By Scott Wright

SHARES in Macfarlane Group surged by nearly nine per cent after the Glasgow packaging company declared second quarter sales had been “more resilient” than previously forecast – and revealed its intention to pay back furlough cash to the UK Government.

Macfarlane had warned investors in May that demand would fall by between 20 per cent and 25% in the second quarter, as it forecast how customers would respond to the UK moving into full lockdown in March.

But it revealed yesterday that demand has proven to be more robust than previously anticipated, with total revenue dropping by a significantly lower 7% in the second quarter compared with the same period 2019. It now expects sales for the first half to be 3% down and to make a profit for the full year.

Chief executive Peter Atkinson said the company had been unsure how demand would be affected around the time the UK and Scottish Governments issued their lockdown orders, and had made “some assumptions’ at the time based on how markets around the world “ahead of us in the pandemic” had responded to the crisis. He said: “The good news for us is that our performance has been more resilient than we expected it to be. We are still down, which is disappointing, but it is clearly not as bad as we thought it might be.”

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Mr Atkinson said the firm has been benefiting throughout the pandemic from the “breadth of sectors we service” within its dominant packaging distribution division. He highlighted strong demand for the solutions it provides to the e-commerce, medical, pharmaceutical, food and household essentials sectors, with demand from the latter two also boosting its labels business. However, this has been offset by challenges in its specialist design and manufacturing business, which Mr Atkinson said is “finding life most difficult” because of its dependence on the struggling aerospace and automotive sectors.

Macfarlane had furloughed around 30% of its 1,000 staff under the coronavirus job retention scheme. However the company revealed it will return the cash it received from the Government in the second half.

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Mr Atkinson said it has received around £1.3 million under the scheme, which has been used to help pay the wages of around 270 people. With the company operating within its “cash constraints” and “remaining profitable”, he said repaying the furlough money “seems the right thing to do”.

He added: “Clearly, there are some parts of the economy and the world that need it more than we do.”

The company said it is now gradually bringing staff back from furlough. Asked if he expected that all staff will keep their jobs, Mr Atkinson replied that the company had commenced a review of its operations. “Clearly, we want to retain as many jobs in the business as we possibly can,” he said. “Like other companies, we are trying to foresee what the future is going to look like.”

Mr Atkinson hopes that talks with prospective acquisition targets can be “reignited” later this year, and that deals could eventually be concluded in 2021. The company has been pursuing a strategy of organic growth supplemented by strategic acquisitions since he became chief executive in 2003, and completed its most recent deal before the virus struck at the start of the year.

Macfarlane noted that the continuing uncertainty and concerns over the pace of the recovery mean that it is “still not possible to provide meaningful guidance” on trading for the year to December 31. “However, based on ongoing actions and current levels of trading, we expect the business to remain profitable in 2020 and to operate well within the current borrowing facility,” it added.

Shares closed up 6.3p at 76.8p.