By Scott Wright

MACFARLANE Group has defied rising input costs and supply chain constraints to report a forecast-beating 50 per cent rise in profits – and expects its growth to continue this year.

The Glasgow-based packaging company cited the benefit of rising e-commerce demand, the recovery of key sectors from the pandemic, and the contribution of two acquisitions as it booked a pre-tax profit of £18.7 million for the year ended December 31.

Chief executive Peter Atkinson said the company had shown its “resilience” in overcoming challenging conditions during the year, which had seen it face an “extraordinary” seven increases in the price of corrugate, and rising labour costs.

In an eventful year for the company, Macfarlane made two acquisitions, with GWP and Carters Packaging coming on board in the first quarter. The company also sold its long-standing labels business, which largely served the fast-moving consumer goods sector, to The Reflex Group in a deal worth £6.4m in December.

Sales at Macfarlane from continuing operations increased by 26 per cent to £264.5m, with the strength of the performance and cash position of the business – boosted by the labels sale – reflected by an increase in the final dividend to 233p per share, up from 1.85p in 2020. It lifts the total dividend to 3.2p per share, up 25% on 2020.

Speaking to The Herald, Mr Atkinson declared it had been a “pretty strong performance” in a “challenging year” for Macfarlane, which he said had demonstrated the “resilience of the business”.

Mr Atkinson highlighted the benefit to its dominant packaging distribution arm, which now accounts for around 30% of Macfarlane’s business, from the continuing growth of the e-commerce sector. And he expressed confidence that the trend will continue, albeit growth will slow compared with the “dramatic” expansion seen during the lockdowns of 2020.

Mr Atkinson said packaging distribution arm, which grew sales by 19% to £239.5m, had also seen a recovery in demand from the medical and other industrial sectors. He noted that demand from aerospace remain “subdued” but predicts it will recover “as we all start getting on planes again”, adding that the first two months of this year have been encouraging. Aerospace accounts for around 5% to 6% of the Macfarlane business.

The high-street retail and hospitality sectors have still to recover, Mr Atkinson added, though both represent very small parts of the company’s activity.

Asked whether there have been any ramifications from Russia’s invasion of Ukraine on Macfarlane, Mr Atkinson said the main possible impact will be if rising oil prices push up the price of polymer, a key material. The price of a barrel of Brent crude rose above $104 a barrel following the Russian invasion – a 7-year high.

On the outlook, the company said it expects inflationary pressure on input prices and wages to continue this year, alongside supply constraints on most raw materials. But it remains confident that it will deliver further growth this year.

Mr Atkinson expressed hope that corrugate prices would not rise to the same extent this year as they did in 2021, when he said the price was increased seven times. No price rises have been put through so far this year.

Mr Atkinson said: “I don’t think price inflation has necessarily disappeared. But we don’t expect it to be quite as strong as it has been in 2021. Polymer prices will potentially be vulnerable to what happens with oil pricing – that is something that is totally out of our control. Maybe [there is] some sense on corrugate that we are not going to see the same level of inflation we have seen in 2021.”

He added: “There is some pressure on salary inflation, but we are managing it.”

Macfarlane’s manufacturing operations division reported revenue of nearly £25m, restated after the sale of the labels business.

Mr Atkinson said acquisitions remain part of the strategy, stating the firm has a “pipeline” of targets.

Macfarlane chairman Stuart Paterson will step down this year as he approaches the end of the statutory nine-year period that non-executive directors are permitted to serve. Mr Atkinson said Mr Paterson has been a “great chairman to work with”, and said the hunt for a successor has begun.

Macfarlane paid tribute to its founder, Lord Macfarlane of Bearsden, who passed away in November. It said Lord Macfarlane, who founded the company in 1949, “was a constant supportive presence and he is greatly missed”.

Shares in Macfarlane closed down 1.5p at 123p.