UK tissue converter Accrol Papers announces unaudited H1 FY23 results for the six months ended Oct. 31; Accrol's market share by volume increased further to 21.5% from 19.5% in FY22, compared to flat overall UK market

January 24, 2023 (press release) –

Strong progress across all businesses and products

Accrol (AIM: ACRL), the UK's leading independent tissue converter, announces its unaudited results for the six months ended 31 October 2022 ("H1 23" or the "Period").

Gareth Jenkins, Chief Executive Officer of Accrol, said:

"The Board is pleased to report that the Group performed strongly in H1 FY23, delivering substantial growth in volume, revenue, and profit, as well as further strengthening its market position. The Group continues to demonstrate its resilience against the challenges of input cost inflation, and we successfully leveraged our supply position with customers to recover all additional costs incurred in the Period.

"The Group delivered a notable 14% volume growth in the Period, against an overall market which grew by just 1%. This was achieved by offering the consumer great value products which suit every budget. Our strengthened supply model and established relationships with the retailers will ensure that the Group is well positioned to deliver strong results in difficult market conditions.

"As announced in our trading update on 21 November, adjusted net debt at 31 October 2022 was lower than anticipated at c.£30.5m. This was achieved despite a significant increase in tissue stocks, as the Group continued to manage uncertainty in its supply chains and the effect of strikes at UK ports. This working capital position is unwinding, as we progress through H2 and trading conditions normalise. Adjusted net debt at the full year end remains on track with market forecasts, which were lowered at the time of the trading update to less than 1.5x EBITDA.

"The Group has performed well in H2 to date and is on track to achieve revenue and adjusted EBITDA growth for the year ending 30 April 2023 ("FY23") marginally ahead of expectations at £230m and £15.5m respectively."

[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 profit before amortisation, separately disclosed items and share based payments.

3 Adjusted net debt excludes operating type leases recognised on the balance sheet in accordance with IFRS 16.

H1 23 highlights:

People

Current trading and outlook

Strategic Review update

The Group has today announced the outcomes of its strategic review, which defines the Group's medium-term ambitions:

Dan Wright, Executive Chairman of Accrol, said:

"Over the last four years, Accrol has been transformed as an organisation to one that currently supplies c.21.5% of the UK market's tissue volumes and has considerable further capacity. Our state-of-the-art businesses are in an incredibly strong position to benefit in a private label market, which is growing rapidly and significantly. Our customer base is strong and varied and the ability to pass-on cost increases swiftly has been evidenced in the Group's Half Year Results, also announced today. We look forward with increased confidence, having clearly identified where we can grow the business."

The Strategic Review Outcomes announcement is available on the Company's website: https://www.accrol.co.uk/investors/regulatory-news/.

Overview of Accrol

Accrol Group Holdings plc is a leading tissue converter and supplier of toilet tissues, kitchen rolls, facial tissues, and wet wipes to many of the UK's leading discounters and grocery retailers across the UK. Following the recent acquisitions of LTC in Leicester and JD in Flint, North Wales, the Group now operates from six manufacturing sites, including four in Lancashire, which generate volumes totalling c.21.5% of the c£2.5bn UK retail tissue market.

For more information, please visit www.accrol.co.uk.

OPERATIONAL REVIEW

Summary of progress

The Group made strong progress in the Period, successfully navigating the ongoing well-reported macro challenges. Over the last four years, we have built a business with increased scale, operational efficiency, and product diversity, which has enabled sustainable growth in both volume and market share. We are well positioned to benefit from the significant further growth expected from private label and discount retailers, as consumers seek greater value given the ongoing cost-of-living pressures.

Group revenues increased by 64.3% in the Period, when compared to H1 FY22, due to a strengthening in volume demand of 14% and the successful recovery of input price increases from all customers. Our market share in volume terms also increased in the Period to 21.5% (FY22: 19%), in a market that showed an overall increase of 1%.

