 32.1% (2021: 32.4%) reflecting effective
recovery of input price inflation.
· Operating profit before amortisation only increased by 1% to £19.9m
(2021: £19.7m) due to cost increases. The key areas where costs have
increased were start-up costs related to the new North-West of England
distribution centre, strategic IT investments and inflationary pressures
primarily in labour, energy and logistics costs.
Manufacturing Operations
· Manufacturing Operations delivered an excellent performance in 2022
with revenues growing by 23% to £30.8m (2021: £25.0m) and operating profit
before amortisation increasing 42% to £5.2m (2021: £3.7m). GWP, acquired
in February 2021, continued to perform well. The Macfarlane Design and
Manufacture business benefited from recovery in the aerospace sector and the
strengthening of its partnership with Packaging Distribution.
· The Group sold its Labels business in December 2021 and this has been
classified as a discontinued operation. Labels recorded a loss before tax of
£0.1m in 2022 (2021: Loss £0.9m) related to finalisation of completion
accounts.
FINANCIAL HIGHLIGHTS
Group
· Net cash inflow from operating activities of £18.0m (2021: £23.8m)
reflects the timing of payments at the year end to suppliers and higher 2021
employee incentive payments paid in 2022.
· Net bank debt on 31 December 2022 was £3.4m, a net cash outflow of
£5.9m from 31 December 2021, including £8.7m of investment in acquisitions
and a higher level of capital expenditure of £3.3m related primarily to the
fit-out of the new distribution centre in the North-West of England
(£1.3m). The Group is operating well within its existing bank facility of
£30.0m and relevant covenants which runs until 31 December 2025.
· The Pension Scheme surplus increased to £10.2m at 31 December 2022 (31
December 2021: £8.3m). This improvement is due to continued contributions
from the Group and an increase in the discount rate offset by a decline in the
value of investments during the year. This is against the backdrop of
considerable volatility in the markets, in particular government gilt yields.
· The Board is proposing a final dividend of 2.52p per share (2021: 2.33p
per share) which would take the total dividend for 2022 to 3.42p per share
(2021: 3.20p per share) up 7% on 2021.
(1 )See notes to the financial information below for reconciliation of
Alternative Performance Measure operating profit before amortisation to
operating profit.
(2) In accordance with IFRS5, the 2021 and 2022 results of the Labels
business, sold on 31 December 2021, have been stated as a discontinued
operation. The loss for the year from the discontinued operation was £0.1m
(2021: £1.1m).
CHAIR'S STATEMENT
In my first statement as Chair of Macfarlane Group, I am pleased to report
that the Group results for the year ended 31 December 2022 were ahead of both
the previous year and market expectations.
Trading
Our performance in 2022 was achieved against a background of a marked slowdown
in spend from the e-commerce sector, following strong growth during the 2021
Covid-19 lockdown periods, and inflationary pressures on operating costs.
Our Packaging Distribution business achieved revenue growth of 8% through the
benefit of acquisitions, good progress from our "Follow the Customer" strategy
in Europe and the recovery of raw material price inflation. Profitability was
only slightly higher than 2021 due to the start-up costs for our new
distribution centre in the North-West of England, strategic investments in our
IT capability and inflationary increases in operating costs.
Our Manufacturing Operations have had an excellent year, with strong growth in
sales and operating profit. We benefited from the 2021 acquisition of GWP,
demand recovery in certain industrial markets and the partnership with our
Packaging Distribution business continued to strengthen.
We were able to fund £11.9m (2021: £14.4m) of acquisition and capital
investment activity through our existing bank facilities due to the continued
strong operating cash flows and reinvesting the proceeds from the sale of our
Labels business in December 2021.
The pension scheme remains in surplus, with the Directors working in close
co-operation with the trustees and their advisers to manage investments
successfully through volatility in the markets in the second half of 2022.
The dedication and commitment of all our colleagues has been critical to our
success and I thank them for all their hard work in 2022.
Environment, Social and Governance ("ESG")
The Group has made good progress in 2022 on its ESG commitments. We have
commenced the programme to electrify our fleet of delivery vehicles, continued
to introduce solar panels at our sites, worked with our customers to move to
more sustainable plastic products and invested in an additional Innovation Lab
to help our customers reduce their carbon footprint. The Board is now more
diverse and we have increased our level of engagement with the local
communities in which we operate.
CHAIR'S STATEMENT
Board Changes
As set out in the Interim Report 2022, Stuart Paterson stood down as Chair at
the end of September 2022 and the Board would like to thank Stuart for his
valuable contribution as Chair and prior to that as a Non-Executive Director.
On 1 October 2022, Laura Whyte was appointed to the Board as an independent
Non-Executive Director and Chair of the Remuneration Committee. Laura brings
extensive commercial and human resources experience to the Board.
Proposed Dividend
The Board is proposing a final dividend of 2.52 pence per share, amounting to
a full year dividend of 3.42 pence per share (2021: 3.20 pence per share), an
increase of 7%. Subject to the approval of shareholders at the Annual
General Meeting on Tuesday 9 May 2023 the final dividend will be paid on
Thursday 1 June 2023 to those shareholders on the register at Friday 12 May
2023.
Outlook
We anticipate that 2023 will be another challenging year with uncertainty over
the impact of the increase in the cost of living on customer demand, rising
operating costs, particularly related to labour and energy, and increasing
interest costs. Despite these challenges, with the effectiveness of our
strategy, the resilience of our business model and the experience and
commitment of our people, we expect Macfarlane Group to continue to deliver
further growth in 2023.
"Follow the Customer" is the Group's strategy to provide UK customers with
access to its products and services in mainland Europe.
Further enquiries: Macfarlane Group Tel: 0141 333 9666
Aleen Gulvanessian Chair
Peter Atkinson Chief Executive
Ivor Gray Finance
Director
Spreng Thomson Tel: 0141 548 5191
Callum Spreng Mob: 07803 970103
Legal Entity Identifier (LEI): 213800LVRYDERSJAAZ73
Notes to Editors:
· Macfarlane Group PLC has been listed on the Premium
segment of the Main Market of the London Stock Exchange (LSE: MACF) since 1973
with over 70 years' experience in the UK packaging industry.
· Through its two divisions Macfarlane Group services a
broad range of business customers, supplying them high quality protective
packaging which help customers reduce supply chain costs, improve their
operational efficiencies and enhance their brand presentation. The divisions
are:
o Packaging Distribution - Macfarlane Packaging Distribution is the leading
UK distributor of a comprehensive range of protective packaging products; and
o Manufacturing Operations - Macfarlane Design and Manufacture who design
and produce protective packaging for high value and fragile products.
· Headquartered in Glasgow, Scotland, Macfarlane Group
employs over 1,000 people at 37 sites, principally in the UK, as well as in
Ireland, Germany and the Netherlands.
· Macfarlane Group supplies more than 20,000 customers
principally in the UK and Europe.
· In partnership with 1,700 suppliers, Macfarlane Group
distributes and manufactures 600,000+ lines across a wide range of sectors,
including: retail e-commerce; consumer goods; food; logistics; mail order;
electronics; defence, automotive and aerospace.
BUSINESS REVIEW
Macfarlane Group's trading activities comprise Packaging Distribution and
Manufacturing Operations.
Macfarlane's Packaging Distribution business is the UK's leading specialist
distributor of protective packaging materials, with a growing presence in
Europe. Macfarlane operates a stock and serve supply model in the UK,
Ireland, the Netherlands and Germany from 27 Regional Distribution Centres
("RDCs") and three satellite sites, supplying industrial and retail customers
with a comprehensive range of protective packaging materials on a local,
regional and national basis.
Competition in the packaging distribution market is from local and regional
protective packaging specialist companies as well as national/international
distribution generalists who supply a range of products, including protective
packaging materials. Macfarlane competes effectively on a local basis
through its strong focus on customer service, its breadth and depth of product
offer and through the recruitment and retention of high-quality staff with
good local market knowledge. On a national basis, Macfarlane has market
focus, expertise and a breadth of product and service knowledge, all of which
enable it to compete effectively against non-specialist packaging
distributors.
Packaging Distribution benefits its customers by enabling them to ensure their
products are cost-effectively protected in transit and storage through the
supply of a comprehensive product range, single source stock and serve supply,
just-in-time delivery, tailored stock management programmes, electronic
trading and independent advice on both packaging materials and packing
processes. Through the 'Significant Six' sales approach we reduce our
customers' 'Total Cost of Packaging' and their carbon footprint. This is
achieved through supplying effective packaging solutions, optimising
warehousing and transportation, reducing damages and returns and improving
packaging efficiency.
