Macfarlane Grp. Regulatory News (MACF)

30 August 2011

MACFARLANE GROUP'S INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2011

Ÿ Profit before tax and exceptional items up by 27% to £0.9m (2010: £0.7m)

Ÿ Sales increase by 7% to £68.5m (2010: £64.1m)

Ÿ Profit after tax and exceptional items of £0.7m (2010: £1.4m, reflecting an exceptional pension credit of £0.8m in 2010)

Ÿ Net debt of £10.4m at 30 June 2011 (30 June 2010: £9.7m)

Ÿ Group expects trading to be cash generative in second half of 2011

Ÿ Interim dividend of 0.50p per share proposed for payment October 2011 (2010: 0.50p per share)

Archie Hunter, Chairman of Macfarlane Group PLC today said: -

"In the face of ongoing economic constraints and continued raw material cost price increases, Macfarlane Group has further improved its performance in the first six months of 2011. The business has focused on recovering supplier price increases from existing customers, seeking out new business opportunities and improving efficiencies and the Group has made progress on all these fronts.

Group turnover grew in the first half of 2011 by 7% to £68.5m, (2010: £64.1m) largely attributable to price-driven sales growth. The inevitable time lag in passing on supplier price increases to customers had a resultant impact on gross margins, which reduced to 30.1% from 31.2% for the same period in 2010. Our Packaging Distribution business increased turnover by 7% to £54.8m (2010: £51.3m), reflecting supplier price increases and higher levels of new business in target sectors. Operating profit before exceptional costs in Packaging Distribution increased to £1.3m (2010: £1.2m). Our Manufacturing Operations also grew turnover by 7% to £13.7m (2010: £12.8m) with operating profit before exceptional items remaining at £0.1m (2010: £0.1m). Our net interest cost for the period reduced by £0.1m and consequently, the Group recorded a 27% increase in profit before tax and exceptional items to £0.9m (2010: £0.7m).

The Group's pension deficit at 30 June 2011 was £15.6m (31 December 2010: £15.7m). Although some movements in the pension deficit, such as stock market movements, remain outwith our control, further measures to reduce the deficit are planned. Net debt at 30 June 2011 of £10.4m, is higher than at the level at 30 June 2010 when it was £9.7m. The Group is again expected to be cash generative in the second half of the year and as a result, we anticipate debt levels reducing by the year-end. The Board proposes that the interim dividend be maintained at its 2010 level of 0.50p per share, to be paid on 13 October 2011.

Trading in the second half of 2011 has started satisfactorily. Our Packaging Distribution business is concentrating on further performance improvement with particular focus on the development of the business in the third party logistics sector and presentational and retail packaging together with ongoing programmes for new business generation and cost reduction. Packaging Manufacturing is making good progress in key customer sectors and, although it is experiencing serious market pressures in its traditional self-adhesive label business, Labels continues to see growth in its Reseal-it™ business. The focus of the Group continues to be on organic growth of market share.

Whilst trading conditions will continue to be challenging and the outlook for the economy remains uncertain, nevertheless, the Board expects the Group to continue to deliver to its expectations for 2011."

Notes to Editors:

Macfarlane Group PLC is a UK-based group of companies focused on packaging-related activities. The Packaging Distribution business is the leading UK distributor of a comprehensive range of packaging consumable products. The Manufacturing Operations comprise the manufacture of transit packaging and the manufacture of self-adhesive and re-sealable labels. Headquartered in Glasgow, Scotland, Macfarlane Group employs 700 people at 22 sites, principally in the UK and Ireland, servicing 20,000+ customers, in a wide range of sectors including: consumer goods; logistics; electronics; food manufacturing and retailing; internet and home retailing.

Interim Results - Management Report

Macfarlane Group's trading activities comprise two divisions, Packaging Distribution and Manufacturing Operations.

Packaging Distribution

The Macfarlane Packaging Distribution business is the leading UK distributor of a comprehensive range of packaging consumable products. In a highly fragmented market, Macfarlane is the market leader with a market share estimated at 20%. The business operates through 17 Regional Distribution Centres (RDCs) supplying customers on a local, regional and national basis. We benefit customers by enabling them to ensure their products are cost-effectively protected in transit and storage by providing them with a broad product range, single source supply, just in time delivery and tailored stock management programmes.