The success of Accrol's simplified range is demonstrated by this increase in market share and increase in customers, which has grown from c.6% to 21.5% since 2017. No one customer represents more than 20% of total revenue. The Group has also made progress on the development of higher margin, third party licensed brands, which are a part of the Group's mid to long-term growth ambitions for revenue growth in its core toilet and kitchen towel business.

Key performance improvements in the Period included:

The market

The Group's markets are covered in detail with a full update in the Strategic Review Outcomes announcement, published today.

People

Engaged, well-trained people are a key part of our business model and sustainability. We have an outstanding team and I would like to thank everyone for their continued hard work and commitment, which has enabled the Group to perform so well in these challenging economic conditions.

Richard Newman, the Group's Chief Financial Officer, has informed the Company of his intention to step down from the Board and his role as Chief Financial Officer ("CFO") at the end of April 2023. He will remain in the business until the FY23 audit process is completed and the FY23 Final Results are released, no later than September 2023.

Richard joined Accrol in early in 2021 with the remit to professionalise and transform the finance function of the Group and has established a finance infrastructure capable of serving a much larger business. Richard has strengthened the finance team through the recruitment of high-quality people and has helped to lead the business through a challenging period of significant cost inflation.

Chris Welsh, Group Financial Controller, who joined Accrol from Ineos Chemicals in October 2022 as part of the Board's succession planning, will step up into the role of Chief Financial Officer from the start of May 2023. Chris is a highly skilled and experienced financial executive, who has held several senior roles at Ineos in the last seven years, latterly as Head of Financial Reporting at its Enterprises Division. Chris is a Chartered Accountant, who qualified with PwC in 2015.

Environmental, Social and Governance ("ESG")

The business has delivered the following key improvements in the last 12 months:

A full update on the Group's progress is available in our second ESG Report, which was published in November 2022. This is available to view on the Group's website: https://www.accrol.co.uk/esg/.

Current Trading and Outlook

The outcomes of the Strategic Review announced today showcase the Group's strengths and the market opportunity. Accrol's main markets, the discount retailers and private label products, continue to grow strongly, driven by the ongoing cost-of-living crisis. The latest industry data is demonstrating a continuation of the consumer shift away from the traditional tissue brands into best value, private label alternatives.

The Group's increasingly strong market position and customer relationships, combined with its plans for a paper mill, mean Accrol is very well positioned to capitalise on this forecast market growth. The business has delivered substantial increases in volumes in the Period, significantly ahead of the wider market, and the Board is increasingly confident that the growth trajectory of the business, as set out in the strategic review, is both attainable and sustainable. The volume growth seen in the first half is expected to continue, following a strong start to H2.

Whilst always mindful of the wider economic uncertainties, the Group's model is robust, and the Board is confident the Group to be on track to deliver results for FY23 marginally ahead of market expectations.

Gareth Jenkins

Chief Executive Officer

FINANCIAL REVIEW

Revenue

Revenue in the Period was £121.1m (H1 22: £73.7m), an increase of £47.4m (64.3%) compared to H1 22. This increase in revenue represents a growth in volume of 14% as demand in the private label market strengthened to above pre-pandemic levels. The Group also successfully delivered significant price increases to demonstrate resilience against the pressures of rising cost price inflation. 

Gross profit

Gross profit for the Period was £21.7m (H1 22: £18.2m), an increase of £3.5m (19.2%) compared to H1 22. Gross profit as a percentage of revenue at 18.0% (H1 22: 24.7%) was lower than H1 22, as higher input costs were only partially mitigated by pricing increases in the Period, given the relative time lag of implementing pricing pass throughs with retail customers.  

In line with the wider market, the Group continued to experience supply chain disruption around the world and specifically at shipping ports in the UK. The business continues to manage customer supply well; having invested into working capital and secured additional key raw material products to maintain consistent supply.

