Group pre-tax profits were up, for the seventh consecutive year, by 15.4% to £7.8m (2015: £6.8m) while turnover increased to £179.8m (2015: £169.1m).

Despite a tough start to the year, which chief executive Peter Atkinson put down to weak demand and a delayed start to its new business programme, the group’s packaging distribution division finished the year with a 9% increase in sales to £155.9m (2015: £143m), while operating profit grew by 16% to £7.8m (2015: £6.7m). The division, which accounts for 80% of group sales, achieved 1% organic growth in H1 but finished H2 at well above 3.5% as the e-commerce effect started to kick in.

“The division had a really strong end to 2016 and this has continued into the first few weeks of 2017. Q4 was better than expected, we’re very pleased with that, and e-commerce came through very strongly particularly in the final months,” explained Atkinson.

“The trend for us as consumers to buy more and more online continues to grow and that will continue to grow over the next 5-7 years. This means a greater need for protective packaging, which is a benefit to Macfarlane as we position ourselves in that space.”

Results for the division were also boosted by the acquisitive group’s latest additions: Colton Packaging Teeside, Glasgow-based Edward McNeil and Leicester-bsed Nelsons, the first two of which are fully integrated into Macfarlane’s business while the latter is still treated as a standalone business until it exits its earn-out period.

Sales within the group’s manufacturing operations, which comprises its labels and its specialist packaging design and manufacture businesses, fared less well, however, with sales down 9% to £23.9m (2015: £26.1m) and a slight drop in operating profit to £900,000 (2015: £1m).

The poor performance was largely put down to a reorganisation of the labels division to shift focus from self-adhesive to re-sealable labels.

“The greater added-value product is the re-sealable range as the self-adhesive has become a bit too commoditised,” said Atkinson.

“Restructuring the labels division to add more weight to re-sealable labels has incurred a 13% sales reduction but our profits have gone up by 40% so we are seeing real results in the division. Making the switch has seen lower sales but higher quality and improved profitability and as we have now rebalanced the portfolio the objective is to start growing those sales that are more profitable to us,” he added.

The group’s pension deficit increased in 2016 by £3m to £14.5m, due to a fall in gilt yields, but finance director John Love explained that had Macfarlane’s not taken earlier precautions, the increase could have been worse.

“It is a reasonable-sized deficit relative to Macfarlane’s market cap,” he stated. “A few years ago we matched the investment profile against the liability profile, which reduces the volatility in the deficit, and this benefitted us in 2016 despite there being an increase in deficit. It would have been a lot worse had we not taken those steps a few years ago.”

The company pays £2.5m-£3m per year into the scheme with the intention of trying to eliminate it over the next 10 years, Love said. “It is not an immediate cause for concern,” he added.

Commenting on the group’s acquisition strategy Love said it’s latest three acquisitions were “doing well”.

“Every business we’ve acquired over the last two to three years has achieved a maximum earn-out, which is good for the company because it means we got what we thought we were buying and in some cases have done far better than expected. It encourages us to do quite a few more.”

Love said the group hoped to make one or two more acquisitions in 2017, although not within the first quarter. Potential targets were high-quality firms with a turnover of between £3m and £12m, possibly with slightly different product ranges. One strategy was to look at gaps in Macfarlane’s geographical coverage, the most notable of which was Kent and the South East, Love said.  

"We focus on high-quality companies and spend a lot of time in due diligence and making sure we are all comfortable with each other. Going into 2017 we have a strong pipeline of acquisition opportunities that we are looking at,” he said.

Looking ahead to 2017, Atkinson said: “We exited strongly in 2016 and 2017 has started well. We have a clear strategy and a demonstrable track record of delivering that with a resulting positive performance, which we anticipate will continue.”

Macfarlane Group share price was down 1.75p, on yesterday’s close, at 65p at the time of writing (52 week high: 69.35p, low: 52p).