In the first six months of 2011, operating profit achieved by Macfarlane Packaging Distribution before exceptional items was £1.3m, (2010: £1.2m). The supplier price increases experienced in 2010 continued to feature in 1H 2011 particularly on paper and polymer related products. Management of these increases and working with the customer base to offset their impact were the key priorities in the first half of the year. However we were also able to build momentum with a number of our key strategic initiatives.

The main features of our 1H 2011 performance were:

l Sales at £54.8m were 7% above the same period in 2010, reflecting price inflation as well as a modest recovery in demand across a number of the key customer sectors we supply;

l New business revenue remains strong and is ahead of 2010 levels;

l Supplier price inflation has been significant in 1H 2011 and the time lag in recovering these increases from our customer base caused our gross margin to reduce to 29.2% compared with 29.9% in 1H 2010;

l Our operating costs (before exceptional items) increased by almost 4% compared to 2010, primarily driven by incremental expenditure to support the development of our strategic initiatives. However overheads as a percentage of sales are lower than in 2010;

l During 1H 2011 we commenced the relocation of the RDC at Hayes to lower cost premises; and

l There has been good progress on a number of the key strategic initiatives with momentum building particularly in the development of our business in the third party logistics sector ("3PL"), the increasing importance of our web-based presence through www.macfarlanepackaging.com and some good new business penetration following the launch of our presentational and retail packaging ("PRP") business.

We expect demand to remain subdued in the second half of 2011 and therefore our focus will be on a selection of key areas:

l We have created strong new business momentum and we will look to strengthen this further in 2H 2011, as we expand our focus in specific industry sectors, which benefit from Macfarlane's national coverage;

l Supplier pricing remains volatile and we will work closely both with our suppliers and customers to recover gross margin in 2H 2011;

l Work is under way to further reduce the long-term property costs of our Packaging Distribution business;

l We will accelerate the development of our key strategic initiatives, particularly our penetration of the 3PL sector, the roll out of our PRP business and utilising our web-based packaging service, www.macfarlanepackaging.com to improve new business growth and customer retention; and

l Continued implementation of productivity improvement initiatives through Best Practice programmes will help support all RDCs to ensure that they operate to their full potential.

Interim Results - Management Report (continued)

Manufacturing Operations

Macfarlane's manufacturing businesses comprise Labels producing self-adhesive and re-sealable labels and Packaging Manufacturing producing bespoke, composite transit packaging and protective packaging components.

In the first half of 2011 the Manufacturing Operations recorded an operating profit before exceptional items of £0.1m (2010: £0.1m). Key features of the performance in the first six months of 2011 were:

l Sales increased by 7% versus 1H 2010 as we experienced some recovery in demand, particularly in the industrial manufacturing sector; and

l Gross margins decreased to 33.4% compared with 36.4% in 1H 2010 reflecting margin pressures in all our businesses.

Labels operates from two plants, Kilmarnock and Dublin, designing and producing high quality self-adhesive and re-sealable labels primarily for consumer packs.

In the first half of 2011 sales revenue was 6% ahead of the same period in 2010 reflecting an increase in volume of 2% and a recovery of some raw material price increases. However the self-adhesive label sector remains extremely competitive as retailer pressure continues to impact margins unfavourably. The position in the re-sealable sector is more positive and we have generated good first half growth. New product sectors are beginning to adopt the re-sealable label format and we have identified growth opportunities with our Reseal-it™ product in both Europe and the USA.

Labels experienced significant cost increases from the supplier base in 2010 and in the current environment it has still not been possible to pass on these price increases fully to our customer base. As a result, profit in the first half of 2011 was below that achieved in the same period in 2010, primarily due to the margin weakness in the particularly competitive self-adhesive sector.

We operate Packaging Manufacturing operations from two UK sites - Grantham and Westbury, both of which manufacture custom-designed packaging solutions for customers who require cost-effective methods of protecting higher-value products in storage and transit.

