REG - Macfarlane Group PLC - Final Results
24/02/2022 07:00
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RNS Number : 6386C Macfarlane Group PLC 24 February 2022
24 February 2022
MACFARLANE GROUP PLC
("MACFARLANE GROUP", "THE COMPANY", "THE GROUP")
ANNUAL RESULTS 2021
Strong growth delivers results ahead of market expectations.
Financial Highlights Restated(1)
2021 2020 Increase
£000 £000 %
Continuing operations
Revenue 264,465 210,227 26%
Operating profit before amortisation(2) 23,366 16,179 44%
Operating profit 20,055 13,659 47%
Profit before tax 18,665 12,433 50%
Continuing and discontinued(1) operations
Profit for the year 12,598 10,171 24%
Proposed full year dividend 3.20p 2.55p 25%
Basic earnings per share 7.98p 6.45p 24%
I am pleased to report that Macfarlane Group has performed strongly in the
year ended 31 December 2021. Our results are well ahead of the previous year
and better than market expectations.
In the face of challenging market conditions our team has shown great
commitment and dedication in servicing our customers and the Board wishes to
place on record its thanks for their outstanding performance in helping the
Group to continue its positive progress.
The key highlights of 2021 are set out below:
· Sales from continuing operations(1) grew by 26% versus 2020 to
£264.5m.
· Operating profit at £20.1m and operating profit before
amortisation(2) at £23.4m, both from continuing operations, increased by 47%
and 44% respectively.
· Profit for the year of £12.6m increased £2.4m or 24% compared to
2020.
· Basic and diluted earnings per share were 7.98p per share (2020:
6.45p per share) and 7.90p per share (2020: 6.42p per share) respectively.
· Packaging Distribution achieved strong growth in sales and an
improvement in operating profit before amortisation of 19% versus 2020.
· Manufacturing Operations delivered an encouraging recovery versus
2020 in both sales and operating profit before amortisation.
· GWP Holdings Limited ("GWP") and Carters Packaging (Cornwall) Limited
("Carters Packaging"), which were acquired in February and March 2021
respectively, have performed well.
· The Group sold its Labels(3) division in December 2021. Labels
generated a loss before tax of £0.9m (2020: Profit of £0.6m) after charging
goodwill impairment of £1.0m and costs of disposal of £0.3m. Labels has been
treated as a discontinued operation in the year.
· Net cash inflow from operating activities of £23.8m (2020: £23.3m)
reflects increased activity and continuing good management of working capital.
· Net bank funds(4) on 31 December 2021 was £2.5m, an increase of
£3.0m from 31 December 2020, including £12.2m of investment in the
acquisition of GWP and Carters Packaging and £5.2m(5) of net proceeds from
the sale of Labels. The Group is operating well within its existing bank
facility of £30.0m which runs until 31 December 2025.
· Pension scheme surplus of £8.3m at 31 December 2021 (31 December
2020 deficit of £1.5m). The improvement is due to continued contributions
from Macfarlane Group, an increase in the discount rate and growth in
investments during the year.
· The Board is proposing a final dividend of 2.33p per share (2020:
1.85p per share) which would take the total dividend for 2021 to 3.20p per
share (2020: 2.55p per share) up 25% on 2020.
Trading
Macfarlane Group achieved good sales growth from continuing operations in
2021, benefiting from the ongoing structural shift to e-commerce retail, the
recovery in certain industrial sectors which had been affected by Covid-19 in
2020 and the acquisitions of GWP and Carters Packaging. Despite ongoing
difficult operating conditions due to Covid-19, significant inflationary
pressure on input costs and supply shortages of some materials, the business
has produced a strong profit performance.
Packaging Distribution has grown sales through strong demand from existing
customers in the e-commerce retail and medical sectors and recovery in a
number of industrial sectors. However, demand from the aerospace, high
street retail and hospitality sectors has not yet recovered to pre-pandemic
levels. New business activity has increased significantly compared with 2020
and Carters Packaging has traded well since its acquisition in March 2021.
Manufacturing Operations has benefited from the acquisition of GWP, which is
performing ahead of expectations, and a strong recovery in the Packaging
Design and Manufacture business which returned to profit following the
restructuring actions that we took in H2 2020. The development of the
partnership with our Packaging Distribution business has played a key part in
the recovery of the Manufacturing Operations in 2021.
The Group sold its Labels business on 31 December 2021 to The Reflex Group
Limited, a well-established, privately owned UK company focused on the
manufacture of labels and flexible packaging. We believe the sale gives the
best opportunity for the Labels business to develop and allows the Group to
focus its resources on accelerating the growth of our protective packaging
distribution and manufacturing businesses.
Our effective management of operating cash in 2021 has enabled the business to
finance two good quality acquisitions through our existing bank facility. The
sale of Labels provides the Group with additional cash resources to invest in
the further development of the protective packaging businesses.
The pension scheme was in surplus at 31 December 2021 of £8.3m (2020: deficit
£1.5m).
Covid-19 Response
Throughout 2021, the Covid-19 pandemic has continued to impact the Group and
has presented significant challenges to the operations of the businesses.
However, in supporting our customers we have continually adapted to the
changing government guidance to ensure we provide a safe workplace for our
teams with particular focus on their health and well-being.
Environment, Social and Governance ("ESG")
The Board has always recognised the importance of ensuring ESG is prioritised
within the business and ESG is now a standing item on the Board agenda. A
comprehensive ESG action plan has been approved by the Board which will
clearly demonstrate our commitment to sustainability, effective customer,
employee, supplier and community engagement and governance.
In September 2021 Andrea Dunstan, the Chair of the Remuneration Committee,
retired from the Board and after an extensive search process we welcomed Aleen
Gulvanessian as a new non-Executive director to the Board in October 2021.
