Paper makers hit by soaring costs
Nov 19 2008 by Karen Dent, The Journal
PAPER manufacturer James Cropper reported an increase in turnover but suffered a pre-tax loss as it was hit with higher energy and raw materials costs.
Turnover was up by 5%, or £2m, to £37.7m in the sixth months to September 27. But the Cumbrian group’s pre-tax profits plunged from £1.4m in the same period a year earlier to a loss of £200,000.
The Kendal-based company, which produces technical and speciality papers and runs the 23-store Paper Mill Shop chain, said the loss was due to the severe effects of high wood pulp and energy costs on its speciality papers division.
Chairman James Cropper, the great, great grandson of his namesake who founded the business in 1845, said: “Based upon current market projections the total cost of gas consumption in the current financial year could exceed £5.5m, compared with £2.7m in the previous year.”
The Paper Mill Shop traded at a loss, with sales down by 7% and the business made around 20 people redundant during the first half of the year. The company plans to close a number of under-performing stores when their leases expire. But it said there were no plans to dispose of the retail division.
However, despite the cost pressures, its technical fibre products’ turnover jumped by 15% and profits rose by 4%, while turnover in the speciality papers division increased by 7%, although the section suffered an overall loss. Its converting division, which manufactures paper and board products, suffered a 5% drop in turnover.
The technical fibre products order book was strong going into the second half of the year but Mr Cropper said it was difficult to project the outlook for its speciality papers because of continued uncertainty about energy and pulp costs and exchange rates.
Mr Cropper said: “There is no doubt that the current financial year will be challenging. Nevertheless, I am confident that through our existing management approach and a combination of profitable sales growth, product development, energy savings and efficiency improvements, the group will be well equipped to capitalise on opportunities when the economic climate becomes more favourable.”
Group finance director John Denman said the falling prices of energy and wood pulp and the weakness of the pound would benefit the company.
He said: “A significant amount of our business is exports, about 35% and we use our currency inflows to buy raw materials. The pulp price is down in dollar and euro terms, although the full impact is not being felt in our speciality paper business.”
The interim dividend was reduced to 1.1p a share from 2.2p in the same period last year.
Investment bankers Brewin Dolphin in Newcastle said its forecast for the year remained unchanged. But analyst James Tetley warned that despite signs cost pressures were beginning to ease, input costs in the speciality papers division remained volatile.
