Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue converter, has announced the following trading update ahead of its Final Results for the year ended 30th April 2022, which are scheduled to be released in September 2022.
In the period since the Company’s last trading update of 12 January 2022, the Group has continued to demonstrate resilience against a challenging backdrop of rapid cost inflation. As a result, revenue, adjusted EBITDA, and adjusted profit before tax for FY22 are expected to be in line with market expectations1.
The Group has successfully navigated the substantial inflationary pressures on input costs, including pulp, energy, and supply chain, by engaging constructively with its customers to pass-on these additional costs, through significant price increases and further process efficiencies.
Highlights
FY22
| ● | Revenue, adjusted EBITDA, and adjusted profit before tax for FY22 in line with market expectations1 |
| ● | Successful recovery of all increased input costs secured by the end of Q4 FY22 |
| ● | Market share by revenue increased to 16.0% (H1 FY22: 15.3%) and by volume to 19.5% (H1 FY22: 18.9%) |
| ● | New customers secured and deeper penetration of key accounts, through increasing product diversity – notably Amazon, Unitas (30k convenience stores) and Ocado |
| ● | Final elements of the extensive automation programme and machine investment in the Tissue business completing in Q1 FY23. Only planned modest levels of maintenance investment capital required going forward |
Outlook
| ● | Revenue for the year ending 30 April 20231 (“FY23”) now expected to be in the range of £200m to £220m, as a result of the successful recovery of all input cost increases |
| ● | The Group is well positioned to benefit from its product range and its supply positions across the discount retailers as their growth accelerates following the pandemic and the inflationary pressures now impacting consumers |
| ● | Increasing Board confidence in FY23 outcome |
1 For the purposes of this announcement, the Group believes market consensus for the year ended April 2022 to be revenue of £160m, adjusted EBITDA of £9m and adjusted PBT of £1m, and the for the year ended April 2023, revenue of £185m, adjusted EBITDA of £15m and adjusted PBT of £7m.
FY22 Financials
The overall UK tissue market has grown by 0.7% to £2.1bn2 based on retail sale value, reflecting the inflationary pressures within the market. Accrol’s market share growth has returned, increasing to 16.0%2 from 15.3%2 at H1 FY22 (FY21: 15.9%)2, reflecting the strong recovery of the discounter retailers in recent months. (2 Source: Kantar)
Total revenues in FY22 increased by 17% to £159.4m (FY21: £136.6m). Market conditions continued to improve throughout the year with shopping behaviours becoming more normalised as COVID related restrictions were eased and then removed completely.
Net debt (pre-IFRS16) at 30 April 2022 was £27.5m, (31 October 2021: £21.6m), following the Group’s accelerated investment in automation and the necessary expansion in working capital to manage supply constraints and rising costs.
The Group recently amended and extended its existing banking arrangements, through to August 2024 providing additional facilities to support its growth. These new facilities provide increased headroom in both the scale, tenure and liquidity of the facilities and the associated banking covenants. The amended facilities provide an additional £8.5m of funding headroom, an increase of c.25% over and above the previous arrangements that would have expired in August 2023. Given the breadth and depth of the Group’s historic automation and machine investment programme, any material future capital investment will be capacity and earnings enhancing.
Foreign exchange
The majority of the Group’s tissue requirement is fulfilled through the purchase of parent reels in US dollars. Forward foreign currency contracts are used in the purchase process for this product. The nature of these contracts allows time for the Company to manage any significant and unforeseen movements in the exchange rate through pricing agreements with its customers.
Strategic review
The Strategic Review, announced on 12 January 2022, is ongoing and the Board intends to provide a full update in the FY22 results announcement in September.
Outlook
Whilst remaining mindful of the extremely challenging external environment, the Board views the prospects for Accrol with increasing confidence, given the strong recovery of input cost rises, 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 return to pre-pandemic levels and that its main market, the discount retailers, will grow strongly, as consumers seek value and quality, given tighter household budgets.
Gareth Jenkins, Chief Executive Officer of Accrol Group, said:
“This has been the most challenging period in the industry that I have experienced, with tissue pricing reaching unprecedented levels, driven by energy prices and supply constraints. We have successfully recovered these increased input costs to date and are confident we can continue to recover any further rises through innovation, efficiency and our supportive retailer customer base.
“We have a well invested business and exit the year in a strong position both operationally and commercially.”
Dan Wright, Executive Chairman of Accrol Group, added:
” The new improved banking arrangements demonstrate continued confidence in the Group’s operating performance and ongoing support for our development plans. The investments we have already made into the efficiency of our operations have served us well through these incredibly challenging times and we are confident that they will bear considerable fruit in FY23 and beyond.”
The Group has produced a short video to showcase its operations and investment in the extensive automation of the business.
