By Scott Wright

MACFARLANE Group has revealed it expects to reduce its 900-strong workforce across the UK by around 60 as a result of the impact on customer demand arising from the Covid-19 pandemic.

Chief executive Peter Atkinson said consultation with employees at the Glasgow-based packaging specialist was continuing on the day Macfarlane reported a 5.5 per cent fall in first-half profits to £3.6 million, amid “challenging market conditions” sparked by the crisis. Sales in the first half, which benefited from the January acquisition of Teesside-based Armagrip, dipped by 1.8% to £105.6m.

Macfarlane hailed the company’s performance as “resilient” and signalled its expectation of making a profit for the full-year, given that it traditionally makes more money in the second half on account of its involvement in the e-commerce retail sector in the run-up to Christmas.

However, it warned the level of profit it will make this year hinges on the effect on consumer confidence amid the fragile outlook for the economy, and the potential for an increase in bad debts among its customer base.

The company resumed dividends following cancellation of its final payout of 1.76p per share to investors for the 2019 financial year, as it took steps to conserve cash when the pandemic took hold. It is proposing to increase the interim dividend by 1.4% to 0.7p per share.

Macfarlane said it has returned to the UK Government the £1.4m it received to pay furloughed staff, and paid back amounts relating to value-added tax deferrals. At the height of the crisis, the company furloughed 25% of its headcount, which has since reduced to 10% as staff have returned to work.

All of its sites have remained open throughout the crisis, and the company is aiming to gradually bring staff back between now and the end of September.

Mr Atkinson acknowledged the difficulty of having to reduce its workforce after the “outstanding” contribution staff have made to ensure the service it provides to its customers has not been interrupted by the pandemic.

While consultation with employees at risk is continuing, he hopes that the majority of cuts will be made through voluntary, not compulsory, redundancies. “We are in consultation with a number of employees,” Mr Atkinson said. “We have got a workforce of around 900 across the total workforce. We would expect to reduce that by around 7%.”

The majority of roles at risk are in its packaging design and manufacture business, which has faced a downturn in demand from the aerospace and automotive sectors. Those industries have been badly affected by the fallout from coronavirus, as underlined by huge job cuts at giants such as Rolls-Royce. Just three of the Macfarlane roles at risk are in Scotland.

Macfarlane reported £91.5m of first-half sales by its dominant packaging distribution arm, which operates from 25 regional distribution centres and three satellite sites, down by 1.7% compared with the first six months of last year.

Weaker demand from the automotive and high street retail sectors was offset by strong demand from the e-commerce and medical industries.

Macfarlane said it again expects stronger sales in packaging distribution in the second half ahead of a traditionally busy time for internet retail customers. But he expressed caution over the outlook.

“We are seeing … some signs of recovery as we start the second half of the year,” Mr Atkinson said.

“The concerns we have going forward are the bad debt issue, because as the Government support programmes unwind, then that might cause some companies to be in difficulties. There is obviously a risk of companies not surviving, so the risk of bad debt is a potential thing that is going to challenge us.”

He added: “Our business in the second half of the year is highly dependent on the Q4, seasonal uplift. Clearly, with the increase in unemployment levels, we are just concerned… how big that uplift ill be. Those are the warning signals we are watching closely at the moment.”

However, Mr Atkinson said Macfarlane is well positioned to take advantage of the shift to online shopping, which spiked during lockdown and is expected to continue at the expense of bricks and mortar outlets. E-commerce sales accounted for 27% of its sales in the first half. “We have got a lot of expertise in that area,” he said. Shares closed down 2.4p at 91.5p.