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MACF Macfarlane Group Plc

135.00
2.50 (1.89%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Macfarlane Group Plc LSE:MACF London Ordinary Share GB0005518872 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  2.50 1.89% 135.00 133.50 135.00 135.00 134.00 135.00 173,135 16:35:04
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Business Services, Nec 290.43M 15.64M 0.0984 13.62 213M

Macfarlane Group PLC Final Results (2725Q)

25/02/2021 7:00am

UK Regulatory


Macfarlane (LSE:MACF)
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RNS Number : 2725Q

Macfarlane Group PLC

25 February 2021

25 February 2021

ANNUAL RESULTS 2020

 
 Financial Highlights                       Restated 
                                   2020         *         Increase 
                                               2019 
 
 Turnover                       GBP230.0m   GBP225.2m         2.1% 
 Profit before tax              GBP13.0m    GBP11.9m          9.6% 
 Proposed full year dividend      2.55p       0.69p         369.6% 
 Basic earnings per share         6.45p       6.09p           5.9% 
 

* Restatement resulting in a reduction in Turnover and Profit before tax of GBP0.2m relating to backdated duty with details set out on pages 21 and 22.

Macfarlane Group PLC ("the Group") has performed well in 2020, achieving a resilient performance, which despite the challenging market conditions due to the impact of Covid-19, is ahead of our previous expectations.

At the outset of the Covid-19 pandemic, we acted decisively and responsibly to ensure that we protected the interests of our employees as well as other key stakeholders and all our sites remained operational serving customers throughout the year. The Group performance in 2020 is a testament to the quality and commitment of our people, the diversity of our customer base and our strong added value proposition.

The Board wishes to thank all of our people for their exceptional hard work and dedication, which ensured that we effectively supported our customers throughout 2020 in the most difficult circumstances.

Trading

Macfarlane Group achieved a 2.1 % increase in sales to GBP230.0m in 2020, (2019: Restated* GBP225.2m), with 2020 profit before tax increasing to GBP13.0m (2019: Restated* GBP11.9m), 9.6% ahead of 2019.

Packaging Distribution increased sales by 2.6% in 2020 to GBP201.7m (2019: GBP196.7m). Sales revenue from existing customers benefited from underlying strength in the e-commerce, household essentials and medical sectors partially offset by weaker demand from sectors most affected by Covid-19, namely automotive, aerospace, high street retail and hospitality. Sales also benefited from the 2019 acquisitions of Ecopac and Leyland Packaging, as well as the January 2020 acquisition of Armagrip. Gross margin in Packaging Distribution at 32.5% showed improvement on the prior year (2019: 31.1%) and reflected effective management of input price movements, customer mix changes and increased online activity. The growth in sales and margin was partially offset by an increase in bad debt and end of lease property provisions totalling GBP1.9m which resulted in Packaging Distribution achieving a 12.8% increase in operating profit to GBP14.0m (2019: GBP12.4m).

Sales in Manufacturing Operations at GBP28.3m (2019: Restated* GBP28.5m) showed a 0.9% decrease on the previous year. Strong demand from the food, medical and household essentials sectors in the Labels business was more than offset by weaker demand from the aerospace and automotive sectors in the Packaging Design and Manufacture business. Operating profit in 2020 decreased to GBP0.4m (2019: Restated* GBP1.1m).

After net finance costs of GBP1.4m (2019: GBP1.6m), Group profit before tax totalled GBP13.0m, GBP1.1m ahead of 2019. Basic and diluted earnings per share were 6.45p (2019: Restated* 6.09p) and 6.42p (2019: Restated* 6.07p) respectively.

Dividend

The Board is proposing a final dividend of 1.85 pence per share, amounting to a full year dividend of 2.55p pence per share, compared to the prior year dividend of 0.69 pence per share which was impacted by the cancellation of the proposed final dividend of 1.76 pence per share, as one of the key Covid-19 cash conservation measures. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 11 May 2021, the final dividend will be paid on Thursday 3 June 2021 to those shareholders on the register at Friday 14 May 2021.

Net Bank Debt

The Group's net bank borrowing at 31 December 2020 reduced to GBP0.5m from GBP12.7m at the previous year-end. The improved cash position has been achieved primarily through effective management of working capital. The full benefit of all government support and deferral programmes totalling GBP5.4m was repaid during the year. Deferred considerations on the Ecopac and Leyland acquisitions in 2019 totalling GBP1.8m were paid during 2020.

The Group's bank facility of GBP30.0m with Lloyds Banking Group has been extended until December 2025 and accommodates normal working capital requirements as well as supporting acquisition funding.

Pension Scheme

The Group's pension deficit at 31 December 2020 reduced to GBP1.5m (2019: GBP6.5m). Although the discount rate decreased, increasing the value of pension liabilities, this was offset by increases in the value of the scheme's holding in liability-driven investments and other investments.

The triennial valuation of the pension scheme on 1 May 2020 has now been concluded and the Group has agreed with the Scheme's Trustees to reduce contributions from GBP3.1m to GBP1.3m per annum with effect from 1 May 2021. The recovery period for deficit contributions now runs until April 2024.

Outlook

2021 has started well despite the ongoing impact of Covid-19. There are still significant uncertainties about the duration of disruption caused by lockdowns and the consequential impact on demand levels which means that 2021 will be another challenging year. However the Board is confident that, given the resilience seen in 2020, the strength of our business model and the commitment of our people, Macfarlane Group will progress in 2021 and is well positioned to benefit when the UK economy begins to recover.

 
 Further enquiries:   Macfarlane Group                 Tel: 0141 333 9666 
                      Stuart Paterson Chairman 
                     -------------------------------  ------------------- 
                      Peter Atkinson Chief Executive 
                     -------------------------------  ------------------- 
                      Ivor Gray Finance Director 
                     -------------------------------  ------------------- 
 
                      Spreng Thomson                   Tel: 0141 548 5191 
                     -------------------------------  ------------------- 
                      Callum Spreng                    Mob: 07803 970103 
                     -------------------------------  ------------------- 
 

Legal Entity Identifier (LEI): 213800LVRYDERSJAAZ73

Notes to Editors:

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

-- The company is headquartered in Glasgow, Scotland and has more than 70 years' experience in the UK packaging industry. Macfarlane Group's businesses are:

o Packaging Distribution is the leading UK distributor of a comprehensive range of protective packaging products;

o Manufacturing Operations which includes Labels, which designs and print high quality self-adhesive and resealable labels, principally for FMCG companies, and Packaging Design and Manufacture, which designs and produce protective packaging for high value, fragile products.

-- Macfarlane Group employs over 850 people at 31 sites, principally in the UK, but also in Ireland, Sweden and Holland.

-- The company has 15,000+ 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.

MANAGING THE COVID-19 PANDEMIC ("Covid-19")

Background

During March 2020 the UK Government issued guidance in response to Covid-19 which introduced a national lockdown and social distancing rules. Reduced activity in the UK economy and restrictions on personal behaviour continued during 2020 and still remain in place in February 2021.

The Group's response to Covid-19 has focused on:

   --    The safety and wellbeing of our people; 
   --    Protecting our financial position; and 
   --    Maintaining service to our customers. 

The measures taken throughout the period are detailed below together with a summary of the ongoing impact on Macfarlane Group, its employees, customers and other stakeholders.

Crisis Management

A Covid-19 project team ("Covid-19 team") comprising senior managers from across the Group was established in February 2020 to review and lead the implementation of our business continuity plans. The Covid-19 team reported regularly to Executive Management and the Board.

The project team has managed the Group's response to the pandemic, adapting actions to respond to changing government legislation and advice. The team has also consulted with experts to provide ongoing learning and has benchmarked its actions against other businesses.

In the first stages, the Covid-19 team focused on implementing safety protocols for those employees working on site, the application of the furlough scheme and ensuring employees were equipped to work from home, or where required shield or self-isolate. Employees on furlough were paid 80% of their full pay throughout the furlough period, although all employees were topped-up at the Group's expense to ensure no member of staff was paid less than minimum wage.

Our Covid-19 team reviewed and implemented the Group's procedures in response to local, regional and national lockdowns, ensuring that we complied with local guidelines and continued to provide safe working environments and protection for our employees' wellbeing.

Specific initiatives included:

(a) Mental Health Awareness training for senior managers;

(b) Employee engagement activities; and

   (c)   Care packages for employees and their families. 

Financial Management

Financial modelling was completed in March 2020 which stress tested the Group's ability to survive a range of scenarios both short-term and long-term focusing on levels of customer demand and the resultant finance requirements.

Following this stress testing actions were taken to preserve cash and control costs. These actions included

(a) furloughing employees, utilising the Coronavirus Job Retention Scheme ("CJRS");

(b) deferring VAT and PAYE payments in accordance with Government pronouncements;

   (c)   cancelling the 2019 final dividend of 1.76p per share; 

(d) deferring all acquisition activity;

(e) eliminating non-essential capital and revenue spending;

   (f)   cancelling 2020 incentive schemes; 

(g) Board members waiving 25% salary for six months; and

(h) engaging with all suppliers, including landlords and pension trustees to explore the Group's ability to defer payments.

Given the uncertainty throughout the economy, the Group withdrew profit guidance to the market in March 2020.

MANAGING THE COVID-19 PANDEMIC ("Covid-19")

Financial Management (continued)

There was a strong focus by the finance teams on day to day management of working capital, including increased diligence over customer credit, the conversion of trade receivables and closely managing inventory levels in line with changing customer demand . It became clear during the second quarter of 2020 that reductions in activity would not be as severe as had been initially modelled and that there would be no requirement for the Group to seek additional finance from our bank, government supported loan schemes, suppliers or shareholders.

