Macfarlane Grp. Regulatory News (MACF)

28 Mar 2006 07:01

Macfarlane Group PLC28 March 2006 28 March 2006 MACFARLANE GROUP RETURNS TO PROFITABILITY Macfarlane Group announces a profit for the year of £3.4m All businesses showing improvement over 2004 Bank borrowings significantly reduced Intention to restore regular dividend payments Sales growth of 3.7% during 2005 from continuing operations Strong platform for growth, with all businesses having capacity for furtherperformance improvements Archie Hunter, Chairman of Macfarlane Group PLC today said:- "I am very glad to report that after four years of losses, Macfarlane Group hasreturned to profit in 2005.After trading losses of £(10.4) million in 2003 * and £ (2.4) million in 2004 **we have recorded a trading profit of £ 2.6 million in 2005 ** Earnings per share from all businesses in 2005 were 3.01p and group turnoverfrom continuing businesses has increased in the year by £5 million to £127million. The turnaround in trading and asset disposals has had the expected positiveimpact on our cash position. The Group generated cash of £7 million in 2005 andas a result there has been further significant reduction in group borrowings,which stood at £6 million at 31 December 2005 compared to a high point of £32million at 30 September 2003. The Board anticipates further cash generation fromtrading in 2006. All of this has been achieved by disciplined executive action to a demandingplan set by the Board two years ago. The platform has now been created forfurther profitable development and the payment of dividends to our shareholders. Trading The results improvement has been achieved in the face of a difficult market forPackaging Distribution in the UK. The highlights have been the retention ofmargins and the return to profitability. The drive for profitable growth is nowour priority. Future sales growth in this business should be accompanied bystrong profit generation given the levels of operational gearing in our UK widenetwork. In 2005, within our Manufacturing Operations, our Labels business had to respondto increasingly demanding customer requirements. Significant raw material priceincreases had an inevitable impact on our Plastics business, which showedimprovements but continued to be loss making. The Group's operations inCalifornia and Mexico returned to profit in 2005. They show good potential withstrong customer and supplier relationships. Both our UK Packaging Manufacturinglocations produced profits in 2005 and further improvement is expected thisyear. In line with the Group's strategy to concentrate on and develop its corebusinesses, Macfarlane Group announced an agreement in January 2006 to sell itsHungarian packaging manufacture and assembly operation. The Directors estimatethat the disposal will produce a realised gain of £0.9 million in the financialyear to 31 December 2006. More detailed comments on trading are set out in the operating review, followingmy statement. International Financial Reporting Standards ("IFRSs") These are the first annual accounts requiring to be prepared in line with IFRSs.These new standards have had a significant impact on the balance sheet. In common with many companies we had to incorporate a net pension scheme deficitin the balance sheet, which at 31 December 2005 amounted to £16 million, net ofattributable deferred taxation of £7 million. Without taking action, theincorporation of this deficit would have prevented the payment of dividends bythe company in the short-term. In 2005 therefore the Board sought and receivedthe agreement of shareholders and the court to restructure the company's capitalbase and the effect of the restructuring is shown in the parent company balancesheet. I would like to emphasise that it is out of the distributable reserves ofthe parent company that dividends are paid to shareholders and at 31 December2005, these amounted to £4.4 million. A plan of payments to fund the deficit over future years has been agreed withthe Trustees of the pension scheme. The Board is considering what further stepsshould be taken to address the pension deficit and mitigate the future effect ofpensions on the Group's distributable reserves. Cash and Dividends For the past two years the Board has been clear that alongside the restorationof profitable trading, a significant reduction in Group borrowings was apriority. With these objectives now realised, this allows the Board to addressthe establishment of an appropriate pattern of dividend payment to ourshareholders. The Board believes that shareholders can expect to hear now of theBoard's intentions in this regard. Subject to continued satisfactory trading, the Board plans to establish thepayment of an interim dividend in October of each year and a final dividend inJune each year, following the Annual General Meeting. In my statement dated 6September 2005, I indicated that no further dividend would be declared inrespect of 2005. In respect of 2006, the Board's current intention is that