Cropper(James) PLC – Half-year Report

Half year results to 29 September 2018

Highlights

·      Revenue growth in all divisions with total revenue up 6% on prior year comparative

·      Continued higher pulp prices over 2018 impacting profitability for the year

·      Adjusted PBT (excluding IAS 19 impact) at £1.9m, down 31% on prior year comparative

·      PBT at £1.4m, down 39% on prior year comparative

·      EPS (diluted) down 44% to 12.9p from 22.9p on prior year comparative

·      Preparations in place for additional TFP non-woven capability increasing capacity by 50% by end of the 2020 calendar year

·      Further investment in production capacity for 3DP Colourformä  in 2019 to increase capacity by 50%

Mark Cropper, Chairman, commented:

“TFP has delivered its best ever sales performance for a half year and is set to continue growth in the second half. Plans are in place for additional TFP non-woven capability increasing capacity by 50% by the end of the 2020 calendar year. Paper sales have grown by 6% compared to the prior period comparative but with pulp prices projected to add an additional £3.5m of costs compared to the prior year our paper business is severely impacted. 3DP Colourformä is making progress with commercial projects, confirming the potential for this new business. Plans are in place to expand capacity by a further 50% for this division by early 2019.

Within the Group we continue to invest significantly in people, innovation and capability. This will ensure that over the long term the Group has the potential to sustain growth across all its businesses. In the nearer term, expectations for the full year remain unchanged from the previous trading update.”

Dear Shareholders

I am pleased to report that James Cropper PLC recorded a 6% increase in revenue for the first half, compared to the prior year comparative, with growth in all divisions. Adjusted profit before tax (excluding the impact of IAS 19) was £1.9m for the first half of the current financial year, compared to £2.8m in the prior comparative period.  After the impact of IAS19, profit before tax is £1.4m, down from £2.3m in the prior comparative period.

The Group continues to experience higher than expected pulp prices as noted at the trading update issued in September. The high pulp prices are projected to add an additional £3.5m of costs in the current financial year versus last year with the returns from our paper business severely impacted. Meanwhile, TFP profits have grown in the period on record first half sales. Finally, 3DP sales have progressed with a growing pipeline.

Technical Fibre Products (“TFP”)

TFP has delivered its best ever sales performance for a first half year, with 7% revenue growth over the comparable period last year and is expected to deliver further growth in the second half. There was growth across all the targeted global market sectors, with notable performances in the aerospace, defence and fuel cell markets.

Plans are in place for additional non-woven capability at Burneside, which will increase capacity by a further 50% by the end of the 2020 calendar year.

James Cropper Paper (“Paper”)

Paper revenues have grown by 6% compared to the comparable period last year, with growth seen in all geographical markets. During the first half and into the second half, pulp prices have placed downward pressure on our margins and profitability.

Further commercialisation of CupCyclingä has increased the output of the existing coffee cup recycling plant, providing further independence from virgin pulp. As the proportion of recycled coffee cup pulp currently used is relatively low compared to virgin pulp, activities are underway to increase recycling capacity and capability to use alternative fibres rather than virgin pulp.

James Cropper 3D Products (“3DP”)  

Colourformä revenues are making progress, with the pipeline building well; confirming the potential for this new business. Revenues have been generated predominantly in the UK but includes exports to the Americas and Europe.

High production demand is predicted by early 2019, in response to which we have earmarked further investment in production capacity to increase it by a further 50% in early 2019.

Pension

The Group operates three pension schemes with close to 60% of employees holding a defined contribution personal payment plan. The Group operates two funded pension schemes providing defined benefits, for a decreasing number of its employees. The IAS19 valuations, for the defined benefit schemes as at 29 September 2018, revealed a combined deficit of £19.8m, compared with £19.5m as at 31 March 2018. After deferred taxation the net deficit stands at £16.4m.

Earnings per share and Dividend

Diluted earnings per share decreased to 12.9 pence, compared to 22.9 pence in the prior year comparative period.

The Board has declared an interim dividend of 2.5p per share (2017: 2.5p). The final dividend for the year to 30 March 2019 will be subject to shareholder approval at the AGM on 31 July 2019.

Outlook

TFP has delivered its best ever sales performance for a half year and is set to continue growth in the second half. Plans are in place for additional non-woven capability in TFP to provide an additional 50% capacity by the end of the 2020 calendar year. Pulp prices are expected to level out and fall slightly into 2019. Paper sales are projected to grow year on year with an improved mix, however, the year remains challenging due to the impact of pulp pricing. Investment evaluations are ongoing to give the business greater independence versus the volatility of commodity pulp pricing. Continued commercialisation for the 3DP Colourformä business is projected and plans are in place to expand capacity for the division early in 2019.

Within the Group we continue to invest significantly in people, innovation and capability. This will ensure that over the long term the Group has the potential to sustain growth across all its businesses. In the nearer term, expectations for the full year remain unchanged from the previous trading update.

Mark Cropper

Chairman