Macfarlane seeking more deals amid tough market

Macfarlane employs about 120 people in Scotland out of a total workforce of 720

Macfarlane employs about 120 people in Scotland out of a total workforce of 720

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Packaging specialist Macfarlane has pledged to continue pursuing “carefully selected” acquisitions after a pair of deals delivered a boost to sales and profits in the face of tough market conditions.

Although earnings at the Glasgow-based firm’s labels business were hit amid the intensely competitive retail sector, it said strong growth among online stores had lifted sales at its packaging distribution arm.

That division was expanded with the purchase of Reading firm Lane Packaging for about £900,000 in May, followed by a £7.5 million deal in September to buy West Midlands rival Network Packaging. Finance director John Love told The Scotsman that Macfarlane had a number of other targets in its sights and was likely to seal further deals in the first half of this year.

Graeme Bissett, the company’s chairman, added: “The board remains committed to seeking out further profitable expansion opportunities through carefully selected acquisitions.”

Their comments came as Macfarlane – which employs about 120 people in Scotland out of a total workforce of 720 – posted a 19 per cent rise in pre-tax profits to £5.6m for the year to the end of December.

Due to the fierce competition in the retail sector, which put a squeeze on margins in the labels business, operating profits at Macfarlane’s manufacturing arm fell to £900,000, down from £1.3m a year earlier.

However, its packaging distribution business was buoyed by new deals with internet retailers, and operating profits before one-off items at this division jumped 16 per cent to £5.8m.

Macfarlane said: “We expect general market demand in 2015 to increase modestly as the UK economy continues its recovery.

“There are specific market sectors such as internet retail which are forecast to show good growth and Macfarlane will focus on ensuring we continue to be well positioned to benefit from the growth expected in these sectors.”

Group turnover rose 7 per cent to £153.8m, helped by a combination of organic sales growth and acquisitions.

Those deals saw the firm’s bank debt almost double to £10.1m, from £5.9m at the end of 2013. During the year, it agreed a fresh three-year borrowing facility with Lloyds Banking Group for up to £20m.

The group also pumped £2.5m into its pension scheme to help reduce the deficit from £15.9m a year earlier to £13.9m.

Analysts at house broker Arden Partners said the online retail arena will continue to be a “major growth area” for the group, and expressed confidence that the firm’s shares would rise towards 50p or more in the coming months.

Macfarlane proposed a final dividend of 1.15p a share, to be paid on 4 June. That would lift the full-year payout by 3 per cent to 1.65p.

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