Annual Results 2024

27 February 2025

MACFARLANE GROUP PLC

("MACFARLANE GROUP", "THE COMPANY", "THE GROUP")

ANNUAL RESULTS 2024

Group profit in line with market consensus

FINANCIAL HIGHLIGHTS

1 See notes to the financial information below for reconciliation of Alternative Performance Measures to Statutory Measures.

· Group revenue reduced by 4% to £270.4m (2023: £280.7m).

· Group profit before tax increased by 3% to £20.9m (2023: £20.3m).

· Group adjusted operating profit as a percentage of revenue improved to 10.1% (2023: 9.8%).

· Basic and diluted earnings per share were 9.76p per share (2023: 9.44p per share) and 9.74p per share (2023: 9.34p per share) respectively.

Packaging Distribution

· Packaging Distribution revenue decreased by 7% to £228.8m (2023: £244.9m).

· Continued weak customer demand and selling price deflation have been partially offset by a strong new-business performance and the benefit of the acquisitions of Gottlieb in April 2023 and Allpack Direct in March 2024.

· Gross margins increased to 37.1% (2023: 35.7%) reflecting effective management of input-price changes.

· Operating expenses reduced by 3% through management action.

· Adjusted operating profit decreased by 4% to £20.2m (2023: £21.0m).

· Operating profit increased by 5% to £17.3m (2023: £16.5m) due to the net effect of changes to the fair value of deferred contingent consideration related to acquisitions.

FINANCIAL HIGHLIGHTS

Manufacturing Operations

· Manufacturing Operations achieved revenue growth of 16% to £41.7m (2023: £35.8m) reflecting:

o  contributions from B&D Group, Suttons and Polyformes, acquired across 2023 and 2024; and

o  marginally lower organic sales due to selling price deflation.

· Gross margins have remained strong at 43.2% (2023: 44.5%) with some attrition due to selling price deflation.

· Operating expenses are being well controlled with the 14% increase due to the impact of acquisitions.

· Adjusted operating profit increased 10% to £7.2m (2023: £6.6m).

· Operating profit increased 13% to £6.3m (2023: £5.6m).

Group

· Net cash inflow from operating activities of £25.4m (2023: £33.5m) reflects the unwinding of opening working capital through 2023 due to the easing of supply-chain constraints and stability through 2024.

· Net bank debt was £1.9m on 31 December 2024, following a net cash outflow of £2.4m in the year, after £15.0m (2023: £16.6m) of investment in acquisitions and capital expenditure. 

· The Group negotiated an improved banking facility of £40.0m during 2024 which is committed until November 2027, with options to extend to November 2029.

· The pension scheme surplus was £9.6m at 31 December 2024 (31 December 2023: £9.9m) with the Group not required to make further contributions.

· Board proposes a final dividend of 2.70p per share (2023: 2.65p per share) payable on 13 June 2025, taking the total dividend for 2024 to 3.66p per share (2023: 3.59p per share) up 2% on 2023.

CHAIR'S STATEMENT

The markets in which Macfarlane Group PLC operates have been challenging throughout 2024 and the management team has responded effectively, enabling the business to produce a profit performance for the year in line with market consensus.

We have also made good progress on implementing our sustainability agenda which has resulted in a further reduction in our carbon footprint.

The performance of the Group in 2024 has been achieved through the hard work and commitment of our people and I thank them for all their efforts, energy and enthusiasm.

Financial

The Group has delivered resilient financial results through improvement in new-business development, the completion of two high-quality acquisitions and effective control of operating costs. These actions have enabled us to offset sales price deflation and weaker demand. Management's effective response to the difficult trading conditions is demonstrated through the improvement in the operating profit margin.

The Group's strong operating cash flows enabled the continued allocation of capital to invest in the business, fund good-quality acquisitions, progressive dividend payments as well as maintaining a low level of net bank debt.

