Macfarlane on the up despite costs pressure

NEW contracts with fashion chain Superdry and electronics group Premier Farnell helped packaging company Macfarlane to post a rise in profits yesterday, while its dividend was also raised.

The Glasgow-based group unveiled a 6 per cent rise in underlying pre-tax profit to 3.4 million for 2010, allowing it to up its final shareholder payout by 5 per cent to 1.05p.

Revenues increased by about 10 per cent to 135.5m, with 7 per cent of the rise coming through price increases and 3 per cent from growth in sales.

Macfarlane has faced "the largest supplier price increases the group has had to deal with for many years", with rising oil prices affecting the cost of plastic and cardboard costs also heading north. But chief executive Peter Atkinson told The Scotsman: "I think our customers have shown a grudging acceptance of the price rises. They are affecting all the players in our industry, not just Macfarlane."

The gross margin slipped from 32.5 to 31 per cent, but the company was still able to reduce its pension deficit by 23 per cent to 15.7m and pay down its debt to 7m from 7.3m.

Commenting on the sales rise, Samuel Simon, an analyst at house broker Oriel Securities - said: "We see this as very positive for a distribution company with a large client list, supporting our view that Macfarlane has high-quality management systems in place to deal with these difficult market conditions."

Atkinson said he was watching oil prices carefully. He added: "The oil price would have to rise by about 30 per cent above its current level before we would get seriously worried about next year's profits. But that's an issue that would affect the whole industry, not just us.

"We're seeing one or two clients looking at using returnable trays instead of disposable packaging, but it's not a trend. We are working with clients to help manage their packaging costs."