Macfarlane Grp. Regulatory News (MACF)

18 Mar 2008 07:01

Macfarlane Group PLC18 March 2008 18 March 2008 MACFARLANE GROUP RESULTS FOR THE YEAR TO 31 DECEMBER 2007 Profit before tax from continuing operations up 67% to £2.5 million Net debt reduced to £3.1 million Further progress on re-shaping the Group Sharper focus on core activities Benefits emerging from acquisitions Full year dividend confirmed at 2p per share Archie Hunter, Chairman of Macfarlane Group PLC today said: - "2007 was a year of significant progress for Macfarlane Group as we continued tore-shape the business and focus on our core activities, substantially increasingprofits from our continuing operations in the process. 2007 saw the benefits of the strategy set out three years ago. We have shown theability to grow the business significantly and we see the potential for furtherprogress in 2008. Trading Operating profits from continuing activities increased to £3.1 million (2006:£2.0 million) on Group turnover up 13% at £119.7 million. Pre-tax profitsincreased to £2.5 million (2006: £1.5 million). • Packaging Distribution turnover increased by 15%, with operating profits increasing from £0.44 million to £1.34 million. • Our Manufacturing Operations turnover rose by 6%, with operating profits increasing from £1.57 million to £1.73 million. Earnings per share increased from 1.03p to 3.06p per share, with profits aftertax benefiting from a one-off deferred tax credit of £1.7 million. The Boardwill pay a final dividend of 1p per share, which combined with the interimdividend of 1p per share, results in a full year dividend of 2p per share. Trading in the first part of 2008 is in line with the Board's expectations andcontinues to show the benefits of the concentrated effort put in to running andexpanding our UK businesses, following the sale of businesses in the UnitedStates and Mexico. In our Packaging Distribution business, turnover increased by 15% from £80.9million to £92.7 million. The acquisition of Bloomfield for £2.0 million inOctober 2006 has demonstrated what targeted acquisitions can achieve; packagingdistribution profit more than tripled to £1.3 million in 2007 (2006: £0.4million) and we are seeing continuing benefit from our scale and marketpresence. Online Packaging was purchased for £5.1 million in January 2008 and istrading well. Trading (continued) The link between our packaging distribution and packaging manufacturingbusinesses in the UK is becoming more important and valuable each year. InPackaging Distribution we are now three times the size of our nearest competitorand with a UK market share of just over 10% there is considerable opportunityfor further profitable growth in the sector. Our labels company faced considerable market consolidation in what was adifficult year, but coped well to record a profit of £1.2 million on turnover up4%. More detailed comments on trading are contained in the operating reviewfollowing my statement. Cash and Dividends During 2007 our borrowings benefited from the disposal of our North Americaninterests and at the year-end our net debt was reduced to £3.1 million. Thedisposal proceeds from our Kirkintilloch property, realised a further £2.4million at the start of 2008. The Board continues to recognise the importance to shareholders of a regular andreliable dividend stream. I am pleased to report that, in addition to theInterim Dividend of 1p per share announced in September, it is the intention ofthe Board to declare a Final Dividend of 1p per share, payable in June, making adividend of 2p per share for the full year. Future Prospects Whilst the UK economy is entering an uncertain period, the Board is confidentthat the broad range of industries we serve and the continued opportunity toimprove operational performance will enable the business to continue toprogress. 