Resilient performance in the period; trading broadly in line for the full year

Aleen Gulvanessian, Chair of Macfarlane Group PLC, commented on the interim results: “As outlined in our AGM trading update in May, the challenging market conditions experienced in the latter part of 2023 have continued in 2024.

The management team has responded effectively through an improvement in new business growth, the management of price deflation and actions to control operating costs.  In addition, the Group continues to execute its strategy, making two further high-quality acquisitions.

The strength of our balance sheet and the cash generative nature of our business underpins our ongoing investment in actions to grow sales both organically and through acquisition and increase the interim dividend.

Despite market headwinds, our operational and strategic performance is progressing, and the Group is well-positioned to benefit as the macroeconomic outlook improves.”

• See note 2 for reconciliation of Alternative Performance Measures (before charging amortisation and deferred contingent consideration adjustments) to Statutory Measures.

Key Financial Highlights

• Group revenue reduced by 8% to £129.6m (H1 2023: £141.6m).
• Group profit before tax reduced by 3% to £9.7m (H1 2023: £10.0m).
• Group adjusted operating profit as a percentage of revenue improved to 9.7% (H1 2023: 9.1%).
• Basic and diluted earnings per share were 4.55p per share (H1 2023: 4.74p per share) and 4.51p per share (H1 2023: 4.70p per share) respectively.

Packaging Distribution

• Packaging Distribution revenue decreased by 11% to £110.9m (H1 2023: £124.0m)
• Continued weak customer demand and price deflation have been partially offset by the benefit of the acquisitions of Gottlieb in April 2023 and Allpack Direct in March 2024.
• Adjusted operating profit decreased by 1% to £9.3m (H1 2023: £9.4m) through effective management of input pricing and control of operating expenses.

Manufacturing Operations

• Manufacturing Operations achieved revenue growth of 6% to £18.7m (H1 2023: £17.7m).
• Contributions from B&D Group and Suttons, both acquired 2023, have been partially offset by price deflation.
• Adjusted operating profit decreased 5% to £3.2m (H1 2023: £3.4m) due to higher operating expenses.
• The acquisition of Polyformes completed in early July 2024 and will be earnings enhancing in H2 2024.

Group

• Effective management of working capital resulted in net cash inflow from operating activities of £14.0m (H1 2023: £20.3m).
• Net bank funds on 30 June 2024 of £0.8m – this reflects a cash inflow of £0.3m since 31 December 2023, after £3.6m of investment in acquisitions and £1.4m of capital expenditure. The Group is operating well within its bank facility of £35.0m which runs until 31 December 2025.
• The pension scheme surplus increased to £10.2m at 30 June 2024 (31 December 2023: £9.9m). The improvement is due to an increase in the discount rate, offset by lower investment returns in H1 2024.
• Interim dividend of 0.96p per share (H1 2023: 0.94p per share) – to be paid on 10 October 2024 to shareholders on the register as at 13 September 2024 (ex-dividend date 12 September 2024).

Outlook

The actions taken in H1 2024 and continuing through the remainder of the year should enable the performance of the Group to be broadly in line with market expectations for 2024.

Legal Entity Identifier (LEI):  213800LVRYDERSJAAZ73

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The business, which was established in 1990 and became part of Macfarlane Packaging in 2021, expects the installation of the 380kW solar PV system to generate 40% of their total electricity requirements moving forward.

Ruth Cook, Managing Director at GWP, commented:

“Although as part of the packaging industry, we have always been focused on how we can reduce the environmental impact of our customers’ packaging – through minimising material usage, efficient transport and innovative design – this project will be a real step forward for our own business.”

She continued:

“The carbon-free energy provided by installing these solar panels will have a significant impact on the sustainability of our operations.”

GWP, which both designs and manufactures a range of protective packaging, commissioned renewable energy experts Clean Earth to supply and manage the installation of the solar panels.

The installation, completed in early July, should result in carbon savings of approximately 70 tonnes per year and 1,750 tonnes over the system’s expected 25-year lifespan.

Having become part of Macfarlane Packaging 3 years ago, GWP has renewed its focus on minimising the environmental impact of its operations to support the Group’s Environment, Social and Governance strategy.

David Patton, Head of Sustainability at Macfarlane Packaging, added:

“A key area we are focused on across our business is to maximise the energy we use that is from renewable sources. One of the ways we are doing this is through the installation of solar panels across our Group operations. It made complete sense to undertake our next installation at GWP, where many customers are already receiving packaging delivered by our fully electric delivery vans.”

GWP Group currently employs around 100 people across two sites in Wiltshire (Cricklade and Salisbury), designing and manufacturing a wide range of bespoke protective packaging products.

The wider Macfarlane Group comprises more than 1,000 employees, with sales of more than £280m in 2023 across the UK and Europe.

For more information about Macfarlane’s sustainability strategy, please click here. 