thedividend should be at the rate of 2p per share, 1p for each of the interim andfinal dividend. However in view of the interval since the last dividend paymentin September last year, the Board intends acceleration of the 2006 interimpayment from October to June 2006, with the final dividend of 1p being declaredand approved by shareholders at the Annual General Meeting in June 2007. The Board intends to present a special resolution to shareholders at theforthcoming AGM to restore the authority to buy-back shares of the company inthe market. The Board has no present intention to use this authority but webelieve that it is now appropriate for the Company to have the authority in casespecific circumstances develop, where it would be in the best interests ofshareholders for the Company to purchase its own shares. If passed, it is theintention of the Board that this authority would be used sparingly. Future Prospects I am glad to report a positive start to 2006 and the Board anticipates for thefull year a significant advance in profits over 2005. Our objectives for 2006 are profitable growth in our major businesses. We intendto achieve this by playing to our strengths. Our Packaging Distribution businessis the UK leader, almost three times the size of our nearest competitor. Weintend to use that strength to further develop our presence, which we estimatecurrently to be about 10% of the UK market. In each of our other businesses wehave created opportunities and we plan to take advantage of them. Having come through a most difficult period the challenge facing our staff isnow a very different one. Through their efforts, the reputation and standing ofMacfarlane Group has been very significantly restored. The platform we asked forhas been created. The challenge will not diminish but it is one that is nowexciting and uplifting. On behalf of the Board I thank them all for what hasbeen achieved. I am confident we have in the business the leadership and the determination thatwe need." Further information: Archie S. Hunter Chairman 0141 333 9666 Peter D. Atkinson Chief Executive 0141 333 9666 John Love Finance Director 0141 333 9666 * Loss from continuing and discontinued operations per UK GAAP** Profit/(loss) from continuing and discontinued trading operations Operating review Revenue Revenue Result Result 2005 2004 2005 2004Group Segment £000 £000 £000 £000 Packaging Distribution 73,915 74,095 661 (769)Manufacturing Operations 53,332 48,610 2,267 864 -------- -------- -------- -------- Continuing activities 127,247 122,705 2,928 95Discontinued activities (ManufacturingOperations) 3,618 4,634 750 (845) -------- -------- -------- -------- 130,865 127,339 3,678 (750) ======== ======== Net interest payable (1,054) (1,678) -------- -------- Profit/(loss) from continuing &discontinued trading operations 2,624 (2,428)Gain on disposal of properties 1,048 3,566Loss on disposal of discontinuedoperations - (1,400) -------- -------- Profit/(loss) before taxation 3,672 (262) Tax Continuing activities (161) 26Discontinued activities (126) - -------- -------- Profit/(loss) for the year 3,385 (236) ======== ======== Our objective in 2005 was to return Macfarlane Group to profitability followingfour years of losses. The results for 2005 show the Group recording profits fromtrading operations of £2.6 million, an improvement of £5.1 million on theprevious year. The return to profitability combined with good cash generationand lower levels of debt reflect favourably on the actions we have taken acrossall Group businesses to grow sales, improve margins, lower costs and increaseproductivity. All businesses within the Group, with the exception of our Plastics business inIreland, were profitable in 2005. The return to profitability was achieveddespite unfavourable market conditions in the majority of the markets in whichwe operate and increasing cost pressures on raw materials, fuel and energy.We have demonstrated in 2005 our ability to implement the relevant action plansto return Macfarlane Group to profitability and a solid foundation has now beenestablished. The focus of our plans for 2006 and beyond is to build on this baseand grow the business both organically and through acquisition. Packaging Distribution The Macfarlane Packaging Distribution business is the leading UK distributor ofa comprehensive range of packaging consumable products. In a highly fragmentedmarket, Macfarlane currently has a 10% market share and through its 15 RegionalDistribution Centres (RDCs) supplies customers on a local, regional and nationalbasis. The business enables customers to cost effectively package their productsby providing them with a comprehensive product range, single source supply,just-in-time delivery and tailored stock management programmes. In 2005 Macfarlane Packaging Distribution recorded a profit of £0.7m, animprovement of £1.4m on the previous year. There were a number of factors thatcontributed to the improvement in results:- • Although sales revenue was flat