Rising energy prices force strategic review at Accrol

Accrol's site in Blackburn

AIM-listed Accrol, the Blackburn-based tissue and toilet roll maker, is to conduct a strategic review into the company’s business.

It follows cost pressures, particularly energy-related, although Accrol said it has “more than sufficient liquidity to meet its existing and future needs”.

In a trading update for the current fiscal year to April 30, 2022, the company said since its last update on October 20, 2021, it has experienced further inflationary pressure on its input costs, including pulp prices, supply chain costs and, most significantly, energy costs.

In light of these cost increases, the group has implemented further cost efficiencies and has engaged with all its customers successfully securing substantial price increases, over and above those secured in mid-2021 and, as a result, the board was confident of meeting its revised expectations for the 2022 financial year.

However, it said unavoidable surcharges to parent reel prices, relating to exceptional energy price increases, have very recently been levied on the company, which will significantly impact margins.

Accrol said its management team has experience of successfully managing inflationary pressures and the board is confident that this is a timing issue and that further cost increases, including these recent surcharges, will continue to be passed on successfully to Accrol’s customers.

Today’s statement said: “The underlying business is in good shape and the board remains confident in the medium term prospects for the group.”

Despite continued supply chain disruption, particularly at ports, around the world and specifically in the UK, the business continues to manage customer supply well, having secured and maintained additional stocks in paper and finished goods.

The statement forecasts that the company is expected to increase revenues in the 2022 financial year by 17% to approximately £160m, compared with £136.6m the previous year.

But EBITDA is expected to be around £9m, which is a fall from £15.6m in 2021, although margin recovery is anticipated in fiscal year 2023.

Accrol said: “The group continues to operate well within its existing banking covenants and has more than sufficient liquidity to meet its existing and future needs.”

It added: “In light of the above and the short term, but inherent volatility of earnings experienced in the current year, the board has concluded that it is now appropriate for Accrol to conduct a full strategic review of its business.

“Such review will be designed to capitalise on the evident strength of the business’s market position, its balance sheet, and its solvency, underpinned by significant banking support, to ensure that the shareholder value is optimised.”

The company will issue a further update with its first half results, which will be announced on January 18.