ABOUT
This is a packaging and manufacturing company headquartered in Glasgow, Scotland. It employs 700 people and service over 20,000 customers; however most of their packaging are low-value goods, such as re-seal stickers, boxes etc.
In their annual report, there is feeling they're trying too hard to please all stakeholders. Because the dividend yield is 5% (very generous for the shareholders), and looking after employees when they retire, hence the running of a huge pension deficit.
FINANCIAL
Over the last five years, revenue only increased by £20m, from £123m to £144m, though earnings increased from £1.97m to £3.46m. In terms of size the company is looking like a mature company and the only way to increase earnings, is to operate efficiently.
In its balance sheet there is a lot of goodwill and intangible assets, these remain roughly the same in the last five years.
There is nothing wrong with its Days’ sales outstanding (this is trade receivables turnover) being 90 days, because it is a distributor and manufacturer. They need to wait for the retailers to pay them back, but due to having flexible credit from suppliers (they are offering 120 days credit), there is no need to raise external funds, given cash conversion cycle is negative one day. Instead, cash management from the company is improving.
MANAGEMENT
There has been a lot of transparency from management, in terms of openness. It admits to having a pension deficit problem, where it needs to make the regular contribution of £2.8m per annum.
The independent directors have experience in the packaging industry and are qualified to report back to its shareholders. The number of meetings in audit is the same as remuneration, though it is an improvement from five years ago, where management have more meetings about their pay, rather than getting its financial numbers accurate.
Total management compensation including independent directors is £750k looks reasonable, and there isn’t more I can say.
MACRO
The manufacturing of packaging in the UK is worth about £10bn and employs about 85,000 people.
However, packaging can be anything from can drinks, glass bottles, plastic bags etc. So it isn’t surprising different companies would specialise in different kinds of packaging and Macfarlane Group has its little niche business.
PENSION SCHEME DEFICIT
The pension scheme deficits being a major obstacle to whether the company is profitable this year or not, (given any small adverse changes to the discount rate could impact profitability).
The table below…