on 2004, our 2005 sales performance from the top 10 RDCs showed 5.3% growth versus the previous year in a market that by common consent in 2005 was at best flat; • In 2005 our On-Time-In-Full ("OTIF") deliveries averaged 92% compared with 85% in 2004 and only 71% in 2003. This clearly demonstrates the progress we are making in improving the service to our customers; • In 2005 we increased product range penetration in our existing customer base to an average 8.2 lines per customer compared with 8.0 in 2004 and 7.0 in 2003; • During 2005 we opened 2,875 new customers, an increase of 12 % vs. 2004; • We commenced in 2005 a programme to rationalise our supplier base to more cost-effectively source products. Our current supplier base consists of 670 companies, a reduction of 90 vs. 2004; • Our headcount in 2005 stabilised at 400 and our overhead to sales ratio reduced by 1.8% from 2004; • In 2005, 30 major customers commenced trading with us electronically using our new Customer Connect service; and • Our 2005 customer satisfaction survey showed 79% of customers rating our service above average (2004 - 74%) and of these, 27% rating our service as excellent (2004 - 24%). During 2005 we had stable trading patterns in 12 of our 15 RDCs. These RDCs haveexperienced and capable management leading effective teams with low staffturnover. Collectively the profit improvement from the stable RDCs was £1.2million over 2004. However there remain 3 RDCs, which did not perform to theexpected levels during 2005. Actions have been taken to strengthen and focusmanagement in these RDCs and we are expecting significant performanceimprovement in 2006. The plan for 2006 is to focus our management actions on growing the business,with a particular emphasis on extending the range of products and servicessupplied to our existing customers and the winning of new customers. During 2006we will create a dedicated new team focused on winning new business. We willalso increase our accessibility to new customers through our web-based servicePackaging2U. Our intention is also to enable a wider range of our customers tobenefit from trading with us electronically through the Customer Connectservice. We will maintain our attention to cost control and through the ongoing programmeof supplier rationalisation and the strength of our strategic supplierrelationships expect to maintain our gross margin in 2006.Our current RDC network allows us to effectively access 85% of the UK market andwe are currently operating at ca. 70% of the RDC network capacity. During 2006we will evaluate potential acquisition opportunities to improve market accessand make more effective use of our existing capacity. Manufacturing Operations In 2005 Macfarlane Group's Manufacturing Operations recorded a profit of £2.3m,an improvement of £1.4m on the previous year. All operations showed improvementson 2004. Both Macfarlane Labels and Macfarlane Plastics businesses supply major FMCGcustomers primarily, but not exclusively, based in the UK and Ireland. Labelsoperate from two plants, Kilmarnock and Dublin, supplying design and productionof high quality self-adhesive and re-sealable labels for consumer packs.Plastics operate from Wicklow in Ireland designing and producinginjection-moulded closures and dispensers primarily used in the packaging ofpowdered consumer products. The key features of the Labels performance in 2005were:- • A profit performance broadly in line with 2004 despite the market for self-adhesive labels being particularly competitive with strong retail pressure for supplier price reductions; • Good volume growth of 27% in re-sealable labels and self-adhesive label volumes at last year's levels; • Cost reductions and programmes to improve productivity were implemented at both our plants with the aim of offsetting the selling price pressures; • There have been initial moves to develop the re-sealable labels business in the USA, following encouraging feedback from potential customers and there are new versions of the re-sealable label being trialled which will enable its use in a number of additional product sectors. Our priorities in 2006 are to continue to improve operational efficiencies inorder to offset retail price pressure, to broaden the appeal of the re-sealablelabel offering and to accelerate our growth plans in our chosen sectors of theself-adhesive label market. We also see potential opportunities to accelerategrowth through acquisition. Manufacturing Operations The Plastics business reduced its operating losses significantly in 2005 but didnot achieve the break-even level that was targeted. The key features of the 2005performance were:- • Sales volume growth vs. 2004 and the operating loss was reduced versus 2004; • Continued rises in raw material prices, which were not fully recovered, from the customer base; • We experienced increased cost pressures particularly on transport and energy; and • Towards the end of 2005 a number of senior management changes were implemented