Adjusted EBITDA

Adjusted EBITDA increased to £7.1m (H1 22: £5.0m), an increase of £2.1m (42.0%), compared to H1 22; largely reflecting the robust gross margin performance. Operating costs remain a key focus of the Group and, despite general price inflationary pressures, have largely remained flat to maintain EBITDA profit margin.

Separately disclosed items

Separately disclosed items totalled £0.5m (H1 22: £0.7m), all of which related to exceptional incremental costs of supply chain disruption, particularly at ports.

Depreciation and amortisation

The total charge for the Period was £5.3m (H1 22: £6.1m), of which £3.1m (H1 22: £2.9m) related to the amortisation of intangible assets.

Share-based payments

The total charge for the Period under IFRS 2 "Share-based payments" was £0.6m (H1 22: £0.6m). This charge related to the awards made under the 2022 Long Term Incentive Plan, that was approved on 5 March 2021.

Operating profit and earnings per share

Net finance costs were £1.6m (H1 22: £1.1m), resulting in a loss before taxation of £0.9m (H1 22: £3.5m). Basic losses per share were 0.2 pence (H1 22: 0.8 pence). Adjusted diluted earnings per share were 0.7 pence (H1 22: 0.2 pence).

Dividends

The Group intends to resume dividend payments, as soon as is practicable, with a prudent and sustainable dividend cover of c.2.5x - 3.5x. In addition, the Group also intends to request from shareholders the authority to buy back its ordinary shares. The Board is mindful of liquidity constraints but sees significant value in the current Accrol equity valuation and seeks the flexibility to act accordingly.

Cashflow

The Group's adjusted net debt was £30.5m (H1 22: £21.6m). The net cash flow from operating activities was £6.1m (H1 22: £0.9m) with the increase reflecting improved operating margins offset by an investment into working capital of £1.0m (H1 22: £3.4m outflow). This net working capital outflow primarily represented an investment into building inventory, securing additional key raw material products to maintain consistent supply during supply chain disruptions at UK ports. 

Capital expenditure in the Period was £5.8m (H1 22: £3.5m), which primarily related to the continued automation of production facilities. Lease payments of £3.0m (H1 22: £3.4m) include leases capitalised in accordance with IFRS 16.

Balance Sheet

The Group had net assets of £82.7m (H1 22: £82.7m), as at 31 October 2022. Property, plant and equipment increased reflecting the renewal of property related leases, capitalised in accordance with IFRS16. During the Period, the Group increased its multi-currency factoring facility, used to provide financing for general working capital requirements, from £27.0m to £35.0m to recognise the significant growth in revenue. The Group also maintains a £17.0m revolving credit facility and continues to operate within the associated covenants attached to this facility.

Investment

The final automation of the Leyland site was completed in the Period, notably on time and to budget which, alongside a final machine installation, completed all major investments into the Tissue businesses with only c.£3m investment required in existing machinery per year going forward for general maintenance capital. This now positions the Group well with four state-of-the-art fully automated factories in Blackburn (x2), Leyland and Leicester operating at significantly lower cost levels.

Outlook

The Group is well invested with adjusted net debt on track to be less than 1.5x EBITDA by the current year end (FY22: 3.0x). The Group's margins, which were impacted by the time-lag on price increases, are recovering in H2 FY23 and we are confident that this recovery to continue throughout FY24.

Richard Newman

Chief Financial Officer

olidated Interim Income Statement
For six months ended 31 October 2022

Consolidated Interim Statement of Comprehensive Income

For six months ended 31 October 2022

Consolidated Interim Balance Sheet

As at 31 October 2022

Consolidated Interim Statement of Changes in Equity
For six months ended 31 October 2022

Consolidated Interim Cash Flow Statement
For six months ended 31 October 2022

The notes below form part of these condensed interim financial statements.

Notes to the Interim Financial Statements
For six months ended 31 October 2022

1.      General Information

Accrol Group Holdings plc (the "Company") and its subsidiaries (together "the Group") is incorporated in the United Kingdom with company number 09019496.

