Packaging Distribution increased sales by 10% to £171.8m (2016: £155.9m) with 3% achieved from organic growth and the remainder from acquisitions, both those in 2017 and the full year benefit of those completed in 2016, all of which continue to perform well. Gross margin in Packaging Distribution grew to 29.4%, (2016: 29.0%) reflecting the effective management of input price increases as well as a strong contribution from the Greenwoods’ business acquired in September 2017. This resulted in Packaging Distribution achieving a 20% increase in operating profit to £9.4m (2016: £7.8m).
Sales in our Manufacturing Operations at £24.2m (2016: £23.9m) were 1% up on the previous year. Gross margin reduced from 43.8% in 2016 to 40.7% in 2017, mainly due to operational pressures in Packaging Design and Manufacture and an adverse exchange rate impact in our Labels business. As a result, Manufacturing Division operating profit in 2017 was £0.7m, £0.2m below the 2016 result.
After charging interest of £0.8m (2016: £0.9m), Group profit before tax totalled £9.3m (2016: £7.8m) an increase of 19%. Following the share issue in September 2017 to support the Greenwoods’ acquisition, diluted earnings per share for 2017 increased by 13% from 4.64p to 5.22p per share.
The Board is proposing a final dividend of 1.50 pence per share, amounting to a full year dividend of 2.10 pence per share, an 8% increase on the prior year’s dividend of 1.95 pence per share. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 15 May 2018, this dividend will be paid on Thursday 7 June 2018 to those shareholders on the register at Friday 18 May 2018.
Net Bank Debt and Pension Scheme
The Group’s net bank borrowing at 31 December 2017 decreased by £1.0m to £14.3m from £15.3m at the prior year-end. The Group’s existing bank facility with Lloyds Banking Group of £25.0 million is available until June 2019 and accommodates normal working capital requirements as well as supporting acquisition funding. As part of the Group’s long-term financing strategy, it is anticipated that these facilities will be extended or replaced over the course of 2018.
The Group’s pension deficit at 31 December 2017 reduced by £2.7m to £11.8m, (2016: £14.5m) primarily due to the Group making deficit recovery contributions in the year. Despite the continued reduction in the discount rate, which increased the value of the pension liabilities, this was largely offset by increases in the value of the scheme’s holding in liability-driven investments, reflecting an appropriate prudent investment strategy for a mature pension scheme.
Graeme Bissett stood down as Chairman at the end of September 2017 and the Board would like to thank Graeme for his contribution as Chairman and prior to that as a non-executive Director.
On 8 January 2018, James Baird was appointed to the Board as a non-executive Director and Chairman of the Audit Committee and brings with him considerable financial experience both in the UK and Europe.
Mike Arrowsmith has indicated his intention to step down from the Board later this year, having completed six years as a non-executive Director. A process to recruit a replacement for Mike is under way and an announcement will be made once the selection process is complete.
The Board remains confident that its strategy to position the business to serve key growth markets continues to be effective.
Commenting on the 2017 results, Stuart Paterson, Chairman, said:
“The 19% increase in pre-tax profits in 2017 represents the eighth consecutive year of profit growth for Macfarlane Group. Group profitability in the year to date is ahead of the same period in 2017.
Our strategy continues to be the delivery of sustainable profit growth by focusing on added value products and services in our target market sectors, combined with efficiency improvements and the identification and completion of value-enhancing acquisitions. This strategy, which continues to be refined, has served all stakeholders well in recent years and we remain confident that it will continue to do so. Macfarlane Group’s performance in 2017 reflects the successful implementation of this strategy and we are confident that the Group will demonstrate further progress in 2018.”
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