Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue converter, has announced its audited final results for the year ended 30 April 2023, which show strong growth in both revenue and profit, driven by increasing market share and volumes.
Gareth Jenkins, Chief Executive Officer of Accrol, said:
“The Group has performed strongly in a challenging year, gaining further market share through its great value product range, broad retailer base, and new routes to market and is in an enviable position to take advantage of the changing dynamics in consumer spending, which are particularly evident in the tissue market.
“Accrol is the lowest cost tissue convertor in the UK and is fully automated across all tissue sites, having completed all major converting strategic capital investments in the year. With the development and focus on market leading products, for softness in Toilet Tissue and absorbency for Kitchen Towel, we have generated significant volume and market share growth across all sectors of our business.”
“The cost-of-living crisis is continuing to drive consumer demand for great value products and the Group is confident of achieving further volume and profit growth in FY24, as it continues to build on its market leading position. Our focus on increasing volumes, business mix and efficiency has already delivered an improvement in margins back to pre-pandemic levels in the first few months of the new financial year. This margin recovery has been quicker than expected and we now expect FY24 EBITDA will be ahead of the Board’s prior expectations.
| Key Financials | FY23 | FY22 | Change |
| Revenue | £241.9m | £159.4m | 52% |
| Adjusted gross margin1 | 19.7% | 23.3% | (3.6%) |
| Adjusted EBITDA2 | £15.6m | £9.1m | 71% |
| EBITDA Margin | 6.4% | 5.7% | 0.7% |
| Adjusted profit before tax3 | £6.5m | £1.1m | £5.4m |
| Adjusted diluted earnings per share | 1.8p | 0.3p | 1.5p |
| Adjusted net debt4 | £26.8m | £27.5m | £0.7m |
| 1 | Adjusted gross margin is defined as gross margin before depreciation and separately disclosed items |
| 2 | Adjusted EBITDA is defined as profit before finance costs, tax, depreciation, amortisation, separately disclosed items and share based payments |
| 3 | Adjusted profit before tax is defined as profit before amortisation, separately disclosed items and share based payments |
| 4 | Adjusted net debt excludes operating type leases recognised on the balance sheet in accordance with IFRS 16 |
Market expectations as at 25 September 2023 for FY23 (Shore Capital & Zeus) and FY24 respectively – Revenue £241.8m EBITDA £15.5m and Revenue £230m EBITDA £19.5m.
FY 23 highlights:
| · | Group volumes increased by 7.7%, compared to an overall flat tissue market |
| · | Market share increased by 200bps to 21.5% (FY22: 19.5%) |
| · | Gross margins in H2 FY23 improved significantly, as volumes in higher margin products increased and the benefit of earlier price increases flowed through |
| · | Water industry-approved flushable wet wipe sales have grown by 169%, since the acquisition of the Group’s first wet wipes business in 2021 |
| · | The Group’s subscription model, plastic-free, Oceans brand continues to grow strongly with revenue up 45% year on year |
| · | Our first licensing partnership, has progressed well in the year with the product now stocked in three major UK retailers and growing, with further license agreements planned. |
| · | Strong ESG progress with significant and tangible advances in all targeted areas |
| · | Chris Welsh succeeded Richard Newman as Chief Financial Officer, having joined the Group from INEOS Chemicals in October 2022 |
Current trading and outlook
| · | Known volume gains will positively impact H2 FY24 with the Group well positioned to grow ahead of the overall private label sector | |
| · | Revenues are expected to fall marginally as tissue prices reduce and therefore on shelf pricing declines as inflationary pressures ease | |
| · | EBITDA margins recovered back to pre-pandemic levels, driven by the combination of improving product mix and the full effect of prior price increases flowing through | |
| · | Anticipate FY24 EBITDA will be ahead of the Board’s prior expectations | |
| · | The Board views the future with increasing confidence, while remaining mindful of the continuing inflationary environment and other macro challenges |
Dan Wright, Executive Chairman of Accrol, said:
“The Group has delivered a very strong set of results of which we are very proud. The management team successfully navigated and mitigated the well-reported and substantial inflationary pressures on a broad range of input costs, through further process efficiencies and by engaging constructively with our customers to pass-on these additional costs.
