James Cropper PLC (CRPR) Earnings Call Transcript & Summary

Good morning, and welcome to the James Cropper PLC Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to David Stirling, CEO. Good morning, sir.

Good morning. Thank you very much. I'm joined here by Andy Goody, our CFO, on the other screen to present to you the results for our year-end 2026. So a quick introduction to James Cropper PLC. We have two divisions. The business started off as a papermaker and paper and packaging is still our largest business. About 2/3 of the turnover comes from the paper and packaging business, and we supply very many markets globally, U.K., Europe, North America, some markets in Asia and best known for color papers and the quality of our products in a range of markets, including kraft papers, graphics, specialty packaging, et cetera. The other part of the business is Advanced Materials. Most of that business, we create paper-like materials from other raw materials like carbon fiber, polymer, glass, et cetera. And these are used in a very wide variety of mainly industrial applications, but also including things like sports and leisure. The range includes things like medical, aircraft, defense, construction, et cetera. So -- and we also have a metal coatings business that primarily supplies into the hydrogen business. So with that brief introduction, let me talk about the results quickly. I joined in early 2025. So this is my first full year as Chief Exec. And it's been a [indiscernible] year. When I joined some key objectives. The first one was to improve performance in the Paper division, which has been the last 4 or 5 years, losing money. And the second objective was to get growth in Advanced Materials. And the third one was to improve our financial position and balance sheet. And Andy will talk about that as we go through. The results of the financial year, we saw about 4% increase in turnover. That came predominantly from Advanced Materials, which grew 11%. We saw a 33% increase in EBITDA. That's a preferred metric for profit. It's a core metric here. And that 33% included a profit upgrade late in the year. We've got some adjusted profit metrics there, but again, showing the same picture, a very strong improvement in the profitability of the business. Our net debt reduced by almost GBP 5 million and is now sitting at a pretty comfortable below 1x EBITDA. So generally a very good performance in the period. If we talk about the group, what did we do, and how do we do it? As I said, Advanced Materials is about 1/3 of the business, Paper and Packaging about 2/3. And when we look at the performance, really, it's about being a good operator. The Advanced Materials business actually operationally was pretty well run. We just weren't seeing top line growth, but good margins in there and the challenge is to make sure that growth continues. And in the Paper and Packaging and group functions, it was really about getting the business rightsized and becoming operationally efficient. So that's something that has been a big focus for us this year. And when we talk about the Paper business in a minute, I'll give you some feeling for the progress being made there. Advanced Materials first. So our turnover increased by 11%. We are selling almost GBP 40 million sales in the year. And the growth came predominantly from our Hydrogen Coatings business. That's one of our largest customers there, had a very, very good year. And the rest of the business, actually a few pluses and a few minuses, but generally, operations performed well, but we didn't really move forward as fast as we wanted to on the commercial side. So that's something to address at the moment. The divisional profitability increased from GBP 10.6 million to GBP 11.4 million. So that's a good increase in EBITDA. And we did invest additional money in the year in sales, marketing, R&D to look for areas for future growth to support those future growth initiatives. So the drop-through on -- from revenue to earnings wasn't quite as strong as it could have been, but that was a deliberate action by management to behind our commercial ambition. If we look at the sectors that we operate in, you can see a fairly wide range of sectors here. I would really categorize the business into two main sectors. One are nascent markets. Those markets are such as carbon capture, the hydrogen economy battery, fuel cell, et cetera, are really just getting started. Battery is obviously a bit more advanced. But the other ones, they're very small compared to people's expectations of what they could be in the future. There's a lot of people [indiscernible] for position. There's a lot of technology development in there. And so they are -- they do offer opportunities for really good growth, but they're also much more risky. I think it's a really interesting part of our portfolio, but very difficult to predict where they're going and obviously, the risk of technological change coming. So we're very active there. We're happily active there, but it's a very different feel from the rest of the business. And the rest of the business primarily are fairly well-established markets. Things like aerospace, medical, et cetera, decent growth rates in the markets, but we're actually more about specific projects, specific customers, et cetera. So trying to improve our sales in a very targeted way. James Cropper are a very small player in these big markets. So what happens in the market is less important than what happens on the project, if you like. And if we think about our growth opportunities, again, I would probably think about these in two different areas or different kind of opportunity sets. The first things like aviation, defense, medical, et cetera, they tend to be quite highly regulated. Lead times are long. We're working on projects right now in aviation that could be active in 2035 and beyond. So most aren't as long as that, but it's very difficult to move the needle in the short term. So happily active, happily supporting those projects and customers, but unlikely to move the dial in the next few years. There are other markets such as consumer, electronics, sports and leisure, construction, et cetera, where the development cycles are shorter and the life cycles are shorter. And so we can probably get more short-term benefit from focusing on those