Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue converter, has announced its unaudited results for the six months ended 31 October 2022.
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.”
| Key Financials | H1 23 | H1 22 | Change |
| Revenue | £121.1m | £73.7m | 64.3% |
| Gross margin | 18.0% | 24.7% | (6.7%) |
| Adjusted EBITDA1 | £7.1m | £5.0m | 42.0% |
| Adjusted profit before tax2 | £3.2m | £0.5m | £2.7m |
| Loss before tax | (£0.9m) | (£3.5m) | £2.6m |
| Adjusted diluted earnings per share | 0.7p | 0.2p | 0.5p |
| Diluted loss per share | (0.2p) | (0.8p) | 0.6p |
| Adjusted net debt3 | £30.5m | £21.6m | (£8.9m) |
[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:
| · | Accrol’s market share by volume increased further to 21.5% (FY22: 19.5%), compared to a flat overall UK market |
| · | Private label sector strengthened in the Period with Accrol’s volumes continuing to outpace the sector – the Group’s share of private label now totals 46% (FY22: 44%) |
| · | Private label volumes ahead of pre-pandemic levels and growing at an unprecedented rate against those of the traditional brands (Q1 FY23: 54% vs Q1 FY22: 50%) |
| · | Strong EBITDA performance of £7.1m, despite considerable inflation driven input cost rises and supply chain issues, which impacted margin in the short term as additional costs were recovered |
| · | Significant price increases implemented in the Period through a supportive retail customer base |
| · | Strong performance from John Dale with a 33% increase in biodegradable wet wipe sales – this business has grown sales from c.£1.5m at acquisition in 2021 to exit FY23 with anticipated sales of c.£6m |
| · | Final investment in automation and capacity concluded in Q1 on time and in budget – major investment programme into the Group’s tissue business now completed |
People
| · | Richard Newman, Chief Financial Officer, to step down at the end of April but will stay with the Group until the full year results which are expected by September 2023. He will be succeeded by Chris Welsh, who joined the Group from Ineos Chemicals in October 2022 |
Current trading and outlook
| · | Strong volume performance in H2 to date, driven by continued strengthening of private label |
| · | Gross margins expected to continue to improve in H2 and into FY24, as time lag impact on price increases works through – any further input cost increases will be mitigated in the main by new index linked contracts |
| · | Group on track to deliver revenue growth of 50% to c.£230m and Adjusted EBITDA marginally ahead of market expectations in FY23, despite an annualised increase in costs of over £80m |
Strategic Review update
The Group has today announced the outcomes of its strategic review, which defines the Group’s medium-term ambitions:
| · | Continued focus on core toilet and kitchen towel business; |
| · | To grow the facial and wet wipes business; |
| · | To develop a licensed business model and grow direct to consumer Oceans brand; |
| · | Build a sustainable paper mill; |
| · | Acquire selectively to strengthen and extend Accrol’s product offering; and |
| · | Maximise medium term tangible shareholder returns through a combination of dividends and, potentially, share buybacks. |
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/.
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:
| · | Production increased by 57 million rolls in H1 FY23 compared to H1 FY22; |
| · | Wet wipes sales doubled in the Period and volumes have more than tripled since John Dale was acquired 24 months ago. Sales in FY23 expected to be c.£6m, compared to £1.5m on acquisition; |
| · | Two new lines installed in the Blackburn facial tissue business, which was transferred from the John Dale site, reducing our cost base there and driving increased outputs in Blackburn; |
| · | Automation programme completed with installation of one new line, which went operational in the New Year; |
| · | New warehouse opened in Leyland to improve supply chain efficiency and further reduce inbound costs; |
| · | Attained and retained our Living Wage employer accreditation; |
| · | Relationships with all our key customers strengthened and Accrol’s position as the UK’s leading private-label supplier consolidated further; |
| · | Successfully delivered major price increases recovering over £80 million in additional costs to the business; and |
| · | Transitioned all toilet roll products to 38mm core, significantly increasing rolls per journey and taking 12% of the Group’s lorries off the road. |
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:
| · | 15% reduction in tissue waste; |
| · | 15% more rolls per journey, resulting is a 12% reduction in vehicles used; |
| · | Zero waste to landfill; |
| · | 7% less plastic packaging; |
| · | 3% energy reduction; |
| · | 8% reduction in carbon emissions, despite the business growing 14%; |
| · | 22% females in leadership roles up from 6% in 2020; |
| · | Sedex membership; |
| · | All sites BRCGS accredited to A or AA; |
| · | 89% of employees are “proud to work at Accrol”; and |
| · | Living Wage Accredited Employer. |
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
