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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Accrol Group Holdings Plc | LSE:ACRL | London | Ordinary Share | GB00BZ6VT592 | ORD GBP0.001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 38.45 | 38.40 | 38.50 | 214,020 | 09:31:51 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Convrt Paper,paperbd Pds,nec | 241.91M | -5.7M | -0.0179 | -21.48 | 122.61M |
From Apr 2019 to Apr 2024
TIDMACRL
RNS Number : 9182E
Accrol Group Holdings PLC
22 July 2016
22 July 2016
Accrol Group Holdings plc (the "Company" or "Accrol")
Audited full year results for the year ended 30 April 2016
Accrol Group Holdings plc, the AIM listed leading independent tissue converter, today announces its audited results for the financial year ended 30 April 2016.
Financial Highlights(1)
-- Revenue increased 17% to GBP118m (2015: GBP101m) -- Adjusted Gross Margin increased 2.1% to 28.1% (2015: 26.0%) -- Adjusted EBITDA of GBP15.0m, up 22% (2015: GBP12.3m) -- Continued strong cash generation year-on-year -- Net debt reduced by GBP1.1m -- Successful IPO on London Stock Exchange's AIM market on 10 June 2016
Operational Highlights(1)
-- 35% market share of the Discount sector (Discounters accounting for 69% of revenues, up 6% on 2015) after contract wins during the year
-- 15% increase in sales to Multiples -- Focus on Private Label products which are taking market share from Brands -- Continued investment in machinery with GBP3.2m invested in two high-speed converting lines -- Capacity increased to 118,000 tonnes with a further 25,000 tonnes to be added -- UK exclusivity secured for a new luxury tissue, NTT (New Textured Tissue)
Commenting on the results, Steve Crossley, Accrol's newly appointed CEO said:
"I am delighted to report a strong first set of results following our listing on AIM in June. FY16 has been a very successful year for Accrol and our focus on supplying Private Label products to both Discounters and Multiples has generated 17% revenue growth. We have continued to invest in new capacity as we ready the business for the next stage of our strategic plan. The current year has started encouragingly and we remain confident in the outlook for FY17."
The Company's annual report for the year ended 30 April 2016 (including notice of the annual general meeting to be held at Stanley House Hotel, Mellor, Lancashire, BB2 7NP on 30 September 2016 at 11am) (the "annual report") will shortly be available for downloading from the Company's web site at http://www.accrol.co.uk/investor-relations/.
Notes: (1) 2015 numbers based on unaudited proforma for 12 months ended 30 April 2015.
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Notes to Editors
Accrol manufactures toilet rolls, kitchen rolls and facial tissues as well as other tissue products at the Company's 350,000 sq. ft. manufacturing, storage and distribution facility in Blackburn, Lancashire. Accrol currently manufactures approximately 16 million units per week and supplies some of the UK's largest retailers, providing both Accrol branded and Private Label products (being goods produced under a customer's own brand or under a non-branded or less well-known brand name ("Private Label")).
CHAIRMAN'S STATEMENT
Overview of the Year
I am pleased to report that 2016 was another successful year for the Group. Revenue grew 17% year-on-year to GBP118.2 million, with adjusted EBITDA up 22.5% to GBP15.0 million(1) . Our strong financial performance has been driven by continued focus on our strategy of growth through Private Label products into Discounter and Multiple retailers, supported by our flexible supply chain and continued investment ahead of growth in state-of-the-art machinery.
Operational Review
We operate 15 converting lines, producing 16.3 million units per week with a c. 7% share of the UK tissue market. We continue to invest in machinery, with a further GBP3.2 million committed on two high-speed converting lines. Capacity headroom is expected to be approximately 25%, ensuring we can continue to deliver new business opportunities.
With a 35% share of the Discount segment we continue to dominate this sector. The Multiple sector is the largest segment of the market and growth in this area remains a key strategic objective.
We have continued to grow existing contracts, both organically and through new products, with the more significant growth through Discounters.
Financial Performance
Revenues grew by GBP17.2 million year-on-year with Discounters providing the majority of the growth(1) . This segment now accounts for 69% of our revenues, up 6% year-on-year, reinforcing our already strong relationships. Revenues from Multiple customers showed an encouraging 15%(1) increase year-on-year growth in this key strategic area. Adjusted EBITDA increased by GBP2.8 million(1) year-on-year mainly due to greater revenues and favourable paper prices. This was partially offset by an increase in overheads due to growing our headcount.
Strategy
We continued to focus on organic growth through Discounters as this sector represents the fastest growing retail area in the UK tissue market and is projected to continue growing at a rate of 10% per annum. The Discounters' tissue offerings are skewed towards Private Label and this is driving growth of Private Label in the market as a whole. Our strategy of focussing on the Discounters and providing Private Label products to Multiples, positions Accrol well to take advantage of new opportunities.
Listing on the AIM Market
On 10 June 2016 Accrol successfully listed on the AIM market. The listing has reduced the Company's debt burden and will increase the Accrol's profile and reputation, enable us to incentivise key employees and provide a platform to execute our strategy.
The listing also provided a partial exit for the founders, the Hussain family, and NorthEdge Capital who invested in Accrol in July 2014. The family will continue to support the management team as external consultants and I would like to thank both the Hussain family and NorthEdge Capital for their support and commitment.
Dividend Policy
As a listed Company, one of our key ongoing objectives is to create shareholder value. The board has committed to a progressive dividend policy with the intention of paying both an interim and final dividend, expected, in aggregate, to represent a 6% yield at the IPO placing price, for the financial year ended 30 April 2017.
Outlook
We have ambitious plans for future growth by building on our strong customer relationships supported by solid financial performance. Our focus on Private Label, 35% share of the Discount market and capital investment over the last five years, positions us well to take advantage of future opportunities.
In the event that there is a period of reduced consumer expenditure following the UK's decision to leave the European Union, it is possible that the move towards non-discretionary Economy and Private Label products will accelerate. If this happens, we believe we are well positioned to benefit as over 50% of our sales are generated from the Discount segment and we are primarily focussed on supplying Private Label products to both Discount and Multiple retailers.
We have started FY17 strongly and believe we are in a good position to deliver the next stage of our strategic plan. We remain confident in the outlook for Accrol in FY17.
On behalf of all our stakeholders, I would like to thank our employees for their hard work and commitment over the past year and look forward to a successful 2017.
Peter Cheung
Chairman
Notes: (1) 2015 numbers based on unaudited proforma for 12 months ended 30 April 2015.
FINANCIAL REVIEW
The financial year ended 30 April 2016 has been another year of strong growth with all key metrics including revenue, gross profit, adjusted gross margin(2) , adjusted EBITDA(3) and net profit seeing significant growth year-on-year.
Adjusted income statement
The statutory income statement in the consolidated financial statements presents the trading results of the Group post the acquisition of the main trading entity, Accrol Papers Limited, on 14 July 2014 by Accrol Group Holdings Limited though its subsidiary, Accrol UK Limited. As such, the revenues and costs in the statutory income statement are presented for the period from 14 July 2014 onwards rather than for the full twelve months. To facilitate the review of the underlying trends, we have included the proforma results for the full twelve months for the year ended 30 April 2015.
Unaudited
Statutory Proforma
----------------------------- ------------------
2016 2015 2015
GBP'000 GBP'000 Change GBP'000 Change
Revenue 118,219 81,904 +44% 101,056 +17%
Cost of sales before
gain / (loss) on derivative
financial instruments (84,996) (59,162) (74,823)
Gain / (loss) on derivative
instruments 1,266 (1,455) (1,027)
-------------------------------- --------- --------- ------- --------- -------
Cost of sales (83,730) (60,617) (75,850)
-------------------------------- --------- --------- ------- --------- -------
Gross profit 34,489 21,287 +62% 25,206 +37%
Administration expenses (13,138) (8,954) (10,598)
Distribution (9,431) (8,549) (8,086)
-------------------------------- --------- --------- ------- --------- -------
Operating profit 11,920 3,784 +215% 6,522 +83%
---------
Analysed as:
- Adjusted EBITDA (3) 15,038 9,971 +51% 12,279 +22% - Depreciation (1,831) (1,511) (1,509) - Amortisation (2,060) (1,691) (1,691) - Gain / (loss) on derivative financial instruments 1,266 (1,455) (1,027) - Exceptional items (493) (1,530) (1,530) -------------------------------- --------- --------- ------- --------- ------- Operating profit 11,920 3,784 +215% 6,522 +83% -------------------------------- --------- --------- ------- --------- ------- Finance costs (4,941) (4,132) (4,231) -------------------------------- --------- --------- ------- --------- ------- Profit / (loss) before tax 6,979 (348) 2,291 Tax charge (1,274) (352) (871) -------------------------------- --------- --------- ------- --------- ------- Profit / (loss) for the year attributable to equity shareholders 5,705 (700) 1,420 -------------------------------- --------- --------- ------- --------- ------- Gross margin % 29.2% 26.0% 24.9% Adjusted gross margin % 28.1% 27.8% 26.0%
Note 2: Adjusted gross margin, which is defined as gross profit excluding the (loss) / gain on derivative financial instruments is a non-GAAP metric used by management and is not an IFRS disclosure.