The strengthened management team is now fully focused on building on theimprovements achieved in 2005 to restore a break-even position in 2006.Macfarlane's Packaging Manufacture business operates from two UK sites inGrantham and Westbury. The business produces a range of low volume,custom-designed packaging solutions using corrugate, timber and foam materials.The range of products is particularly focused on the electronics, medical andautomotive markets where product protection, for both storage and transportationare key requirements. The highlights of the 2005 performance were:- • Both sites returning to profitability in 2005 following losses in 2004; • At Grantham the introduction of a "lean manufacturing programme" produced cost reductions and improved productivity; • Customer retention levels increased through improved customer service; and • At Westbury the profit recovery was primarily driven by good sales growth. The priority for 2006 is to improve the returns from this business. At Granthamthe focus in 2006 will be on growing sales particularly through the MacfarlanePackaging Distribution network. Our Westbury location is focused on maintainingsales momentum while at the same time introducing a number of the productivityimprovement initiatives that were effective at Grantham in 2005. Macfarlane had packaging manufacturing and assembly operations in California,Hungary and Mexico during 2005. These plants provided corrugate, foam and timberpackaging solutions primarily to the electronics sector. The US operations focusparticularly on foam based products in relation to their position in theelectronics sector and have recently diversified into the healthcare and freshproduce display sectors of the market. The US business had a particularly successful year in 2005. • During 2005 the US business suffered major raw material price increases both as a result of the oil price pressure and also due to supply chain issues with certain key vendors following the extraordinary weather conditions. However both of these difficulties were effectively managed and had no material impact on the business in 2005. • The sales momentum created in the second half of 2004 was maintained throughout the year resulting in annual sales growth of 27% • The business returned to profitability following losses in 2004 • The absorption of the foam packaging activities of a key customer that took place at the end of 2004 was successfully integrated in 2005 and contributed 12% of the sales growth. • We also created and strengthened a number of significant major customer relationships during 2005 in both the medical and electronics sectors and these provide a solid platform for further growth in 2006; and • At the end of 2005 we made the decision to establish a new facility in Tijuana, which will enable us to more cost-effectively service our customers in Southern California and give access to new customers in Northern Mexico. Our priorities in 2006 are to build on our current strong market position andour key customer relationships in California in the medical and electronicssectors. The opening of the new facility in Tijuana will enable us to enhanceour production capacity while at the same time becoming more cost-effective andmore accessible to key local markets and customers particularly in the NorthernMexico region. Manufacturing Operations The decision to establish a business in Hungary was made in 2000, when IBM, akey customer of our Westbury facility relocated to Budapest. Although ourbusiness in Hungary continued to be successful in 2005, we became increasinglyconcerned at the over-dependence on this one customer. In 2005 Nefab AB, aSwedish based company, expressed an interest in acquiring our business inHungary. Following a strategic review the decision was made to sell thebusiness. The transaction was completed early in January 2006 at a price of£2.3m, a £0.9m premium to net asset value and the activities have been disclosedas discontinued in the financial statements. Future Outlook During 2005 we have demonstrated our ability to return the group toprofitability. We have also improved cash generation and significantlystrengthened the balance sheet. Our priority is now to continue the process ofgiving greater focus to the Group's activities, accelerating growth in the keybusinesses and continuing to improve financial performance in the nichebusinesses. The Group has a range of businesses, all of which have good potential andoperate in highly fragmented markets with opportunities for consolidation. Ourmarket positions particularly in UK Packaging Distribution and Labels are soundand can be strengthened through both organic and acquisition-lead growth. Inaddition we have a number of other good geographic and product niches, most ofwhich are now profitable and offer continued potential for profit improvement. The businesses are all developing their operational capability andcost-effectiveness. We consistently see our customer service