"Significant Six" represents the six key costs in a customers' packing process
being transport, warehousing, administration, damages and returns,
productivity and customer experience.
Packaging Distribution 2022 2021 2022
£000 £000 Change
Revenue 259,651 239,508 8%
Cost of sales 176,193 161,896 9%
Gross margin 83,458 77,612 8%
Operating expenses 63,590 57,915 10%
Operating profit before amortisation 19,868 19,697 1%
Amortisation 2,774 2,642
Operating profit 17,094 17,055 -%
See notes to the financial information below for reconciliation of Alternative
Performance Measure operating profit before amortisation to operating profit.
The main features of Packaging Distribution's performance in 2022 were:
· Increase in revenue of £20.1m:
· Organic revenue growth in the UK and Ireland of £8.4m has been
achieved through recovery in some industrial sectors, particularly in
aerospace, engineering and hospitality, and inflation in pricing offset by a
marked reduction in demand from e-commerce customers, most of which benefited
from the Covid-19 lockdowns in H1 2021.
· Our 'Follow the Customer' strategy in Northern Europe achieved £2.9m
of incremental sales through the Group subsidiary in the Netherlands, with the
business now generating profits.
· Sales growth of £8.8m was achieved from the acquisitions of Carters
Packaging, Cornwall, in March 2021 and PackMann, Germany, in May 2022. The
PackMann pre-acquisition costs of £0.2m were expensed in 2022.
· New business in 2022 at £8.9m was lower than 2021. Following the
supply chain challenges of 2020/21 customers were less inclined to switch
supply and our sales team prioritised the management of input price increases
with our customers.
· The acquisition of PackMann was an important strategic step and
complements our "Follow the Customer" programme in Europe.
· Effective management of significant input price increases across all
product categories in H2 2021 and H1 2022 has enabled us to broadly maintain
gross margin at 32.1% (2021: 32.4%).
· Overhead costs in 2022 were £5.7m higher than 2021. This is
attributable to the effect of acquisitions, strategic IT investments, the
start-up costs for our new distribution centre in the North-West of England
and the impact of inflation on labour, energy and logistics costs.
BUSINESS REVIEW
Future
Our plans for 2023 are focused on continuing to grow sales and improving
profitability through the following actions:
· Prioritise engagement with potential new customers in sectors where we
see future growth opportunities such as e-commerce retail, medical,
scientific, and third-party logistics.
· Continue to effectively manage input price changes and supply chain
challenges as they arise.
· Maximise the benefits from our "Packaging Optimiser" which was launched
to our sales teams to better demonstrate our ability to add value for
customers through our "Significant Six" sales approach.
· Achieve benefits from our information technology investments in
Microsoft Dynamics, Slimstock and Warehouse Management.
· Refine and extend our product range to ensure we continue to offer our
customers sustainable packaging solutions that reduce their carbon footprint.
· Introduce improvements to our web-based solutions to allow customers
access to our full range of products and services more easily.
· Accelerate the progress we have made in Europe through our "Follow the
Customer" programme and our recent acquisition of PackMann.
· Reduce operating costs through efficiency programmes in sales,
logistics and administration.
· Realise the benefits from our new distribution centre in the North-West
of England, including the new Innovation Lab due to open in March 2023.
· Plan our second major site consolidation in the East Midlands.
· Maintain the focus on working capital management to facilitate future
investment and manage effectively the ongoing bad debt risk within the current
economic environment.
· Supplement organic growth through progressing further high-quality
acquisitions in the UK and Europe.
Packaging Optimiser is a Macfarlane developed software tool that measures
the financial and carbon benefits of the Significant Six selling approach.
Manufacturing Operations comprises our Packaging Design and Manufacture
business and GWP, acquired in February 2021.
Manufacturing Operations designs, manufactures, assembles and distributes
bespoke packaging solutions for customers requiring cost-effective methods of
protecting high value products in storage and transit. The primary raw
materials are corrugate, timber and foam. The businesses operate from four
manufacturing sites, in Grantham, Westbury, Swindon and Salisbury, supplying
both directly to customers and through the national RDC network of the
Packaging Distribution business.
Key market sectors are defence, aerospace, medical equipment, electronics,
automotive, e-commerce retail and household equipment. The markets we serve
are highly fragmented, with a range of locally based competitors. We
differentiate our market offering through technical expertise, design
capability, industry accreditations and national coverage through the
Packaging Distribution business.
Manufacturing Operations 2022 2021 2022
£000 £000 Change
Revenue 30,780 24,957 23%
Cost of sales 16,181 13,102 24%
Gross margin 14,599 11,855 23%
Operating expenses 9,394 8,186 15%
Operating profit before amortisation 5,205 3,669 42%
Amortisation 803 669
Operating profit 4,402 3,000 47%
See notes to the financial information below for reconciliation of Alternative
Performance Measure operating profit before amortisation to operating profit.
BUSINESS REVIEW
The impressive growth in operating profit of 47% in Manufacturing Operations
has been achieved through:
· Organic sales growth of 15% (£1.4m), due mainly to recovery in the
aerospace (defence and commercial) sector and inflation in pricing.
· Sales growth of £4.4m achieved from the acquisition of GWP in February
2021, which has benefited from strong demand from its industrial customers and
inflation in pricing.
· Strengthening of the partnership between Manufacturing Operations and
Packaging Distribution.
· Effective management of increasing input prices with our customers to
maintain gross margin; and
· Good control of operating costs, against a backdrop of inflation in
logistics, labour and energy costs.
Future
Priorities for Manufacturing Operations in 2023 are to:
· Focus the sales team on new business growth in target sectors e.g.,
medical and defence.
· Prioritise new sales activity on our higher added-value bespoke
composite pack product range.
· Work with our customers to effectively manage material price changes to
minimise the impact on gross margins.
· Continue to strengthen the relationship with our Packaging Distribution
businesses to create both sales and cost synergies.
· Commence the process of GWP working more closely with the Macfarlane
Packaging Design and Manufacture and Packaging Distribution businesses.
· Supplement organic growth through progressing further high-quality
acquisitions in the UK.
Group
The Group has achieved sales growth of 10% and operating profit growth 7% in
2022 while making significant investments in the future of the business
including the first major site consolidation, upgrading our information
technology and making our first acquisition outside the UK to supplement our
"Follow the Customer" programme in Europe.
Revenue Operating Operating Revenue Operating Operating
profit/ profit/ profit before profit
Group performance (loss) before (loss) amortisation
amortisation
2022
2021
2022
2022 2021
2021
£000
£000
£000 £000 £000 £000
Segment
Packaging Distribution 259,651 19,868 17,094 239,508 19,697 17,055
Manufacturing Operations 30,780 5,205 4,402 24,957 3,669 3,000
Continuing operations 290,431 25,073 21,496 264,465 23,366 20,055
% of Revenue 8.6% 7.4% 8.8% 7.6%
Discontinued operations - (87) (87) 21,220 372 372
Group Total 290,431 24,986 21,409 285,685 23,738 20,427
See notes to the financial information below for reconciliation of Alternative
Performance Measure operating profit before amortisation to operating profit.
BUSINESS REVIEW
2023 Outlook
The Group's businesses all have strong market positions with low customer
concentration and differentiated product and service offerings, providing both
value and sustainability to our customers. We have a flexible business model
and proven effective implementation of our strategic plan, which is reflected
in consistent profit and cash generation over a sustained period.
Our future performance continues to depend on our effectiveness in growing
sales, increasing efficiencies and bringing high quality acquisitions into the
Group. There will continue to be significant challenges in 2023, with rising
costs and uncertainties over demand in some sectors. However, our strategy
and business model have proved to be resilient and we expect to deliver
further growth in 2023.
BUSINESS REVIEW
RISKS AND UNCERTAINTIES
The principal risks and uncertainties faced by the Group and the factors
mitigating these risks are detailed below. These risks are addressed within an
overall governance framework including clear and delegated authorities,
business performance monitoring and appropriate insurance cover for a wide
range of potential risks. There is a dependence on good quality local
management, which is supported by an investment in training and development
and ongoing performance evaluation.