Sales in our UK Packaging Manufacturing operations were 8% ahead of the same period in 2010 as demand recovered in a number of the key sectors of UK industry that we serve. However gross margins weakened due to the difficulty in recovering supplier price increases and as a result, Packaging Manufacturing profit in 1H 2011 was marginally below that achieved in 2010.

Our priorities for the Manufacturing Operations in the second half of 2011 are to:

l Continue to work with our customer base in Labels to recover supplier price increases;

l Increase our new business momentum in the UK self-adhesive labels market, particularly in the branded sectors in order to create a more balanced customer portfolio;

l Accelerate the Reseal-it™ growth momentum through improved geographic penetration, extending the Reseal-it™ product range and introducing Reseal-it™ to new product sectors;

l Focus on both operational and customer service improvements at our Westbury Packaging Manufacturing site;

l Improve margins in Packaging Manufacturing through increased focus on supplier price recovery;

l Accelerate current Packaging Manufacturing sales momentum, particularly in key sectors; and

l Continue to strengthen the relationship between our Packaging Manufacturing operations and Packaging Distribution operations to create both sales and cost synergies.

Summary and Future Outlook

The outlook for the UK economy remains uncertain and it is clear that trading conditions will continue to be challenging. The immediate priority is to ensure that we successfully manage through this period to restore margin stability, whilst growing sales and maintaining tight cost control.

The future progress of the business is dependent on the successful execution of our plans in respect of strategic development opportunities. To date there has been good momentum in these plans and this will be accelerated in 2H 2011.

The Macfarlane business is well positioned and focused for both the short and medium-term. There is a range of both operational and strategic initiatives being implemented, which will enable the business to continue to improve financial performance and ensure the business achieves its full potential.

The principal risks, which could impact on the performance of the Group, were outlined in our Annual Report and Accounts for 2010 (available on our website at www.macfarlanegroup.net). These risks and uncertainties remain substantially the same for the remaining six months of the financial year and the key risks are summarised below: -

l Profitability is sensitive to supplier price changes, whether caused by movements in commodity-based raw material price movements or in manufacturers' energy and fuel costs;

l In Packaging Distribution, our recruitment and retention of staff with good local market knowledge is vital to compete in local and regional markets;

l In Manufacturing Operations, there is a high dependency on a small number of major customers;

l Both our businesses serve a wide range of customers in the UK. The customer base covers a range of UK market sectors, therefore a prolonged UK economic slowdown would adversely affect the Group's results;

l The Group's liquidity risk is managed by ensuring adequate access to appropriate levels of committed bank facilities. Further information is set out in note 1;

l The Group's principal credit risk is attributable to its trade receivables which are presented in the balance sheet net of allowances for doubtful receivables as estimated by management; and

l The Group's pension scheme deficit is very sensitive to movements in interest rates, inflation and longevity assumptions.

The Group operates a formal framework for the identification and evaluation of the major business risks faced by each business and determines an appropriate course of action to manage these risks.

Cautionary Statement

This announcement has been prepared solely to provide additional information to shareholders 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 announcement contains certain 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 announcement. Such statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. These statements should be treated with caution as 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.

Statement of Directors' Responsibilities

The Directors of Macfarlane Group PLC are

A.S. Hunter Chairman

P.D. Atkinson Chief Executive

G. Bissett Non-Executive Director

J. Love Finance Director

K.D. Mellor Non-Executive Director and Senior Independent Director

The directors confirm that, to the best of their knowledge

(i) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

(ii) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(iii) the interim management report includes a fair review of the information required under DTR 4.2.8R (disclosure of related party transactions and material changes therein).