The Group has negotiated an improved borrowing facility of £40m with Bank of Scotland PLC and HSBC UK Bank plc. This facility, which is available until November 2027, provides options to extend it by a further two years and by an additional £20m. It will support the continuing investment in the Group's organic growth and acquisition strategy in the medium term.

The pension scheme remains in surplus and, following conclusion of the latest triennial valuation, the company is no longer making contributions to the scheme.

Sustainability

In 2024, the Group achieved a reduction in its Scope 1 and 2 carbon emissions and completed the mapping of its Scope 3 emissions. The Group is committed to reducing its direct impact on the environment through further electrification of our delivery fleet and expanding the use of renewable energy.

We continue to support our customers to help them navigate packaging regulations and to ensure their products are effectively protected using the minimum amount of packaging, made from the most sustainable materials and packed using the most cost-effective processes.

Board Changes

On 1 January 2025, David Stirling was appointed to the Board as an independent Non-Executive Director following the retirement of Bob McLellan on 31 December 2023. Having previously been Group CEO of Zotefoams plc, David brings extensive listed-company and protective packaging industry experience which will be of significant benefit to the Board.

Proposed Dividend

The Board proposes a final dividend of 2.70 pence per share, amounting to a full-year dividend of 3.66 pence per share (2023: 3.59 pence per share), an increase of 2% on 2023. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 13 May 2025, the final dividend will be paid on Friday 13 June 2025 to those shareholders on the register on Friday 16 May 2025 (ex-dividend date 15 May 2025).

Outlook

We expect 2025 to be another challenging year within the markets in which we operate, particularly with increased employment costs resulting from the recent UK budget and the introduction by the UK Government of Extended Producer Responsibility ("EPR") fees. Management is taking actions to mitigate these incremental costs and we are working with our customers to help them manage the impact of EPR.

We start 2025 with new-business momentum as customers increasingly recognise the added-value we can offer both on an environmental and cost-savings basis. The recently-announced purchase of The Pitreavie Group Limited ("Pitreavie") demonstrates our continued ability to identify and execute high-quality acquisitions and we have a strong pipeline of opportunities.

We are well positioned to continue our profitable growth in 2025.

Legal Entity Identifier (LEI): 213800LVRYDERSJAAZ73

Notes to Editors:

BUSINESS REVIEW

Group

Group revenue reduced by 4% and adjusted operating profit by 1% in 2024 with continued weak demand from customers, sales price deflation and inflation in operating costs being offset by an improved new business performance, effective management of changes in input prices and the execution of two good quality acquisitions. Operating profit grew by 7% due to the net effect of changes in the fair value of deferred contingent consideration related to acquisitions (2024: credit £0.8m; 2023 charge £1.5m). The Group has also made progress against its ESG objectives, details of which will be set out in the Annual Report and Accounts 2024.

1See notes to the financial information below for reconciliation of Alternative Performance Measures to Statutory Measures.

2025 Outlook

The Group continues to invest in actions to grow sales both organically and through acquisitions. Despite the challenging market conditions the Group is well positioned to benefit from improvements in the macroeconomic outlook.

Our strategy and business model have proved to be resilient and we expect 2025 to be another year of growth for the Group, underpinned by the acquisition of Pitreavie at the start of 2025 which enhances both our Packaging Distribution and Manufacturing operations, the strong new business pipeline building on the progress made in 2024 and planned mitigation actions to offset the pending increases in employment and regulatory costs impacting the UK.

BUSINESS REVIEW

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

Macfarlane's Packaging Distribution business is the UK's leading specialist distributor of protective packaging materials, with a growing presence in Europe. Macfarlane operates 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.

Competition in the packaging distribution market is from local and regional protective packaging specialist companies as well as national and 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 offering and through the recruitment and retention of high-quality staff with good local market knowledge. On a national and international 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.

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' 1 sales approach we reduce our customers' 'Total Cost of Packaging', improve their sustainability performance and reduce their carbon footprint. This is achieved through supplying effective packaging solutions, optimising warehousing and transportation, reducing damages and returns, and improving packaging efficiency.