Risks are identified and assessed through a range of "top down" and "bottom
up" analyses that are updated on a regular basis. This in turn provides the
basis for making informed risk-based decisions regarding the scope and focus
of assurance work, as described in the report of the Audit Committee in the
2022 Annual Report. In addition to scheduled updates from Finance, Health
& Safety, IT, Sales, Procurement and other business functions, the Board
and Audit Committee may seek assurance work in other areas from time to time,
either from internal sources or externally commissioned work.
We continue to evolve our risk management processes to ensure they are robust,
effective and integrated within our decision-making processes. We have
included a brief description of how we assess that each risk level has
changed. For risks shown as [ç è] the risk level is broadly similar
between 2021 and 2022. If the risk is shown as [é ê] the risk level has
increased or decreased respectively during 2022 and is being addressed
accordingly through mitigating actions by management.
The business has added the Uncertain Economic Environment as a new risk in
2022. Due to a range of prolonged geopolitical and economic uncertainties
within the UK and other markets, there is an increased risk that we are
entering into a recessionary trading environment.
Risk Description Mitigating Factors Change in Risk Level
Strategic changes in the market The Group has a well-diversified customer base giving protection from changes No change ç è
in specific industry sectors as well as a flexible business model with a
Failure to respond to strategic shifts in the market, including the impact of strong value proposition to meet the changing needs of customers. The Group's supply chain challenges experienced in 2021 have stabilised in
weaknesses in the economy as well as disruptive behaviour from competitors and
2022 with lead times returning to normal levels. However, the Group has
changing customer needs (e.g. the move towards online retail) could limit the The Group strives to maintain high service levels for customers ensuring that continued to experience volatility in input prices across all product
Group's ability to continue to grow revenues. customer needs are met. The Group continues to invest in information categories which is being managed effectively.
technology, including its new Customer Relationship Management System being
We monitor this through Net Promoter Score, an annual customer satisfaction rolled out across the Group, while also enhancing its service offering. During 2022 the Group has experienced weaker demand from customers,
survey and interaction with customers at our Innovation Lab.
particularly in the e-commerce retail sector.
The Group maintains strong partnerships with key suppliers to ensure that a
broad range of products is available to respond to customers' requirements, During 2023 the Group expects to realise some of the benefits of the new
including any changes in their environmental and sustainability priorities. Customer Relationship Management system which will help the customer service
teams in managing the complex and changing needs of our customers in an
increasingly competitive environment.
Impact of environmental, social and governance ("ESG") changes The Group has an ESG working group to examine specifically how we can reduce No change ç è
our impact on the environment.
Customers are increasingly focused on the environmental impacts of packaging,
The Group recognises the increased significance of our ESG obligations. Our
changing their buying behaviours in response to climate and sustainability The working Group is focused on measuring the CO2 footprint and setting and plans include actions to reduce our own carbon footprint, including;
concerns. monitoring progress against reduction targets for TCFD (Taskforce for
Climate-related Financial Disclosures). · the introduction of electric trucks to our fleet in 2022/2023;
Investors are looking to invest in companies that demonstrate strong ESG
credentials. A full-time Head of Sustainability was appointed and started in January 2023. · investment in solar panels at sites with high energy use; and
There is increasing regulatory focus around reporting disclosures and new The Group has committed to the development of a transition plan towards · ongoing actions to support our customers to reduce their CO2 emissions,
requirements, such as the Plastic Tax introduced from April 2022. The net-zero and, on an ongoing basis, reviews all relevant developments and including using our 'Packaging Optimiser' tool.
Plastic Tax cost £0.9m in 2022. This cost is recharged directly onto our available technologies to support that transition.
customers.
The Group has actively engaged with customers to minmise the impact of the
Regular reviews of our environmental strategy are carried out at Board level Plastic Tax by switching to alternative products.
to challenge performance against key milestones, as well as to ensure that
priorities are aligned with stakeholder objectives.
If the Group is not proactive and transparent in how it is responding to
environmental changes, this could lead to a loss of employees, customers and
investors.
The key measure the Group monitors is Scope 1 and 2 CO2 emissions.
Raw material prices The Group works closely with its supplier and customer base to manage Increased risk é
effectively the scale and timing of price changes and any resultant impact on
The Group's businesses are impacted by commodity-based raw material prices and profit. Our IT systems monitor and measure effectiveness in these changes. Input prices have continued to change throughout 2022 primarily due to
manufacturer energy costs, with profitability sensitive to input price changes
volatility in timber, paper and polymer prices and the impact of rising fuel
including currency fluctuations. Where possible, alternative supplier relationships are maintained to minimise and energy costs. The business has managed these challenges robustly and gross
supplier dependency. margins have remained strong throughout 2022, reflecting the effort of our
The principal components are corrugated paper, polythene films, timber and
teams to mitigate these increases.
foam, with changes to paper and oil prices having a direct impact on the price We work with customers to redesign packs and reduce packing cost to mitigate
we pay to our suppliers. the impact of cost increases including switching to alternative products to The Group expects input prices to stabilise and potentially soften in 2023.
minimise the impact of the Plastic Tax introduced in April 2022. However, this remains uncertain due to the general economic landscape and
This risk is monitored through our procurement teams interacting with key
inflationary pressures on suppliers operating costs.
suppliers and management regularly reviewing gross margin by customer. The Group has a well-established supplier relationship management process
which is subject to periodic management review and internal audit.
Acquisitions The Group carefully reviews potential acquisition targets, ensuring that the No change ç è
focus is on high-quality businesses which complement the Group's existing
The Group's growth strategy has included a number of acquisitions in recent profile and provide good opportunities for growth. The Group has made 15 acquisitions since 2014, including one in 2022.
years. There is a risk that such acquisitions may not be available on
acceptable terms in the future. Having completed a number of acquisitions in recent years, the Group has The acquisition made in 2022 of PackMann, based in Germany, was the Group's
well-established due diligence and integration processes and procedures, while first investment in Europe. This is inherently a higher risk acquisition due
It is possible that acquisitions will not be successful due to the loss of key only acquiring well-established quality businesses which will perform well in to cultural differences and less depth in local management expertise and
people or customers following acquisition or acquired businesses not the Group. support when compared to previous UK-based acquisitions. However, there are
performing at the level expected. This could potentially lead to impairment
also important strategic opportunities for the Group in terms of extending
of the carrying value of the related goodwill and other intangible assets. The Group's management information system enables effective monitoring of service coverage for existing and new customers as well as integration
post-acquisition performance with earn-out mechanisms also mitigating risk in synergies.
Execution risks around the failure to successfully integrate acquisitions the post-acquisition period.
following conclusion of the earn-out period also exist.
The Group has a strong pipeline of potential protective packaging acquisition
Goodwill and other intangible assets are tested annually for impairment. opportunities in both the UK and Northern Europe.
This is monitored through regular reporting of acquisition prospects and
post-acquisition performance by executive management, with reporting to the
Board.
Property The Group adopts a proactive approach to managing property costs and No change ç è
exposures.
The Group has a property portfolio comprising 1 owned site and 48 leased
Our property consolidation strategy has continued during 2022. Work is ongoing
sites. This multi-site portfolio gives rise to risks in relation to ongoing Where a site is non-operational the Group seeks to assign, sell or sub-lease to finalise exit costs following the expiry of two leases and there are known
lease costs, dilapidations and fluctuations in value. the building to mitigate the financial impact. future exits from another five existing operating sites. Provisions have
been established to cover the anticipated exit costs.
This risk is monitored on a regular basis and reported to the Board through If this is not possible, rental voids are provided on vacant properties taking
internal reporting and input from external advisors. into consideration the likely period of vacancy and incentives to re-let. The Group currently has no vacant or sub-let properties.
The Group engages with external property advisers to assess the level of
provisioning required for dilapidations and negotiate to minimise the final
costs.
Cyber-security The Group continually invests in its IT infrastructure to protect against No change ç è
cyber-security threats. This includes regular testing of IT Disaster
The increasing frequency and sophistication of cyber-attacks is a risk which Recovery Plans. Remote working practices are the norm, with the Group adopting hybrid
potentially threatens the confidentiality, integrity and availability of the
home/office flexibility for its employees. This is a feature within the
Group's data and IT systems. We engage the services of a cyber-security partner to perform regular Group's risk to cyber-security attacks.
penetration tests to assess potential vulnerabilities within our security
These attacks could also cause reputational damage and fines in the event of arrangements. The Group continues to invest in prevention/detection software and education
personal data being compromised.
programmes to mitigate the risks of cyber-security attacks.
