Shares in Macfarlane Group tumbled yesterday after it reported a fall in profits for the first half, amid price deflation and continuing weak demand at its dominant packaging distribution arm.
Glasgow-based Macfarlane hailed its performance as “resilient” in challenging market conditions, which chief executive Peter Atkinson said have been felt by its peers in the packaging industry, and evident across all the sectors and geographies it serves.
The company, which was started by the late Lord Macfarlane of Bearsden as a stationery supplier shortly after the Second World War, reported a 3% fall in pre-tax profits to £9.7 million for the six months to June 30. Revenue was down 8% at £129.6m.
The results came after Macfarlane had warned earlier this year that the first half would be a “difficult period”, after reporting an anticipated fall in sales in the first quarter because of reduced demand from the e-commerce sector. This was attributed to retailers beginning to charge for returning goods.
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Speaking to The Herald, Mr Atkinson said the firm’s first-half performance had been affected by the challenging macroeconomic environment and the rising sustainability agenda, which is reducing demand for packaging, as well as softer pricing owing to cyclical reasons. However, Macfarlane expects prices to be higher in the second half.
The firm reported that revenue at its packaging distribution arm, which supplies retailers such as Dunelm, Currys, IKEA, and Boots, dropped by 11% to £110.9m in the first half, with continued weak demand and price deflation partially offset by the acquisition of Gottlieb in April 2023 and Allpack Direct in March 2024. Adjusted operating profit fell by 1% to £9.3m, which Macfarlane said reflected effective management of input pricing and control of operating expenses.
Asked to assess the outlook for the second half, which typically sees an upsurge in demand for e-commerce customers, Mr Atkinson said the firm expects to benefit from cyclical price increases.
“Our second half of 2023 was relatively soft, so we would expect our like for likes to be better,” he said. “There are indications, and it is only indications, that Christmas trading might be stronger, so that will hopefully be a benefit to us. Then we have obviously got the benefit of the roll forward of the acquisitions coming through as well. Obviously the Polyformes acquisition we completed right at the start of H2 so it has not impacted H1, but it will impact our H2 figures.
“While I can’t say that H2 has started off in any materially different way than H1 ended, there are some more positive signals for H2 which should benefit us.”
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The group's manufacturing operations arm, which designs protective packaging for high-value and fragile products, achieved revenue growth of 6% in the first half to £18.7m, although its adjusted operating profit fell by 5% to £3.2m because of higher operating expenses.
Macfarlane said the division was a “major beneficiary” of contributions from B&D Group and Suttons, which were acquired in 2023, which were offset by price deflation. It expects the acquisition of Polyformes to be earnings enhancing from the second half.
Mr Atkinson declared the manufacturing operation has “performed well” and has “now become a significant part of the group”.
He said: “We have not got a significant division operating in that specialist area [and] we are almost certainly the market leader now in that particular specialist area of protective packaging in the UK. We have got quite big ambitions for that business both in the UK and potentially Europe as well.”
Asked if the company expected to complete any further acquisitions this year, Mr Atkinson said it has a “few things on the go” but it was likely to be early next year before any deals are concluded. Macfarlane tends to avoid completing deals in the fourth quarter because it is a busy trading period.
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Mr Atkinson said: “The pipeline is very strong. [There are] some well-developed discussions under way and approaching completion, so we are very optimistic for the acquisition outlook for 2025.
“Typically, we do two to three acquisitions per year. We have done two already this year. We will continue that programme in 2025. And we are turning down opportunities as well. We have turned down something like 20 opportunities already this year because we are very picky and choosy on the types of acquisitions that we want to move ahead with.”
Macfarlane announced a rise in interim dividend to 0.96p per share, up from 0.94p last year. The surplus in its pensions scheme increased to £10.2m at June 30 from £9.9m at December 31.
Shares in Macfarlane were down more than 4% yesterday afternoon, before rallying partially to close 2.5% lower at 117p.
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