2008 has started well. During the year we will further refine our business focus and will expect tocontinue to make value-enhancing acquisitions to expand our UK reach. Recentacquisitions have increased our geographic spread and, along with ourrecruitment initiatives in the past two years, we have added considerably to ourcustomer offering and to our talent pool. Also, the disposal of our US/Mexicobusiness has freed up the time of senior executives to concentrate on internalefficiencies, business innovation and expansion. The development of Macfarlane Group into an increasingly stable business hasdemanded huge effort and considerable personal commitment from management andstaff alike. The Board very much appreciates this and would like to take thisopportunity to thank them all for their contribution to our progress." +-----------------------------------------+---------------------------------------+|Further information: | || | ||Archie S. Hunter |Chairman 0141 333 9666 |+-----------------------------------------+---------------------------------------+|Peter D. Atkinson |Chief Executive 0141 333 9666 |+-----------------------------------------+---------------------------------------+|John Love |Finance Director 0141 333 9666 |+-----------------------------------------+---------------------------------------+ Operating review Revenue Revenue Profit Profit 2007 2006 2007 2006Group Segment £000 £000 £000 £000 Packaging Distribution 92,654 80,853 1,338 436Manufacturing Operations 27,083 25,460 1,727 1,571 Continuing activities 119,737 106,313 Operating profit 3,065 2,007Net finance costs (598) (534) Profit before tax from continuing 2,467 1,473operations All businesses within the Group were profitable in 2007 and this was achieveddespite continuing cost pressures on raw materials, fuel and energy. Group debt continued to reduce during 2007 as more focus was brought to theGroup's activities. We have demonstrated good progress in 2007. The focus of our plans for 2008 andbeyond is to continue to grow the business both organically and throughacquisition. Packaging Distribution Macfarlane's Packaging Distribution business is the leading UK distributor of acomprehensive range of packaging consumable products. In a highly fragmentedmarket, Macfarlane is the market leader with a market share in excess of 10%.The business operates through 15 Regional Distribution Centres (RDCs) supplyingcustomers on a local, regional and national basis. The business enablescustomers to ensure their products are cost-effectively protected in transit andstorage by providing them with a comprehensive product range, single sourcesupply, just in time delivery and tailored stock management programmes. Business Performance In 2007 Packaging Distribution recorded an operating profit of £1.3m, comparedto £0.4m the previous year. There were a number of factors that contributed tothese results: • Sales revenue increased by 10% on an organic basis, partly driven by price increases and partly through volume growth; • Sales growth was supplemented by the full year benefit of the acquisition of Bloomfield Supplies Limited ("Bloomfield") made in 2006, which increased sales revenues by an additional 5%; • Supplier price increases remained a significant feature in 2007 due to inflation in raw materials, energy and oil related costs. However we were successful in managing price increases with our customers and this allowed us to improve the gross margin to just over 30%; • In 2007 our On-Time-In-Full ("OTIF") deliveries averaged 94% compared with 92% in 2006 and 91% in 2005. This clearly demonstrates the progress we are making in improving the service to our customers; • In 2007 we increased product range penetration in our existing customer base to an average 8.7 lines per customer compared with 8.6 in 2006 and 8.2 in 2005; • During 2007 we opened 2,278 new customer accounts; • We continued to make key investments in the business particularly in our e-commerce capability, new business development and the strengthening of the management team; Operating review Packaging Distribution • Our 2007 customer satisfaction survey showed 81% of customers rating our service above average (2006 - 86%) and of these, 29% rated our service as excellent (2006 - 33%). Our slightly lower customer satisfaction score in 2007 reflects a growing need from our customers for help and advice on identifying more environmentally friendly packaging solutions. One of our key customer programmes in 2008 will address this; • Visitors to Packaging2U our web-based packaging service doubled in 2007, which has enabled us to access a number of market segments where traditionally Macfarlane has not had a presence. We expect Packaging2U to become profitable in 2008; • During 2007 the dedicated new business team demonstrated its potential with a series of major new customer wins; and • Bloomfield was successfully integrated into the Macfarlane RDC network and this has given us encouragement to pursue further similar acquisitions in 2008. Within our current network of 15 RDCs, based on our 2007 results we had 5 