Macfarlane Group (LON:MACF) reported progress in its profit recovery program during the first half of 2026, although adjusted profit before tax declined 9% as the protective-packaging company continued to face weak market conditions, higher input costs and disruption at its Pitreavie manufacturing operation.
Chief Executive Officer Peter Atkinson said the group entered 2026 focused on recovering profitability after what he described as a “particularly challenging” 2025, ending a 15-year period of consistent profit growth. He said first-half results showed the initial effects of recovery measures in its Packaging Distribution and Pitreavie businesses.
Distribution recovery efforts
Macfarlane’s Packaging Distribution division recorded sales and profit growth during the first half, with sales growth driven more by price than volume, according to Atkinson. The company said gross margins improved slightly despite rising polymer-related costs and more expensive logistics, including fuel and external carriage costs linked to Middle East events.
Atkinson said certain polymer-based products, including stretch film, tape and bubble wrap, had experienced price increases of between 20% and 40%. The group has so far been effective in recovering those increases from customers, he said, helping preserve gross margins.
New-business momentum in the distribution operation increased nearly 40% from the previous year. Atkinson attributed this improvement to customers seeking supply reliability, the benefits of sales hiring undertaken in 2025, a broader combined distribution and manufacturing offering, and efforts to bring the company’s innovation-lab proposition directly to customers.
However, environmental regulation remains a headwind, particularly for retail customers. Macfarlane said revenue from its major retail business fell 6% in the first half as customers sought to reduce packaging use in response to regulations and related costs.
The company is shifting its new-business focus toward industrial markets, where Atkinson said customers tend to be more stable and margins are typically 2% to 3% higher than in retail. The current mix is approximately 80% industrial and 20% retail, he said.
Macfarlane also reduced distribution headcount by about 6%, with approximately half of the reduction coming through redundancies and half through natural attrition. The company is reviewing lower-return regional distribution centers and seeking to apply practices from sites generating net returns above 10% to sites generating returns below 5%.
Gray said the group’s objective is to improve the distribution division’s operating margin from 4.6% toward 7% to 8% over a three-year period. The plan depends on achieving roughly 3% annual growth, maintaining gross margins and containing the cost base despite inflationary pressures.
Pitreavie returns to quarterly profitability
Pitreavie, which was affected by a fatal incident in 2025, made a small loss in the first half compared with a profit of approximately £500,000 a year earlier. The business faced a significant margin decline while it outsourced production until a replacement corrugated machine could be installed and commissioned.
Atkinson said the replacement machine was identified, purchased, commissioned and put into operation within six months. Pitreavie returned to profitability in the second quarter and remained profitable during July and August, according to the CEO.
The company said it retained all major and medium-sized customers while using external suppliers to maintain service. Pitreavie’s machine was operating at just under 80,000 square meters of corrugate throughput per day, with a target of 100,000 square meters per day in the third quarter.
Macfarlane aims to end third-party outsourcing during the third quarter, then use available capacity to supply internal Macfarlane operations. Its medium-term target is to restore Pitreavie to the £2 million of operating profit generated when Macfarlane acquired the business.
Atkinson said the health and safety authorities had not yet fully begun their investigation into the 2025 incident, and the group had no further information to provide on any possible fine.
Cash, capital allocation and pension update
Net debt stood at £17.9 million at the end of the first half, up £1.8 million from year-end but equal to 0.9 times EBITDA. Gray said the increase primarily reflected working-capital absorption, including a £2.4 million rise in inventories as Macfarlane built stock to address supply-chain disruptions and price increases. The company expects inventory levels to decline by year-end.
First-half capital expenditure totaled £1.8 million and included solar panels at the Polyformes manufacturing site, final payments for Pitreavie machinery and fit-out costs for a new Irish distribution site.
- The interim dividend was maintained at £0.96, unchanged from the prior year.
- The current £4 million share buyback is expected to conclude by the end of September.
- A new £6 million buyback program is scheduled to begin Oct. 1 and run over 12 months in quarterly £1.5 million tranches.
- The company expects to allocate £3.5 million to £5 million annually to internal capital expenditure.
Gray said the group is prioritizing share buybacks over acquisitions while management focuses on the recovery program and while it views the company’s current valuation as favorable relative to acquisition opportunities. Atkinson said acquisition activity is on hold except for “must-do” opportunities, with the company currently scheduling a return to the acquisition trail in early 2028.
Macfarlane also completed a pension buy-in transaction with Royal London on June 29. Gray said the transaction provides greater security for members and reduces pension-related volatility for the group. The company expects to complete a buyout and remove the scheme from its balance sheet within two years, estimating a potential cash outcome ranging from a £1 million receipt to a £1 million payment.
Outlook
Atkinson said market conditions remain difficult, citing weak UK demand, higher input prices and packaging-reduction regulations. He said the group expects stronger year-over-year sales in the second half, though gross margins could weaken slightly as price increases flow through.
Macfarlane’s focus remains on expanding industrial sales, lowering costs, improving distribution-center performance, refining sourcing—particularly for corrugated products—and restoring Pitreavie’s profitability. “The focus is on profit recovery,” Atkinson said, adding that the company expects recovery actions to strengthen in the second half.
About Macfarlane Group (LON:MACF)
Macfarlane Group PLC, through its subsidiaries, designs, manufactures, and distributes protective packaging products to businesses in the United Kingdom and Europe. The company operates through Packaging Distribution and Manufacturing Operations segments. The Packaging Distribution segment distributes packaging materials in the United Kingdom, Ireland, and Europe. The Manufacturing Operations segment designs, manufactures, and assembles timber, corrugated, and foam-based packaging materials in the United Kingdom.