Note 3: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, (loss) / gain on derivative financial instruments and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
Contribution to revenues by segment
FY16 % FY15% % Change
------- ------ ---------
Discounter 69% 63% 6%
Multiple 9% 9% 0%
Other 22% 28% (6)%
Total 100% 100% 0%
Revenues
Revenues grew by 17.0% or GBP17.2 million year-on-year with the majority of the growth from the Discounters. The Discount segment of the UK tissue market continues to grow strongly, taking share from the Multiples. Multiples, however, continue to be the biggest market segment and throughout the year we have continued to work closely with our Multiple customers delivering a 15% increase year-on-year in the value of sales to this segment. In terms of products, toilet tissue revenues showed the highest year-on-year growth of 35.5% or GBP14.0m. As a proportion of revenue, toilet tissue has increased from 38% in the prior year to 44% in the current year which reflects our investment last year in two toilet tissue converting lines.
Gross margin
Reported gross margin increased by 4.3% to 29.2% for the year to 30 April 2016. Adjusted gross margin excludes the impact of unrealised gains and losses on outstanding forward foreign currency contracts valued at the Balance Sheet date. Adjusted gross margin increased by 2.1% from 26.0% for the year ended 30 April 2015 to 28.1% for the year ended 30 April 2016. The increase of 2.1% is mainly due to:
-- In the prior year, we invested in, installed and commissioned three new high-speed converting lines ahead of the anticipated sales increase. In the current year, we have filled two of these lines with some capacity remaining on the third line which overall has contributed to an increase in gross margin year-on-year of c. 0.8%.
-- Our average GBP:US$ transacted exchange rate decreased by c. 6% year-on-year versus our average transacted US$ per tonnage paper purchase price decreasing by more at c. 9%. As such, in the current year, we have a favourable purchase price variance of c. 1.3% of gross margin.
To mitigate adverse movements in exchange rates on both the US$ and Euro versus Sterling, we enter into forward currency contracts selling Sterling and purchasing US$ and Euros. Prior to the UK's decision to exit the EU in the recent referendum, we entered into additional forward currency contracts on both US$ and Euro.
Administration costs
Administrative expenses have increased year-on-year by GBP2.5m with GBP1.5m due to an increased headcount to support sales growth, GBP0.4m due to an increase in the amortisation charge and all of the following due to the three new lines installed during the prior year; GBP0.3m of the increase due to an increase in the depreciation charge, GBP0.2m due to an increase in rents and GBP0.2m due to increase in electricity costs.
The amortisation charge relates to the writing down over 10 years of the intangible, customer relationships, that arose on the acquisition of Accrol Holdings Limited on 14 July 2014. The year-on-year increase is due to the acquisition occurring part way through the prior year.
Exceptional costs of GBP1.5m in the prior year related to the expensing of the deal fees incurred as part of the acquisition of Accrol Holdings Limited on 14 July 2014. Current year exceptional costs of GBP0.5m relate to one off consultancy fees of GBP0.3m and GBP0.2m relating to a fire in September 2015 in the embossing unit in one of our converting lines. The line was back up and running within one week with no disruption to customer orders.
Distribution costs
Distribution costs as a percentage of sales have remained consistent year-on-year at 8.0%. We regularly review transport costs and use a variety of hauliers in order to ensure we are getting value and good service.
Adjusted EBITDA
Adjusted EBITDA has increased by GBP2.8m or 22.5% year-on-year from GBP12.3m to GBP15.0m.
Finance costs
Finance costs include the interest payable on the 10% fixed rate secured manager loan notes and the 10% fixed rate secured investor loan notes. Finance costs increased year-on-year by GBP0.7m, mainly due to the loan note interest and the bank loan interest being for a 12 month period in the current year versus part of the year in the prior period. One of the reasons for the listing on AIM in June 2016 was to reduce the debt burden on the business and reduce the financing costs by repaying both tranches of 10% fixed rate secured loan notes.
Taxation
The effective tax rate for the proforma period was high at 38.0% due to the add back of the amortisation of the intangible customer relationships and the add back of the loss on financial instruments. The effective tax rate for the current year is lower at 18.3% as the latter adjustment in the current was a gain.
Balance sheet
Property, plant and equipment
In the previous financial period, we installed and commissioned three new high-speed converting lines, two toilet tissue lines and one kitchen towel line. At the end of the current financial year, two further converting lines were acquired for GBP3.2m, of which GBP0.3m was paid in cash and the balance of GBP2.9m funded through finance leases. These assets are key to supporting our strategy.
Intangibles
Intangibles comprise mainly of goodwill and customer relationships. Under IFRS, goodwill is not amortised but is subject to an impairment review on at least an annual basis. Consequently, during the year, the directors performed a review, which involved making assumptions about the future performance of the business. After carefully considering various scenarios that could occur and after looking at sensitivities on these scenarios, the directors concluded that no impairment was required. Customer relationships have been recognised at fair value and are amortised over 10 years.
Working capital
2016 (GBPm) 2015 (GBPm) Change (GBPm)
------------ ------------ --------------
Inventories 9.4 9.4 -
Trade and other
receivables 21.3 19.3 2.0
Trade and other
payables (15.5) (17.1) 1.6
------------ ------------ --------------
Total 15.2 11.6 3.6
Raw material stocks increased by GBP0.6m in line with the sales growth with finished goods stocks decreasing by a similar amount. Finished goods stocks at the year-end were lower than expected due to higher than expected demand around the year-end.
Trade receivables increased by GBP1.6m in line with the sales growth, showing our continued tight control of cash collection.
Trade payables decreased by GBP1.2m due to our decision to accept more favourable Parent Reel pricing versus credit terms.
Borrowings and cashflow
2016 (GBPm) 2015 (GBPm) Change (GBPm)
------------ ------------ --------------
Bank loan facility 3.7 4.8 1.1
Finance leases 10.8 11.0 0.2
Shareholder loans 41.1 40.8 (0.3)
Factoring facility 7.5 5.8 (1.7)
------------ ------------ --------------
Borrowings 63.1 62.4 (0.7)
Cash and cash
equivalents (2.5) (0.7) 1.8
------------ ------------ --------------
Net debt 60.6 61.7 1.1
The decrease in the bank facility is due to quarterly repayments of GBP0.3m per quarter made during the current year.
Finance lease creditors reduced in the current year by the monthly capital repayments of GBP3.1m, offset by an increase of GBP2.9m due to financing of the two lines acquired towards the end of the current financial year.
Shareholder loan interest of GBP4.1m was paid in July 2015 which was similar to the annual charge and so overall, the shareholder loans maintained a similar level year-on-year.
Net cash generated during the year was GBP1.7m which supported a GBP1.1m decrease in net debt. On listing on AIM, the shareholder loan notes were repaid with part of the proceeds. In addition, on 13 June 2016, the bank loan facility and the finance leases were also repaid from a new Revolving Credit Facility (RCF). The RCF is a five-year GBP18 million facility with a day 1 drawdown of GBP13.0m. The RCF reduces to GBP10 million subject to the following profile:
30 April 2017 GBP16 million 30 April 2018 GBP14 million 30 April 2019 GBP12 million 30 April 2020 GBP10 million
Looking forward
After successfully completing our AIM listing, we are looking forward to the next chapter as a publically owned company. As before, our goal is to provide shareholder value through the provision of quality products and services to our existing and new customers. We have committed to a 6% dividend yield at the IPO placing price which is supported by our strong historical cash generation. Trading in the first few months of the financial year ending 30 April 2017 is in line with management expectations and we remain confident in the outlook for the financial year ending 30 April 2017.