RDCsperforming at acceptable levels, 8 RDCs demonstrating improvements that indicatetheir ability to achieve acceptable performance levels in the short-term and 2RDCs where performance is currently not at the acceptable level. The plan for 2008 is to focus our management actions in the following areas: • Improve gross margin through effective management and recovery of likely further supplier price changes; • Accelerate organic sales growth particularly through effective deployment of the new business development and national account teams; • Ensure all RDCs are operating to their full profit potential; • Build the Packaging2U business in order to deliver profits in 2008; • Increase the efficiency of the logistics infrastructure through the introduction of fleet management software; • Improve our ability to respond to the increasing demands from our customers regarding environmentally friendly packaging solutions; • Deliver the benefits from the full year contribution of the Online Packaging acquisition made in January 2008; and • Accelerate market penetration through further targeted acquisitions. Manufacturing Operations Macfarlane operates a range of manufacturing businesses, Labels producingself-adhesive and resealable labels, and Packaging Manufacturing producingbespoke composite transit packaging and protective components. In 2007 Macfarlane Group's Manufacturing Operations recorded a profit of £1.7million, an increase of £0.1 million on 2006. Key features of the ManufacturingOperations performance in 2007 were: • Sales increase 6% versus 2006; • Gross margin was flat versus 2006 despite customer price pressure where raw material price increases can not always be fully passed onto customers; and • The overhead to sales ratio improved by 0.2% reflecting the nature of the fixed cost base of the manufacturing businesses, however total overheads increased by £0.4 million reflecting additional investments in capacity in both businesses. Operating review Manufacturing Operations Labels The principal activity of the Labels business is the production of self-adhesiveand resealable labels for major Fast Moving Consumer Goods ("FMCG") customersprimarily in European markets. The business operates from two production sitesin Kilmarnock and Dublin and a sales and design office in Sweden which focuseson the development and growth of our resealable labels business - Reseal-itTM. Business Performance During 2007 the Macfarlane Labels business continued to experience the price andmargin pressure that has been a consistent feature over recent years. Inresponse the business has been transitioning itself away from the volatile lowermargin own brand food related business to more secure margin high-qualitybranded products. This led to a 4% increase in sales and a 3% increase in volumefrom 2006, with efficiency improvements giving a 5% improvement inprofitability. New business levels showed some improvement during the secondhalf of 2007 and it is expected that this will continue in 2008. Reseal-itTM continues to progress well. The first machine sale in North Americawas completed in 2007 and there is a growing level of interest from NorthAmerican customers in the Reseal-it product. The priorities for the Labels business in 2008 are to:- • Accelerate organic growth plans particularly in the branded products sector; • Improve operational efficiencies to counterbalance retail price pressure; • Develop the Reseal-itTM product in the US market; and • Broaden the re-sealable label product range. Packaging Manufacturing The principal activity of the business is the design and manufacture/assembly ofbespoke composite packaging for use in protecting goods in transit. The primarycomponents are corrugate, timber and foam. The business operates from twomanufacturing sites in Grantham and Westbury. The business supplies goodsdirectly to customers and via the Group's Distribution business focusing on suchsectors as aerospace, medical equipment, electronics and automotive. Business Performance The business had a solid year in 2007 building on the operational improvementsachieved during the last two years. Strong sales momentum was achieved withgrowth of 11% versus last year. There was one significant customer win duringthe year and sales growth via the Macfarlane Packaging Distribution channel was12% ahead of last year. However the sales momentum achieved in 2007 was nottranslated into profit growth due to investments both in equipment