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David recently retired as Group CEO of Zotefoams plc, a manufacturer of cellular specialist materials and listed on the London Stock Exchange. During his 24 years as CEO, the business grew significantly through innovation in foam products and investment in new sites in Europe, North America and Asia. David trained as a Chartered Accountant in Scotland, undertaking overseas assignments with PwC, before joining Zotefoams as Finance Director in 1997.

Aleen Gulvanessian, Chair of Macfarlane Group, said: “It’s my pleasure to welcome David to the Board of Macfarlane.  I am confident that his extensive listed company experience and exposure to the protective packaging industry will be of significant benefit to the business.”

There are no other disclosures required under LR9.6.13 of the Listing Rules in relation to this appointment.

Further enquiries:

Legal Entity Identifier (LEI):  213800LVRYDERSJAAZ73

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Strategic highlights

• Founded in 1977, Polyformes designs and converts foam primarily for specialist protective packaging applications supplying to customers in the aerospace, medical, defence and industrial sectors, throughout the UK.
• Polyformes is based in Leighton Buzzard and has an experienced team of 60 employees, including its three directors who will all remain with the Group following the acquisition.
• There are significant opportunities for both Polyformes and Macfarlane to benefit from access to their respective industry expertise, ranges of bespoke protective packaging products and common supplier base.
• For the year ended 31 December 2023, Polyformes generated sales of £9.3 million, with EBITDA of £1.5 million and pre-tax profits of £1.4 million.
• This earnings accretive acquisition further demonstrates Macfarlane’s comprehensive ‘buy and build’ strategy in delivering further stakeholder value.

Transaction details

• Macfarlane’s wholly owned subsidiary, Macfarlane Group UK Limited, has acquired 100% of Polyformes for a maximum cash consideration of £11.5 million (including an earn-out of up to £4.8 million based on agreed profit growth targets over two years).
• A further adjustment is due for net assets in excess of £1.6 million with the expected net assets on completion being £1.8 million, including £0.7 million of net cash.
• The consideration is being financed entirely from Macfarlane’s existing bank facility. The Group continues to operate well within its bank facilities of £35 million and related covenants, which are committed until December 2025.

Peter Atkinson, Chief Executive of Macfarlane, said:

“Polyformes is a profitable, growing, well invested company with an experienced management team that is fully committed to the business. We look forward to working with the team at Polyformes to support its continued growth and develop opportunities for us to work together to provide our customers with a broader portfolio of protective packaging solutions.”

Legal Entity Identifier (LEI):  213800LVRYDERSJAAZ73

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Taking place on 30 and 31 October at the NEC in Birmingham, the two-day event is the UK’s largest annual gathering of advanced engineering professionals.

Over 600 exhibitors will meet under one roof to share their knowledge, expertise and solutions across five show zones: Aero Engineering, Composites Engineering, Automotive Engineering, Performance Metals Engineering and Connected Manufacturing.

Attendees are invited to meet our team on stand K165. Packaging experts from our specialist manufacturing brands Macfarlane Design and Manufacture, GWP Group and Suttons Performance Packaging will all be ready to discuss packaging with you. They’ll be demonstrating bespoke industrial packaging solutions suitable for aerospace, medical, automotive, electronics and defence industries.

FOR MORE INFORMATION ABOUT THE EVENT CLICK HERE

CLICK HERE TO REGISTER FOR THE EVENT

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In its ninth year, the survey provides invaluable, constructive insights into consumer experiences with ecommerce packaging and the impact it has on their online shopping habits, helping online retailers to understand consumer preferences.

This year’s survey will ask consumers for their opinions on the sustainability of packaging, testing if consumers favour reusable packaging and whether retailers are using excessive amounts of packing materials.

Views will be sought on the accessibility of packaging to determine how easy it is to open and if branded packaging influences repeat consumer purchases and their loyalty to retailers. The survey will also ask for feedback on their experience of, and opinions on, damages, returns processes and their overall satisfaction with the unboxing experience. Consumers will be able to contribute to the research until 19 August 2024 and Macfarlane has nine prizes up for grabs ** for those who participate in the research.

Commenting on the launch of the survey, Rachel Fellows, Retail and 3PL Sales Director for Macfarlane Packaging, said: “Packaging is an important part of the online shopping experience for consumers, so it is key that ecommerce businesses get the balance right when it comes to sustainability, accessibility and branding, while protecting their products. By asking consumers to share their experiences directly, we can support our customers to focus on this important part of the purchasing process. Participants have not held back in previous years and we don’t expect them to in this, our ninth year of the unboxing survey.”

CLICK  HERE TO TAKE PART IN THE SURVEY

To be able to have a valid entry into the prize draw, consumers need to complete the survey in full and provide a photograph of their packaging. Packaging from marketplace and auction sites including eBay, Amazon, eBuyer, TikTok Shop etc. is not eligible. 

*“Unboxing” is the process of unpacking products, which is often captured on video and published on the internet.