Aleen, who is the new Chair of the Remuneration Committee, has a strong
governance background and brings extensive commercial and legal experience to
the business.
In 2022 I will enter my 10th year of service on the Macfarlane Group Board and
as such cease to be seen as independent under the Corporate Governance code. I
have therefore given the Board notice of my intention to stand down this year
once a new Chair has been identified and a smooth transition ensured. Plans
for my succession are well advanced.
Proposed Dividend
The Board is proposing a final dividend of 2.33 pence per share, amounting to
a full year dividend of 3.20 pence per share, compared to the prior year
dividend of 2.55 pence per share. Subject to the approval of shareholders at
the Annual General Meeting on Tuesday 10 May 2022, the final dividend will be
paid on Thursday 2 June 2022 to those shareholders on the register at Friday
13 May 2022.
Outlook
We anticipate that 2022 will see ongoing inflationary pressure on input
prices, continuing supply constraints on most raw materials and operating
costs increasing due to staffing pressures. However, despite these challenges,
trading in the early months has been encouraging and the Board is confident
that, given the effectiveness of our strategy, the resilience of our business
model and the experience and commitment of our people, Macfarlane Group will
continue to deliver further growth in 2022.
Lord Macfarlane of Bearsden
It was with great sadness that we learned of the passing of our founder Lord
Macfarlane of Bearsden in November last year. Lord Macfarlane was the
driving force in building the Macfarlane Group between 1949 and 1999 when, as
Chairman, he retired from the Board. Since then, he was a constant
supportive presence and he is greatly missed.
(1) In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
(2) See page 21 for reconciliation of Alternative Performance Measure
operating profit before amortisation to operating profit.
(3) Macfarlane Labels Limited and its subsidiaries, Macfarlane Group
Ireland (Labels & Packaging) Limited and Macfarlane Group Sweden AB
(collectively "Labels").
(4) Alternative Performance Measure as defined in note 10.
(5) Gross proceeds of £6.1m offset by £0.6m of cash retained within
Labels at completion and £0.3m costs of disposal.
Further enquiries: Macfarlane Group Tel: 0141 333 9666
Stuart Paterson Chairman
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 900 people at 36 sites, principally in the UK, as well as in
Ireland 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
Packaging Distribution is the UK's leading specialist distributor of
protective packaging materials. Macfarlane operates a stock and serve supply
model from 27 Regional Distribution Centres ("RDCs") and 3 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
enables 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 sustainable packaging solutions, optimising
warehousing and transportation, reducing damages and returns and improving
packaging efficiency.
Packaging Distribution 2021 2020 2021
£000 £000 Growth
Revenue 239,508 201,739 19%
Cost of sales 161,896 136,177
Gross margin 77,612 65,562 18%
Operating expenses 57,915 49,054 18%
Operating profit before amortisation 19,697 16,508 19%
Amortisation 2,642 2,520
Operating Profit 17,055 13,988 22%
Packaging Distribution grew sales by 19% in 2021 due to continued strong
demand from customers in the e-commerce and medical sectors and some recovery
in the home & garden, automotive and electronics sectors which were
adversely impacted by Covid-19 in 2020. Sales to e-commerce retail companies
in 2021 represented 30% of sales (2020: 28%).
We grew new business by 9% in 2021 due primarily to the impact of Covid-19
restrictions on 2020 performance. However, this performance compares
favourably to the performance in 2019 pre Covid-19. Our customers increasingly
see the benefits of transacting with us online and this has resulted in a
growth in activity through our website: shop.macfarlanepackaging.com and
through our Simplicit-e electronic trading platform. In 2021, 44% of our
customers managed their transactions with us online.
The business has experienced significant increases in input prices in all
product categories throughout 2021. Against this backdrop, the gross margin in
Packaging Distribution has held up well at 32.4% (2020: 32.5%), through our
effectiveness in working with our customers to manage these input price
changes.
We continued to deliver the benefits from acquiring high quality packaging
distribution businesses and in March 2021 we completed the acquisition of
Carters Packaging based in Redruth, Cornwall.
During 2021 we made steady progress in extending our service into Europe to
support a number of our pan-European customers. Through the Group's subsidiary
company, based in the Netherlands, sales exited 2021 on an annual run-rate of
c£5m with sales in 2021 of £2.3m (2020: £1.1m).
There were several factors behind the increase in operating expenses, the most
significant being the impact of the acquisition, dilapidation costs related to
the North West of England property consolidation planned for 2022 (see Future
below), increased volumes of business, an increase in labour costs driven by
wage inflation and higher level of incentive payments to reward employees for
the strong performance of the business in 2021.
BUSINESS REVIEW
Packaging Distribution's operating profit at £17.1m grew 22% vs 2020
reflecting a 7.1% (2020: 6.9%) return on sales.
Future
Our plans for 2022 are focused on continuing to grow sales and improving
profitability through the following actions:
· Prioritise engagement with potential new customers in stable and
growing sectors such as e-commerce retail, medical, scientific, and
third-party logistics;
· Effectively manage the significant input price increases and supply
shortages being experienced across all product categories;
· Launch our new "Packaging Optimiser" to allow our sales teams to
better demonstrate our ability to add value for customers through our
"Significant Six" sales approach;
· Improve our engagement with existing and new customers with the
introduction of Microsoft Dynamics as our new Customer Relationship Management
platform;
· 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 our "Follow the Customer"
programme in Europe;
· Reduce operating costs through efficiency programmes in sales,
logistics and administration;
· Implement our first major site consolidation with the relocation of
our Wigan and Manchester RDCs to a new site at Middleton, north of Manchester;
· Maintain the focus on working capital management to facilitate future
investment and manage effectively the ongoing bad debt risk within the current
economic environment; and
· Supplement organic growth through progressing further high-quality
acquisitions.