andmanagement, which will help secure future profitability. Margins were broadlyflat despite volatility in raw material prices. The Group currently believes the retention of an in-house manufacturingcapability allows it to differentiate its offering from other packagingdistributors. The priorities for 2008 are to: • Improve the overall returns from the business; • Recover gross margin through effective recovery of further cost increases • At Grantham the focus will be on growing sales directly and through the in-house Distribution network; and • Our Westbury location is focused on maintaining sales momentum while at the same time introducing productivity improvement initiatives that were effective at Grantham in 2007. Operating review Manufacturing operations Plastics The principal activity is the manufacture of injection moulded plastic packagingand dispensing components particularly lids and scoops for the baby food market. Business Performance Sales revenue showed growth of 13% versus 2006 primarily through strongperformances from the existing base of customers. However input prices for rawmaterials, energy and labour were not easily transferred to selling pricesresulting in a weak gross margin performance. The overall result for 2007 was disappointing but the business continues to behighly cash generative. During 2007, working in co-operation with key customers, there have been majorimprovements in the infrastructure of the business and our enhanced hygieneprocedures are at the leading edge of our industry. During 2008 the management team will focus on:- • Ensuring input price increases are effectively managed with our customers; • Achieving ISO22000 accreditation for the Wicklow facility; • Establishing new lower cost raw material sources; and • Continuing to improve operational efficiency. The Board has approved discussions with a number of parties who have expressedinterest in acquiring this business and therefore the results of the businesshave been treated as discontinued in the income statement. US/Mexico Macfarlane had packaging manufacturing and assembly operations in California andMexico, with two plants in Mexico and two in California. The business focused onfoam-based packaging components supplying the electronics, healthcare and foodand drink sectors of the market. Following a strategic review in the first half of 2007, the Board decided thatit was appropriate to exit our operations in US/Mexico. These operations had notmade any significant return in recent years and consumed considerable executivemanagement time. Accordingly the Board considered offers for the businessalthough these would be likely to generate a loss on disposal. In October 2007Macfarlane US/Mexico was sold to Specialized Packaging Group L.P. resulting in aloss of £1.8 million. Of this loss, £0.7 million related to the accumulatedexchange loss for the US/Mexican operations, written off over a number of yearswhich accounting standards require to be brought into the calculation of theloss on disposal in the current year. An equivalent credit to reserves is alsorecorded. Future Outlook Our objectives in 2007 were to continue progress in improving Groupprofitability, bring a greater focus to the activities of the Group and buildboth organically and through acquisition our UK market-leading position inPackaging Distribution. In overall terms we are pleased with what has been achieved in 2007: • Packaging Distribution has demonstrated good sales momentum and returns are improving; • UK Packaging Manufacture is showing sustainable profit performance; • The Labels business is showing stability in the UK and good growth potential for Re-Seal it in North America; • Plastics has demonstrated a reliable revenue base; • We have successfully managed the sale of our foam operations in US/ Mexico. The acquisition of Online Packaging early in 2008 demonstrates our commitment tobuilding our market-leading position in UK Packaging Distribution and additionalacquisition opportunities are being evaluated for implementation during 2008. Our future priorities are to continue to bring greater focus to the activitiesof the Group in order to allow management to concentrate their time on buildingand improving returns from our key businesses. Macfarlane Group PLC Consolidated income statement For the year ended 31 December 2007 2007 2006 Note £000 £000 * As restatedContinuing operationsRevenue 2 119,737 106,313Cost of sales (81,442) (72,522) Gross profit 