BRITISH Polythene Industries (BPI), the Greenock-based packaging manufacturer, has overcome a "challenging economic environment" to record operating profits of £22.5 million last year – up from £21.6m in 2011.

The company, which employs 350 people across its Scottish operations in Ardeer in North Ayrshire, Greenock and Dumfries, said underlying pre-tax profits were up 7% to £20.4m for the year to December 31, 2012, compared with the £19.1m in 2011.

Investors reacted positively by sending the share price up 9.6% as the company resisted the ongoing slump in the UK construction industry during a volatile year for raw material costs.

Strong cash generation helped BPI cut borrowings by almost £8m to £23.2m, in spite of a £6m rise in year-end inventories and an increase of £6m in net capital expenditure over the period.

However, BPI, which has a global workforce of 2250, said the weakness of the construction sector had contributed to a 4% fall in manufacturing volume to 262,400 tonnes, compared with 273,200 tonnes in 2011.

Sales fell to £479m last year, from £508m in 2011, as the construction sector's woes also affected BPI's European business. A reduction in product thickness related to the use of higher-performing raw materials was also a factor in the tonnage decrease.

Chief executive John Langlands said: "We thought it was a good performance in what we thought was a very challenging economic environment, with poor demand from the industrial and particularly construction sectors, and against a background of volatile raw material prices, where we effectively had almost two polymer cycles within the one year.

"Against that, we did well to improve our operating profits and reduce our borrowings by £8m at the same time. Overall, it's been a successful year."

BPI manufactures and supplies a broad range of packing solutions at its sites in the UK , Ireland, Belgium, the Netherlands, Canada and China.

These include packaging and printing for the food and drink industry, pallet wrapping for the building sector, and silage film wrapping for agriculture.

Mr Langlands said demand had been strong for the agricultural products of its European business and described the performance of its food packaging business as steady.

He reported growth in sales of refuse sacks up 10% but said "the negative mark was undoubtedly the construction sector", to which sales dropped by 8%. Mr Langlands also cited a 10% fall in sales to builders' merchants.

The company invested in its UK and European sites to boost manufacturing capacity over the year, and confirmed its capital expenditure programme would continue in 2013.

Projects in the pipeline include the addition of a new multi-layer stretch-film line to BPI's plant in Zele, Belgium, improvements in its heavy-duty sack production capability in Ardeer and upgrading its agricultural film operation in Canada.

BPI also said it is considering further investment in its Chinese operation amid increasing demand from New Zealand and Australia.

In the UK, BPI said it made "considerable progress" in achieving profits of more than £1m, but added that its performance had been checked by a delay in commissioning a washing plant for contaminated waste films, as well as by the problems facing the construction sector.

Mr Langlands confirmed BPI would retain the capacity to serve the construction industry and had developed new products to realise greater value from the market, including plastic bags for cement. However he said the company's focus was now on more "resilient and sustainable" markets.

Mr Langlands added: "We have moved our business progressively towards what we would regard as resilient and sustainable markets, for instance, agriculture, [the] retail food chain, healthcare and waste services, and we're now looking to invest in the business to grow both through increasing volumes and by improving our operational performance."

The BPI board is recommending an increase in the final dividend to 9p, taking the total for the year to 13.2p per share compared with 12.5p in 2011. BPI shares closed up 44p at 502p.