Macfarlane Group (LON:MACF) executives told investors that 2025 was a “tough” year despite solid top-line growth, pointing to intense pricing competition in UK packaging distribution, higher operating costs, and the operational and financial disruption caused by a fatal accident at the recently acquired Pitreavie site.
CEO Peter Atkinson and CFO Ivor Gray said the company remains well within its banking facilities and intends to maintain its dividend at 2024 levels, while 2026 will serve as “year one” of a recovery program aimed at restoring profitability in distribution and returning Pitreavie to expected earnings levels.
Revenue grew 11%, but adjusted profit declined
Adjusted operating profit fell 28% from the prior year. Gray attributed most of the decline to the distribution business, where adjusted operating profit was down £8.8 million on flat sales due to lower gross margins and higher operating costs. In contrast, manufacturing (excluding Pitreavie) delivered a strong performance, supported by the full-year impact of Polyformes and organic growth in sectors it serves.
Pitreavie was a major swing factor versus management’s expectations. Gray said the company anticipated the business would contribute just under £2 million of operating profit in 2025, but it instead posted a loss of just under £200,000. Management linked that outcome to trading conditions and the impact of the October 2025 incident, which required outsourcing work during what would typically be Pitreavie’s busiest quarter.
Margin compression and rising costs weighed on distribution
Atkinson said packaging distribution—about 75% of group revenue—faced “very difficult market conditions” in 2025, driven by a weak UK economy, customer decision delays, and the effect of extended producer responsibility (EPR) regulations on retail customers as they reduced packaging usage to lower EPR fees.
Despite those headwinds, management highlighted “marginal” revenue growth of about 0.2% in distribution as encouraging. However, distribution profitability was pressured by aggressive price competition. Gray said group gross margin declined year over year, driven primarily by distribution, where gross margin fell to 35.3% from 37.2%.
Atkinson also noted that one corrugate supplier went into administration, forcing Macfarlane to replace a low-cost source with a higher-cost supplier, which contributed to margin decline. Looking ahead, he said management believes a roughly 35% distribution gross margin is “sustainable” and is being used as an assumption in forward forecasts.
Operating expenses rose by £14.5 million, of which £9.6 million was acquisition-related. The company also cited £3.6 million of increased employee costs, including £1.1 million from National Insurance increases, as well as £1.3 million in higher property and logistics costs, including higher rents and commercial vehicle fleet renewals. Atkinson said the East Midlands consolidation from four sites to a new Nottingham site created temporary dual-running and labor costs in 2025, and he expects the “step changing costs” seen in 2025 will not repeat in 2026.
Recovery plan targets growth, cost control, and mix shift
Management outlined initiatives designed to rebuild distribution profitability and refocus resources. Atkinson said new business revenue in distribution was down 20% year over year, not due to weak sales pipelines, but because customers prioritized immediate cost reductions and delayed decisions due to uncertainty. The company said it rebuilt and strengthened the sales team and expects the pipeline to convert in 2026.
Atkinson said the company plans to reallocate resources toward industrial markets over time, while not exiting retail. He described retail as highly competitive and under added pressure from EPR and additional upcoming regulations, including deforestation and void fill regulations.
Key distribution priorities discussed included:
- Driving roughly 2%–3% sales growth in 2026 by converting pipeline opportunities.
- Holding gross margin around 35% while working to rebuild profitability over time.
- Implementing efficiency programs across sales, logistics, and administration, with an expectation that 2026 costs will be flat or only marginally higher than 2025 despite the full-year NI impact.
- Reviewing the sourcing model, currently described as ~60% major national suppliers and ~40% local/regional suppliers, to respond to supplier changes and seek better input pricing.
- Developing a more integrated customer proposition across distribution, design/manufacture, and European capabilities for six identified strategic accounts.
In the Q&A, management said it expects a two- to three-year timeline to return distribution to a 7.5%–8% return on sales, with 2026 identified as year one of that effort. Executives said “success” in 2026 for distribution would include returning to modest growth, holding gross margins, and keeping operating cost growth tightly controlled, with an exit run rate that nudges operating margin above the roughly 5% level referenced for 2025.
Manufacturing strength and Pitreavie recovery efforts
Macfarlane reported 12% sales growth in its design and manufacturing operations (excluding Pitreavie), driven by the full-year contribution from Polyformes and organic growth of just over 3%. Atkinson said growth was particularly strong in aerospace, space, and defense, despite weakness in other markets such as automotive. He added that manufacturing now represents about 40% of group profits and is expected to be a key contributor in 2026.
On Pitreavie, Atkinson reiterated that the company acquired the business in January 2025 and experienced a “tragic incident” in October 2025 that led to the death of a colleague. He said the company focused on employee and family support and on retaining customer loyalty by outsourcing supply while the affected machine was removed from service.
Management said customer retention has remained strong, with Atkinson stating no customers have exited and none have indicated dual sourcing. The company ordered a replacement machine from China, which Atkinson said is going through commissioning and training and is expected to be operational at the end of the month, with full operational status expected in the second quarter.
Atkinson said the new equipment should provide increased capacity. Management expects Pitreavie’s 2026 performance to be weighted toward the second half because the business will still incur losses in the first half while outsourcing continues. The company expects Pitreavie to reach the roughly £2 million operating profit initially anticipated from the acquisition in 2027, when it will have a full year of production with the new machine.
Balance sheet, capital allocation, pension, and shareholder returns
Gray said net bank debt was £16.2 million at the end of 2025, up from £1.9 million at the end of 2024, reflecting acquisitions and capital allocation decisions. He emphasized the group remains within its £40 million banking facilities and is running at just under 1x net debt to EBITDA.
Operating cash flow was £24.7 million, supported by working capital inflows and the non-cash impact of a pension adjustment. Cash uses included £17.3 million of acquisition-related spending (including £13.9 million for Pitreavie), £4.5 million in capital expenditure, £5.8 million in dividends, and £2.1 million spent on a share buyback program launched in June 2025, which targets £4 million of repurchases over 12 months.
On capital allocation, management said priorities include continued investment in the business, maintaining the dividend, completing the remaining £1.9 million of buybacks, and deprioritizing acquisitions. Atkinson said the company does not plan to execute acquisitions in 2026 and suggested acquisitions are on hold until the back end of 2027 or 2028, though the company will continue to develop longer-term opportunities. Gray added the company expects to pay a remaining Polyformes earn-out of about £2.6 million around July or August.
The pension scheme remained in surplus at £6.0 million, down from £9.6 million, which Gray attributed in part to an adjustment linked to a methodology change for estimating historic pension equalization. Management said it is preparing the scheme for a potential buy-in and expects to decide in the coming months whether to proceed based on market pricing, with a goal of achieving a buy-in without additional cash contributions, or only limited contributions if required.
In closing remarks, Atkinson said management does not expect market conditions to improve materially in 2026 and warned the industry may remain at the bottom of the cycle for 12 to 18 months. Even so, he said the company expects 2026 to show profit growth versus 2025 as its recovery actions take hold, particularly in the second half of the year.
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.
Featured Articles
- Five stocks we like better than Macfarlane Group
- The gold chart Wall Street is terrified of…
- America’s 1776 happening again
- Buy this Gold Stock Before May 2026
- I’m 70 With $1.5M: Would Converting $120K a Year to a Roth Be Smart or a Costly Mistake? (Ask An Advisor)
- ALERT: Drop these 5 stocks before the market opens tomorrow!