“We have a strong, market leading position, with a clear focus on remaining the lowest cost producer of any scale. Our product mix is strengthening margins and cash generation is growing. We are, therefore, confident that our FY24 EBITDA will be ahead of initial Board expectations.”
Chairman’s Report
The Group has delivered a very strong set of results of which we are, once again, very proud. The management team successfully navigated and mitigated the well-reported and substantial inflationary pressures on a broad range of input costs through further process efficiencies and by engaging constructively with our customers to pass-on these additional costs. In the Period, the Group gained further market share, up a further 200bps to 21.5%, sales volumes grew by 7.7% and net debt declined to 1.7x EBITDA from 3.0x in FY22.
The Group continues to expand its product mix to higher value items with considerable growth across all key product types and, in particular, our toilet and kitchen towel brands, and private label products. Our wet wipes business, John Dale, has seen 169% growth in its water industry approved flushable wipes since it was acquired by the Group in 2021.
In January, the Group announced the outcome of the strategic review, which laid out a clear set of medium-term objectives building on the strategic progress we have already made over the last four years. The objectives will see the Group take a market leading position in the UK Tissue market and the wider household and personal hygiene sector with specific higher added value products that provide a clear market difference. It is clear from the John Dale acquisition how the Group can scale a high value business at pace, due to our exceptional access to all UK retailers and grocers.
Our vision
From the outset, our vision has been to build a diversified group of size and scale, better positioned to manage input cost fluctuations, focused on a broader private label household and personal hygiene market. We believe the combination of capacity, efficiency and having the lowest cost base in the market is a compelling proposition.
Strategic Review
Our ambitions over the medium term are:
| · | Continue to focus on our core toilet and kitchen towel business; |
| · | Grow our facial and wet wipe business; |
| · | Develop a license business model and grow our direct-to-consumer Oceans brand; |
| · | Build a sustainable paper mill; |
| · | Acquire selectively to strengthen and extend our product offering; and |
| · | Maximise cash returns to shareholders, through a combination of dividends and, potentially, share buybacks. |
Further detail on the operational progress made against these ambitions is given in the CEO’s report, but I am pleased to report that we have grown significantly in every product category in which we compete with toilet roll volume up 2%, kitchen towel up 20%, facial tissue up 53%, wet wipes volumes up 57% and our Oceans branded sales up 45%.
Dividend & Share Buybacks
Capital allocation is an intrinsic component of the Strategic Review, and the Board remains focused on determining the best use of the Group’s free cashflow going forward, be it acquisitions, share buybacks, dividend payments, paying debt down further, capital investment and/or increasing raw material stocks. Effective capital allocation is about weighing risk and return.
At this year’s AGM the Board will seek the approval to buy back up to 10% of its ordinary shares. The Board believes that seeking the authority to purchase its own ordinary shares in the market is in the best interest of Shareholders for a number of reasons. As previously announced, the trading performance of the business has been strong and the Group has clearly demonstrated its ability to navigate a challenging inflationary environment whilst continuing to gain market share. Alongside the operational performance, the Group is now well positioned to benefit, from a free cash-flow perspective, from the completion of the three-year capital investment programme that has resulted in Accrol being the best invested tissue converter operating in the UK market. With the planned new paper mill fully funded and costed, the Board is confident in Accrol’s ability to drive free cash-flow and thereby shareholder returns. By having the flexibility granted to pursue share buybacks, a fuller range of options to return genuinely surplus capital will now be available to the Board.
Environmental, Social and Governance
Since launching our maiden ESG report in September 2021, we continue to make good progress on the targets we set. We pride ourselves on ensuring that our ESG programme is integrated throughout the business and makes a valuable contribution to the Group, as well as helping us be better corporate citizens and minimising our impact on the environment. To this end, we have now integrated our ESG reporting throughout the annual report.