Manufacturing Operations comprises our Packaging Design and Manufacture
business and GWP, acquired in February 2021. The Labels division included in
Manufacturing Operations in 2020 was sold in December 2021 and has been
classified as a discontinued operation (see below).
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 Restated*
2021 2020 2021
£000 £000 Growth
Revenue 24,957 8,488 194%
Cost of sales 13,102 4,223
Gross margin 11,855 4,265 178%
Operating expenses 8,186 4,594 78%
Operating profit/(loss) before amortisation 3,669 (329)
Amortisation 669 -
Operating profit/(loss) 3,000 (329)
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
BUSINESS REVIEW
Manufacturing Operations sales increased by 194% in 2021, including organic
growth of 16% (£1.4m) following a strong recovery in the automotive and
defence sectors supplemented by £15.1m of sales through the acquisition of
GWP. Combining the benefit of the acquisition of GWP with effective management
of the gross margin in the face of significant input price increases, and
control of overheads, operating profit before amortisation in 2021 is
significantly ahead of the same period in 2020.
Future
Priorities for Manufacturing Operations in 2022 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;
· Effectively manage the significant material price increases being
experienced across all product categories 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.
Discontinued Operations
On 31 December 2021, the Group sold its Labels businesses to Reflex for
£6.3m. Labels realised a loss before tax of £0.9m in 2021 (2020: profit
before tax £0.6m), after charging costs of disposal of £0.3m and goodwill
impairment of £1.0m. Labels grew sales in 2021 by 7% but operating profit
reduced by £0.3m due primarily to higher costs of serving customers outside
the UK and lower gross margins impacted by higher input costs.
Labels has been a long-standing part of the Macfarlane Group but being part of
Reflex, which is a £135m revenue business focused on the manufacturing of
labels and flexible packaging, offers the best opportunity for Labels' future
development. The proceeds from the sale will be strategically invested in the
continuing growth of the Group's protective packaging businesses.
Group
The Group has performed well in the face of extremely challenging market
conditions with the ongoing impact of the Covid-19 pandemic, significant
increases in input prices and supply shortages of some raw materials. Despite
these challenges the Group financial performance from continuing operations in
2021 has been resilient, with sales growth of 26% and an operating profit 47%
ahead of 2020.
Restated * Restated * Restated *
Revenue Operating Operating Revenue Operating profit/(loss) before amortisation Operating
profit before amortisation profit 2020 profit/(loss)
Group performance £000
2021
2021 £000 2021 2020 2020
£000 £000 £000 £000
Segment
Packaging Distribution 239,508 19,697 17,055 201,739 16,508 13,988
Manufacturing Operations 24,957 3,669 3,000 8,488 (329) (329)
Continuing operations 264,465 23,366 20,055 210,227 16,179 13,659
% of Revenue 8.8% 7.6% 7.7% 6.5%
Discontinued operations 21,220 372 372 19,802 710 710
Group Total 285,685 23,738 20,427 230,029 16,889 14,369
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
BUSINESS REVIEW
2022 Outlook
The Group has demonstrated in 2021 that it can deliver a strong financial
performance despite challenging market conditions and the impact of
Covid-19. With the sale of Labels, the Group is focused on the strategic
growth of its protective packaging businesses in the UK and Northern Europe.
The Group's businesses all have strong market positions with low customer
concentration and differentiated product and service offerings which give 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. Whilst we have experienced significant challenges in 2021, and there
remain uncertainties ahead, our strategy and business model have proved to be
resilient. We expect to deliver further growth in sales and profit in 2022.
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 complemented by 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.
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 2020. If the risk is shown as [é ê] the risk level has
increased or decreased respectively during 2021 and is being addressed
accordingly through mitigating actions by management.
The business has added Environmental Change as a new risk in 2021. This
reflects the changing nature of the markets the Group operates in, with
increased expectations from our stakeholders regarding how the Group mitigates
the effect of its operations on the environment and responds to wider
environmental concerns.
The business has also experienced continued impact from the Covid-19 pandemic
and Brexit during 2021.
Response to Covid-19 pandemic ("Covid-19")
The Group continues to respond to Covid-19 with the focus being on the safety
and wellbeing of our people, protecting our financial position and limiting
the interruption of service to our customers. Covid-19 was not classified as
a separate principal risk due to its pervasive effect across all the principal
risks and uncertainties. These uncertainties will remain for some time and
to date the Group has adapted well to the constantly changing conditions.
Response to Brexit
The new trading arrangement between the UK and the EU came into effect on 1
January 2021. Whilst there has been some disruption to the supply chain and
an increased administration burden, the impact on the Group has not been
significant - largely due to mitigation measures put in place. We continue to
monitor the impact of ongoing negotiations over the Northern Ireland protocol
and the full implementation of customs checks at ports which came into effect
from January 2022.
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 in 2021 has been stressed due to strong market demand
weaknesses in the economy as well as disruptive behaviour from competitors and
for packaging resulting in a shortage of certain products and extended lead
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 times from suppliers. With the support of strategic partners the Group has
Group's ability to continue to grow revenues. customer needs are met. The Group continues to invest in electronic trading continued to provide a good service to its customers in challenging
platforms to further enhance its service offering. circumstances. We expect these supply chain difficulties to continue into
We monitor this through Net Promoter Score, an annual customer satisfaction
2022.
survey and interaction with customers at our Innovation Lab. The Group maintains strong partnerships with key suppliers to ensure that a
broad range of products is available to respond to customers' requirements, During 2021 the Group has made a significant investment in a new Customer
including any changes in their environmental and sustainability priorities. Relationship Management system to support customer service teams in managing
the complex and changing needs of our customers in an increasingly competitive
environment. The full benefit of this investment is expected to be realised
from 2022 onwards.
Impact of environmental changes The Group has implemented an ESG working group to examine specifically how we Increased risk é
can reduce our impact on the environment.
