Macfarlane increases interim dividend despite revenue and profit dip

Richard Stuart-Turner
Thursday, August 27, 2020

Macfarlane Group has increased its interim dividend after praising the resilience of its results for the first half of 2020 in the face of the coronavirus pandemic, which nevertheless caused a drop in both revenue and pre-tax profit for the business.

Atkinson: "Times like this really test the quality of the business"
Atkinson: "Times like this really test the quality of the business"

As a measure to conserve cash, the Glasgow-headquartered packaging company's board took the decision not to propose the 2019 final dividend of 1.76p per share, which was detailed in its preliminary announcement.

But it said given its “stronger than anticipated” profit performance and cash position, the board is recommending an interim dividend of 0.70p per share to be paid on 8 October 2020 to shareholders on the register as at 11 September 2020. This is up from the 2019 interim dividend of 0.69p per share.

Macfarlane Group reported sales of £105.6m for the six-month period ended 30 June 2020, down 1.8% on the £107.5m achieved at the same stage in 2019. The company said it had seen a 1.6% increase in sales in Q1 but that the impact of Covid-19 had caused a 5.2% fall in Q2.

Pre-tax profit for the first half of 2020 was £3.6m, down 5.5% from the £3.8m achieved a year ago, and the company said this figure excludes any benefit received from government support programmes, which have now been repaid in full. Additionally, it said incremental costs of £200,000 were incurred in the first half of 2020 as a direct consequence of Covid-19.

Macfarlane Group chief executive Peter Atkinson told Printweek: “It clearly has been a very difficult first six months of 2020 for understandable reasons. The way we see the first six months is that it's times like this, where there's very difficult trading conditions and a lot of stress around, that really test the quality of the business and the business model.

“I think the resilience of our H1 results – with sales and profit only slightly down – demonstrated the quality of the Macfarlane business and how robust our business model is.”

He added: “We took the decision to cancel the final dividend as a way of conserving cash, really not knowing quite how [the pandemic] was going to play out. Clearly it's not been as bad as it could have been, and our numbers have been resilient, and that gives us the confidence to pay an interim dividend to our shareholders in October.”

Sales in the firm's Packaging Distribution business dropped by 1.7% to £91.5m in the first half of 2020, compared with sales of £93m in 2019. The group said revenue was impacted by weaker demand from the automotive and high-street retail sectors, although this was partially offset by underlying strength in the e-commerce, household and medical sectors.

First half sales also benefited from the group's 2019 acquisitions, as well as its January 2020 acquisition of the packaging trade and assets of Armagrip.

At £16.4m, sales in the group's Manufacturing Operations arm were 5.8% below equivalent period sales in 2019 of £17.4m.

Macfarlane said strong demand from the food, medical and household essentials sectors in the labels part of the Manufacturing Operations business, particularly in Q2, was more than offset by weaker demand from the aerospace and automotive sectors in the packaging design and manufacture arm of the business.

The group's net bank debt as at 30 June 2020 was £800,000, £11.9m below its 31 December 2019 level of £12.7m, though this figure benefited by £5.4m from the various government support and deferral programmes, all of which Macfarlane has repaid since 30 June 2020.

The firm said its improved cash position has been achieved through active management of working capital and reductions in the cost base, which included the aforementioned cancellation of last year's final dividend and working with its customers to get owed monies in from them.

The company's board said it is confident that, given the resilience of the business in Q2, the expected seasonal uplift in the final quarter, and actions being taken to reduce operating costs, the group will continue to progress in the second half of 2020.

But it added its current expectation for the full year in 2020 is largely dependent on no further prolonged national or regional lockdowns, no abnormal bad debt exposure and no significant reduction in consumer demand in the final quarter of the year, traditionally the company's busiest trading period.

“The outlook remains uncertain – we're concerned about the impact that the government support programmes unwinding will have on some companies, and the risk of bad debts resulting from that,” said Atkinson.

“And clearly as unemployment rises across the economy, we'll be concerned about what the impact of that will be on demand levels, particularly in the final quarter because that's a big trading period for us.”

900-staff Macfarlane Group's share price fell by around 3.5% to 91.2p in early trading following the publication of the results this morning (27 August) and stood at 91.5p at the time of writing.

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