Annual Results 2022

About this update from Macfarlane Group Plc

[{"type":"text","content":"\n \n \n \n \n \n \n \n \n 23 February 2023 \n \n \n \n MACFARLANE GROUP PLC \n \n \n (\"MACFARLANE GROUP\", \"THE COMPANY\", \"THE GROUP\") \n \n \n   \n \n \n ANNUAL RESULTS 2022 \n \n \n \n Results ahead of market expectations and 2021 \n \n \n \n \n   \n \n \n \n \n FINANCIAL HIGHLIGHTS \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £000 \n \n \n \n \n \n \n 2021 \n \n \n \n \n £000 \n \n \n \n \n \n \n Increase \n \n \n \n \n % \n \n \n \n \n \n \n \n \n Continuing operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n 290,431 \n \n \n \n \n 264,465 \n \n \n \n \n 10% \n \n \n \n \n \n \n Operating profit before amortisation 1 \n \n \n \n \n 25,073 \n \n \n \n \n 23,366 \n \n \n \n \n 7% \n \n \n \n \n \n \n Operating profit \n \n \n \n \n 21,496 \n \n \n \n \n 20,055 \n \n \n \n \n 7% \n \n \n \n \n \n \n Profit before tax \n \n \n \n \n 19,934 \n \n \n \n \n 18,665 \n \n \n \n \n 7% \n \n \n \n \n \n \n \n Continuing and discontinued 2 \n \n \n operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n 15,637 \n \n \n \n \n 12,598 \n \n \n \n \n 24% \n \n \n \n \n \n \n Interim and proposed Final dividend (pence) \n \n \n \n \n 3.42p \n \n \n \n \n 3.20p \n \n \n \n \n 7% \n \n \n \n \n \n \n Basic earnings per share (pence) \n \n \n \n \n 9.89p \n \n \n \n \n 7.98p \n \n \n \n \n 24% \n \n \n \n \n \n \n · \n Revenue from continuing operations grew by 10% versus 2021 to £290.4m. \n \n \n · \n Profit before tax from continuing operations at £19.9m increased by 7% which is reflected in the increase in dividend. \n \n \n · \n Basic and diluted earnings per share were 9.89p per share (2021: 7.98p per share) and 9.78p per share (2021: 7.90p per share) respectively. \n \n \n \n Packaging Distribution \n \n \n \n · \n Packaging Distribution achieved revenue growth of 8% to £259.7m (2021: £239.5m) through the recovery of input prices and the benefits from the acquisitions of Carters Packaging in March 2021 and PackMann in May 2022 which offset reduced demand from e-commerce customers. \n \n \n · \n In line with our strategy to support our customers by increasing our geographic coverage we acquired PackMann in Germany in May 2022. PackMann revenues are in line with our expectations, but operating profit has been impacted by higher input costs. \n \n \n · \n Gross margins are stable at 32.1% (2021: 32.4%) reflecting effective recovery of input price inflation. \n \n \n · \n Operating profit before amortisation only increased by 1% to £19.9m (2021: £19.7m) due to cost increases.  The key areas where costs have increased were start-up costs related to the new North-West of England distribution centre, strategic IT investments and inflationary pressures primarily in labour, energy and logistics costs. \n \n \n \n Manufacturing Operations \n \n \n \n · \n Manufacturing Operations delivered an excellent performance in 2022 with revenues growing by 23% to £30.8m (2021: £25.0m) and operating profit before amortisation increasing 42% to £5.2m (2021: £3.7m).  GWP, acquired in February 2021, continued to perform well. The Macfarlane Design and Manufacture business benefited from recovery in the aerospace sector and the strengthening of its partnership with Packaging Distribution. \n \n \n · \n The Group sold its Labels business in December 2021 and this has been classified as a discontinued operation. Labels recorded a loss before tax of £0.1m in 2022 (2021: Loss £0.9m) related to finalisation of completion accounts. \n \n \n \n   \n \n \n \n \n FINANCIAL HIGHLIGHTS \n \n \n \n \n Group \n \n \n \n · \n Net cash inflow from operating activities of £18.0m (2021: £23.8m) reflects the timing of payments at the year end to suppliers and higher 2021 employee incentive payments paid in 2022. \n \n \n · \n Net bank debt on 31 December 2022 was £3.4m, a net cash outflow of £5.9m from 31 December 2021, including £8.7m of investment in acquisitions and a higher level of capital expenditure of £3.3m related primarily to the fit-out of the new distribution centre in the North-West of England (£1.3m).  The Group is operating well within its existing bank facility of £30.0m and relevant covenants which runs until 31 December 2025. \n \n \n · \n The Pension Scheme surplus increased to £10.2m at 31 December 2022 (31 December 2021: £8.3m).  This improvement is due to continued contributions from the Group and an increase in the discount rate offset by a decline in the value of investments during the year.  This is against the backdrop of considerable volatility in the markets, in particular government gilt yields. \n \n \n · \n The Board is proposing a final dividend of 2.52p per share (2021: 2.33p per share) which would take the total dividend for 2022 to 3.42p per share (2021: 3.20p per share) up 7% on 2021. \n \n \n   \n \n \n \n 1  See notes to the financial information below for reconciliation of Alternative Performance Measure operating profit before amortisation to operating profit. \n \n \n \n 2 In accordance with IFRS5, the 2021 and 2022 results of the Labels business, sold on 31 December 2021, have been stated as a discontinued operation.  The loss for the year from the discontinued operation was £0.1m (2021: £1.1m). \n \n \n \n   \n \n \n \n \n CHAIR'S STATEMENT \n \n \n \n In my first statement as Chair of Macfarlane Group, I am pleased to report that the Group results for the year ended 31 December 2022 were ahead of both the previous year and market expectations. \n \n \n \n Trading \n \n \n \n Our performance in 2022 was achieved against a background of a marked slowdown in spend from the e-commerce sector, following strong growth during the 2021 Covid-19 lockdown periods, and inflationary pressures on operating costs. \n \n \n Our Packaging Distribution business achieved revenue growth of 8% through the benefit of acquisitions, good progress from our \"Follow the Customer\" \n strategy in Europe and the recovery of raw material price inflation. Profitability was only slightly higher than 2021 due to the start-up costs for our new distribution centre in the North-West of England, strategic investments in our IT capability and inflationary increases in operating costs. \n \n \n Our Manufacturing Operations have had an excellent year, with strong growth in sales and operating profit. We benefited from the 2021 acquisition of GWP, demand recovery in certain industrial markets and the partnership with our Packaging Distribution business continued to strengthen. \n \n \n We were able to fund £11.9m (2021: £14.4m) of acquisition and capital investment activity through our existing bank facilities due to the continued strong operating cash flows and reinvesting the proceeds from the sale of our Labels business in December 2021. \n \n \n The pension scheme remains in surplus, with the Directors working in close co-operation with the trustees and their advisers to manage investments successfully through volatility in the markets in the second half of 2022. \n \n \n The dedication and commitment of all our colleagues has been critical to our success and I thank them for all their hard work in 2022. \n \n \n \n Environment, Social and Governance (\"ESG\") \n \n \n \n The Group has made good progress in 2022 on its ESG commitments. We have commenced the programme to electrify our fleet of delivery vehicles, continued to introduce solar panels at our sites, worked with our customers to move to more sustainable plastic products and invested in an additional Innovation Lab to help our customers reduce their carbon footprint. The Board is now more diverse and we have increased our level of engagement with the local communities in which we operate. \n \n \n \n \n \n \n CHAIR'S STATEMENT \n \n \n \n \n Board Changes \n \n \n \n As set out in the Interim Report 2022, Stuart Paterson stood down as Chair at the end of September 2022 and the Board would like to thank Stuart for his valuable contribution as Chair and prior to that as a Non-Executive Director. \n \n \n On 1 October 2022, Laura Whyte was appointed to the Board as an independent Non-Executive Director and Chair of the Remuneration Committee. Laura brings extensive commercial and human resources experience to the Board. \n \n \n \n Proposed Dividend \n \n \n \n The Board is proposing a final dividend of 2.52 pence per share, amounting to a full year dividend of 3.42 pence per share (2021: 3.20 pence per share), an increase of 7%.  