38,295 33,791Distribution costs (5,791) (5,490)Administrative expenses (29,453) (26,294)Non-recurring net property gains 4 14 - Operating profit 3,065 2,007Finance income 5 2,947 2,762Finance expense 5 (3,545) (3,296) Profit before tax 2,467 1,473Tax 6 979 (315) Profit for the year from continuing operations 3,446 1,158 Discontinued operations(Loss)/profit for the year from discontinued 2 / 9 (1,616) 893operations Profit for the year 1,830 2,051 Earnings per share 8 From continuing operationsBasic 3.06p 1.03p Diluted 3.06p 1.02p From continuing and discontinued operationsBasic 1.63p 1.82p Diluted 1.62p 1.81p * The comparative figures are restated for the reasons set out in note 3 with noimpact on the profit for that year. Macfarlane Group PLC Consolidated statement of recognised income and expense For the year ended 31 December 2007 2007 2006 £000 £000 Exchange differences on translation of overseas 78 (764)operationsExchange differences realised on disposal of subsidiary 670 -companies Exchange difference on translation of foreign 748 (764)operationsActuarial gains on defined benefit pension 393 5,835schemesTax on items taken directly to equity actuarial (111) (1,751)gainlong-term rate change (270) - Net income recognised directly in equity 760 3,320Profit for the year 1,830 2,051 Total recognised income and expense for the year 2,590 5,371 Macfarlane Group PLC Consolidated reconciliation of movements in shareholders' equity For the year ended 31 December 2007 Note 2007 2006 £000 £000 Profit for the year 1,830 2,051Dividends to equity holders in the year 7 (2,252) (1,125)Net income recognised directly in equity (as 760 3,320above)Credit in respect of share based payments 82 140 Movements in equity in the year 420 4,386Opening equity 29,825 25,439 Closing equity 30,245 29,825 Macfarlane Group PLC Consolidated balance sheet at 31 December 2007 Note 2007 2006 £000 £000Non-current assetsGoodwill 18,646 18,973Property, plant and equipment 9,637 13,112Investment property - 1,701Other receivables 872 1,057Deferred tax asset 3,917 4,560 Total non-current assets 33,072 39,403 Current assetsInventories 8,095 9,811Trade and other receivables 31,108 29,508Deferred tax asset 1,665 -Cash and cash equivalents 348 2,195 Total current assets 41,216 41,514Non-current assets classified as held for sale 9 4,238 - 45,454 41,514 Total assets 78,526 80,917 Current liabilitiesTrade and other payables 28,087 26,710Current tax liabilities 407 663Obligations under finance leases 182 44Bank overdrafts and loans 3,252 7,747Liabilities directly associated with assets 9 1,409 -classified as held for sale Total current liabilities 33,337 35,164 Net current assets 12,117 6,350 Non-current liabilitiesRetirement benefit obligations 11 14,272 15,873Other creditors 169 -Obligations under finance leases 503 55 Total non-current liabilities 14,944 15,928 Total liabilities 48,281 51,092 Net assets 30,245 29,825 EquityShare capital 28,755 28,755Revaluation reserves 70 167Own shares (1,406) (1,406)Translation reserves (52) (800)Retained earnings 2,878 3,109 Total equity 30,245 29,825 Macfarlane Group PLC Consolidated cash flow statement For the year ended 31 December 2007 Note 2007 2006 £000 £000 Net cash from operating activities 10 4,025 160 Investing activitiesInterest received 46 9Disposal of subsidiary undertaking 3,088 2,102Acquisition of subsidiary undertaking (800) (1,262)Proceeds on disposal of property, plant and 44 1,472equipmentPurchases of property, plant and equipment (988) (604) Net cash from investing activities 1,390 1,717 Financing activitiesDividends paid 7 (2,252) (1,125)Repayments of obligations under finance leases (34) (268)Decrease in bank overdrafts (4,495) (83) Net cash used in financing activities (6,781) (1,476) Net (decrease)/increase in cash and cash (1,366) 401equivalents Cash and cash equivalents at beginning of year 2,195 1,794 Cash and cash equivalents at end of year 829 2,195 Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 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 2007 and 31 December 2006 respectively.The information for the year ended 31 December 2006 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. The auditors' report on those accountswas unqualified pursuant to Section 235 of the Companies Act 1985 and did notcontain a statement under sub-section 237 (2) or (3) of that Act. The auditors' report on the statutory financial statements for the year ended 31December 2007 was unqualified