MACFARLANE Group has revealed it hopes to complete a second acquisition before the close of its current financial year after defying weak demand and price deflation to lift first-half revenue and profits.
Finance chief John Love said the Glasgow-based packaging specialist has an “established pipeline” of acquisition targets that it continues to asses as it looks to follow the deal it secured to buy Ecopac for up to £3.9 million at the start of May.
Mr Love said the firm is hopeful of maintaining its recent run of making two acquisitions per year, with Macfarlane having added Tyler Packaging and Harrisons Packaging to the group in 2018.
READ MORE: Glasgow-based firm buys Buckinghamshire packaging business
Noting that Macfarlane tends to target well-established firms in the packaging distribution sector, where owners are looking to retire and seeking trusted buyers who will continue to look after their business and employees, Mr Love said: “We’ve done one to date. We would be very keen and very hopeful we can execute a second acquisition in the second half of this year.
“That would certainly be our aim. There are plenty of opportunities to keep that going, not only in the remainder of 2019, but into 2020 and 2021 as well.”
Macfarlane said the benefit of recent acquisitions, alongside new business wins, had helped it offset weaker demand from clients in certain sectors in the first half, which saw the company increase pre-tax profits by 8.7 per cent to £3.8 million. Sales increased by 5.4% to £107.5m, which included growth of 4.4% to £93m in its dominant packaging distribution division.
READ MORE: Monday Interview: Macfarlane ready to take on the world again at 70
Chief executive Peter Atkinson said demand had been weak from both the retail and automotive sectors, whose travails have been well documented.
He declared Macfarlane’s first-half performance was pleasing in difficult conditions, but noted: “There is a general weak demand [and] there are certain sectors that are obviously weaker than others. From our perspective, that would probably be classified as the automotive sector, which represents about 7% to 8% of our business, and high street retail, which represents a similar proportion. There are no surprises there, because it is well understood that those sectors are under pressure at the moment. I think the benefit of our business is clearly that we are not overly-dependent on any one sector.”
Macfarlane told the City it remains confident of meeting its expectations for the full year, with house broker Arden forecasting adjusted profits of £15m, up from £13.5m. Efforts to improve margins by investing in more efficient printing equipment, chiefly at its labelling manufacturing sites in Kilmarnock and Ireland, are starting to bear fruit. The firm also expects the “normal seasonal uplift” in the second half, thanks to its involvement in the e-commerce sector, which peaks in the run-up to Christmas.
READ MORE: Macfarlane reports bright start to 2019 as it targets deals in Europe
Recent client wins include Dunelm, Hobbycraft and Ideal Shopping. Mr Atkinson added: “For us it is a pretty solid start to the year. The economic headwinds are against us at the moment, all companies, and the fact we have manoeuvred our way through the six months we are pretty pleased about, to be honest.”
Meanwhile, Mr Atkinson admitted Macfarlane’s European expansion ambitions have been hindered by Brexit. The company has six clients which want it to replicate the service it provides in the UK in mainland Europe, but Mr Atkinson said progress has been running “more slowly than we would have liked, and I think that is in a sense Brexit related.”
However, he emphasised that expanding in Europe was not a short-term goal. He said: “We are very confident of getting to where we need to get to over the medium term.”
Mr Atkinson said the company is pressing ahead with its site rationalisation programme by closing premises in Enfield, and relocating from other sites in the south-east of England. It is opening a smaller site in Harlow, 15 miles from Enfield.
The firm announced a 6.2% rise in its interim dividend to 0.69p per share. Mr Atkinson said: “[We have] quite a high proportion of private shareholders [and the dividend] has become quite an important part of their reward for investing in Macfarlane.”
Shares closed up 1.5% at 96p.
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