improvingdramatically and our key customer and supplier relationships are strengthening.A key component of our future plans is to accelerate the efforts of all ourbusinesses to become more customer-focused. Following a particularly difficult period over the last three years, MacfarlaneGroup has now established a strong foundation. Management is now focused onusing this foundation to further develop, strengthen and grow the Group's keybusinesses. Macfarlane Group PLC Consolidated income statement For the year ended 31 December 2005 2005 2004 Note £000 £000 Continuing operationsRevenue 2 127,247 122,705Cost of sales (85,122) (82,200) --------- --------- Gross profit 42,125 40,505Distribution costs (6,521) (6,829)Administrative expenses (32,676) (33,581) --------- --------- Operating profit before property transactions 3 2,928 95Gain on disposal of properties 4 1,048 3,566 --------- --------- Operating profit 3,976 3,661Investment income 103 94Finance costs 5 (1,189) (1,772) --------- --------- Profit before tax 2,890 1,983Tax 6 (161) 26 --------- --------- Profit for the period from continuing operations 2,729 2,009 --------- --------- Discontinued operationsProfit/(loss) for the period from discontinuedoperations 656 (845)Loss on disposal of discontinued operations - (1,400) --------- --------- Total profit/(loss) for the period from discontinuedoperations 656 (2,245) --------- --------- --------- --------- Profit/(loss) for the year 3,385 (236) ========= ========= Earnings/(loss) per share 8 From continuing operationsBasic 2.43p 1.79p ========= ========= Diluted 2.41p 1.78p ========= ========= From continuing and discontinued operationsBasic 3.01p (0.21p) ========= ========= Diluted 2.99p (0.21p) ========= ========= Macfarlane Group PLC Consolidated statement of recognised income and expense For the year ended 31 December 2005 2005 2004 £000 £000 Exchange difference on translation of foreign operations 144 (180)Actuarial (losses)/gains on defined benefit pension schemes (5,553) 222Tax on items taken directly to equity 1,666 (67) --------- --------- Net expense recognised directly in equity (3,743) (25)Profit/(loss) for the year 3,385 (236) --------- --------- Total recognised income and expense for the year (358) (261) ========= ========= Macfarlane Group PLC Consolidated reconciliation of movements in shareholders' equity For the year ended 31 December 2005 Note 2005 2004 £000 £000 Profit/(loss) for the year 3,385 (236)Dividends to equity holders in the year 7 (844) (844)Net expense recognised directly in equity (3,743) (25) --------- --------- Movements in equity in the year (1,202) (1,105)Opening equity 26,641 27,746 --------- --------- Closing equity 25,439 26,641 ========= ========= Macfarlane Group PLC Consolidated balance sheet at 31 December 2005 Note 2005 2004 £000 £000Non-current assetsGoodwill 17,182 17,054Property, plant and equipment 14,608 17,601Investment property 1,701 1,701Other receivables 863 2,242Deferred tax asset 6,651 5,013 -------- -------- Total non-current assets 41,005 43,611 -------- -------- Current assetsInventories 8,803 8,689Trade and other receivables 29,639 28,611Cash and cash equivalents 1,203 2,018 -------- -------- Total current assets 39,645 39,318Non-current assets classified as held for sale 9 1,925 3,580 -------- -------- 41,570 42,898 -------- -------- Total assets 82,575 86,509 ======== ======== Current liabilitiesTrade and other payables 24,681 26,777Current tax liabilities 796 595Obligations under finance leases 272 479Bank overdrafts and loans 7,830 14,226Liabilities directly associated with assets classifiedas held for sale 9 485 - -------- -------- Total current liabilities 34,064 42,077 -------- -------- Net current assets/(liabilities) 5,581 (2,759) -------- -------- Non-current liabilitiesRetirement benefit obligations 11 22,977 17,424Obligations under finance leases 95 367 -------- -------- Total non-current liabilities 23,072 17,791 -------- -------- Total liabilities 57,136 59,868 ======== ======== -------- -------- Net assets 25,439 26,641 ======== ======== EquityShare capital 28,755 28,755Capital redemption reserve - 2,952Share premium account - 7,547Revaluation reserves 167 274Own shares (1,406) (1,406)Translation reserves (36) (180)Retained earnings (2,041) (11,301) -------- -------- Total equity 25,439 26,641 ======== ======== Macfarlane Group PLC Consolidated cash flow statement For the year ended 31 December 2005 Note 2005 2004 £000 £000 Net cash from operating activities 10 1,990 2,170 -------- -------- Investing activitiesInterest received 119 93Proceeds on disposal of property, plant and equipment 6,255 6,563Purchases of property, plant and equipment (869) (3,925) -------- -------- Net cash from investing activities 5,505 2,731 -------- -------- Financing activitiesDividends paid 7 (844) (844)Repayments of obligations under finance leases (479) (469)Decrease in bank overdrafts (6,396) (3,596) -------- -------- Net cash used in financing activities (7,719) (4,909) -------- -------- Net