Mpac : Half-year Announcement 2021 - 02/09/21

2 September 2021

AIM: MPAC

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 which is

part of UK law by virtue of the European Union (Withdrawal) Act 2018

Mpac Group plc

(''Mpac'', "Company" or "Group")

Strong H1 results with increasing profitability; full year results expected to be ahead of market expectations

Mpac, a global leader in high-speed packaging and automation solutions, today announces its unaudited results for the

six months to 30 June 2021 (''the period'')

Financial Highlights

• Strong commercial rebound with a 69% increase in order intake to £51.7m (2020: £30.5m)
• Closing order book grew 12% to £62.0m (June 2020: £45.4m; Dec 2020: £55.5m)
• Group revenue of £44.2m (2020: £36.8m), with a 25% growth in Original Equipment revenue and continued progression in service revenues
• Underlying* profit before tax of £4.7m (2020: £2.5m)
• Underlying* earnings per share of 18.3p (2020: 11.0p)
• Statutory profit before tax of £2.8m (2020: £1.4m)
• Basic earnings per share of 10.6p (2020: 6.0p)
• Net cash of £10.3m (30 June 2020: £22.5m; 31 December 2020: £14.6m)

*Underlying results are stated before pension related charges of £0.5m (2020: £0.3m); amortisation of acquired intangible assets of £0.9m (2020: £0.8m); reorganisation in support of more closely integrating the acquired businesses £0.2m, and other non-underlying items of £0.3m.

Operational and Strategic Highlights

• All employees continue to demonstrate agility and customer focus during the pandemic, keeping themselves and their colleagues safe
• Strong momentum on order intake and enlarged order book with the Americas region driving performance and an improving outlook in EMEA
• Newly acquired Mpac Switchback business fully integrated and exceeding expectations
• Mpac Switchback relocating to a showcase facility which will also function as Mpac USA headquarters
• Regional Service strategy continues to develop with good progress in the USA and the use of digital solutions
• One Mpac unified business processes strategy reached a milestone withgo-live of global ERP systems achieving early benefits of shared resources
• Uptick in sales of newly developed products and continuation of customer developed options
• Contract with FREYR, a developer of clean,next-generation, battery cell production capacity

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Tony Steels, Chief Executive, commented:

"I am really pleased with the performance of the business in the first half of 2021. The strong momentum from H2 2020 has carried into 2021 with Original Equipment order intake up significantly. We made good progress with the implementation of our strategic objectives which provided the platform for the business to leverage the growth markets in which we operate. The Q3 2020 acquisition of Switchback is continuing to perform well and, with the move to a purpose built Mpac showcase facility, we can demonstrate to our US customers the full suite of Mpac brands, solutions, and services in this critical market. We remain well placed, serving markets with strong underlying demand and are pleased to be upgrading expectations for the full year results given the strength of current trading and our outlook for the second half. The Group's long-term prospects also remain positive''.

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HALF-YEAR MANAGEMENT REPORT

Introduction

Mpac serves customers' needs for ingenious, innovative automation and packaging machinery. We design, precision engineer, manufacture and support high-speed automation and packaging solutions, with embedded process monitoring systems.

The Group's business is focused on the high growth Healthcare, Food and Beverage and Pharmaceutical markets, which we expect to enjoy long term annual growth rates of between 4% and 5%.

The opportunities for the Group are based on the following fundamental strengths:

• Robustlong-term growth drivers in our target markets
• Leadership in innovative, broad range ofhigh-speed packaging machinery and automation solutions
• Global reach with embedded local presence providing exceptional service to our customers
• A talented and engaged workforce

Overview

We started 2021 with a good quality, diverse order book and are pleased that the momentum from the second half of 2020 has continued into 2021. Macro-economic factors, such as lengthening global supply chain lead times, materials price increases and availability of skilled labour remain a challenge. However, the Board anticipates that the results for full year 2021 will be above current market expectations, primarily as a result of the increase in the value of the closing half-year order book and the quality of the prospect pipeline for orders in the second half of 2021 and that the Group's long-term prospects are positive.