This is complemented by a program of cyber-security awareness training to
This risk is monitored through an ongoing program of compliance and controls ensure that all staff are aware of the potential threats caused by deliberate The frequency and sophistication of cyber-attacks is anticipated to continue
auditing with input from external advisors. and unauthorised attempts to gain access to our systems and data. to evolve, and the Group is committed to continually investing in upgrading
its' infrastructure to respond to the changing threats.
Financial liquidity, debt covenants and interest rates The Group's borrowing facility comprises a committed facility of £30m with No change ç è
Lloyds Bank PLC, which finances our trading requirements and supports
The Group needs continuous access to funding to meet its trading obligations controlled expansion, providing a medium-term funding platform for growth. The Group has proved to be strongly cash generative in 2022 and has operated
and to support organic growth and acquisitions. There is a risk that the
well within its existing bank facilities throughout the year.
Group may be unable to obtain funds and that such funds will only be available The Group regularly monitors net bank debt and forecast cash flows to ensure
on unfavourable terms. that it will be able to meet its financial obligations as they fall due. Interest rates have increased from 2.00% at 31 December 2021 to 5.25% at 31
December 2022 and are expected to increase further in 2023. The increase in
The Group's borrowing facility comprises a committed facility of up to Compliance with covenants is monitored on a monthly basis and sensitivity rates, which are in line with the market, do not increase the risk of the
£30m. This includes requirements to comply with specified covenants, with a analysis is applied to forecasts to assess the impact on covenant compliance. Group being unable to obtain funds and the Group operates well within the
breach potentially resulting in Group borrowings being subject to more onerous specific covenant related to interest i.e. 3 times EBITDA to interest.
conditions.
Working capital Credit risk is controlled by applying rigour to the management of trade Increase é
receivables by Head of Credit Control and the credit control team and is
The Group has a significant investment in working capital in the form of trade subject to additional scrutiny from the Group Finance Director and Group Bad debt write-offs in 2022 have increased from 2021, albeit still at a
receivables and inventories. There is a risk that this investment is not Financial Controller in line with the Group's credit risk process. relatively low level. This is reflected in the Expected Credit Loss allowance
fully recovered.
being increased accordingly.
All aged debts are assessed using the Expected Credit Loss model, and
This risk is monitored through detailed reporting to local and executive appropriate provisions are made. Aged stock over 6 months old has increased in 2022 due to a slowdown in demand
management, which is reviewed in summary form by the Board.
particularly from the e-commerce retail sector. The Group is working to
Customers in sectors likely be significantly impacted by the current economic reduce stock over 6 months and has invested in a new IT system, Slimstock to
challenges, particularly those exposed to reduced consumer demand and support this initiative.
significant increases in operating costs e.g. energy, fuel etc are closely
monitored and where necessary actions taken to reduce exposure to potential The current economic environment is likely to increase the risk of bad debts
bad debts or stock write-offs. and stock write-offs in 2023, although management will continue to take all
appropriate steps to mitigate this risk and limit the need for additional
Inventory levels and order patterns are regularly reviewed and risks arising provisions or write-offs.
from holding bespoke stocks are managed by obtaining order cover from
customers.
Defined benefit pension scheme The scheme was closed to new members in 2002. Benefits for active members No change ç è
were amended by freezing pensionable salaries at April 2009 levels.
The Group's defined benefit pension scheme is sensitive to a number of key
The IAS 19 valuation of the Group's defined benefit pension scheme as at 31
factors including investment returns, the discount rates used to calculate the A Pension Increase Exchange option is available to offer flexibility to new December 2022 estimated the scheme surplus to be £10.2m, compared to a
scheme's liabilities and mortality assumptions. pensioners in both the level of pension at retirement and the rate of future surplus of £8.3m at 31 December 2021.
increases.
Small changes in these assumptions could cause significant movements in the
Deficit repair contributions were set at £1.3m per annum following the
pension surplus/deficit. The investment profile is regularly reviewed to ensure continued matching of triennial actuarial valuation at 1 May 2020. The Group is committed to
investments with the scheme's liability profile. making these contributions until May 2024.
This risk is monitored through regular input from external pension advisors,
including six monthly IAS19 reviews and triennial actuarial valuations. The scheme invests in Liability Driven Investments ("LDI") which hedge the The Group paid £0.7m into the scheme in 2022 to satisfy the debt agreed with
scheme against movements in the discount rate and inflation. These are the trustees in relation to the cessation of Macfarlane Labels Limited as a
leveraged instruments which require active investments and divestments to sponsoring employer.
maintain the level of leverage.
2022 saw unprecedented levels of volatility in gilt markets. Longer dated
The scheme was closed to future accrual during 2022. yields rose from approximately 1.6% at the beginning of the year to 4.3% at
the recent peak. Whilst this significantly decreased the schemes liabilities
it required additional collateral payments into the LDIs to preserve the
hedging the LDIs provide against movements in interest and inflation. The
leverage on the LDIs was also lowered to reduce the likelihood of collateral
calls from the scheme's LDI manager.
Uncertain economic environment A twice yearly viability assessment and sensitivity analyses is performed by Increase é
management.
Due to a range of prolonged geopolitical and economic uncertainties within the
New risk in 2022
UK and other markets, there is an increased risk that we are entering into a The Group's borrowing facility comprises a committed facility of £30 million
challenging trading environment. If this materialises, the length and depth of with Lloyds Bank PLC, which finances our trading requirements and supports It is predicted that the UK economy will experience a challenging economic
such an environment is unknown and may adversely affect our ability to deliver controlled expansion, providing a medium-term funding platform for growth. environment during 2023.
upon agreed strategic initiatives. We may also need to adapt our business
quickly in order to limit the impact upon the Group's results, prospects and The Group regularly monitors net bank debt and forecast cash flows to ensure The Group could potentially experience a reduction in demand for its products
reputation. that it will be able to meet its financial obligations as they fall due. in 2023 if the impact of rising costs of living and interest rates slows down
the economy.
This risk is monitored through regular review of trading forecasts and market Compliance with covenants is monitored on a monthly basis and sensitivity
conditions, considered at executive management and Board level. analysis is applied to forecasts to assess the impact on covenant compliance. The Group is experiencing rising operating costs particularly, energy, fuel
and employee costs and increased interest rates.
The Group has scope to curtail capital expenditure and acquisition investment
to preserve cash, if required. To mitigate this risk, executive management monitors monthly revenue and cost
performance and market trends closely, and has detailed action plans to
In the event of a significant reduction in customer demand the Group would respond to any significant or prolonged trading pressures.
take rigorous actions to reduce operating costs and working capital
investment.
There are a number of other risks that we manage which are not considered key
risks. These are mitigated in ways common to all businesses and not specific
to Macfarlane Group.
BUSINESS REVIEW
Viability statement
The Board is required to formally assess that the Group has adequate resources
to continue in operational existence for the foreseeable future and as such
can continue to adopt the going concern basis of accounting. The Board is
also required to state that it has a reasonable expectation that the Group
will continue in operation and meet its longer-term liabilities as they fall
due.
To support this statement, the Board is required to consider the Group's
current financial position, its strategy, the market outlook and its principal
risks. The Board's assessment of the principal risks facing the Group and
how these risks affect the Group's prospects are set out above. The review
also includes consideration of how these risks could prevent the Group from
achieving its strategic plan and the potential impact these risks could have
on the Group's business model, future performance, solvency and liquidity over
the next three years.
The Board considers the Group's viability as part of its ongoing programme to
manage risk. Each year the Board reviews the Group's strategic plan for the
forthcoming three-year period (starting from 1 January) and challenges the
Executive team on the plan's risks. The plan reflects the Group's
businesses, which have a broad spread of customers across a range of different
sectors with some longer-term contracts in place. The assessment period of
three years is consistent with the Board's review of the Group strategy,
including assumptions around future growth rates for our business and
acceptable levels of performance.
Financial modelling and scenarios
The Group's existing bank facilities comprise a £30m committed facility with
Lloyds Banking Group, which is available until December 2025. The Group has
performed well during 2022, despite the ongoing challenging market conditions,
which gives confidence in the strength of the underlying business model. The
Directors have also considered the longer-term economic outlook for the UK.
Given the current uncertainty of the economic outlook we have modelled a
'severe but plausible downside' scenario as described below. In forming
conclusions, the Directors have also considered potential mitigating actions
that the Group could take to preserve liquidity and ensure compliance with its
financial covenants.