1 "Significant Six" represents the six key costs in a customers' packing process being transport, warehousing, administration, damages and returns, productivity and customer experience.

1See notes to the financial information below for reconciliation of Alternative Performance Measures to Statutory Measures.

The main features of Packaging Distribution's performance in 2024 were:

· Organic revenue reduced by 8% compared to 2023 due to:

· Weak demand environment and selling price deflation; offset by

· New business 23% higher than 2023, with continued success from our Innovation Labs and Significant Six programme.

· Revenue growth of £4.0m from the acquisitions of Allpack Direct in March 2024 and Gottlieb in April 2023.

· Effective management of input prices resulting in an improvement in gross margin to 37.1% (2023: 35.7%).

· Operating costs decreased by 3%, despite inflation in property and labour costs, and represented 28.3% of revenue (2023: 27.1%).

· Improvement in adjusted operating profit as a percentage of revenue to 8.8% (2023: 8.6%).

· Adjusted operating profit decreased by 4% in 2024 due to the factors above whilst operating profit increased by 5% due to the net effect of changes to the fair value of deferred contingent consideration related to acquisitions.

Future

The priorities for Packaging Distribution in 2025 are focused on growing revenue and improving profitability through the following actions:

· Accelerate new business momentum through effective use of our leading sales tools and processes - "Packaging Optimiser" 2, Significant Six and our Innovation Labs.

· Accelerate the progress we have made in Europe through our "Follow the Customer" programme and the PackMann acquisition.

· Realise the benefits of the new distribution centre in the East Midlands.

· Progress further high-quality acquisitions in the UK and Europe.

· Support our customers to manage the impact of Extended Producer Responsibility legislation and reduce their carbon footprint through offering more sustainable packaging solutions.

· Continue to effectively manage input price changes.

· Strengthen our key supplier relationships.

· Develop both sales and cost synergies through the relationship with our Manufacturing Operations, including the recent acquisition of Pitreavie.

· Achieve benefits from our information technology investments.

· Relaunch our web-based solutions offer to provide customers with more effective online access to our full range of products and services.

· Reduce operating costs through efficiency programmes in sales, logistics and administration and, where possible, mitigate the impact of increases in National Insurance Contributions and National Minimum Wage.

· Maintain our focus on working capital management to facilitate future investment and manage effectively the ongoing bad debt risk within the current economic environment.

 2 Packaging Optimiser is a Macfarlane developed software tool that measures the financial and carbon benefits of the Significant Six selling approach.

Manufacturing Operations comprises our Macfarlane Packaging Design and Manufacture business, GWP acquired in February 2021, Suttons acquired in March 2023, B&D Group acquired in September 2023 and Polyformes acquired in July 2024.

Manufacturing Operations designs, manufactures, assembles, and distributes bespoke protective packaging solutions for customers requiring cost-effective methods of protecting high value products in storage and transit. The primary components we use are corrugate, timber, foam and specialist cases. The businesses operate from six manufacturing sites, in Grantham, Westbury, Swindon, Salisbury, Chatteris and Leighton Buzzard, and a sales/design office in Barnstaple supplying both directly to customers and through the national RDC network of the Packaging Distribution business.

Key market sectors are aerospace, space, 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.

1See notes to the financial information below for reconciliation of Alternative Performance Measures to Statutory Measures.

The main features of Manufacturing Operations performance in 2024 were:

· Increase in revenue of £6.5m, with growth from Suttons and B&D Group acquired in 2023 and Polyformes acquired in 2024 being offset by selling price deflation.

· As expected, selling price deflation caused the gross margin to weaken slightly compared to 2023.

· Higher operating expenses, due to the impact of the acquisitions.

· Increase in adjusted operating profit of 10% but decrease in adjusted operating profit as a percentage of revenue to 15.3% (2023: 16.1%) due to selling price deflation.

The priorities for Manufacturing Operations in 2025 are to:

· Increase momentum of new business growth in target sectors, e.g. medical, aerospace and space.

