Macfarlane Group ( LON:MACF ) executives told investors that 2025 was a “difficult” year despite high levels of growth, citing intense price competition in UK packaging distribution, high operating costs, and operational and financial disruption caused by a fatal accident at the recently acquired Petriway site.
CEO Peter Atkinson and CFO Ever Gray said the company remains healthy in its banking facilities and intends to maintain its dividend at the 2024 level, while 2026 will serve as the “first year” of a restructuring program aimed at restoring profitability in distribution and returning Petrivo to expected earnings levels.
→ Top Fake: Buying Chinese Stocks After Dominion Sinks
Gray said group revenue rose 11% year-on-year. The increase was largely through acquisitions, with around £28.1 million of the £30.4 million attributed to Petrivo (acquired in January 2025) and Polyforms (acquired in July 2024). Organic growth was approximately £2.3 million, which management attributed to “relatively flat” prices over the year, driven mainly by volume.
Adjusted operating profit fell 28% from last year. Gray attributed most of the decline to the distribution business, where adjusted operating profit was £8.8m lower 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 polyforms and organic growth across sectors.
→ Home Depot and Lowe’s: Income Dept Shopping
Pitreavie was a major swing factor against management expectations. Gray said the company had expected the business to contribute just under £2m in operating profit by 2025, but it was making a loss of less than £200,000. Management attributed this result to business conditions and the impact of the October 2025 event, which required outsourcing work during what is typically Petrovi’s busiest quarter.
Atkinson said packaging distribution – about 75% of the group’s revenue – faced “very tough market conditions” in 2025, driven by the weak UK economy, delays in consumer decisions, and the impact of producer responsibility (EPR) regulations on retail customers as they reduce their use of packaging to EPR fees.
→ Wendy’s Falling Sharply—Are Shares a Bargain or a Value Trap?
Despite these headwinds, management cited “marginal” revenue growth of about 0.2% in the distribution segment as encouraging. However, distribution profitability has been pressured by aggressive price competition. Gray said the group’s gross margin declined year-on-year, driven mainly by distribution, where gross margin fell from 37.2% to 35.3%.
Atkinson also noted that a corrugated supplier went into administration and forced McFarlane to replace lower-cost sources with a higher-cost supplier, which contributed to shrinking margins. Looking ahead, he said management believes a distribution gross margin of approximately 35% is “sustainable” and is used as an assumption in future forecasts.
Operating expenses increased by £14.5 million, of which £9.6 million was related to acquisitions. The company also highlighted £3.6m of increased staff costs, including £1.1m from an increase in National Insurance, as well as £1.3m in higher property and logistics costs, including higher rent and renewal of the commercial vehicle fleet. Atkinson said the consolidation of the four East Midlands sites into the new Nottingham site has created a temporary double run and labor costs in 2025, and he expects the “phased change costs” seen in 2025 will not be repeated in 2026.
Management outlined initiatives designed to restore distribution profitability and refocus resources. Atkinson said new business revenue in distribution fell 20% year over year, not because of weak sales pipelines, but because customers prioritized immediate cost reductions and delayed decisions due to uncertainty. The company said it has restructured and strengthened its sales team and expects the pipeline to turn around in 2026.
Atkinson said the company plans to reallocate resources to industrial markets over time, while not abandoning retail. He described retail as highly competitive and under additional pressure from the EPR and additional upcoming regulations including deforestation and void-filling regulations.
Key distribution priorities discussed include:
Driving sales growth of around 2%–3% in 2026 with changing pipeline opportunities.
Maintaining a gross margin of around 35% while working to build profitability over time.
Implementation of efficiency programs across sales, logistics and administration, with the expectation that 2026 costs will be more or less higher than 2025 despite the full-year NI impact.
Review of sourcing model, currently described as ~60% large national suppliers and ~40% local/regional suppliers, to respond to changes in suppliers and seek better pricing.
Creating a more unified customer proposition across distribution, design/manufacturing, and European capabilities for six identified strategic accounts.
In the Q&A, management said it expects a two-to-three-year timeframe to return to a 7.5%-8% return on sales, with 2026 identified as one year of that effort. Executives said “success” for distribution in 2026 would include a return to moderate growth, maintaining gross margins and keeping operating cost growth under tight control, with exit rates pushing operating margins above the nearly 5% level referred for 2025.
Macfarlane reported 12% sales growth in its design and manufacturing operations (excluding Pitreavie), driven by a full-year contribution from Polyforms and organic growth of just over 3%. Atkinson said growth was particularly strong in space, aerospace and defense, despite weakness in other markets such as automotive. He added that manufacturing now represents about 40% of the group’s profits and is expected to be a key contributor in 2026.
In Petriway, Atkinson reiterated that the company acquired the business in January 2025 and experienced an “unfortunate incident” in October 2025 that resulted in the death of a colleague. He said the company was focused on supporting employees and families and maintaining customer loyalty by outsourcing deliveries while the affected machine was taken out of service.
Management said customer retention remains strong, with no customers leaving and no dual sources showing, according to Atkinson. The company has ordered a replacement machine from China, which Atkinson said is undergoing commissioning and training and is expected to be operational by the end of the month, with full operational status expected in the second quarter.
Atkinson said the new equipment should provide more capacity. Management expects Petrovi’s 2026 performance to weigh on the second half as the business will still have first-half losses while outsourcing continues. The company expects Petrovi to reach an operating profit of around £2m initially expected from the acquisition in 2027, when it will have had a full year of production with the new machine.
Gray said the bank’s net debt was 16.2 million pounds at the end of 2025, up from 1.9 million pounds at the end of 2024, reflecting acquisitions and capital allocations. He emphasized that the group remains in a £40m banking facility 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 the pension arrangement. The use of cash included £17.3m of acquisition-related costs (including £13.9m for Petriway), £4.5m of capital expenditure, £5.8m in dividends, and £2.1m spent on a share purchase program that commenced in June 2025, which aims to raise over £4m in 4 months.
Regarding capital allocation, management said priorities included continued investment in the business, shareholding, completion of the remaining £1.9 million buyback, and divestment. Atkinson said the company does not plan to execute an acquisition in 2026 and suggested that acquisitions could be held off until late 2027 or 2028, although the company will continue to develop longer-term opportunities. Gray added that the company expects to pay the remaining £2.6m in polyforms around July or August.
The pension scheme remained short of £9.6 million at £6.0 million, which Gray attributed to an adjustment linked to a change in methodology for estimating historical pension equity. Management said it is preparing a scheme for a potential buyout and expects to decide in the coming months whether to proceed based on market prices, with the aim of acquiring the buyout without additional cash shares, or only limited shares if necessary.
In closing remarks, Atkinson said management does not expect market conditions to improve materially in 2026 and warned that the industry may be stuck at the bottom of the cycle for 12 to 18 months. Even so, he said that the company expects 2026 to show a profit growth compared to 2025 because of its restructuring actions, especially in the second half of the year.
Macfarlane Group PLC, through its subsidiaries, designs, manufactures and distributes protective packaging products to businesses in the UK and Europe. The company operates in the segments of packaging distribution and manufacturing operations. The Packaging Distribution division distributes packaging materials in the UK, Ireland and Europe. The manufacturing operations division designs, manufactures and assembles wood, corrugated and foam based packaging materials in the UK.
The article “Macfarlane Group H2 Earnings Highlights” was originally published by MarketBeat.