Strategic Progress

During the period we continued to make good progress in delivering upon our strategic plans. The rapid return to growth was underpinned by the prior investment in our commercial footprint in the Americas and EMEA, alongside market leading sales tools and acceleration of the use of digital technology. Our pipeline has continued to grow across all regions and the market fundamentals remain positive. In 2020 we acquired Switchback to further strengthen our position in the US market and to complement our existing Mpac Langen and Mpac Lambert brands and product portfolios. Since the acquisition, Switchback has been rebranded as Mpac Switchback and has performed ahead of expectations.

Our strategy to 'Make Service a Business' has progressed well with the development of a new combined Service team in the US, providing elevated levels of support to customers and to enhance the Service offering of Mpac Switchback. Our Service business continues to face challenges related to travel restrictions, particularly in EMEA and APAC, however we continue to work closely with customers to find innovative solutions where it has not been possible to provide 'in person' support.

Our aim to operate as a single entity business model, 'One Mpac', reached another milestone during the period and is underpinned by the implementation of common business processes and systems. We successfully completed the implementation of the global ERP system in the period to complement the previous deployment of common engineering, CRM and project management systems, which we anticipate will increase the Group's capacity to accommodate future growth and to increase operational leverage.

COVID-19

Mpac continue to provide uninterrupted essential support for our customers in critical Healthcare, Food and Beverage and Pharmaceutical sectors. Travel restrictions, particularly in EMEA and APAC, continue to restrict opportunities to complete on-site service work and install and commission equipment, however Mpac utilised digital solutions to provide services remotely to ensure high customer service levels are maintained. Mpac is well positioned to service these essential sectors and the business continues to act proactively to promote the range of newly developed products and to offer customers creative and flexible digital solutions for remote machine acceptance and servicing.

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Financial results

The Group entered the year with a diverse and good quality order book and accordingly sales in the period were £44.2m (2020: £36.8m), a 20% increase on prior year. Gross margins increased to 33.4% (2020: 30.7%). Order intake in the period was particularly strong, 69% above the prior year, with strong momentum from the second half of 2020 continuing into the first half of 2021. Consequently, the value of our order book going into the second half of 2021 is 12% above the value of the opening order book.

Underlying profit before tax was £4.7m (2020: £2.5m). After a net tax charge of £1.0m (2020: £0.3m), underlying profit

after tax for the period was £3.7m (2020: £2.2m). Underlying earnings per share was 18.3p (2020: 11.0p).

The underlying results are stated before pension related charges of £0.5m (2020: £0.3m), comprising charges in respect of

administering the Group's defined benefit pension schemes of £0.6m (2020: £0.5m) and finance income on pension scheme

balances of £0.1m (2020: £0.2m) and amortisation of acquired intangible assets of £0.9m (2020: £0.8m). In addition, the Group commenced a limited level of reorganisation to support the further integration of acquired businesses of which costs were recognised of £0.2m (2020: £nil).

On a statutory basis, the profit after tax for the period was £2.1m (2020: £1.2m). The basic earnings per share amounted

to 10.6p (2020: 6.0p).

The financial results for the period include the results of Mpac Switchback, acquired in in September 2020.

Finances

Net cash on 30 June 2021 was £10.3m (30 June 2020: £22.5m; 31 December 2020: £14.6m). Cash balances reported are impacted by the timing of project order intake and associated working capital cycles. Working capital movements since June have increased net cash above the opening cash balance of January 2021.

Net cash outflow from operating activities in the first half of the year was £3.3m, after an increase in working capital levels of £7.2m, due mainly to the timing of project execution, and deficit recovery payments to the Group's defined benefit pension schemes of £1.6m. Capital and product development expenditure was a net £0.4m.

The Group maintains bank facilities appropriate to its expected needs including currently undrawn committed borrowing facilities with HSBC UK Bank Plc of £10.0m. These facilities, which are committed until June 2022, are subject to covenants covering interest cover and adjusted leverage and are both sterling and multi-currency denominated.

Dividend Policy

Having considered the trading results to 30 June 2021 and the outlook in the light of the COVID-19 pandemic, the Board has decided not to pay an interim dividend in respect of the period. No dividends were paid in 2020. Future dividend payments will be considered by the Board in the context of trading performance and as and when the Board believes it is prudent to do so.