At the end of 2020 our committed bank borrowing facility of GBP30m was extended from June 2022 to December 2025 to provide greater financial certainty over a longer period.

Customer Impact

Customers we serve in the e-commerce retail, hygiene, household essentials, medical and food sectors demonstrated strong demand as they played a vital role in helping the country meet the challenge of Covid-19. However, customers in industrial sectors particularly aerospace and automotive were materially impacted by lockdown activity and demand levels reduced.

As the year progressed our strong customer sectors continued to perform well with recovery in some of the industrial sectors with businesses beginning to return to work as they implemented revised working protocols for their staff.

Customer Service

All our sites remained open and trading throughout 2020. Staffing levels were adjusted to service reduced demand, with social distancing and hygiene measures established to protect the health, safety and wellbeing of our staff and customers.

Our Covid-19 team reviewed and implemented the Group's procedures to re-open sites to employees who had previously worked from home. They ensured that all our employees could work in a Covid-19 safe environment including the provision of clear signage and barriers to manage social distancing, protective equipment, hand sanitising stations, temperature checking, regular cleaning and ongoing education.

All sites were risk assessed by our Health and Safety team and all external visits and assessments from the Health and Safety Executive validated that the measures taken throughout the Group were appropriate.

Managing our People

Our front line employees including warehouse, production and delivery staff were encouraged and supported to operate as normal. At the start of the third quarter, payments of GBP250 were made to all operational staff who had worked on site throughout the second quarter of the year.

The majority of our office-based staff worked successfully from home in accordance with our home working protocols.

Our Human Resources team has enhanced the health and wellbeing support available to staff, particularly for those in vulnerable groups as well as those undertaking extended periods of home working. The team ensured that all employees whether working on site or at home received regular communications regarding the Group's response to Covid-19, regular care packages including supplies of hand sanitisers and face-coverings for staff and their families and for all employees on long-term furlough, one-to-one calls to ensure their wellbeing.

All 2020 Bonus Programmes were cancelled and a new incentive programme was introduced enabling employees to participate in a Performance Award Scheme which would reward based on the profitability of their respective business.

MANAGING THE COVID-19 PANDEMIC ("Covid-19")

Communication

The 2020 AGM was held virtually, in line with government guidelines, with only directors and Registrars attending on a virtual basis.

There has been regular dialogue with shareholders to keep them updated on key operational and financial issues.

Throughout 2020 ongoing updates were held by Executive Directors with the senior management and local management teams in order to communicate progress, the sharing of ideas and addressing any concerns about how the Group was responding to the pandemic.

All employees received frequent communications providing support and guidance throughout the year. In addition to our normal communication with customers, a regular letter gave them clarity on our service offering and key business developments.

A Covid-19 Hotline was established for any employee to have direct, confidential access if they had any concerns or required additional support regarding the impact of Covid-19.

A number of surveys were carried out with both customers and employees to ensure we were fully aware of issues concerns and their priorities.

We maintained close contact with our key suppliers particularly in the final quarter of the year when volatile demand patterns created some stress within supply chains.

Financial Performance

Group sales reduced by 2.0% in the first half of 2020 compared to the same period in 2019 and net bank borrowings reduced by GBP11.9m over the six month period to GBP0.8m. We saw an increase in our bad debt experience in the second quarter.

On announcing the interim results on 27 August 2020, market guidance was restored and dividends to shareholders recommenced, with the declaration of an interim dividend of 0.70p per share which was paid in October 2020.

Following better than expected trading levels in the second quarter, CJRS monies received of GBP1.3m were repaid in full and GBP4.1m of deferred taxes were brought up to date. In total amounts equating to GBP5.4m were repaid to HMRC by the end of August 2020.

During the third quarter Group sales increased by 4.7% compared to the same period in 2019 and Group bank debt was GBP1.0m after the repayment of all CJRS monies and tax deferrals totalling GBP5.4m. In the final quarter of 2020, Group sales increased by 6.9% compared to the same period in 2019 and Group debt was GBP 0.5 m. Given the strong performance in the final quarter of the year, we were able to:-

(a) make an advance payment on account in respect of the Performance Award Scheme;

(b) apply sums totalling GBP20k usually used for Christmas cards, calendars and diaries to charitable donations for Mind, Shelter and the Trussell Trust;

   (c)   recommence discussions with acquisition targets which were put on hold in March 2020; 

(d) approve certain capital expenditure projects which will take effect in 2021; and

(e) repay sums waived from salaries by the Executive as instructed by the Remuneration Committee.

The full year 2020 performance resulted in sales of GBP230.0m, a 2.1% increase compared to 2019 and PBT of GBP13.0m compared to GBP11.9m (Restated*) in 2019. Net bank debt at the end of 2020 was GBP0.5m (2019: GBP12.7m).

MANAGING THE COVID-19 PANDEMIC ("Covid-19")

2021 and Beyond

Covid-19 continues to have a significant impact across the world constraining day-to-day life and having wide-ranging impacts on our operations.

The key impacts of Covid-19 on our business are:-

(a) There continues to be uncertainty about the duration of disruption, potential for further outbreaks and the consequential impact on demand levels caused by public health measures necessary to control the spread of the disease, including periods of lockdowns;

(b) The speed and extent to which the economy recovers will continue to create fluctuations in demand across our customer base. Some key market sectors may not fully recover for a significant period of time;

(c) The increased move from traditional high street retailing to online retailing is likely to become a more permanent shift in consumer demand patterns. The Group has seen a significant increase in business in 2020 from online retailers which has helped mitigate the reductions experienced by manufacturing and industrial customers;

(d) There has been an increase in customers placing their orders electronically both through our web-shop and our Simplicit-e electronic trading platform. We expect this trend to continue;

(e) The moves to accommodate increased reliance on remote working by employees and increased online activity;

(f) The health and wellbeing support available to staff has been enhanced, particularly for those in vulnerable groups ;

(g) The need for a strong and continued focus on day to day management of working capital, including increased diligence over customer credit, the conversion of trade receivables and managing inventory levels in line with changing customer demand; and

(h) There may be delays and difficulties in sourcing inventory and raw materials due to the disruption of suppliers' production, particularly given the overlay of new trading arrangements with the EU from 2021.

The Covid-19 pandemic has affected a number of our principal risks highlighted in the tables on pages 11 to 14. We have therefore treated Covid-19 as an event impacting many of our existing risks, rather than as a separately defined new risk.

Summary

The response by Macfarlane Group to the challenge of Covid-19 has been effective:-

-- Our people have been operating in safe conditions both in their workplace and when working from home. We have worked hard to ensure their health and wellbeing;

-- The 2020 financial results for the Macfarlane Group show a resilient performance despite challenging conditions. Sales in 2020 increased by 2.1%. PBT increased by GBP1.1m compared to 2019 (Restated*) and Group debt reduced by GBP12.2m to GBP0.5m; and

-- All our sites remained operational and we have maintained our service to customers. Our Net Promoter Score ("NPS") score in 2020 at 53 showed an improvement on 2019.

The impact of Covid-19 has been a real test for Macfarlane Group in 2020. The resilience in our performance reflects well on the strength of our business model, a well-diversified customer base operating across a wide range of industry sectors, a robust financial structure and the quality and commitment of our people.

BUSINESS REVIEW

The Covid-19 pandemic had a significant impact on Macfarlane Group in 2020. We had to quickly introduce new working practices to protect the health, safety and wellbeing of our employees, continue to provide high levels of service to our customers and ensure the financial stability of the Group.

Many of our customers depend on our packaging to supply their essential goods and services to consumers, critical businesses and the NHS. Our effectiveness in maintaining supply to our customers reflects favourably on the quality and commitment of our people and the strength of our business model.

Despite the significant challenges the Group has faced, the financial performance in 2020 has been resilient with sales growth of 2.1% and an operating profit performance 6.5% ahead of 2019.

 
                                                       Restated*    Restated* 
                                           Operating                Operating 
   Group performance           Revenue        profit     Revenue       profit 
                                  2020          2020        2019         2019 
                                GBP000        GBP000      GBP000       GBP000 
 Segment 
 Packaging Distribution        201,739        13,988     196,706       12,406 
 Manufacturing Operations       28,290           381      28,540        1,081 
 
 Group Total                   230,029        14,369     225,246       13,487 
 
 Operating profit                               6.2%                     6.0% 
 

* Restatement resulting in a reduction in Turnover and Profit before tax of GBP0.2m relating to backdated duty with details set out on pages 21 and 22.

Macfarlane Packaging Distribution is the leading UK specialist distributor of protective packaging materials. Macfarlane operates a Stock and Serve supply model from 25 Regional Distribution Centres (RDCs) and 3 satellite sites, supplying industrial and retail customers with a comprehensive range of protective packaging materials on a local, regional and national basis.

Competition in the packaging distribution market is from local and regional protective packaging specialist companies as well as national/international distribution generalists who supply a range of products, including protective packaging materials. Macfarlane competes effectively on a local basis through its strong focus on and regular monitoring of customer service, its breadth and depth of product offer and through the recruitment and retention of high-quality staff with good local market knowledge. On a national basis Macfarlane has focus, expertise and a breadth of product and service knowledge, all of which enables it to compete effectively against non-specialist packaging distributors.

