James Cropper plc

('James Cropper', the 'Company' or the 'Group')

Full Year Results

Transformational Year with Good Progress Achieved

James Cropper plc (AIM: CRPR), a global market leader in advanced materials, luxury packaging and paper products, today announces its results for the year ended 1 April 2023. 

Headlines:

Financial

·    Strong recovery in a transformational year, with a 24% increase in revenue to £129.7m (2022: £104.9m) driven by high demand and retained contracts

·    Despite the significant inflationary cost headwinds, adjusted operating profit increased 4% to £4.8m (APM1*) (2022: £4.6m)

·    £3.2m adjusted profit before tax, 21% lower (2022: £4.0m) (APM2**) due to an increase in net finance costs

·    Exceptional costs of £1.1m which reflects outperformance at TFP Hydrogen and consequent reassessment of the value of contingent consideration (2022: £0.4m)

·    Profit before tax of £1.3m, 53% lower (2022: £2.8m) due to an increase in net finance costs and exceptional costs

·    Net debt of £16.6m up 35% (2022: £12.3m)

·    Earnings per share 5.4p down 62% (2022: 14.2p)

·    Full year dividend proposal 6.0p per share in line with expectations (2022: 10.0p)

*APM1 "Adjusted operating profit" refers to operating profit before interest and prior to the impact of IAS 19

and exceptional items

**APM2 "Adjusted profit before tax" refers to profit before tax prior to the impact of IAS 19 and exceptional items

Operational

·    Strong global pipeline in Future Energy sector

·    TFP Hydrogen exceeded our expectations

·    Well advanced in the transformation of the Paper division post year end

·    Significantly tighter scope around decarbonisation project: 40% lower capital investment requirement

·    Ongoing energy saving actions contributed to 8% annualised reduction in site fuel consumption

·    Strengthened the Board and Executive leadership team

·    Strengthened broader organisational leadership to drive strategy

Outlook

·    Future Energy and Luxury Packaging to deliver high market growth and value, respectively

·    Integration of Colourform with Paper to drive a unique and compelling Luxury Packaging proposition

·    Consolidation across the organisation and estate to reduce costs and improve efficiency

·    Streamlined Paper Product offer to drive margin improvements and productivity

·    Continued technological leaders in recycled content and responsible sourcing

·    Strengthen our sector leadership in carbon reduction

·    Sharper focus with better clarity and assessment of our climate risks

·    Strong leadership team to reposition James Cropper 

·    Drive brand value, recognition and preference in each market focused segment

Commenting on the full year results, James Cropper CEO Steve Adams said:

"We achieved a good performance for the year with 24% revenue growth in spite of unprecedented market headwinds.  In FY2023, significant progress was made in repositioning James Cropper to capitalise on growth opportunities within its core and emerging end-markets, such as the fast-growing renewable energy and decarbonisation markets which are in need of novel high-performance materials and sustainable fibres.  

We will aim to drive increased value for our shareholders through accelerated growth in each of our market focused segments; Creative Papers, Luxury Packaging, Technical Fibres and Future Energy by leveraging our potential as one Company under the James Cropper name.

I am excited by the many opportunities and have confidence in our strategy to accelerate growth and in our exceptional team worldwide to make a real difference.  The foundations are in place to create a greater global presence for James Cropper, by repositioning ourselves to better serve our existing and target customers."

Enquiries:

Notes for editors:

James Cropper is a market leader in advanced materials and paper products. Led by the Cropper family for six generations, the business has an international workforce and an operational reach in over 50 countries.

Established in 1845, the Group manufactures paper, packaging and advanced materials incorporating pioneering non-wovens and electrochemical coatings.

James Cropper is a specialist provider of niche solutions tailored to a unique customer specification, ranging from substrates and components in hydrogen electrolysis and fuel cells to bespoke colours and textures in paper and moulded fibre packaging designed to replace single use plastics.