Customers are increasingly focused on the environmental impacts of packaging,
New risk introduced in 2021.
changing their buying behaviours in response to climate and sustainability The working Group is focused on the measuring the CO2 footprint and setting
concerns. reduction targets for TCFD (Taskforce for Climate-related Financial The Group recognises the increased significance of our ESG obligations. Our
Disclosures). plans include actions to reduce our own carbon footprint, including the
Investors are looking to invest in companies that demonstrate strong
introduction of electric trucks to our fleet in 2022, as well as actions to
Environmental, Social and Governance (ESG) credentials. The Group has committed to the development of a transition plan towards support our customers on how to reduce their CO2 emissions, including the
net-zero, which is continually reviewed and adapted to latest demands and roll-out of our new 'packaging optimiser' tool.
There is increasing regulatory focus around reporting disclosures and new available technologies
requirements, such as the Plastic Tax being introduced from April 2022.
Regular reviews of our environmental strategy are to be carried out at Board
If the Group is not proactive and transparent in how it is responding to level to challenge performance against key milestones, as well as to ensure
environmental changes, this could lead to a loss of employees, customers and that priorities are aligned with stakeholder objectives.
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 increased significantly and continuously throughout 2021
manufacturer energy costs, with profitability sensitive to input price changes
primarily due to rising timber, paper and polymer prices. The business has
including currency fluctuations. Where possible, alternative supplier relationships are maintained to minimise robustly managed these challenges and gross margins have remained strong
supplier dependency. throughout 2021, reflecting the effort of our teams to mitigate these
The principal components are corrugated paper, polythene films, timber and
increases. We expect upward pressure in input prices to continue into 2022.
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 In addition, the Group is preparing for the introduction of the Plastics Tax
we pay to our suppliers. the impact of cost increases. in April 2022 with action plans being developed to minimise the impact on the
Group and our customers through redesign, substitution or reduction in use of
This risk is monitored through our procurement teams interacting with key The Group has a well-established supplier relationship management process the affected products.
suppliers and management regularly reviewing gross margin by customer. which is subject to periodic management review and auditing.
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 14 acquisitions since 2014, including two in 2021, all of
years. There is a risk that such acquisitions may not be available on
which continue to perform well. The Group has well-established due diligence
acceptable terms in the future. Having completed a number of acquisitions in recent years, the Group has and integration processes while only acquiring well established quality
well-established due diligence and integration processes and procedures. businesses which will perform well in the Group.
It is possible that acquisitions will not be successful due to the loss of key
people or customers following acquisition or acquired businesses not The Group's management information system enables effective monitoring of
performing at the level expected. This could potentially lead to impairment post-acquisition performance with earn-out mechanisms also mitigating risk in
of the carrying value of the related goodwill and other intangible assets. the post-acquisition period.
Execution risks around the failure to successfully integrate acquisitions Goodwill and other intangible assets are tested annually for impairment.
following conclusion of the earn-out period also exist.
Property The Group adopts a proactive approach to managing property costs and No change ç è
exposures.
The Group has a property portfolio comprising 2 owned sites and 43 leased
Our property consolidation strategy has continued during 2021. 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 three leases and there are
lease costs, dilapidations and fluctuations in value. the building to mitigate the financial impact. known future exits from another three existing operating sites. Provisions
have been established to cover the anticipated exit costs.
If this is not possible, rental voids are provided on vacant properties taking
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 introduced in response to Covid-19 have now become
potentially threatens the confidentiality, integrity and availability of the
the norm, with the Group adopting hybrid home/office flexibility for its
Group's data and IT systems. We engage the services of a cyber-security partner to perform regular employees. This is a feature within the Group's risk to cyber-security
penetration tests to assess potential vulnerabilities within our security attacks.
These attacks could also cause reputational damage and fines in the event of arrangements.
personal data being compromised.
The Group has continued to invest in prevention/detection software and
This is complemented by a program of cyber-security awareness training to education programmes to mitigate the risks of a cyber-security attacks.
ensure that all staff are aware of the potential threats caused by deliberate
and unauthorised attempts to gain access to our systems and data. The frequency and sophistication of cyber-attacks is anticipated to continue
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 £30 million Reduced risk ê
with 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 2021 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. The Group's £30m committed facility with Lloyds Banking Group PLC was
extended until December 2025.
The Group's borrowing facility comprises a committed facility of up to Compliance with covenants is monitored monthly and sensitivity analysis is
£30m. This includes requirements to comply with specified covenants, with a applied to forecasts to assess the impact on covenant compliance.
breach potentially resulting in Group borrowings being subject to more onerous
conditions.
Working capital Credit risk is controlled by applying rigour to the management of trade No change ç è
receivables by our Credit Manager and the credit control team and is subject
The Group has a significant investment in working capital in the form of trade to additional scrutiny from the Group Finance Director. Bad debt write-offs in 2021 have reduced from 2020 and this is reflected in
receivables and inventories. There is a risk that this investment is not
the Expected Credit Loss allowance being decreased accordingly.
fully recovered. All aged debts are assessed, and appropriate provisions are made using the
Expected Credit Loss model. However, there continues to be uncertainty over the impact of the withdrawal
of Covid-19 government support programmes and the ongoing effect of continuing
Inventory levels and order patterns are regularly reviewed and risks arising Covid-19 restrictions on the wider economy and our customers.
from holding bespoke stocks are managed by obtaining order cover from
customers. Aged stock over 6 months old has increased in 2021 due to challenging supply
chain conditions. Extended manufacturing lead times and a shortage of some raw
materials has required the Group to increase inventories to maintain good
service to its 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 2021 estimated the scheme surplus to be £8.3m, compared to a deficit
scheme's liabilities and mortality assumptions. pensioners in both the level of pension at retirement and the rate of future of £1.5m at 31 December 2020.
increases.