James Flude
Chief Financial Officer
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement for the year ended 30 April 2016
Continuing operations Note 2016 2015
GBP'000 GBP'000
Revenue 4 118,219 81,904
- Cost of sales before gain
/ (loss) on derivative financial
instruments (84,996) (59,162)
-Gain / (loss) on derivative
financial instruments 5 1,266 (1,455)
--------------------------------------------- ----- --------- ---------
Cost of sales (83,730) (60,617)
---------------------------------------------- ----- --------- ---------
Gross profit 34,489 21,287
Administration expenses (13,138) (8,954)
Distribution (9,431) (8,549)
Operating profit 5 11,920 3,784
Analysed as:
-------------------------------------------
- Adjusted EBITDA(1) 15,038 9,971
- Depreciation 10 (1,831) (1,511)
- Amortisation 11 (2,060) (1,691)
- Gain / (loss) on derivative
financial instruments 1,266 (1,455)
- Exceptional items 5 (493) (1,530)
---------------------------------------------- ----- --------- ---------
Operating profit 11,920 3,784
Finance costs 8 (4,941) (4,132)
---------------------------------------------- ----- --------- ---------
Profit / (loss)
before tax 6,979 (348)
Tax charge 9 (1,274) (352)
---------------------------------------------- -----
Profit / (loss) for the year attributable
to equity shareholders 5,705 (700)
---------------------------------------------- ----- --------- ---------
Consolidated statement of comprehensive income
Profit / (loss) for the year attributable
to equity shareholders 5,705 (700)
Other comprehensive income for
the year - -
----------------------------------------------
Total comprehensive income / (loss)
attributable to equity shareholders 5,705 (700)
--------------------------------------------- ------ ------
Earnings per share
GBP GBP
Basic and Diluted 6 576.26 (73.58)
Adjusted 25 865.15 510.51
Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, gain / (loss) on derivative financial instruments and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
Consolidated Statement of Financial Position for the year ended 30 April 2016
2016 2015
Note GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and
equipment 10 24,407 22,740
Intangible assets 11 31,744 33,804
----------------------------- ----- -------- --------
Total non-current
assets 56,151 56,544
----------------------------- ----- -------- --------
Current assets
Inventories 12 9,361 9,381
Trade and other receivables 13 21,277 19,301
Cash and cash equivalents 14 2,456 735
----------------------------- ----- -------- --------
Total current assets 33,094 29,417
----------------------------- ----- -------- --------
Total assets 89,245 85,961
----------------------------- ----- -------- --------
Non-current liabilities
Borrowings 16 50,919 49,968
Deferred tax liabilities 9 4,478 4,984
Total non-current
liabilities 55,397 54,952
----------------------------- ----- -------- --------
Current liabilities
Borrowings 16 12,193 12,465
Trade and other payables 15 15,454 17,143
Income taxes payable 909 586
Derivative financial
instruments 17 190 1,455
Total current liabilities 28,746 31,649
----------------------------- ----- -------- --------
Total liabilities 84,143 86,601
----------------------------- ----- -------- --------
Net assets / (liabilities) 5,102 (640)
----------------------------- ----- -------- --------
Capital and reserves
Share capital 20 13 10
Share premium 84 50
Retained earnings
/ (deficit) 5,005 (700)
Total equity shareholders'
funds / (deficit) 5,102 (640)
------------------------------------ -------- --------
Consolidated Statement of Changes in Equity for the year ended 30 April 2016
Retained Total
Share Share earnings/ equity/
Note capital Premium (deficit) (deficit)
GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 April - - - -
2014
Transactions with owners
Issue of ordinary shares 20 10 50 - 60
-------------------------- ----- --------- --------- ----------- -----------
Total for transactions
with owners 10 50 - 60
-------------------------- ----- --------- --------- ----------- -----------
Comprehensive income
Loss for the year - - (700) (700)
Total comprehensive
income - - (700) (700)
-------------------------- ----- --------- --------- ----------- -----------
Balance at 30 April
2015 10 50 (700) (640)
-------------------------- ----- --------- --------- ----------- -----------
Transactions with owners
Issue of ordinary shares 20 3 34 - 37
-------------------------- ----- --------- --------- ----------- -----------
Total for transactions
with owners 3 34 - 37
-------------------------- ----- --------- --------- ----------- -----------
Comprehensive income
Profit for the year - - 5,705 5,705
Total comprehensive
income - - 5,705 5,705
-------------------------- ----- --------- --------- ----------- -----------
Balance at 30 April
2016 13 84 5,005 5,102
-------------------------- ----- --------- --------- ----------- -----------
Consolidated Cash Flow Statement for the year ended 30 April 2016
Note 2016 2015
GBP'000 GBP'000
Cash flows from operating
activities
Operating profit 11,920 3,784
Adjustment for:
Depreciation 5,10 1,831 1,511
Amortisation 5,11 2,060 1,691
(Gain) / loss on derivative
financial instruments (1,266) 1,455
Grant income (61) (22)
(Profit) / loss on disposals (22) 11
----------------------------------- ----- -------- ---------
Operating cash flows before
movements in working capital 14,462 8,430
Decrease in inventories 20 2,375
Increase in trade and
other receivables (1,975) (2,534)
(Decrease) / increase
in trade and other payables (1,433) 1,238
----------------------------------- ----- -------- --------- Cash generated from operations 11,074 9,509 Tax paid (1,460) (1,105) Interest paid (4,918) (581) ----------------------------------- ----- -------- --------- Net cash flows from operating activities 4,696 7,823 ----------------------------------- ----- -------- --------- Cash flows from investing activities Purchase of property, plant and equipment (683) (761) Proceeds from sale of property, 48 - plant and equipment Government grants received - 1,000 Purchase of subsidiary 22 - (25,100) Net cash acquired with subsidiary - (850) ----------------------------------- ----- -------- --------- Net cash flows used in investing activities (635) (25,711) ----------------------------------- ----- -------- --------- Cash flows from financing activities Proceeds of issue of ordinary shares 37 60 Cost of raising finance - (781) Increase / (decrease) in amounts due to factors 1,656 (4,395) Repayment of capital element of finance leases (3,082) (1,856) Repayment of bank loans (1,200) (900) Drawdown of bank loans - 6,000 Drawdown of shareholder loans/loan notes 249 20,495 ----------------------------------- ----- -------- --------- Net cash flows used in / (from) financing activities (2,340) 18,623 ---------------------------------- ----- -------- --------- Net increase in cash and cash equivalents 1,721 735 Cash and cash equivalents at beginning of the year 14 735 - ---------------------------------- ----- -------- --------- Cash and cash equivalents at year end 14 2,456 735 ----------------------------------- ----- -------- ---------
Statement of Directors' Responsibilities
Each of the Directors confirms that, to the best of their knowledge:
-- The financial statements within the full Annual Report and Accounts from which the financial information within this Final Results announcement has been extracted, have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and
-- The outlook, trading performance overview and regional reviews include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Accrol Group Holdings plc (formerly Accrol Group Holdings Limited) (the "Company") was incorporated in the United Kingdom on 30 April 2014 with company number 9019496. The registered address of the Company is the Delta Building, Roman Road, Blackburn, United Kingdom, BB1 2LD. Accrol UK Limited, which was incorporated on 24 April 2014, subsequently became a direct wholly owned subsidiary undertaking of the Company on 14 July 2014. On 14 July 2014, Accrol UK Limited acquired Accrol Holdings Limited and its trading subsidiary, Accrol Papers Limited (the "Acquisition"). Accrol Papers Limited is engaged in the business of soft tissue paper conversion. The Company's subsidiaries are listed in note 21, which together with the Company form the Accrol Group Holdings plc Group (the "Group").
2. Summary of significant accounting policies
A summary of the significant accounting policies is set out below. These have been applied consistently in the financial statements.
Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use in the EU, International Financial Reporting Interpretations Committee ('IFRIC') interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Basis of preparation
The consolidated financial statements have been prepared on a going concern basis under the historical cost convention as modified by financial liabilities (including derivative instruments) at fair value through the profit and loss. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand pounds, except where otherwise indicated.
Transition to IFRS
This is the Group's first set of financial statements prepared in accordance with IFRS. The Group previously prepared its financial statements under UK Generally Accepted Accounting Practice. The Group's deemed transition date to IFRS is 1 May 2014, the beginning of the first year presented, and the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards ('IFRS 1') have been applied as of that date. IFRS 1 allows certain exemptions in the application of particular IFRS to prior years in order to assist companies with the transition process. The exemptions applied are detailed in note 23.
Standards issued not yet effective
At the date of authorisation of this financial information, the following new standards and interpretations which have not been applied in this financial information were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):
-- IAS 16 and IAS 38 amendments - Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016)
-- IFRS 11 amendments - Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)
-- IAS 16 and IAS 41 amendments - Agriculture: Bearer Plants (effective 1 January 2016)
-- IAS 27 amendments - Equity Method in Separate Financial Statements (effective 1 January 2016)
-- IFRS 10 and IAS 28 amendments - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective 1 January 2016)
-- IAS 1 amendments - Disclosure Initiative (effective 1 January 2016) -- Annual Improvements 2012-2014 Cycle (effective 1 January 2016) -- IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018) -- IFRS 9 Financial Instruments (effective 1 January 2018)
The adoption of these Standards and Interpretations is not expected to have a material impact on the consolidated financial statements of the Group in the year of initial application when the relevant standards come into effect.
IFRS 16 'Leases' is a new standard that has been published and is effective from 1 January 2019 but has not been early adopted by the Group and could have a material impact on the Group financial information. At the time of preparing this financial information, the Group continues to assess the possible impact of the adoption of this standard in future years. However, it is likely to result in an increase in leases recognised in the statement of financial position as finance leases and a reduction in the number of leases treated as operating leases and hence not recognised in the statement of financial position.
