Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue convertor, has announced the following trading update ahead of its Final Results for the year ended 30 April 2021, which are scheduled to be released in July 2021.
Substantial progress has been made on gross margins in the Period, which are ahead of market expectations. This has been achieved through the Group’s relentless drive for operational excellence and the Board is very pleased to report, once again, that the business is now more operationally efficient than it has ever been.
Adjusted earnings are expected to be in line with expectations, despite a lower than anticipated increase in sales in the year, resulting from consumer COVID-19 panic-buying of branded products in the early stages of the pandemic. Sales across the whole industry have been depressed in recent months, while consumer stockpiling unwound.
Accrol’s market share continued to rise in FY21 and is now 16%, compared to 13% in FY20. Given the ongoing focus on operational improvement and the Group’s strong market positioning, the Board is increasingly confident in the prospects for the business, and this is demonstrated by the further investment in manufacturing capacity (detailed below).
Total revenues in FY21 increased by 1.5% to £136.8m (FY20: £134.8m). Group volumes on a like for like basis declined by 3.9%, against a total market decline of 5.5%1. Accrol continued to increase its share with the discounters, despite a sector decline of 12% in the year.
With growing momentum in the grocer sector, the Group is well placed to capitalise on consumers’ return to the discounters, as the country re-opens and volumes normalise.
Net debt (pre-IFRS16) at the end of the Period was £14.6m, compared with £18.1m at 31 October 2020 and £17.9m at 30 April 2020. This reduction has been delivered, despite the acquisition of John Dale Ltd announced in April 2021 for a net cash consideration of £3.9m, and an expansion in raw material and finished good stock levels to support service responsiveness.
Acquisitions & other developments
The integration of Leicester Tissue Company (“LTC”), acquired in November 2020 for an initial consideration of £35.0m, continues to progress well, with annualised cost synergies of £3.0m now expected, which is three times higher than announced on acquisition. These are being driven through operational improvements across the wider group. The revenue synergies previously announced have all started but growth here has been slower, reflecting the market conditions in the period since acquisition. LTC provides a geographic, strategic and financial platform for the Group’s growth ambitions and we anticipate further tangible benefits as the integration progresses.
The Group also recently announced the acquisition of John Dale Ltd, a highly scalable flushable and bio-degradable wet wipes business. The business provides a well invested platform to build a business of scale, in an attractive segment of the tissue market. Early integration activities have progressed as planned. The Group expects to use the site to build a fully flushable wet wipe business capable of taking an appropriate market share of this £0.5bn sector.
The Group continues to invest in its core operations and will be adding further capacity at its Leyland converting plant from Q3 of FY22, to fulfil the expected increase in volume demand. In addition, the Group is making progress on its paper mill development plans and the Board expects to update the market in the near term.
Whilst remaining mindful of the ongoing challenges of the COVID-19 pandemic, the Board views the future with confidence, building on the Group’s strengthened customer relationships, improved levels of service and quality, and its higher value product range. The Group expects volumes across the UK tissue sector to normalise in H1 22 and that its main market, the discounters, will grow strongly, as the UK returns to pre-pandemic shopping patterns.
Input costs already announced by the industry are increasing significantly in the near term given the rise in global pulp prices and other commodities. Raw material stock levels have been expanded to provide some short-term mitigation, whilst price recovery measures are enacted. The Group is making good early progress in recovering these higher costs, as it moves into the new financial year.
As previously announced, the Board intends to restore dividend payments and expects to propose a final dividend for FY21 of no less than 0.5p per ordinary share.
Gareth Jenkins, Chief Executive Officer, said:
“I am pleased to report a continued improvement across the enlarged group, and I am particularly proud of our employees, who have responded magnificently, keeping all our operations open and maintaining the highest standards in service and product quality for our customers.
“The integration of LTC, which is now complete, has delivered some fantastic results that will benefit the wider group in the long term. In this pandemic year, we have fully automated our largest factory, installed a business-wide operating system, and grown our margins further. We now have a business capable of benefitting further, as the UK exits lockdown, and we remain excited about the future for the Group.”
- Kantardata based on retail sales for the period from May 2020 to March 2021