The Group operates across multiple markets from luxury retail to renewable energy. It is renowned globally for service, capability, pioneering and multi award-winning commitment to the highest standards of sustainability.

James Cropper's goal is to be operationally carbon neutral by 2030 and to reduce carbon through its entire supply chain to net zero by 2050.

Chairman's Letter

Dear Shareholders

As I look back over the last year what stands out is less the circumstances, which were challenging as ever in some quarters, but more the broad range of positive actions we have taken to reposition the Company over this period. These actions have strengthened our foundations for sustained growth in every corner.

I must thank all our customers for their support in the year. Even then, at times it was challenging to keep up with the inflationary environment. 

The resulting impact was lessened by outperformance in Technical Fibre Products and its Hydrogen business unit. Overall, however, significant credit is due to our workforce who addressed the unfolding situation with exceptional urgency and dedication.

Adapting to circumstance always leads to change and accordingly within the year we have comprehensively reviewed our growth plans and the foundations required to ensure we maximise opportunities and minimise risks as these roll forwards.

This has enabled us to bring to life our strategy in realigning the business to be centred around our customers.

Our products and markets will remain broadly the same, but we will start the journey to reposition ourselves operating as one Company. To move from three separate divisions (James Cropper Paper, Technical Fibre Products and Colourform™) into four market-facing segments, all unified under the Group name, James Cropper:

·    Creative Papers

·    Luxury Packaging

·    Technical Fibres

·    Future Energy

My greatest desire for James Cropper is that while we remain proud of our great heritage, we always feel young, and achieve this balance by seamlessly combining generations of know-how with a relentless appetite for renewal.

The reorganisation truly encapsulates this blend from our historic roots in papermaking to cutting edge materials and components in renewable energy.

Importantly, across this range it is no longer accurate to refer to us as a paper-mill or paper business, as has been the norm since our outset in 1845. Today, James Cropper is successfully transitioning to an advanced materials and paper products group across everything it does, committed to pioneering innovation in traditional markets alongside breakthrough areas.

We are determined to stay modern and relevant, which will lead us to spend more over the coming years as we invest in our processes and systems. This will enable smarter access to data, leaner working practices and cost savings.

In the same vein, we will also look to invest further in innovation to meet the anticipated demands of future markets and customers, whether technical, environmental or economic.

We have ambitious plans to decarbonise the Group's operations, the first phase will be to cut natural gas use by 25% by 2025, keeping us on track to achieve net zero across our entire supply chain by 2050. This includes novel approaches to heat generation that we hope can blaze the way for other energy intensive manufacturers.

We are also investing to enhance our position in hydrogen electrolysis, fuel cells, carbon capture and other fast-growing markets. The growth potential is significant, but we will only earn a share through step changes in performance and cost reduction. This will involve both technology advances and operational investments. For example, we have recently commissioned a hydrogen component line in the United States, taking production closer to a large share of our customer base whilst at the same time cutting freight and duty costs.

Our paper and packaging partnerships within luxury and premium retail sectors remain strong, whether designing new tailor-made papers or Colourform™ products or offering customers more sustainable options and recycled fibres.

On this note, we are proud to have been involved in the recent creation of the first-ever 100% plastic-free remembrance poppy for the British Legion, whom we have proudly partnered with since 1978.

We have also launched our FibreBlend Upcycled Technology programme, offering a choice of different recovered fibre categories. This builds on our award-winning CupCycling proposition which gives used coffee cups a second life as a valuable fibre source for high quality paper. At present, over 75% of our custom-made paper products contain a blended fibre source. Our plans in this area include developing a unique technique to separate cotton, recyclable into paper, from artificial fibres.

Dividend

In financial terms, the Group reported a profit before tax of £1.3m for the period ended 1 April 2023. This was down by 53% versus the prior period with the Group revenue rising by 24% split between Paper (+25%), Colourform™ (+29%) and Technical Fibre Products (+19%).

