In its preliminary results posted this morning (29 February) for the year ended 31 December 2023, the Glasgow-headquartered packaging giant recorded turnover of £280.7m, down from the £290.4m it achieved in its 2022 results.

Its pre-tax profit was £20.3m, up from the £19.9m figure it recorded for 2022, after charging £1.5m for deferred contingent consideration related to the acquisition of PackMann in Germany in May 2022, which delivered a stronger operating performance than previously anticipated.

The company said profit growth was achieved through the completion of three high quality acquisitions, effective management of input prices, good progress in Europe, and stronger new business momentum – with new business up by around 20% year-on-year, including good progress in the health and beauty sector. This has offset weak customer demand in the UK and Ireland, sales price deflation, and inflation in operating costs.

Packaging Distribution revenue decreased by 6% to £244.9m (2022: £259.7m). Macfarlane said weak demand from customers in the UK and Ireland and sales price deflation were partially offset by a stronger new business performance, good sales momentum in Europe, and the benefits of the acquisitions of PackMann in 2022 and Gottlieb last year, which are both performing well.

Gross margins increased to 35.7% (2022: 32.1%), which it said reflected effective management of input price changes which has offset inflationary increases in some operating costs.

Sales in Macfarlane’s manufacturing operations division were up by 16% to £35.8m (2022: £30.8m). The acquisition of Suttons and B&D Group last year made strong contributions offsetting the slower demand in certain industrial markets, the business said.

Macfarlane chief executive Peter Atkinson told Printweek: “We’re pretty pleased with the result, recognising that the market conditions have been particularly unhelpful in 2023. I think to deliver the profit growth that we’ve achieved is a good performance in the circumstances.

“Cost-of-living pressures and political uncertainty are I think causing weak demand conditions, we’ve still got cost inflation coming at us in terms of labour costs and still a residual energy cost issue, and the beginnings of sales price deflation, particularly in the second half of the year for us.”

Atkinson added the company’s agenda of late had been on looking at “self-help – what we could do to help ourselves” and he hailed that strategy, including the momentum from its acquisitions last year “that have kept the revenue line moving despite the weakness in terms of the organic business”.

Macfarlane’s net bank funds were £0.5m on 31 December 2023, following a net cash inflow of £4m in the year, even after £16.6m (2022: £11.9m) of investment in acquisitions and capital expenditure.

The group said it is operating well within its bank facility of £35m and relevant covenants, which run until 31 December 2025.

Its pension scheme surplus stood at £9.9m at 31 December 2023, compared to £10.2m on 31 December 2022. Following conclusion of the 2023 triennial valuation, nil contributions are required from 1 January 2024 forward, the company stated.

The group said it had also made good progress against its ESG objectives in 2023, including further electrification of its delivery fleet; extending the use of renewable energy; increasing the support it offers to its customers, including on sustainable packaging, through the opening of its second Innovation Lab; and improving its portfolio of sustainable packaging products.

Macfarlane also said senior independent director Bob McLellan retired from the board at the end of December 2023. The recruitment process for a non-executive director has commenced and the company said an announcement will be made in due course when a suitable candidate has been appointed. James Baird, audit committee chair, has been appointed senior independent director.

Basic and diluted earnings per share for 2023 were 9.44p per share (2022: 9.89p per share) and 9.34p per share (2022: 9.78p per share) respectively, largely due the higher tax rate of 23.5% in 2023 (2022: 19%).

The board is proposing a final dividend of 2.65p per share (2022: 2.52p per share) payable on 30 May 2024, taking the total dividend for 2023 to 3.59p per share (2022: 3.42p per share), up 5% on 2022.

The company’s share price was up by 0.31% at the time of writing just before lunchtime today, to 123.38p, having quickly recovered after dropping to just under 120p in early trading.

Looking ahead, the group said it expected 2023 to remain challenging due to uncertainty over customer demand. However, it said it was confident that it would continue to make progress in 2024 through strong new business momentum, a well-developed pipeline of potential acquisitions, the continued effective management of input prices, and operational efficiencies.

Atkinson said: “We don’t really see any material change in 2024, we think the conditions we’ve experienced in 2023 will be similar in 2024, so from our point of view it’s just doubling down on these self-help programmes and continuing to manoeuvre our way through a difficult economy and keep the profitability growing at the pace we’ve grown it at historically.”

He said demand remained weak, but margin remained strong, “and looking at our first reporting periods for 2024, our profit is ahead of last year but based on weaker sales, stronger margins, control of costs”.

On the M&A front, Atkinson added “as we look forward in the next three to five years, we’ve got a very strong pipeline in both Manufacturing and Distribution, and balance between the UK and Europe”.

He said Macfarlane’s target market for deals was privately-owned family businesses/retirement options, and that the group was “pretty well advanced” with a couple of acquisitions.