LORD Macfarlane yesterday exited the chair of the highly-successful packaging group he founded 49 years ago on a bitter-sweet note.

The septuagenarian, best known for restoring respectability to drinks giant Guinness following its controversial takeover of the Distillers Company under Ernest Saunders, had to tell Macfarlane Group (Clansman)'s shareholders how badly the integration of its plastic moulding businesses had been handled.

But the silver-haired stalwart of the Scottish business community was able to report good progress by the Glasgow-based group's core packaging businesses, even though market conditions remain tough.

Lord Macfarlane, who handed the chairmanship over to former IBM executive John Ward after the packaging company's annual meeting in Glasgow yesterday, highlighted serious problems which had arisen in moving relatively small subsidiary ACW from Aberdeen to the group's Daniel Montgomery operation at Kirkintilloch in Glasgow.

Both companies manufacture plastic moulding products, with Montgomery heavily involved in closures for whisky and other spirit bottles.

Plastic moulding accounted for #4.35m of the #22m of group pre-tax profits earned in 1997, even though last year was a difficult one for this division.

Updating shareholders, Lord Macfarlane said: ''The reorganisation of the plastic moulding division and the integration of ACW from Aberdeen into Montgomery's factory at Kirkintilloch was not well managed and major shortcomings were identified in the efficiency and productivity of the facility.

''This has seriously affected profitability and sales, which will not be recovered until the second half of the year.''

Highlighting the departure of former plastic mouldings chief executive Bob Martin and other senior managers, and the transfer of responsibility to group chief executive Bill Mackie, Lord Macfarlane added: ''Progress made so far in tackling the sales and productivity situation encourages us to believe that previous profit levels can be achieved in the course of next year.''

He said after the meeting: ''The fact of the matter was that (a) fairly normal management exercise was fairly badly dealt with and has caused us to think about it carefully.''

Asked if he was disappointed to have to report continuing problems in plastic moulding at the last annual meeting he will chair, Lord Macfarlane was philosophical.

He said: ''I think it would have been lovely to say everything in the garden is marvellous but life is not like that.

''If it hadn't been the plastic moulding side, it would have been something else. Management is paid to get on and resolve the problems. I feel very confident about the huge potential there is in the group at this stage, which is good for Scotland.''

Commenting on the difficulties in plastic moulding, which Macfarlane touched upon only briefly in its annual report, finance director Andrew Reekie admitted: ''The problem is (that) it is taking slightly longer to fix than we had anticipated.''

Lord Macfarlane had earlier given shareholders better news on the packaging division, which accounts for 72% of profits.

He said: ''In spite of the competition, I am pleased to report that this year so far profit margins have been maintained and the packaging division continues to make good progress in 1998.''

Lord Macfarlane will remain with the group as a non-executive director for 12 months, to enable him to complete 50 years on the board. The veteran, who personally holds more than 4% of the company's shares, will then become honorary life president.

Expressing confidence in his ability to draw back from Macfarlane's day-to-day management and to work with Ward, he said: ''I will not be standing on John (Ward's) toes until things go wrong and then I will be talking as a shareholder.''

Lord Macfarlane continues to see great benefits in the company's strategy of doubling the turnover of merchanting subsidiary Abbott's Packaging to #100m within five years and increasing the proportion of materials it sources internally from 25% to about 40%, allowing it to lock in profit margins from both manufacturing and selling.

The vote of thanks to Lord Macfarlane was proposed by Sir Angus Grossart, of Edinburgh-based merchant bank Noble Grossart.

Sir Angus, who helped take Macfarlane Group to the stock market in 1973, paid tribute to the example set by Lord Macfarlane in the post-war years.

He said: ''In the immediate post-war period, and in perhaps the two decades after that, Scotland was much in decline, not only economically but I believe (also) in confidence of leadership.

''Lord Macfarlane was one of the first to make a stand and feel success could be achieved from a Scottish base. That has not merely been to the benefit of shareholders . . . it really has been an encouragement to others.''

Sir Angus told Lord Macfarlane: ''You leave the company in strong shape with an excellent successor but you leave it with the respect and admiration of a very large number of people. It is not the scale of the honours or the material success but the quality of all that you have done that will really matter at the end of the day.''

Lord Macfarlane is somewhat puzzled that, in spite of his advancing years, he remains as busy as ever.

The 72-year-old, who has just been appointed chairman of the Scottish Licensed Trade Association and has five children and 14 grandchildren, said: ''I am ashamed to say I am playing golf less than I used to because I am busier. It is life the wrong way round.''