In line with expectations, the Board is proposing a final dividend of 4.0 pence per share, making a total dividend for the year of 6.0 pence per share.

Board changes

This year has seen several changes to our leadership team. In August 2022, Steve Adams was appointed CEO, following the departure of Phil Wild.

Since the year end, we have also seen the departure of Isabelle Maddock, our CFO, who resigned in June 2023. I would like to personally thank both Phil and Isabelle for their dedicated service to James Cropper.

Transitioning to a brighter future

As ever, James Cropper continues to earn its future by building a diversified business across multiple markets and geographies and by adapting with pace, when required.  I am very conscious that this has included the hard choice to restructure our Paper division from four machines to three with associated headcount reductions.

The decision was not taken lightly but has been essential to address years of headwinds and margin pressures and create a more resilient, profitable business.

Overall, we are blessed with a talented team and a range of materials and products that have never been more relevant in a world that rapidly needs to learn to live in greater balance with nature. Common to all our activities is the opportunity to accelerate the transition to greener economies and societies, and grow a vibrant group around this. I am hopeful these actions will position us better than ever to truly deliver on this.

Everyone in the Company is playing a part in this journey and I would like to thank all who work for us and with us for their continued commitment to James Cropper.

Mark Cropper

Chairman

23 August 2023

Chief Executive Officer's Review

I am delighted to report our financial results in my first year as CEO.  Despite a year of unprecedented economic turbulence and market volatility with high energy and raw material costs still being prevalent, we have continued to show resilience.

All parts of our business responded with conviction and pace to implement actions to offset as much of the cost headwinds as possible. The Group also experienced strong demand and retained contracts throughout the period across all divisions, with 24% revenue growth in the year to 1 April 2023, which is ahead of previous market expectations.

I wish to express my sincerest thanks to all our customers for their continued loyalty and support and to our employees who have remained focused on delivering the best outcome possible.

Over this last year, we have made significant progress in our journey to reposition James Cropper to an advanced materials and paper products group.

We have defined and introduced our six strategic priorities, building a solid foundation to drive a strategy for accelerated growth.

Our customer base is changing and we are putting the right measures in place to improve both the customer and employee experience and to truly deliver on our purpose of 'pioneering materials to safeguard our future'.

We have strengthened our commercial leadership teams to expand in markets that we currently already operate in, whilst being constantly curious to explore new opportunities. We are also in the process of further strengthening our Executive Leadership team with the skills and knowledge to support our ambitious growth plans.

The fast-growing renewable energy and decarbonisation markets are creating an ever-greater need for novel and high-performance materials, while sustainable fibres, and low, or zero, carbon processing are driving growth within paper and packaging.

After 12 months of planning, I am also pleased to share that the installation of our new energy-efficient boiler has taken place. This will dramatically improve our energy efficiency and resilience as we drive forward with our net zero carbon ambition.

These energy saving investments in upgrades to our paper machines, along with a small decrease in gross paper production over the last 12 months, have contributed to an 8% annualised reduction in site fuel consumption and

we are on track to build our Low Carbon Energy Centre with the necessary planning application attained and grant application awarded.

A strategy for accelerated growth:

1.            Profitable growth through new customer acquisition: Opportunities to expand in new and existing markets

2.            World class execution: Investment in global systems and functions

3.            Technology and Innovation: Centre for Innovation will include decarbonisation and waste fibres as well as exploring new ideas

4.            Leaders in sustainability: Recognising our responsibility to reduce and ultimately eliminate our emissions

5.            Inspiring our people: Building a culture of trust, cooperation and involvement

6.            Build the brand: Presenting a more meaningful and relevant face to our increasingly global customer base

Financial Review

Revenue and adjusted operating profit

Group revenue for the financial period is £129.7m, up 24% on the prior period (2022: £104.9m) driven by organic volume growth, price increases and the energy surcharge applied to counter energy and raw material cost increases.

