Macfarlane profits up despite packaging headwinds

Macfarlane (MACF) faced some difficult conditions last year. Customer demand was weak in its core UK market, meaning the price it could sell boxes for declined, while operating costs ratcheted up.

Despite this, however, the packaging distributor put in a very resilient performance. While revenue fell by 3 per cent, adjusted operating profits climbed by 10 per cent to £27.6mn. Even on a statutory basis, accounting for amortisation and contingent consideration, operating profit increased by 3 per cent to £22mn. 

Management said good sales momentum in Europe – where it has recently made an acquisition – helped to offset weakness in the UK and Ireland. Gross margins also widened from 32.1 per cent to 35.7 per cent in the period, reflecting effective management of input price changes. Macfarlane was helped by the fact that packaging suppliers such as Smurfit Kappa (SKG) and DS Smith (SMDS) were struggling with low demand and cut prices. 

2024 could be trickier. Chief executive Peter Atkinson said there are signs that paper prices could go up towards the middle of the year, which would increase input costs. Meanwhile, demand from its own customers is still fairly weak after a lacklustre Christmas.

Macfarlane has proved itself to be a tightly run company, and profits are forecast to remain steady next year. It is also deploying a number of self-help measures to keep margins roomy. However, we would prefer to see how the next six months pan out before leaving the sidelines. Hold.

Last IC View: Hold, 110p, 24 Aug 2023