Macfarlane Group is on course to report a 30% hike in profits in spite of price deflation and lower sales.

The packaging company said it has benefited from stronger margins and is confident it will improve on the underlying profit of £3.9 million reported in 2011.

Chief executive Peter Atkinson said Macfarlane has lowered its prices, witnessed subdued demand from some sectors, and exited unprofitable relationships with customers.

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The packaging distribution arm is now around 1% behind on sales, with manufacturing 2% down. However, the improvement in customer mix and a focus on higher value areas, such as resealable labels and design work for packaging, has led to improved margins.

Mr Atkinson said: "We expect profits to be up around 30% year- on-year and we would be pretty pleased with that result in a difficult market."

Macfarlane also revealed it will relocate its Irish operations from a site in Dublin, which is heavily involved in resealable labels, to a larger base in County Wicklow. The facility is already owned by the business but the current tenant is leaving.

Mr Atkinson said it gives Macfarlane an opportunity to extend its presence in Ireland.

There are plans to increase the workforce from 20 to more than 30 through an expansion of packaging activities although not all employees may want to transfer. Mr Atkinson said: "We have a small site in Dublin which is adequate but when we look forward we see it will not be suitable for the demand we expect.

"We have made the decision having a base in Ireland for packaging would be sensible and we can run that neatly alongside labels. The Irish economy is not strong but we believe we can grow our market share by being in the community there."