pursuant to Section 235 of the Companies Act 1985and did not contain a statement under sub-section 237 (2) or (3) of that Act. 2. Split between continuing and discontinued activities 2007 2006 Continuing Discontinued Total Continuing Discontinued Total £000 £000 £000 £000 £000 £000 Revenue 119,737 18,312 138,049 106,313 23,754 130,067Cost of sales (81,442) (12,082) (93,524) (72,522) (15,978) (88,500) Gross profit 38,295 6,230 44,525 33,791 7,776 41,567Distribution costs (5,791) (881) (6,672) (5,490) (1,029) (6,519)Administration costs (29,453) (5,027) (34,480) (26,294) (6,508) (32,802)Non-recurring netproperty gains 14 - 14 - - - Operating profit 3,065 322 3,387 2,007 239 2,246Net finance costs (598) (140) (738) (534) (197) (731) Profit before tax 2,467 182 2,649 1,473 42 1,515Tax 979 2 981 (315) 2 (313) Profit after tax 3,446 184 3,630 1,158 44 1,202(Loss)/profit on disposalof operations - (1,800) (1,800) - 849 849 Profit for the year 3,446 (1,616) 1,830 1,158 893 2,051 3. Segmental information The Group's activities are centred on two principal activities, with thosemanufacturing operations discontinued in the current and prior years disclosedseparately. (i) Packaging Distribution The Distribution of packaging materials and supply of storage and warehousingservices in the UK. (ii) Manufacturing Operations The manufacture and supply of self-adhesive and re-sealable labels to a varietyof FMCG customers in the UK and Europe and the manufacture, assembly and supplyof timber, corrugated and foam-based packaging materials in the UK. Discontinued Operations The Manufacturing Operations in US/Mexico were sold in the second half of 2007and are classified as discontinued in the consolidated income statement. Inaddition the decision to dispose of the Group's plastic injection-mouldingoperation was taken in the first half of 2007. Consequently the results of thisoperation for 2006 were re-classified as discontinued operations in theconsolidated income statement. Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 3. Segmental information (continued)Packaging Distribution 2007 2006 £000 £000 Revenue 92,654 80,853Cost of sales (64,565) (56,650) Gross profit 28,089 24,203 Net operating expenses (26,751) (23,767) Operating profit 1,338 436 Manufacturing OperationsRevenue 27,083 25,460Cost of sales (16,877) (15,872) Gross profit 10,206 9,588 Net operating expenses (8,479) (8,017) Operating profit 1,727 1,571 2007 2006 £000 £000 Packaging Distribution 1,338 436Manufacturing Operations 1,727 1,571 Operating profit 3,065 2,007Net finance costs (598) (534) Profit before tax 2,467 1,473Tax 979 (315) Profit from continuing operations 3,446 1,158(Loss)/profit from discontinued operations after (1,616) 893tax Profit after tax and discontinued operations 1,830 2,051 2007 2006Group segment £000 £000 Packaging Distribution 16,510 16,425Manufacturing Operations 10,906 13,400 Continuing operations 27,416 29,825Discontinued operations 2,829 - Net assets 30,245 29,825 4. Non-recurring net property gains An investment property was sold during 2007 for a consideration of £2,386,000realising a gain of £539,000 which has been offset by amounts totalling £525,000due under certain of the Group's vacant properties. Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 5. Net finance expense 2007 2006 £000 £000 Interest on bank loans and overdrafts (446) (292)Interest on obligations under finance leases (24) (12)Interest cost of pension scheme liabilities (3,075) (2,992) Total finance expense (3,545) (3,296) Expected return on pension scheme assets 2,900 2,631Investment income 47 131 Total finance income 2,947 2,762 Net finance expense (598) (534) 6. Tax 2007 2006 £000 £000Current taxUnited Kingdom corporation tax at 30% (2006: 30%) - (57)Foreign tax (66) (86)Adjustments in respect of prior periods (228) 187 Current tax (charge)/credit (294) 44Deferred taxation credit/(charge) 1,273 (359) Total tax credit/(charge) 979 (315) The major feature of the 2007 tax credit relates to the recognition of adeferred tax asset for the Group's corporation tax losses. A value of £1,665,000has been recognised in the current year for the first time as it is now regardedas more likely than not that these losses will be recovered within the shortterm. The standard rate of tax for the year, based on the UK rate of corporation taxis 30% (2006 - 30%). Taxation for other jurisdictions is calculated at the ratesprevailing in the respective jurisdictions. The deferred