Approved by the Board of Directors on 30 August 2011 and signed on its behalf by

…………………. ………………………

Peter D Atkinson John Love

Chief Executive Finance Director

INDEPENDENT REVIEW REPORT TO MACFARLANE GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2011, which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated balance sheet, the consolidated cash flow statement and related notes 1 to 12. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1 the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in the half yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of the persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Glasgow

United Kingdom

30 August 2011

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2011

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2011

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2011

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2010

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE YEAR ENDED 31 DECEMBER 2010

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED BALANCE SHEET AT 30 JUNE 2011 (UNAUDITED)

MACFARLANE GROUP PLC

CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2011

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of preparation

This condensed set of financial statements for the six months ended 30 June 2011 has been prepared on the basis of the accounting policies set out in the Group's 2010 statutory accounts. There have been no changes in accounting policies in the six months ended 30 June 2011. The condensed set of financial statements has also been prepared in accordance with the recognition and measurement criteria of IFRS's and the Disclosure and Transparency Rules of the Financial Services Authority. These condensed financial statements constitute a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules. The Group has applied IAS 34 "Interim Financial Reporting" as adopted by the European Union in the preparation of this condensed set of financial statements.

The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Interim Management Report on pages 1 to 4.

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, which is heightened as a result of the difficulties customers may face in the current climate, 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 the current uncertain economic outlook.

The Group's principal banking facility of £12.0 million has been renewed until 29 February 2012 and 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 experiencetaking 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. The Group has held preliminary discussions with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that renewal may not be forthcoming on commercially acceptable terms.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing this condensed set of financial statements.

These condensed financial statements were approved by the Board of Directors on 30 August 2011.

This condensed set of financial statements is unaudited but has been formally reviewed by the auditors and their report to the Company is set out on page 5.

2. General information

The information for the year ended 31 December 2010 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, but has been extracted from the Group's statutory accounts, which have been filed with the Registrar of Companies. The auditors' report on these statutory accounts was unqualified pursuant to Section 498 of the Companies Act 2006 and did not contain a statement under either Section 498 (2) or Section 498 (3) of that Act.

The interim report will be posted to shareholders on 9 September 2011. Copies will be available from the registered office, 21 Newton Place, Glasgow G3 7PY and available on the Company's website, www.macfarlanegroup.net, from that date.

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 75% of Group turnover and profit and as such, the Group has elected to combine the remaining operations for the manufacture and supply of self-adhesive and resealable labels to a variety of FMCG customers in the UK & Europe and the design, manufacture and assembly of timber, corrugated and foam-based packaging materials in the UK into one segment headed Manufacturing Operations. None of the individual business segments within Manufacturing Operations represent more than 10% of Group turnover and profit.

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

During 2010, Macfarlane Group PLC, made the decision to amend benefits for active members in the scheme by freezing pensionable salaries at the levels current at 30 April 2009. Following a consultation process with the active members affected, the change took effect on 30 April 2010. As a result no further salary inflation applied for active members who elected to remain in the scheme and a curtailment gain of £1,200,000 was recorded as a result of this change.

The Group has a number of vacant and partly sub-let leasehold properties, with the majority of the head leases expiring before 2020. At 31 December 2010, the company reclassified amounts of £291,000, previously held as short-term accruals into provisions. The company also reassessed the provision made for residual lease commitments together with other outgoings for dilapidations, after taking into account existing sub-tenant arrangements and assumptions relating to later periods of vacancy. As a result an additional provision of £291,000 was made during the second half of 2010.

Exceptional items are those transactions that are material to the income statement and their separate disclosure is necessary for an appropriate understanding of the Group's financial performance.

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Tax for the first six months has been charged at 26.5% representing the best estimate of the effective tax charge for the full year. The charge in the first six months of the year is lower than the statutory rate due to a release of deferred tax on other intangible assets of £42,000 relating to the long-term corporation tax rate change as set out in note 11.

Dividends are not payable on shares held in the Employee Share Trust.

The dividend of 0.50p per share, payable on 13 October 2011 was declared on 30 August 2011 and has therefore not been included as a liability in these condensed financial statements.

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Cash and cash equivalents (which are presented as a single class of assets 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.

MACFARLANE GROUP PLC

SIX MONTHS ENDED 30 JUNE 2011

NOTES TO THE GROUP CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

10. Retirement benefit obligations

The figures below have been based on the results of the triennial actuarial valuation as at 1 May 2008, updated to 30 June 2011, 31 December 2010 and 30 June 2010. The assets in the scheme, the net liability position of the scheme as calculated under IAS 19 and the principal assumptions were:

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