decrease in cash and cash equivalents (224) (8) Cash and cash equivalents at beginning of year 2,018 2,026 -------- -------- Cash and cash equivalents at end of year 1,794 2,018 ======== ======== Macfarlane Group PLC For the year ended 31 December 2005 Notes to the consolidated accounts 1. General information The financial information set out in this preliminary announcement does notconstitute the Group's statutory financial statements as defined in Section 240of the Companies Act 1985 and has been extracted from the full statutoryaccounts for the years ended 31 December 2005 and 31 December 2004 respectively.The information for the year ended 31 December 2004 does not constitute theGroup's statutory financial statements as defined in Section 240 of theCompanies Act 1985. A copy of the statutory accounts for that year has beendelivered to the Registrar of Companies and these accounts have now beenrestated under IFRS. The auditors' report on those accounts was unqualifiedpursuant to Section 235 of the Companies Act 1985 and did not contain astatement under sub-section 237 (2) or (3) of that Act. The auditors' report on these statutory financial statements for the year ended31 December 2005 was unqualified pursuant to Section 235 of the Companies Act1985 and did not contain a statement under sub-section 237 (2) or (3) of thatAct. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with IFRSs, this announcement does not of itselfcontain sufficient information to fully comply with IFRSs. The company expectsto publish full financial statements that comply with IFRSs in April 2006. 2. Split between continuing and discontinued activities Continuing Discontinued 2005 Continuing Discontinued 2004 £000 £000 £000 £000 £000 £000 Turnover 127,247 3,618 130,865 122,705 4,634 127,339Cost of (85,122) (2,082) (87,204) (82,200) (2,540) (84,740)sales -------- ---------- ------ -------- ---------- ------- Gross profit 42,125 1,536 43,661 40,505 2,094 42,599Distributioncosts (6,521) (104) (6,625) (6,829) (427) (7,256)Administrationcosts (32,676) (682) (33,358) (33,581) (2,512) (36,093) -------- ---------- ------ -------- ---------- ------- Profit/(loss)beforepropertytransactions 2,928 750 3,678 95 (845) (750)Gain onpropertydisposals 1,048 - 1,048 3,566 - 3,566 -------- ---------- ------ -------- ---------- ------- Operatingprofit/(loss) 3,976 750 4,726 3,661 (845) 2,816Investmentincome 103 32 135 94 - 94Finance (1,189) - (1,189) (1,772) - (1,772)costs -------- ---------- ------ -------- ---------- ------- Profit/(loss)before tax 2,890 782 3,672 1,983 (845) 1,138Tax (161) (126) (287) 26 - 26Loss onbusinessdisposal - - - - (1,400) (1,400) -------- ---------- ------ -------- ---------- ------- Profit/(loss)after tax 2,729 656 3,385 2,009 (2,245) (236) ======== ========== ====== ======== ========== ======= 3. Segmental information The Group's activities are centred around two principal activities, with thosemanufacturing operations discontinued in the current and prior years disclosedseparately. (i) Packaging Distribution The distribution of packaging materials from a network of 15 Regional Distribution Centres in the UK. (ii) Manufacturing Operations The manufacture and supply of self-adhesive and resealable labels and plastic-injection moulded products to a variety of FMCG customers in the UK and Europe and the manufacture, assembly and supply of timber, corrugated and foam based packaging materials in the UK and US/Mexico. (iii) Discontinued Operations The operations in Hungary were sold at the start of 2006 and are classified as discontinued in the financial statements for 2005. 2005 2004 2005 2004 Sales Sales Result ResultGroup Segment £000 £000 £000 £000 Packaging Distribution 73,915 74,095 661 (769)Manufacturing Operations 53,332 48,610 2,267 864 ---------- ------------- ---------- ------- Continuing activities 127,247 122,705 2,928 95Discontinued operations 3,618 4,634 750 (845) ---------- ------------- ---------- ------- 130,865 127,339 3,678 (750) ========== ============= Profit from discontinued operations (750) 845 ---------- ------- Profit before property transactions 2,928 95Gain on disposal of properties 1,048 3,566 ---------- ------- Operating profit 3,976 3,661Investment income 103 94Finance costs (1,189) (1,772) ---------- ------- Profit before tax 2,890 1,983Tax (161) 26Profit/(loss) from discontinued operationsafter tax 656 (845)Loss on disposal of discontinuedoperations - (1,400) ---------- ------- Profit/(loss) after tax and discontinuedoperations 3,385 (236) ========== ======= 4. Gain on disposal of properties Three properties were sold during 2005 for a combined consideration of£4,880,000. On 4 February 2005, the Group sold its vacant premises at Govan nearGlasgow for a consideration after attributable expenses of £2,715,000, givingrise to a gain of £1,300,000. On the same date the Group announced the disposalof a six-bay distribution site in Grantham. Sale proceeds from the site of£1,935,000 after expenses equated to book value. In April 2005 the Group soldits vacant site at Glenrothes for a consideration of £230,000 after expenses,which equated to book value. In 2004, the Group sold its premises at Braehead near Glasgow for aconsideration of £8,625,000. The disposal gave rise to a gain of £3,845,000 inthe financial statements for 2004. The costs to operate vacant properties in the year amounted to £252,000 (2004 -£279,000) and were offset against the gains arising on disposal. 