Stuart Paterson, Chairman of Macfarlane Group PLC (“Macfarlane Group” or “the Group”), today said: –
“Macfarlane Group grew sales by 5.4% to £107.5m in the first half of 2019 (2018: £102.0m). This was achieved against a background of well-publicised weaker demand. Profit before tax of £3.8m was 8.7% higher than in 2018 (2018: £3.5m). The performance in the first six months of 2019 and our actions in place to increase the margin in the second half of the year, together with the normal seasonal uplift from the e-commerce sector in the final quarter, gives the Board confidence that its full year expectations for 2019 will be achieved.
Packaging Distribution grew sales by 4.4% in the first half of 2019. Sales revenue from existing customers was impacted by weaker demand and sales price deflation but this was offset by good new business growth and the benefit of the 2018 acquisitions of Tyler Packaging (Leicester) Limited (“Tyler”) and Harrisons Packaging Limited, (“Harrisons”) as well as the recent acquisition of Ecopac (U.K.) Limited, (“Ecopac”) concluded at the start of May 2019. First half operating profit in Packaging Distribution at £4.5m was ahead of the equivalent period in 2018.
Sales in our Manufacturing Operations were 16.0% above 2018, with strong demand for resealable labels mainly through new customer wins. First half operating profit in our Manufacturing Operations at £0.4m, was above that achieved in 2018.
IFRS 16 ‘Leases’ requires the Group to recognise right‑of‑use assets and lease liabilities on the balance sheet and depreciation on these assets and interest on the lease liabilities in the income statement. Previously operating leases were off balance sheet with leasing costs were disclosed in administrative expenses. IFRS 16 has been applied from 1 January 2019, with no requirement to restate comparative figures. Whilst there has been no impact on Profit before tax, Net assets or Cash flows from applying the new standard, there are changes in classifications which are indicated throughout this statement.
Net bank debt at 30 June 2019 was £15.0m, £1.8m above the level of £13.2m at 31 December 2018, primarily due to the £2.8m cash outflow on the acquisition of Ecopac. The Group is operating well within its existing bank facility of £30.0m. We expect to finance an estimated £1.4m in deferred consideration payable in the second half of 2019, relating to the acquisitions of Tyler and Harrisons. Consistent with our normal pattern, we expect to be strongly cash generative from trading in the second half of the year.
The pension scheme deficit reduced to £9.0m at 30 June 2019 from £9.8m at 31 December 2018, mainly due to our continued payment of deficit reduction contributions during the six month period. The significant reduction in the discount rate in the first six months was largely offset by strong investment returns, justifying the focus on liability-driven investments to match the scheme’s liability profile.
The Board is recommending a 6.2% increase in the interim dividend to 0.69p per share to be paid on 10 October 2019 to shareholders on the register as at 20 September 2019 (2018: 0.65p per share).
Our strategy is to deliver sustainable profit growth by focusing on added value products and services in our target market sectors, combined with the execution of value-enhancing acquisitions. Macfarlane Group’s performance in the first half of 2019 reflects the successful implementation of this strategy and we are confident that the Group will continue to make further progress in the remainder of 2019.”
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