tax credit includes acharge of £385,000 in relation to the reversal of the deferred tax asset on thepension deficit. £47,000 of this charge relates to the change in the long-termrate of tax from 30% to 28% with effect from April 2008. The actual tax charge for the 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: Profit before taxation 2,467 1,473 Tax on profit at 30% (740) (442)Factors affecting tax charge for the year:-Depreciation in excess of capital allowances 8 (216)Tax charge on contributions to defined benefit pension (385) (380)schemeNon taxable gain 162 -Other differences 171 (353)Tax losses utilised 299 836Tax losses recognised as a deferred tax asset 1,665 -Difference on overseas tax rates 27 53Adjustments in respect of prior periods (228) 187 Tax credit/(charge) for the year 979 (315) Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 7. Dividends 2007 2006 £000 £000Amounts recognised as distributions to equity holders inthe year:Final dividend for the year ended 31 December 2006 of 1.00pper share (2006 - Nil) 1,126 -Interim dividend for the year ended 31 December 2007 of1.00p per share (2006 - 1.00p per share) 1,126 1,125 2,252 1,125 Dividends are not payable on own shares held in the employee share trust. The proposed final dividend of 1.00p per share will be paid on 12 June 2008 tothose shareholders on the register at 23 May 2008 and is subject to approval byshareholders at the Annual General Meeting in 2008 and has not been included asa liability in these financial statements. 8. Earnings per share From continuing and discontinued operations The calculation of the basic and diluted earnings per share is based on thefollowing data: 2007 2006 £000 £000Earnings from continuing and discontinued operations forthe purposes of earnings per share being profit for theyear 1,830 2,051Add/(less) Loss/(profit) for the year from discontinued 1,616 (893)operations Earnings from continuing operations for the purposes ofearnings per share being profit for the year fromcontinuing operations 3,446 1,158 Number of shares in issue for the purposes of calculating 2007 2006basic and diluted earnings per share No. of No. of shares '000 shares '000 Weighted average number of ordinary shares in issue 115,019 115,019Own shares in Employee Share Ownership Trusts (2,491) (2,491) Weighted average number of shares in issue for the purposes of basic earnings per share 112,528 112,528Effect of dilutive potential ordinary shares due to share 166 601options Weighted average number of shares in issue for thepurposes of diluted earnings per share 112,694 113,129 9. Discontinued operations, non-current assets and current liabilitiesclassified as held for sale In April 2007 the Board decided to divest the Plastics business. In October2007, the Group's US and Mexican Packaging manufacturing subsidiaries were sold,following a decision to divest taken in May 2007. As the decisions to sell therespective businesses were taken before 31 December 2007, the results of thebusinesses for 2006 and 2007 are classified as discontinued operations in theconsolidated income statement. The components of the Plastics business's balancesheet are classified as non-current assets and current liabilities held for saleat 31 December 2007. In January 2006, the Group's Hungarian subsidiary was sold and the gain ondisposal is reflected in the 2006 results. Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 9. Discontinued operations, non-current assets and current liabilitiesclassified as held for sale 2007 2006Manufacturing Operations £000 £000 Revenue 18,312 23,754Cost of sales (12,082) (15,978) Gross profit 6,230 7,776 Net operating expenses (5,908) (7,537) Operating profit 322 239Net interest paid (140) (197)(Loss)/gain on disposal of subsidiary undertaking (1,800) 849 (Loss)/profit before tax (1,618) 891Tax 2 2 Post-tax (loss)/profit from discontinued operations (1,616) 893 (Loss)/gain on disposal of subsidiary undertaking Goodwill 327 -Property, plant and equipment 1,107 167Inventories 723 265 Trade receivables 4,022 902Cash and cash equivalents 249 591Trade payables (1,109) (485) Net assets disposed of 5,319 1,440Accumulated foreign exchange loss on disposal (670) -(Loss)/gain on disposal of subsidiary undertaking (1,130) 900 Total consideration 3,519 2,340 Cash 3,337 2,153Deferred consideration 182 187 Total consideration 3,519 2,340 Non-current assets held for sale The major classes of assets and liabilities comprising the operations