5. Finance costs 2005 2004 £000 £000 Interest on bank loans and overdrafts (698) (1,183)Interest on obligations under finance leases (43) (72)Interest cost of pension scheme liabilities (2,728) (2,734) -------- -------- Total interest expense (3,469) (3,989) Expected return on pension scheme assets 2,280 2,217 -------- -------- Total finance costs (1,189) (1,772) ======== ======== 6. Tax 2005 2004 £000 £000Current taxUnited Kingdom corporation tax at 30% (2004: 30%) (40) -Foreign tax (121) (99)Prior year adjustment - 24 -------- -------- Current tax charge (161) (75)Deferred taxation - 101 -------- -------- Total (161) 26 ======== ======== The standard rate of current tax for the year, based on the UK rate ofcorporation tax is 30% (2004 - 30%). Taxation for other jurisdictions iscalculated at the rates prevailing in the respective jurisdictions. The actual tax charge for current and previous year is less than 30% of theresults as set out in the income statement for the reasons set out in thefollowing reconciliation: 2005 2004 £000 £000 Profit before taxation 2,890 1,893 -------- -------- Tax on profit at 30% (867) (568) Factors affecting tax credit for the year:-Depreciation in excess of capital allowances 107 1,300Non taxable gain 390 1,153Other differences (1,000) (573)Tax losses utilised/(unutilised) 1,281 (1,471)Difference on overseas tax rates (72) 60Prior year adjustment - 24 -------- -------- Current tax charge for the year (161) (75) ======== ======== 2005 20047. Dividends £000 £000Amounts recognised as distributions to equity holders in theyear: Special interim dividend for the year ended 31 December 2005of 0.75p per share (2004 - Special interim dividend of 0.75p per share) 844 844 ======== ======== Dividends are not payable on own shares held in the employee share trust. 8. Earnings/(loss) per shareFrom continuing and discontinued operations The calculation of the basic and diluted earnings/(loss) per share is based onthe following data: 2005 2004 £000 £000Earnings/(loss) from continuing and discontinuedoperations for the purposes of earnings per sharebeing net profit attributable to equity holders ofthe parent 3,385 (236) -------- --------Adjustments to exclude discontinued operations (Profit)/loss for the year from discontinued (656) 845operations - 1,400Loss on disposal of discontinued operations -------- -------- Earnings from continuing operations for thepurposes of earnings per share being net profitattributable to equity holders of the parent 2,729 2,009 ======== ======== Number of shares in issue for the purposes ofcalculating basic and diluted earnings/(loss) pershare 2005 2004 No. of No. of shares '000 shares '000 Weighted average number of ordinary shares inissue 115,019 115,019Own shares in Employee Share Ownership Trusts (2,491) (2,491) -------- -------- Weighted average number of shares in issue for the 112,528 112,528purposes of basic earnings/(loss) per shareEffect of dilutive potential ordinary shares dueto share options 602 69 -------- -------- Weighted average number of shares in issue for the 113,130 112,597purposes of diluted earnings/(loss) per share ======== ======== As the diluted loss per share reduces the loss per share in 2004, the originalloss per share has been reflected as the diluted figure in the financialstatements. 9. Non-current assets and current liabilities classified as held for saleIn January 2006, the Group's Hungarian subsidiary was sold. As the decision tosell the business was taken before 31 December 2005, consequently the results ofthe subsidiary for 2005 and 2004 are classified as discontinued operations inthe consolidated income statement. The component parts of the balance sheet soldin January 2006 are classified as non-current assets and current liabilitiesheld for sale at 31 December 2005. 