Subject to the approval of shareholders at the Annual General Meeting on Tuesday 9 May 2023 the final dividend will be paid on Thursday 1 June 2023 to those shareholders on the register at Friday 12 May 2023. \n \n \n \n Outlook \n \n \n \n We anticipate that 2023 will be another challenging year with uncertainty over the impact of the increase in the cost of living on customer demand, rising operating costs, particularly related to labour and energy, and increasing interest costs. Despite these challenges, with the effectiveness of our strategy, the resilience of our business model and the experience and commitment of our people, we expect Macfarlane Group to continue to deliver further growth in 2023. \n \n \n \"Follow the Customer\" is the Group's strategy to provide UK customers with access to its products and services in mainland Europe. \n \n \n \n   \n \n \n \n \n \n \n \n Further enquiries: \n \n \n \n \n Macfarlane Group \n \n \n \n \n Tel: 0141 333 9666 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Aleen Gulvanessian  Chair \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Peter Atkinson  Chief Executive \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Ivor Gray  Finance Director \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n Spreng Thomson \n \n \n \n \n Tel: 0141 548 5191 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Callum Spreng \n \n \n \n \n Mob: 07803 970103 \n \n \n \n \n \n \n \n   \n \n \n \n \n Legal Entity Identifier (LEI):  213800LVRYDERSJAAZ73 \n \n \n \n \n Notes to Editors: \n \n \n \n \n · \n Macfarlane Group PLC has been listed on the Premium segment of the Main Market of the London Stock Exchange (LSE: MACF) since 1973 with over 70 years' experience in the UK packaging industry. \n \n \n · \n Through its two divisions Macfarlane Group services a broad range of business customers, supplying them high quality protective packaging which help customers reduce supply chain costs, improve their operational efficiencies and enhance their brand presentation. The divisions are: \n \n \n \n \n o  \n \n Packaging Distribution \n \n - Macfarlane Packaging Distribution is the leading UK distributor of a comprehensive range of protective packaging products; and \n \n \n o  \n \n Manufacturing Operations - Macfarlane Design and Manufacture \n \n who design and produce protective packaging for high value and fragile products. \n \n \n \n \n · \n Headquartered in Glasgow, Scotland, Macfarlane Group employs over 1,000 people at 37 sites, principally in the UK, as well as in Ireland, Germany and the Netherlands. \n \n \n · \n Macfarlane Group supplies more than 20,000 customers principally in the UK and Europe. \n \n \n \n \n · \n In partnership with 1,700 suppliers, Macfarlane Group distributes and manufactures 600,000+ lines across a wide range of sectors, including: retail e-commerce; consumer goods; food; logistics; mail order; electronics; defence, automotive and aerospace. \n \n \n \n \n BUSINESS REVIEW \n \n \n \n Macfarlane Group's trading activities comprise Packaging Distribution and Manufacturing Operations . \n \n \n \n Macfarlane's Packaging Distribution \n \n business is the UK's leading specialist distributor of protective packaging materials, with a growing presence in Europe.  Macfarlane operates a stock and serve supply model in the UK, Ireland, the Netherlands and Germany from 27 Regional Distribution Centres (\"RDCs\") and three satellite sites, supplying industrial and retail customers with a comprehensive range of protective packaging materials on a local, regional and national basis. \n \n \n 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 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 market focus, expertise and a breadth of product and service knowledge, all of which enable it to compete effectively against non-specialist packaging distributors. \n \n \n Packaging Distribution 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 packing processes. Through the 'Significant Six' \n sales approach we reduce our customers' 'Total Cost of Packaging' and their carbon footprint.  This is achieved through supplying effective packaging solutions, optimising warehousing and transportation, reducing damages and returns and improving packaging efficiency. \n \n \n \"Significant Six\" represents the six key costs in a customers' packing process being transport, warehousing, administration, damages and returns, productivity and customer experience. \n \n \n \n \n \n \n \n Packaging Distribution \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n 2021 \n \n \n \n \n \n 2022 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n £000 \n \n \n \n \n \n £000 \n \n \n \n \n \n Change \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n \n \n 259,651 \n \n \n \n \n \n 239,508 \n \n \n \n \n \n 8% \n \n \n \n \n \n \n \n Cost of sales \n \n \n \n \n \n 176,193 \n \n \n \n \n \n 161,896 \n \n \n \n \n \n 9% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Gross margin \n \n \n \n \n \n \n 83,458 \n \n \n \n \n \n 77,612 \n \n \n \n \n \n 8% \n \n \n \n \n \n \n \n Operating expenses \n \n \n \n \n \n 63,590 \n \n \n \n \n \n 57,915 \n \n \n \n \n \n 10% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Operating profit before amortisation \n \n \n \n \n \n \n 19,868 \n \n \n \n \n \n 19,697 \n \n \n \n \n \n 1% \n \n \n \n \n \n \n \n Amortisation \n \n \n \n \n \n 2,774 \n \n \n \n \n \n 2,642 \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n \n 17,094 \n \n \n \n \n \n 17,055 \n \n \n \n \n \n -% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n See notes to the financial information below for reconciliation of Alternative Performance Measure operating profit before amortisation to operating profit. \n \n \n The main features of Packaging Distribution's performance in 2022 were: \n \n \n · \n Increase in revenue of £20.1m: \n \n \n · \n Organic revenue growth in the UK and Ireland of £8.4m has been achieved through recovery in some industrial sectors, particularly in aerospace, engineering and hospitality, and inflation in pricing offset by a marked reduction in demand from e-commerce customers, most of which benefited from the Covid-19 lockdowns in H1 2021. \n \n \n · \n Our 'Follow the Customer' strategy in Northern Europe achieved £2.9m of incremental sales through the Group subsidiary in the Netherlands, with the business now generating profits. \n \n \n · \n Sales growth of £8.8m was achieved from the acquisitions of Carters Packaging, Cornwall, in March 2021 and PackMann, Germany, in May 2022. The PackMann pre-acquisition costs of £0.2m were expensed in 2022. \n \n \n · \n New business in 2022 at £8.9m was lower than 2021. Following the supply chain challenges of 2020/21 customers were less inclined to switch supply and our sales team prioritised the management of input price increases with our customers. \n \n \n · \n The acquisition of PackMann was an important strategic step and complements our \"Follow the Customer\" programme in Europe. \n \n \n · \n Effective management of significant input price increases across all product categories in H2 2021 and H1 2022 has enabled us to broadly maintain gross margin at 32.1% (2021: 32.4%). \n \n \n · \n Overhead costs in 2022 were £5.7m higher than 2021. This is attributable to the effect of acquisitions, strategic IT investments, the start-up costs for our new distribution centre in the North-West of England and the impact of inflation on labour, energy and logistics costs. \n \n \n \n BUSINESS REVIEW \n \n \n \n \n Future \n \n \n \n Our plans for 2023 are focused on continuing to grow sales and improving profitability through the following actions: \n \n \n · \n Prioritise engagement with potential new customers in sectors where we see future growth opportunities such as e-commerce retail, medical, scientific, and third-party logistics. \n \n \n · \n Continue to effectively manage input price changes and supply chain challenges as they arise. \n \n \n · \n Maximise the benefits from our \"Packaging Optimiser\" \n which was launched to our sales teams to better demonstrate our ability to add value for customers through our \"Significant Six\" sales approach. \n \n \n · \n Achieve benefits from our information technology investments in Microsoft Dynamics, Slimstock and Warehouse Management. \n \n \n · \n Refine and extend our product range to ensure we continue to offer our customers sustainable packaging solutions that reduce their carbon footprint. \n \n \n · \n Introduce improvements to our web-based solutions to allow customers access to our full range of products and services more easily. \n \n \n · \n Accelerate the progress we have made in Europe through our \"Follow the Customer\" programme and our recent acquisition of PackMann. \n \n \n · \n Reduce operating costs through efficiency programmes in sales, logistics and administration. \n \n \n · \n Realise the benefits from our new distribution centre in the North-West of England, including the new Innovation Lab due to open in March 2023. \n \n \n · \n Plan our second major site consolidation in the East Midlands. \n \n \n · \n Maintain the focus on working capital management to facilitate future investment and manage effectively the ongoing bad debt risk within the current economic environment. \n \n \n · \n Supplement organic growth through progressing further high-quality acquisitions in the UK and Europe. \n \n \n   Packaging Optimiser is a Macfarlane developed software tool that measures the financial and carbon benefits of the Significant Six selling approach. \n \n \n \n Manufacturing Operations \n \n comprises our Packaging Design and Manufacture business and GWP, acquired in February 2021. \n \n \n Manufacturing Operations designs, manufactures, assembles and distributes bespoke 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 businesses operate from four manufacturing sites, in Grantham, Westbury, Swindon and Salisbury, supplying both directly to customers and through the national RDC network of the Packaging Distribution business. \n \n \n Key market sectors are defence, aerospace, medical equipment, electronics, automotive, e-commerce retail and household equipment. The markets we serve 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. \n \n \n \n   \n \n \n \n \n \n \n \n \n Manufacturing Operations \n \n \n \n \n \n \n 2022 \n \n \n \n \n \n 2021 \n \n \n \n \n \n 2022 \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n £000 \n \n \n \n \n \n £000 \n \n \n \n \n \n Change \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n \n \n 30,780 \n \n \n \n \n \n 24,957 \n \n \n \n \n \n 23% \n \n \n \n \n \n \n \n Cost of sales \n \n \n \n \n \n 16,181 \n \n \n \n \n \n 13,102 \n \n \n \n \n \n 24% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Gross