Small changes in these assumptions could cause significant movements in the
Deficit repair contributions reduced from £3.0m to £1.3m per annum following
pension surplus/deficit. The investment profile is regularly reviewed to ensure continued matching of the triennial actuarial valuation at 1 May 2020. This reflects continued
investments with the scheme's liability profile. progress in reducing the deficit.
There are a number of other risks that we manage which are not considered key
risks. In addition, the Group is subject to the impact of general economic
conditions including any economic uncertainty, the competitive environment,
compliance with legislation and risks associated with business continuity.
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 on pages 8 to 13.
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 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 2021, despite the ongoing Covid-19 pandemic and
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
5% 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 would forecast
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 2022 and 2024, 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.30%
reduction in sales in 2022 compared to 2021 could lead to a breach of
covenants in the period under review. However, in this scenario, management
would also be able to take 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 Chairman's Statement and the Business Review on pages 1 to 14 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 2021. Certain
parts of the full Annual Report are not included within this announcement.
The Directors of Macfarlane Group PLC are
S.R. Paterson Chairman
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
A. Gulvanessian Non-Executive Director (from 1 October
2021)
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
24 February
2022
24 February 2022
Macfarlane Group PLC
Consolidated income statement
For the year ended 31 December 2021
Note Restated*
2021 2020
£000 £000
Continuing operations
Revenue 3 264,465 210,227
Cost of sales (174,998) (140,400)
Gross profit 89,467 69,827
Distribution costs (8,651) (7,162)
Administrative expenses (60,761) (49,006)
Operating profit 3 20,055 13,659
Finance costs 4 (1,390) (1,226)
Profit before tax 18,665 12,433
Tax 5 (4,917) (2,696)
Profit for the year from continuing operations 8 13,748 9,737
Discontinued operations
(Loss)/Profit from discontinued operations 6 (1,150) 434
Profit for the year 12,598 10,171
Earnings per share from continuing operations
Basic 8 8.71p 6.17p
Diluted 8 8.62p 6.14p
Earnings per share from continuing and discontinued operations
Basic 8 7.98p 6.45p
Diluted 8 7.90p 6.42p
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Note £000 £000
Items that may be reclassified to profit or loss
Foreign currency translation differences - foreign operations (120) 60
Items that will not be reclassified to profit or loss
Remeasurement of pension scheme liability 11 8,212 2,112
Tax recognised in other comprehensive income
Tax on remeasurement of pension scheme 12 (2,054) (401)
liability
88 129
Corporation tax rate change on deferred tax
Other comprehensive income for the year, net of tax 6,126 1,900
Profit for the year 12,598 10,171
Total comprehensive income for the year 18,724 12,071
Macfarlane Group PLC
Consolidated statement of changes in equity
For the year ended 31 December 2021
Restated* Restated*
Share Share Revaluation Translation Retained Total
Capital Premium Reserve Reserve Earnings £000
Note £000 £000 £000 £000 £000
At 1 January 2020 39,453 13,148 70 231 15,835 68,737
Comprehensive income
Profit for the year - - - - 10,171 10,171
Foreign currency translation differences
- - - 60 - 60
Remeasurement of pension liability
11 - - - - 2,112 2,112
Tax on remeasurement of pension liability
12 - - - - (401) (401)
Corporation tax rate change on deferred tax
12 - - - - 129 129
Total comprehensive income - - - 60 12,011 12,071
Transactions with shareholders
Dividends 7 - - - - (1,105) (1,105)
Credit for share-based payments - - - - 75 75
Total transactions with shareholders - - - - (1,030) (1.030)
At 31 December 2020 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
Macfarlane Group PLC
Consolidated balance sheet at 31 December 2021
Note 2021 2020
£000 £000
Non-current assets
Goodwill and other intangible assets 74,902 60,598
Property, plant and equipment 6,101 8,640
Right of Use assets 34,718 28,584
Other receivables 35 35
Deferred tax assets 12 19 396
Retirement benefit obligations 11 8,267 -
Total non-current assets 124,042 98,253
Current assets
Inventories 21,269 15,858
Trade and other receivables 58,541 51,371
Cash and cash equivalents 10 12,315 7,228
Total current assets 92,125 74,457
Total assets 3 216,167 172,710
Current liabilities
Trade and other payables 60,975 47,755
Provisions 1,730 1,834
Current tax payable 771 1,731
Lease liabilities 10 6,364 5,784
Bank borrowings 10 9,840 7,766
Total current liabilities 79,680 64,870
Net current assets 12,445 9,587
Non-current liabilities
Retirement benefit obligations 11 - 1,471
Deferred tax liabilities 12 7,472 3,072
Trade and other payables 3,695 19
Provisions 1,848 592
Lease liabilities 10 28,578 22,908
Total non-current liabilities 41,593 28,062
Total liabilities 3 121,273 92,932
Net assets 94,894 79,778
Equity
Share capital 13 39,453 39,453
Share premium 13 13,148 13,148
Revaluation reserve 70 70
Translation reserve 171 291
Retained earnings 42,052 26,816
Total equity 3 94,894 79,778
Macfarlane Group PLC
Consolidated cash flow statement
For the year ended 31 December 2021
Note Restated*
2021 2020
£000 £000
Profit/(loss) before tax from:
Continued operations 18,665 12,433
Discontinued operations (938) 569
Total Operations 17,727 13,002
Adjustments for:
Amortisation of intangible assets 3,311 2,520
Impairment of goodwill in discontinued operations 987 -
Depreciation of property, plant and equipment and ROU assets 9,271 8,459
Loss on disposal of property, plant and equipment 43 30
Loss on disposal of subsidiaries 6 232 -
Share-based payments 685 75
Finance costs 1,390 1,342
Operating cash flows before movements in working capital 33,646 25,428
(Increase)/decrease in inventories (4,848) 161
(Increase)/decrease in receivables (7,892) 955
Increase in payables 8,905 965
Increase in provisions 1,884 1,766
Adjustment for pension scheme funding (1,533) (2,981)
Cash generated by operations 30,162 26,294
Income taxes paid (4,975) (1,728)
Interest paid (1,383) (1,243)
Cash inflow from operating activities 23,804 23,323
Investing activities
Acquisitions, net of cash acquired 9 (12,238) (2,661)
Proceeds from sale of subsidiaries 6 5,212 -
Proceeds on disposal of property, plant and equipment 199 102
Purchases of property, plant and equipment (2,132) (804)
Cash outflow from investing activities (8,959) (3,363)
Financing activities
Dividends paid 7 (4,293) (1,105)
Repayment on bank borrowing facility 3,889 (10,225)
Repayments of leases (7,539) (6,719)
Cash outflow from financing activities (7,943) (18,049)
Net increase in cash and cash equivalents 6,902 1,911
Cash and cash equivalents at beginning of year 5,221 3,310
Cash and cash equivalents at end of year 12,123 5,221
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
2021 2020
Reconciliation to consolidated cash flow statement £000 £000
Cash and cash equivalents per the consolidation balance sheet 10 12,315 7,228
Bank overdraft (192) (2,007)
Balances per consolidated cash flow statement 12,123 5,221
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 2021
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 2021 and 2020.
