Macfarlane flags strong deal pipeline and profits but national insurance Budget blow to cost £1.2m
“It does make you think about recruitment and from our perspective we need to find ways to mitigate these costs” – Ivor Gray, finance director
Macfarlane Group, the Glasgow-headquartered packaging provider, has reported robust annual profits and flagged a “strong pipeline of opportunities” just weeks after sealing a milestone £18 million takeover.
However, the firm, which employs more than 1,000 people at 43 sites, chiefly in the UK, warned of “another challenging year” as it juggles with increased employment costs resulting from the autumn Budget and the introduction of new industry regulations.
The results for 2024 revealed that group profit before tax had risen by 3 per cent to £20.9m, against £20.3m the year before. That came despite group revenue falling by 4 per cent to just over £270.4m. Adjusted operating profit dipped 1 per cent to £27.4m.
The board is proposing a final dividend of 2.7p per share, up from 2.65p in 2023, payable on June 13, and taking the total dividend for 2024 to 3.66p, up 2 per cent on the previous year.
Macfarlane said its core packaging distribution business, where revenue fell 7 per cent to £228.8m, had seen continued weak customer demand and selling price deflation. However, those pressures were partially offset by a strong new-business performance and the benefit of the acquisitions of Gottlieb in April 2023 and Allpack Direct in March 2024. Gross margins at the operation increased to 37.1 per cent, from 35.7 per cent, reflecting “effective management of input-price changes”.
The group’s smaller manufacturing operations division achieved revenue growth of 16 per cent to £41.7m. Adjusted operating profit at that business unit was up 10 per cent at £7.2m, according to the latest results.
Chairman Aleen Gulvanessian said the group, which has been listed on London’s main market since 1973, had delivered a “resilient” financial performance in the face of tough market conditions.
“The group’s strong operating cash flows enabled the continued allocation of capital to invest in the business, fund good-quality acquisitions, progressive dividend payments as well as maintaining a low level of net bank debt,” she told investors.
“We expect 2025 to be another challenging year within the markets in which we operate, particularly with increased employment costs resulting from the recent UK Budget and the introduction by the UK government of extended producer responsibility (EPR) fees. Management is taking actions to mitigate these incremental costs and we are working with our customers to help them manage the impact of EPR.
“The recently-announced purchase of Pitreavie Group demonstrates our continued ability to identify and execute high-quality acquisitions and we have a strong pipeline of opportunities. We are well positioned to continue our profitable growth in 2025,” she added.
Chief executive Peter Atkinson said it was a difficult market with a challenging macro-economic backdrop but pointed to good progress on acquisitions and good new business growth.
“The acquisition pipeline is strong and just in the month of January we’ve had ten companies approach us,” he noted.
Finance director Ivor Gray said the increase in employer national insurance contributions, announced in the autumn Budget and due to kick in from April, would cost the firm an additional £1.2m or so, while the hike in the minimum wage would amount to some £500,000.
“It does make you think about recruitment and from our perspective we need to find ways to mitigate these costs,” he added.
The firm has also negotiated an improved borrowing facility of £40m with Bank of Scotland and HSBC UK. This facility is available until November 2027 and provides options to extend it by a further two years and by an additional £20m. It will support the continuing investment in the group’s organic growth and acquisition strategy in the medium term.
Analysts at house brokerage Shore Capital noted: “Much strategic progress has been made, resulting in Macfarlane becoming a more diverse, resilient, profitable and higher-quality business.
“We would highlight that the group has ample resources/headroom for continued organic and acquisitive investment via its successful ‘buy & build’ model, with an improved/expanded £40m facility committed to November 2027 (and the option to extend two years and by £20m).”
Jacob Armstrong, an analyst at Stifel, added: “Longer term, the group’s sustainability expertise makes it ideally placed to expand its sustainable packaging range, enabling it to play a central role in the sustainability shift across the protective packaging market.”
Macfarlane’s full-year results come after the company last month announced the £18m takeover of a Scottish peer that employs more than 150 workers. Pitreavie Group, which operates from Aberdeen, Glenrothes and two locations in Cumbernauld, where it is headquartered, manufactures and distributes protective packaging, supplying customers in the food and drink, energy, electronics and industrial sectors, chiefly in Scotland.
Bosses at Macfarlane pointed to “significant opportunities” for the growth of both businesses thanks to the range of bespoke protective packaging products available and a common supplier base.
Alongside organic growth, Macfarlane has flexed its muscles via a series of bolt-on acquisitions, both in the UK and mainland Europe, typically undertaking two or three such deals each year.
Under the latest agreement - the largest undertaken for some time - the company’s wholly-owned subsidiary, Macfarlane Group UK, has acquired 100 per cent of Pitreavie for a maximum cash sum of £18m, including an earn-out of up to £4m based on agreed profit growth targets over two years. A completion adjustment, payable to Macfarlane, is estimated to be £3.4m with net debt inherited of £4m. The deal is being financed entirely from Macfarlane’s existing bank facility.
Comments
Want to join the conversation? Please or to comment on this article.