10. Notes to the cash flow statement 2005 2004 £000 £000 Operating profitContinuing operations 3,976 3,661 -------- -------Discontinued operations 750 (845) -------- ------- Operating profit 4,726 2,816 Adjustments for:Depreciation of property, plant and equipment 3,349 3,407Gain on disposal of property, plant and equipment (1,075) (3,911) -------- ------- Operating cash flows before movements in working capital 7,000 2,312 (Increase)/decrease in inventories (379) 1,205(Increase) in receivables (1,981) (437)(Decrease)/increase in payables (1,233) 36 -------- ------- Cash generated by operations 3,407 3,116 Income taxes (paid)/received (212) 744Interest paid (1,205) (1,690) -------- ------- Net cash from operating activities 1,990 2,170 ======== ======= 2005 2004 £000 £000 Decrease in cash and cash equivalents in the year (224) (8)Decrease in bank overdrafts 6,396 3,596Cash flows from debt and lease financing 479 469Loan notes issued in the year - (200) -------- ------- Movement in net debt in the year 6,651 3,857 Opening net debt (13,054) (16,911) -------- ------- Closing net debt (6,403) (13,054) ======== ======== Net debt comprises:Cash and cash equivalents 1,203 2,018Cash and cash equivalents in business held for resale 591 -Bank overdrafts and loans (7,830) (14,226)Obligations under finance leases (367) (846) -------- -------- Closing net debt (6,403) (13,054) ======== ======== Cash and cash equivalents comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. Cash inflows inrespect of the discontinued operations for operating activities amounted to£531,000 for 2005, (2004 Outflow of £370,000) Cash inflows in respect ofinvesting activities totalled £32,000 (2004 - £7,000) and cash outflows fromfinancing activities amounted to £268,000 (2004 £1,003,000). 11. Pension scheme The Group operates a pension scheme based on final pensionable salary for its UKoperations. The assets of the scheme are held separately from those of the Groupin managed funds under the overall supervision of the scheme trustees. The contributions are determined by the scheme's qualified actuary on the basisof triennial valuations using the projected unit method. The most recenttriennial valuation was as at 1 May 2005. The principal assumptions adopted werethat investment returns would average 7.75% per annum and that salary increaseswould average 3.5% per annum. The valuation showed that the market value of therelevant assets of the scheme was £35,259,000 and the actuarial value of theseassets represented 76% of the value of benefits that had accrued to members. The final salary scheme was closed to new entrants during 2002 and the rate ofcontributions from both employees and the employer was increased. The employercontribution rate increased from 13.5% to 15.5% of pensionable salary, and theemployee contribution rate increased from 5% to 7% of pensionable salary from 1July 2002 following actuarial advice. Following the actuarial valuation, the Board has agreed with the pension schemetrustees to make additional payments to the scheme of £0.7 million per annum forthree years commencing 2006 to reduce the net pension deficit. These additionalpayments will increase the pension scheme assets; they are not a charge againstprofits. Balance sheet disclosures The figures below have been based on the triennial actuarial valuation as at 1May 2005, updated to the current year-end. The assets in the scheme, the netliability position for the scheme at 31 December 2005 and the expected rates ofreturn were: Asset Fair value Long-term Fair Long-term Fair Long-termclass 2005 expected rate value expected rate value expected £000 of return 2004 of return 2003 rate of £000 return Equities 24,077 7.50% 19,911 7.75% 18,500 8.25%Bonds 16,678 4.50% 15,173 5.00% 14,300 5.00%Other (cash) 21 4.50% 37 5.00% 100 4.50% ------- ------- ------- Fair valueof assets 40,776 6.27% 35,121 6.56% 32,900 6.82%Present valueof scheme liabilities (63,753) (52,545) (50,212) ------- ------- ------- Deficit inthe scheme (22,977) (17,424) (17,312) Relateddeferredtax asset 6,893 5,227 5,193 ------- ------- ------- Net pensionliability (16,084) (12,197) (12,119) ======= ======= ======= Ongoing contributions to the scheme in 2005 covered current service costs andthe costs of financing the deficit, but were not at a level to cause the deficitto reduce. The pension scheme's assets saw a significant benefit from higher than expectedequity returns in 2005. However this benefit was more than offset by changes totwo of the major actuarial assumptions in determining the pension scheme'sliabilities, firstly significant reductions in the bond yields used to valuepension liabilities and secondly the move to more up-to-date mortality tablesused to value liabilities. Both of these factors significantly increased thepension scheme's liabilities during 2005. 12. IFRS transitional statements The reconciliations of equity at 1 January 2004 and 31 December 2004 and thereconciliation of profit/(loss) for the year ended 31 December 2004, as requiredby IFRS1, including significant accounting policies and notes to 31 December2004, were included in the Group's half yearly statement to 30 June 2005 issuedon 6 September 2005. 13. Posting to shareholders and Annual General Meeting The Annual Report and Accounts will be sent to shareholders on Friday 7 April2006. The Annual General Meeting will take place at the Thistle Hotel, CambridgeStreet Glasgow at 12 noon on Tuesday 9 May 2006. The Annual Report and Accountswill be available to members of the public at the Company's Registered Office,21 Newton Place, Glasgow G3 7PY from 10 April 2006. This information is provided by RNS The company news service from the London Stock Exchange