Macfarlane benefits its customers by enabling them to ensure their products are cost-effectively protected in transit and storage through the supply of a comprehensive product range, single source Stock and Serve supply, Just In Time delivery, tailored stock management programmes, electronic trading and independent advice on both packaging materials and the packing processes.

 
 Packaging Distribution         2020        2019    2020 
                              GBP000      GBP000   Growth 
 Revenue                     201,739     196,706    2.6% 
 Cost of sales             (136,177)   (135,525) 
 
 Gross margin                 65,562      61,181    7.2% 
 Operating expenses         (51,574)    (48,775)    5.7% 
 
 Operating profit             13,988      12,406   12.8% 
 
 

Packaging Distribution grew sales by 2.6% in 2020. Despite the challenges of Covid-19 existing business has remained resilient with strong demand in the e-commerce, household essentials and medical sectors offsetting weaker demand from customers in the automotive, aerospace, hospitality and high street retail sectors. Sales to retail companies in 2020 represents 28 % of sales (2019: 23%).

Whilst new business growth has been more subdued due to limited engagement with potential customers through the Covid-19 lockdown period, new business generation of GBP11.3m (2019: GBP12.5m) was achieved. The impact of lockdowns meant a change in buying behaviour with increasing numbers of customers choosing to buy online through our shop.macfarlanepackaging.com website or through our Simplict-e electronic trading platform.

BUSINESS REVIEW

Packaging Distribution

The gross margin in Packaging Distribution improved to 32.5%, (2019: 31.1%) through our effectiveness in managing input price changes, a more favourable customer mix and the growth in customers transacting online.

We continued to deliver the benefit from acquiring high quality packaging distribution businesses and in January 2020 we completed the acquisition of the packaging trade and assets of Armagrip. During 2020 the earn-out programmes for the 2019 acquisitions of Ecopac and Leyland were concluded, with both achieving close to maximum payments.

During 2020 we made steady progress in extending our service into Europe to support a number of our pan-European customers. A Macfarlane subsidiary company, Macfarlane Group BV, was set up in Holland to service customers in the Benelux region and whilst still in the early stages, achieved sales of GBP1.1m in 2020.

Overhead increases were primarily due to the impact of acquisitions (GBP1.3m), bad debt charges (GBP0.8m), end of lease dilapidations (GBP1.1m) and some incremental Covid-19 costs.

Packaging Distribution's operating profit at GBP14.0m grew 12.8% vs 2019 reflecting a 6.9% (2019: 6.3%) return on sales.

Future Plans

2021 plans are focused on continuing to grow sales and improving profitability through the following actions:

-- Prioritise engagement with potential new customers in stable and growing sectors such as e-commerce, medical and third party logistics ("3PL");

-- Invest in new technology to allow our sales teams to demonstrate our ability to add value for customers through ongoing implementation of our "Significant Six" sales approach to optimise their "Total Cost of Packaging" in both face-to-face and virtual environments;

-- Extend the penetration of our web-based solutions and technologies to enable customers improved on line access to our full range of products and services;

   --     Accelerate the good progress we have made in our "Follow the Customer" programme in Europe; 
   --     Reduce operating costs through efficiency programmes in sales, logistics and administration; 

-- Maintain the focus on working capital management to facilitate future investment and manage effectively the bad debt risk which has increased in the current economic environment; and

   --     Supplement organic growth through progressing further suitable quality acquisitions. 

Manufacturing Operations comprises 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 national RDC network of the Packaging Distribution business.

Key market sectors are defence, aerospace, medical equipment, electronics and automotive. Our markets are highly fragmented with a range of locally based competitors. We differentiate our market offering through technical expertise, design capability, industry accreditations and national coverage through the Packaging Distribution business.

Our Labels business designs and prints self-adhesive labels for major Fast-moving Consumer Goods ("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 dependence 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.

BUSINESS REVIEW

 
                                           Restated* 
  Manufacturing Operations         2020         2019       2020 
                                 GBP000       GBP000     Growth 
  Sales                          28,290       28,540     (0.9%) 
  Cost of sales                (17,306)     (17,731) 
 
  Gross margin                   10,984       10,809       1.6% 
  Operating expenses           (10,603)      (9,728)       9.0% 
 
  Operating profit                  381        1,081    (64.8%) 
 
 

* Restatement resulting in a reduction in Turnover and Profit before tax of GBP0.2m relating to backdated duty with details set out on pages 21 and 22.

Manufacturing Operations

2020 sales for Packaging Design and Manufacture were 20.2% below 2019 due to weak demand in the aerospace and automotive sectors. Given the weakness in sales, particularly in the aerospace sector, which is expected to continue for some time, actions were taken in the second half of 2020 to realign the cost base in order to return the business to profitability in 2021. As a result of the lower sales and the one-off impact of effecting these cost reductions, the business made a small loss in 2020.

Labels' sales increased by 10.6% in the year due to higher demand from existing customers in the food, household essentials and hygiene sectors. Overheads costs increased, due primarily to higher transportation costs servicing overseas customers in a Covid-19 environment. Profit in 2020 was marginally ahead of 2019.

Future Plans

Priorities for the Manufacturing Operations in 2021 are to:

   --    Re-focus the Design & Manufacture sales team on growth sectors, such as Medical and Defence; 
   --    Prioritise new sales activity on our higher added-value bespoke composite pack product range; 

-- Continue to strengthen the relationship between our Design and Manufacture operations and our Packaging Distribution business to create both sales and cost synergies;

-- Ensure the cost saving actions in 2020 return the Design and Manufacture business to profitability in 2021;

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

-- Secure efficiency benefits from the additional labels printing capacity in our Kilmarnock site.

2021 Outlook

The impact of Covid-19 will remain for some time. However, Macfarlane Group has demonstrated its resilience in 2020 and is well positioned to benefit when the UK economy begins to recover. We have a strong financial position, a diverse customer base, added value customer propositions, a successful acquisition track record and experienced, high quality people.

In 2021 we will continue to add value for our protective packaging customers through our Significant Six sales approach and support them to reduce cost in their packaging operations and achieve their sustainability objectives. Our sales focus will be on sectors such as e-commerce, which have strong growth potential, and industrial sectors where we can add value through our sales approach and national network of RDCs. We will respond to customers looking to consolidate their purchasing through our European "Follow the Customer" strategy.

In 2021, we plan to acquire further good quality protective packaging businesses, improve penetration of new products introduced by recent acquisitions, continue to develop our partnerships with strategic suppliers and invest in new technology to improve operational efficiency and sales effectiveness.

Macfarlane Group's businesses all have strong market positions with differentiated product and service offerings. We have a flexible business model and a clear strategic plan incorporating a range of actions, which are being effectively implemented. This has been reflected in consistent profit growth in the ten years to 2019 and in the most difficult circumstances profits have increased again in 2020.

Our future performance is largely dependent on the successful execution of actions to grow sales, increase efficiencies and bring high-quality acquisitions into the Group. Despite the continuing challenges from the Covid-19 pandemic, our strategy and business model have proved resilient. We expect 2021 to be a year of progress for Macfarlane Group.

BUSINESS REVIEW

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Group and the factors mitigating these risks are detailed on the following pages.

Response to the Covid-19 pandemic ("Covid-19")

The Group's response to Covid-19 has focused on the safety and wellbeing of our people, protecting our financial position and limiting the interruption of service to our customers.

Whilst we have not classified Covid-19 as a separate principal risk due to its pervasive effect across all of the principal risks and uncertainties shown below, specific uncertainties arising from the pandemic include:

-- Fluctuations in demand across our customer base. Some key markets may not fully recover for a significant period of time.

-- Potential deterioration in cash flow of reduced demand from customers and recoverability of trade receivables.

-- Uncertainty about the duration of disruption, the potential for further outbreaks and the consequential impact on demand levels caused by continued public health measures necessary to control the spread of the disease, including periods of lockdowns.

-- Delay and difficulties in sourcing inventory and raw materials due to the disruption of suppliers' production.

-- Uncertainty regarding the speed and extent to which the economy and in particular the key market sectors relevant to the Group's business and growth, recover.

Accordingly Covid-19 is built into our assessment of certain specific risks below.

Response to Brexit

A new trading arrangement was concluded between the UK and the EU in December 2020. Based on our earlier impact analysis, the Group's view is that this trading arrangement should not have a significant impact on our supply costs. However, we shall continue to monitor and mitigate any disruption to our supply chain for EU sourced products.

The principal risks and uncertainties are detailed on the following pages. These risks are complemented by an overall governance framework including clear and delegated authorities, business performance monitoring and appropriate insurance cover for a wide range of potential risks. There is a dependence on good quality local management, which is supported by an investment in training and development and ongoing performance evaluation.

We continue to evolve our risk management processes to ensure they are robust, effective and integrated within our decision-making processes. Two additional risks have been highlighted in the current year partly as a consequence of the Covid-19 pandemic on strategic changes to the market generally and the increasing potential for cyber-security attacks. We have also included a brief description of how we assess that each risk level has changed during 2020. For risks shown as [ ç è ] the risk level broadly similar between 2020 and 2019. If the risk is shown as [ é ê ] the risk has increased or decreased respectively during 2020.

