MACFARLANE Group has declared it is on track to improve profits in its current financial year after an anticipated pick up in second-half trading began to materialise.

The Scottish packaging specialist said sales at its dominant distribution arm are up seven per cent in the year to date, boosted by new client wins in the first half, two acquisitions, and the traditional pre-Christmas pick up it sees in the second half of the year.

Macfarlane, which is also active in packaging manufacturing and labelling, expects profits before exceptional items this year to come in higher than in 2013. It booked profits before tax and one-off items of £5.1 million last year.

Investors responded positively to the update, with shares closing up 4.26 per cent or 1.5p to close at 36.75p.

Chief executive Peter Atkinson said: "We indicated at the half-year statement that we were anticipating things stepping up in the second half of the year, partly because our trading pattern allows things to step up in the second half of the year, so that's happening.

"Also, new business wins that we had in the first half of the year are coming through, and at the same time our gross margin has improved as well. Effectively, all the things we indicated would happen at the half year are starting to come into play."

Business at Macfarlane's packaging distribution arm, which accounts for 80 per cent of sales, is heavily weighted to the second half because of its involvement in internet retailing.

The company's clients include online retailer The Hut, Feel Unique and Selfridges, with the prestigious department store coming on board at the beginning of this year.

All three are contributing strongly to recurring sales growth at the company this year.

Mr Atkinson said: "Over the last two we have been focusing very much on the internet retail sector.

"Obviously there is a large use of packaging in that sector, and clearly as we as consumers buy more of our Christmas goods over the web, that gives us that step up in business, particularly in the months of November and December.

"We have seen that start in October, we have seen that strengthen through November and we expect December to be extremely strong."

Macfarlane Group has made two acquisitions this year, with deals to buy Wolverhampton-based Network Packaging and PSD Industrial Holdings, owner of Lane Packaging, being announced in September and May.

The integration of the new businesses, which the company said has progressed well, made small contribution to trading in the last quarter, but Mr Atkinson said the full benefit will be seen in 2015.

After raising £3m in a successful share placing, backed by existing and new investors, the company is pursuing further acquisitions.

But Mr Atkinson noted that no further deals will be done this financial year.

He said: "Our next acquisition we would hope to announce in the first quarter of 2015. This time of year is extremely busy for us... so we decided we would take stock of where we are at the moment."

Beyond packaging distribution, Macfarlane said sales at its manufacturing operations are two per cent down on 2013 for the year to date.

It said improved customer focus on higher added value areas in packaging, design and manufacture have kept gross margins and profitability in line with 2013.

But it warned that its labels business continues to experience pressure on margins as a result of competition in the self-adhesive label market, notably in the UK retail sector.