James Cropper shares hit amid ‘unprecedented inflation’

Shares of Kendall-based paper products and advanced materials firm James Cropper plc fell about 12% after it published an update on trading for the half year ended September 24, 2022, warning of “unprecedented inflationary pressures.” 

The company said that as a result of the “current unprecedented macro-economic environment” management expectations for the full year have been reduced to a year-end adjusted profit before tax of £2 million against previous market expectations of £5.4 million.

James Cropper said it experienced a strong start to its financial year, with revenues in Q1 2022 up 36% on the prior year and demand across all three of its 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.

However, the company said: “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 £multi-million 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 FY23 have been reduced with a year-end adjusted PBT of £2.0m against previous market expectations of adjusted PBT of £5.4m.”

James Cropper chairman Mark 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.

“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.”