 
 Risk Description                   Mitigating Factors                  C hange in Risk Level 
 Strategic changes                  The Group has a well-diversified    Increased risk é 
  in the market                      customer base giving                The Group's supply 
  (New Risk in 2020)                 protection from changes             chain in 2020 has 
  Failure to respond                 in specific industry                proved resilient and 
  to strategic shifts                sectors as well as a                robust despite the 
  in the market, including           flexible business model             disruptive impact 
  the knock-on impact                and strong value proposition        of Covid-19. 
  of weaknesses in the               enabling it to meet                 In 2020 the Group 
  economy as well as                 the changing needs of               experienced w eaker 
  disruptive behaviour               customers.                          demand from customers 
  from competitors and               The Group strives to                in aerospace, high 
  changing customer                  maintain high service               street retail, automotive 
  needs (e.g. the move               levels for customers                and a number of other 
  towards online retail)             ensuring that customer              industrial sectors 
  could limit the Group's            needs are met, despite              . However, this has 
  ability to continue                the reduction in contact            been offset by growth 
  to grow revenues.                  during 2020. The Group              in the e-commerce 
                                     continues to invest                 and medical sectors 
                                     in electronic trading               . 
                                     platforms, to further 
                                     enhance its service 
                                     offering. 
                                     The Group maintains 
                                     strong partnerships 
                                     with key suppliers, 
                                     to ensure that a broad 
                                     range of products is 
                                     available to customers 
                                     to respond to their 
                                     requirements including 
                                     any changes in their 
                                     environmental and sustainability 
                                     concerns. 
                                   ----------------------------------  -------------------------------- 
 Raw material prices                The Group works closely             Increased risk é 
  The Group's businesses             with its supplier and               Whilst gross margins 
  are impacted by commodity-based    customer base to manage             have remained strong 
  raw material prices                effectively the scale               in 2020, with increased 
  and manufacturer energy            and timing of these                 demand from internet 
  costs, with profitability          price changes and any               retail, recovery of 
  sensitive to input                 resultant impact on                 some sectors that 
  price changes including            profit.                             have experienced reduced 
  currency fluctuations.             Our IT systems monitor              demand during Covid-19 
  The principal components           and measure effectiveness           and Brexit stock building 
  are corrugated paper,              in these changes.                   it is anticipated 
  polythene films, timber            Where possible, alternative         that the Group will 
  and foam, with changes             supplier relationships              experience inflationary 
  to paper and oil prices            are maintained to minimise          pricing pressures 
  having a direct impact             supplier dependency.                in 2021, including 
  on the price we pay                We work with customers              increased administration 
  to our suppliers.                  to redesign packs and               costs and tariffs 
                                     reduce packing cost                 for products sourced 
                                     to mitigate the impact              from the EU. 
                                     of cost increases. 
                                   ----------------------------------  -------------------------------- 
 Decentralised structure            The Group ensures that              No change ç 
  In Packaging Distribution,         our staff have the right            è 
  the business model                 working environment,                The implementation 
  reflects a decentralised           information and sales               of our Covid-19 mitigations 
  approach with a dependency         tools to enable them                resulted in a high 
  on effective local                 to meet corporate objectives.       proportion of our 
  decision-making. There             A comprehensive management          employees working 
  is a risk that the                 information system is               remotely, further 
  decentralised management           maintained with key                 increasing pressure 
  control is less effective          performance indicators              on local decision-making. 
  and local decisions                monitored and actions               Virtual conferencing 
  may not always meet                taken when required.                technology has enabled 
  overall corporate                  Significant investment              the Group to improve 
  objectives                         has been made in 2020               the quality, consistency 
                                     and further investment              and frequency of engagement 
                                     is planned in 2021 to               with managers and 
                                     provide the technology              employees. This has 
                                     to our employees to                 contributed to the 
                                     work remotely while                 speed and effectiveness 
                                     enhancing the quality               of implementing key 
                                     of communication with               actions during 2020. 
                                     fellow employees, customers 
                                     and supplier. 
                                   ----------------------------------  -------------------------------- 
 Property                           The Group adopts a proactive        Reduced risk ê 
  Given the multi-site               approach to managing                Our property consolidation 
  nature of its business,            property costs and exposures.       strategy has continued 
  the Group has a property           Where a site is non-operational     during 2020 and work 
  portfolio comprising               the Group seeks to assign,          is ongoing to finalise 
  3 owned sites and                  sell or sub-lease the               exit costs on expiry 
  34 leased sites. This              building to mitigate                for two long-term 
  portfolio gives rise               the financial impact.               leases, which had 
  to risks in relation               If this is not possible,            been sub-let. Provisions 
  to ongoing lease costs,            rental voids are provided           have been established 
  dilapidations and                  on vacant properties                to cover the anticipated 
  fluctuations in value.             taking into consideration           exit costs. 
                                     the likely period of                The Group currently 
                                     vacancy and incentives              has no vacant or sub-let 
                                     to re-let.                          properties. 
                                   ----------------------------------  -------------------------------- 
 Cyber Security                     The Group continually               Increased risk é 
  (New Risk in 2020)                 invests in its IT infrastructure    We have increased 
  The increasing frequency           to protect against cyber            our reliance on remote 
  and sophistication                 security threats. This              working which increases 
  of cyber-attacks is                includes regular testing            the number of points 
  a risk which potentially           of IT Disaster Recovery             from which attacks 
  threatens the confidentiality,     Plans.                              could originate. 
  integrity and availability         We also engage the services         The frequency and 
  of the Group's data                of a Cyber Security                 sophistication of 
  and IT systems. These              partner to perform regular          cyber-attacks generally 
  attacks could also                 penetration tests and               has increased as a 
  cause reputational                 assess potential vulnerabilities    result of Covid-19. 
  damage and fines in                within our security 
  the event of personal              arrangements. 
  data being compromised.            This is complemented 
                                     by a program of cyber 
                                     security awareness training 
                                     to ensure that all staff 
                                     are aware of the potential 
                                     threats caused by deliberate 
                                     and unauthorised attempts 
                                     to gain access to our 
                                     systems and data. 
                                   ----------------------------------  -------------------------------- 
 Financial liquidity,               The Group's borrowing               Reduced risk ê 
  debt covenants and                 facility comprises a                The Group has proved 
  interest rates                     committed facility of               to be strongly cash 
  The Group needs continuous         GBP30 million with Lloyds           generative in 2020 
  access to funding                  Bank PLC, which finances            and has operated well 
  to meet its trading                our trading requirements            within its existing 
  obligations and to                 and supports controlled             bank facilities throughout 
  support organic growth             expansion, providing                the year. 
  and acquisitions.                  a medium-term funding               At the start of 2021, 
  There is a risk that               platform for growth.                the GBP30 million 
  the Group may be unable            The Group regularly                 committed facility 
  to obtain funds and                monitors net bank debt              with Lloyds Banking 
  that such funds will               and forecast cash flows             Group PLC was extended 
  only be available                  to ensure that it will              until December 2025. 
  on unfavourable terms.             be able to meet its 
  The Group's borrowing              financial obligations 
  facility comprises                 as they fall due. 
  a committed facility               Compliance with covenants 
  of up to GBP30 million.            is monitored on a monthly 
  This includes requirements         basis and sensitivity 
  to comply with specified           analysis is applied 
  covenants, with a                  to forecasts to assess 
  breach potentially                 the impact on covenant 
  resulting in Group                 compliance. 
  borrowings being subject 
  to onerous conditions. 
                                   ----------------------------------  -------------------------------- 
 Working capital                    Credit risk is controlled           Increased risk é 
  The Group has a significant        by applying rigour to              The impact of Covid-19 
  investment in working              the management of trade            resulted in increased 
  capital in the form                receivables by our Credit          bad debts write-offs 
  of trade receivables               Manager and the credit             in 2020 with some 
  and inventories. There             control team and is                customers experiencing 
  is a risk that this                subject to additional              cash flow difficulties. 
  investment is not                  scrutiny from the Group            The Expected Credit 
  fully recovered.                   Finance Director.                  Loss allowance has 
                                     Inventory levels and               been increased accordingly. 
                                     order patterns are regularly       Aged stock over 6 
                                     reviewed and risks arising         months old has increased 
                                     from holding bespoke               reflecting the slower 
                                     stocks are managed by              movement of older 
                                     obtaining order cover              bespoke stocks particularly 
                                     from customers.                    to customers experiencing 
                                                                        reduced demand. Provisioning 
                                                                        levels have been increased 
                                                                        accordingly. 
                                   ----------------------------------  -------------------------------- 
 Acquisitions                       The Group carefully reviews           No change ç 
  The Group's growth                 potential acquisition                 è 
  strategy includes                  targets, ensuring that                The Group has made 
  acquisitions as demonstrated       the focus is on high-quality          12 acquisitions since 
  in recent years. There             businesses which complement           2014, including one 
  is a risk that such                the existing Group profile            in 2020, all of which 
  acquisitions may not               and provide opportunities             continue to perform 
  be available on acceptable         for growth.                           well. The Group has 
  terms in the future.               Having completed a number             well-established due 
  It is also possible                of acquisitions in recent             diligence and integration 
  that acquisitions                  years, the Group has                  processes while only 
  will not succeed due               well-established due                  acquiring well established 
  to the loss of key                 diligence and integration             quality businesses 
  people or customers                processes and procedures.             which will perform 
  following acquisition              The Group has a comprehensive         well in the Group. 
  or the acquired business           management information 
  not performing at                  system to enable effective 
  the level expected.                monitoring of post-acquisition 
  This could potentially             performance. 
  lead to an impairment              Earn-out mechanisms also 
  in the carrying value              mitigate risk in the 
  of the related goodwill            post-acquisition period. 
  and other intangible               Goodwill and other intangible 
  assets.                            assets are tested annually 
  Execution risks around             for impairment with no 
  the failure to successfully        impairment required in 
  integrate the acquired             2020. 
  business following 
  conclusion of the 
  earn-out period also 
  exist. 
                                   ------------------------------------  -------------------------------- 
 Defined benefit pension            The scheme was closed                 Reduced risk ê 
  scheme                             to new members in 2002.               The IAS 19 valuation 
  The Group's defined                Benefits for active members           of the Group's defined 
  benefit pension scheme             were amended by freezing              benefit pension scheme 
  is sensitive to a                  pensionable salaries                  as at 31 December 
  number of key factors              at April 2009 levels.                 2020 estimated the 
  including investment               A Pension Increase Exchange           scheme deficit to 
  returns, the discount              option is available to                be GBP1.5m, a decrease 
  rates used to calculate            offer flexibility to                  of GBP5.0m during 
  the scheme's liabilities           new pensioners in the                 2020. 
  and mortality assumptions.         current level of pension              Deficit repair contributions 
  Small changes in these             benefits and the rate                 will decrease from 
  assumptions could                  of future increases.                  GBP3.1 million in 
  cause significant                  The Group makes Deficit               2020 to GBP1.3 million 
  movements in the pension           Reduction Contributions               from 1 May 2021 following 
  deficit.                           each year.                            the actuarial valuation 
                                     The investment profile                at 1 May 2020. This 
                                     is regularly reviewed                 reflects continued 
                                     to ensure continued matching          progress in reducing 
                                     of investments with the               the deficit. 
                                     scheme's liability profile. 
                                   ------------------------------------  -------------------------------- 
 