A detailed financial model covering a three-year period is maintained and
regularly updated. This model enables sensitivity analysis, which includes
flexing the main assumptions, including future revenue growth, gross margins,
operating costs, finance costs and working capital management. The results
of flexing these assumptions, both individually and in aggregate, are used to
determine whether additional bank facilities will be required during the
three-year period and whether the Group will remain in compliance with the
covenants relating to the current facility.
We have modelled a range of scenarios, including a central case, a downside
scenario, a severe but plausible downside and a reverse stress test, over the
three-year horizon. The 'severe but plausible downside' scenario is
conservative in assuming, compared to the central case, revenue reductions of
10% and gross margin reductions at the rate of 2% in each of the three years,
with no reduction in costs. Even under this scenario, and before reflecting
any mitigating actions available to Group management, the Group forecasts
compliance with all financial covenants throughout the period and would not
require any additional sources of financing.
The Group has also modelled a reverse stress test scenario. This models the
decline in sales that the Group would be able to absorb before breaching any
financial covenants. Such a scenario, and the sequence of events that could
lead to it, is considered to be remote, as it requires sales reductions of
c.15% per annum between 2023 and 2025, compared to the central case, before
there is a breach in financial covenants in the period under review and is
calculated before reflecting any mitigating actions.
Even in the severe but plausible scenario, Macfarlane Group is forecast to
have sufficient liquidity to continue trading, comfortably meeting its
financial covenants and operating within the level of its facilities for the
foreseeable future. The reverse stress test modelling has shown that a c.27%
reduction in sales in 2023 compared to 2022 could lead to a breach of
covenants in the period under review. However, in this scenario, management
would also be able to take significant mitigating actions to reduces its costs
and conserve cash.
Conclusions
For this reason, the Board considers it appropriate for the Group to adopt the
going concern basis in preparing its financial statements.
The Board also has a reasonable expectation that the Group will continue in
operation and meet its longer-term liabilities as they fall due.
Cautionary Statement
The Chair's Statement and the Business Review set out above have been prepared
to provide additional information to members of the Company 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 report and the financial statements contain certain forward-looking
statements relating to operations, performance and financial status. By
their nature, such statements involve risk and uncertainty because they relate
to events and depend upon circumstances that will occur in the future. 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
report. Nothing in this Preliminary Announcement should be construed as a
profit forecast or an invitation to deal in the securities of the Group.
Responsibility Statement of the Directors
The responsibility statement below has been prepared in connection with the
Company's full annual report for the year ending 31 December 2022. Certain
parts of the full Annual Report are not included within this announcement.
The Directors of Macfarlane Group PLC are
A. Gulvanessian
Chair (from 1 October 2022)
P.D. Atkinson Chief Executive
I. Gray
Finance Director
R. McLellan Non-Executive
Director and Senior Independent Director
J.W.F. Baird Non-Executive
Director
L.D. Whyte Non-Executive
Director (from 1 October 2022)
To the best of the knowledge of the Directors (whose names and functions are
set out above), the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair view of the
assets, liabilities, financial position and profit for the Company and the
undertakings included in the consolidation taken as a whole.
The Strategic Report, incorporated into the Directors' Report in the Annual
Report, includes a fair review of the development and performance of the
business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
Pursuant to Disclosure and Transparency Rules, Chapter 4, the directors
consider that the Company's annual report and financial statements, taken as a
whole, are fair, balanced and understandable and provide information necessary
for the shareholders to assess the Company's and the Group's position and
performance, business model and strategy.
Peter Atkinson
Ivor Gray
Chief
Executive
Finance Director
23 February 2023
23 February 2023
Macfarlane Group PLC
Consolidated income statement
For the year ended 31 December 2022
Note
2022 2021
£000 £000
Continuing operations
Revenue 3 290,431 264,465
Cost of sales (192,374) (174,998)
Gross profit 98,057 89,467
Distribution costs (10,736) (8,651)
Administrative expenses (65,825) (60,761)
Operating profit 3 21,496 20,055
Finance costs 4 (1,562) (1,390)
Profit before tax 19,934 18,665
Tax 5 (4,210) (4,917)
Profit for the year from continuing operations 8 15,724 13,748
Discontinued operations
Loss from discontinued operations 6 (87) (1,150)
Profit for the year 15,637 12,598
Earnings per share from continuing operations
Basic 8 9.94p 8.71p
Diluted 8 9.84p 8.62p
Earnings per share from continuing and discontinued operations
Basic 8 9.89p 7.98p
Diluted 8 9.78p 7.90p
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
Note £000 £000
Items that may be reclassified to profit or loss
Foreign currency translation differences - foreign operations 45 (120)
Items that will not be reclassified to profit or loss
Remeasurement of pension scheme liability 11 (82) 8,212
Tax recognised in other comprehensive income
Tax on remeasurement of pension scheme 12 21 (2,054)
liability
- 88
Corporation tax rate change on deferred tax
Other comprehensive (expense)/income for the year, net of tax (16) 6,126
Profit for the year 15,637 12,598
Total comprehensive income for the year 15,621 18,724
Macfarlane Group PLC
Consolidated statement of changes in equity
For the year ended 31 December 2022
Share Share Revaluation Own Translation Retained Total
Capital Premium Reserve Shares Reserve Earnings £000
Note £000 £000 £000 £000 £000 £000
At 1 January 2021 39,453 13,148 70 - 291 26,816 79,778
Comprehensive income
Profit for the year - - - - - 12,598 12,598
Foreign currency translation differences
- - - - (120) - (120)
Remeasurement of pension liability
11 - - - - - 8,212 8,212
Tax on remeasurement of pension liability
12 - - - - - (2,054) (2,054)
Corporation tax rate change on deferred tax
12 - - - - - 88 88
Total comprehensive income - - - - (120) 18,844 18,724
Transactions with shareholders
Dividends 7 - - - - - (4,293) (4,293)
Credit for share-based payments - - - - - 685 685
Total transactions with shareholders - - - - - (3,608) (3,608)
At 31 December 2021 39,453 13,148 70 - 171 42,052 94,894
Comprehensive income
Profit for the year - - - - - 15,637 15,637
Foreign currency translation differences
- - - - 45 - 45
Remeasurement of pension liability
11 - - - - - (82) (82)
Tax on remeasurement of pension liability
12 - - - - - 21 21
Total comprehensive income - - - - 45 15,576 15,621
Transactions with shareholders
Dividends 7 - - - - - (5,102) (5,102)
New shares issued 131 425 - (7) - (549) -
Credit for share-based payments - - - - - 607 607
Total transactions with shareholders 131 425 - (7) - (5,044) (4,495)
At 31 December 2022 39,584 13,573 70 (7) 216 52,584 106,020
Macfarlane Group PLC
Consolidated balance sheet at 31 December 2022
Note 2022 2021
£000 £000
Non-current assets
Goodwill and other intangible assets 75,685 74,902
Property, plant and equipment 7,863 6,101
Right of Use assets 33,938 34,718
Other receivables 38 35
Deferred tax assets 12 105 19
Retirement benefit obligations 11 10,199 8,267
Total non-current assets 127,828 124,042
Current assets
Inventories 22,608 21,269
Trade and other receivables 59,347 58,541
Current tax asset 675 -
Cash and cash equivalents 10 5,706 12,315
Total current assets 88,336 92,125
Total assets 3 216,164 216,167
Current liabilities
Trade and other payables 54,577 60,975
Provisions 1,769 1,730
Current tax liability 304 771
Lease liabilities 10 6,641 6,364
Bank borrowings 10 9,143 9,840
Total current liabilities 72,434 79,680
Net current assets 15,902 12,445
Non-current liabilities
Deferred tax liabilities 12 8,222 7,472
Trade and other payables - 3,695
Provisions 1,560 1,848
Lease liabilities 10 27,928 28,578
Total non-current liabilities 37,710 41,593
Total liabilities 3 110,144 121,273
Net assets 106,020 94,894
Equity
Share capital 13 39,584 39,453
Share premium 13 13,573 13,148
Revaluation reserve 70 70
Own shares (7) -
Translation reserve 216 171
Retained earnings 52,584 42,052
Total equity 3 106,020 94,894
Macfarlane Group PLC
Consolidated cash flow statement
For the year ended 31 December 2022
Note
2022 2021
£000 £000
Profit/(loss) before tax from:
Continued operations 19,934 18,665
Discontinued operations (87) (938)
Total Operations 19,847 17,727
Adjustments for:
Amortisation of intangible assets 3,577 3,311
Impairment of goodwill in discontinued operations - 987
Depreciation of property, plant and equipment and ROU assets 9,040 9,271
Loss on disposal of property, plant and equipment 71 43
Loss on disposal of subsidiaries 87 232
Share-based payments 607 685
Finance costs 1,562 1,390
Operating cash flows before movements in working capital 34,791 33,646
Decrease/(increase) in inventories 1,025 (4,848)
Decrease/(increase) in receivables 285 (7,892)
(Decrease)/increase in payables (9,027) 8,905
(Decrease)/increase in provisions (249) 1,884
Adjustment for pension scheme funding (1,838) (1,533)
Cash generated by operations 24,987 30,162
Income taxes paid (5,251) (4,975)
Interest paid (1,738) (1,383)
Cash inflow from operating activities 17,998 23,804
Investing activities
Acquisitions, net of cash acquired 9 (8,655) (12,238)
Proceeds from sale of subsidiaries 166 5,212
Proceeds on disposal of property, plant and equipment 181 199
Purchases of property, plant and equipment (3,285) (2,132)
Cash outflow from investing activities (11,593) (8,959)
Financing activities
Dividends paid 7 (5,102) (4,293)
(Repayment)/drawdown on bank borrowing facility (865) 3,889
Repayments of leases (7,215) (7,539)
Cash outflow from financing activities (13,182) (7,943)
Net (decrease)/increase in cash and cash equivalents (6,777) 6,902
Cash and cash equivalents at beginning of year 12,123 5,221
Cash and cash equivalents at end of year 5,346 12,123
2022 2021
Reconciliation to consolidated cash flow statement £000 £000
Cash and cash equivalents per the consolidation balance sheet 10 5,706 12,315
Bank overdraft (360) (192)
Balances per consolidated cash flow statement 5,346 12,123
Bank overdrafts are included in cash and cash equivalents because they form an
integral part of the Group's cash management.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
1. General information
The financial information set out herein does not constitute the Company's
statutory accounts as defined in Section 435 of the Companies Act 2006 and has
been extracted from the full statutory accounts for the years ended 31
December 2022 and 2021.
