Macfarlane Grp. Regulatory News (MACF)

23 February 2017

ANNUAL RESULTS FOR THE YEAR TO 31 DECEMBER 2016

Macfarlane Group PLC made further good progress in 2016 with sales of £179.8m (2015: £169.1m) up 6% on the previous year and profit before tax of £7.8m (2015: £6.8m), 15% up on the previous year. The trading performance continued the positive trends achieved in recent years and the results were in line with market expectations.

Trading

The Packaging Distribution business increased sales by 9% to £155.9m (2015: £143.0m). Organic sales growth was challenging in the first half of the year but strengthened in the second half of the year to 3%. This was supplemented by the contributions from Nelsons for Cartons & Packaging ("Nelsons"), acquired in July 2016, Colton Packaging Teesside ("Colton") and the packaging business of Edward McNeil ("McNeil") acquired in April 2016 and May 2016 respectively. Integration of these businesses has worked well and the combination of organic growth and the contributions from the acquired businesses resulted in Packaging Distribution achieving a 16% increase in operating profit to £7.8m (2015: £6.8m).

Sales in our Manufacturing Operations at £23.9m (2015: £26.1m) were 9% down on the previous year. This was mainly due to management actions to rebalance the mix of products in our Labels business, which positively impacted margins and resulted in Labels achieving good profit growth compared to 2015. Our Packaging Design and Manufacture business recovered from a poor first half of the year, but despite the recovery, the full year profit for Packaging Design and Manufacture was lower than in 2015. The overall Manufacturing Division operating profit in 2016 amounted to £0.9m, slightly below the 2015 result of £1.0m.

After charging interest of £0.9m (2015: £1.0m), Group profit before tax amounted to £7.8m (2015: £6.8m) an increase of 15%.

Dividend

The Board remains committed to providing shareholders with an appropriate return on investment and is proposing a final dividend of 1.40 pence per share, amounting to a full year dividend of 1.95 pence per share, a 7% increase on the prior year's dividend of 1.82 pence per share. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 9 May 2017, this dividend will be paid on Thursday 8 June 2017 to those shareholders on the register at Friday 12 May 2017.

Net Bank Debt and Pension Scheme

As a consequence of the acquisitions undertaken during 2016, the Group's net bank borrowing at 31 December 2016 increased to £15.3m from £11.6m at the prior year-end. The Group's existing bank facility with Lloyds Banking Group of £25.0 million is available until June 2019 and accommodates normal working capital requirements as well as supporting acquisition funding. A further option is available to extend the facility to £30.0m in the period.

The Group's pension deficit increased as a result of the widely reported fall in gilt yields which reduced the discount rate used to measure the scheme's liabilities. Whilst much of the increase in liabilities resulting from the lower discount rate was offset by the scheme's holding in liability-driven investments, the deficit at 31 December 2016, rose by £3.0m to £14.5m (2015: £11.5m).

Outlook

The Board is confident that its strategy to position the business to serve key growth markets continues to be effective.

Commenting on the 2016 results, Graeme Bissett, Chairman, said:

"The 15% increase in pre-tax profits in 2016 represents the seventh consecutive year of profit growth for Macfarlane Group and the Group has started 2017 well.

We will continue to focus on opportunities in sectors with strong growth prospects (including internet retail, third party logistics and National Accounts) and to deliver high standards of service to all customers across a wide range of sectors. We will also maintain our programme of acquiring good quality businesses to augment organic growth.

This is a strategy based on taking positive action, which has served all stakeholders in our business well in recent years and we remain confident that it will continue to do so."

Notes to Editors:

· Macfarlane Group PLC is listed on the London Stock Exchange (LSE: MACF) in the Industrials Sector.

· The company has more than 60 years' experience in the UK packaging industry.

· Macfarlane Group's businesses are:

o Macfarlane Packaging is the leading UK distributor of a comprehensive range of protective packaging products.

o Labels designs and prints high quality self-adhesive and resealable labels, principally for FMCG companies.

o Packaging Design and Manufacture specialises in designing and producing protective packaging for high value, fragile products.

· Macfarlane Group is headquartered in Glasgow, Scotland, and employs over 800 people at 29 sites, principally in the UK and Ireland.

· The company has 20,000+ customers in the UK, Europe and the USA providing 600,000+ lines to a wide range of industry sectors including: consumer goods; food manufacturing; logistics; internet retail; mail order; electronics; defence and aerospace.

Macfarlane Packaging Distribution is the leading UK specialist distributor of protective packaging materials. In what is a highly fragmented market, Macfarlane operates from 20 Regional Distribution Centres (RDCs) supplying customers with a comprehensive range of protective packaging materials on a local, regional and national basis.