· Prioritise new sales activity in our higher added-value bespoke composite pack product range.

· Work with our customers to effectively manage material price changes.

· Continue strengthening the relationship with our Packaging Distribution businesses to create both sales and cost synergies.

· Achieve both sales and cost synergies through closer working with the recently acquired businesses referred to above as well as Pitreavie acquired at the start of 2025.

· Supplement organic growth through progressing further high-quality acquisitions in the UK.

RISKS AND UNCERTAINTIES

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.

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 Annual Report 2024. In addition to scheduled updates from Finance, Health & Safety, IT, Sales, Procurement, Sustainability 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.

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 [ç è] the risk level is broadly similar between 2023 and 2024. If the risk is shown as [é ê] the risk level has increased or decreased respectively during 2024 and is being addressed accordingly through mitigating actions by management.

We recognise the need to constantly review the risks and uncertainties faced by the Group and ensure that any emerging risks are being identified and actions being taken to mitigate. We have not added any new risks in 2024 although we continue to keep Artificial Intelligence ("AI") and related technology developments under review to assess the likely risk and benefit to the Group going forward.

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.

Viability statement

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

To support this statement, the Board is required to consider the Group's current financial position, its strategy, the market outlook and its principal risks. The Board's assessment of the principal risks facing the Group and how these risks affect the Group's prospects are set out 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 (starting from 1 January 2025).

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

Financial modelling and scenarios

The Group's existing bank facilities comprise a £40m committed facility with Bank of Scotland PLC and HSBC UK Bank plc, which is available until November 2027 with options to extend to November 2029. The Group has performed resiliently during 2024, 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.

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. Whilst the current facilities are committed until November 2027 we have assumed the Group will take up the option to extend the existing facility for a further two years which will be on the same terms currently in place.

We have modelled a range of scenarios, including a base 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 base 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.

The Group has also modelled a reverse stress test scenario. This models the decline in revenue 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 revenue reductions of c.16% per annum between 2025 and 2027, compared to the base case, before there is a breach in financial covenants in the period under review and is calculated before reflecting any mitigating actions.

Even in the severe but plausible scenario, Macfarlane Group is forecast to have sufficient liquidity to continue trading, comfortably meeting its financial covenants and operating within the level of its facilities for the foreseeable future. However, in this scenario, management would also be able to take significant mitigating actions to reduce its costs and conserve cash.

Viability statement

Conclusions

For this reason, the Board considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements.

The Board also has a reasonable expectation that the Group will continue in operation and meet its longer-term liabilities as they fall due.

Cautionary Statement

The 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.

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

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

Responsibility Statement of the Directors

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 December 2024. Certain parts of the full Annual Report are not included within this announcement.

The Directors of Macfarlane Group PLC are

A. Gulvanessian Chair

P.D. Atkinson Chief Executive

I. Gray Finance Director

J.W.F. Baird Non-Executive Director and Senior Independent Director

L.D. Whyte Non-Executive Director

D.B. Stirling Non-Executive Director

To the best of the knowledge of the Directors (whose names and functions are set out above):

· The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole;

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

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

Peter Atkinson Ivor Gray

Chief Executive Finance Director

27 February 2025 27 February 2025

Macfarlane Group PLC

Consolidated income statement

For the year ended 31 December 2024

Consolidated statement of comprehensive income

For the year ended 31 December 2024

Macfarlane Group PLC

Consolidated statement of changes in equity

For the year ended 31 December 2024

Macfarlane Group PLC

Consolidated balance sheet at 31 December 2024

Macfarlane Group PLC

Consolidated cash flow statement

For the year ended 31 December 2024

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

Macfarlane Group PLC

Notes to the financial information

For the year ended 31 December 2024

1. General information

The financial information set out herein does not constitute the Company's statutory accounts as defined in Section 435 of the Companies Act 2006 and has been extracted from the full statutory accounts for the years ended 31 December 2024 and 2023.

