The Macfarlane Group reported declines in both revenue and pre-tax profit in its half-year results, but said it had responded effectively to a difficult period through a variety of means.
The Glasgow-headquartered packaging company reported revenue of £129.6 million for the six-month period ended 30 June 2024, down 8% from £141.6 million a year earlier, and pre-tax profit of £9.7 million, down 3% from the previous year’s figure of £9.99 million.
The Group made two further acquisitions during this period: Allpack Packaging Supplies in March and Polyformes in July.
The Macfarlane Group’s Packaging Distribution business saw revenues fall 11% to £110.9m (H1 2023: £124m), reflecting continued weak customer demand and price deflation, although these were partially offset by the benefits of the acquisitions of Gottlieb in April 2023 and Allpack in March this year.
The company said adjusted operating profit fell 1% to £9.3 million (H1 2023: £9.4 million) due to effective management of input prices and control of operating expenses.
Meanwhile, the Manufacturing Operations division achieved revenue growth of 6% to £18.7 million (H1 2023: £17.7 million).
The company said contributions from B&D Group and Suttons, both of which will be acquired in 2023, were partially offset by price deflation.
Adjusted operating profit fell 5% to £3.2m (H1 2023: £3.4m) due to higher operating costs. Last month’s acquisition of Polyformes will be accretive to earnings in the second half of 2024, Macfarlane added.
In conversation with Print Week Today (22 August), Peter Atkinson, CEO of Macfarlane Group, said: “We indicated at the start of 2024 that the first half of the year was going to be difficult and it was difficult. I think in those circumstances the performance we have achieved is quite respectable.”
He added that there are currently various market difficulties, including underlying weak demand; “macroeconomic factors are simply leading to customers not buying the volumes we would normally expect.”
“The second issue is the sustainability agenda – people are obviously up to speed and trying to use less packaging. That’s a factor that will continue and that’s a good thing for obvious reasons.
“And third, which is just part of the normal cycle, we’ve experienced price deflation in the first half of the year. About 5% of our revenue decline is price-related; we’re simply selling at lower prices because of what’s happening in the broader markets.”
He said the group’s profit remained relatively strong because it had taken measures and entered new business areas, particularly in the health and beauty sector, and because there were also some other successes in the industrial market around the automotive industry and general engineering.
“Our new business is 10% above last year’s level. We’ve done a really good job on margins and made sure we keep our personnel prices in line with our sales prices. We have really tight control over costs. And of course we’ve benefited from our acquisition program.”
The group had net banked funds of £0.8 million at 30 June 2024, representing a cash inflow of £0.3 million since 31 December 2023, following £3.6 million of investment in acquisitions and £1.4 million of capital expenditure. The group said it was operating well within its £35 million banking framework, which runs until 31 December 2025.
The pension fund surplus increased to £10.2 million at 30 June 2024 (31 December 2023: £9.9 million). The improvement is due to an increase in the discount rate, offset by lower investment returns in the first half of 2024.
Effective working capital management resulted in net cash flow from operating activities of £14 million (H1 2023: £20.3 million).
Macfarlane said the actions taken in the first half of 2024 and continued for the remainder of the year should enable the group’s performance for 2024 to be “broadly in line with market expectations”.
“While we saw price deflation in the first half of the year, we will see price inflation in the second half because paper prices are rising, which means corrugated board prices are rising, so we have to pass those price increases on to our customers. So we can expect revenues to increase as a result of price inflation,” Atkinson said.
“We clearly have the momentum of our acquisitions, with Polyformes being particularly strong in the second half of the year. And then of course we have this momentum in new business, which we expect to get even stronger in the second half of the year. So we expect to end 2024 on a good track for 2025.”
Basic and diluted earnings per share were 4.55 pence per share (H1 2023: 4.74 pence per share) and 4.51 pence per share (H1 2023: 4.70 pence per share), respectively.
The interim dividend of 0.96 pence per share (H1 2023: 0.94 pence per share) will be paid on 10 October 2024 to shareholders of record on 13 September 2024 (ex-dividend date 12 September 2024).
At the time of writing this article, the share price of the Macfarlane Group, which has over 1,000 employees, was 4.38% below yesterday’s closing price at 114.75 pence (52-week high: 147.50 pence, low: 98.38 pence).