margin \n \n \n \n \n \n \n 14,599 \n \n \n \n \n \n 11,855 \n \n \n \n \n \n 23% \n \n \n \n \n \n \n \n Operating expenses \n \n \n \n \n \n 9,394 \n \n \n \n \n \n 8,186 \n \n \n \n \n \n 15% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Operating profit before amortisation \n \n \n \n \n \n \n 5,205 \n \n \n \n \n \n 3,669 \n \n \n \n \n \n 42% \n \n \n \n \n \n \n \n Amortisation \n \n \n \n \n \n 803 \n \n \n \n \n \n 669 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n \n 4,402 \n \n \n \n \n \n 3,000 \n \n \n \n \n \n 47% \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n See notes to the financial information below for reconciliation of Alternative Performance Measure operating profit before amortisation to operating profit. \n \n \n \n BUSINESS REVIEW \n \n \n \n The impressive growth in operating profit of 47% in Manufacturing Operations has been achieved through: \n \n \n · \n Organic sales growth of \n 15% (£1.4m), due mainly to recovery in the aerospace (defence and commercial) sector and inflation in pricing. \n \n \n · \n Sales growth of £4.4m achieved from the acquisition of GWP in February 2021, which has benefited from strong demand from its industrial customers and inflation in pricing. \n \n \n · \n Strengthening of the partnership between Manufacturing Operations and Packaging Distribution. \n \n \n · \n Effective management of increasing input prices with our customers to maintain gross margin; and \n \n \n · \n Good control of operating costs, against a backdrop of inflation in logistics, labour and energy costs. \n \n \n \n Future \n \n \n \n Priorities for Manufacturing Operations in 2023 are to: \n \n \n · \n Focus the sales team on new business growth in target sectors e.g., medical and defence. \n \n \n · \n Prioritise new sales activity on our higher added-value bespoke composite pack product range. \n \n \n · \n Work with our customers to effectively manage material price changes to minimise the impact on gross margins. \n \n \n · \n Continue to strengthen the relationship with our Packaging Distribution businesses to create both sales and cost synergies. \n \n \n · \n Commence the process of GWP working more closely with the Macfarlane Packaging Design and Manufacture and Packaging Distribution businesses. \n \n \n · \n Supplement organic growth through progressing further high-quality acquisitions in the UK. \n \n \n \n   \n \n \n \n \n Group \n \n \n \n The Group has achieved sales growth of 10% and operating profit growth 7% in 2022 while making significant investments in the future of the business including the first major site consolidation, upgrading our information technology and making our first acquisition outside the UK to supplement our \"Follow the Customer\" programme in Europe. \n \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n Group performance \n \n \n \n   \n \n \n \n \n \n   \n \n \n \n \n Revenue \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n 2022 \n \n \n \n \n £000 \n \n \n \n \n \n \n   \n \n \n \n \n Operating \n \n \n \n \n profit/ \n \n \n \n \n (loss) before \n \n \n \n \n amortisation \n \n \n \n \n \n \n \n 2022 \n \n \n \n \n £000 \n \n \n \n \n \n \n   \n \n \n \n \n Operating \n \n \n \n \n profit/ \n \n \n \n \n (loss) \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n 2022 \n \n \n \n \n £000 \n \n \n \n \n \n   \n \n \n Revenue \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n 2021 \n \n \n £000 \n \n \n \n \n   \n \n \n Operating \n \n \n profit before \n \n \n amortisation \n \n \n \n \n \n   \n \n \n 2021 \n \n \n £000 \n \n \n \n \n   \n \n \n Operating \n \n \n profit \n \n \n   \n \n \n   \n \n \n   \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Segment \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Packaging Distribution \n \n \n \n \n \n 259,651 \n \n \n \n \n \n \n 19,868 \n \n \n \n \n \n \n 17,094 \n \n \n \n \n \n 239,508 \n \n \n \n \n 19,697 \n \n \n \n \n 17,055 \n \n \n \n \n \n \n Manufacturing Operations \n \n \n \n \n \n 30,780 \n \n \n \n \n \n \n 5,205 \n \n \n \n \n \n \n 4,402 \n \n \n \n \n \n 24,957 \n \n \n \n \n 3,669 \n \n \n \n \n 3,000 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Continuing operations \n \n \n \n \n \n \n 290,431 \n \n \n \n \n \n \n 25,073 \n \n \n \n \n \n \n 21,496 \n \n \n \n \n \n 264,465 \n \n \n \n \n 23,366 \n \n \n \n \n 20,055 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n % of Revenue \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 8.6% \n \n \n \n \n \n \n 7.4% \n \n \n \n \n \n \n \n \n \n \n \n \n 8.8% \n \n \n \n \n 7.6% \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Discontinued operations \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (87) \n \n \n \n \n \n \n (87) \n \n \n \n \n \n 21,220 \n \n \n \n \n 372 \n \n \n \n \n 372 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Group Total \n \n \n \n \n \n \n 290,431 \n \n \n \n \n \n \n 24,986 \n \n \n \n \n \n \n 21,409 \n \n \n \n \n \n 285,685 \n \n \n \n \n 23,738 \n \n \n \n \n 20,427 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n See notes to the financial information below for reconciliation of Alternative Performance Measure operating profit before amortisation to operating profit. \n \n \n \n \n \n \n BUSINESS REVIEW \n \n \n \n \n 2023 Outlook \n \n \n \n The Group's businesses all have strong market positions with low customer concentration and differentiated product and service offerings, providing both value and sustainability to our customers. We have a flexible business model and proven effective implementation of our strategic plan, which is reflected in consistent profit and cash generation over a sustained period. \n \n \n Our future performance continues to depend on our effectiveness in growing sales, increasing efficiencies and bringing high quality acquisitions into the Group.  There will continue to be significant challenges in 2023, with rising costs and uncertainties over demand in some sectors.  However, our strategy and business model have proved to be resilient and we expect to deliver further growth in 2023. \n \n \n \n   \n \n \n \n \n BUSINESS REVIEW \n \n \n \n \n RISKS AND UNCERTAINTIES \n \n \n \n The principal risks and uncertainties faced by the Group and the factors mitigating these risks are detailed below. These risks are addressed within 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. \n \n \n Risks are identified and assessed through a range of \"top down\" and \"bottom up\" analyses that are updated on a regular basis .  This in turn provides the basis for making informed risk-based decisions regarding the scope and focus of assurance work, as described in the report of the Audit Committee in the 2022 Annual Report.  In addition to scheduled updates from Finance, Health & Safety, IT, Sales, Procurement and other business functions, the Board and Audit Committee may seek assurance work in other areas from time to time, either from internal sources or externally commissioned work. \n \n \n   \n \n \n \n \n \n \n \n We continue to evolve our risk management processes to ensure they are robust, effective and integrated within our decision-making processes.  We have included a brief description of how we assess that each risk level has changed.  For risks shown as [ \n ç \n è \n ] the risk level is broadly similar between 2021 and 2022.  If the risk is shown as [ \n é \n ê \n ] the risk level has increased or decreased respectively during 2022 and is being addressed accordingly through mitigating actions by management. \n \n \n The business has added the Uncertain Economic Environment as a new risk in 2022.  \n Due to a range of prolonged geopolitical and economic uncertainties within the UK and other markets, there is an increased risk that we are entering into a recessionary trading environment. \n \n \n \n \n \n \n \n \n \n \n Risk Description \n \n \n \n \n \n \n Mitigating Factors \n \n \n \n \n \n \n C \n \n \n hange in \n \n \n Risk Level \n \n \n \n \n   \n \n \n \n \n \n \n \n Strategic changes in the market \n \n \n Failure to respond to strategic shifts in the market, including the impact of weaknesses in the economy as well as disruptive behaviour from competitors and changing customer needs (e.g. the move towards online retail) could limit the Group's ability to continue to grow revenues. \n \n \n We monitor this through Net Promoter Score, an annual customer satisfaction survey and interaction with customers at our Innovation Lab. \n \n \n \n \n The Group has a well-diversified customer base giving protection from changes in specific industry sectors as well as a flexible business model with a strong value proposition to meet the changing needs of customers. \n \n \n The Group strives to maintain high service levels for customers ensuring that customer needs are met.  The Group continues to invest in information technology, including its new Customer Relationship Management System being rolled out across the Group, while also enhancing its service offering. \n \n \n The Group maintains strong partnerships with key suppliers to ensure that a broad range of products is available to respond to customers' requirements, including any changes in their environmental and sustainability priorities. \n \n \n \n \n No change \n ç \n è \n \n \n The Group's supply chain challenges experienced in 2021 have stabilised in 2022 with lead times returning to normal levels. However, the Group has continued to experience volatility in input prices across all product categories which is being managed effectively. \n \n \n During 2022 the Group has experienced weaker demand from customers, particularly in the e-commerce retail sector. \n \n \n During 2023 the Group expects to realise some of the benefits of the new Customer Relationship Management system which will help the customer service teams in managing the complex and changing needs of our customers in an increasingly competitive environment. \n \n \n \n   \n \n \n \n \n \n Impact of environmental, social and governance (\"ESG\") changes \n \n \n Customers are increasingly focused on the environmental impacts of packaging, changing their buying behaviours in response to climate and sustainability concerns.  \n \n \n Investors are looking to invest in companies that demonstrate strong ESG credentials. \n \n \n There is increasing regulatory focus around reporting disclosures and new requirements, such as the Plastic Tax introduced from April 2022.  The Plastic Tax cost £0.9m in 2022.  This cost is recharged directly onto our customers. \n \n \n   \n \n \n If the Group is not proactive and transparent in how it is responding to environmental changes, this could lead to a loss of employees, customers and investors. \n \n \n The key measure the Group monitors is Scope 1 and 2 CO2 emissions. \n \n \n \n \n The Group has an ESG working group to examine specifically how we can reduce our impact on the environment. \n \n \n The working Group is focused on measuring the CO2 footprint and setting and monitoring progress against reduction targets for TCFD (Taskforce for Climate-related Financial Disclosures). \n \n \n A full-time Head of Sustainability was appointed and started in January 2023. \n \n \n The Group has committed to the development of a transition plan towards net-zero and, on an ongoing basis, reviews all relevant developments and available technologies to support that transition. \n \n \n Regular reviews of our environmental strategy are carried out at Board level to challenge performance against key milestones, as well as to ensure that priorities are aligned with stakeholder objectives. \n \n \n \n \n No change \n ç \n è \n \n \n The Group recognises the increased significance of our ESG obligations.  Our plans include actions to reduce our own carbon footprint, including; \n \n \n · \n the introduction of electric trucks to our fleet in 2022/2023; \n \n \n · \n investment in solar panels at sites with high energy use; and \n \n \n · \n ongoing actions to support our customers to reduce their CO2 emissions, including using our 'Packaging Optimiser' tool. \n \n \n The Group has actively engaged with customers to minmise the impact of the Plastic Tax by switching to alternative products. \n \n \n   \n \n \n \n   \n \n \n \n \n \n \n Raw material prices \n \n \n \n The Group's businesses are impacted by commodity-based raw material prices and manufacturer energy costs, with profitability sensitive to input price changes including currency fluctuations. \n \n \n The principal components are corrugated paper, polythene films, timber and foam, with changes to paper and oil prices having a direct impact on the price we pay to our suppliers. \n \n \n This risk is monitored through our procurement teams interacting with key suppliers and management regularly reviewing gross margin by customer. \n \n \n \n \n The Group works closely with its supplier and customer base to manage effectively the scale and timing of price changes and any resultant impact on profit.  Our IT systems monitor and measure effectiveness in these changes. \n \n \n Where possible, alternative supplier relationships are maintained to minimise supplier dependency. \n \n \n We work with customers to redesign packs and reduce packing cost to mitigate the impact of cost increases including switching to alternative products to minimise the impact of the Plastic Tax introduced in April 2022. \n \n \n The Group has a well-established supplier relationship management process which is subject to periodic management review and internal audit. \n \n \n   \n \n \n \n \n \n Increased risk \n \n é \n \n \n Input prices have continued to change throughout 2022 primarily due to volatility in timber, paper and polymer prices and the impact of rising fuel and energy costs. The business has managed these challenges robustly and gross margins have remained strong throughout 2022, reflecting the effort of our teams to mitigate these increases. \n \n \n The Group expects input prices to stabilise and potentially soften in 2023.  However, this remains uncertain due to the general economic landscape and inflationary pressures on suppliers operating costs. \n \n \n \n   \n \n \n \n \n \n \n Acquisitions \n \n \n \n The Group's growth strategy has included a number of acquisitions in recent years. There is a risk that such acquisitions may not be available on acceptable terms in the future. \n \n \n It is possible that acquisitions will not be successful due to the loss of key people or customers following acquisition or acquired businesses not performing at the level expected.  This could potentially lead to impairment of the carrying value of the related goodwill and other intangible assets. \n \n \n Execution risks around the failure to successfully integrate acquisitions following conclusion of the earn-out period also exist. \n \n \n This is monitored through regular reporting of acquisition prospects and post-acquisition performance by executive management, with reporting to the Board. \n \n \n \n \n The Group carefully reviews potential acquisition targets, ensuring that the focus is on high-quality businesses which complement the Group's existing profile and provide good opportunities for growth.  \n \n \n Having completed a number of acquisitions in recent years, the Group has well-established due diligence and integration processes and procedures, while only acquiring well-established quality businesses which will perform well in the Group. \n \n \n The Group's \n management information system enables effective monitoring of post-acquisition performance with \n earn-out mechanisms also mitigating risk in the post-acquisition period. \n \n \n Goodwill and other intangible assets are tested annually for impairment. \n \n \n \n \n No change \n ç \n è \n \n \n The Group has made 15 acquisitions since 2014, including one in 2022. \n \n \n The acquisition made in 2022 of PackMann, based in Germany, was the Group's first investment in Europe.  This is inherently a higher risk acquisition due to cultural differences and less depth in local management expertise and support when compared to previous UK-based acquisitions.  However, there are also important strategic opportunities for the Group in terms of extending service coverage for existing and new customers as well as integration synergies. \n \n \n The Group has a strong pipeline of potential protective packaging acquisition opportunities in both the UK and Northern Europe. \n \n \n \n   \n \n \n \n \n \n \n Property \n \n \n \n The Group has a property portfolio comprising 1 owned site and 48 leased sites.  This multi-site portfolio gives rise to risks in relation to ongoing lease costs, dilapidations and fluctuations in value. \n \n \n This risk is monitored on a regular basis and reported to the Board through internal reporting and input from external advisors. \n \n \n \n \n The Group adopts a proactive approach to managing property costs and exposures. \n \n \n Where \n a site is non-operational the Group seeks to assign, sell or sub-lease the building to mitigate the financial impact.  \n \n \n If this is not possible, rental voids are provided on vacant properties taking into consideration the likely period of vacancy and incentives to re-let. \n \n \n The Group engages with external property advisers to assess the level of provisioning required for dilapidations and negotiate to minimise the final costs. \n \n \n \n \n \n No change \n \n ç \n è \n \n \n Our property consolidation strategy has continued during 2022. Work is ongoing to finalise exit costs following the expiry of two leases and there are known future exits from another five existing operating sites.  Provisions have been established to cover the anticipated exit costs. \n \n \n The Group currently has no vacant or sub-let properties. \n \n \n \n   \n \n \n \n \n \n \n Cyber-security \n \n \n \n The increasing frequency and sophistication of cyber-attacks is a risk which potentially threatens the confidentiality, integrity and availability of the Group's data and IT systems. \n \n \n These attacks could also cause reputational damage and fines in the event of personal data being compromised. \n \n \n This risk is monitored through an ongoing program of compliance and controls auditing with input from external advisors. \n \n \n \n \n The Group continually invests in its IT infrastructure to protect against cyber-security threats.  This includes regular testing of IT Disaster Recovery Plans. \n \n \n We engage the services of a cyber-security partner to perform regular penetration tests to assess potential vulnerabilities within our security arrangements. \n \n \n 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. \n \n \n \n \n \n No change \n \n ç \n è \n \n \n Remote working practices are the norm, with the Group adopting hybrid home/office flexibility for its employees. This is a feature within the Group's risk to cyber-security attacks. \n \n \n The Group continues to invest in prevention/detection software and education programmes to mitigate the risks of cyber-security attacks. \n \n \n The frequency and sophistication of cyber-attacks is anticipated to continue to evolve, and the Group is committed to continually investing in upgrading its' infrastructure to respond to the changing threats. \n \n \n \n   \n \n \n \n \n \n \n Financial liquidity, debt covenants and interest rates \n \n \n \n The Group needs continuous access to funding to meet its trading obligations and to support organic growth and acquisitions.  