The registered address of the Company is the Delta Building, Roman Road, Blackburn, United Kingdom, BB1 2LD.

The Company's shares are quoted on the Alternative Investment Market.

The principal activity of the Company and its subsidiaries (together the 'Group') is soft paper tissue conversion.

The condensed consolidated interim financial information was approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 20 January 2023.

This condensed interim financial information has not been audited or reviewed by the Company's auditor.

Forward looking statements

Certain statements in this results announcement are forward looking. The terms "expect", "anticipate", "should be", "will be" and similar expressions identify forward-looking statements. Although the Board of Directors believes that the expectations reflected in these forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties and events could differ materially from these expressed or implied by these forward-looking statements.

2.      Basis of preparation

This condensed consolidated interim financial information for the six months ended 31 October 2022 should be read in conjunction with the Group's Annual Report and Accounts for the year ended 30 April 2022, prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'), IFRIC Interpretations and the Companies Act 2006.

The interim financial statements included in this report are not audited and do not constitute statutory accounts within the meaning of the Companies Act 2006. The Annual Report and accounts for the year ended 30 April 2022 have been filed with Companies House. The Group's auditor, BDO LLP have reported on those accounts and their report was unqualified.

The interim financial statements have been prepared on a going concern basis and on the historical cost convention modified for the revaluation of certain financial instruments.

In assessing the Group's ability to continue as a going concern, the Board has reviewed the Group's cash flow and profit forecasts. The impact of potential risks and related sensitivities to the forecasts were considered, whilst assessing the available mitigating actions.

The Group's performance is dependent on a number of market and macroeconomic factors particularly the sensitivity to the price of parent reels and the sterling/USD exchange rate which are inherently difficult to predict. The Group continues to monitor the impact of the COVID-19 pandemic on performance along with the ongoing disruption of the supply chain, particularly at ports, exacerbated by the national shortage of haulage drivers.

The Board has formed a judgement that there is reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing the interim financial statements.

3.      Accounting Policies

The accounting policies applied in preparing the unaudited interim financial statements are consistent with those used in preparing the statutory financial statements for the year ended 30 April 2022 as set out in the Group's Annual Report and Accounts.

4.      Revenue

The Group has one type of revenue and class of business.

The analysis of geographical area of destination of the Group's revenue is set out below:

5.      Separately disclosed items

Supply chain disruption - £465,000 (31 October 2021: £430,000)

The Group has incurred additional costs primarily in the form of demurrage due to ongoing disruption of the supply chain, particularly at UK ports.

6.      Loss per share

The basic loss per share is calculated by dividing the loss attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.

Diluted loss per share is calculated by dividing the loss after tax by the weighted average number of shares in issue during the year, adjusted for potentially dilutive shares.

For the periods above, no adjustment has been made to the weighted average number of shares for the purpose of the diluted loss per share calculation as the effect would be anti-dilutive.

7.      Finance costs

8.      Taxation

The taxation credit recognised is based on management's best estimate of the weighted average annual tax rate expected for the full financial year.

The tax credit for the period has been calculated at an effective rate of 19% (half year ended 31 October 2021: 23%; year ended 30 April 2022: 19%).

9.      Borrowings

10.   Provisions

The contingent consideration relates to the acquisition of Leicester Tissue Company in 2021 which has subsequently been fully resolved.

11.   Dividends

The Company did not pay a final dividend for the year ending 30 April 2022 nor does it propose an interim dividend for the period ending 31 October 2022.

12.   Non-GAAP measures

Adjusted earnings per share

The adjusted earnings per share is calculated by dividing the adjusted earnings attributable to ordinary equity holder of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the adjusted earnings per share calculation.

For the periods above, no adjustment has been made to the weighted average number of shares for the purpose of the diluted earnings per share calculation as the effect would be anti-dilutive.

13.   Events after the balance sheet date

There have been no material events after the balance sheet date.

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