James Cropper slashes profit forecast after energy cost hits
Paper manufacturer James Cropper has slashed full year profit forecasts by more than a half due to rising energy costs.
The Kendal-headquartered group says it expects to announce full year adjusted pre-tax profits of £2m, compared with an original target of £5.4m.
The company issued a half-year trading update for the period to September 24, 2022, today, which revealed it has broken even in the reporting period.
It said, as announced at the annual general meeting, on July 27, 2022, the group experienced a strong start to its financial year, with revenues in the first quarter 2022 up 36% on the prior year, with demand across all three divisions ahead of the prior-year quarter. Revenues for the half year were up on the prior year by 26%, with demand remaining strong across all divisions.
As a direct result of continued wholesale gas price rises, the group’s energy costs have increased by 148% versus prior year. The impact of inflationary pressures had been mitigated in the first part of the year by the application of energy surcharges, but energy prices again spiked from late July and again in August. At the same time raw materials, which represent a larger proportion of overall costs, have been subject to unprecedented inflationary headwinds, rising 20% over the same period.
The group has responded to the multimillion-pound impact of these sudden rises with a combination of energy surcharges and price increases, but the time to implement these has, nevertheless, resulted in margins temporarily being squeezed, especially so in Paper.
The net result has been that the group has achieved a break even position for the first half of the year.
The second half of the year shows a recovery through aggressive pricing actions and surcharges, supported by the recently announced government support on energy prices.
Each division is projecting volume growth over the second half. Order books are full and the company is focused on a range of enabling actions to build a solid foundation for continued future growth.
As a result of the current unprecedented macro-economic environment, management expectations for fiscal year 2023 have been reduced with a year-end adjusted profit before tax of £2m against previous market expectations of adjusted PBT of £5.4m.
The embossing and varnishing capacity in the Paper division, providing additional capability to meet demand in the luxury packaging market, is now installed and commissioned. Additional coating capacity for TFP Hydrogen in the USA is now operational.
The group remains committed to decarbonisation and its plans for this have moved into the detailed design stage, with site arrangements under review to facilitate the construction of a new energy centre. Design work is expected to be completed as scheduled this financial year.
Mark Cropper, chairman of James Cropper, said: “The uncertainty and unprecedented inflationary pressures from rising raw material and energy costs have forced us to revise our profit expectations, despite each division showing strong demand and growth in sales.
“The Paper division has been hit the hardest due to being an intensive energy business, but is successfully mitigating the impact with price increases and increased energy surcharges.
“TFP has had higher revenues for the first half, albeit with growth not materialising as quickly as expected. The new hydrogen coating line in the USA is now commissioned and ready to support growth in the North American hydrogen market.”
He added: “The Colourform division continues to maintain a strong pipeline of sales and the division’s eye-catching and eco-friendly packaging designs have received further international accolades.”
“Overall, despite the short term setback in profitability, growth prospects for the group as a whole remain significant in the coming years.”