Competition in the distribution market is from local and regional protective packaging specialist companies and 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 and regular monitoring of customer service, its breadth and depth of product offer and through the recruitment and retention of staff with good local market knowledge. On a national basis Macfarlane Packaging has focus, expertise and a breadth of product and service knowledge all of which enables it to compete effectively against non-specialist packaging distributors.

Macfarlane Packaging 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 supply, Just In Time delivery, tailored stock management programmes, electronic trading and independent advice on both packaging materials and packing processes.

Macfarlane Packaging Distribution grew sales by 9% over 2015 comprising 1% organic growth in the base business and 8% from the contribution of the 2016 acquisitions of Nelsons, Colton and McNeil as well as the incremental contribution from the 2015 acquisition of One Packaging Limited. The business achieved growth in the supply of protective packaging to internet retailers both directly and through our partnerships with major Third Party Logistics ("3PL") customers and the organic growth rate strengthened during the second half of 2016 to 3%. During 2016 we opened our new Innovation Lab which contributed to a number of new business wins in the second half of 2016. The Innovation Lab will play a key role in our sales growth plans in 2017 and beyond.

The changing mix of customers and input price increases on polymer based products impacted gross margin, which at 29.0%, was slightly below the 29.5% achieved in 2015.

Overheads increased as a result of the impact of acquisition, but cost control remained strong with an improving overhead to sales ratio of 24.0% compared with 24.8% in 2015. Operating profit in the Packaging Distribution business at £7.8 million grew by 16% versus 2015.

Future Plans

Our plans continue to be focused on those markets showing growth, building market share and improving profitability through the following actions:

l Maintaining our focus on the growth potential for protective packaging in our key market segments - the e-commerce sector, National Accounts and 3PL operators;

l Accelerating the growth in new business through effective use of our new Innovation Lab where we can fully showcase our Total Cost of Packaging solutions;

l Continuing to develop our web-based presence through www.macfarlanepackaging.com and our Customer Connect offering to improve online visibility and provide customers with a more effective way to access our full range of products and services;

l Integrating recently acquired businesses and companies following the completion of the respective earn-out periods;

l Supplementing organic growth through the identification and completion of further suitable high quality acquisition opportunities;

l Improving the awareness of our membership of NovuPak, for UK based customers requiring our capabilities on a wider European basis;

l Reducing operating costs by evaluating opportunities to consolidate the more fragmented parts of the existing property footprint;

l Improving our sourcing capabilities and our partnerships with key strategic suppliers;

l Implementing further operational savings in logistics by expanding the use of the Paragon vehicle management system and implementation of our warehouse best practice programme; and

l Maintaining the focus on working capital management to reduce borrowing levels.

Macfarlane's Manufacturing Operations comprise our Packaging Design and Manufacture business and our Labels business.

The principal activity of the Packaging Design and Manufacture business is the design, manufacture and assembly of custom-designed 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 business operates from two manufacturing sites in Grantham and Westbury, supplying both directly to customers and also through the RDC network of the Packaging Distribution business.

Key market sectors are defence, aerospace, medical equipment, electronics and automotive. The markets in which we operate 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 Macfarlane Packaging Distribution.

2016 sales for Packaging Design and Manufacture were 4% above those in 2015 albeit with volatile demand in certain market sectors. This caused changes to customers' ordering patterns, resulting in increased operating costs in the first half of the year. This resulted in 2016 profitability being below that achieved in 2015. However actions implemented in the second half of 2016 showed improved profitability and the business has created a strong pipeline of new customer relationships, which should benefit the business in 2017.

Future Plans

The priorities for 2017 are:

l Accelerate sales growth, particularly in target market sectors e.g. defence, aerospace and medical;

l Prioritise sales activity on the higher added-value bespoke composite pack product range; and

l Continue to strengthen the relationship between our Packaging Design & Manufacture operations and our Packaging Distribution business to create both sales and cost synergies.

Our Labels business designs and prints self-adhesive labels for major FMCG customers in the UK and Europe and resealable labels for major customers in the UK, Europe and the USA. The business operates from production sites in Kilmarnock and Wicklow and a sales and design office in Sweden, which focuses on the development and growth of our resealable labels business, Reseal-it.

The Labels business has a high level of dependency on a small number of major customers. Management works closely with these key customers to ensure high levels of service and to introduce product and service development initiatives to achieve competitive differentiation.

Although sales in 2016 were 15% down on 2015, this was in line with our plans as we proactively exited relationships with lower margin customers, mainly in the lower added value and increasingly competitive self-adhesive labels market. As the issues of food waste and easy to open packs become higher profile, the demand for resealable packaging is creating growth opportunities for the Macfarlane Labels' Reseal-it range. This focus on Reseal-it resulted in improved margins in 2016 and was the key contributor to an improved profit performance compared to 2015.