** There are nine individual prizes available in the draw:

• First Prize: £250 One4all shopping voucher or the winner can choose to donate all or a portion of this to a charity of their choice.
• Second prize: a Ninja CREAMi Ice Cream & Frozen Dessert Maker NC300UK (worth £200).
• Third prize: a Ring 2nd generation wireless doorbell (worth £99).
• Fourth prize: £75 Spabreaks.com gift voucher.
• Fifth prize: a £50 Amazon voucher
• Sixth prize: a Stanley Quencher H2.0 Flowstate Tumbler 1.2L (worth £45)
• Seventh prize: the Hotel Chocolat Everything Collection (worth £30)
• Eighth prize: a £30 One4all shopping voucher
• Ninth prize: an M&S Colin the Caterpillar Letterbox Gift (worth £20).

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The report, which can be read in full here [Sustainability Report], reveals:

• 22% absolute reduction in Macfarlane’s carbon footprint and a 37% reduction in carbon sales intensity since 2019
• Five fully electric trucks have been introduced to Macfarlane’s commercial delivery fleet and 1/3 of the company car fleet is now electric.
• A second Packaging Innovation Lab opened in Heywood to help customers reduce the environmental impact of their packaging
• Nearly 90% of the Group’s electricity now comes from certified renewable sources
• Significant improvement in the Group’s Customer Net Promotor score to 60 (2022: 50)
• Over a third of the senior leadership team are female and Macfarlane Group achieved a 0% gender pay gap
• Extensive support to the Group’s charity partners through volunteering, logistics and raising vital funds

Commenting on the results of the 2023 report, David Patton, Macfarlane Group’s Head of Sustainability said: “Our 2023 Sustainability Report shows progress across a number of areas as we reduce our own impact on the environment but also work with our customers and suppliers to reduce theirs. We will continue to build on this progress and use our position to advance our social agenda too; supporting our colleagues, creating a great place to work and being a force for good in the local communities where we operate.”

The 2023 report is available for review and download here: [Sustainability Report]

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• As anticipated, the start of 2024 has been challenging with first quarter sales and profits below the same period in 2023.
• Despite the slow start to the year, our expectations for the full year are unchanged.
• Sales in the first quarter were 9.5% lower than the same period in 2023 with continued weak customer demand and price deflation with the profit impact being partially offset by strong gross margins and the benefit of acquisitions.
• Macfarlane completed the acquisition in March 2024 of Allpack Packaging Supplies Limited, a protective packaging distributor based in Bury St Edmunds.
• The Group expects an improved trading performance in the second half of 2024 through the conversion of a strong new business pipeline combined with some sales recovery from existing customers, good management of gross margins, control of costs and further benefits from M&A activity.
• Net bank funds at 31 March 2024 were £4.7m, an improvement on the position at 31 December 2023 (£0.5m). The Group continues to operate well within its bank facilities of £35m and related covenants, which are committed until December 2025.

Aleen Gulvanessian will further comment:

“On presenting our 2023 results we indicated that the challenging market conditions experienced in the latter part of 2023 would continue into 2024 and this has been the case. We expect some improvement in trading conditions in the second half of 2024 and we have a clear plan of management actions to enable the Group to continue its progress.”

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From a small office in Glasgow, Macfarlane Group has grown significantly over the decades and today supplies more than 600,000 product lines to 20,000 industrial and retail customers. It has 1,700 suppliers and employs over 1,000 people across its 40 sites, principally in the UK, as well as in Ireland, Germany and the Netherlands and is listed on the main London Stock Exchange.

Commenting on reaching the 75^th anniversary, Peter Atkinson, Chief Executive of Macfarlane Group said: “We are excited to reach this significant anniversary in the company’s history and we wanted to celebrate this date with our valued colleagues. We would also like to thank our thousands of customers and suppliers for the trust they place in us and for their continued support. The commitment and diligence of our people around the business has been critical to our success as we help our customers to find the best products and services for their businesses. We are looking forward to continued success in the future.”

Macfarlane Packaging Distribution is the UK market leader in the supply of protective packaging materials to industrial and retail businesses. Customers realise efficiency and cost benefits through Macfarlane’s expertise in pack design, the breadth of its supplier base, its stock and serve business model and its ability to provide independent guidance and advice.

Macfarlane Design and Manufacture provides bespoke protective packaging to industrial customers requiring high levels of protection for expensive, fragile and sensitive products. Through its specialist design and manufacturing skills the business helps customers to reduce the cost of damages and improve their operational efficiency.

Lord Macfarlane, who passed away in 2021 aged 95, was knighted in 1983 and became a peer, Lord Macfarlane of Bearsden, in 1991 and a Knight of the Thistle in 1996. He retired as Chairman of Macfarlane Group in 1998 having created one of the UK’s most admired “small cap” businesses. Nonetheless, he maintained a close interest in the business throughout his retirement.

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