Cumbrian papermaker James Cropper has warned that a “significant increase” in pulp prices is likely to hit its full-year profits.
At the group’s half-year results, announced in November and tracking the period to 30 September 2017, it was stated that the group’s full-year results were expected to be in line with the board's expectations, notwithstanding a £2m adverse headwind “due to a significant increase in pulp price impacting the paper division”.
The initial impact of this headwind was offset by interim cost savings and the trading strength of the group’s Technical Fibre Products (TFP) division.
But, in a trading update released today (24 January), James Cropper told investors that the price of pulp has continued to rise beyond levels forecast by the group's external specialists since the announcement of the half-year results.
“The full year impact of the higher pulp price on the group’s pre-tax profits is now expected to be approximately £3.5m, with a net impact, allowing for the strength of TFP’s trading and the interim cost savings, of £1.5m,” the company said.
“The board, accordingly, expects pre-tax profits for the year to 31 March 2018 will be in the region of £5.7m.”
For the year ended 1 April 2017, James Cropper recorded pre-tax profits of £5.6m, which was up 44% on the previous year. Its revenue for the same period was £92.4m, up 5.12% year-on-year.
For the half-year period to 30 September 2017, the group posted revenues of £47.4m, a 4.4% increase on the prior year’s figure of £45.4m.
Returning to the trading update, the business said the underlying performance year-on-year of its James Cropper Paper (JCP) division, excluding the effect of rising pulp prices, remains healthy with operating margins increasing in line with board expectations.
Furthermore, it said positive media reports on its recently launched CupCycling initiative – a closed-loop system that recycles consumer coffee cups – has generated additional interest in the company's capability and brand.
The group expects pulp prices to reduce to more normal levels over the next 12 months but, notwithstanding this, JCP is accelerating investigations into alternative strategies that it said should minimise the effects of such commodity price increases in future years.
The group said its 3D Products (3DP) division has seen further commercial orders in the latter half of this year, while its TFP division also continues to perform strongly, with fuel cell and aerospace technologies gaining traction.
The board said it remains “very confident” in the strategy and subsequent growth for all divisions across the group.
James Cropper’s share price dropped by 10.5% from 1,788p to 1,600p following the trading update announcement but has recovered slightly to 1,699p at the time of writing.