Going Concern
The Directors have made appropriate enquiries and formed a judgement at the time of approving the financial information that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial information.
Consolidation
Subsidiaries
A subsidiary is an entity controlled, either directly or indirectly, by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
-- power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);
-- exposure, or rights, to variable returns from its involvement with the investee; and
-- the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-- the contractual arrangement with the other vote holders of the investee;
-- rights arising from other contractual arrangements; and
-- the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
When necessary, adjustments are made to the financial information of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the Board of Directors. The Group's activities consist solely of the conversion of paper products, primarily within the United Kingdom. It is managed as one entity and management have consequently determined that there is only one operating segment.
Segment results are measured using adjusted earnings before interest, tax, depreciation, amortisation, gain / (loss) on derivative financial instruments and exceptional items. Segment assets are measured at cost less any recognised impairment. Revenue is attributed to geographical regions based on the country of residence of the customer. All revenue arises in and all non-current assets are located in the United Kingdom. The accounting policies used for segment reporting reflects those used for the Group.
Revenue
Revenue representing sales to external customers, which is stated excluding Value Added Tax and trade discounts, is measured at the fair value of the consideration receivable for goods supplied.
Revenue from the sale of goods is recognised at the point of dispatch of goods from the warehouse as this reflects the transfer of risks and rewards of ownership.
Revenue is presented net of trade spend, including customer rebates, which consists primarily of customer pricing allowances, listing fees and promotional allowances (overriders) which are governed by agreements with our trade customers. Accruals are recognised under the terms of these agreements, to reflect the expected promotional activity and our historical experience. These accruals are reported within trade and other payables.
Cost of sales
Cost of sales comprise costs arising in connection with the conversion of paper products. Cost is based on the cost of a purchase on a first in first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads where they are directly attributable to bringing the inventories into their present location and condition.
Exceptional items
Items that are material in size or unusual or infrequent in nature are included within operating profit and disclosed separately as exceptional items in the consolidated income statement.
The separate reporting of exceptional items, which are presented as exceptional within the relevant category in the consolidated income statement, helps provide an indication of the Group's underlying business performance.
EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) and Adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, tax, depreciation and amortisation. Depreciation is the write down of fixed assets and amortisation the write down of customer relationships held in intangibles. Exceptional items and gains / (losses) on derivative financial instruments are excluded from EBITDA to calculate Adjusted EBITDA.
The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.
Foreign currency
Functional and presentation currency
Items included in the financial information are measured using the currency of the primary economic environment in which the Group operates ('the functional currency'). The financial information is presented in Sterling, which is the functional currency of all companies in the Group.
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Property, plant and equipment
Property, plant and equipment are included at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is calculated to write down the cost of the assets on a straight-line or reducing balance basis over the estimated useful lives on the following bases:
Land and Buildings Straight line over term
of lease
Plant and Machinery 10% straight line, 40%
residual value
Motor vehicles 30% straight line
Fixtures, fittings 25% reducing balance
and office equipment
Assets under construction are not depreciated, but transferred into the appropriate asset class when they are ready for use. The estimated useful lives are reviewed at the end of each reporting period and adjusted if appropriate. The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose and was identified according to operating segment.
Customer relationships and order books
Customer relationships are shown at historical cost. Customer relationships have finite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of customer relationships over their estimated useful lives 10 years.
Customer order books relate to order for goods awaiting dispatch at the date of acquisition on 14 July 2014. Amortisation is calculated using the straight-line method to allocate the cost of customer order books over their estimated useful lives up to 1 year.
Impairment of non-financial assets
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Assets that are subject to depreciation and amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs. All tangibles and intangibles are allocated to the Group's sole CGU (see note 11).
Any impairment charge is recognised in the income statement in the period in which it occurs. Impairment losses relating to goodwill cannot be reversed in future periods. Where an impairment loss on other assets, subsequently
reverses due to a change in the original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount.
Financial instruments
Financial Assets
The Group classifies its financial assets as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting date, which are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the balance sheet. Subsequent to initial recognition, these assets are carried at amortised cost using the effective interest method. Income from these financial assets is calculated on an effective yield basis and is recognised in the income statement.
Financial liabilities
The Group initially recognises its financial liabilities at fair value net of transaction costs where applicable and subsequently they are measured at amortised cost using the effective interest method. Transaction costs are amortised using the effective interest rate method over the maturity of the loan.
Derivative financial instruments
The Group's activities expose it to financial risks associated with movements in foreign exchange rates. The Group uses forward foreign exchange rate contracts to hedge its foreign exchange rate exposure. The Group does not apply hedge accounting and re-measurements of the derivative financial instruments are recognised in the income statement. The use of financial derivatives is governed by the Group's treasury policies, as approved by the Board. The Group does not use derivative financial instruments for speculative purposes.
All derivative financial instruments are initially measured at fair value on the contract date and are also measured at fair value at subsequent reporting dates.
Leases
Finance leases
Assets funded through finance leases are capitalised as property, plant and equipment, and are depreciated over their estimated useful lives or the lease term, whichever is shorter. The amount capitalised is the lower of the fair value of the asset or the present value of the minimum lease payments during the lease term at the inception of the lease. The resulting lease obligations are included in liabilities net of finance charges. Finance costs on finance leases are charged directly in the income statement on an effective interest rate basis.
Material lease arrangements do not include any contingent rental conditions, options to purchase or escalation clauses. There are no restrictions imposed by these lease arrangements.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
Government grants
Government grants relating to tangible fixed assets are treated as deferred income and released to the income statement over the expected useful lives of the assets concerned. Other grants are credited to the profit and loss account as the related expenditure is incurred.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is based on the purchase on a first in first out basis and includes all direct costs and an appropriate portion of fixed and variable overheads. Net realisable value is the estimated selling price reduced by all costs of completion, marketing, selling and distribution. Supplier rebates are credited to the carrying value of inventory to which they relate. Once the inventory is sold, the rebate amount is then recognised in the income statement.
Trade and other receivables
Trade and other receivables relate mainly to the sale of paper products to trade customers.
Cash and cash equivalents (excluding bank overdraft)
Cash and cash equivalents in the balance sheet comprise cash at bank, short-term deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, excluding any bank overdrafts which are disclosed separately within borrowings within current liabilities.
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Current taxation
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Income tax relating to items recognised in comprehensive income or directly in equity is recognised in comprehensive income or equity and not in the income statement.
Deferred taxation
Deferred income tax is provided using the liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, with the following exceptions:
-- where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
-- in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and
-- deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial information in accordance with IFRS requires estimates and assumptions to be made that affect the value at which certain assets and liabilities are held at the balance sheet date and also the amounts of revenue and expenditure recorded in the year. The Directors believe the accounting policies chosen are appropriate to the circumstances and that the estimates, judgements and assumptions involved in its financial reporting are reasonable.
Accounting estimates made by the Group's management are based on information available to management at the time each estimate is made. Accordingly, actual outcomes may differ materially from current expectations under different assumptions and conditions. The estimates and assumptions for which there is a significant risk of a material adjustment to the financial information within the next financial year are set out below.
Critical accounting estimates and judgements in applying the entity's accounting policies
Goodwill impairment
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment based on the recoverable amount of its sole CGU. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a pre-tax discount rate in order to calculate the present value of the cash flows. More information including carrying values is included in note 11.
Determining carry values of intangibles identified in business combinations
Valuation of separable intangible assets identified on new business combinations during the year requires management to make assumptions and estimates regarding the expected future cash generation of the intangibles identified, for which management employed the use of external valuation services to facilitate this exercise. Details of the intangible assets identified are set out in note 11.
Income taxes
The Group recognises expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax provisions in the period when such determination is made. Detail of the tax charge and deferred tax are set out in note 9.
Customer rebates
The Group provides for amounts payable to customers in relation to rebates and promotional activity. Whilst the Directors do not consider the Group's rebates to be highly complex as they are predominantly volume related, there is judgement required in calculating amounts due, as terms vary by customer.
4. Revenue
The analysis of geographical area of destination of the Group's revenue is set out below:
2016 2015
GBP'000 GBP'000
United Kingdom 118,041 81,624
Europe 178 280
------------------- -------- --------
Total 118,219 81,904
------------------- -------- --------
Major customers
In 2016 there were four major customers that individually accounted for at least 10% of total revenues (2015: two customers). The revenues relating to these customers in 2016 were GBP25,369,000, GBP14,300,000 and GBP13,769,000, GBP12,375,000 (2015: GBP21,701,000 and GBP9,444,000).