The financial statements for 2022 were approved by the Board of Directors on
23 February 2023. The auditor's report on the statutory financial statements
for the year ended 31 December 2022 was unqualified pursuant to Section 498 of
the Companies Act 2006 and did not contain a statement under sub-section 498
(2) or (3) of that Act.
The financial information for 2021 is derived from the statutory accounts for
2021 which have been delivered to the registrar of companies. The auditor
has reported on the 2021 accounts; their report 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.
2. Basis of preparation
The Group's business activities, together with the factors likely to affect
its future development, performance and financial position are set out on set
out above.
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, despite any economic uncertainty.
The Group's has a committed borrowing facility of £30m with Lloyds Banking
Group PLC in place until December 2025. The facility bears interest at
normal commercial rates and carries standard financial covenants in relation
to interest cover and levels of headroom over certain trade receivables of the
Group.
The Directors are of the opinion that the Group's cash forecasts and revenue
projections, which they believe are based on appropriate 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 the current facility and comply with its
banking covenants. The Directors have modelled a range of scenarios,
including a central case, a downside scenario, a severe but plausible downside
and a reverse stress test, over the three-year horizon, as set out in the
Viability statement on set out above.
After making enquiries, the directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for at least the next twelve months. For this reason, they
continue to adopt the going concern basis in preparing the financial
statements for the year ended 31 December 2022.
Key sources of estimation uncertainty
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported for assets and liabilities as
at the balance sheet date and the amounts reported for revenues and expenses
during the year. Due to the nature of estimation, the actual outcomes may
well differ from these estimates. The directors have assessed the impact of
climate change and consider that this does not have a significant impact on
these financial statements. The key sources of estimation uncertainty that
have a significant effect on the carrying amounts of assets and liabilities
are discussed below:
Retirement benefit obligations
The determination of any defined benefit pension scheme liability is based on
assumptions determined with independent actuarial advice. The key assumptions
used include discount rate and inflation rate, for which a sensitivity
analysis is provided in Note 11. The directors consider that those
sensitivities represent reasonable sensitivities which could occur in the next
financial year.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
2. Basis of preparation (continued)
Key sources of estimation uncertainty (continued)
Valuation of trade receivables
The provision held against trade receivables is based on applying an expected
credit loss model and related estimates of recoverable amounts. Whilst every
attempt is made to ensure that the provision held against doubtful trade
receivables is as accurate as possible, there remains a risk that the
provision may not match the level of debt which ultimately proves
uncollectable. For illustration only, an increase in the average default
rate of overdue trade receivables from 1.44% to 2.43% above the historic loss
rates observed would lead to an increase of £540,000 in the provision
required.
Critical accounting judgements
Property provisions
Property provisions of £3.3m have been recognised as at 31 December 2022
(2021: £3.6m), representing the directors' best estimate of dilapidations on
property leases. The directors have made the judgement that no provision is
required for certain property leases where there is no intention to exit,
having considered a number of factors including the extent of modifications to
the property, the terms of the lease agreement, and the condition of the
property.
No other significant critical judgements have been made in the current or
prior year.
Alternative performance measures
In measuring the financial performance and position, the financial measures
used in certain limited cases include those which have been derived from the
reported results in order to eliminate factors which due to their unusual
nature and size distort year-on-year comparisons to a material extent and/or
provide useful information to stakeholders. Where such items arise, the
directors will classify such items as separately disclosed non-recurring items
and provide details of these items to enable users of the accounts to
understand the impact on the financial statements.
To the extent that a measurement under Generally Accepted Accounting
Principles ("GAAP") is adjusted for a separately disclosed non-recurring item,
this is referred to as an Alternative Performance Measure ("APM"). We believe
that the APM defined below, and the comparable GAAP measurement provides a
useful basis for measuring the financial performance and position.
In addition to the various performance measures defined under IFRS the Group
reports operating profit before amortisation as a measure to assist in
understanding the underlying performance of the Group and its businesses when
compared to similar companies. Operating profit before amortisation is not
defined under IFRS and, as a result, does not comply with Generally Accepted
Accounting Practice ("GAAP") and is therefore known as an alternative profit
measure. Accordingly, this measure, which is not designed to be a substitute
for any of the IFRS measures of performance, may not be directly comparable
with other companies' alternative performance measures. Operating profit
before amortisation is defined as operating profit before customer
relationships and brand values amortisation reconciled in the table below.
2022 2021
£000 £000
Continuing operations
Operating profit before amortisation 25,073 23,366
Customer relationships/brand values amortisation (3,577) (3,311)
Operating profit 21,496 20,055
Net bank funds/(debt) also represents an Alternative Performance Measure as
defined and reconciled to the statutory measure in note 10.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
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 comprises over 85% of Group revenue and 80% of
Group operating profit. The Group's Manufacturing Operations segment
comprises the design, manufacture and assembly of timber, corrugated and
foam-based packaging materials in the UK.
