James Cropper sees profits slide by a fifth

It’s been quite a tumultuous year for paper and packaging specialist James Cropper (CRPR).

A major restructuring led by a new management team has been taking place at the 178-year-old company at the same time as it has been grappling with huge increases in energy and raw materials prices.

Energy costs doubled during the year to £15.2mn, and materials costs rose by 23 per cent, mainly due to the rise in pulp prices. Still, the company managed to pass on most of these increases without any significant loss of sales. The paper division did experience a contraction in volume, which chief executive Steve Adams says was deliberate as part of its plans to “right size” the business. It reduced the number of paper machines it operates from four to three – an exercise that involved a 10 per cent cut in jobs and other changes to working conditions, allowing for two machines to run continuously in a bid to operate more efficiently.

The benefits of this, and other changes, will take time to feed through, though. Although all three of its restructured divisions reported top-line growth of between 19 and 29 per cent, two of the three were lossmaking and the group’s adjusted profit before tax slid by 21 per cent to £3.2mn. Net debt also increased by £4.3mn to £16.6mn.

The restructuring is now 50-75 per cent complete, Adams said, with most of the remainder to be finalised by the end of the calendar year. Once delivered, management expects higher growth from businesses targeting energy markets and luxury packaging, as well as some margin improvement.

Yet even after a 33 per cent slide in its share price over the past 12 months and a doubling of house broker Shore Capital's earnings per share forecast to 50.7p, thin trading volumes and a wide bid-ask spread mean investors who buy in expecting a recovery risk getting stuck if it doesn’t materialise. Sell.

Last IC View: Sell, 1,035p, 22 Jun 2022