Revenue for the Paper division increased by 25% in the period to £88.2m generating an adjusted operating loss of £2.8m, compared to £2.3m in the prior period.

Revenue for the TFP division increased by 19% in the period to £37.2m generating an adjusted operating profit of £9.2m, compared to £8.7m in the prior period.

Revenue for Colourform™ grew by 29% in the period to £4.3m, generating an adjusted operating loss of £1.1m, compared to £0.8m in the prior period.

The Group monitors adjusted EBITDA as it provides a measure of the cash generating ability of the Group that is comparable year-on-year. Despite demand increasing, inflationary pressures on raw materials, distribution and energy costs have dampened margins, with an adjusted EBITDA increasing by 5% on the prior year.

Energy costs proved a significant headwind and the unprecedented price rises saw costs increase 104% year-on-year, from £7.4m in FY2022 to £15.2m in FY2023. 

Similarly, with inflationary pressures in the pulp, recycled pulp, chemicals and dyes markets, material costs increased 23% year-on-year.  During the year, the Group also paid a one-off cost of living payment to employees totalling £0.6m in recognition of the escalating costs that employees were facing.

Depreciation and amortisation charges increased by 6% year-on-year, mainly due to the timings of capital investment programmes.

Divisional highlights

While operating under the Group's combined Purpose and Values, currently each business division acts independently, focusing on niche markets and growth areas:

Technical Fibre Products

Within Technical Fibre Products demand remains strong with contracts returning to pre-Covid levels in aerospace, defence and the industrial sectors.

TFP Hydrogen continues to exceed our expectations and our new coating line within our Schenectady, New York hub, became operational, building on our successful UK Hydrogen plant in Launceston and bringing capability even closer to our US customers.

This significant investment will provide a more attractive offer to our existing and potential customers across North America, as well as providing a blueprint for future James Cropper hydrogen coating lines worldwide, supporting the electrolyser manufacturing hubs being established globally as the technology adoption accelerates.

James Cropper Paper

Within the Paper division, demand in many of our traditional volume areas such as files and folders, commercial print and stationery papers has declined as those sectors continued to move away from paper to digital or they prove to no longer be economically viable.  We are taking this opportunity to right-size our business, streamlining our portfolio and service offer to be much more aligned on high value partnerships. In particular, we are focussing our offer on luxury packaging and premium creative papers where our customers really value our innovation, expertise and quality. 

This year the Embossing Centre of Excellence was opened. The installation of an embosser varnisher includes smart eye production technology for precision-made textured paper. 

This multi-million pound investment will allow James Cropper to meet growing demand for surface aesthetics in luxury packaging and creative papers, as well as best in class service for bespoke textural effects alongside the development of individual colour.

Colourform™

Colourform™ continues to disrupt the luxury packaging market, maintaining a strong pipeline of sales with 29% revenue growth throughout the year.   This was driven by innovative new market launches in the luxury drinks

and cosmetics sectors. 

We celebrated being the overall category winners for the Dieline award as well as receiving both the Yellow and Wood pencil D&AD awards. Receiving international acclaim for our creativity and sustainability in a way that no other product in the global packaging market has ever been able to achieve. 

Overall, while margins are relatively strong, profits were nevertheless impacted by inflationary pressures in raw materials and energy prices. Moving forward, the division is expected to drive ongoing revenue growth in profitable long-term packaging rebrands, coupled with an improved focus on operational performance to increase margins and manage costs.  The integration of Colourform™ into James Cropper Luxury Packaging will create greater synergies, build better efficiencies in our operating model as well as increase relevance and scale in key markets.

Expenses and profit

Other expenses have increased from £20,960k in 2022 to £25,471k in the year to 1 April 2023. The business has experienced widespread cost inflation across an array of overhead expenditure, with distribution costs and consultancy expenses increasing materially.

In the first half of the year the Paper division suffered considerable machine downtime, which resulted in a significant increase in repairs and maintenance expenditure in the year.  