classifiedas held for sale at 31 December 2007 are as follows:- 2007 2006 £000 £000 Property, plant and equipment 2,064 -Inventories 455 - Trade receivables 1,238 -Cash and cash equivalents 481 - Total assets classified as held for sale 4,238 -Trade and other payables (1,290) -Deferred tax liabilities (119) - (1,409) - Total net assets classified as held for sale 2,829 - Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 10. Notes to the cash flow statement 2007 2006 £000 £000 Operating profit Continuing operations 3,065 2,246Discontinued operations 322 - Operating profit 3,387 2,246Adjustments for:Depreciation of property, plant and equipment 2,094 2,136Gain on disposal of property, plant and equipment (539) (191) Operating cash flows before movements in working capital 4,942 4,191Decrease/(increase) in inventories 538 (681)(Increase)/decrease in receivables (4,379) 58Increase/(decrease) in payables 5,433 (999)Adjustment for pension scheme funding (1,383) (1,630) Cash generated by operations 5,151 939Income taxes paid (554) (195)Interest paid (572) (584) Net cash from operating activities 4,025 160 2007 2006 £000 £000 (Decrease)/increase in cash and cash equivalents in the year (1,366) 401Decrease in bank overdrafts 4,495 83Cash flows from debt and lease financing (586) 268 Movement in net debt in the year 2,543 752Opening net debt (5,651) (6,403) Closing net debt (3,108) (5,651) Net debt comprises:Cash and cash equivalents 348 2,195Cash and cash equivalents in business held for resale 481 -Bank overdrafts and loans (3,252) (7,747) Net bank debt (2,423) (5,552)Obligations under finance leases Due within one year (182) (44)Due outwith one year (503) (55) Closing net debt (3,108) (5,651) Cash and cash equivalents comprise cash at bank and other short-term highlyliquid investments with maturity of three months or less. Cash inflows inrespect of the discontinued operations for operating activities amounted to£821,000 for 2007, (2006 Nil) cash inflows in respect of investing activitiestotalled £2,930,000 (2006 - £2,102,000) and cash outflows from financingactivities amounted to £268,000 (2006 £Nil). Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 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. 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 2007 and the expected rates ofreturn were: Fair value Fair value Fair value Fair value 2007 2006 2005 2004Asset class £000 £000 £000 £000 Equities 28,162 26,785 24,077 19,911Bonds 16,859 16,661 16,678 15,173Other (cash) 11 184 21 37 Fair value of assets 45,032 43,630 40,776 35,121Present value of scheme (59,304) (59,503) (63,753) (52,545)liabilities Deficit in the scheme (14,272) (15,873) (22,977) (17,424)Related deferred tax asset 3,996 4,762 6,893 5,227 Net pension liability (10,276) (11,111) (16,084) (12,197) The scheme's liabilities were calculated on the following bases as requiredunder IAS 19: Assumptions 2007 2006 2005 2004 Discount rate 5.80% 5.25% 4.75% 5.25%Rate of increase in salaries 3.25% 2.75% 2.75% 2.75%Inflation assumption 3.25% 2.75% 2.75% 2.75%Life expectancy beyond normalretirement date of 65Male 21.3 years 19.5 years 19.5 years 17.2 yearsFemale 24.0 years 22.4 years 22.4 years 21.0 years Macfarlane Group PLC Notes to the financial information For the year ended 31 December 2007 11. Pension scheme (continued) 2007 2006 2005 2004Movement in scheme deficit in £000 £000 £000 £000year At 1 January (15,873) (22,977) (17,424) (17,312)Current service cost (272) (353) (298) (438)Employer contributions 1,571 1,925 746 621Curtailment gains 84 58 - -Net finance costs (175) (361) (448) (517)Actuarial gain in the period 393 5,835 (5,553) 222 At 31 December (14,272) (15,873) (22,977) (17,424) During 2007, the Group made additional payments of £1.3 million to reduce thepension scheme deficit. These payments, combined with an improvement in equityreturns and an increase from 5.25% to 5.80% in the bond yields assumed in thevaluation of the pension scheme liabilities had a positive impact on the deficitrecorded in our balance sheet. 12. Posting to shareholders and Annual General Meeting The Annual Report and Accounts will be sent to shareholders on Wednesday 9 April2008. The Annual General Meeting will take place at the Thistle Hotel, CambridgeStreet Glasgow at 12 noon on Tuesday 20 May 2008. 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 11 April 2008. This information is provided by RNS The company news service from the London Stock Exchange