Operating performance

Overall revenue increased by 20% supported by a strong orderbook and execution within the operating sites.

The Group manages the business in two parts, Original Equipment (OE) and Service, and across three regions (Americas, EMEA and Asia Pacific). Individual contracts received by the OE business can be sizeable. Accordingly, one significant order can have a disproportionate impact on the growth rates seen in individual markets year on year.

Original Equipment

Revenue increased by 25% with progress made with delivering revenue growth in the period differing markedly by region.

Sales to the Food and Beverage sector increased by 35%, with several significant contracts secured in late 2020. Pharmaceutical and Healthcare sector revenue declined due to the timing of orders and delays due to reconsideration of investment priorities following the pandemic. The 'Other' category, which includes orders from more specialised industrial sectors and consumer products, grew by £2.7m over 2020 and included an initial order related to clean energy storage.

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OE revenue in the Americas grew by 94% to £24.7m (2020: £12.8m) while in EMEA OE revenue declined by 31% to £8.3m

(2020: £12.0m). Growth in the Americas was primarily due to the full six months trading of Mpac Switchback included within the period and from the conversion of the strong opening order book. Revenue development in all regions is dependent upon the timing of customers' investment cycles, with differing industries and regions recovering from the effects of the COVID-19 pandemic at different rates.

Service

Service order intake was strong in the period, up 10% on the prior year and driven mainly by order intake for upgrades. Restrictions to customer interaction and site-based service work continue to represent a headwind to business development, however as restrictions ease in our key markets, we expect service order intake growth to accelerate.

Service revenue grew 4%, despite the challenges of the pandemic which continued to restrict on-site service provision. It represented just over 23% of group revenue, in the period under review, which demonstrates the success of the 'Make Service a Business' strategy and our continued investment in remote service provision.

Pension schemes

The Group is responsible for defined benefit pension schemes in the UK and the USA in which there are no active members. The Company is responsible for the payment of a statutory levy to the Pension Protection Fund.

The IAS 19 valuation of the UK scheme as at 30 June 2021 shows a surplus of £26.8m (£17.4m net of deferred tax), compared with a surplus of £14.0m (£9.1m net of deferred tax) at 31 December 2020. The main drivers of the increase in the surplus were the effectiveness of the liability matching programme and an increase in the discount rate, partially offset by the effect of the liability matching programme on asset values when discount rates rise.

The net valuation of the USA pension schemes at 30 June 2021, with total assets of £10.0m, showed a deficit of £2.3m, a decrease of £0.7m from 31 December 2020.

The aggregate expense of administering the pension schemes was £0.6m (2020: £0.5m). The net financing income on

pension scheme balances was £0.1m (2020: £0.2m).

FREYR contract win

As announced on 26 July 2021, the Group signed a contract with FREYR Battery ("FREYR"), a developer of clean, next- generation battery cell production capacity, for the supply of casting and unit cell assembly equipment to the battery cell production line at FREYR's Customer Qualification Plant in Norway. The equipment to be supplied by Mpac Lambert will support FREYR in achieving its ambitious growth plans for a more sustainable future, providing equipment, services and know how to industrialise the battery cell production.

Acquisition strategy

The Board continues to evaluate potential acquisition opportunities that strategically fit the Group and which will enhance our global presence in packaging solutions serving the Healthcare, Food and Beverage and Pharmaceutical markets.

Outlook

It has been a positive start to the year with the momentum established in the second half of 2020 flowing through into 2021, resulting in an improved financial performance. Although the challenges of continued travel restrictions, lengthening supply chain lead times and general material and labour cost increases represents a risk to financial performance, the quality and increasing value of the order book going into the second half of 2021, alongside increasing operational efficiencies, will result in our financial results for the full year 2021 exceeding current market expectations. The Group's prospects remain strong, underpinned by long term growth factors in our target markets.

The acquisition of Mpac Switchback in September 2020 provided broader access to the important US market and by bringing all Mpac brands into one US showcase facility, we can further strengthen our support and offering to local customers.

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