Continuing operations 2022 2021
£000 £000
Group segment -Revenue
Packaging Distribution 259,651 239,508
Manufacturing Operations 35,045 28,527
Inter-segment revenue Manufacturing Operations (4,265) (3,570)
External revenue 290,431 264,465
Packaging Distribution 19,868 19,697
Manufacturing Operations 5,205 3,669
Operating profit before amortisation 25,073 23,366
Packaging Distribution 17,094 17,055
Manufacturing Operations 4,402 3,000
Operating profit 21,496 20,055
Finance costs (1,562) (1,390)
Profit before tax 19,934 18,665
Tax (4,210) (4,917)
Profit for the year from continuing operations 15,724 13,748
Loss for the year from discontinued operations (87) (1,150)
Profit for the year 15,637 12,598
Assets Liabilities Net assets
£000 £000 £000
Group segments
Packaging Distribution 188,866 (102,937) 85,929
Manufacturing Operations 27,298 (7,207) 20,091
Net assets 2022 216,164 (110,144) 106,020
Assets Liabilities Net assets
£000 £000 £000
Packaging Distribution 185,111 (110,212) 74,899
Manufacturing Operations 31,056 (11,061) 19,995
Net assets 2021 216,167 (121,273) 94,894
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
3. Segmental information (continued)
2022 2021
£000 £000
Packaging Distribution
Revenue 259,651 239,508
Cost of sales (176,193) (161,896)
Gross profit 83,458 77,612
Net operating expenses (63,590) (57,915)
Operating profit before amortisation 19,868 19,697
Amortisation (2,774) (2,642)
Operating Profit 17,094 17,055
Manufacturing Operations
2022 2021
£000 £000
Revenue 30,780 24,957
Cost of sales (16,181) (13,102)
Gross profit 14,599 11,855
Net operating expenses (9,394) (8,186)
Operating profit before amortisation 5,205 3,669
Amortisation (803) (669)
Operating profit 4,402 3,000
4. Finance costs
2022 2021
£000 £000
Interest on bank borrowings 616 414
Interest on leases 1,122 969
Net interest (income)/expense on retirement benefit obligation (see note 11) (176) 7
Total finance costs from continuing operations 1,562 1,390
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
5. Tax 2022 2021
£000 £000
Current tax
United Kingdom corporation tax at 19.0% 3,680 3,672
Foreign tax 253 245
Adjustments in respect of prior years (21) 72
Total current tax 3,912 3,989
Deferred tax
Current year 207 1,140
Adjustments in respect of prior years 91 -
Total deferred tax (see note 12) 298 1,140
Total tax charge 4,210 5,129
The standard rate of tax based on the UK average rate
of corporation tax is 19.0%. Taxation for other jurisdictions is calculated
at the rates prevailing in these jurisdictions.
The actual tax charge for the current and previous
year varies from the standard rate of tax on the results in the consolidated
income statement for the reasons set out in the following reconciliation:-
2022 2021
£000 £000
Profit before tax from continuing operations 19,934 18,665
Loss before tax from discontinued operations (87) (938)
Profit before tax from total operations 19,847 17,727
Tax on profit at 19.0% 3,771 3,368
Factors affecting tax charge for the year:-
Change in rate for deferred tax from 19% to 25% - 1,282
Difference in rate for deferred tax (25%) on pensions 120 -
Non-deductible expenses 189 408
Difference on overseas tax rates 60 (37)
Changes in estimates related to prior years 70 108
Tax charge for the year 4,210 5,129
Tax attributable to continuing operations 4,210 4,917
Tax attributable to discontinued operations - 212
Tax charge for the year 4,210 5,129
Effective rate of tax for the year 21.2% 28.9%
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
6. Discontinued Operations
On 31 December 2021, the Group entered into a sale agreement to dispose of
Macfarlane Labels Limited and its subsidiaries Macfarlane Group Ireland
(Labels & Packaging) Limited and Macfarlane Group Sweden AB (collectively
"Macfarlane Labels"). Macfarlane Labels designs and prints high quality
self-adhesive and resealable labels, principally for FMCG companies. The
proceeds from the sale have been strategically invested in the continuing
growth of the Group's protective packaging businesses.
The results of the discontinued operations, which have been included as a
single item of loss from discontinued operations for the year, were as
follows:
2022 2021
£000 £000
Revenue - 21,220
Expenses (87) (22,158)
Loss before tax (87) (938)
Attributable tax expense - (212)
Loss after tax (87) (1,150)
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
7. Dividends 2022 2021
£000 £000
Amounts recognised as distributions to equity holders
in the year:
Final dividend for the year ended 31 December 2021 of 2.33 per
share (2020 - 1.85p per share)
3,677 2,920
Interim dividend for the year ended 31 December 2022 of 0.90p per
share (2021 - 0.87p per share)
1,425 1,373
5,102 4,293
A proposed dividend of 2.52p per share will be paid on 1 June 2023 to those
shareholders on the register at 12 May 2023. This is subject to approval by
shareholders at the Annual General Meeting on 9 May 2023 and therefore has not
been included as a liability in these financial statements.
8. Earnings per share
The calculation of the basic and diluted earnings per
share is based on the following data:
2022 2021
£000 £000
Earnings for the purposes of earnings per share
Profit for the year from continuing operations 15,724 13,748
Loss from discontinued operations (87) (1,150)
Profit for the year from continuing and discontinued operations 15,637 12,598
Number of shares in issue for the purposes of calculating basic and diluted 2022 2021
earnings per share
No. of No. of
shares '000 shares '000
Weighted average number of shares in issue for the
purposes of basic earnings per share
Weighted average number of shares in issue 158,162 157,812
Effect of Long-Term Incentive Plan awards in issue 1,661 1,627
Weighted average number of shares in issue for the purposes of calculating
diluted earnings per share
159,823 159,439
Basic Earnings per share from continuing operations 9.94p 8.71p
Diluted Earnings per share from continuing operations 9.84p 8.62p
Basic Earnings per share from discontinued operations (0.06)p (0.73)p
Diluted Earnings per share from discontinued operations (0.05)p (0.72)p
Basic Earnings per share from continuing and discontinued operations 9.89p 7.98p
Diluted Earnings per share from continuing and discontinued operations 9.78p 7.90p
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
9. Acquisitions
On 17 May 2022, Macfarlane Group PLC acquired 100% of PackMann Gessellschaft
für Verpackungen und Dienstleistungen mbH ("PackMann"), for a maximum
consideration, excluding cash/bank balances and bank borrowings acquired, of
£7.4m. £5.9m was paid in cash on acquisition, in addition to cash/bank
balances and bank borrowings retained by Macfarlane Group PLC, and the
deferred consideration of £1.5m is payable in the second quarters of 2023 and
2024, subject to certain trading targets being met in the two twelve-month
periods ending on 31 May 2023 and 2024 respectively. The trading targets set
for the two twelve month periods are an enhancement over the profit levels
being achieved in the period prior to acquisition and they are considered
unlikely to be achieved. Therefore the directors do not consider it probable
that deferred consideration will be payable. A recovery for closing balance
sheet adjustments of £0.6m was received on 30 August 2022.
£2.2m was paid in 2022 to the sellers of GWP Holdings Limited, acquired in
2021, as the profit target was met for the twelve month period ending 28
February 2022 and deferred consideration of £2.9m is payable in the first
quarter of 2023, subject to profit targets being met in the twelve-month
period ending 28 February 2023.
£0.7m was paid in 2022 to the sellers of Carters (Cornwall) Limited, acquired
in 2021, as the profit target was met for the twelve month period ending 31
March 2022 and deferred consideration of £0.8m is payable in the second
quarter of 2023, subject to profit targets being met in the twelve-month
period ending 31 March 2023.
Contingent considerations are recognised as a liability in trade and other
payables and are remeasured to fair value of £3.7m at the balance sheet date
based on a range of outcomes between £Nil and £5.2m. Trading in the
post-acquisition period supports the remeasured value of £3.7m.
The impact of the acquisition of PackMann on 2022 results was revenue for the
year of £7.8m and profit of £0.2m. If the PackMann acquisition had been
completed on the first day of 2022, revenues for the year would have been
£13.4m and profit would have been £0.3m.
Fair values assigned to net assets acquired and consideration paid and payable
are set out below:-
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
9. Acquisitions (continued)
Fair values assigned to net assets acquired and consideration paid and payable
are set out below:-
2022
£000
Net assets acquired
Other intangible assets 1,386
Property, plant and equipment 1,770
Inventories 2,364
Trade and other receivables 1,347
Cash and bank balances 290
Bank borrowings (730)
Trade and other payables (1,899)
Current tax liabilities (196)
Lease liabilities (1,634)
Deferred tax liabilities (see note 12) (387)
Net assets acquired 2,311
Goodwill arising on acquisition 2,974
Total consideration 5,285
Contingent consideration on acquisitions
Prior years 2,930
Cash consideration 8,215
Cash consideration (8,215)
Cash and bank balances acquired (440)
Net cash outflow (8,655)
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
10. Analysis of changes in net debt
Cash &cash Bank Lease Total
equivalents borrowing liabilities debt
£000 £000 £000 £000
At 1 January 2022 12,315 (9,840) (34,942) (32,467)
Cash movements (6,609) 697 7,215 1,303
Non-cash movements
New leases - - (4,546) (4,546)
Acquisitions - - (1,634) (1,634)
Disposal - - 237 237
Lease modifications - - (899) (899)
At 31 December 2022 5,706 (9,143) (34,569) (38,006)
Net bank funds 2022 5,706 (9,143) (3,437)
Net bank debt 2021 12,315 (9,840) 2,475
Cash and cash equivalents (which are presented as a single class of asset 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.
