Macfarlane Group PLC achieved another year of significant growth in 2018 with sales of £217.3m, (2017: £196.0m) 11% ahead of 2017 and profit before tax and exceptional items of £11.2m (2017: £9.3m), 20% ahead of 2017. The trading performance continued the positive trends of recent years and was in line with market expectations.
Exceptional item
Following the High Court judgement involving Lloyds Banking Group pension schemes on 26 October 2018, we have made a charge against the 2018 results as an exceptional item. This charge of £330k represents past service cost in respect of the equalisation of Guaranteed Minimum Pensions (“GMP”) benefits between 1990 and 1997. When the commentary on the following pages refers to items before exceptional items, it excludes these charges. We believe this information, provides a more meaningful basis for measuring our financial performance in 2018.
Trading
Packaging Distribution increased sales by 11% to £189.8m (2017: £171.8m) with 4% achieved from organic growth and 7% from acquisitions, both the new acquisitions in 2018 and the full year benefit from those completed in 2017, all of which continue to perform well. Gross margin in Packaging Distribution rose to 29.5%, (2017: 29.4%) reflecting the effective management of input price increases in the second quarter as well as a full year contribution from the Greenwoods’ business acquired in 2017.
The acquisitions of Tyler Packaging (Leicester) Limited (“Tyler”) and Harrisons Packaging Limited (“Harrisons”) were both concluded in the second half of 2018 and have contributed as expected since acquisition.
The growth in sales and gross margin, combined with good cost control, resulted in Packaging Distribution achieving a 19% increase in operating profit before exceptional items to £11.2m (2017:
£9.4m).
Sales in our Manufacturing Operations at £27.5m (2017: £24.2m) grew by 14% on the previous year. Gross margin reduced from 40.7% in 2017 to 38.4% in 2018, mainly due to first half operational pressures in Packaging Design and Manufacture and an adverse sales mix in our Labels business. Despite this, the overall Manufacturing Division operating profit before exceptional items in 2018 was £0.9m, £0.2m above the 2017 result.
After charging interest of £0.8m (2017: £0.8m), Group profit before tax and exceptional items totalled £11.2m, an increase of 20% on 2017. Basic and diluted earnings per share for 2018 before exceptional items were 5.72p (2017: 5.22p).
Dividend
The Board is proposing a final dividend of 1.65 pence per share, amounting to a full year dividend of 2.30 pence per share, a 10% increase on the prior year’s dividend of 2.10 pence per share. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 14 May 2019, this dividend will be paid on Thursday 6 June 2019 to those shareholders on the register at Friday 17 May 2019.
Net Bank Debt
The Group’s net bank borrowing at 31 December 2018 decreased by £1.1m to £13.2m from £14.3m at the prior year-end. The Group’s bank facility of £30.0 million with Lloyds Banking Group is available until June 2022 and accommodates normal working capital requirements and supports acquisition funding.
Pension Scheme
The Group’s pension deficit at 31 December 2018 decreased by £2.0m to £9.8m, (2017: £11.8m) despite the exceptional charge for equalising GMP benefits taken in 2018. Although the discount rate increased, which reduced the value of the pension liabilities, this was largely offset by reductions in the value of the scheme’s holding in liability-driven investments, reflecting an appropriate prudent investment strategy for a mature pension scheme.
Outlook
The Board remains confident that its strategy to position the business to serve key growth markets continues to be effective.
Commenting on the 2018 results, Stuart Paterson, Chairman, said:
“The increase in profits in 2018 represents the ninth consecutive year of profit growth for Macfarlane Group. 2019 has started well and our profitability in the year to date is ahead of the same period in 2018.
“Our strategy continues to focus on the delivery of sustainable profit growth by concentrating 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 is continuously 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 2018 reflects the successful implementation of this strategy and despite the ongoing uncertainties surrounding Brexit and the difficulties being experienced in the retail sector, we are confident that the Group will demonstrate further progress in 2019.”
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