We have seen step change improvements across all our key target areas. We were the first Living Wage tissue employer in the UK, we have 100% of our waste being recycled, we have reduced the number of vehicle movements by 5.5% despite growing volume by almost 8%, we have had a 15% reduction in our plastic packing usage and a 15% reduction in total waste produced. The Accrol Team is rightly very proud of these achievements.
Our people
Engaged, well trained people are a key element of our business model and sustainability goals, with training and wellbeing at the centre. I am proud to report that Accrol continues to be an accredited Living Wage employer. In addition, we have also paid each of our employees an additional £600 cost of living payment at the very start of the inflationary pressures seen for all in the UK. This has been especially important to our people, and it allows Accrol the advantage of being able to retain the best talent from the communities in which it operates.
During the year, we appointed a Health, Safety and Environment Officer, who has joined to continue to drive the standards across this key area with a further reduction in all employee accidents of 10% in the year.
The online training hub initiated in FY22 has now delivered over 4500 hours of training. Our employee engagement scores remain high with an overall score of 83%.
I would like to thank all our people for their hard work and contribution during what has been a very challenging environment. The strong results delivered today and the further operational advances achieved in the year showcase the strength and capability of the management teams throughout the Group, and would not have been achievable without the commitment and dedication of all our people.
Outlook
The cost-of-living crisis is continuing to drive consumer demand for great value products and the Group is confident of achieving further growth in FY24 as it continues to build on its market leading position. Our focus on improving volumes, business mix and our efficiency, has already delivered an improvement in margins back to pre-pandemic levels. This margin recovery has been quicker than expected and we now anticipate that FY24 EBITDA will be ahead of the Board’s prior expectations.
We do remain mindful of the continuing inflationary environment and other macro challenges. The team leading Accrol, however, has demonstrated its expertise and ability to manage the business through multiple challenges and the Board views the future with increasing confidence.
Dan Wright
Executive Chairman
25 September 2023
Chief Executive Officer’s Review
The Group has performed strongly in another challenging year, gaining further market share through its great value product range, broad retailer base, and new routes to market. We are well placed to take advantage of both the changing dynamics in consumer spending, which is particularly evident in the tissue market, and our enviable position as the best invested tissue converter in the UK.
The Group has successfully navigated and mitigated the well-reported and substantial inflationary pressures on a broad range of input costs, through further process efficiencies and by engaging constructively with our customers to pass-on these additional costs. While full year margins are lower than FY22, due to the lag in price recovery in the first half of FY23, the margin performance as we exited FY23 and entered FY24 is on a clear trajectory of improvement back to pre-pandemic levels and at a faster rate than previously reported.
Our growth in the year has come from our improved range, with the Group now having products that target the brand leaders for softness (toilet & facial tissue) and absorbency (kitchen towel) and offer great products at every consumer’s price point. The business remains relentless in pursuit of the best products and the market leading cost base to take advantage of continued growth opportunities within the sector.
FY23 highlights
| ● | Adjusted EBITDA £15.6m (FY22 £9.1m) up 71% |
| ● | Revenues up 52% at £241.9m (FY22: £159.4m)Group volumes increased by 7.7%, compared to an overall flat tissue market with market share increasing 200bps to 21.5% (19.5% FY22) |
| ● | Group volumes increased by 7.7%, compared to an overall flat tissue market with market share increasing 200bps to 21.5% (19.5% FY22) |
| ● | Gross margins continued to improve throughout the year driven by increased volumes in higher value products and price recovery in H2 |
| ● | Adjusted net debt at 30 April 2023 lower at £26.8m (FY22: £27.5m) – 1.7x EBITDA (FY22: 3.0x) and is expected to reduce to less than 1.0x in FY24 through strong cash generation |
| ●● | Strong ESG progress with significant and tangible advances in all targeted areas57% increase in revenue in the water industry approved, flushable wet wipe business is especially pleasing |
Our medium term ambitions
In January we announced the outcome of the Group’s strategic review, and I am pleased to report that we have continued to make progress against these ambitions.
We continue to focus on our core toilet, kitchen towel and facial business
We completed all major capital investments in the year in this area with all sites now fully automated. Accrol is now the lowest cost and best invested operator in the UK. With the development and focus on market leading products for softness, for Toilet Tissue, and absorbency, for Kitchen Towel, we have seen volume and market share growth across all sectors of our business:
| · | Toilet Tissue grew 2% in volume terms and market share increased from 21.3% to 23.1% |
| · | Kitchen Towel grew 20% in volume terms and market share increased from 20.7% to 23.4% |
| · | Facial Tissue grew 53% in volume terms and market share increased from 5.5% to 6.7% |
| · | Our Kitchen Towel Brand – Magnum – grew in volume by 17%, with further market share growth placing the product 3rd behind the 2 major brands |
| · | Our Facial Tissue – Softy is now the second biggest brand in the UK and grew 152% in the year |
| · | Our wet wipe business which sells water industry approved flushable wipes, grew revenue by 57% in the year. |
We have also invested in a new pocket pack line post the year end, which completes Accrol’s ability to supply 100% of all facial tissues formats and requirements to our retailers, adding to our product range and supporting our growth plans to build a £30m facial tissue business from the current £20m.
Wet wipe business
Our wet wipe business, since acquisition in early 2021, has seen significant change. Since this time, the product mix has been transitioned to paper-based biodegradable or water industry approved flushable wipes with overall group sales growing from £2m to a run rate, as we exited FY23, of £6m. We have invested in people development and new machinery, which will see capacity rise by a further £20m from Q1 FY25. Over the next three years, we expect to grow our wet wipe business in the plastic free product type to over £30m. We remain on track to meet these targets and our strong relationships across UK retailers gives us unique access to grow our product range significantly – our pipeline of new business is strong.
Develop a licensed business model and grow direct-to-consumer Oceans brand
Our plastic free Oceans subscription business continues to grow well, increasing revenues by 45% over the last 12 months. In the year, we invested in a new website and brought in house the final packing element as we continued to automate our processes. In addition, we have invested in new products to add to the range and we are seeing an increase in new subscribers of +10% every month and, despite significant investment in the Oceans business, it continues to deliver positive cashflow. In FY24, we intend to increase investment further and have significant plans with external marketing support to grow the brand and range significantly. We expect this part of our business to deliver at least £40m of revenue by 2027.
Our first involvement with a licensed product has also developed well in the year – although the launch of the product did not impact FY23 significantly. We continue to develop new agreements and intend to extend licensing opportunities. Again, we expect licensed product revenue to be capable of delivering c£30m in revenue by 2027. The margins here remain some of the highest in the Group.
Build a sustainable paper mill
The investment in a mill continues to progress well and remains on track to be operational by the middle of 2025.
In our Strategic Review announcement in January 2023, we outlined in detail the strategic thinking behind the development of our own sustainable mill capacity. The key benefits to Accrol are worth revisiting:
| · | Reduced volatility in tissue input costs for the UK tissue conversion business, providing greater customer pricing visibility and certainty; |
| · | Enhanced security and visibility of tissue supply, which will reduce working capital requirements in the UK tissue conversion business; and |
| · | The mill is expected to be profitable, and materially accretive to Accrol earnings, within its first full year of operation. |
As previously stated, we intend to finance the cash costs of the mill, which total no more than £10m, through cash or debt, whichever is the most financially viable at the time, rather than sale and leaseback, removing rental inflation as a potential future drag on the mill’s profitability. It is still expected that all funds required for the completion of the project will be met from existing cash resources and any increase in debt will be more than offset by the returns expected from the mill, ensuring that the Group remains within its own net debt limits. At no time do we expect our net debt to EBITDA ratio to go above 2x and within 18 months of completion we expect this to return to less than 1x.
Acquire selectively to strengthen and extend our product offering
The Group continues to look and review businesses that strengthen and extend the product offering. The acquisitions of Leicester Tissue Company and John Dale have demonstrated the Group’s ability to integrate and grow the right businesses with significant success. The Board is aware of the potential for bolt-on acquisitions that are aligned with, or provide extensions to, the existing core UK tissue conversion business. As we exit this period of heightened inflation, the Board believes the number of such potential acquisition opportunities is likely to increase and continues to actively seek opportunities for growth.
Market overview
Whilst the overall tissue market remained flat in the year the Group grew its volumes by 7.7% with its market share increasing from 19.5% to 21.5%.
For the first time in the UK, private label volumes have exceeded those of the brands with market share of private label now equating to 56% of the total market share (volume based).
The UK retailer landscape continues to be competitive, but the Group’s broad range of customers and its market leading products gives it a unique insight into the market dynamics. Whilst we expect to see the UK’s leading brands try to promote its way back into the shopper’s baskets, the reality is their cost base remains at an all-time high. Accrol continues to be relentless on costs, and on a like for like basis labour costs as a percentage of sales has dropped again in the year. Our on-shelf pricing, again on a like for like basis, is c20% less than the similar branded product. These two key elements continued to give us confidence about the long-term strength of the Group.
Operations
Operationally we took another major step forward, with the final automation being completed in the year at our Leyland site. The Group is now the lowest cost producer in the UK when compared to leading brand manufacturers and major private label producers.
In the year the Group successfully transitioned all customers to 38mm cores reducing packaging materials and delivering a 5.5% reduction in vehicle movements due to the increased rolls on every vehicle. We finalised the installation of a new tissue converting line in our Leyland factory and despite the increase per rolls per pallet due to the smaller cores, increased output in the Group by 17% in the year. In FY23, Accrol for the first time ever produced over 1 billion rolls.
Improvements in stock management, driven in part with the new Oracle IT system and further stock simplification enabled the Group to exit a third party warehouse, reducing it’s annual rental costs by £700k. The Group’s waste programme saw further improvements in the year with production waste now settled at 6.4% (five years ago the waste for the Group was above 10%).
Finally, the inbound logistics programme is now completed with 75% of all tissue reels now being delivered directly to the sites saving a further £1m which again underpins our FY24 improvements.
People and culture
The Group continues to transform as an organisation. Today we have 26% of leadership roles occupied by women – five years ago it was less than 10%. We have introduced in the year a Group wide free health assessment for all colleagues every year. We acted quickly in paying colleagues a one-off costs of living payment of £600 and managed an annual salary increase of 4% with full approval across all sites. Total absence in the year was 1.7% – another record and at a level that is viewed as a true world class standard.
In the year, we delivered over 4500 of personal learning hours, with all our sites at least AA rated by the British Retail Consortium (BRCGS). We donated over 300,000 rolls to local food banks and began supporting the Brick by Brick charity. In FY24, we will donate over 1m rolls to families in serious financial need in the UK.
Health and safety
Total employee accidents continued to fall YOY, down 10% at 28 for the year (small cuts, trips and knocks). Accident frequency rate (number of accidents per 100,000 hrs worked) is at an all-time low at 3.4. Safety Observation / conversations recorded at a record high of 12,800, up 32% on FY22 and a key aspect of the changing culture and transition from a dependant to an interdependent safety culture. The Leicester site hit three years LTA free, which is another record achievement and testament to how the site has adopted the Accrol principals and processes. This enormous improvement across all metrics is driven by the cultural change we have across all sites and is a testament to every individual who works in the business. Zero accidents remains the Group’s target. The business has introduced bi-monthly safety meetings and appointed safety champions throughout the organisation and it remains the lead KPI in everything we do.
The appointment of a new Group Health, Safety and Environmental (HSE) Manager, who joined us with a wealth of experience gained from working for Unilever and Unipart, has further strengthened the team and helped define the strategy for the next three years in line with industry best practice. The business has also selected a new Occupational health provider and health checks along with other mandatory checks have been conducted with all employees to further support colleague wellbeing and awareness. In addition to the bi-monthly HSE steering team meetings, the team has planned bi-annual safety day activities to further engage all colleagues in safety improvements and engagement.
Outlook
The Group is well positioned as it enters FY24 with volumes again expected to grow ahead of the overall private label sector.
Prices are expected to soften in the year ahead as prices on shelf reduce, but the Group’s margins are now improving faster than previously reported as it benefits from the significant investments made over the last few years and the improving revenue mix. The Group now anticipates delivering FY24 EBITDA ahead of prior Board expectations.
Gareth Jenkins
Chief Executive Officer
25 September 2023
Chief Financial Officer’s Review
Summary
Overall the Group performed exceptionally well, demonstrating its resilience by growing revenue and operating profits in the face of a challenging and volatile trading environment with inflationary pressures evident in rising commodity prices.
Trading results
Group revenue increased by 51.7% to £241.9m (FY22: £159.4m), driven by strong volume growth (+7.7%) and significant pricing actions, reflecting the strength of our customer relationships and the Group’s ability to successfully recover substantial input cost rises through price increases. The total tissue market was flat in the year on a like for like basis. However, the Group’s overall market share increased to 21.5% from 19.5% in FY22.
Adjusted gross margins declined to 19.7% (FY22: 23.3%), reflecting the significant impact of escalating pulp, energy, and sea freight costs which was further exaggerated by the weakening of sterling relative to the dollar throughout Q2 and Q3. The Group has taken the necessary actions to recover these cost increases from its supportive retailer customer base, albeit with a lag that impacted profitability earlier in the year. The continued improvement in profitability is evident as we move through the early part of FY24 as the business returns to its historical margin levels.
Adjusted EBITDA increased to £15.6m (FY22: £9.1m), whilst operating profits increased to £2.4m (FY22: loss of £0.2m). The growth in profitability was driven by the successful implementation of price increases and strong market share growth, however, improving margins were partially limited due to the prevailing time lag of fully recovering cost increases. Management remains diligent to operating cost control and remains focused on being the lowest cost provider. General market pricing pressures around logistics and fuel surcharges were significant in the period leading to higher distribution costs on transporting both raw materials and finished goods.
Separately disclosed items
Separately disclosed costs totalled £1.0m, this compared with £2.6m income in FY22 where income was recognised through profit and loss for the release of potential deferred contingent consideration.
Non-recurring and unplanned supply chain disruption costs during the year totalled £0.6m (2022: £0.7m). Pressures on the Group’s supply chain have been considerable during the year for a variety of exceptional reasons, including industrial action at UK ports causing significant disruption to the Group’s usual course of business. Whilst the Group’s supply chain demonstrated good resilience, we did incur incremental costs to maintain service levels to our customers. These incremental costs included port charges of £0.6m, largely related to additional demurrage costs incurred because of shipping container congestion and lane diversion created by several instances of unexpected industrial action closing UK ports. We do not expect any of these costs to be repeated as we enter FY24.
As a result of the Strategic Review undertaken by the Group, significant progress has been made to transform the manufacturing and operational capability of the business. As part of this process, exceptional costs totalling £0.4m were incurred to progress strategic objectives around Mill development, reorganising and rationalising the Group cost base, as well as some third-party professional and consultancy expenses to support in delivering the objectives laid out in the Strategic Review.
Depreciation and amortisation
The total charge for the Period was £11.7m (FY22: £11.4m), of which £6.7m (FY22: £5.5m) related to the amortisation of intangible assets.
Share-based payments
The total charge for the Period under IFRS 2 “Share-based payment” was £0.5m (FY22: £0.5m). This charge related to the awards made under the 2021 Long Term Incentive Plan, that was approved on 5 March 2021.
Interest, tax and earnings per share
Unadjusted net finance costs were £10.2m (FY22: £2.3m) which includes £6.1m expense for the loss on derivative US dollar purchase contracts in the period, the majority of which is unrealised and represents a mark-to-market valuation approach. Management has noted significant volatility in foreign exchange markets throughout the financial year, particularly following the announcement of the UK mini budget in September 2022.
The Group recorded a deferred tax credit of £2.1m (FY22: credit of £0.8m). The loss before tax was £7.8m (FY22: £2.5m), where the significant growth in operating profit performance was limited by the impacted of foreign exchange losses. Adjusted profit before tax of £6.5m (FY22: £1.1m) increased due to the growth in revenue and operating profit as price increases were passed through to customers. Basic loss per share was 1.8 pence (FY22: loss of 0.5 pence) reflecting foreign exchange impact, higher amortisation costs and adjusting items. Adjusted diluted earnings per share were 1.8 pence (FY22: 0.3 pence), reflecting the increase in adjusted EBITDA and temporary nature of the foreign exchange impact.
Dividend
As noted in the Chairman’s Statement, the Board remains focused on determining the best use of capital moving forward. Our balance sheet has continued to strengthen, with adjusted net debt down to 1.7x levered, during a time of macro-economic uncertainty and prevailing price pressures. Despite this backdrop, the robust financial performance means that the Group is well positioned for growth and has developed a business case for progressing with a paper mill investment project. In this context, the payment of a final dividend would not be the best immediate use of capital, but the Board remains confident of Accrol’s ability to drive Shareholder returns from a growing free cash flow. The proposed final dividend is nil pence per share (FY22: nil pence).
Cashflow
The Group’s adjusted net debt improved in the period to £26.8m (FY22: £27.5m) representing a 1.7x leverage. The net cash flow from operating activities was £20.5m (FY22: £1.4m) with the improvement reflecting a working capital inflow of £5.1m (FY22: £4.6m outflow) and improved profitability. This release of working capital has been achieved whilst maintaining excellent levels of supply to our customer base and absorbing significant price increase pressures.
Capital expenditure (net of new finance leases) in the Period was £6.4m (FY22: £6.2m), including £1.9m (FY22: £3.1m) in respect of intangible assets that principally relate to product development costs and the development of the Group’s main ERP system. Lease payments of £5.6m (FY22: £5.5m) include leases capitalised in accordance with IFRS 16.
Subsequent to the balance sheet date, in August 2023 the Group amended and extended its existing banking arrangements providing additional facilities to support its growth. These new facilities provide increased headroom in both the scale, tenure and liquidity of the facilities and an easing in the headline associated banking covenants. This refinancing resulted in the Group extending its £17.0m revolving credit facility to £24.0m which now expires in February 2025.
Balance Sheet
The Group’s balance sheet reflects net assets of £77.7m (FY22: £82.9m). Property, plant, and equipment increased, reflecting the renewal of property related leases, capitalised in accordance with IFRS 16. FY23 saw the completion of the significant investment into automating and increasing the capacity at our Leyland manufacturing facility, with new packing capabilities and a new converting line now fully commissioned and operating well within the business. This investment allows the Group to improve productivity, operational flexibility, and ultimately to enhance customer service. The Group also invested into developing and manufacturing capability to deliver a new range of licensed kitchen towel products as part of a collaborative licencing partnership with a major brand.
Throughout FY23 the Group completed a significant enhancement to its main ERP system, which has provided a fully integrated, end to end warehouse management system for the business. This investment will provide greater transparency over inventory management and positions the Group well for continual improvements in terms of efficiency and customer service.
Intangibles assets predominantly consist of goodwill and customer relationships derived from previous acquisitions. Goodwill is not amortised but is subject to an annual impairment review. After considering various scenarios and sensitivities, the Directors concluded that no impairment is required, with significant headroom noted from a value in use assessment. During the year, the Group invested further in product development and innovation to ensure our products remain up to date with an evolving marketplace, these costs will be amortised over the anticipated life of the products.
Christopher Welsh
Chief Financial Officer
25 September 2023