 

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

BUSINESS REVIEW

Viability statement

The Board is required to formally assess that the Group has adequate resources to continue in operational existence for the foreseeable future and as such can continue to adopt the Going Concern basis of accounting. The Board is also required to state that it has a reasonable expectation that the Group will continue in operation and meet its longer-term liabilities as they fall due.

To support this statement, the Board is required to consider the Group's current financial position, its strategy, the market outlook and its principal risks. The Board's assessment of the principal risks facing the Group and how these risks affect the Group's prospects are set out on pages 10 to 14. The review also includes consideration of how these risks could prevent the Group from achieving its strategic plan and the potential impact these risks could have on the Group's business model, future performance, solvency and liquidity over the next three years.

The Board considers the Group's viability as part of its ongoing programme to manage risk. Each year the Board reviews the Group's strategic plan for the forthcoming three-year period and challenges the Executive team on the plan's risks. The plan reflects the Group's businesses, which have a broad spread of customers across a range of different sectors with some longer-term contracts in place. The assessment period of three years is consistent with the Board's review of the Group strategy, including assumptions around future growth rates for our business and acceptable levels of performance.

Financial modelling and scenarios

The Group's existing bank facilities comprise a GBP30 million committed facility with Lloyds Banking Group, which is available until December 2025. The Group has performed well during 2020 despite a number of local, regional and national lockdowns as a consequence of the Covid-19 pandemic, which gives confidence in the strength of the underlying business model. The Directors have also considered the longer-term economic outlook for the UK, including the potential impact of a prolonged recession, given the uncertain economic environment. Given the current uncertainty of the economic outlook due to the Covid-19 pandemic, we have modelled a 'severe but plausible downside' scenario as described below. In forming conclusions, the Directors have also considered potential mitigating actions that the Group could take to preserve liquidity and ensure compliance with its financial covenants.

A detailed financial model covering a three-year period is maintained and regularly updated. This model enables sensitivity analysis, which includes flexing the main assumptions, including future revenue growth, gross margins, operating costs, finance costs and working capital management. The results of flexing these assumptions, both individually and in aggregate, are used to determine whether additional bank facilities will be required during the three-year period and whether the Group will remain in compliance with the covenants relating to the current facility.

We have modelled a range of scenarios, including a central case, a downside scenario, a severe but plausible downside and a reverse stress test, over the three-year horizon. The 'severe but plausible downside' scenario is conservative in assuming, compared to the central case, revenue reductions of 5% and gross margin reductions at the rate of 2.0% in each of the three years, with no reduction in costs. Even under this scenario, and before reflecting any mitigating actions available to Group management, the Group would forecast compliance with all financial covenants not require any additional financing.

As a result of the uncertainties due to the Covid-19 pandemic, the Group has also modelled a reverse stress test scenario. This models the decline in sales that the Group would be able to absorb before breaching any financial covenants. Such a scenario, and the sequence of events that could lead to it, is considered to be remote, as it requires sales reductions of c.12.5% per annum between 2021 and 2023 compared to the central case, before there is a breach financial covenants in the period under review and is calculated before reflecting any mitigating actions.

Even in the severe but plausible scenario, Macfarlane Group is forecast to have sufficient liquidity to continue trading, comfortably meeting its financial covenants and operating within the level of its facilities for the foreseeable future. The reverse stress test modelling has shown that a c.24% reduction in sales in 2021 compared to 2020 could lead to a breach of covenants in the period under review. However, in this scenario, management would also be able to take mitigating actions similar to those outlined in our Covid-19 update on page 3.

Conclusions

For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements. The Board also has a reasonable expectation that the Group will continue in operation and meet its longer-term liabilities as they fall due.

Cautionary Statement

The Chairman's Statement and the Business Review on pages 1 to 15 have been prepared to provide additional information to members of the Company to assess the Group's strategy and the potential for the strategy to succeed. It should not be relied on by any other party or for any other purpose.

This report and the financial statements contain certain forward-looking statements relating to operations, performance and financial status. By their nature, such statements involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors, including both economic and business risk factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.

These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report. Nothing in this Preliminary Announcement should be construed as a profit forecast or an invitation to deal in the securities of the Group.

Responsibility Statement of the Directors

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 December 2020. Certain parts of the full Annual Report are not included within this announcement.

The Directors of Macfarlane Group PLC are

   S.R. Paterson                     Chairman 
   P.D. Atkinson                     Chief Executive 
   I. Gray                                 Finance Director 
   J. Love                                 Executive Director 
   R. McLellan                        Non-Executive Director and Senior Independent Director 
   J.W.F. Baird                         Non-Executive Director 
   A.M. Dunstan                    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, give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole;

The Strategic Report, incorporated into the Directors' Report in the Annual Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

Pursuant to Disclosure and Transparency Rules, Chapter 4, the directors consider that the Company's annual report and financial statement, taken as a whole, are fair, balanced and understandable and provide information necessary for the shareholders to assess the Company's and the Group's position and performance, business model and strategy.

   Peter Atkinson                                                                 Ivor Gray 
   Chief Executive                                                                Finance Director 
   25 February 2021                                                            25 February 2021 

Macfarlane Group PLC

Consolidated income statement

For the year ended 31 December 2020

 
                                                 Restated* 
                              Note        2020        2019 
                                        GBP000      GBP000 
 
 Revenue                      3        230,029     225,246 
 Cost of sales                       (153,483)   (153,256) 
 
 Gross profit                           76,546      71,990 
 Distribution costs                    (8,429)     (8,441) 
 Administrative expenses              (53,748)    (50,062) 
 
 Operating profit             3         14,369      13,487 
 Finance costs                4        (1,367)     (1,625) 
 
 Profit before tax                      13,002      11,862 
 Tax                          5        (2,831)     (2,262) 
 
 Profit for the year          7         10,171       9,600 
 
 
 Earnings per share 
    Basic                     7          6.45p       6.09p 
 
    Diluted                   7          6.42p       6.07p 
 
 

Consolidated statement of comprehensive income

For the year ended 31 December 2020

 
                                                                                 Restated* 
                                                                          2020        2019 
                                                               Note     GBP000      GBP000 
 Items that may be reclassified to profit 
  or loss 
 Foreign currency translation differences 
  - foreign operations                                                      60        (62) 
 Items that will not be reclassified to 
  profit or loss 
 Remeasurement of pension scheme liability                     10        2,112         537 
 Tax recognised in other comprehensive income 
                 Tax on remeasurement of pension scheme 
                 liability                                     11        (401)        (92) 
                  Corporation tax rate change on deferred 
                  tax                                                      129           - 
 
 Other comprehensive income for the year, 
  net of tax                                                             1,900         383 
 Profit for the year                                                    10,171       9,600 
 
 Total comprehensive income for the year                                12,071       9,983 
 
 
   *    Details of the restatements are set out on pages 21 and 22. 

Macfarlane Group PLC

Consolidated statement of changes in equity

For the year ended 31 December 2020

 
                                                                                               Restated*   Restated* 
                                             Share      Share    Revaluation    Translation     Retained       Total 
                                           Capital    Premium        Reserve        Reserve     Earnings      GBP000 
                                   Note     GBP000     GBP000         GBP000         GBP000       GBP000 
 
At 1 January 2019                           39,387     12,975             70            293        9,404      62,129 
 
Comprehensive income 
Profit for the year                              -          -              -              -        9,600       9,600 
Foreign currency translation 
 differences                                     -          -              -           (62)            -        (62) 
Remeasurement of pension 
 liability                          10           -          -              -              -          537         537 
Tax on remeasurement 
 of pension liability               11           -          -              -              -         (92)        (92) 
 
Total comprehensive income                       -          -              -           (62)       10,045       9.983 
 
Transactions with shareholders 
Dividends                          6             -          -              -              -      (3,689)     (3,689) 
Credit for share-based 
 payments                                        -          -              -              -           75          75 
Issue of share capital             12           66        173              -              -            -         239 
 
Total transactions with 
 shareholders                                   66        173              -              -      (3,614)     (3,375) 
 
 
At 31 December 201 
 9                                          39,453     13,148             70            231       15,835      68,737 
 
Comprehensive income 
Profit for the year                              -          -              -              -       10,171      10,171 
Foreign currency translation 
 differences                                     -          -              -             60            -          60 
Remeasurement of pension 
 liability                          10           -          -              -              -        2,112       2,112 
Tax on remeasurement 
 of pension liability               11           -          -              -              -        (401)       (401) 
Corporation tax rate 
 change on deferred tax             11           -          -              -              -          129         129 
 
Total comprehensive income                       -          -              -             60       12,011      12,071 
 
Transactions with shareholders 
Dividends                          6             -          -              -              -      (1,105)     (1,105) 
Credit for share-based 
 payments                                        -          -              -              -           75          75 
 
Total transactions with 
 shareholders                                    -          -              -              -      (1,030)     (1.030) 
 
 
 
At 31 December 2020                         39,453     13,148             70            291       26,816      79,778 
 
 
   *   Details of the restatements are set out on pages 21 and 22. 

