SHARES in Macfarlane Group tumbled by nearly 10% as the packaging giant reported a sharp downturn in sales during a “challenging” first quarter.

The Glasgow-based company, which is celebrating its 75th anniversary this year, highlighted “continued weak customer demand and price deflation” as it said sales were 9.5% lower than the same period last year, though the impact on profits was offset by “strong gross margins and the benefit of acquisitions”.

Macfarlane said the fall in sales in the first three months had been anticipated on the basis of “exit trends” it had seen as 2023 came to a close, with demand for packaging solutions from the e-commerce sector dampened as retailers began charging consumers for returning goods.

But the company, which employs more than 1,000 people, declared that it expects its trading performance to improve in the second half, as customers begin to feel more confident about the economic outlook. It kept its expectations for the full year unchanged.

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Macfarlane completed the acquisition of Allpack Packaging Supplies of Bury St Edmunds in March and expects to secure at least one further deal in 2024.

Speaking after the firm’s annual meeting in Glasgow, where all resolutions were passed, chief executive Peter Atkinson told The Herald: “There are certain sectors that are still a little bit weak from our point of view, like e-commerce retail particularly where we deal with customers in the apparel market. That tends to be a bit weak at the moment. A lot of them have changed the way they do business in that they are now charging people for returns. And that has changed purchasing behaviour, which means they are using less packaging than they were previously.

“Why is it going to improve in the second half of the year? We see probably some economic benefit starting to come through, a little bit more confidence in the economy. Secondly, we have a very, very strong pipeline of new business which is starting to come through, but the real benefit will come in the second half of the year.

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“Obviously we have got the benefit of acquisitions that we make in the first half. We have done one, [we are] hopeful of doing another one. Again we have got the benefit of them in the second half of the year. So we can see a formula of activity – not one thing but a number of different things – which will allow us to actually improve the sales performance in the second half of the year.”

In a presentation to shareholders yesterday, Mr Atkinson emphasised the strong “pipeline” of acquisition opportunities open to the company in the UK and Europe. Macfarlane has averaged two to three acquisitions per year in the UK over the last eight to nine years and did its first deal in Europe with the purchase of German firm PackMann in May 2022. Mr Atkinson said it will be next year before it is active in Europe again.

He said: “We would be very disappointed if we don’t do two [this year]. We have done one. We have got one acquisition which is very well progressed and a couple more which are not quite as well progressed, but which could happen this year. I’d be very confident of doing at least two [in the UK] this year. I have always said Europe is more likely to be 2025, so we are building up to that.”

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Asked if it was more difficult to complete acquisitions in mainland Europe than the UK from a legislative point of view, Mr Atkinson said: “It is not really legislative. It is just in the UK we are a known commodity. I can say to any company we talk to in the UK: look, if you want to check our credentials, just talk to company A, B or C that we have acquired recently and they will tell you what we are like to deal with. Clearly, in Germany, Holland, Belgium, Scandinavia, wherever it is we are looking at the moment, we don’t quite have that same ability to reference point. In a sense we have to work harder, and also the gestation period is just that much longer.”

He added: “We will complete two acquisitions [in the UK] this year. Already, after three or four months we must have turned down 12, so the market for private owners looking to exit the industry through retirement is strong.”

Macfarlane chairman Aleen Gulvanessian said: “On presenting our 2023 results we indicated that the challenging market conditions experienced in the latter part of 2023 would continue into 2024 and this has been the case. We expect some improvement in trading conditions in the second half of 2024 and we have a clear plan of management actions to enable the Group to continue its progress.”

Shares closed down 9.86%, or 14p, at 128p.