There is a risk that the Group may be unable to obtain funds and that such funds will only be available on unfavourable terms. \n \n \n The Group's borrowing facility comprises a committed facility of up to £30m.  This includes requirements to comply with specified covenants, with a breach potentially resulting in Group borrowings being subject to more onerous conditions.  \n \n \n \n \n The Group's borrowing facility comprises a committed facility of £30m with Lloyds Bank PLC, which finances our trading requirements and supports controlled expansion, providing a medium-term funding platform for growth. \n \n \n The Group regularly monitors net bank debt and forecast cash flows to ensure that it will be able to meet its financial obligations as they fall due. \n \n \n Compliance with covenants is monitored on a monthly basis and sensitivity analysis is applied to forecasts to assess the impact on covenant compliance. \n \n \n \n \n \n No change \n \n ç \n è \n \n \n The Group has proved to be strongly cash generative in 2022 and has operated well within its existing bank facilities throughout the year. \n \n \n Interest rates have increased from 2.00% at 31 December 2021 to 5.25% at 31 December 2022 and are expected to increase further in 2023.  The increase in rates, which are in line with the market, do not increase the risk of the Group being unable to obtain funds and the Group operates well within the specific covenant related to interest i.e. 3 times EBITDA to interest. \n \n \n   \n \n \n \n   \n \n \n \n \n \n \n Working capital \n \n \n \n The Group has a significant investment in working capital in the form of trade receivables and inventories.  There is a risk that this investment is not fully recovered. \n \n \n This risk is monitored through detailed reporting to local and executive management, which is reviewed in summary form by the Board. \n \n \n \n \n Credit risk is controlled by applying rigour to the management of trade receivables by Head of Credit Control and the credit control team and is subject to additional scrutiny from the Group Finance Director and Group Financial Controller in line with the Group's credit risk process. \n \n \n All aged debts are assessed using the Expected Credit Loss model, and appropriate provisions are made. \n \n \n Customers in sectors likely be significantly impacted by the current economic challenges, particularly those exposed to reduced consumer demand and significant increases in operating costs e.g. energy, fuel etc are closely monitored and where necessary actions taken to reduce exposure to potential bad debts or stock write-offs. \n \n \n Inventory levels and order patterns are regularly reviewed and risks arising from holding bespoke stocks are managed by obtaining order cover from customers. \n \n \n \n \n \n Increase \n \n é \n \n \n Bad debt write-offs in 2022 have increased from 2021, albeit still at a relatively low level. This is reflected in the Expected Credit Loss allowance being increased accordingly. \n \n \n Aged stock over 6 months old has increased in 2022 due to a slowdown in demand particularly from the e-commerce retail sector.  The Group is working to reduce stock over 6 months and has invested in a new IT system, Slimstock to support this initiative. \n \n \n The current economic environment is likely to increase the risk of bad debts and stock write-offs in 2023, although management will continue to take all appropriate steps to mitigate this risk and limit the need for additional provisions or write-offs. \n \n \n \n \n \n \n \n Defined benefit pension scheme \n \n \n \n The Group's defined benefit pension scheme is sensitive to a number of key factors including investment returns, the discount rates used to calculate the scheme's liabilities and mortality assumptions. \n \n \n Small changes in these assumptions could cause significant movements in the pension surplus/deficit.  \n \n \n This risk is monitored through regular input from external pension advisors, including six monthly IAS19 reviews and triennial actuarial valuations. \n \n \n \n \n The scheme was closed to new members in 2002.  Benefits for active members were amended by freezing pensionable salaries at April 2009 levels. \n \n \n A Pension Increase Exchange option is available to offer flexibility to new pensioners in both the level of pension at retirement and the rate of future increases. \n \n \n The investment profile is regularly reviewed to ensure continued matching of investments with the scheme's liability profile. \n \n \n The scheme invests in \n Liability Driven Investments (\"LDI\") which hedge the scheme against movements in the discount rate and inflation.  These are leveraged instruments which require active investments and divestments to maintain the level of leverage. \n \n \n The scheme was closed to future accrual during 2022. \n \n \n \n \n \n No change \n \n ç \n è \n \n \n The IAS 19 valuation of the Group's defined benefit pension scheme as at 31 December 2022 estimated the scheme surplus to be £10.2m, compared to a surplus of £8.3m at 31 December 2021.  \n \n \n Deficit repair contributions were set at £1.3m per annum following the triennial actuarial valuation at 1 May 2020.  The Group is committed to making these contributions until May 2024. \n \n \n The Group paid £0.7m into the scheme in 2022 to satisfy the debt agreed with the trustees in relation to the cessation of Macfarlane Labels Limited as a sponsoring employer. \n \n \n 2022 saw unprecedented levels of volatility in gilt markets.  Longer dated yields rose from approximately 1.6% at the beginning of the year to 4.3% at the recent peak. Whilst this significantly decreased the schemes liabilities it required additional collateral payments into the LDIs to preserve the hedging the LDIs provide against movements in interest and inflation. The leverage on the LDIs was also lowered to reduce the likelihood of collateral calls from the scheme's LDI manager. \n \n \n \n \n \n \n \n Uncertain economic environment \n \n \n \n Due to a range of prolonged geopolitical and economic uncertainties within the UK and other markets, there is an increased risk that we are entering into a challenging trading environment. If this materialises, the length and depth of such an environment is unknown and may adversely affect our ability to deliver upon agreed strategic initiatives.  We may also need to adapt our business quickly in order to limit the impact upon the Group's results, prospects and reputation. \n \n \n This risk is monitored through regular review of trading forecasts and market conditions, considered at executive management and Board level. \n \n \n \n \n A twice yearly viability assessment and sensitivity analyses is performed by management. \n \n \n The Group's borrowing facility comprises a committed facility of £30 million with Lloyds Bank PLC, which finances our trading requirements and supports controlled expansion, providing a medium-term funding platform for growth. \n \n \n The Group regularly monitors net bank debt and forecast cash flows to ensure that it will be able to meet its financial obligations as they fall due. \n \n \n Compliance with covenants is monitored on a monthly basis and sensitivity analysis is applied to forecasts to assess the impact on covenant compliance. \n \n \n The Group has scope to curtail capital expenditure and acquisition investment to preserve cash, if required. \n \n \n In the event of a significant reduction in customer demand the Group would take rigorous actions to reduce operating costs and working capital investment. \n \n \n \n \n \n Increase \n \n é \n \n \n \n New risk in 2022 \n \n \n \n It is predicted that the UK economy will experience a challenging economic environment during 2023. \n \n \n The Group could potentially experience a reduction in demand for its products in 2023 if the impact of rising costs of living and interest rates slows down the economy. \n \n \n The Group is experiencing rising operating costs particularly, energy, fuel and employee costs and increased interest rates. \n \n \n To mitigate this risk, executive management monitors monthly revenue and cost performance and market trends closely, and has detailed action plans to respond to any significant or prolonged trading pressures. \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n There are a number of other risks that we manage which are not considered key risks.  These are mitigated in ways common to all businesses and not specific to Macfarlane Group. \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n BUSINESS REVIEW \n \n \n \n \n Viability statement \n \n \n \n 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. \n \n \n 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 above.  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. \n \n \n 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 (starting from 1 January) 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. \n \n \n \n Financial modelling and scenarios \n \n \n \n The Group's existing bank facilities comprise a £30m committed facility with Lloyds Banking Group, which is available until December 2025.  The Group has performed well during 2022, despite the ongoing challenging market conditions, which gives confidence in the strength of the underlying business model.  The Directors have also considered the longer-term economic outlook for the UK.  