Macfarlane Group PLC achieved sales of £225.4m in 2019, (2018: £217.3m) a 4% increase on 2018, with 2019 profit before tax growing to £12.0m (2018: £10.9m), 10% ahead of 2018. This marks the tenth consecutive year of profit growth. The performance in 2019 was in line with market expectations and was achieved against a well-publicised backdrop of economic uncertainty resulting in weaker demand.
Packaging Distribution 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 during 2019 but this was offset by good growth in new business and the benefit of £5.7m from acquisitions. The 2019 acquisitions of Ecopac (U.K.) Limited (“Ecopac”) and Leyland Packaging Company (Lancs) Limited (“Leyland”) have both performed well since acquisition. 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 Packaging Distribution achieving an 11% increase in operating profit before exceptional items to £12.4m (2018: £11.2m) after the impact of IFRS 16 “Leases”.
Sales in Manufacturing Operations at £28.7m (2018: £27.5m) grew by 4% on the previous year. 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: £0.8m) after the impact of IFRS 16 “Leases”.
After net finance costs of £1.6m (2018: £0.8m), Group profit before tax totalled £12.0m, an increase of 10% on 2018. Basic and diluted earnings per share for 2019 were 6.17p (2018: 5.55p) and 6.16p (2018: 5.55p) respectively.
IFRS 16 “Leases”
IFRS 16 ‘Leases’ requires the Group to recognise right‑of‑use assets and lease liabilities on the balance sheet and depreciation on the assets and interest on the lease liabilities in the income statement. Previously, operating leases were off balance sheet and leasing costs were reported in overheads. IFRS 16 has been applied from 1 January 2019, with no requirement to restate comparative figures. Whilst there was no major impact on profit before tax, net assets or cash flows from applying the new standard, there are changes in classifications indicated in note 1.
Dividend
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. Subject to the approval of shareholders at the Annual General Meeting on Tuesday 12 May 2020, this dividend will be paid on Thursday 4 June 2020 to those shareholders on the register at Friday 15 May 2020.
Net Bank Debt
The Group’s net bank borrowing at 31 December 2019 decreased by £0.5m to £12.7m from £13.2m at the previous 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 as well as supporting acquisition funding.
Pension Scheme
The Group’s pension deficit at 31 December 2019 decreased by £3.3m to £6.5m (2018: £9.8m). Although the discount rate decreased, which increased the value of the pension liabilities, this was offset by increases in the value of the scheme’s holding in liability-driven investments and its other investments.
Following the High Court judgement involving Lloyds Banking Group pension schemes on 26 October 2018, a charge of £0.3m was made in 2018 as an exceptional item. This represented past service cost in respect of the equalisation of Guaranteed Minimum Pensions (“GMP”) benefits between 1990 and 1997. When we refer to items before exceptional items, it excludes these charges, which we believe provides a more meaningful basis for measuring our financial performance in 2018.
Outlook
Commenting on the 2019 results, Stuart Paterson, Chairman, said:
“Continued profit growth over a ten year period confirms the Board’s confidence that its consistent strategy of positioning the business to serve key growth markets in the protective packaging sector remains appropriate and continues to be effective.
2020 has started well and profitability in the year to date is ahead of the same period in 2019.
The business will remain focused on the delivery of continued profit growth through the provision for our customers of added-value protective packaging products and services in target market sectors, combined with efficiency improvements and the completion of value-enhancing acquisitions. We will also focus on ensuring that we support our customers in achievement of their sustainability objectives.
Macfarlane Group’s performance in 2019 reflects the successful implementation of our strategy and we are confident that the Group will deliver further progress in 2020.”
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