Cumbrian papermaker James Cropper has warned that the net impact of the sustained current high pulp price is expected to hit its pre-tax profits for the current year by £2m more than initially anticipated.
In a trading update released yesterday afternoon (18 September), James Cropper said that since its full-year results to 31 March 2018, published in June, the strength of the pulp price has continued and remains above levels forecast by the group’s external specialist.
The business now expects these higher price levels to continue for the foreseeable future and said the board is factoring the effect of the current higher price into its expectations for future periods.
Its current focus is on improving the sales mix in its James Cropper Paper division while seeking to recover margin through calibrated price increases.
Elsewhere, the group said the Technical Fibre Products Division (TFP) is “continuing to demonstrate strong and steady sales and profit growth in the key markets such as aerospace, defence and fuel cells”, with results in-line with management's expectations.
The company’s current projections show that TFP will be close to existing capacity limits in the coming years. Accordingly, it has made the decision to expand capacity by a further 50% to be available from around the start of 2021.
James Cropper 3DP, which trades as Colourform, is fulfilling a number of commercial contracts and enjoys a growing pipeline, the group said. The plastic-free packaging division is delivering on sales growth and generating revenue, and it will provide profits for the group as it scales.
The board said it takes into account the strong prospects for TFP and Colourform against the difficult pulp price environment for the paper business and “remains very confident in the strategy and subsequent growth for all divisions across the group.”
Chairman Mark Cropper said: “The persistently higher pulp prices is impacting the returns from our paper business. Against this the success of TFP and 3DP reflects the continuing efforts of the board to grow advanced technology businesses with reduced exposure to the uncertainties of commodity prices.”
James Cropper’s half-year results to 29 September 2018 are expected to be announced in the week commencing 12 November 2018. For the year ended 31 March 2018 the company recorded a pre-tax profit of £4.5m, down from £5.5m in 2017, while its revenue jumped by 4.2% to £96.3m.
Immediately after the trading update was issued yesterday, James Cropper’s share price fell by 8.4% to 1,310p and stood at 1,250p at the time of writing.