11. Pension scheme
Macfarlane Group PLC sponsors a defined benefit pension scheme for former UK
employees - the Macfarlane Group PLC Pension & Life Assurance Scheme
(1974) ("the Scheme"). One of the trading subsidiaries, Macfarlane Group UK
Limited is also a sponsoring employer of the Scheme. Macfarlane Labels
Limited was a sponsoring employer until 31 December 2021 when the company was
sold and ceased to be a sponsoring member. The Group paid £0.7m into the
pension scheme in 2022 to satisfy the debt agreed with the trustees in
relation to the cessation of Macfarlane Labels Limited as a sponsoring
employer. The Scheme is currently in surplus and disclosure of the respective
proportions of the Group surplus are included and disclosed in the financial
statements of each of the two participating employers.
The Scheme is an HMRC registered pension scheme, administered by a Board of
Trustees composed of employer-nominated representatives and member-nominated
Trustees which is legally separate from the Group. The Scheme's investments
are held separately from those of the Group in managed funds under the
supervision of the Trustees. The Trustees are required by law to act in the
interest of all classes of beneficiary in the Scheme and are responsible for
investment policy and the administration of benefits. Macfarlane Group PLC,
based on legal opinion provided, has an unconditional right to a refund of
surplus assets assuming the full settlement of plan liabilities in the event
of a wind up of the Scheme. Furthermore, in the ordinary course of business
the trustees have no rights to unilaterally wind up the Scheme, or otherwise
augment the benefits due to members of the Scheme. Based on these rights,
any net surplus in the Scheme is recognised in full.
The Scheme provides qualifying employees with an annual pension of 1/60 of
pensionable salary for each completed years' service on attainment of a normal
retirement age of 65. Pensionable salaries were frozen for the remaining
active members at the levels current at 30 April 2009 with the change taking
effect from 30 April 2010. As a result no further salary inflation applies
for active members who elected to remain in the Scheme. Active members'
benefits also include life assurance cover, with the payment of these benefits
at the discretion of the Trustees of the Scheme. The Scheme was closed to
new entrants during 2002. The Scheme was closed to future accrual on 30
November 2022 with the 3 remaining active members transferring to the Group's
defined contribution pension scheme.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
11. Pension scheme (continued)
On leaving active service a deferred member's pension is revalued from the
time of withdrawal until the pension is drawn. Revaluation in deferment is
statutory and since 2010 has been revalued on the Consumer Price Index ("CPI")
measure of inflation. Revaluation of pensions in payment is a blend of fixed
increases and inflationary increases depending on the relevant periods of
accrual of benefit. For pensions in payment, the inflationary increase is
currently based on the Retail Price Index ("RPI") measure of inflation or
based on Limited Price Indexation ("LPI") for certain defined periods of
service.
During 2012, Macfarlane Group PLC agreed with the Board of Trustees to amend
benefits for pensioner, deferred and active members in the Scheme by offering
a Pension Increase Exchange ("PIE") option to pensioner members and a PIE
option to all other members at retirement after 1 May 2012.
Balance sheet disclosures
The fair value of scheme investments, the present value of scheme liabilities
and expected rates of return are based on the provisional results of the
actuarial valuation as at 1 May 2020, updated to the year-end.
2022 2021
£000 £000
Investment class
Equities 20,287 26,402
Multi-asset diversified funds 12,674 29,113
Liability-driven investment funds 23,352 30,531
Secured property income fund 5,670 6,995
European loan fund 6,546 6,778
Other (cash and similar assets) 1,957 604
Fair value of Scheme investments 70,486 100,423
Present value of Scheme liabilities (60,287) (92,156)
Scheme surplus 10,199 8,267
The Trustees review the investments of the Scheme on a regular basis and
consult with the Company regarding any proposed changes to the investment
profile. Liability-Driven Investment Funds are intended to provide a match
of 100% against the impact of movements in inflation on pension liabilities
and against the impact of movements in interest-rates on pension
liabilities. During 2022 adjustments were made between investments to
maintain the overall allocations in line with the Trustees' strategic asset
allocation.
The ability to realise the Scheme's investments at, or close to, fair value
was considered when setting the investment strategy. 83% (2021: 86%) of the
Scheme's investments can be realised at fair value on a daily or weekly basis.
The remaining assets have monthly or quarterly liquidity, however, whilst
the income from these helps to meet the Scheme's cash flow needs, they are not
expected to require to be realised at short notice.
The present value of the Scheme liabilities is derived from cash flow
projections over a long period of time and is thus inherently uncertain.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
11. Pension scheme (continued)
The Scheme's liabilities were calculated on the following bases as required
under IAS 19:
Assumptions 2022 2021
Discount rate 4.80% 1.90%
Rate of increase in salaries 0.00% 0.00%
Inflation assumption (RPI) 3.40% 3.40%
Inflation assumption (CPI) 2.80% 2.90%
Life expectancy beyond normal retirement age of 65
Male currently aged 55 (years) 22.6 22.8
Female currently aged 55 (years) 24.2 24.4
Male currently aged 65 (years) 22.0 22.3
Female currently aged 65 (years) 23.4 23.6
2022 2021
Movement in scheme surplus/(deficit) £000 £000
At 1 January 8,267 (1,471)
Current service costs (42) (126)
Past service cost (curtailed due to closure of scheme/disposal of business)
(111) (333)
Employer contributions 1,991 1,992
Net finance income/(cost) (see note 4) 176 (7)
Remeasurement of pension scheme liability (82) 8,212
At 31 December 10,199 8,267
Funding
UK pension legislation requires that pension schemes are funded prudently.
Following the triennial actuarial valuation of the Scheme at 1 May 2020, the
Company agreed a new schedule of contributions with the Pension Scheme
Trustees, which assumed a recovery plan period of 4 years. The next
triennial actuarial valuation is due at 1 May 2023.
Sensitivity to key assumptions
The 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 results disclosed. 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:-
2022 2021
Assumptions £000 £000
Discount rate movement of +3.0% 14,101 28,740
Inflation rate movement of +0.25% (375) (765)
Mortality movement of +0.1 year in age rating 88 180
Positive figures reflect a reduction in the Scheme liabilities and therefore a
reduction in the Scheme deficit or increase in the Scheme surplus. 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.
The sensitivities shown reflect average movements in the assumptions in the
last three years. All information assumes that the average duration of
Scheme liabilities is twelve years.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
12. Deferred tax 2022 2021
£000 £000
At 1 January (7,453) (2,676)
Transfer to Corporation Tax - (168)
Acquisitions (387) (1,875)
Disposals - 372
Charged in income statement (see note 5) (298) (1,140)
Credited/(Charged) in other comprehensive income
Remeasurement of pension scheme 21 (2,054)
liability
- 88
Corporation tax rate change
At 31 December (8,117) (7,453)
Deferred tax assets
On accelerated capital allowances/timing differences 94 -
Corporation tax losses 11 19
Disclosed as deferred tax assets 105 19
Deferred tax liabilities
On accelerated capital allowances/timing differences (908) (338)
On retirement benefit obligations (2,551) (2,069)
On other intangible assets (4,763) (5,065)
Disclosed as deferred tax liabilities (8,222) (7,472)
At 31 December (8,117) (7,453)
13. Share capital 2022 2021
£000 £000
Allotted, issued and fully paid:
At 1 January 39,453 39,453
New shares issued 131 -
At 31 December 39,584 39,453
Share premium
At 1 January 13,148 13,148
New shares issued 425 -
At 31 December 13,573 13,148
The Company has one class of ordinary shares of 25p each, which carry no right
to fixed income. Each ordinary share carries one vote in any General Meeting
of the Company.
On 16 May 2022, the Company issued 525,000 ordinary shares of 25p at a value
of 106.00p to settle 2019 share awards under the Company's 2016 Performance
Share Plan.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2022
14. 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 2022 will be
disclosed in the Group's 2022 Annual Report and Accounts.
The directors are satisfied that there are no other related party transactions
occurring during the year which require disclosure.
15. Post balance sheet events
There are no post balance sheet events to be
disclosed.
16. Posting to shareholders and Annual General Meeting
The Annual Report and Accounts will be sent to shareholders on Friday 31 March
2023 and will be available to members of the public at the Company's
Registered Office from Friday 21 April 2023.
The Annual General Meeting will take place at 12 noon on Tuesday 9 May 2023.
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