Continued progress in a challenging environment
Accrol (AIM: ACRL), the UK's leading independent tissue converter, announces its unaudited results for the six months ended 31 October 2021 ("H1 22" or the "Period").
Gareth Jenkins, Chief Executive Officer of Accrol, said:
"This has been one of the most challenging periods in the industry that I have experienced in my 25-year career. Tissue pricing has reached unprecedented levels, driven by escalating energy costs (rising as much as 500% for certain suppliers) and global sea freight charges, combined with increased UK transport costs, resulting from HGV driver shortages.
"Despite the challenges, the Group is on track to recover the cost increases that it has absorbed, as a result of these challenging market dynamics, from its supportive retailer customer base. Whilst the profitability of the Group will be impacted in the short-term, due to the time-lag on price increase implementation (averaging 2-3 months), we expect to exit the year in a strong position both operationally and commercially.
"Improving market conditions during the period did, however, result in month-on-month growth throughout H1 22, as shopping behaviours started to normalise. Q2 revenues were 17% higher than Q1 and market share was 15.3%, as we entered H2 22. We have also seen pleasing progress at John Dale, our biodegradable wet wipe business. The flushable range of products has been well received by retailers and wet wipe sales were up 33% in the first six months of ownership. In addition, our new direct to consumer markets, supplied by our Oceans brand (revenues up c.140% in last six months, compared to prior six months) and our recently launched Amazon offering."
Key financials
| |
H1 22 |
H1 21 |
Change |
| |
|
|
|
| Revenue |
£73.7m |
£62.3m |
18.3% |
| Gross margin |
24.7% |
23.7% |
4.2% |
| Adjusted EBITDA1 |
£5.0m |
£5.4m |
-6.7% |
| Adjusted profit before tax2 |
£0.7m |
£2.6m |
(£1.9m) |
| Loss before tax |
(£3.5m) |
(£0.5m) |
(£3.0m) |
| Adjusted diluted earnings/(loss) per share |
0.2p |
0.9p |
(0.7p) |
| Diluted (loss) per share |
(0.8p) |
(0.2p) |
(0.6p) |
| Adjusted net debt3 |
£21.6m |
£18.1m |
19.4% |
| 1 |
Adjusted EBITDA is defined as profit before finance costs, tax, depreciation, amortisation, separately disclosed items and share based payments |
| 2 |
Adjusted profit before tax is defined as loss before tax, amortisation, separately disclosed items and share based payments |
| 3 |
Adjusted net debt excludes operating type leases recognised on balance sheet in accordance with IFRS 16 |
Highlights
| ● |
Revenue growth of 18.3% to £73.7m, reflecting the successful scaling and diversification of the business since the acquisitions of Leicester Tissue Company ("LTC") and John Dale ("JD") |
| ● |
Improving trend throughout the Period with Q2 revenues (£39.8m) 17% higher than Q1 (£33.9m) |
| ● |
Gross margins improved versus H1 21, despite raw material cost increases |
| ● |
Adjusted EBITDA of £5.0m achieved, despite increased operational costs caused by supply chain issues |
| ● |
Significant price increases delivered in the Period with a supportive retail customer base |
| ● |
Strong performance from JD with a 33% increase in its biodegradable wet wipe sales in the first six months of ownership |
| ● |
Strong market position maintained, despite a 1% reduction in market size and ongoing impacts of the pandemic in Q1 |
| ● |
LTC and JD acquisitions fully integrated and synergies being realised, as anticipated |
| ● |
Business continued to operate safely throughout the Period with zero lost time accidents |
Current trading and outlook
| ● |
Stronger volume momentum, as the Group entered H2 22 |
| ● |
Operational improvements on track with the final automation of the Leyland site to complete by the end of March 2022, which, alongside the final machine installation, will complete the major investment into the Group's Tissue business |
| ● |
Despite a slower than anticipated recovery from the discount retailers, many discounters have announced accelerated store openings over the next 12 months, from which the Group is well positioned to benefit |
| ● |
Following another uplift in energy costs impacting all parent reel suppliers, a further product price increase is being implemented. A successful outcome to this process is supported by Accrol's strong position in a tightening market for finished tissue products and parent reels. |
| ● |
A full strategic review is being initiated to capitalise on the evident strength of the business' market position, its balance sheet, and its solvency, underpinned by significant banking support, to ensure that shareholder value is optimised |
| ● |
Group on track to deliver revenue growth of 17% to c.£160m and Adjusted EBITDA of c.£9.0m, despite an annualised increase in costs of c.£50m |
Dan Wright, Executive Chairman of Accrol, said:
"On 12 January, we issued a trading update as unavoidable surcharges to parent reel prices, relating to exceptional energy price increases, were levied on the Company, and this, together with further inflationary pressure on input costs since the end of H1 22, will impact growth in the current year.
"To mitigate these further significant cost increases, the Group is engaged with all its customers to achieve further substantial price increases, over and above those secured in mid-2021. This is an ongoing process but the initial response from all our customers has been very supportive. These price increases will start to impact from February onwards.
"Despite facing short-term price recovery challenges in H2 22, the Group continues to strengthen its market position with the operational foundations in place to enable future growth. The Board is confident that the strong pricing actions taken in FY22, to recover unprecedented cost increases, will ensure a strong recovery of margins and profitability in FY23."
Industry Intelligence editor's note: For formating reasons, tables and other information omitted. To view the full release on the company's website, click here