Macfarlane Group PLC

Consolidated balance sheet at 31 December 2020

 
                                                          Restated* 
                                          Note      2020       2019 
                                                  GBP000     GBP000 
Non-current assets 
Goodwill and other intangible assets              60,598     62,663 
Property, plant and equipment                      8,640      9,621 
Right of Use assets                               28,584     25,855 
Other receivables                                     35         35 
Deferred tax assets                       11         396      1,224 
 
Total non-current assets                          98,253     99,398 
 
Current assets 
Inventories                                       15,858     15,813 
Trade and other receivables                       51,371     52,044 
Cash and cash equivalents                 9        7,228      5,579 
 
Total current assets                              74,457     73,436 
 
Total assets                              3      172,710    172,834 
 
Current liabilities 
Trade and other payables                          47,755     48,530 
Provisions                                         1,834        660 
Current tax payable                                1,731      1,084 
Lease liabilities                         9        5,784      6,321 
Bank borrowings                           9        7,766     18,253 
 
Total current liabilities                         64,870     74,848 
 
Net current assets/(liabilities)                   9,587    (1,412) 
 
Non-current liabilities 
Retirement benefit obligations            10       1,471      6,465 
Deferred tax liabilities                  11       3,072      3,116 
Trade and other payables                              19         22 
Provisions                                           592          - 
  Lease liabilities                       9       22,908     19,646 
 
Total non-current liabilities                     28,062     29,249 
 
Total liabilities                         3       92,932    104,097 
 
Net assets                                        79,778     68,737 
 
Equity 
Share capital                             12      39,453     39,453 
Share premium                             12      13,148     13,148 
Revaluation reserve                                   70         70 
Translation reserve                                  291        231 
Retained earnings                                 26,816     15,835 
 
Total equity                              3       79,778     68,737 
 
 
   *    Details of the restatements are set out on pages 21 to 23. 

Macfarlane Group PLC

Consolidated cash flow statement

For the year ended 31 December 2020

 
                                                                             Restated* 
                                                    Note           2020           2019 
                                                                 GBP000         GBP000 
 
Profit before tax                                                13,002         11,862 
Adjustments for: 
  Amortisation of intangible assets                               2,520          2,391 
  Depreciation of property, plant and equipment 
   and ROU assets                                                 8,459          7,816 
  Loss on disposal of property, plant and 
   equipment                                                         30              5 
  Share-based payments                                               75             75 
  Finance costs                                                   1,342          1,606 
 
Operating cash flows before movements 
 in working capital                                              25,428         23,755 
 
  Decrease in inventories                                           161          2,006 
  Decrease in receivables                                           955          1,178 
  Increase/(decrease) in payables                                   965        (1,445) 
   Increase in provisions                                         1,766            660 
    Adjustment for pension scheme funding                       (2,981)        (2,994) 
 
Cash generated by operations                                     26,294         23,160 
  Income taxes paid                                             (1,728)        (2,288) 
  Interest paid                                                 (1,243)        (1,375) 
 
Cash inflow from operating activities                            23,323         19,497 
 
Investing activities 
Acquisitions, net of cash acquired                   8          (2,661)        (6,162) 
Proceeds on disposal of property, plant 
 and equipment                                                      102            185 
Purchases of property, plant and equipment                        (804)        (2,648) 
 
Cash outflow from investing activities                          (3,363)        (8,625) 
 
Financing activities 
Dividends paid                                       6          (1,105)        (3,689) 
Repayment on bank borrowing facility                           (10,225)          (742) 
Repayments of leases                                            (6,719)        (6,699) 
 
Cash outflow from financing activities                         (18,049)       (12,173) 
 
Net increase/(decrease) in cash and cash 
 equivalents                                                      1,911        (1,301) 
 
Cash and cash equivalents at beginning 
 of year                                                          3,310          4,611 
 
Cash and cash equivalents at end of year                          5,221          3,310 
 
 
   *    Details of the restatements are set out on pages 21 to 23. 
 
                                                           2020          2019 
  Reconciliation to consolidated cash flow               GBP000        GBP000 
  statement 
Cash and cash equivalents per the consolidation 
 balance sheet                                            7,228         5,579 
Bank overdraft                                          (2,007)       (2,269) 
 
Balances per consolidated cash flow statement             5,221         3,310 
 
 

Bank overdrafts are included in cash and cash equivalents because they form an integral part of the Group's cash management.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   1.         General information 

The financial information set out herein does not constitute the Company's statutory accounts as defined in Section 435 of the Companies Act 2006 and has been extracted from the full statutory accounts for the years for the years ended 31 December 2020 and 2019.

The financial statements for 2020 were approved by the Board of Directors on 25 February 2021. The auditor's report on the statutory financial statements for the year ended 31 December 2020 was unqualified pursuant to Section 498 of the Companies Act 2006 and did not contain a statement under sub-section 498 (2) or (3) of that Act.

The financial information for 2019 is derived from the statutory accounts for 2019 which have been delivered to the registrar of companies. The previous auditor has reported on the 2019 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

   2.      Basis of preparation 

The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out on pages 1 to 15.

The Group's principal financial risks in the medium term relate to liquidity and credit risk. Liquidity risk is managed by ensuring that the Group's day-to-day working capital requirements are met by having access to committed banking facilities with suitable terms and conditions to accommodate the requirements of the Group's operations. Credit risk is managed by applying considerable rigour in managing the Group's trade receivables. The Directors believe that the Group is adequately placed to manage its financial risks effectively, despite any economic uncertainty.

The Group's has a committed borrowing facility of GBP30 million with Lloyds Banking Group PLC in place until December 2025. The facility bears interest at normal commercial rates and carries standard financial covenants in relation to interest cover and levels of headroom over certain trade receivables of the Group.

The Directors are of the opinion that the Group's cash forecasts and revenue projections, which they believe are based on 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 the current facility and comply with its banking covenants. As a consequence of the Covid-19 pandemic, the Directors have modelled a range of scenarios, including a central case, a downside scenario, a severe but plausible downside and a reverse stress test, over the three-year horizon, as set out in the Viability statement on page 15.

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 2020.

Restatement due to prior period adjustments

As part of the Group's preparations to mitigate Brexit-related risks, the Group undertook an exercise to review duty and tariff arrangements for all imports and exports to and from all countries, both within and outwith the EU. This review, which was completed in December 2020, uncovered one product area in the Manufacturing Operations segment where the Group, in conjunction with its customers, had applied an incorrect duty code on certain exported items. It was confirmed that this error had originated in prior years. Working with the customers concerned, the Group agreed that the error should be rectified forthwith and all arrears of duty including interest, should be paid.

In addition to rectifying the specific error identified, the Group undertook a further review of all imports and exports to confirm that there was no risk of any similar instances. This was concluded satisfactorily, and no other such errors were identified.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   2.      Basis of preparation (continued) 

Restatement due to prior period adjustments (continued)

The Group's share of the estimated value of GBP697k after tax has been fully provided for at 31 December 2020, with GBP534k recognised as a prior period adjustment being GBP143k deducted from 2019 sales, GBP19k added to interest, GBP31k deducted from the 2019 tax charge and GBP403k relating to earlier years, recorded as a reduction in Retained earnings at 1 January 2019.

These adjustments have been recognised as prior year errors in accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors' within these Financial Statements and restated accordingly. The impact of the restatements on the affected primary statement line items is shown in the tables below.