markets in terms of the turnover. And I think you've got to get the balance right. It's great having lots of long-term potentially big projects, but we need to make sure the pipeline is moving forward and delivering revenue in the short term as well. So that's kind of what we're doing in Advanced Materials. If we look at Paper and Packaging, it's about 2/3 of the James Cropper Group. Revenue in the year was about the same as last year. Our profit, again, on an EBITDA metric, we lost about GBP 0.5 million. But during the year, we started with a first half loss of GBP 0.7 million and a second half profit of GBP 0.2 million. So we're improving through the year. And that's a vast improvement on the GBP 2.1 million we lost last year. And that momentum is continuing into into 2027 year-end. So a very strong start of paper and the profitability picture is improving pretty rapidly in that business. And the reason it's improving that rapidly is two things. One is that we have managed our cost base. So we have fewer people in the business. We have fewer overheads. We are running the factory 5 days a week rather than 7 days a week, which allows us to save energy 2 days a week. And we have rebalanced the mill in the sense of if we're making product that creates scrap, we've got other products that can use that scrap. And so we become overall a lot more efficient. And that properly balanced paper mill concept is a big factor in how we plan to grow and go forward paper business. If we look at the markets that we're in, you can see here a wide range of markets. I think we are particularly active in some of them, but they're all important. One of the things that happened in 2026 was that a very large customer, in fact, the largest customer that we have or we have in the business decided to source paper from another mill, and that was after a 50-year cooperation with them. Unfortunately, that meant that our revenue of that customer, it was about GBP 13 million in a normal year. We had 1 quarter of it last year, so about GBP 3 million. And that gave us kind of GBP 10 million gap in revenue, which is a big number to make up. Very pleased to say that's what we did. We gained some of that business back through partnering with a long-standing customer in other areas to be paper merchant in the kraft paper market. And going direct to some end users there was successful to an extent. But actually, the rest of the growth was made up by other markets that we were already starting to target. So you can see how successful we were in getting some of the other business come through the door. And we have a bit of a headwind in the first quarter this year from the GBP 3 million we sold last year. But actually, we're already ahead of where we were last year in the first quarter in the paper business. As I said, a very, very strong improvement. And getting that commercial engine going, getting the operational efficiencies in place is really transforming a business that struggled in recent years. So with that, I'm going to transfer to Andy to talk through the financials in a bit more detail.

Thank you, David. Good morning, everybody. So financial highlights on here, and David has touched on the key elements of this already, and we'll look at some of the detail in a moment. But the key points to highlight on here are the 33% increase in adjusted EBITDA, which, as David mentioned, is our key profit metric and also a GBP 5 million -- nearly GBP 5 million reduction in net debt, both critical objectives for us through the year that ended in March '26. I'm pleased to say that we outperformed expectations in both areas. So just look at in a bit more detail at revenue. Our Advanced Materials business grew its revenue by 10% when we adjust for the effect of changes in currency. We sell a fair amount overseas in that business, which is a strong performance. As David mentioned, that level of growth was heavily reliant on the performance of a single customer in the hydrogen coating sector. So we benefited significantly from that. Elsewhere, we saw some ups and some downs, but strong revenue growth across the year as a whole. In terms of the Paper and Packaging business, the story there around revenue is really the one that David just mentioned. We lost a significant customer early in the period, but the team in that business did a fantastic job to grow revenue with everybody else, including some new customer wins in the year by around 20% fully made up for the loss of that customer that David mentioned. So across the year as a whole, revenue was broadly in line with the same period last year. In terms of our EBITDA profit, EBITDA was up GBP 2.2 million or 33% across the year, driven by two big things really. One was the level of revenue growth in the Advanced Materials business and the other was the significant improvement in the profitability of the paper business, as David has outlined, a significant drop in the EBITDA loss of that business made to GBP 0.5 million for the year. But by the second half, 6 months to March 2026, that business made a small EBITDA profit. So major step forward in that business, and that was driven, as David mentioned, by becoming more efficient in the way we use our materials and energy and some savings in people costs as well. So significant step forward in profitability in the paper business. Revenue growth in Advanced Materials resulted in EBITDA comfortably ahead of last year and indeed ahead of our expectations and the market expectations. In terms of net debt, the green bar on here is showing you the gross debt in the business and the black bar, the net debt. So that's the debt less the amount of cash we have on our balance sheet. And you can see that, that peaked about 3 years ago, and it's been dropping significantly since then. And the red line shows the ratio of our net debt to our EBITDA profit, which is a really important measure of financial health, financial resilience. And we've seen a significant drop in that ratio over the last two years to slightly under 1x. That was achieved over the last 12 months, and we saw a drop in net debt by GBP 5 million. That was achieved by the EBITDA performance itself, which generated a significant amount of cash. We were disciplined in terms of capital expenditure and working capital management that helped us well. We