TFP Hydrogen continued to perform above management expectations in the year to April 2023. Business outlook continues to improve and at the year end this required the value of the contingent consideration on the business acquisition to be reassessed.  An exceptional cost of £1,095k (2022: £354k) has been posted to the Statement of Comprehensive Income in this regard.

Management considers this adjustment a positive indication on the future value of the business and the profit that TFP Hydrogen will deliver.

With strong revenue growth, adjusted operating profit (see APM1 Alternative Performance Measures) was £4,767k in the year, up 4% on prior period, despite the challenging economic environment, which saw unprecedented raw material and energy prices.

Net finance costs have increased by £702k in the year, as the Group has continued to draw down on its external borrowing facilities and interest rates have increased notably.

The Group has hedged the first £15m drawn down of the external financing across UKEF and Commercial Facility at a rate of 1.5% plus margin, which provides assurances and visibility over future interest payments and limits exposure to increasing interest rates.

Adjusted profit before tax (see APM 2 Alternative Performance Measures) was £3,195k in the year and ahead of market expectations, partly due to stronger trading in TFP and the accounting adjustments of provisions relating to TFP.

After the impact of IAS 19 the Group reports a profit before tax of £1,313k, a 53% decrease on prior year (2022: £2,777k).

The Group's profit after tax for the period is £516k (2022: £1,358k) which calculates to earnings per share of 5.4p (2022: 14.2p).

Alternative performance measures

These accounts contain two main adjusting factors being the impact of IAS 19 pension adjustments which is separated out and exceptional items. These APM measures are used internally to evaluate business performance and are used in this report;

APM 1   "Adjusted operating profit"

Adjusted operating profit refers to operating profit before interest and prior to the impact of IAS 19 and exceptional items.

APM2    "Adjusted profit before tax"

Adjusted profit before tax refers to profit before tax prior to the impact of IAS 19 and exceptional items.

APM3    "Adjusted profit before tax after exceptional items"

Adjusted profit before tax refers to profit before tax prior to the impact of IAS 19.

APM4    "Adjusted EBITDA"

EBITDA is a common term that refers to operating profit before interest, tax, depreciation and amortisation. Adjusted EBITDA is EBITDA prior to the impact of IAS 19 and exceptional items. The impact of IAS 19 and exceptional items are presented in the summary tables of results.

IAS 19 pension adjustment is separated out from operating profit measures as the impact of IAS 19 varies from one reporting period to another which makes year-on-year comparison of performance challenging. Over the last 12 years, the average impact is a charge to profit before tax of £1,052k. This year the charge is £787k (2022: charge of £914k).

This table compares the opening and closing exchange rates for the financial period. Sterling weakened against the Dollar and Euro over the year. 59% of the Group's revenue is earned from customers outside of the UK (2022: 61%) bringing in Dollars and Euros to the Group. Euros are used to purchase Euro priced pulp and raw materials and Dollar receipts are used to fund the purchase of Dollar priced pulp, creating a natural hedge across the Group. Potential exposure to any foreign currency surpluses, or deficits, are dealt with via foreign currency trades using forward selling or forward purchasing contracts. Currency movements had a 3% impact on revenue increasing revenues by £3,884k for the period.

Statement of financial position (SFP)

Non-pension assets have increased largely due to capital expenditure, an increase in trade debtors and the recognition of the interest rate cap in other financial assets.

Capital investment in the period was £5,779k (2022: £6,761k). Investments are driven largely to enable growth in the form of increasing capacity, improving capability or generating cost savings.

We have concluded the build of additional embossing varnishing capability in the Paper division and new energy technologies have been introduced in Paper to facilitate the path towards the Group's net zero goals.

The Group experienced a greater level of revenue in the period compared to the prior period, and, inevitably with this, an increase within trade and other receivables of £2,857k and inventory of £711k.

After deferred tax the Net IAS 19 deficit has increased by £2,258k to £12,105k (2022: £9,847k), the reasons for which are detailed in the Pension Report in the 2023 Annual Report.  