Future Plans

The priorities for Labels in 2017 are: -

· Maintenance of the strategic focus on higher added value products and services to rebalance sales between our resealable and self-adhesive label ranges;

· Continued improvement in operational efficiency to mitigate sales price pressure; and

· Further development of the Reseal-it product in the US through the Printpack partnership, in Europe through new business wins and in the UK through penetration with key retailers.

2017 Outlook

We will concentrate our sales efforts on those segments of the market, such as e-commerce, which are forecast to show continued above average growth rates and where customers recognise the real value of a specialist protective packaging distributor.

During 2017 we will look at opportunities for growth through the acquisition of good quality protective packaging businesses that improve our penetration of target market sectors, leverage our property footprint or improve our geographic coverage.

Macfarlane Group's businesses all have good market positions with strong differentiated product and service offerings. Our business model is flexible and we have a clear strategic plan, which is being effectively implemented, as reflected in our track record of consistent, profitable growth.

Our future performance will be largely dependent on our own efforts to grow sales, increase efficiencies and bring high quality acquisitions into the Group. We operate a flexible business model and our ability to focus on the most attractive UK market sectors for our products and services, combined with our successful track record of growth and acquisitions, gives us confidence that 2017 will be another year of progress for Macfarlane Group.

The principal risks and uncertainties faced by Macfarlane Group and 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.

There are a number of other risks that we manage which are not considered to be key risks. In addition the Group is subject to the impact of general economic conditions, the competitive environment and risks associated with business continuity. These are all mitigated in ways that are common to all businesses and not specific to Macfarlane Group.

Viability statement

The Board of Directors has considered the Group's viability as part of the 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 has been chosen as it is consistent with the Board's review of the Group's strategy, which includes assumptions regarding future growth rates for existing businesses and acceptable levels of performance in that period. A robust financial model of the Group is built covering the three year period.

The model is subject to sensitivity analysis which includes flexing a number of the main assumptions, namely:- future revenue growth, gross margins, operating 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. The results indicated that no additional facilities would be required and assumed that the existing facilities, due for renewal in June 2019 would be renewed on the current terms. The review and analysis also considers the principal risks facing the Group as described on pages 6 and 7, which could prevent the Group from achieving its strategic objectives and the potential impact these risks could have on the Group's business model, future performance, solvency and liquidity over the assessment period.

The Directors' assessment has been made with reference to the resilience of the Group and the strength of its financial position, the Group's current strategy, the Board's risk appetite and the principal risks and how these are managed as set out on the current and previous page. Based on the assessment of these risks and the sensitivity analysis undertaken, the Directors have a reasonable expectation that the Group will continue to operate and meet its liabilities, as they fall due, for the next three years to December 2019.

Going Concern

The Directors, in their consideration of going concern, have reviewed the Group's cash flow forecasts and revenue projections, which they believe are based on past experience and what they consider to be prudent market data. The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Chairman's Statement and Business Review on pages 1 to 7.

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 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 principal banking facility is in place until June 2019. The Directors are of the opinion that the Group's cash forecasts and revenue projections, taking account of reasonably possible changes in trading performance given current market and economic conditions, show that the Group should be able to operate within its current facilities and comply with its banking covenants.

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.

Cautionary Statement

The Chairman's Statement and the Business Review on pages 1 to 7 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.

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 2016. Certain parts of the full annual report are not included within this announcement. The Directors of Macfarlane Group PLC are

G. Bissett Chairman

P.D. Atkinson Chief Executive

J. Love Finance Director

M. Arrowsmith Non-Executive Director and Senior Independent Director

S. Paterson Non-Executive Director

R. McLellan Non-Executive Director

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 as adopted by the EU, 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; and

Pursuant to Disclosure and Transparency Rules, Chapter 4, the Directors' Report of the Company's 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 faced by the business.

Peter Atkinson John Love

Chief Executive Finance Director

23 February 2017 23 February 2017

Macfarlane Group PLC

Consolidated income statement

For the year ended 31 December 2016

Macfarlane Group PLC

Consolidated statement of comprehensive income

For the year ended 31 December 2016

Macfarlane Group PLC

Consolidated statement of changes in equity

For the year ended 31 December 2016

Macfarlane Group PLC

Consolidated balance sheet at 31 December 2016

Macfarlane Group PLC

Consolidated cash flow statement

For the year ended 31 December 2016

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2016

1. General information

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements 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 2016 and 31 December 2015 respectively.

The financial statements for 2016 were approved by the Board of Directors on 23 February 2017. The auditor's report on the statutory financial statements for the year ended 31 December 2016 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 comparative figures for the financial year ended 31 December 2015 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

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 8.

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 principal bank borrowing arrangement with Lloyds Banking Group PLC comprises a committed borrowing facility of £25.0 million available until June 2019 with an additional option to increase it further to £30.0 million. 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 debtors of the Group.