 
       Restatement in prior            As previously           Adjustment               Adjusted 
        periods to 31 December              reported          to retained          (2019 impact)           As restated 
        2019                                  GBP000             earnings                 GBP000                GBP000 
                                                                   GBP000 
       Consolidated Income Statement 
       Revenue                               225,389                                       (143)               225,246 
       Gross Profit                           72,133                                       (143)                71,990 
       Operating profit                       13,630                                       (143)                13,487 
       Finance costs                         (1,606)                                        (19)               (1,625) 
       Profit before tax                      12,024                                       (162)                11,862 
       Tax                                   (2,293)                                          31               (2,262) 
       Profit for the year                     9,731                                       (131)                 9,600 
       Consolidated Statement of Other Comprehensive Income 
       Profit for the year                     9,731                                       (131)                 9,600 
       Total comprehensive 
        income for the year                   10,114                                       (131)                 9,983 
       Consolidated Balance Sheet 
       Provisions                                  -                (498)                  (162)                 (660) 
       Deferred tax 
        liabilities                          (3,242)                   95                     31               (3,116) 
       Net Assets                             69,271                (403)                  (131)                68,737 
       Retained earnings                      16,369                (403)                  (131)                15,835 
       Total Equity                           69,271                (403)                  (131)                68,737 
       Consolidated Cash Flow 
       Profit before tax                      12,024                                       (162)                11,862 
       Operating cash flows 
        before movements 
        in working capital                    23,917                                       (162)                23,755 
       Decrease in payables                    (947)                                         162                 (785) 
       Cash generated from 
        operations                            23,160                                           -                23,160 
       Consolidated Statement of Changes in Equity 
       At 1 January 2019                       9,807                (403)                                        9,404 
       Profit for the Year                     9,731                                       (131)                 9,600 
       At 31 December 2019                    16,369                (403)                  (131)                15,835 
 

All headings and numbers throughout the Report and Financial Statements that are marked as "Restated"" reflect the restatements for these prior period adjustments as set out above. All restatements relate to the Manufacturing Operations segment.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   2.      Basis of preparation (continued) 

Restatement due to prior period adjustments (continued)

In addition the Group has previously offset certain cash balances against bank borrowings which, whilst in line with the Group's legal right of offset, did not reflect any short-term intention to offset the liabilities after the balance sheet dates as required by IAS 32. Accordingly, GBP2,269k has been added to cash balances and bank borrowings respectively in 2019. There has been no impact on the income statement or on net assets.

Key sources of estimation uncertainty

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. Due to the nature of estimation, the actual outcomes may well differ from these estimates. No significant judgements have been made in the current or prior year.

The key sources of estimation uncertainty that have a significant effect on the carrying amounts of assets and liabilities are discussed below:

Retirement benefit obligations

The determination of any defined benefit pension scheme liability is based on assumptions determined with independent actuarial advice. The key assumptions used include discount rate, inflation rate and mortality assumptions, for which a sensitivity analysis is provided in Note 10. The directors consider that those sensitivities represent reasonable sensitivities which could occur in the next financial year.

Valuation of trade receivables

The provision held against trade receivables is based on applying an expected credit loss model and related estimates of recoverable amounts. Whilst every attempt is made to ensure that the provision held against doubtful trade receivables is as accurate as possible, there remains a risk that the provision may not match the level of debt, which ultimately proves uncollectable. For illustration only an increase in the average default rate of overdue trade receivables from 0.97% to 2.35% above the historic loss rates observed would lead to an increase of GBP650,000 in the provision required.

   3.         Segmental information 

The Group's principal business segment is Packaging Distribution, comprising the distribution of packaging materials and supply of storage and warehousing services in the UK. This comprises over 88% of Group revenue and 97% of Group 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. None of the individual business segments within Manufacturing Operations represents more than 10% of Group revenue or profit.

 
                                                                 Restated* 
                                                          2020        2019 
                                                        GBP000      GBP000 
  Group segment - total revenue 
  Packaging Distribution                               201,739     196,706 
  Manufacturing Operations                              33,543      33,873 
  Inter-segment revenue Manufacturing Operations       (5,253)     (5,333) 
 
  External revenue                                     230,029     225,246 
 
 

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   3.         Segmental information (continued) 
 
                                          Restated* 
                                   2020        2019 
                                 GBP000      GBP000 
  Operating profit 
  Packaging Distribution         13,988      12,406 
  Manufacturing Operations          381       1,081 
 
  Operating profit               14,369      13,487 
  Finance costs                 (1,367)     (1,625) 
 
  Profit before tax              13,002      11,862 
  Tax                           (2,831)     (2,262) 
 
  Profit for the year            10,171       9,600 
 
 
 
                                 Assets    Liabilities      Net assets 
                                 GBP000         GBP000          GBP000 
  Group segments 
  Packaging Distribution        152,272       (80,476)          71,796 
  Manufacturing Operations       20,438       (12,456)           7,982 
 
  Net assets 2020               172,710       (92,932)          79,778 
 
                                           Liabilities       Restated* 
                                 Assets                     Net assets 
                                 GBP000         GBP000          GBP000 
  Packaging Distribution        153,384       (92,777)          60,607 
  Manufacturing Operations       19,450       (11,320)           8,130 
 
  Net assets 2019               172,834      (104,097)          68,737 
 
 
                                                  2020          2019 
                                                GBP000        GBP000 
  Packaging Distribution 
  Revenue                                      201,739       196,706 
  Cost of sales                              (136,177)     (135,525) 
 
  Gross profit                                  65,562        61,181 
  Net operating expenses                      (51,574)      (48,775) 
 
  Operating profit                              13,988        12,406 
 
  Manufacturing Operations                                 Restated* 
                                                  2020          2019 
                                                GBP000        GBP000 
  Revenue                                       33,543        33,873 
  Cost of sales                               (22,559)      (23,064) 
 
  Gross profit                                  10,984        10,809 
  Net operating expenses                      (10,603)       (9,728) 
 
  Operating profit                                 381         1,081 
 
 
 

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

 
                                               4. Finance costs              Restated* 
                                                                     2020         2019 
                                                                   GBP000       GBP000 
 
         Interest on bank borrowings                                  482          573 
         Interest on leases                                           761          802 
         Net interest expense on retirement benefit obligation 
          (see note 10)                                                99          231 
          Other interest                                               25           19 
 
         Total finance costs                                        1,367        1,625 
 
  5. Tax                                                                   Restated* 
                                                                     2020       2019 
                                                                   GBP000     GBP000 
         Current tax 
           United Kingdom corporation tax at 19.0%                  2,343      2,057 
           Foreign tax                                                121        104 
           Adjustments in respect of prior years                     (90)       (53) 
 
         Total current tax                                          2,374      2,108 
 
         Deferred tax 
           Current year                                               457        154 
 
         Total deferred tax (see note 11)                             457        154 
 
 
         Total tax charge                                           2,831      2,262 
 
 
 

The standard rate of tax based on the UK average rate of corporation tax is 19.0%. Taxation for other jurisdictions is calculated at the rates prevailing in these jurisdictions.

The actual tax charge for the current and previous year varies from the standard rate of tax on the results in the consolidated income statement for the reasons set out in the following reconciliation:-

 
                                                                              Restated* 
                                                                        2020       2019 
                                                                      GBP000     GBP000 
 
         Profit before tax                                            13,002     11,862 
 
         Tax on profit at 19.0%                                        2,470      2,254 
         Factors affecting tax charge for the year:- 
            Change in rate for deferred tax from 17% to 19%              367          - 
            Non-deductible expenses                                      107         47 
             Difference on overseas tax rates                           (18)         14 
              Utilisation of tax losses not previously recognised       (58)          - 
            Changes in estimates related to prior years                 (37)       (53) 
 
           Tax charge for the year                                     2,831      2,262 
 
           Effective rate of tax for the year                          21.8%      19.1% 
 
 

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

 
6. Dividends                                                  2020     2019 
                                                            GBP000   GBP000 
           Amounts recognised as distributions to equity 
            holders in the year: 
  Final dividend for the year ended 31 December 2019 
   of Nil per share (2018 - 1. 65p per share)                    -    2,600 
  Interim dividend for the year ended 31 December 
   2020 of 0.70p per share (2019 - 0.69p per share)          1,105    1,089 
 
                                                             1,105    3,689 
 
 

A proposed dividend of 1.85p per share will be paid on 3 June 2021 to those shareholders on the register at 14 May 2021. This is subject to approval by shareholders at the Annual General Meeting on 11 May 2021 and therefore 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:

 
                                                                             Restated* 
                                                                      2020        2019 
                                                                    GBP000      GBP000 
         Earnings for the purposes of earnings per share 
          Profit for the year                                       10,171       9,600 
 
  Number of shares in issue for the purposes of calculating           2020        2019 
   basic and diluted earnings per share                             No. of      No. of 
                                                                    shares      shares 
                                                                      '000        '000 
         Weighted average number of shares in issue for 
          the 
          purposes of basic earnings per share 
            Weighted average number of shares in issue             157,812     157,636 
            Effect of Long-Term Incentive Plan awards in issue         703         393 
 
         Weighted average number of shares in issue for 
          the purposes of calculating diluted earnings per 
          share                                                    158,515     158,029 
 
 
         Basic Earnings per share                                    6.45p      6.09p 
 
         Diluted Earnings per share                                  6.42p      6.07p 
 
 

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   8.         Acquisitions 

On 6 January 2020, the Group's subsidiary, MGUK acquired the business trade and assets of Armagrip, a packaging distributor based in Co. Durham, for a consideration of approximately GBP0.9 million, paid in cash on acquisition. The business achieved sales of GBP1.2 million and a profit of GBP0.1 million in 2020.

In 2019, MGUK acquired 100% of Carnweather Limited, the parent company of Ecopac, for a maximum consideration of GBP3.9 million. GBP3.1 million was paid in cash on acquisition, with the deferred consideration of GBP0.8 million paid in 2020, as trading targets following acquisition were met in full.

In 2019 the Group also acquired 100% of Leyland, for a maximum consideration of GBP3.25 million. GBP2.00 million was paid in cash on acquisition with shares to the value of GBP0.25 million issued to the Vendors on acquisition Deferred consideration of GBP0.97 million was paid in 2020, reflecting the results in the trading period after acquisition.

All the businesses detailed above are part of the Packaging Distribution segment. Goodwill arising on the acquisitions is attributable to the anticipated future profitability of the distribution of Group product ranges and anticipated operating synergies from future combinations of activities in the Packaging Distribution network.

Fair values assigned to net assets acquired and consideration paid and payable are set out below.

