The profit warning announced this morning (31 October) sent the Cumbrian paper maker’s shares tumbling by more than 25% to a new 52-week low of 750p. 

The group broke even in the six months to 24 September, but has drastically reduced its expectations for pre-tax profits for the full year from £5.4m to just £2m.

James Cropper said that its energy costs were up 148% year-on-year, while raw materials had experienced “unprecedented inflationary headwinds” and were up 20%. Raw materials represent a bigger part of the group’s costs than energy. 

The group had implemented surcharges and price increases to mitigate the impact but said margin were “temporarily being squeezed”, especially at its Paper division. 

Chairman Mark Cropper said: “The uncertainty and unprecedented inflationary pressures from rising raw material and energy costs have forced us to revise our profit expectations, despite each division showing strong demand and growth in sales. 

“The Paper division has been hit the hardest due to being an intensive energy business, but is successfully mitigating the impact with price increases and increased energy surcharges.”

He said that despite the short-term setback in profitability, growth prospects for the group as a whole remained significant. 

The group’s order books are full, with investments made to support future growth including new embossing and varnishing capacity at the Paper wing to meet demand from the luxury packaging market.

James Cropper said it expected a recovery in the second half of the year “through aggressive pricing actions and surcharges”, and would be aided by the recently announced government support on energy prices.

James Cropper’s share price recovered to 887.50p in subsequent trading. The 52-week high is £16.50.