Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue converter, is the topic of conversation when DirectorsTalk caught-up with Wayne Brown and Anubhav Malhotra, Equity Research – Consumer analysts at Liberum following Accrol’s recently announced audited Final Results for the year ended 30 April 2022.
Q1. What’s stood out in the FY’22 (ending Apr’22) results?
A1. The company has made significant progress on its own brand strategy during FY’22. Its own branded range has growth to 18% of sales in FY’22 from 10% in FY’21. Amongst its key successes were its facial tissue brand (Softy) which grew by 70% yoy and is now the second biggest box brand in the UK and its kitchen towel brand (Magnum) which grew by 19% and is now the fastest growing and fourth largest kitchen towel brand in the UK. What also stood out in the FY’22 results is that despite facing some very significant input cost increases during the year to the tune of £20m (£70m on an annualized basis), the company was still able to maintain profitability at the adjusted EBITDA level as it successfully passed through price increases to customers, which reflects it strong customer relationships as well as its importance to customers as a reliable supplier of household paper product at scale.
Q2. How is Accrol performing in 1Q’23?
A2. Accrol continues to outperform the market in 1Q’23. Net revenue increased by 76% yoy in 1Q’23, driven by price increases (48%) and volume growth (28% vs. private label market growth of 10%).
Q3. What’s driven the gains in market share?
A3. As consumers incomes are squeezed due to inflation, consumers are buying more at discounters like Aldi and Lidl, and they are buying more private label products vs. branded products in 1Q’23. The market share for private label and tertiary brand segment growing to 54% (from 50% in 1Q’22) vs 46% for brands. Accrol over-indexes in discount retailers, and has a significant 32% volume share in the UK private label tissue market, and so is benefitting from these shifts in consumer purchasing patterns.
Q4. Looking ahead, how well is Accrol positioned and what is the outlook for the future?
A4. Accrol exited FY’22 in a very good position to benefit from the changing market dynamics in the next 2-3 years. Its exposure to the discount retailers leaves it well placed to benefit from the squeeze on consumers budget. It has entered new categories like wet wipes via acquisition which gives it access to new growth avenues. It has completed full automation of its various plants which leaves it in good shape to generate strong FCF. Further, the group is exploring the opportunity to own or build a paper mill which could help reduce its exposure to input cost inflation and increase security of raw material supply.
Accrol Group Holdings plc (LON: ACRL) is the UK’s leading independent tissue converter, producing toilet tissue, kitchen towel, facial tissue and biodegradable wet wipes.
The UK soft tissue market is worth £1.6bn with private label products comprising circa 50%. Accrol is the leading supplier to the private label market, which is growing at over 8% year on year.