also benefited from collecting out some of the tax amounts that we. We've completed that process now. And we sold some non-core intellectual property assets or one particular asset earlier in the year for about GBP 1.5 million. So a number of activities, some one-offs, some disciplined cash management, which really is business as usual for us now as a business, helped us bring net debt down significantly during the year to a point where our debt position is healthy. Our balance sheet is resilient. This is the balance sheet here. I've touched on this already. But in terms of the resilience and the strengthening of the balance sheet that we've seen over the last 12 months, our net assets have gone up by GBP 4 million. Our net debt has gone down by GBP 5 million. And our pension deficit in terms of the accounting measurement has dropped by around GBP 2 million. There's some really significant improvements in terms of balance sheet health, balance sheet strength. This is the cash flow. And again, as I mentioned, at the heart of this is a strong performance in terms of trading. We manage working capital and capital expenditure well as a business. And so we were comfortably able to meet our obligations to our debt funders and to the pension fund and still see a significant improvement in the overall cash and debt position of the business over the course of the year. In terms of our pension schemes, we have two pension schemes that had a combined deficit at the end of March 2026 of GBP 14 million. So it's quite a big number for us as a business. The deficit has dropped, as you can see on the black bars on the chart, the deficit has dropped over the last two years. During the year, we also had our triennial actuarial valuation, which is a critical valuation that looks at the health of the scheme and assesses where we are in terms of the conversations we need to have with the scheme trustee. That improved by about GBP 4.5 million in the year. So whichever measure we look at, the position is improving. And we've agreed a level of repayments into the scheme with the pension trustee to ensure that the scheme is fully funded and that's part of our commitment to our pensioners. So this is improving this position. It probably -- we're probably 7 to 8 years away from this being back into balance, but we have a plan to deal with that. The deficit is going down. It's getting more manageable as our balance sheet position strengthens. And so that's where we are in terms of managing this important obligation of the business. A couple of weeks ago, we completed and announced a refinancing of our debt package in the business. Again, a major step forward for us as a business. It was possible to do this now because the significant improvement that we've seen in the debt levels in the business and the strong trading, which meant that banks -- existing banks were very keen to support us in what we did. And in summary, what we did was we have borrowed some money or put in place a facility with the banks that is secured on our receivable or our debtors ledgers in our U.K. businesses, and that allows us to borrow money as and when we need it. And that enabled us to pay off about GBP 7 million on our largest term debt in the business. And that achieved a number of really important benefits for us as a business. It's reduced the scheduled debt repayments that are coming up over the next 4 years by about GBP 7 million. And for us, that is really important. It's the difference between having debt repayments that could have been challenging in terms of all the other things that we want to do as a business and having debt repayments that are imminently manageable in terms of our underlying cash generation and balance sheet position. So that's really important to have got to that point. The other thing that this refinancing does is gives us access to more liquidity, more cash availability as and when we need it. It provides the ability to borrow more money as the business grows if we need to fund additional working capital spend as the business grows. And it also is going to reduce our interest cost by around GBP 250,000 compared to what it otherwise would have been. So lots of big benefits for this. And this puts in place the right medium-term funding structure for us as a business and in a sense, completes the work we've done over the last two years to put in place a resilient balance sheet that is able to deliver and support what we want to do as a business. So that's the key financial highlights. I'll hand back to David, who will give you an update on current trading and outlook for the business.

Yes. Thanks, Andy. Very comprehensive presentation. So where are we right now? Well, just to remind you, we have had a good year in '26. We are significantly stronger than we were last year. And we have actually overcome quite a few challenges. The first half of -- the start of this financial year, we've actually started really with good momentum coming through from the back end of last year, particularly in the Paper business. And so we are expecting further growth in profit this year. And I think if you look at the analyst notes, you can see that, that confidence is shared. The outlook is unchanged. We've probably got in Advanced Materials more of a challenge this year, particularly our Hydrogen Coatings business did really well last year, and that's likely to be a bit less this year just with some normal timing variation there. And we haven't quite got the pipeline moving in the rest of the business to cover that in Advanced Materials in the short term. Let's see, it's early in the year, and we're working hard on it. But I would think that the growth in the year will come more from momentum in the Paper business, and that will be a strong contributor to overall group profit growth this year. There's a lot to do still, but that's good. It gives us a chance to improve and improve. And that focus and discipline is now beginning to show through in the business, and I'm confident that we are in a position to create long-term value for the shareholder group. So with that, I will stop the formal presentation. If you have any questions, please put them in the question bar. We have a few questions come through already. So I'll turn to them and give you a chance to think of what we said this morning.