The financial statements for 2024 were approved by the Board of Directors on 27 February 2025. The auditor's report on the statutory financial statements for the year ended 31 December 2024 was unqualified pursuant to Section 498 of the Companies Act 2006 and did not contain a statement under sub-section 498 (2) or (3) of that Act.

The financial information for 2023 is derived from the statutory accounts for 2023 which have been delivered to the registrar of companies. The auditor has reported on the 2023 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Basis of preparation

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

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

The Group's has a committed borrowing facility of £40m with Bank of Scotland PLC and HSBC Bank UK plc in place until November 2027. The facility bears interest at normal commercial rates and carries standard financial covenants in relation to interest cover and leverage.

The Directors are of the opinion that the Group's cash forecasts and revenue projections, which they 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 base 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 above.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence at least for 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 2024.

Key sources of estimation uncertainty

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. Due to the nature of estimation, the actual outcomes may well differ from these estimates. The directors have assessed the impact of climate change and consider that this does not have a significant impact on these financial statements. The key sources of estimation uncertainty that have a significant effect on the carrying amounts of assets and liabilities in the next twelve months are discussed below:

Retirement benefit obligations

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

Key sources of estimation uncertainty (continued)

Valuation of deferred contingent consideration

The valuation of deferred contingent consideration at both acquisition date and the balance sheet date is measured at fair value. This involves the assessment of forecast future cash flows against earn-out targets agreed with the sellers of acquired businesses over a period of up to two years. This assessment is based on the directors' best estimate using the information available at the relevant dates. However, there remains a risk that the actual payment differs from the amount assumed as consideration within the PPA accounting as detailed in note 8 and from the amount recorded as a liability at the balance sheet date. Deferred contingent considerations are recognised as a liability in trade and other payables and are remeasured to fair value of £5.5m at the balance sheet date, of which £2.3m is due in more than one year, based on a range of outcomes between £Nil and £7.3m. Trading in the post-acquisition period supports the remeasured value of £5.5m.

Critical accounting judgements

Property provisions

Property provisions of £1.4m have been recognised as at 31 December 2024 (2023: £1.7m), 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.

No other significant critical judgements have been made in the current or prior year.

Alternative performance measures

In measuring the financial performance and position, the financial measures used in certain limited cases are 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 and provide details of these items to enable users of the accounts to understand the impact on the financial statements.

To the extent that a measurement under Generally Accepted Accounting Principles ("GAAP") is adjusted for a separately disclosed item, this is referred to as an Alternative Performance Measure ("APM"). We believe that the APMs defined below, and the comparable GAAP measurement, provides a useful basis for measuring the underlying financial performance and position of the Group and its businesses when compared to similar companies.

Adjusted operating profit is defined as operating profit before customer relationships and brand values amortisation and deferred contingent consideration adjustments.

Adjusted profit before tax is defined as profit before tax, customer relationships and brand values amortisation, and deferred contingent consideration adjustments.

Adjusted diluted earnings per share is defined as diluted earnings per share before, customer relationships and brand values amortisation per share and related tax per share and deferred contingent consideration adjustments per share.

Alternative performance measures (continued)

Net bank funds/(debt) also represents an APM as defined and reconciled to the statutory measure in note 9.

3. Segmental information

The Group's principal business segment is Packaging Distribution, comprising the distribution of packaging materials and supply of storage and warehousing services in the UK. This comprises 85% of Group revenue and 73% of Group operating profit. The Group's Manufacturing Operations segment comprises the design, manufacture and assembly of timber, corrugated and foam-based packaging materials in the UK. This comprises 15% of Group revenue and 27% of Group operating profit.

The standard rate of tax based on the UK average rate of corporation tax is 25.0% (2023: 23.5%). The increase in 2024 is due to the corporation tax rate increasing from 19% to 25% effective from 1 April 2023. Taxation for other jurisdictions is calculated at the rates prevailing in these jurisdictions.