Given the current uncertainty of the economic outlook 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. \n \n \n 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. \n \n \n 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 10% and gross margin reductions at the rate of 2% 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 forecasts compliance with all financial covenants throughout the period and would not require any additional sources of financing. \n \n \n 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.15% per annum between 2023 and 2025, compared to the central case, before there is a breach in financial covenants in the period under review and is calculated before reflecting any mitigating actions. \n \n \n 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.27% reduction in sales in 2023 compared to 2022 could lead to a breach of covenants in the period under review.  However, in this scenario, management would also be able to take significant mitigating actions to reduces its costs and conserve cash. \n \n \n \n Conclusions \n \n \n \n For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements. \n \n \n The Board also has a reasonable expectation that the Group will continue in operation and meet its longer-term liabilities as they fall due. \n \n \n \n   \n \n \n \n \n Cautionary Statement \n \n \n \n The Chair's Statement and the Business Review set out above 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. \n \n \n 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. \n \n \n 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. \n \n \n \n   \n \n \n \n \n \n \n \n Responsibility Statement of the Directors \n \n \n \n The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 December 2022.  Certain parts of the full Annual Report are not included within this announcement. \n \n \n The Directors of Macfarlane Group PLC are \n \n \n A. Gulvanessian  Chair (from 1 October 2022) \n \n \n P.D. Atkinson  Chief Executive \n \n \n I. Gray  Finance Director \n \n \n R. McLellan  Non-Executive Director and Senior Independent Director \n \n \n J.W.F. Baird    Non-Executive Director \n \n \n L.D. Whyte  Non-Executive Director (from 1 October 2022) \n \n \n 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. \n \n \n 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; \n and \n \n \n Pursuant to Disclosure and Transparency Rules, Chapter 4, the directors consider that the Company's annual report and financial statements, taken as a whole, \n 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. \n \n \n   \n \n \n                                                               \n \n \n \n Peter Atkinson                                                                                 Ivor Gray \n \n \n \n \n Chief Executive  Finance Director \n \n \n \n \n   \n \n \n \n 23 February 2023                                                                              23 February 2023 \n \n \n \n \n \n \n   \n \n \n   \n \n \n \n Macfarlane Group PLC \n \n \n \n \n Consolidated income statement \n \n \n \n For the year ended 31 December 2022 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Note \n \n \n \n \n   \n \n \n 2022 \n \n \n £000 \n \n \n \n \n   \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Continuing operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Revenue \n \n \n \n \n 3 \n \n \n \n \n 290,431 \n \n \n \n \n 264,465 \n \n \n \n \n \n \n Cost of sales \n \n \n \n \n \n \n \n \n \n \n \n (192,374) \n \n \n \n \n (174,998) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Gross profit \n \n \n \n \n \n \n \n \n \n \n \n \n 98,057 \n \n \n \n \n 89,467 \n \n \n \n \n \n \n Distribution costs \n \n \n \n \n \n \n \n \n \n \n \n (10,736) \n \n \n \n \n (8,651) \n \n \n \n \n \n \n Administrative expenses \n \n \n \n \n \n \n \n \n \n \n \n (65,825) \n \n \n \n \n (60,761) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n 3 \n \n \n \n \n 21,496 \n \n \n \n \n 20,055 \n \n \n \n \n \n \n Finance costs \n \n \n \n \n 4 \n \n \n \n \n (1,562) \n \n \n \n \n (1,390) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Profit before tax \n \n \n \n \n \n \n \n \n \n \n \n \n 19,934 \n \n \n \n \n 18,665 \n \n \n \n \n \n \n Tax \n \n \n \n \n 5 \n \n \n \n \n (4,210) \n \n \n \n \n (4,917) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Profit for the year from continuing operations \n \n \n \n \n \n 8 \n \n \n \n \n 15,724 \n \n \n \n \n 13,748 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Discontinued operations \n \n \n \n \n Loss from discontinued operations \n \n \n \n \n \n   \n \n \n 6 \n \n \n \n \n   \n \n \n (87) \n \n \n \n \n   \n \n \n (1,150) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n \n \n \n \n \n \n \n \n 15,637 \n \n \n \n \n 12,598 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Earnings per share from continuing operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Basic \n \n \n \n \n 8 \n \n \n \n \n 9.94p \n \n \n \n \n 8.71p \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Diluted \n \n \n \n \n 8 \n \n \n \n \n 9.84p \n \n \n \n \n 8.62p \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Earnings per share from continuing and discontinued operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Basic \n \n \n \n \n 8 \n \n \n \n \n 9.89p \n \n \n \n \n 7.98p \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Diluted \n \n \n \n \n 8 \n \n \n \n \n 9.78p \n \n \n \n \n 7.90p \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n Consolidated statement of comprehensive income \n \n \n \n For the year ended 31 December 2022 \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n Note \n \n \n \n \n 2022 \n \n \n £000 \n \n \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Items that may be reclassified to profit or loss \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Foreign currency translation differences - foreign operations \n \n \n \n \n \n \n \n \n \n \n \n 45 \n \n \n \n \n (120) \n \n \n \n \n \n \n \n Items that will not be reclassified to profit or loss \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Remeasurement of pension scheme liability \n \n \n \n \n 11 \n \n \n \n \n (82) \n \n \n \n \n 8,212 \n \n \n \n \n \n \n Tax recognised in other comprehensive income \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   Tax on remeasurement of pension scheme liability \n \n \n   Corporation tax rate change on deferred tax \n \n \n \n \n 12 \n \n \n \n \n 21 \n \n \n - \n \n \n \n \n (2,054) \n \n \n 88 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Other comprehensive (expense)/income for the year, net of tax \n \n \n \n \n \n \n \n \n \n \n \n \n (16) \n \n \n \n \n 6,126 \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n \n \n \n \n \n \n \n 15,637 \n \n \n \n \n 12,598 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total comprehensive income for the year \n \n \n \n \n \n \n \n \n \n \n \n \n 15,621 \n \n \n \n \n 18,724 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n Macfarlane Group PLC \n \n \n \n Consolidated statement of changes in equity \n \n \n For the year ended 31 December 2022 \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n Note \n \n \n \n \n \n   \n \n \n Share \n \n \n Capital \n \n \n £000 \n \n \n \n \n   \n \n \n Share \n \n \n Premium \n \n \n £000 \n \n \n \n \n   \n \n \n Revaluation \n \n \n Reserve \n \n \n £000 \n \n \n \n \n   \n \n \n Own \n \n \n Shares \n \n \n £000 \n \n \n \n \n   \n \n \n Translation \n \n \n Reserve \n \n \n £000 \n \n \n \n \n   \n \n \n Retained \n \n \n Earnings \n \n \n £000 \n \n \n \n \n   \n \n \n Total \n \n \n £000 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n At 1 January 2021 \n \n \n \n \n \n \n \n \n \n \n \n 39,453 \n \n \n \n \n 13,148 \n \n \n \n \n 70 \n \n \n \n \n - \n \n \n \n \n 291 \n \n \n \n \n 26,816 \n \n \n \n \n 79,778 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Comprehensive income \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n 12,598 \n \n \n \n \n 12,598 \n \n \n \n \n \n \n Foreign currency translation differences \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n (120) \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n (120) \n \n \n \n \n \n \n Remeasurement of pension liability \n \n \n \n \n   \n \n \n 11 \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n 8,212 \n \n \n \n \n   \n \n \n 8,212 \n \n \n \n \n \n \n Tax on remeasurement of pension liability \n \n \n \n \n   \n \n \n 12 \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n (2,054) \n \n \n \n \n   \n \n \n (2,054) \n \n \n \n \n \n \n Corporation tax rate change on deferred tax \n \n \n \n \n   \n \n \n 12 \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n - \n \n \n \n \n   \n \n \n 88 \n \n \n \n \n   \n \n \n 88 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total comprehensive income \n \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n (120) \n \n \n \n \n 18,844 \n \n \n \n \n 18,724 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Transactions with shareholders \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Dividends \n \n \n \n \n 7 \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n (4,293) \n \n \n \n \n (4,293) \n \n \n \n \n \n \n Credit for share-based payments \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n 685 \n \n \n \n \n 685 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total transactions with shareholders \n \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n - \n \n \n \n \n (3,608) \n \n \n \n \n (3,608) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n