The financial statements for 2021 were approved by the Board of Directors on
24 February 2022. The auditor's report on the statutory financial statements
for the year ended 31 December 2021 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 2020 is derived from the statutory accounts for
2020 which have been delivered to the registrar of companies. The auditor
has reported on the 2020 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
pages 1 to 15.
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 page 14.
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 2021.
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. No significant judgements have been made
in the current or prior year.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
2. Basis of preparation (continued)
Key sources of estimation uncertainty (continued)
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, inflation rate and mortality assumptions, 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.
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 1.37% to 2.43% above the historic loss
rates observed would lead to an increase of £560,000 in the provision
required.
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.
Restated *
Year to 31 Year to 31
December December
2021 2020
Continuing operations £000 £000
Operating profit before amortisation 23,366 16,179
Customer relationships/brand values amortisation (3,311) (2,520)
Operating profit 20,055 13,659
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
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 2021
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 91% of Group revenue and 85% 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.
Restated*
Continuing operations 2021 2020
£000 £000
Group segment -Revenue
Packaging Distribution 239,508 201,739
Manufacturing Operations 28,527 11,237
Inter-segment revenue Manufacturing Operations (3,570) (2,749)
External revenue 264,465 210,227
Packaging Distribution 19,697 16,508
Manufacturing Operations 3,669 (329)
Operating profit before amortisation 23,366 16,179
Packaging Distribution 17,055 13,988
Manufacturing Operations 3,000 (329)
Operating profit 20,055 13,659
Finance costs (1,390) (1,226)
Profit before tax 18,665 12,433
Tax (4,917) (2,696)
Profit for the year from continuing operations 13,748 9,737
(Loss)/Profit for the year from discontinued operations (1,150) 434
Profit for the year 12,598 10,171
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
Assets Liabilities Net assets
£000 £000 £000
Group segments
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
Restated* Restated* Restated*
Assets Liabilities Net assets
£000 £000 £000
Packaging Distribution 152,272 (80,476) 71,796
Manufacturing Operations 5,482 (3,100) 2,382
Net assets 2020 157,754 (83,576) 74,178
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
3. Segmental information (continued)
2021 2020
£000 £000
Packaging Distribution
Revenue 239,508 201,739
Cost of sales (161,896) (136,177)
Gross profit 77,612 65,562
Net operating expenses (57,915) (49,054)
Operating profit before amortisation 19,697 16,508
Amortisation (2,642) (2,520)
Operating Profit 17,055 13,988
Manufacturing Operations Restated*
2021 2020
£000 £000
Revenue 24,957 8,488
Cost of sales (13,102) (4,223)
Gross profit 11,855 4,265
Net operating expenses (8,186) (4,594)
Operating profit/(loss) before amortisation 3,669 (329)
Amortisation (669) -
Operating profit/(loss) 3,000 (329)
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
4. Finance costs Restated*
2021 2020
£000 £000
Interest on bank borrowings 414 455
Interest on leases 969 681
Net interest expense on retirement benefit obligation (see note 10) 7 90
Total finance costs from continuing operations 1,390 1,226
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
5. Tax 2021 2020
£000 £000
Current tax
United Kingdom corporation tax at 19.0% 3,672 2,343
Foreign tax 245 121
Adjustments in respect of prior years 72 (90)
Total current tax 3,989 2,374
Deferred tax
Current year 1,140 457
Total deferred tax (see note 11) 1,140 457
Total tax charge 5,129 2,831
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:-
2021 2020
£000 £000
Profit before tax from continuing operations 18,665 12,433
(Loss)/profit before tax from discontinued operations (938) 569
Profit before tax from total operations 17,727 13,002
Tax on profit at 19.0% 3,368 2,470
Factors affecting tax charge for the year:-
Change in rate for deferred tax from 19% to 25% 1,282 367
Non-deductible expenses 408 107
Difference on overseas tax rates (37) (18)
Utilisation of tax losses not previously recognised - (58)
Changes in estimates related to prior years 108 (37)
Tax charge for the year 5,129 2,831
Tax attributable to continuing operations 4,917 2,696
Tax attributable to discontinued operations 212 135
Tax charge for the year 5,129 2,831
Effective rate of tax for the year 28.9% 21.8%
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
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 will be 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)/profit from discontinued operations for the year, were
as follows:
2021 2020
£000 £000
Revenue 21,220 19,802
Expenses (22,158) (19,233)
(Loss)/profit before tax (938) 569
Attributable tax expense (212) (135)
(Loss)/profit after tax (1,150) 434
During the year Macfarlane Labels consumed £3,000 (2020: contributed
£84,000) of the Group's net operating cash flows, paid £512,000 (2020:
£193,000) in respect of investing activities and received £40,000 (2020:
£953,000) in respect of financing activities.
