Macfarlane Group wraps up first half of sales and profit growth

Macfarlane Group reported a 5.4% improvement in its group turnover for the first half on Thursday, to £107.54m.

The London-listed packaging and labelling firm said its profit before tax was 8.7% higher year-on-year, at £3.83m, with its diluted earnings per share rising 9.9% for the six months ended 30 June to 1.99p.

Its board recommended an interim dividend of 0.69p per share, which was 6.2% higher than the company’s interim distribution in 2018.

Macfarlane’s chairman Stuart Paterson said the group’s sales growth was achieved against a background of “well-publicised” weaker demand.

He explained that the company’s performance in the first six months of 2019, and its actions in place to increase its margin in the second half, together with the usual seasonal uplift from the e-commerce sector in the final quarter, gave its board “confidence” that full-year expectations would be achieved.

In packaging distribution, sales were ahead by 4.4%.

“Sales revenue from existing customers was impacted by weaker demand and sales price deflation but this was offset by good new business growth and the benefit of the 2018 acquisitions of Tyler Packaging Leicester and Harrisons Packaging, as well as the recent acquisition of Ecopac UK concluded at the start of May,” Paterson said.

“First half operating profit in packaging distribution at £4.5m was ahead of the equivalent period in 2018.”

Sales in the company’s manufacturing operations were 16.0% above 2018, with strong demand reported for resealable labels, mainly through new customer wins.

First half operating profit in the division was £0.4m - above that achieved in 2018.

Net bank debt at 30 June was £15.0m, which was £1.8m above the level as at 31 December, primarily due to a £2.8m cash outflow on the acquisition of Ecopac.

“The group is operating well within its existing bank facility of £30.0m,” Stuart Paterson said.

“We expect to finance an estimated £1.4m in deferred consideration payable in the second half of 2019, relating to the acquisitions of Tyler and Harrisons.

“Consistent with our normal pattern, we expect to be strongly cash generative from trading in the second half of the year.”

The firm’s pension scheme deficit reduced to £9.0m as at 30 June, from £9.8m on 31 December, mainly due to the company’s continued payment of deficit reduction contributions during the six month period.

“The significant reduction in the discount rate in the first six months was largely offset by strong investment returns, justifying the focus on liability-driven investments to match the scheme's liability profile,” Paterson added.

“Our strategy is to deliver sustainable profit growth by focusing on added value products and services in our target market sectors, combined with the execution of value-enhancing acquisitions.

“Macfarlane group's performance in the first half of 2019 reflects the successful implementation of this strategy and we are confident that the group will continue to make further progress in the remainder of 2019.”