H1 2025: Revenue up, profits down – a tale of two divisions
Macfarlane Group has posted a mixed set of interim results. Group revenue rose 13% to £146.6m, helped by the recently acquired Pitreavie and last year’s Polyformes deal. But profits fell sharply as Packaging Distribution faced weak demand, slower new business conversions and pressure on margins.
Management still expects the full year to be in line with market expectations, leaning on a seasonal H2 uplift, tighter cost control and acquisition synergies. The interim dividend is held at 0.96p and the share buyback continues.
Headline numbers you need to know
| Metric | H1 2025 | H1 2024 | Change |
|---|---|---|---|
| Revenue | £146.6m | £129.6m | +13% |
| Adjusted operating profit (APM) | £9.8m | £12.5m | -22% |
| Operating profit (statutory) | £7.0m | £10.6m | -34% |
| Adjusted profit before tax | £7.9m | £11.6m | -32% |
| Profit before tax (statutory) | £5.0m | £9.7m | -49% |
| Adjusted diluted EPS | 3.78p | 5.37p | -30% |
| Diluted EPS (statutory) | 2.32p | 4.51p | -49% |
| Net cash from operating activities | £12.4m | £14.1m | -£1.7m |
| Net bank debt (30 June) | £15.2m | £9.0m | Higher |
| Pension scheme surplus (30 June) | £9.2m | £10.2m | Slightly lower |
| Interim dividend | 0.96p | 0.96p | Unchanged |
APMs remove non-cash items like the amortisation of acquired customer relationships and brand values, plus remeasurements of deferred contingent consideration. They’re useful for gauging underlying trading, but they are not a substitute for the statutory numbers.
Packaging Distribution under pressure: margins and costs bite
Distribution – the bigger division at 75% of Group revenue – had a tough half. Revenue was broadly flat at £110.4m (H1 2024: £110.9m) as weak customer demand and slower decision-making dragged. New business wins were £3.7m versus £4.5m last year.
- Gross margin fell to 35.6% (H1 2024: 37.9%), reflecting slower pass-through of input cost increases, a competitive market, and disruption from a second-tier corrugate supplier going into administration.
- Operating costs rose to 31.2% of revenue (H1 2024: 29.5%) due to sales team investment, new website deployment, higher National Insurance and National Minimum Wage, rent increases and excess costs from the East Midlands consolidation completed end-July.
- Adjusted operating profit dropped to £4.8m from £9.3m, with margin down to 4.3% (H1 2024: 8.4%).
My take: this is the crux of the profit shortfall. The model relies on passing through input costs promptly and keeping the cost-to-serve lean. Neither held up in H1. The good news is Macfarlane has clear levers to pull in H2: price/mix discipline, cost efficiencies in sales, logistics and admin, and benefits from the new East Midlands distribution centre.
Manufacturing Operations: acquisitions drive growth
Manufacturing Operations did much of the heavy lifting. Revenue jumped to £39.2m (H1 2024: £21.3m), with £17.8m coming from Polyformes (acquired July 2024) and Pitreavie (January 2025). There was a sliver of organic growth too at 0.3%, including more supply into Distribution.
- Gross margin eased to 41.0% (H1 2024: 44.3%) due mainly to Pitreavie’s lower-margin profile and some input cost pressure.
- Adjusted operating profit rose 55% to £5.0m (H1 2024: £3.2m), though margin dipped to 12.7% (H1 2024: 15.1%).
- Sectors like defence and aerospace provided stronger demand.
Why it matters: the strategy to balance the Group with a larger manufacturing footprint is working. It adds capability and cross-selling potential, and it is less exposed to the pure distribution margin squeeze. The next step is to pull through sales and cost synergies with Distribution and within Pitreavie.
Quick divisional snapshot
| Revenue H1 2025 | Adj. operating profit H1 2025 | Adj. margin H1 2025 | Adj. margin H1 2024 | |
|---|---|---|---|---|
| Packaging Distribution | £110.4m | £4.8m | 4.3% | 8.4% |
| Manufacturing Operations | £39.2m | £5.0m | 12.7% | 15.1% |
Cash, debt and the balance sheet
Macfarlane continues to generate decent cash, with £12.4m net cash inflow from operating activities (H1 2024: £14.1m). Net bank debt increased to £15.2m at 30 June 2025, reflecting £16.5m spent on acquisitions and capex. The Group has a £40.0m bank facility running to 30 November 2027, with options to extend to November 2029, and is operating well within it.
The pension scheme remains a surplus at £9.2m (31 December 2024: £9.6m), and no further contributions are required. Finance costs rose to £2.1m (H1 2024: £0.9m), partly a function of higher borrowings and lease costs, which puts a premium on restoring margins in H2.
Dividend held and buyback ongoing
The interim dividend is maintained at 0.96p per share, payable on 9 October 2025 to shareholders on the register on 12 September 2025 (ex-dividend 11 September 2025). The Board also confirmed the recently launched share buyback programme will continue, although the size and pace are not disclosed.
Outlook: what to watch in H2 2025
Management guides to a better H2, citing seasonal trading, actions to manage input costs, and synergy delivery from Pitreavie. Full-year 2025 is expected to be in line with market expectations.
- New business conversion: H1 wins were £3.7m versus £4.5m last year. Watch for acceleration as the strengthened sales team and “World Class Sales” training beds in.
- Distribution margin recovery: gross margin was 35.6% vs 37.9% in H1 2024. Faster price pass-through and tighter discounting are key.
- Cost programmes: tangible savings from logistics, admin and the East Midlands site consolidation should reduce the operating cost ratio.
- Synergies: cross-selling and operational efficiencies between Distribution, Manufacturing and the new acquisitions, especially Pitreavie.
- Finance costs: net debt and lease liabilities lifted interest to £2.1m. Any further rise would bite unless offset by margin improvement.
Risks worth flagging
- Macro and demand uncertainty across the UK and Europe could slow decision-making and compress margins further.
- Regulatory changes, including the Extended Producer Responsibility levy, may alter customer buying patterns and pricing dynamics.
- Input costs and supply chain disruption remain a live issue, compounded by FX and freight volatility.
- Cyber risks are highlighted, reflecting the sector’s increasing exposure to attacks on data and systems.
My view: execution story with support from acquisitions
This is a classic mid-year reset. Revenue growth looks healthy, but profit fell as Distribution misfired on margins and costs. Manufacturing, boosted by Polyformes and Pitreavie, steadied the ship and gives Macfarlane more levers in higher value niches like aerospace and medical.
On balance, I see H2 as an execution test. If the team can push through price, land the new-business pipeline, wring costs out of the network and deliver Pitreavie synergies, the “full year in line” guidance looks achievable. The maintained dividend, ongoing buyback, pension surplus and ample bank facility provide reassurance while they get on with it. The flip side is clear too: if Distribution margins do not improve quickly, elevated finance costs will keep profits subdued.
For now, it is a hold-your-nerve story with catalysts in the second half. Keep an eye on Distribution gross margins, new business run-rate, and synergy delivery – they will likely determine how this year finishes.
