In its preliminary results posted this morning (27 February), the Glasgow-headquartered packaging giant recorded turnover of £225.4m (2018: £217.3m) for the year to 31 December 2019, while pre-tax profit was up to £12m (2018: £10.9m).

The performance in 2019 was in line with market expectations and was achieved against a backdrop of economic uncertainty, which the group said resulted in weaker demand.

The company’s packaging distribution division increased sales by 4% in 2019 to £196.7m (2018: £189.8m). Sales revenue from existing customers was impacted by both weaker demand and sales price deflation, but was offset by good growth in new business and the benefit of £5.7m from acquisitions, including Ecopac and Leyland Packaging Company.

Gross margin in packaging distribution at 31.1% showed improvement on the prior year (2018: 29.4%) and reflected effective management of input price movements.

The growth in sales and gross margin, combined with good cost control, resulted in the division achieving an 11% increase in operating profit before exceptional items to £12.4m (2018: £11.2m) after the impact of the IFRS 16 Leases accounting standard.

Sales in Macfarlane’s manufacturing operations division grew by 4% on the previous year to £28.7m (2018: £27.5m). Gross margin increased to 39.8% in 2018 compared to 38.4% in 2018 and operating profit before exceptional items in 2019 increased to £1.2m (2018: £800,000) after the impact of IFRS 16 Leases.

Macfarlane chief executive Peter Atkinson told Printweek: “It’s been a good result for 2019 on the back of the nine years previously; it’s a continuation of the really strong performance of the business.”

He attributed the company’s success, in both the short and medium terms, to factors including its closeness to its customer base, its strong supply relations, its effective acquisition strategy, and its talented staff.

“The weak sectors are sectors that we’re aware are weak and we understand the reasons why, and that’s automotive and high-street retail,” said Atkinson.

“But we’re more than offsetting that by new business growth and particularly around e-commerce, and key customers that have come on stream for us in 2019 include Dunelm, Hobbycraft and Ideal Shopping.”

Touching on Brexit, Atkinson added: “I think there’s a degree more certainty because at least we have a direction of travel, which was uncertain before, so I think that is a positive. Clearly there are other issues now that are coming into play; we’ve got to come to whatever the final conclusions are going to be in terms of our Brexit approach and how it’s all going to happen.

“And on top of that we’re aware that we’ve got the Coronavirus issue. Currently we have not seen any effect though clearly it’s changing by the day so it would be crazy for us not to say that there might be an effect going forward.

“Most of our customers are UK customers, so we don’t have great exposure outside the UK, and certainly no customers out in the Far East. And most of our people are employed in the UK, Ireland or Scandinavia, but I guess the issue where we will have sensitivity is on sourcing.

“We spend about £150m a year on buying products around the world, the majority of those come from UK suppliers but 3% of that spend will be in China and 1% is Italy.

“So again, no problems at the moment but we have options if we do see the supply chain becoming problematic and certainly we’ve got options of changing our sourcing either back into the UK, to India, or Greece and Turkey are also options in terms of products we buy out of China and Italy.”

Basic and diluted earnings per share for 2019 were 6.17p (2018: 5.55p) and 6.16p (2018: 5.55p) respectively.

The board is proposing a final dividend of 1.76 pence per share, amounting to a full year dividend of 2.45 pence per share, a 7% increase on the prior year’s dividend of 2.30 pence per share.

The company's share price was down by 2.56% at the time of writing to 97.44p.

The group said 2020 has started well and that profitability in the year to date is ahead of the same period in 2019. In January it acquired industrials sector packaging provider Armagrip to further strengthen its business in the north of England.

“We have got a strong acquisition pipeline and we would like to do at least one more acquisition in 2020. In terms of trading, January has been strong, profits are well up on last year and that’s recognising that last year there was a very strong start to January because Brexit meant that a lot of people were building stock in anticipation of Brexit decisions. So having our like-for-likes in January ahead is actually very encouraging,” said Atkinson.

“We are also looking to extend our reach into Europe, we have a number of customers in the UK who are wanting us to support them in Europe. We’re doing that slowly and steadily but that is beginning to progress, we’ve got a business now established on the continent, we’ve got teams of people out there and we’re beginning to get revenue coming through from existing customers in the UK who have operations in Europe.”