Macfarlane Group

Macfarlane Group PLC 2020 Interim Results

Dylan MacdonaldMacfarlane Group, Macfarlane Packaging


Financial Highlights 2020 2019 Year on Year Change
Group turnover £000 105,572 107,542 (1.8)%
Profit before tax £000 3,622 3,832 (5.5)%
Interim dividend 0.70p 0.69p 1.4%
Basic earnings per share 1.83p 1.99p (8.0)%

Stuart Paterson, Chairman of Macfarlane Group PLC (“Macfarlane Group” or “the Group”), today said: –

“Macfarlane Group has achieved a resilient performance in the first half of 2020 despite the challenging market conditions due to the impact of Covid-19. The Board recognises this achievement is a testament to the exceptional contribution of our employees and wishes to take this opportunity to publicly thank the whole Macfarlane team for their hard work and commitment.  All our sites have remained open and trading throughout, albeit adjusted to service reduced demand, with social distancing and hygiene measures in place to protect the health, safety and well-being of our staff and our customers.  In addition, the majority of our office-based staff have been working successfully from home in accordance with our home working protocols.

Macfarlane Group sales decreased by 1.8% to £105.6m in the first half of 2020 (2019: £107.5m). Despite the impact of Covid-19 in the second quarter, our sales performance has been robust with the first half sales reduction versus the prior year comprising a 1.6% increase in sales in Q1 followed by a 5.2% fall in Q2. Profit before tax in the first half, at £3.6m, was 5.5% lower than in 2019 (2019: £3.8m) this excludes any benefit received from government support programmes as these have now been repaid. Incremental costs of £0.2m were incurred in the first half of the year as a direct consequence of Covid-19.

Packaging Distribution sales decreased by 1.7% in the first half of 2020 compared with 2019.  Sales increased by 3.0% in Q1 and decreased by 6.3% in Q2 compared to the equivalent periods in 2019.  Sales revenue was impacted by weaker demand from the automotive and high street retail sectors, although this was partially offset by underlying strength in the e-commerce, household and medical sectors. First half sales also benefited from the 2019 acquisitions as well as the January 2020 acquisition of the packaging trade and assets of Armagrip Limited, (“Armagrip”).  First half operating profit in Packaging Distribution of £4.0m was £0.4m below the equivalent period in 2019.

Sales in our Manufacturing Operations were 5.8% below 2019, with Q1 sales decreasing by 8.7% and Q2 sales falling by 2.9%. Strong demand from the food, medical and household essentials sectors in the Labels business, particularly in the second quarter, was more than offset by weaker demand from the aerospace and automotive sectors in the Packaging Design and Manufacture business.  First half operating profit of £0.2m in our Manufacturing Operations was £0.2m below that achieved in 2019.

Group interest costs have decreased by £0.4m due to lower levels of bank debt and finance leases and a lower pension deficit in the first half of 2020 compared to the same period in 2019.

Net bank debt at 30 June 2020 was £0.8m, £11.9m below its 31 December 2019 level of £12.7m. The improved cash position has been achieved through active management of working capital and reductions in the cost base.  The net debt of £0.8m has benefited by £5.4m from the various government support and deferral programmes, all of which we have repaid since 30 June 2020. The Group is operating well within its existing bank facility of £30.0m. We expect to pay an estimated £0.8m in deferred consideration, in the second half of 2020, relating to the acquisition of Ecopac in 2019.

The pension scheme deficit reduced to £6.0m at 30 June 2020 from £6.5m at 31 December 2019, mainly due to our continued payment of deficit reduction contributions during the six month period.  The reduction in the discount rate in the first six months was largely offset by strong investment returns, justifying the focus on liability-driven investments to match the scheme’s liability profile.

There are still significant uncertainties and concerns over future economic conditions. However, the Board is confident that, given the resilience of the business in the second quarter, the expected seasonal uplift in the final quarter and actions being taken to reduce operating costs, the Group will continue to progress in the second half of 2020.  The Board’s current expectation for the full year in 2020 is largely dependent on: no further prolonged national or regional lockdowns; no abnormal bad debt exposure; and no significant reduction in consumer demand in the final quarter of the year, traditionally our busiest trading period.

As a key measure to conserve cash, the Board took the decision not to propose the 2019 final dividend of 1.76p per share, detailed in the preliminary announcement. The Board recognises the importance of recommencing the payment of dividends to our shareholders as soon as possible. Given the stronger than anticipated profit performance and cash position, the Board is recommending an interim dividend of 0.70p per share to be paid on 8 October 2020 to shareholders on the register as at 11 September 2020 (2019: 0.69p per share).

Despite the impact of Covid-19, our strategy remains the delivery of sustainable profit growth by focusing on added value products and services in our target market sectors, combined with the execution of value-enhancing acquisitions.  Macfarlane Group’s performance in the first half of 2020 demonstrates the robust nature of our strategy and business model and we are confident that the Group is strongly positioned to effectively manage the challenges it will face in the remainder of 2020 and well placed to benefit when the UK economy begins to recover.”

Download the full press release here.