5. Operating profit
Operating profit is stated after charging / (crediting):
2016 2015
GBP'000 GBP'000
Employee benefit
expense 9,927 6,172
Depreciation of property, plant and
equipment (included in administration
expenses) 1,831 1,511
Amortisation of intangible assets
(included in administration expenses) 2,060 1,691
(Profit) / loss on disposal
of property, plant and
equipment (22) 11
Operating lease
rentals 1,946 1,283
Net foreign exchange (gains)
/ losses (1,332) 1,396
Grants income (61) (22)
Auditor's remuneration 59 52
Inventories recognised
as expenses 66,807 44,332
Exceptional items
Acquisition deal
fees - 1,530
Consultancy fees 334 -
Other 159 -
----------------------------------------
493 1,530
---------------------------------------- -------- --------
The exceptional items are described below:
Year ended 30 April 2015
On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of GBP45,600,000. Deal fees of GBP1,530,000 were incurred and have been fully expensed in the year of acquisition.
Year ended 30 April 2016
One off consultancy fees totalling GBP334,000 were incurred in relation to a market, competitor, customer and working capital review to support the growth strategy following the acquisition in July 2014.
In September 2015, there was a fire within the embossing unit of one of the converting lines. The line was back up and running within one week with no disruption to customer orders. The cost of repair was GBP159,000.
Auditors' remuneration
2016 2015
GBP'000 GBP'000
Audit services 36 28
Non audit services:
Tax compliance
services 10 11
Tax advisory
services 13 13
59 52
---- ---- ---- ------------ --------
A fee of GBP556,000 was paid to the Group's auditors for services provided as part of the Group restructuring in the year ended 30 April 2015.
6. Earnings per share
The basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the basic earnings per share calculation:
2016 2015
GBP'000 GBP'000
Profit / (loss) for the
year attributable to
shareholders 5,705 (700)
Number Number
Basic weighted average
number of shares (1) 9,900 9,514
GBP GBP
Basic earnings per share 576.26 (73.58)
Diluted earnings per
share 576.26 (73.58)
Note 1: The basic weighted average number of shares is calculated by excluding the D class of shares as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining Ordinary equity shareholders.
During the year under review the group had no shares or options with a dilutive effect and, therefore, the basic and diluted earnings per share are the same.
7. Employee costs
2016 2015
GBP'000 GBP'000
Employee costs during the
year amounted to:
Wages and salaries 9,171 5,712
Social security costs 684 411
Other pension costs 72 49
-------------------------------- --------- --------
9,927 6,172
------------------------------- --------- --------
The average number of employees (including the
executive directors) during the year were:
Number Number
Production 431 296
Administration 29 39
-------------------------------- --------- --------
460 335
------------------------------- --------- --------
8. Finance costs
2016 2015
GBP'000 GBP'000
Shareholder loans 4,099 3,263
Bank loans and overdrafts 158 154
Finance lease interest 358 284
Interest on factoring
facility 183 143
Amortisation of finance
fees 143 288
------------------------------ -------- --------
4,941 4,132
--------------------------- -------- --------
9. Income tax expense
Tax charged in the income 2016 2015
statement
GBP'000 GBP'000
Current income tax
Current tax on profits
for the year 1,780 895
------------------------------ -------- --------
Total current income
tax 1,780 895
------------------------------ -------- --------
Deferred tax
Origination and reversal
of temporary differences (31) (348)
Change in tax rate (475) (195)
------------------------------ -------- --------
Total deferred tax (506) (543)
------------------------------ -------- --------
Tax charge in the income
statement 1,274 352
------------------------------ -------- --------
The tax charge for the period is lower (2015: higher) than the effective rate of Corporation Tax in the UK of 20% (2015: 20%). The differences are explained below:
2016 2015
GBP'000 GBP'000
Profit / (loss) before
income tax 6,979 (348)
Effective rate 20% 20%
At the effective income
tax rate 1,396 (70)
Expenses not deductible
for tax purposes 353 617
Change in rate (475) (195)
---------------------------- -------- --------
1,274 352
------------------------- -------- --------
During the year the Group recognised the following deferred tax (assets) / liabilities:
Accelerated
capital
allowances Intangibles Other Total
GBP'000 GBP'000 GBP'000 GBP'000
30 April 2014 - - - -
Acquired 1,237 4,291 - 5,528
Charge in year 349 (354) (344) (349)
Change in deferred tax
rate (10) (203) 18 (195)
30 April 2015 1,576 3,734 (326) 4,984
------------------------ ------------ ------------ -------- --------
Acquired - - - -
Charge in year 127 (412) 254 (31)
Change in deferred tax
rate (176) (306) 7 (475)
------------------------ ------------ ------------ -------- --------
30 April 2016 1,527 3,016 (65) 4,478
------------------------ ------------ ------------ -------- --------
The Finance Act 2013 reduced the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. Further future rate reductions, to 19% from 1 April 2017 and 18% from 1 April 2020, were substantively enacted on 26 October 2015. Therefore, the rate of 20% (2015: 21%) has been reflected in the consolidated financial statements and deferred tax assets and liabilities have been measured at the rate expected to be in effect when the deferred tax asset or liability reverses. Deferred tax has been provided at the rate of 18% as at 30 April 2016 (2015: 20%).
10. Property, plant and equipment
Leasehold Fixtures Plant Motor Assets Total
land & fittings and vehicles under
& buildings machinery construction
Cost GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
30 April 2014 - - - - - -
Acquisition
of subsidiary 126 435 15,138 133 - 15,832
Additions 30 97 3,899 - 4,417 8,443
Disposals - - (24) - - (24)
---------------- ------------- ------------ ----------- ---------- -------------- --------
At 30 April
2015 156 532 19,013 133 4,417 24,251
Transfer - - 4,417 - (4,417) -
Additions - 173 162 37 3,152 3,524
Disposals - - (49) (35) - (84)
---------------- ------------- ------------ ----------- ---------- -------------- --------
At 30 April
2016 156 705 23,543 135 3,152 27,691
---------------- ------------- ------------ ----------- ---------- -------------- --------
Accumulated
depreciation
30 April 2014 - - - - - -
Charge 39 86 1,335 51 - 1,511
Disposals - - - - - -
---------------- ------------- ------------ ----------- ---------- -------------- --------
At 30 April
2015 39 86 1,335 51 - 1,511
Charge 10 119 1,626 76 - 1,831
Disposals - - (23) (35) - (58)
---------------- ------------- ------------ ----------- ---------- -------------- --------
At 30 April
2016 49 205 2,938 92 - 3,284
---------------- ------------- ------------ ----------- ---------- -------------- --------
Net book value
At 30 April
2015 117 446 17,678 82 4,417 22,740
---------------- ------------- ------------ ----------- ---------- -------------- --------
At 30 April
2016 107 500 20,605 43 3,152 24,407
---------------- ------------- ------------ ----------- ---------- -------------- --------
The net book value of tangible fixed assets includes an amount of GBP16,052,000 (2015: GBP13,718,000) in respect of plant and machinery assets held under finance leases and GBP3,152,000 (2015: GBP4,417,000) in respect of assets under construction held under finance leases.
11. Intangible assets
Goodwill Customer Order Total
lists book
Cost GBP'000 GBP'000 GBP'000 GBP'000
30 April 2014 - - - -
Additions 14,982 20,427 86 35,495
----------------- ---------- --------- -------------- ----------------------------
At 30 April
2015 14,982 20,427 86 35,495
Additions - - - -
---------------- ---------- --------- -------------- ----------------------------
At 30 April
2016 14,982 20,427 86 35,495
----------------- ---------- --------- -------------- ----------------------------
Amortisation
30 April 2014 - - - -
Charge - 1,623 68 1,691
----------------- ---------- --------- -------------- ----------------------------
At 30 April
2015 - 1,623 68 1,691
Charge - 2,042 18 2,060
----------------- ---------- --------- -------------- ----------------------------
At 30 April
2016 -- 3,665 86 3,751
----------------- ---------- --------- -------------- ----------------------------
Net book value
At 30 April
2015 14,982 18,804 18 33,804
----------------- ---------- --------- -------------- ----------------------------
At 30 April
2016 14,982 16,762 - 31,744
----------------- ---------- --------- -------------- ----------------------------
The balance for Goodwill, Customer relationships and Order book arose on the Group's Acquisition of Accrol Holdings Limited (note 22) and are attributed to the sole cash-generating unit ('CGU').
Impairment test for goodwill
Goodwill is monitored for internal management purposes at the Group's sole CGU level. The recoverable amount of the CGU has been determined based on a value in use calculation using cash flow projections based on financial budgets approved by the board covering a three to five year period. Cash flows beyond this period are extrapolated using the estimated growth rates stated in the key assumptions.
The key assumptions used in the value in use calculations are a pre-tax discount rate of 16% (2015: 16%) and a long term growth rate of 2% (2015: 2%). The discount rate is derived from the Group's weighted average cost of capital and is calculated with reference to latest market assumptions for the risk free rate, equity market risk premium and the cost of debt. The discount rate is derived from the Group's weighted average cost of capital and is calculated with reference to latest market assumptions for the risk free rate, equity market risk premium and the cost of debt.