The loss for the year of £1,150,000 is after charging goodwill impairment of
£987,000 and costs of disposal of £283,000.
£6,085,000 of the estimated total gross proceeds of £6,338,000 was received
on 31 December 2021. The final total gross proceeds are subject to
adjustment following finalisation and agreement of the net asset value of
Macfarlane Labels at the completion date.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
6. Discontinued Operations (continued)
Details of the disposal proceeds in the cash flow statement on page 19 are set
out below:
£000
Estimated total consideration 6,338
Estimated deferred consideration (253)
Consideration received 6,085
Cash retained by acquirer (590)
Costs of disposal (283)
Proceeds from disposal 5,212
Goodwill 372
Tangible assets (inc ROU assets) 5,158
Inventories 1,402
Trade and other receivables 4,291
Cash and cash equivalents 590
Trade and other payables (2,825)
Provisions (732)
Current tax liabilities (234)
Lease liabilities (1,363)
Deferred tax liabilities (372)
Net assets disposed 6,287
Estimated total consideration 6,338
Net assets disposed (6,287)
Costs of disposal (283)
Loss on disposal (232)
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
7. Dividends 2021 2020
£000 £000
Amounts recognised as distributions to equity holders
in the year:
Final dividend for the year ended 31 December 2020 of 1.85 per
share (2019 - Nil p per share)
2,920 -
Interim dividend for the year ended 31 December 2021 of 0.87p per
share
(2020 - 0.70p per share) 1,373 1,105
4,293 1,105
A proposed dividend of 2.33p per share will be paid on 2 June 2022 to those
shareholders on the register at 13 May 2022. This is subject to approval by
shareholders at the Annual General Meeting on 10 May 2022 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:
Restated*
2021 2020
£000 £000
Earnings for the purposes of earnings per share
Profit for the year from continuing operations 13,748 9,737
(Loss)/Profit from discontinued operations (1,150) 434
Profit for the year from continuing and discontinued operations 12,598 10,171
Number of shares in issue for the purposes of calculating basic and diluted 2021 2020
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 157,812 157,812
Effect of Long-Term Incentive Plan awards in issue 1,627 703
Weighted average number of shares in issue for the purposes of calculating
diluted earnings per share
159,439 158,515
Basic Earnings per share from continuing operations 8.71p 6.17p
Diluted Earnings per share from continuing operations 8.62p 6.14p
Basic Earnings per share from discontinued operations (0.73)p 0.28p
Diluted Earnings per share from discontinued operations (0.72)p 0.27p
Basic Earnings per share from continuing and discontinued operations 7.98p 6.45p
Diluted Earnings per share from continuing and discontinued operations 7.90p 6.42p
* In accordance with IFRS5 2020 has been restated to reflect the result
of the Labels division, sold on 31 December 2021, as a discontinued operation.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
9. Acquisitions
On 26 February 2021, Macfarlane Group UK Limited ("MGUK") acquired 100% of GWP
Holdings Limited ("GWP"), for a maximum consideration, excluding cash and bank
balances acquired, of £15.1m. £10.0m was paid in cash on acquisition, in
addition to the cash and bank balances retained by MGUK, and the deferred
consideration of £5.1m is payable in the first quarters of 2022 and 2023,
subject to certain trading targets being met in the two twelve-month periods
ending on 28 February 2022 and 2023 respectively. On 31 March 2021, MGUK
acquired 100% of Carters Packaging (Cornwall) Limited ("Carters Packaging"),
for a maximum consideration of £4.5m, excluding cash and bank balances
acquired. £3.0m was paid in cash on acquisition, in addition to the cash
and bank balances retained by MGUK, and the deferred consideration of £1.5m
is payable in the second quarters of 2022 and 2023, subject to certain trading
targets being met in the two twelve-month periods ending on 31 March 2022 and
2023 respectively. On 6 January 2020, the Group's subsidiary, MGUK acquired
the business, trade and assets of Armagrip, a packaging distributor in Durham,
for a consideration of approximately £0.9m, paid in cash on acquisition.
Contingent considerations are recognised as a liability in trade and other
payables and are remeasured to fair value of £6.6m at the balance sheet date
based on a range of outcomes between £Nil and £6.6m. Trading in the
post-acquisition period supports the remeasured value of £6.6m.
The impact of the acquisition of GWP on 2021 results was revenue for the year
of £15.1m and profit of £2.1m. If the GWP acquisition had been completed
on the first day of 2021, revenues for the year would have been £18.1m and
profit would have been £2.5m. The impact of the acquisition of Carters on
2021 results was revenue for the year of £5.1m and profit of £0.4m. If the
Carters acquisition had been completed on the first day of 2021, revenues for
the year would have been £6.8m and profit would have been £0.5m.
Carters Packaging and Armagrip are packaging distributors, accounted for in
the Packaging Distribution segment. Goodwill arising 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. GWP is a
packaging manufacturer, accounted for in the Manufacturing Operations
segment. Goodwill arising is attributable to the anticipated future
profitability of the manufacture of the Group's product ranges in the UK and
anticipated operating synergies from future combinations of activities within
the existing Manufacturing Operations.