As a result of these movements on the pension scheme deficits, shareholders' funds show an overall decrease of £2,449k to £32,065k.  

* see note 11 for details of the restatements.

* see note 11 for details of the restatements.

In the period the Group's net cash outflow was £71k (2022: inflow £985k).

The Group continued to invest in capital expenditure throughout the year in order to facilitate future revenue growth by building capacity and capability.

There was also an increased demand for working capital following the improved demand in the year.

Net debt

The Group incorporates £3,791k (2022: £3,949k) of right-of-use leases in its 2023 borrowings figure. The Group's banking arrangements monitor net debt excluding IFRS 16.

On this basis net debt has increased over the year from £8,345k to £12,803k, an increase of £4,458k. Net debt including right of use lease liabilities is £16,594k, an increase of £4,300k on the prior period.

* see note 11 for details of the restatements.

Funding and facilities

The Group funds its operations and investments from operating cash flow and from borrowings and leases.

The Group has a core banking facility in the UK and further loan support in the US, along with some lease arrangements, all with high street banks. The Group has a core £25m banking facility under UKEF's Export Development Guarantee scheme which is aimed at enabling additional bank liquidity to support exporters.

This finance arrangement is available for general corporate purposes and will be used to support strategic growth and innovation, capital expenditure and decarbonisation programmes. The facility has an availability period of a further 2 years and an overall tenure of 8 years from inception, repayments are on a straight line basis from years 4 to 8.  The Group's key financial covenants are EBITDA: net Interest 4x, and the Net Debt: EBITDA 3.5x. The Group is in compliance with all its banking covenants at the period end.

Cash and cash equivalents decreased marginally from £7,750k to £7,679k in the year. Long term borrowings (falling due after more than a year) increased by £4,066k to £22,515k. Facilities comprise of unused overdraft facilities of £3,500k plus the total unused credit facilities of £12,000k, this means a total of £15,500k remains unutilised at the year-end date. Having taken account of current borrowings to be paid within 12 months of the reporting period the Group has £21,421k available to the Group beyond 12 months.

* see note 11 for details of the restatements.

Inspiring our people

We recognise that it is the passionate, committed and talented people we employ that will help us navigate through the business changes and opportunities we have before us to deliver long term sustainable business growth.

Our online employee opinion survey is in its second year and saw a marked increase in employee participation as well as increased engagement.

Whilst this is pleasing to see, we will work even harder to deliver an improved proposition for our employees with continued focus on upgrading our policies, updating our working practices and reviewing our remuneration and career opportunities for all.

We have concluded the first year of our LEAP leadership development programme with 50 leaders - from first line leaders to Executive Committee members - having benefited from the course. A further cohort of approximately 40 employees will be invited to participate in the coming year.

We have committed to invest in creating a great place to work and will continue with our pledge across all our sites to improve the workplace environment, providing more facilities and amenities for our employees.

Over the next three years it is our intention to invest in a multi-million pound programme to update our IT systems and infrastructure.  This will drive significant efficiency and productivity improvements as well as improving resilience.  The investment will equip our teams to make smarter, data driven decisions and improve our response times and agility in dealing with our customers.

Looking forward with confidence

I am excited by the many opportunities we have in front of us as a Company but certainly do not underestimate the external challenges that we continue to face. 

I have confidence in our strategy to accelerate growth and in our exceptional team worldwide to make a real difference.

We will create a greater global presence for James Cropper, by repositioning ourselves to better serve our existing and target customers.

We will also drive increased value for our shareholders through accelerated growth in each of our market focused segments; Creative Papers, Luxury Packaging, Technical Fibres and Future Energy by leveraging our potential as one Company under the James Cropper name.

Building on our foundations, we aim to redefine ourselves and become - what we believe - will be a different organisation with a very bright future.

Steve Adams

Chief Executive Ofcer

23 August 2023