 
                                                              Previous 
                                                                years' 
                                               Armagrip   acquisitions         2020         2019 
                                                 GBP000         GBP000       GBP000       GBP000 
  Net assets acquired 
  Other intangible assets                           291              -          291        3,313 
  Property, plant and equipment                       -              -            -        1,194 
  Inventories                                       206              -          206          879 
  Trade and other receivables                       282              -          282        1,797 
  Cash and bank balances                              -              -            -          100 
  Trade and other payables                            -              -            -      (1,658) 
  Current tax liabilities                             -              -            -        (235) 
  Lease liabilities                                   -              -            -        (979) 
  Deferred tax liabilities (see note 
   11)                                             (55)              -         (55)        (599) 
 
  Net assets acquired                               724              -          724        3,812 
  Goodwill arising on acquisition                   164              -          164        3,093 
 
  Total consideration                               888              -          888        6,905 
 
  Contingent consideration on acquisitions 
  Current year                                        -              -            -      (1,600) 
  Prior years                                         -          1,773        1,773        1,207 
 
  Shares issued                                       -              -            -        (250) 
 
  Cash consideration                                888          1,773        2,661        6,262 
 
  Net cash outflow arising on acquisition 
  Cash consideration                              (888)        (1,773)      (2,661)      (6,262) 
  Cash and bank balances acquired                     -              -            -          100 
 
  Net cash outflow                                (888)        (1,773)      (2,661)      (6,162) 
 
 

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   9.         Analysis of changes in net debt 
 
                                         Restated*    Restated* 
                                        Cash &cash         Bank           Lease      Total 
                                       equivalents    borrowing     Liabilities       Debt 
                                            GBP000       GBP000          GBP000     GBP000 
  At 1 January 2020 (as previously 
   stated)                                   3,310     (15,984)        (25,967)   (38,641) 
  Restatement (see page 23)                  2,269      (2,269)               -          - 
 
  At 1 January 2020 (restated)               5,579     (18,253)        (25,967)   (38,641) 
    Cash movements                           1,649       10,487           6,719     18,855 
  Non-cash movements 
     New leases                                  -            -         (1,959)    (1,959) 
      Lease Modifications                        -            -         (7,485)    (7,485) 
 
  At 31 December 2020                        7,228      (7,766)        (28,692)   (29,230) 
 
 
 
  Net bank debt 2020             7,228     (7,766)        (538) 
 
  Net bank debt 2019             5,579    (18,253)     (12,674) 
 

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 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, the inflationary increase is currently based on the Retail Price Index ("RPI") measure of inflation or based on Limited Price Indexation ("LPI") for certain defined periods of service.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   10.       Pension scheme (continued) 

During 2012, Macfarlane Group PLC agreed with the Board of Trustees to amend benefits for pensioner, deferred and active members in the defined benefit pension scheme by offering a Pension Increase Exchange ("PIE") option for deferred and active members at retirement after 1 May 2012.

Balance sheet disclosures

The fair value of scheme investments, the present value of scheme liabilities and expected rates of return are based on the provisional results of the actuarial valuation as at 1 May 2020, updated to the year-end.

 
                                                    2020      2019 
                                                  GBP000    GBP000 
         Investment class 
         Equities                                 22,936    22,139 
         Multi-asset diversified funds            31,559    25,382 
         Liability-driven investment funds        31,463    27,688 
         Secured property income fund              6,254     6,192 
         European loan fund                        6,493     6,379 
         Other (cash and similar assets)             725       281 
 
         Fair value of scheme investments         99,430    88,061 
         Present value of scheme liabilities   (100,901)  (94,526) 
 
         Scheme deficit                          (1,471)   (6,465) 
 
 

The Trustees review the investments of the scheme on a regular basis and consult with the Company regarding any proposed changes to the investment profile. Liability-Driven Investment Funds are intended to provide a match of 100% against the impact of movements in inflation on pension liabilities and a match of 85% against the impact of movements in interest-rates on pension liabilities. During 2020 adjustments were made between investments to bring the overall allocations into line with the Trustees' strategic asset allocation.

The ability to realise the Scheme's investments at, or close to, fair value was considered when setting the investment strategy. 87% (2019: 86%) of the Scheme's investments can be realised at fair value on a daily or weekly basis. The remaining assets have monthly or quarterly liquidity, however, whilst the income from these helps to meet the Scheme's cash flow needs, they are not expected to require to be realised at short notice .

The present value of the scheme liabilities is derived from cash flow projections over a long period of time and is thus inherently uncertain.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   10.       Pension scheme (continued) 

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

 
  Assumptions                                2020   2019 
  Discount rate                             1.35%   2.00% 
  Rate of increase in salaries              0.00%   0.00% 
  Inflation assumption (RPI)                3.00%   3.00% 
  Inflation assumption (CPI)                2.50%   2.10% 
 
  Life expectancy beyond normal retirement age of 65 
  Male currently aged 55 (years)             22.6   22.6 
  Female currently aged 55 (years)           24.3   24.7 
 
  Male currently aged 65 (years)             22.2   22.0 
  Female currently aged 65 (years)           23.5   24.0 
 

Following the Lloyds Banking Group plc court case in December 2020, schemes are required to retrospectively adjust certain transfer values between 1990 and 2020 for GMP equalisation. The estimated cost of this adjustment in GBP87,000 and has been charge against the results for the year.

 
                                                 2020     2019 
  Movement in scheme deficit                   GBP000   GBP000 
 
  At 1 January                                (6,465)  (9,765) 
  Current service costs                         (143)    (112) 
  Past service costs for GMP equalisation        (87)        - 
  Employer contributions                        3,211    3,106 
  Net finance cost (see note 4)                  (99)    (231) 
  Remeasurement of pension scheme liability     2,112      537 
 
  At 31 December                              (1,471)  (6,465) 
 
 

Funding

UK pension legislation requires that pension schemes are funded prudently. Following the triennial actuarial valuation of the scheme at 1 May 2020, the Company agreed a new schedule of contributions with the Pension Scheme Trustees, which assumed a recovery plan period of 4 years. The next triennial actuarial valuation is due at 1 May 2023.

Sensitivity to key assumptions

The key assumptions used for IAS 19 are discount rate, inflation and mortality. If different assumptions were used, then this could have a material effect on the results disclosed. Assuming all other assumptions are held static then a movement in the following key assumptions would affect the level of the deficit as shown below:-

 
                                                     2020     2019 
           Assumptions                             GBP000   GBP000 
         Discount rate movement of +0.6%            9,684    9,072 
         Inflation rate movement of +0.1%           (515)    (482) 
         Mortality movement of +0.1 year in age 
          rating                                    303        284 
 

Positive figures reflect a reduction in the scheme liabilities and therefore a reduction in the scheme deficit. The sensitivity information has been prepared using the same method as adopted when adjusting the results of the latest funding valuation to the balance sheet date and is consistent with the approach adopted in previous years.

The sensitivities shown reflect average movements in the assumptions in the last three years. All information assumes that the average duration of Scheme liabilities is seventeen years.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

 
11. Deferred tax                                                 Restated* 
                                                           2020       2019 
                                                         GBP000     GBP000 
 
         At 1 January                                   (1,892)    (1,047) 
         Acquisitions                                      (55)      (599) 
         Charged in income statement (see note 5)         (457)      (154) 
         (Charged)/credited in other comprehensive 
          income 
           Remeasurement of pension scheme liability      (401)       (92) 
           Corporation tax rate change                      129          - 
 
         At 31 December                                 (2,676)    (1,892) 
 
         Deferred tax assets 
         On retirement benefit obligations                  279      1,099 
         Corporation tax losses                             117        125 
 
         Disclosed as deferred tax assets                   396      1,224 
 
         Deferred tax liabilities 
         On accelerated capital allowances/timing 
          differences                                     (196)      (165) 
         On other intangible assets                     (2,876)    (2,951) 
 
         Disclosed as deferred tax liabilities          (3,072)    (3,116) 
 
 
 
         At 31 December                                 (2,676)    (1,892) 
 
 

*Details of the restatements are set out on pages 21 and 22.

 
12. Share capital                                 2020     2019 
                                                GBP000   GBP000 
         Allotted, issued and fully paid: 
         At 1 January                           39,453   39,387 
         Issued during the year                      -       66 
 
         At 31 December                         39,453   39,453 
 
         Share premium 
         At 1 January                           13,148   12,975 
         Issue of new shares during the year         -      184 
         Expenses of share issue                     -     (11) 
 
         At 31 December                         13,148   13,148 
 
 

The Company has one class of ordinary shares of 25p each, which carry no right to fixed income. Each ordinary share carries one vote in any General Meeting of the Company.

On 5 September 2019, the Company issued 264,382 ordinary shares of 25p each at a value of 94.56p per share as non-cash consideration to the Vendors of Leyland Packaging Company (Lancs) Limited, an effective value of GBP250,000. The shares were admitted to the Official List of the London Stock Exchange on 5 September 2019.

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2020

   13.       Related party transactions 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

Details of individual and collective remuneration of the Company's Directors and dividends received by the Directors for calendar year 2020 will be disclosed in the Group's 2020 Annual Report and Accounts.

The directors are satisfied that there are no other related party transactions occurring during the year which require disclosure.

   14.       Post balance sheet events 

There are no post balance sheet events to be disclosed.

   15.       Posting to shareholders and Annual General Meeting 

The Annual Report and Accounts will be sent to shareholders on Friday 2 April 2021 and will be available to members of the public at the Company's Registered Office from Friday 23 April 2021.

The Annual General Meeting will take place at 12 noon on Tuesday 11 May 2021.

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