Goodwill is tested for impairment on at least an annual basis, or more frequently if events or changes in circumstance indicate that the carrying value may be impaired. In the years under review management's value in use calculations have indicated no requirement to impair.
Sensitivity to changes in assumptions
The estimates of the recoverable amounts associated with these CGU affords significant head room over the carrying value, consequently only significant adverse changes in these key assumptions would cause the group to recognize an impairment loss.
12. Inventories
2016 2015
GBP'000 GBP'000
Raw materials 6,996 6,416
Finished goods and
goods for resale 2,365 2,965
---------------------- -------- --------
9,361 9,381
-------------------- -------- --------
13. Trade and other receivables
2016 2015
GBP'000 GBP'000
Trade receivables 20,793 19,206
Less: provision for impairment
of trade receivables (85) (62)
--------------------------------- -------- --------
Trade receivables
- net of provisions 20,708 19,144
Prepayments 569 157
---------------------------------- -------- --------
21,277 19,301
-------------------------------- -------- --------
The trade receivables balance is aged as follows:
2016 2015
GBP'000 GBP'000
Less than one month
past due 12,831 11,705
Between one and two
months past due 7,120 6,909
Between two and three
months past due 383 342
Between three and
six months past due 459 250
------------------------- -------- --------
20,793 19,206
----------------------- -------- --------
Trade and other receivables which are less than three months past due are not considered impaired unless specific information indicates otherwise. Trade and other receivables greater than three months past due are considered for recoverability, and where appropriate, a provision against bad debt is recognised. There are no trade receivables amounts more than six months past due.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
The movement in the provision for trade and other receivables is analysed below:
2016 2015
GBP'000 GBP'000
At the beginning (62) -
of the year
Acquisition of subsidiary - (52)
Provisions made for
receivables impairment (23) (28)
Amounts unused reversed - 18
----------------------------- -------- --------
(85) (62)
--------------------------- -------- --------
The creation and release of the provision for impaired receivables has been included in administrative expenses in the Income Statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
14. Cash and cash equivalents
2016 2015
GBP'000 GBP'000
Cash and cash equivalents 2,456 735
Cash and cash equivalents earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.
15. Trade and other payables
Trade payables are non-interest bearing and are payable on average within 29 days at 30 April 2016 (2015: 36 days).
2016 2015
GBP'000 GBP'000
Trade payables 7,868 9,149
Social security and other
taxes 1,947 1,821
Accruals and deferred income 4,613 5,086
Deferred government grant
income 1,026 1,087
-------------------------------- -------- --------
15,454 17,143
------------------------------ -------- --------
Deferred government grant income relates to grants received for purchase of plant and machinery.
16. Borrowings
2016 2015
GBP'000 GBP'000
Non-current
Bank facility 2,600 3,700
Finance leases 7,232 5,444
Shareholder loans 41,087 40,824
-------- --------
50,919 49,968
---------------------------- -------- --------
Current
Bank facility 1,103 1,070
Factoring facility 7,485 5,829
Finance leases 3,605 5,566
------------------------------ -------- --------
12,193 12,465
---------------------------- -------- --------
Loan maturity analysis:
Within one year 12,294 12,465
Between one and two years 4,164 3,515
Between two and five years 5,768 5,629
After five years 41,240 41,321
------------------------------ -------- --------
63,466 62,930
---------------------------- -------- --------
16. Borrowings (continued)
The following amounts
remain undrawn and available 2016 2015
GBP'000 GBP'000
Factoring facility 9,879 10,051
9,879 10,051
---- ------------ --------
The Group's bank borrowings are secured by way of fixed and floating charge over the Group's assets.
Term loan under the GBP20.495 million 10% Fixed Rate Secured Manager Loan Notes 2023 ("Shareholder loans")
On 14 July 2014 the Group entered into a 9 year, GBP20.495 million credit facility with Majid Hussain, Wajid Hussain, Mozam Hussain to part finance the Group's acquisition of Accrol Holdings Limited. Interest is accrued on the loan from date of issue at the rate of 10% per annum and compounded on each anniversary. Interest is then also payable on the PIK notes at a rate of 10% per annum by the issue of further PIK notes. The shareholder loans are repayable in full in June 2023. These notes were listed on the Channel Island Securities Exchange.
Term loan under the GBP20.495 million 10% Fixed Rate Secured Investor Loan Notes 2023 ("Shareholder loans")
On 14 July 2014 the Group entered into a 9 year, GBP20.495 million credit facility with Northedge Capital LLP to part finance the Group's acquisition of Accrol Holdings Limited. Interest is accrued on the loan from date of issue at the rate of 10% per annum and compounded on each anniversary. Interest is then also payable on the PIK notes at a rate of 10% per annum by the issue of further PIK notes. The shareholder loans are repayable in full in June 2023. These notes were listed on the Channel Island Securities Exchange.
HSBC term loan under the GBP6.0 million revolving bank facility ("Bank facility")
On 8 August 2014 the Group entered into a 5 year, GBP6.0 million sterling revolving credit facility. The facility was to part finance the Group's acquisition of Accrol Holdings Limited and to provide financing for general corporate and working capital requirements. The variable interest rate payable under the facility is LIBOR plus a variable margin between 2-3% (dependent upon gearing ratio) plus mandatory costs. The loan is repayable in quarterly instalments commencing 31 October 2014. All amounts outstanding under the facility are repayable on 8 August 2019.
HSBC GBP20 million factoring credit facility ("Factoring facility")
On 8 August 2014 the Group entered into a GBP20.0 million multi-currency revolving credit facility to provide factoring financing for general working capital requirements for a minimum period of 3 years. Under the terms of this facility the drawdown is based upon gross debtors less a retention with 90% of the remaining debt funded. Each drawing under the facility is repayable within a maximum of 90 days from date of invoice for jurisdictions within the United Kingdom and 120 days for other countries.
Covenants
The Group is subject to financial covenants in relation to the Bank Facility and the Factoring Facility. The covenants in relation to the Bank Facility cover the following ratios: a) Cash flow cover, b) Interest cover and c) Leverage. The covenants in relation to the Factoring Facility cover the following: a) Debt turn, b) Debt dilution, c) Disputed debt and d) Tangible net worth. The Group has been in compliance with all of the covenants during the periods under review. Breach of the covenants would render any outstanding borrowings subject to immediate settlement.
Finance fees
Finance fees incurred for the arrangement of Shareholder loans by the Group's lenders are not included in the Loan Maturity Analysis table. The finance fees after amortisation are as follows:
2016 2015
GBP'000 GBP'000
Finance fees 354 497
---------------- ------------------ --------
17. Financial instruments
Derivative financial instruments
Derivative financial instruments represent the Group's forward foreign exchange contracts. The liabilities representing the valuations of the forward foreign exchange contracts at the year end are:
2016 2015
Current GBP'000 GBP'000
Foreign currency contracts 190 1,455
------------------------------ ------------------ --------
The group has entered into a number of foreign exchange contracts that were open as at the year end. The total value of open foreign exchange contracts at the Balance Sheet date are as follows:
2016 2015
EUR (in EUR'000) - 26,000
USD (in $'000) 19,500 19,700
The fair value of a derivative financial instrument is split between current and non-current depending on the remaining maturity of the derivative contract and its contractual cash flows. The foreign currency swaps are designated as fair value through profit or loss at initial recognition. The fair value of the Group's foreign currency derivatives is calculated as the difference between the contract rates and the mark to market rates which are current at the balance sheet date. This valuation is obtained from the counterparty bank and at each period end is categorised as a Level 2 valuation, see below. The maximum exposure to credit risk is the fair value of the derivative as a financial asset.
Fair value hierarchy
IFRS 7 requires fair value measurements to be recognised using a fair value hierarchy that reflects the significance of the inputs used in the value measurements:
Level 1: inputs are quoted prices in active markets.
Level 2: a valuation that uses observable inputs for the asset or liability other than quoted prices in active markets.
Level 3: a valuation using unobservable inputs i.e. a valuation technique.
There were no transfers between levels throughout the years under review.
Fair values
The fair values of the Group's financial instruments approximates closely with their carrying values, which are set out in the table below:
Fair values and
Carrying values
----------------------------- ---- -------------------
2016 2015
Financial assets GBP'000 GBP'000
Current
Trade and other receivables 21,277 19,301
Cash and short-term
deposits 2,456 735
----------------------------------- --------- --------
Financial liabilities
Current
Borrowings 12,193 12,465
Trade and other payables 15,454 17,143
Derivative financial
instruments 190 1,455
----------------------------------- --------- --------
Non-current
Borrowings 50,919 49,968
----------------------------------- --------- --------
18. Capital and financial risk management objectives and policies
(a) Capital risk management
The Group's objective when managing capital is to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust capital the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
Consistent with others in the industry, the group monitors net debt. Net debt is calculated as total borrowings less cash and cash equivalents.
