Paper group forecasts better profits, but two-year recovery period

Kendal based paper firm James Cropper said it expects to report better pre-tax profits for the year ending March 28.

In a trading update today, the Cumbrian business confirmed that, as a result of delivering on the growth strategies within each division, the group produced a strong performance last year with positive growth in both revenue and profits.

Market penetration and expansion has been achieved across the divisions.

Adjusted pre-tax profits – excluding IAS 19 impact – are expected to be well ahead of market expectations for that period and in excess of £6m.

Touching on current trading, the company said that, while it was on track to continue growing, the impact from COVID-19 will have a negative effect on product demand in each of its divisions.

Technical fibre products is likely to see a downturn as a result of a decline in the aerospace market. However, growth is continuing in clean technology markets such as fuel cell and wind energy. As a result, the group expects demand will not be so significantly affected.

James Cropper Paper is likely to be the most affected of all divisions in the short term, as end markets have been directly impacted by the global lockdown. As a niche speciality provider, it expects demand and growth to return to normal levels after markets settle post-pandemic.

Despite the impact from COVID-19, the business expects Colourform to grow year-on-year, however, not to the levels anticipated initially.

Given the high levels of uncertainty, Cropper said it is not reasonably able to forecast the impact on its operations and financial performance for the current fiscal year.

The environment is subject to rapid change.

Nevertheless, at present it is expecting that the course of the financial year will be as follows: The first quarter to June 2020 to incur a large negative impact and it will be loss making.

During this period, the company is making use of the Government’s Coronavirus Job Retention Scheme to furlough more than 50% of staff in the UK operations.

In the next two quarters, to December 2020, it expects still to see a negative effect and to continue to be loss-making, albeit with some recovery evident.

For the final quarter, to March 2021, it expects progressive recovery towards a more normalised situation and the company anticipates being back into profitability.

It said: “We continue to monitor new information as it becomes available and progress our planning accordingly.”

Today’s update said that the business is now in an 18-24 month recovery period.

It expects a hit to cash during 2020-2021 over the period of the COVID-19 pandemic and as we return to more normal trading conditions.

It said: “We have acted promptly to conserve cash and to implement immediate savings to shore up reserves, including announcing that the board has decided not to pay a final dividend in respect of the year ending 28 March 2020.

“The company presently has liquidity of over £12m, including cash and available overdraft facilities which, when taking into account the cash management actions being implemented, is expected to be sufficient to weather the COVID-19 crisis and the return to more normal trading conditions.

“The board, nevertheless, is also considering the funding of its capital expenditure plans post the COVID-19 crisis, which support the future growth of the business.

“Accordingly, it is in the early stages of discussions with its bank debt providers on potential future facilities.”