MACFARLANE Group remains on course to increase underlying profits and reduce its debt by the end of the year.

The Glasgow-based packaging company said its traditionally stronger second half of the year was progressing as expected.

Sales in the packaging distribution division are running ahead of the 2012 figures in the year to date thanks to new business wins. The company, headed by chief executive Peter Atkinson, has also increased its exposure to the third party logistics sector and seen growth in internet retail.

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Gross margins have dipped because of lower sales prices and some supplier price movements which have not been recovered. However Macfarlane, which employs about 180 people in Scotland and has a total workforce of more than 700, said operating profit before exceptional items was similar to the previous year.

The manufacturing arm has seen sales running slightly behind 2012 levels partly as a result of targeting business with greater margin.

Macfarlane said the focus on higher value customers - both in packaging design and manufacturing and labels - have helped in improving margins with underlying operating profit ahead of that recorded last year. Customers for protective packaging include O2, owner Rakuten Group, Lakeland and Argos.

Macfarlane's shares, which have risen by more than 50% in the past six months, closed yesterday down 0.25p, or 0.64%, at 38.88p.

The company also said its net interest costs had reduced because of a lower pension scheme deficit while the board reiterated its hopes to pay a full dividend for 2013.

Graeme Bissett, chairman of Macfarlane, said: "The sales increase we have seen in recent months has arisen mainly from our own new business activity.

"We are not yet experiencing any benefit from improving economic conditions and our focus continues to be on those sectors of our market with above average growth potential, concentrating on added value products and services and maintaining careful cost management.

"When combined with the anticipated increase in seasonal volumes in the remainder of the year, this provides the board with confidence that our full year expectations will be met."

Analysts from house broker Arden Partners expect Macfarlane to post pre-tax profit of around £5.4 million this year and £5.7m in 2014, both ahead of the near £4.9m booked in 2012.

In a note Arden said: "We anticipate net debt around £6.4m at the year end and there is scope for modest dividend growth at the full year stage.

"Group strategy is to build revenues from the present £140m to nearer £180m over the next few years. This will be assisted by acquisitions where opportunities arise and will be more focused on packaging distribution, where the group can build on its market leading share rather than the two smaller specialist manufacturing businesses.

"Macfarlane shares are up 58% over the past year and 19% over the past [three] months. We believe this reflects demand for exposure to domestic earnings streams geared to the prospects of an improving economy and dividend yield."

In August Mr Atkinson signalled Macfarlane was looking at acquisitions again. The appointment of Arden was also said to have introduced new institutional investors to Macfarlane.