2016 2015
GBP'000 GBP'000
Total borrowings 63,112 62,433
Less: cash and cash equivalents (2,456) (735)
----------------------------------- -------- --------
Net debt 60,656 61,698
----------------------------------- -------- --------
(b) Financial risk management
The Group has exposure to the following risks from its use of financial instruments:
-- Foreign currency risk
-- Interest rate risk
-- Liquidity risk
-- Credit risk
This note presents information about the Group's exposure to each of the above risks, and the Group's objectives, policies and procedures for measuring and managing risk. The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework.
(i) Foreign currency risk
The Group has transactional currency exposures arising from purchases in currencies other than the Group's functional currency. These exposures are forecast on a monthly basis and are monitored by the Finance Department. Under the Group's foreign currency policy, such exposures are hedged on a reducing percentage basis over a number
of forecast time horizons using forward foreign currency contracts.
The Group's largest exposures are the US Dollar and Euro forward contracts. The derivative analysis below had been prepared by reperforming the calculations used to determine the balance sheet values assuming a 1% strengthening of Sterling:
2016 2015
GBP'000 GBP'000
Euro - gain - 157
USD - gain / (loss) 135 (81)
------------------------ -------- --------
135 76
--------------------- -------- --------
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's Factoring facility and Bank facility, both of which have floating interest rates.
The Group manages its interest rate risk by holding the majority of borrowings in fixed rate secured loan notes. The exposure to the remaining risk is deemed to be manageable and is reviewed on a continual basis. The Group are not expecting any reduction in interest rates over the next 12 months, the impact of 0.5% increase in interest rates on profit before tax is shown below:
2016 2015
GBP'000 GBP'000
Change in interest
rate 56 55
----------------------- -------- --------
(iii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Ultimate responsibility for liquidity risk management rests with the Board of Directors. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows, matching the maturity profiles of financial assets and operational liabilities and by maintaining adequate cash reserves.
The table below summaries the maturity profile of the Group's financial liabilities:
As at 30 April 2016
Due Due Due Due in Total
within between between more
1 year 1 and 2 and than
2 years 5 years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Borrowings 12,295 4,163 5,768 41,240 63,466
Trade and other payables 15,454 - - - 15,454
Derivative financial
instruments 190 - - - 190
----------------------------- -------- --------- --------- --------- --------
Total financial liabilities 27,939 4,163 5,768 41,240 79,110
----------------------------- -------- --------- --------- --------- --------
As at 30 April 2015
Due Due Due Due in
within between between more Total
1 year 1 and 2 and than
2 years 5 years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Borrowings 12,465 3,515 5,629 41,321 62,930
Trade and other payables 17,143 - - - 17,143
Derivative financial
instruments 1,455 - - - 1,455
----------------------------- -------- --------- --------- --------- --------
Total financial liabilities 31,063 3,515 5,629 41,321 81,528
----------------------------- -------- --------- --------- --------- --------
(iv) Credit risk
The Group's principal financial assets are bank balances and cash, trade and other receivables and investments. The group's credit risk is low. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
19. Commitments and contingencies
Operating lease commitments
The Group has entered into leases on commercial real estate. These leases have an average life of 12.6 years with no renewal option included in the contracts. There are no restrictions placed upon the Group by entering into these leases. The lease expenditure charged to the income statement during the year is disclosed in note 5.
Future minimum rentals payable under non-cancelable operating leases as at the year end, analysed by the period in which they fall due, are as follows:
2016 2015
GBP'000 GBP'000
Within one year 1,740 1,740
Between one and
two years 1,740 1,740
Between two and
five years 5,220 5,220
Greater than five
years 6,516 8,256
-------- --------
15,216 16,956
------------------- -------- --------
Finance lease commitments
Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments are, as follows:
2016 2015
GBP'000 GBP'000
Within one year 3,989 5,917
Between one and two years 3,228 2,687
Between two and five
years 4,617 3,302
----------------------------- -------- --------
11,834 11,906
Future finance charges (997) (896)
----------------------------- -------- --------
Present value 10,837 11,010
----------------------------- -------- --------
The present value of finance lease liabilities is as follows:
2016 2015
GBP'000 GBP'000
Within one year 3,605 5,566
Between one and two years 2,963 2,415
Between two and five
years 4,269 3,029
--------
10,837 11,010
--------------------------- -------- --------
Capital commitments
2016 2015
GBP'000 GBP'000
Contracted for but
not provided - -
------------------- -------- --------
20. Share capital and reserves
Called up, allotted and fully 2016 2015
paid GBP GBP
Class A Ordinary shares of GBP1
each 4,625 4,625
Class B Ordinary shares of GBP1
each 4,625 4,625
Class C Ordinary shares of GBP1
each 650 300
Class D Ordinary shares of GBP1
each 2,860 -
--------------------------------- ------ ------
12,760 9,550
---------------------------------------- ------
The number of ordinary shares in issue is set out below:
Number Number
Class A Ordinary shares of GBP1
each 4,625 4,625
Class B Ordinary shares of GBP1
each 4,625 4,625
Class C Ordinary shares of GBP1
each 650 300
Class D Ordinary shares of GBP1
each 2,860 -
The movements in shares occurred on the following dates set out below:
14 July 2014 Issue of A Ordinary shares of GBP1 each - 4,625 Issue of B Ordinary shares of GBP1 each - 4,625 Issue of C Ordinary shares of GBP1 each - 200 10 September 2014 Issue of C Ordinary shares of GBP1 each - 100 4 March 2015 (transacted on 19 June 2015) Issue of C Ordinary shares of GBP1 each 350 - Issue of D Ordinary shares of GBP1 each 2,860 -
20. Share capital and reserves
On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of GBP45,600,000 which comprised of GBP20,500,000 loan notes ("Shareholder Loans") issued by Accrol UK Limited to the Vendors and cash of GBP25,100,000. The vendors of Accrol Holdings Limited, entered into put and call options with Accrol Group Holdings plc over GBP4,625 of their loan notes in Accrol UK Limited. The options were exercised such that the Shareholder loans notes were transferred to Accrol Group Holdings plc in exchange for new B ordinary shares in Accrol Group Holdings with a nominal value of GBP4,625 with no impact on cash.
The issue of the A, B and C Ordinary Shares in July and September 2014 were satisfied by the receipt of GBP55,000 in cash and the exchange of GBP4,625 of shareholder loan notes, resulting in share premium of GBP50,000. The issue of the C and D Ordinary Shares in March 2015 (transacted on 19 June 2015) were satisfied by the receipt of GBP37,000 in cash, resulting in share premium of GBP34,000.
The A Shares, B Shares and C Shares rank pari passu in all respects. The D Ordinary Shares rank pari passu with the other share classes except that the dividend payable to D shareholders are subject to a cap.
Each holder of an A Share, B Share or D Share is entitled to vote at general meetings of the Company. The C Shares do not confer on the holders any right to vote at general meetings of the Company. Every holder of an A Share or B Share shall have one vote for each A Share or B Share held; and the D Shares entitle the holders to such number of votes (in aggregate) as is equal to 30% of the total votes to be cast, such votes being divided proportionately between the holders of such D shares being cast on such poll.
No dividends have been paid or proposed in either 30 April 2016 or 30 April 2015.
21. Related party disclosures
(a) Identity of related parties
The Company is under joint control. The Company's controlling shareholders are Northedge Capital LLP and members of the Hussain family. Phoenix Court Blackburn Limited is a company under the control of the Hussain family providing commercial premises for letting. Alklar Limited is an entity under the common directorship of Peter Cheung, to which payments for Peter Cheung's services as a director for Accrol UK Limited are made.
The subsidiaries of the Group are as follows:
Company Principal Country Holding
activity of incorporation %
------------------------- ----------------- ------------------- --------
Holding United
Accrol UK Limited company Kingdom 100%
Holding United
Accrol Holdings Limited company Kingdom 100%
United
Accrol Papers Limited Paper convertor Kingdom 100%
(b) Transactions with related parties
The following table provides the total amounts owed to / (due from) related parties as at the end of each year:
2016 2015
GBP'000 GBP'000
NorthEdge Capital LP 21,704 21,668
NorthEdge Capital -
GP 460 460
The Hussain family 22,126 22,126
Alklar Limited 270 8
Owed from related parties 44,560 44,262
----------------------------- -------- --------
Opening balance 44,262 -
Loans advanced during
year 249 40,990
Interest charged 4,099 3,264
Purchases 1,898 1,190
Repayments (5,948) (1,182)
Owed from related parties 44,560 44,262
----------------------------- -------- --------
Borrowings 41,239 40,990
Trade & other payables 3,321 3,272
----------------------------- -------- --------
Owed from related parties 44,560 44,262
----------------------------- -------- --------
Note 16 details loan notes net of financing fees.