At 31 December 2021 \n \n \n \n \n \n \n \n \n \n \n \n \n \n 39,453 \n \n \n \n \n \n \n 13,148 \n \n \n \n \n \n \n 70 \n \n \n \n \n \n \n - \n \n \n \n \n \n \n 171 \n \n \n \n \n \n \n 42,052 \n \n \n \n \n \n \n 94,894 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Comprehensive income \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Profit for the year \n \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n 15,637 \n \n \n \n \n \n \n 15,637 \n \n \n \n \n \n \n \n Foreign currency translation differences \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n 45 \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n 45 \n \n \n \n \n \n \n \n Remeasurement of pension liability \n \n \n \n \n   \n \n \n 11 \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n (82) \n \n \n \n \n \n \n   \n \n \n \n \n (82) \n \n \n \n \n \n \n \n Tax on remeasurement of pension liability \n \n \n \n \n   \n \n \n 12 \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n - \n \n \n \n \n \n \n   \n \n \n \n \n 21 \n \n \n \n \n \n \n   \n \n \n \n \n 21 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Total comprehensive income \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n 45 \n \n \n \n \n \n \n 15,576 \n \n \n \n \n \n \n 15,621 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Transactions with shareholders \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Dividends \n \n \n \n \n 7 \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (5,102) \n \n \n \n \n \n \n (5,102) \n \n \n \n \n \n \n \n New shares issued \n \n \n \n \n \n \n \n \n \n \n \n \n 131 \n \n \n \n \n \n \n 425 \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (7) \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (549) \n \n \n \n \n \n \n - \n \n \n \n \n \n \n \n Credit for share-based payments \n \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n - \n \n \n \n \n \n \n 607 \n \n \n \n \n \n \n 607 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Total transactions with shareholders \n \n \n \n \n \n \n 131 \n \n \n \n \n \n \n 425 \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (7) \n \n \n \n \n \n \n - \n \n \n \n \n \n \n (5,044) \n \n \n \n \n \n \n (4,495) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n At 31 December 2022 \n \n \n \n \n \n \n \n \n \n \n \n \n \n 39,584 \n \n \n \n \n \n \n 13,573 \n \n \n \n \n \n \n 70 \n \n \n \n \n \n \n (7) \n \n \n \n \n \n \n 216 \n \n \n \n \n \n \n 52,584 \n \n \n \n \n \n \n 106,020 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n   \n \n \n Macfarlane Group PLC \n \n \n \n Consolidated balance sheet at 31 December 2022 \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n Note \n \n \n \n \n 2022 \n \n \n £000 \n \n \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Non-current assets \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Goodwill and other intangible assets \n \n \n \n \n \n \n \n \n \n \n \n \n 75,685 \n \n \n \n \n \n 74,902 \n \n \n \n \n \n \n Property, plant and equipment \n \n \n \n \n \n \n \n \n \n \n \n \n 7,863 \n \n \n \n \n \n 6,101 \n \n \n \n \n \n \n Right of Use assets \n \n \n \n \n \n \n \n \n \n \n \n \n 33,938 \n \n \n \n \n \n 34,718 \n \n \n \n \n \n \n Other receivables \n \n \n \n \n \n \n \n \n \n \n \n \n 38 \n \n \n \n \n \n 35 \n \n \n \n \n \n \n Deferred tax assets \n \n \n \n \n 12 \n \n \n \n \n \n 105 \n \n \n \n \n \n 19 \n \n \n \n \n \n \n Retirement benefit obligations \n \n \n \n \n 11 \n \n \n \n \n \n 10,199 \n \n \n \n \n \n 8,267 \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total non-current assets \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 127,828 \n \n \n \n \n \n 124,042 \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Current assets \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Inventories \n \n \n \n \n \n \n \n \n \n \n \n \n 22,608 \n \n \n \n \n \n 21,269 \n \n \n \n \n \n \n Trade and other receivables \n \n \n \n \n \n \n \n \n \n \n \n \n 59,347 \n \n \n \n \n \n 58,541 \n \n \n \n \n \n \n Current tax asset \n \n \n \n \n \n \n \n \n \n \n \n \n 675 \n \n \n \n \n \n - \n \n \n \n \n \n \n Cash and cash equivalents \n \n \n \n \n 10 \n \n \n \n \n \n 5,706 \n \n \n \n \n \n 12,315 \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total current assets \n \n \n \n \n \n \n \n \n \n \n \n \n \n 88,336 \n \n \n \n \n \n 92,125 \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total assets \n \n \n \n \n \n 3 \n \n \n \n \n \n 216,164 \n \n \n \n \n \n 216,167 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Current liabilities \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Trade and other payables \n \n \n \n \n \n \n \n \n \n \n \n \n 54,577 \n \n \n \n \n \n 60,975 \n \n \n \n \n \n \n Provisions \n \n \n \n \n \n \n \n \n \n \n \n \n 1,769 \n \n \n \n \n \n 1,730 \n \n \n \n \n \n \n Current tax liability \n \n \n \n \n \n \n \n \n \n \n \n \n 304 \n \n \n \n \n \n 771 \n \n \n \n \n \n \n Lease liabilities \n \n \n \n \n 10 \n \n \n \n \n \n 6,641 \n \n \n \n \n \n 6,364 \n \n \n \n \n \n \n Bank borrowings \n \n \n \n \n 10 \n \n \n \n \n \n 9,143 \n \n \n \n \n \n 9,840 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total current liabilities \n \n \n \n \n \n \n \n \n \n \n \n \n \n 72,434 \n \n \n \n \n \n 79,680 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Net current assets \n \n \n \n \n \n \n \n \n \n \n \n \n \n 15,902 \n \n \n \n \n \n 12,445 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Non-current liabilities \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Deferred tax liabilities \n \n \n \n \n 12 \n \n \n \n \n \n 8,222 \n \n \n \n \n \n 7,472 \n \n \n \n \n \n \n Trade and other payables \n \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n \n 3,695 \n \n \n \n \n \n \n Provisions \n \n \n \n \n \n \n \n \n \n \n \n \n 1,560 \n \n \n \n \n \n 1,848 \n \n \n \n \n \n \n Lease liabilities \n \n \n \n \n 10 \n \n \n \n \n \n 27,928 \n \n \n \n \n \n 28,578 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total non-current liabilities \n \n \n \n \n \n \n \n \n \n \n \n \n \n 37,710 \n \n \n \n \n \n 41,593 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total liabilities \n \n \n \n \n \n 3 \n \n \n \n \n \n 110,144 \n \n \n \n \n \n 121,273 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Net assets \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 106,020 \n \n \n \n \n \n 94,894 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n Equity \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Share capital \n \n \n \n \n 13 \n \n \n \n \n \n 39,584 \n \n \n \n \n \n 39,453 \n \n \n \n \n \n \n Share premium \n \n \n \n \n 13 \n \n \n \n \n \n 13,573 \n \n \n \n \n \n 13,148 \n \n \n \n \n \n \n Revaluation reserve \n \n \n \n \n \n \n \n \n \n \n \n \n 70 \n \n \n \n \n \n 70 \n \n \n \n \n \n \n Own shares \n \n \n \n \n \n \n \n \n \n \n \n \n (7) \n \n \n \n \n \n - \n \n \n \n \n \n \n Translation reserve \n \n \n \n \n \n \n \n \n \n \n \n \n 216 \n \n \n \n \n \n 171 \n \n \n \n \n \n \n Retained earnings \n \n \n \n \n \n \n \n \n \n \n \n \n 52,584 \n \n \n \n \n \n 42,052 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total equity \n \n \n \n \n \n 3 \n \n \n \n \n \n 106,020 \n \n \n \n \n \n 94,894 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Macfarlane Group PLC \n \n \n \n Consolidated cash flow statement \n \n \n For the year ended 31 December 2022 \n \n \n \n \n \n \n \n \n \n \n \n \n \n Note \n \n \n \n \n   \n \n \n 2022 \n \n \n £000 \n \n \n \n \n   \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Profit/(loss) before tax from: \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Continued operations \n \n \n \n \n \n \n \n \n \n \n \n 19,934 \n \n \n \n \n 18,665 \n \n \n \n \n \n \n Discontinued operations \n \n \n \n \n \n \n \n \n \n \n \n (87) \n \n \n \n \n (938) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Total Operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n 19,847 \n \n \n \n \n \n 17,727 \n \n \n \n \n \n \n Adjustments for: \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   Amortisation of intangible assets \n \n \n \n \n \n \n \n \n \n \n \n \n 3,577 \n \n \n \n \n \n 3,311 \n \n \n \n \n \n \n   Impairment of goodwill in discontinued operations \n \n \n \n \n \n \n \n \n \n \n \n \n - \n \n \n \n \n \n 987 \n \n \n \n \n \n \n   Depreciation of property, plant and equipment and ROU assets \n \n \n \n \n \n \n \n \n \n \n \n \n 9,040 \n \n \n \n \n \n 9,271 \n \n \n \n \n \n \n   Loss on disposal of property, plant and equipment \n \n \n \n \n \n \n \n \n \n \n \n \n 71 \n \n \n \n \n \n 43 \n \n \n \n \n \n \n   Loss on disposal of subsidiaries \n \n \n \n \n \n \n \n \n \n \n \n \n 87 \n \n \n \n \n \n 232 \n \n \n \n \n \n \n   Share-based payments \n \n \n \n \n \n \n \n \n \n \n \n \n 607 \n \n \n \n \n \n 685 \n \n \n \n \n \n \n   Finance costs \n \n \n \n \n \n \n \n \n \n \n \n \n 1,562 \n \n \n \n \n \n 1,390 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Operating cash flows before movements in working capital \n \n \n \n \n \n \n \n \n \n \n \n \n \n 34,791 \n \n \n \n \n \n 33,646 \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   Decrease/(increase) in inventories \n \n \n \n \n \n \n \n \n \n \n \n \n 1,025 \n \n \n \n \n \n (4,848) \n \n \n \n \n \n \n   Decrease/(increase) in receivables \n \n \n \n \n \n \n \n \n \n \n \n \n 285 \n \n \n \n \n \n (7,892) \n \n \n \n \n \n \n   (Decrease)/increase in payables \n \n \n \n \n \n \n \n \n \n \n \n \n (9,027) \n \n \n \n \n \n 8,905 \n \n \n \n \n \n \n   (Decrease)/increase in provisions \n \n \n \n \n \n \n \n \n \n \n \n \n (249) \n \n \n \n \n \n 1,884 \n \n \n \n \n \n \n   Adjustment for pension scheme funding \n \n \n \n \n \n \n \n \n \n \n \n \n (1,838) \n \n \n \n \n \n (1,533) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Cash generated by operations \n \n \n \n \n \n \n \n \n \n \n \n \n \n 24,987 \n \n \n \n \n \n 30,162 \n \n \n \n \n \n \n   Income taxes paid \n \n \n \n \n \n \n \n \n \n \n \n \n (5,251) \n \n \n \n \n \n (4,975) \n \n \n \n \n \n \n   Interest paid \n \n \n \n \n \n \n \n \n \n \n \n \n (1,738) \n \n \n \n \n \n (1,383) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Cash inflow from operating activities \n \n \n \n \n \n \n \n \n \n \n \n \n \n 17,998 \n \n \n \n \n \n 23,804 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Investing activities \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Acquisitions, net of cash acquired \n \n \n \n \n 9 \n \n \n \n \n \n (8,655) \n \n \n \n \n \n (12,238) \n \n \n \n \n \n \n Proceeds from sale of subsidiaries \n \n \n \n \n \n \n \n \n \n \n \n \n 166 \n \n \n \n \n \n 5,212 \n \n \n \n \n \n \n Proceeds on disposal of property, plant and equipment \n \n \n \n \n \n   \n \n \n \n \n \n \n 181 \n \n \n \n \n \n 199 \n \n \n \n \n \n \n Purchases of property, plant and equipment \n \n \n \n \n \n   \n \n \n \n \n \n \n (3,285) \n \n \n \n \n \n (2,132) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Cash outflow from investing activities \n \n \n \n \n \n \n   \n \n \n \n \n \n \n (11,593) \n \n \n \n \n \n (8,959) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Financing activities \n \n \n \n \n \n \n   \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Dividends paid \n \n \n \n \n 7 \n \n \n \n \n \n (5,102) \n \n \n \n \n \n (4,293) \n \n \n \n \n \n \n (Repayment)/drawdown on bank borrowing facility \n \n \n \n \n \n \n \n \n \n \n \n \n (865) \n \n \n \n \n \n 3,889 \n \n \n \n \n \n \n Repayments of leases \n \n \n \n \n \n \n \n \n \n \n \n \n (7,215) \n \n \n \n \n \n (7,539) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Cash outflow from financing activities \n \n \n \n \n \n \n \n \n \n \n \n \n \n (13,182) \n \n \n \n \n \n (7,943) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Net (decrease)/increase in cash and cash equivalents \n \n \n \n \n \n \n \n \n \n \n \n \n \n (6,777) \n \n \n \n \n \n 6,902 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n Cash and cash equivalents at beginning of year \n \n \n \n \n \n \n \n \n \n \n \n \n 12,123 \n \n \n \n \n \n 5,221 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Cash and cash equivalents at end of year \n \n \n \n \n \n \n \n \n \n \n \n \n \n 5,346 \n \n \n \n \n \n 12,123 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n Reconciliation to consolidated cash flow statement \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 2022 \n \n \n \n \n £000 \n \n \n \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n Cash and cash equivalents per the consolidation balance sheet \n \n \n \n \n 10 \n \n \n \n \n \n 5,706 \n \n \n \n \n \n 12,315 \n \n \n \n \n \n \n Bank overdraft \n \n \n \n \n \n   \n \n \n \n \n \n \n (360) \n \n \n \n \n \n (192) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Balances per consolidated cash flow statement \n \n \n \n \n \n \n   \n \n \n \n \n \n \n 5,346 \n \n \n \n \n \n 12,123 \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n Bank overdrafts are included in cash and cash equivalents because they form an integral part of the Group's cash management. \n \n \n \n \n \n \n \n \n \n Macfarlane Group PLC \n \n \n \n \n Notes to the financial information \n \n \n \n For the year ended 31 December 2022 \n \n \n \n 1.  General information \n \n \n \n The financial information set out herein does not constitute the Company's statutory accounts \n as defined in Section 435 of the Companies Act 2006 and has been extracted from the full statutory accounts for the years \n ended 31 December 2022 and 2021. \n \n \n The financial statements for 2022 were approved by the Board of Directors on 23 February 2023.  The auditor's report on the statutory financial statements for the year ended 31 December 2022 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. \n \n \n The financial information for 2021 is derived from the statutory accounts for 2021 which have been delivered to the registrar of companies.  The auditor has reported on the 2021 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. \n \n \n \n 2.  Basis of preparation \n \n \n \n The Group's business activities, together with the factors likely to affect its future development, performance and financial position are set out on set out above. \n \n \n 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. \n \n \n The Group's has a committed borrowing facility of £30m 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. \n \n \n The Directors are of the opinion that the Group's cash forecasts and revenue projections, which they \n believe are based on appropriate 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.  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 set out above. \n \n \n After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate \n 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 2022. \n \n \n \n Key sources of estimation uncertainty \n \n \n \n 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.  The directors have assessed the impact of climate change and consider that this does not have a significant impact on these financial statements. \n The key sources of estimation uncertainty that have a significant effect on the carrying amounts of assets and liabilities are discussed below: \n \n \n \n Retirement benefit obligations \n \n \n \n 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 and inflation rate, for which a sensitivity analysis is provided in Note 11.  The directors consider that those sensitivities represent reasonable sensitivities which could occur in the next financial year. \n \n \n \n Macfarlane Group PLC \n \n \n \n \n Notes to the financial information \n \n \n \n For the year ended 31 December 2022 \n \n \n \n 2.  Basis of preparation (continued) \n \n \n \n \n Key sources of estimation uncertainty (continued) \n \n \n \n \n Valuation of trade receivables \n \n \n \n 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 1.44% to 2.43% above the historic loss rates observed would lead to an increase of £540,000 in the provision required. \n \n \n \n   \n \n \n \n \n Critical accounting judgements \n \n \n \n \n Property provisions \n \n \n \n Property provisions of £3.3m have been recognised as at 31 December 2022 (2021: £3.6m), representing the directors' best estimate of dilapidations on property leases.  The directors have made the judgement that no provision is required for certain property leases where there is no intention to exit, having considered a number of factors including the extent of modifications to the property, the terms of the lease agreement, and the condition of the property. \n \n \n No \n other \n significant critical judgements have been made in the current or prior year. \n \n \n   \n \n \n \n Alternative performance measures \n \n \n \n In measuring the financial performance and position, the financial measures used in certain limited cases include those which have been derived from the reported results in order to eliminate factors which due to their unusual nature and size distort year-on-year comparisons to a material extent and/or provide useful information to stakeholders.  Where such items arise, the directors will classify such items as separately disclosed non-recurring items and provide details of these items to enable users of the accounts to understand the impact on the financial statements. \n \n \n To the extent that a measurement under Generally Accepted Accounting Principles (\"GAAP\") is adjusted for a separately disclosed non-recurring item, this is referred to as an Alternative Performance Measure (\"APM\"). We believe that the APM defined below, and the comparable GAAP measurement provides a useful basis for measuring the financial performance and position.  \n \n \n In addition to the various performance measures defined under IFRS the Group reports operating profit before amortisation as a measure to assist in understanding the underlying performance of the Group and its businesses when compared to similar companies.  Operating profit before amortisation is not defined under IFRS and, as a result, does not comply with Generally Accepted Accounting Practice (\"GAAP\") and is therefore known as an alternative profit measure.  Accordingly, this measure, which is not designed to be a substitute for any of the IFRS measures of performance, may not be directly comparable with other companies' alternative performance measures.  Operating profit before amortisation is defined as operating profit before customer relationships and brand values amortisation reconciled in the table below. \n \n \n \n \n \n \n \n   \n \n \n \n \n   \n \n \n \n \n Continuing operations \n \n \n \n \n \n 2022 \n \n \n £000 \n \n \n \n \n 2021 \n \n \n £000 \n \n \n \n \n \n \n \n Operating profit before amortisation \n \n \n \n \n \n \n 25,073 \n \n \n \n \n \n 23,366 \n \n \n \n \n \n \n Customer relationships/brand values amortisation \n \n \n \n \n \n (3,577) \n \n \n \n \n \n (3,311) \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n   \n \n \n \n \n \n \n \n \n Operating profit \n \n \n \n \n \n \n 21,496 \n \n \n \n \n \n 20,055 \n \n \n \n \...

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