Glasgow-based Macfarlane Group raises profit forecast after bumper first half

SHARES in Macfarlane Group closed up nearly nearly 12 per cent last night after the packaging specialist raised profit expectations following a bumper set of first-half results.

Investors shrugged off concerns over raw material shortages and rising input costs as the Glasgow-based company recorded profits before tax of £7.8 million for the six months to June 30.

While profits were 120.6% ahead of the same period last year, which coincided with the first national lockdown sparked by the outbreak of coronavirus, they were also more than double those achieved in the first half of 2019.

Turnover for the first half of this year was booked at £133.5m, up 26.5%.

Macfarlane chief executive Peter Atkinson said the company is benefitting from the positioning of its packaging distribution arm in the e-commerce sector, which has grown strongly during the pandemic. He also highlighted the impact made by the two most-recent acquisitions the company had completed. GWP Holdings and Carters Packaging (Cornwall) contributed £8.1m of sales and £1.9m of operating profit before amortisation and impairment versus 2020.

Mr Atkinson told The Herald: “The thing that is driving growth is the continuing benefit we are getting from e-commerce. We as consumers learned to buy online during lockdown and those trends seem to be continuing.

“We are seeing recovery in industrial markets that were clearly again quite depressed in 2020 for obvious reasons. Industrial represents 70% of our business, so that is obviously benefitting us.”

He added: “The key thing for us is that if you compare our 2021 results with 2019, pre-Covid issues, the results are well ahead. [They are] genuine results, rather than manufactured results.”

Macfarlane’s growth in the first half came in spite of the “difficult headwinds” caused by raw material shortages and rising input prices, and labour shortfalls across the economy.

Mr Atkinson said the materials shortages were broad-based and that the company had generally seen “in-bound” prices for goods such as cardboard and polymer-based products rise by 30%.

He noted the company was driving to ensure costs were not passed on to customers, and re-engineering products in order to save costs.

Asked if Macfarlane had been affected by the shortage of HGV drivers, Mr Atkinson said the company is currently running with a team of 113 for its own vehicle fleet, and has vacancies for five drivers. He noted that terms and conditions have been improved for drivers in a bid to stay competitive, adding that Macfarlane, which utilises drivers for a variety of roles, is “confident” of filling the vacancies.

Asked to comment on the company’s European expansion plans, Mr Atkinson said Macfarlane was making “good progress” with its “follow the customer” strategy, through which it provides solutions for clients as they expand on the continent.

However, plans to expand on the continent by acquisition was “behind schedule” because travel restrictions and “complications” arising from Brexit has made it difficult to meet counterparts on the European mainland.

Mr Atkinson said the company has both the “intent and the firepower, encouragingly” for further acquisitions, adding that he is hopeful of doing further deals in 2022.

Finance director Ivor Gray noted it has been “pleasing” to see Macfarlane’s pension scheme move from a deficit of £1.5m at the end of December to a surplus of £4.6m at the end of June.

The company has recommended an interim dividend of 0.87p, up 24.3%, reflecting the first-half performance.

House broker Shore Capital raised its profit forecast for Macfarlane for the full year to £15.9m.

Shares closed up 14.26p at 133.76p.

The Herald Scotland

The Herald Scotland

The Herald is a Scottish broadsheet newspaper founded in 1783. The Herald is the longest running national newspaper in the world and is the eighth oldest daily paper in the world. The title was simplified from The Glasgow Herald in 1992