For the purposes of the Group financial statements, GWP and Carters converted
from FRS 102 to IFRS, with the only change being the impact of IFRS 16
'Leases' on ROU assets and lease liabilities as incorporated into the fair
values noted below.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
9. Acquisitions (continued)
Fair values assigned to net assets acquired and consideration paid and payable
are set out below:-
Carters
GWP Packaging 2021 2020
£000 £000 £000 £000
Net assets acquired
Other intangible assets 7,505 1,977 9,482 291
Property, plant and equipment 3,560 998 4,558 -
Inventories 1,125 840 1,965 206
Trade and other receivables 2,319 997 3,316 282
Cash and bank balances 3,751 126 3,877 -
Trade and other payables (3,252) (896) (4,148) -
Current tax liabilities (302) (125) (427) -
Lease liabilities (2,562) (938) (3,500) -
Deferred tax liabilities (see note 11) (1,492) (383) (1,875) (55)
Net assets acquired 10,652 2,596 13,248 724
Goodwill arising on acquisition 7,463 1,999 9,492 164
Total consideration 18,145 4,595 22,740 888
Contingent consideration on acquisitions
Current year (5,125) (1,500) (6,625) -
Prior years - - - 1,773
Cash consideration 13,020 3,095 16,115 2,661
Net cash outflow arising on acquisition
Cash consideration (13,020) (3,095) (16,115) (2,661)
Cash and bank balances acquired 3,751 126 3,877 -
Net cash outflow (9,269) (2,969) (12,238) (2,661)
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
10. Analysis of changes in net debt
Cash &cash Bank Lease Total
equivalents borrowing liabilities debt
£000 £000 £000 £000
At 1 January 2021 7,228 (7,766) (28,692) (29,230)
Cash movements 5,087 (2,074) 7,539 10,552
Non-cash movements
New leases - - (9,103) (9,103)
Acquisitions - - (3,500) (3,500)
Disposal - - 1,363 1,363
Exchange movements - - 126 126
Lease modifications - - (2,675) (2,675)
At 31 December 2021 12,315 (9,840) (34,942) (32,467)
Net bank funds 2021 12,315 (9,840) 2,475
Net bank debt 2020 7,228 (7,766) (538)
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 certain
active and 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 is
working with the trustees on a Flexible Apportionment Arrangement in relation
to Macfarlane Labels Limited's cessation as a sponsoring employer.
The Scheme is administered by a separate Board of Trustees composed of
employer-nominated representatives and member-nominated Trustees and is
legally separate from the Group. The assets of the Scheme 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 day-to-day administration of benefits. The Scheme was closed to new
entrants during 2002. 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 and as a result no further salary inflation applies
for active members who remained in the Scheme. Active members' benefits also
include life assurance cover, albeit the payment of these benefits is at the
discretion of the Scheme's Trustees.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
11. Pension scheme (continued)
On withdrawing from 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 defined benefit
pension scheme by offering a Pension Increase Exchange ("PIE") option for
deferred and active 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.
2021 2020
£000 £000
Investment class
Equities 26,402 22,936
Multi-asset diversified funds 29,113 31,559
Liability-driven investment funds 30,531 31,463
Secured property income fund 6,995 6,254
European loan fund 6,778 6,493
Other (cash and similar assets) 604 725
Fair value of Scheme investments 100,423 99,430
Present value of Scheme liabilities (92,156) (100,901)
Scheme surplus/(deficit) 8,267 (1,471)
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 a match of 85% against the impact of movements in interest-rates on
pension liabilities. During 2021 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. 86% (2020: 87%) 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 2021
11. Pension scheme (continued)
The Scheme's liabilities were calculated on the following bases as required
under IAS 19:
Assumptions 2021 2020
Discount rate 1.90% 1.35%
Rate of increase in salaries 0.00% 0.00%
Inflation assumption (RPI) 3.40% 3.00%
Inflation assumption (CPI) 2.90% 2.50%
Life expectancy beyond normal retirement age of 65
Male currently aged 55 (years) 22.8 22.8
Female currently aged 55 (years) 24.4 24.3
Male currently aged 65 (years) 22.3 22.2
Female currently aged 65 (years) 23.6 23.5
2021 2020
Movement in scheme surplus/(deficit) £000 £000
At 1 January (1,471) (6,465)
Current service costs (126) (143)
Past service costs for GMP equalisation - (87)
Past service cost (curtailed due to disposal of business) (333) -
Employer contributions 1,992 3,211
Net finance cost (see note 4) (7) (99)
Remeasurement of pension scheme liability 8,212 2,112
At 31 December 8,267 (1,471)
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:-
2021 2020
Assumptions £000 £000
Discount rate movement of +0.6% 8,845 9,684
Inflation rate movement of +0.1% (470) (515)
Mortality movement of +0.1 year in age rating 277 303
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 seventeen years.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
12. Deferred tax 2021 2020
£000 £000
At 1 January (2,676) (1,892)
Transfer to Corporation Tax (168) (168)
Acquisitions (1,875) (55)
Disposals 372 -
Charged in income statement (see note 5) (1,140) (457)
(Charged)/credited in other comprehensive income
Remeasurement of pension scheme (2,054) (401)
liability
88 129
Corporation tax rate change
At 31 December (7,453) (2,676)
Deferred tax assets
On retirement benefit obligations - 279
Corporation tax losses 19 117
Disclosed as deferred tax assets 19 396
Deferred tax liabilities
On accelerated capital allowances/timing differences (338) (196)
On retirement benefit obligations (2,069) -
On other intangible assets (5,065) (2,876)
Disclosed as deferred tax liabilities (7,472) (3,072)
At 31 December (7,453) (2,676)
13. Share capital 2021 2020
£000 £000
Allotted, issued and fully paid:
At 1 January 39,453 39,453
At 31 December 39,453 39,453
Share premium
At 1 January 13,148 13,148
At 31 December 13,148 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.
Macfarlane Group PLC
Notes to the financial information
For the year ended 31 December 2021
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 2021 will be
disclosed in the Group's 2021 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 1 April
2022 and will be available to members of the public at the Company's
Registered Office from Friday 22 April 2022.
The Annual General Meeting will take place at 12 noon on Tuesday 10 May 2022.
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