Macfarlane to bulk out by swallowing rivals

Packaging firm Macfarlane vowed to push on with a series of acquisitions after fierce competition and a difficult retail environment took 25 per cent off its half-year profits.

The Glasgow-based group said it was confident of meeting full-year expectations despite pre-tax profits falling to £1.2 million in the six months to 30 June, down from £1.6m a year earlier.

Sales rose 3 per cent to £70.1m, but chief executive Peter Atkinson said margins had come under fire on two fronts. Its packaging distribution business was forced to cut prices to retain market share as rivals went on the offensive, while its labels arm flagged as hard-pressed retailers chose to order in smaller batches.

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Atkinson said that in both cases Macfarlane had responded by making its production system more efficient, and its margins have now been restored.

Chairman Graeme Bissett said the drop in profits was due “mainly to margin pressure and our increased weighting in the internet retail sector where the trading pattern of customers is more highly focused towards the second half of the year”.

He added: “The board is confident that full-year expectations will be met.”

The interim dividend, to be paid on 16 October, was held steady at 0.5p a share.

Macfarlane also confirmed it had kick-started its planned acquisition programme with the purchase of Lane Packaging, a Reading-based firm with a turnover of just under £3m a year.

Finance director John Love said the Scots group was in discussions with other potential acquisition targets.

“We are very pleased with the way Lane has performed and it’s given us the confidence to go out and look for more acquisitions,” he said.

“We are in negotiations with a couple of parties and we would hope to be able to announce another acquisition in the second half, probably a packaging firm.”

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The firm is now prepared to look at slightly larger targets – Love said businesses with a turnover between £2m and £10m were in his sights.

Atkinson said the company was looking to buy “quality businesses”, not damaged firms needing to be turned around.

He said: “We want to get a stream of new customers and we want to gain quality employees.”

He added that the group was concentrating its growth efforts on the fast-growing internet retail sector, which “uses a lot of packaging”.

Ben Thefaut, an analyst at Arden Partners, said the firm had been growing faster than the wider UK economy in recent months.

He added: “The improved sales momentum will, naturally, have a material impact on the bottom line given the fixed-cost overheads associated with the distribution network and we anticipate this will feed through to a significant improvement in margins in the second half.”