The Directors are of the opinion that the Group's cash forecasts and revenue projections, which they believe are based on prudent market data and past experience taking account of reasonably possible changes in trading performance given current market and economic conditions, show that the Group should be able to operate within its current facilities and comply with its banking covenants.

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 2016.

Judgements, assumptions and estimation uncertainties

In preparing the 2016 financial statements, management has made judgements, assumptions and estimates, which affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from the amounts estimated. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Information about judgements, assumptions and estimation uncertainties made in applying accounting policies that have the most significant effect on the amounts recognised in these financial statements and therefore have the most significant risk of resulting in a material change are as follows:-

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 constitutes over 80% of Group revenue and profit. The Group's Manufacturing Operations segment comprises the design, manufacture and assembly of timber, corrugated and foam-based packaging materials in the UK, the design, manufacture and supply of self-adhesive labels to a variety of FMCG customers in the UK & Europe and the design, manufacture and supply of resealable labels to a variety of FMCG customers in the UK, Europe and the USA. No individual business segment within Manufacturing Operations represents more than 10% of Group revenue or income.

The standard rate of tax based on the UK average rate of corporation tax, is 20.00% (2015 - 20.25%). 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 20.00% (2015 - 20.25%) of the results as set out in the consolidated income statement for the reasons set out in the following reconciliation:-

In addition to the amounts shown above, a proposed dividend of 1.40p per share will be paid on 8 June 2017 to those shareholders on the register at 12 May 2017. This is subject to approval by shareholders at the Annual General Meeting on 9 May 2017 and has not been included as a liability in these financial statements.

7. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

On 5 April 2016, the Group's subsidiary, Macfarlane Group UK Limited, acquired the business of Colton Packaging Teesside, for a consideration of approximately £1.3 million. £1.1 million was paid in cash on acquisition, with the deferred consideration of £0.2 million payable in the second quarter of 2017, if the earn-out target for the year to 31 March 2017 is achieved. On 3 May 2016, Macfarlane Group UK Limited also acquired the packaging business of Edward McNeil Limited, for a consideration of approximately £1.7 million. £1.6 million was paid in cash on acquisition, with the deferred consideration of £0.1 million payable in the next twelve months, based on certain working capital targets.

On 29 July 2016, the Group acquired 100% of the issued share capital of Nelsons for Cartons & Packaging Limited, a packaging distributor, for a consideration of approximately £7.2 million. £4.7 million was paid in cash on acquisition, and £1.0 million was settled by the issue of shares. The deferred consideration of £1.5 million, is payable in two equal instalments in the final quarter of 2017 and 2018, subject to certain trading targets being met in the two twelve month periods ending on 29 July 2017 and 29 July 2018 respectively. The contingent consideration is recognised as a liability in creditors and is remeasured to fair value at the balance sheet date on a range of outcomes between £Nil and £1.5 million.

In 2015 the Group acquired 100% of One Packaging Limited for a consideration of £2.7 million. £2.0 million was paid in cash on acquisition, with the deferred consideration of £0.7 million paid in 2016 as the earn-out target for the year to 31 July 2016 has been met. In 2014 the Group acquired Network Packaging Limited with deferred consideration on acquisition of £2.6 million. £1.3 million of this was paid in 2015 with the remainder of £1.3 million paid in 2016 following the achievement of the earn-out target.

All of these businesses are accounted for in the Packaging Distribution segment. Goodwill arising on these acquisitions is attributable to the anticipated future profitability of the distribution of Group product ranges in the UK and anticipated operating synergies from future combinations of activities with the Packaging Distribution network. Fair values assigned to net assets acquired and consideration paid and payable are set out below:-

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.

10. 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"). The two major trading subsidiaries, Macfarlane Group UK Limited and Macfarlane Labels Limited are the other two sponsoring employers of the scheme.

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.

The scheme provides qualifying employees with an annual pension of 1/60 of pensionable salary for each completed year's 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.

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, with the inflationary increases is currently based on the Retail Prices Index ("RPI") measure of inflation.

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 after 1 May 2012.

The Group will consider further actions to reduce the deficit in 2017.

Balance sheet disclosures

The fair value of the scheme investments, present value of the scheme liabilities and the expected rates of return have been based on the results of the actuarial valuation as at 1 May 2014, updated to the year-end.

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. During 2016, the interest rate and inflation rate protection in the scheme was increased by adding to the Liability Driven Investment funds, a new European loan fund was added to the portfolio and both of these investments were financed by the disposal of the Corporate Bond Fund holding.

The ability to realise the Scheme's assets at, or very close to, fair value was considered when setting the investment strategy. The Scheme's investment strategy has 84% of the assets being able to 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 cashflow 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.

The scheme's liabilities were calculated on the following bases as required under IAS 19: