Tissue maker excited by future prospects as acquisitions integrate

Blackburn-based tissue manufacturer Accrol Group achieved a 1.5% increase in annual revenues of £136.8m in the year to April 30, it announced in a trading update today, ahead of publication of its final results.

It also confirmed that it will return to paying a dividend to shareholders, of no less than 0.5p per ordinary share.

The group said substantial progress has been made on gross margins in the reporting period, which are ahead of market expectations.

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 fiscal year 2021 and is now 16%, compared with 13% in 2020.

Given the focus on operational improvement and the group’s strong market positioning, the board said it is increasingly confident in the prospects for the business, and this is demonstrated by the further investment in manufacturing capacity, including full automation of its largest factory.

Total revenues for the year of £136.8m compared with £134.8m the previous year. Group volumes on a like for like basis declined by 3.9%, against a total market decline of 5.5%. 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 at the end of the reporting period was £14.6m, compared with £18.1m at October 31, 2020, and £17.9m at April 30, 2020. This reduction has been delivered, despite the acquisition of John Dale Ltd announced last month for a net cash consideration of £3.9m, and an expansion in raw material and finished good stock levels to support service responsiveness.

Today’s update revealed that the integration of Leicester Tissue Company (LTC), acquired in November 2020 for an initial consideration of £35m, continues to progress well, with annualised cost synergies of £3m now expected, which is three times higher than announced on acquisition.

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 it anticipates further tangible benefits as the integration progresses.

Accrol also recently announced the acquisition of John Dale, a highly scalable flushable and bio-degradable wet wipes business which 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 and the group expects to use the site to build a fully flushable wet wipe business capable of taking an appropriate market share of this £500m sector.

The group said it also continues to invest in its core operations and will be adding further capacity at its Leyland converting plant from the third quarter of fiscal year 2022, 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.

Looking ahead, Accrol said that, while 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.

It expects volumes across the UK tissue sector to normalise in the first half of 2022 and that its main market, the discounters, will grow strongly as the UK returns to pre-pandemic shopping patterns.

Chief executive, Gareth Jenkins, 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 benefiting further, as the UK exits lockdown, and we remain excited about the future for the group.”

Accrol’s full results for the year are due to be released in July.