Strong half year for Accrol, as strategic review maps out future progress

Blackburn-based Accrol reported a strong first half this morning, as revenues rose and pre-tax profits shrank.

The AIM-listed tissue and toilet roll maker also published the outcome of its strategic review, which defines the Group’s medium-term ambitions.

In the six months to October 31, 2022, the group achieved sales of £121.1m, up from £73.7m the previous year. A pre-tax loss of £900,000 was an improvement on last year’s £3.5m pre-tax loss.

During the reporting period Accrol’s market share by volume increased further to 21.5%, from 19.5%, compared with a flat overall UK market.

Its private label volumes are ahead of pre-pandemic levels and growing at an unprecedented rate against those of the traditional brands.

The group also registered a strong EBITDA performance of £7.1m, despite considerable inflation-driven input cost rises and supply chain issues, which impacted margin in the short term as additional costs were recovered.

And the group managed to introduce significant price increases through a supportive retail customer base.

Today’s update also confirmed that chief financial officer, Richard Newman, is to step down at the end of April, but will stay with the group until the full year results, which are expected by September 2023. He will be succeeded by Chris Welsh, who joined the group from Ineos Chemicals in October 2022.

In current trading, the group boasts a strong volume performance in the second half to date, driven by the continued strengthening of private label output.

Gross margins are expected to continue to improve in the second half and into fiscal year 2024, as time lag impact on price increases works through – any further input cost increases will be mitigated in the main by new index linked contracts.

The group is on track to deliver revenue growth of 50% to around £230m and adjusted EBITDA marginally ahead of market expectations in fiscal year 2023 of £15.5m, despite an annualised increase in costs of more than £80m.

Chief executive, Gareth Jenkins, said: “The board is pleased to report that the group performed strongly in H1 FY23, delivering substantial growth in volume, revenue, and profit, as well as further strengthening its market position. The group continues to demonstrate its resilience against the challenges of input cost inflation, and we successfully leveraged our supply position with customers to recover all additional costs incurred in the period.

“The group delivered a notable 14% volume growth in the period, against an overall market which grew by just one per cent. This was achieved by offering the consumer great value products which suit every budget. Our strengthened supply model and established relationships with the retailers will ensure that the group is well positioned to deliver strong results in difficult market conditions.”

He added: “As announced in our trading update on 21 November, adjusted net debt at 31 October 2022 was lower than anticipated at c.£30.5m. This was achieved despite a significant increase in tissue stocks, as the group continued to manage uncertainty in its supply chains and the effect of strikes at UK ports.

“This working capital position is unwinding, as we progress through H2 and trading conditions normalise. Adjusted net debt at the full year end remains on track with market forecasts, which were lowered at the time of the trading update to less than 1.5x EBITDA.”

The outcome of the strategic review has identified several targets, including: Continued focus on core toilet and kitchen towel business; to grow the facial and wet wipes business; to develop a licensed business model and grow direct to consumer Oceans brand; build a sustainable paper mill; acquire selectively to strengthen and extend Accrol’s product offering; and maximise medium term tangible shareholder returns through a combination of dividends and, potentially, share buybacks.

Executive chairman, Dan Wright, said: “Over the last four years, Accrol has been transformed as an organisation to one that currently supplies c.21.5% of the UK market’s tissue volumes and has considerable further capacity.

“Our state-of-the-art businesses are in an incredibly strong position to benefit in a private label market, which is growing rapidly and significantly. Our customer base is strong and varied and the ability to pass on cost increases swiftly has been evidenced in the group’s half year results, also announced today. We look forward with increased confidence, having clearly identified where we can grow the business.”

The group said it intends to resume dividend payments, as soon as is practicable, with a prudent and sustainable dividend cover of c.2.5x – 3.5x.

Accrol also intends to request from shareholders the authority to buy back its ordinary shares. The board said it is mindful of liquidity constraints but sees significant value in the current Accrol equity valuation and seeks the flexibility to act accordingly.

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