Atkinson packing a punch in turning Macfarlane around

IN THE late 1990s, the venerable Scottish plc Macfarlane Group (LSE: MACF.L – news) , a respected and substantial business that made packaging
for many of Britain's best-known brands, abandoned its 50-year history in manufacturing and reinvented itself as a global distribution firm.

As part of the restructuring, the chief executive decided to auction off many of the two-dozen paintings that Lord Macfarlane – the company's founder and guiding light since the 1940s – had lovingly collected over the years. The proceeds paid for a new IT system that would be the nerve centre of Macfarlane's future business: transporting packages around the world.

This IT system subsequently played a key part in Macfarlane's downfall. Its integration into the day-to-day business went badly wrong, and many of Macfarlane's 22,000 customers discovered that shipments the firm had promised to deliver to Wick had ended up in Wallyford. By 2003, Macfarlane had lost a staggering 5,000 clients – the bulk due to its own ineptitude. The chief executive resigned last May.

Today, there is just one notable painting left hanging in the boardroom. It is of "Lord Mac" himself, smiling benevolently despite the many woes of the company in which he still holds a 4.16 per cent stake.

The directors who oversaw the collapse of Macfarlane's share price have come and gone. But what about the reputation of the company that Lord Mac spent all those years creating? Macfarlane Group hired a new chief executive four months ago. He is Peter Atkinson, and as he speaks to The Scotsman in his first interview since taking the helm, he gazes up at the founder's painting. He says: "What has surprised me since arriving here last autumn is the tremendous amount of goodwill that still exists towards Macfarlane Group.

"A great deal of that has to do with the company's Scottish roots and Lord Macfarlane. We're an international company based in Scotland, and we're one of only a few Scottish plcs. A lot of our customers and our tradition are from here.

"I found out how important that goodwill is at the end of last year, when we launched a promotion to win back the customers who'd left us. We ran the risk they'd say: 'You performed so badly, don't ever darken my door again.' But most said: 'We appreciate you being honest and telling us you let us down. We'll give you another chance when we can.'"

Lord Macfarlane, Atkinson says, has been helping to guide the firm on the path to recovery. "He is our life president and he has a vast knowledge and experience. Where he particularly helps us is in our relationships with people."

Atkinson is not a Scot but exudes one of the great virtues said to be part of the national identity: common sense. His background is as a "fixer" at blue-chip firms, including GKN (LSE: GKN.L – news) and Brambles Industries (LSE: BI.L – news – msgs) , where he turned around several underperforming divisions.

Macfarlane is showing signs of recovery under his leadership. "We've got the basics sorted," Atkinson says. "The management had become very introverted [getting internal problems fixed]. The focus now is on customers, new business, improving the supply chain, getting goods to our customers at a lower cost." The evidence: on-time customer deliveries are up to 90 per cent, from a low of 60 per cent last year.

Atkinson says: "I guess the reason Macfarlane [Group] chose me is that my history is in sales and marketing, and I've been steeped in the business-to-business environment. Macfarlane Group is a classic 'B2B' organisation. We still make and sell packaging but, at the end of the day, we're about a service."

Does he support the switch of emphasis from packaging to distribution? "Yes, I support that strategy. Distribution is where we see our prime focus. It's more than half the revenue." He adds: "In the past three months, I've been talking predominantly to our customers. The two questions I've asked are: 'Can we see they respect us?', and 'can we see they themselves have a future?'

"The answers to both are 'yes'. We're adding value for them – we allow them to hold less stock because we can deliver tomorrow, they can buy a range of products and services from us, and they get one invoice not six or seven from different suppliers.

"And we're dealing with very substantive companies – BT (LSE: BT.L – news – msgs) , Land Rover, QVC, Proctor and Gamble. They're going somewhere. Customers who are going to grow and develop."

So how long will it take to win those 5,000 customers back? "I think it's a two to three-year cycle. Understandably, some are very wary. But their existing supplier will let them down somewhere, and then I think they'll come back to us. We're already beginning to win lost customers – they're seeing our service levels improve. And if you talk to the suppliers they're saying: 'Macfarlane is finally getting its act together again.'"

Atkinson says he is well aware that the distribution industry is highly fragmented, and competition is intense. "The nearest player to us is about a third of our size and, proportionately, the smaller guys are where most of our customers have gone. They've got an advantage over us on the local knowledge and relationship side – they're often family-run businesses. But we have advantages in our purchasing size, scale, range of products and so on."

Isn't there a danger Macfarlane will be undercut by these rivals? "I don't see a price war. These small guys still want to make money to support their lifestyle. Most of them are sensible businessmen. Besides, the customer wants an overall proposition, not just a lower price."

He appears committed to Macfarlane's remaining manufacturing operations: "If you've got a niche assembly operation that can design and innovate, you've got an advantage. That's our packaging business." He says the third part of Macfarlane – labels – is "a very successful business that's always been successful and profitable". A £3bn-£4bn per year market in Europe, margins are "always being squeezed" by clients. But Atkinson is happy this pressure can be passed on to Macfarlane's suppliers, to preserve the margins. The division "is right in the middle of a strategic review to decide which sectors of the market we want to target to drive sales forward".

Atkinson admits the financial performance in the past year will be "hugely disappointing". He calls brokers' forecasts of a £3 million to £4m trading loss "realistic", and declines to say when the dividend might be reinstated. "You've got to have a trading performance at a level that allows you to pay a dividend," he warns.

But as Lord Macfarlane gazes on in the boardroom, it seems clear that the company's fortunes under Atkinson's hand are finally starting to turn around.