The following table provides the total amounts of purchases and interest charged from related parties for the relevant financial year:
Transactions NorthEdge Capital LP 2,129 1,698 The Hussain family 2,050 1,632 Phoenix Court Blackburn Limited 1,740 1,085 Alklar Limited 78 39 --------------------------- ------ ------ Total 5,997 4,454 --------------------------- ------ ------
Terms and conditions of transactions with related parties
The purchases and loans from related parties are made at normal market prices. Outstanding balances at the year end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided for any related party payables. Loans from related parties carry interest at 10%. Payments to Phoenix Court Blackburn Limited are in respect of the provision of services.
(c) Directors' emoluments
2016 2015
GBP'000 GBP'000
Directors' fees 72 38
Emoluments 709 565
Other pension
costs - -
781 603
----------------- -------- --------
During the year retirement benefits were accruing to nil directors under defined contribution schemes (2015: nil). The aggregate amount of emoluments paid to the highest paid director was GBP204,000 (2015: GBP150,000).
Key management personnel comprises the directors of the Company and the trading subsidiary. The remuneration of all directors who have been identified as the key management personnel of the group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:
2016 2015
GBP'000 GBP'000
Short-term employee
benefits 986 663
Post-employment
benefits - -
Other long-term
benefits - -
986 663
--------------------- -------- --------
22. Acquisitions
On 14 July 2014, Accrol Group Holdings plc through its subsidiary, Accrol UK Limited, purchased the entire issued share capital of Accrol Holdings Limited for a consideration of GBP45,600,000. The operations of Accrol Papers Limited, a wholly owned subsidiary of Accrol Holdings Limited, are focussed on soft tissue paper conversion from its premises in Blackburn, Lancashire from where it produces toilet rolls, kitchen rolls and boxes of facial tissues. The acquisition brought additional funding into the business allowing it to focus and deliver its growth strategy.
Goodwill represents the expected benefits to the wider Group arising from the acquisition. The fair value of assets and liabilities acquired are set out below:
Fair
value
Net assets acquired GBP'000
Intangibles 20,513
Property, plant and
equipment 15,832
Inventories 11,756
Trade and other receivables 17,642
Bank overdraft (850)
Trade and other payables (28,747)
Deferred tax
liabilities (5,528)
------------------------------ ---------
Net sssets 30,618
Goodwill 14,982
---------------------------------
Total consideration 45,600
------------------------------ ---------
Satisfied by:
Cash 25,100
Loan notes 20,495
Shares issued 5
------------------------------ ---------
Total consideration 45,600 ------------------------------ --------- Net cash outflow arising on acquisition: Cash consideration 25,100 Bank overdraft acquired 850 -------------------------------- --------- Net cash outflow 25,950 ------------------------------ ---------
Professional deal fees of GBP1,530,000 incurred in effecting the acquisition were fully expensed during the year ended 30 April 2015. These costs are classed as an exceptional item and are included in 'Administrative expenses'.
The amount of revenue and profit for Accrol Papers Limited from 1 May 2014 to 14 July 2014 was GBP19.2 million and GBP2.0 million respectively.
For analysis of the full year revenue and profit of the Group including Accrol Papers Limited, refer to Note 26 Proforma result.
23. Explanation of transition to IFRS
This is the first time that the Group has presented its financial information under IFRS. The last financial information under UK GAAP was for the year to 30 April 2015 and the date of transition to IFRS was 1 May 2014. 2015 is the earliest year for which Accrol Group Holdings plc has published UK GAAP financial information.
IFRS 1 'First-time Adoption of International Financial Reporting Standards' offers a number of exemptions from full retrospective application of applicable standards on transition to IFRS. Following a review of these exemptions it has been concluded the Group has taken advantage of the exemption not to adopt retrospective application of IFRS 3 'Business Combinations' to historic acquisitions prior to the date of transition to IFRS.
Set out below are the UK GAAP to IFRS consolidated statements of financial position reconciliations for Accrol Group Holdings plc at 30 April 2015 (last financial information under UK GAAP) and profit reconciliation for Accrol Group Holdings plc for the 10 months ended 30 April 2015.
UK GAAP to IFRS reconciliation of the Consolidated Statement of Financial Position as at 30 April 2015 of Accrol Group Holdings plc
Note UKGAAP IFRS adjustments IFRS
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant
and equipment a(i) 22,124 616 22,740
Intangible assets b(ii),c 31,430 2,374 33,804
Investments in subsidiaries - - -
----------------------------- -------------------------------- -------- ----------------- --------
Total non-current
assets 53,554 2,990 56,544
--------------------------------------------------------------- -------- ----------------- --------
Current assets
Inventories d 9,306 75 9,381
Trade and other
receivables 19,301 - 19,301
Cash and cash equivalents 735 - 735
--------------------------------------------------------------- -------- ----------------- --------
Total current assets 29,342 75 29,417
--------------------------------------------------------------- -------- ----------------- --------
Total assets 82,896 3,065 85,961
--------------------------------------------------------------- -------- ----------------- --------
Current liabilities
Borrowings a(ii) 11,834 631 12,465
Trade and other
payables e 16,823 320 17,143
Income taxes payable f(iii) 496 90 586
Derivative financial
instruments (g) - 1,455 1,455
Total current liabilities 29,153 2,496 31,649
--------------------------------------------------------------- -------- ----------------- --------
Non-current liabilities
Borrowings 49,968 - 49,968
Deferred tax liabilities f(ii) 1,539 3,445 4,984
Total non-current
liabilities 51,507 3,445 54,952
--------------------------------------------------------------- -------- ----------------- --------
Total liabilities 80,660 5,941 86,601
--------------------------------------------------------------- -------- ----------------- --------
Net assets / (liabilities) 2,236 (2,876) (640)
--------------------------------------------------------------- -------- ----------------- --------
Capital and reserves
Issued capital 10 - 10
Share premium 50 - 50
Retained earnings
/ (deficit) a(iii),b(i),c,d,e,f(i),f(ii),g 2,176 (2,876) (700)
Total equity shareholders'
funds / (deficit) 2,236 (2,876) (640)
--------------------------------------------------------------- -------- ----------------- --------
(a) IAS 17 - 'Leases'
The Group reclassified leases previously treated as operating leases to finance leases as they satisfied the recognition criteria outlined under IAS 17. This resulted in the following impact in the years under review as follows
2015
GBP'000
Tangible assets - recognition (i) 616
Borrowings - recognition
of lease liability (ii) (631)
---------- --------
Net reduction in net assets
resulting from IAS 17 (iii) (15)
------------------------------- ---------- --------
(b) IFRS 3 'Business Combinations' - Intangible assets
Under IFRS 3 'Business Combinations the Group is required an assessment of the fair value of any identifiable intangibles assets that exist at the date of acquisition and to also identify any transaction fees that were capitalised in determining the carrying value of goodwill in the acquisition accounting. The carrying value of goodwill is reduced by these amounts under IFRS3, the transaction fees being recognised in the income statement in the year of acquisition and the separately identified intangibles recognised as assets alongside goodwill. The recognition of these intangibles also gives rise to a deferred tax liability at the date of acquisition in July 2014 which will unwind as the intangible assets are amortised. The table below itemises the impact of goodwill during the year ended 30 April 2013 and subsequent years
2015
GBP'000
Transaction fees expensed
in the year (i) (1,530)
Recognition of identifiable
intangibles on acquisition (20,508)
Deferred tax 4,290
---------
Net reduction in goodwill
carrying value resulting
from IFRS3 (17,748)
Increase in other intangible
assets carrying value
under IFRS 20,508
Net impact in goodwill
carrying value resulting
from IFRS3 (ii) 2,760
------------------------------ --------- ---------
(c) IAS 38 'Intangible assets'
Amortisation of intangible assets
Under IAS 38 'Intangible Assets' goodwill is treated as an intangible asset with an indefinite useful life and is not amortised as such all amortisation recognised under the previous UK GAAP treatment must be written back. In addition, the intangible assets recognised in (b) do not have indefinite useful lives and as such give rise to amortisation in the years under review as follows:
2015
GBP'000
Writeback of amortisation
of goodwill (cumulative) 1,305
Amortisation of intangibles
recognised on acquisition
(cumulative) (1,691)
-------------------------------------- --------
Net decrease due to amortisation
under IAS 38 (386)
-------------------------------------- --------
(d) IAS 2 - 'Inventories'
Overheads absorbed have been re-evaluated to ensure compliance with IAS 2.
2015
GBP'000
Overhead absorption (cumulative) 91
Supplier rebates absorption
(cumulative) (16)
-------------------------------------- --------
Net increase in inventories
arising under IAS 2 75
-------------------------------------- --------
(e) IAS 19 - 'Employee benefits'
IAS 19 requires the accrual of unpaid holiday benefits.
2015
GBP'000
Holiday pay accrual (320)
------------------------- --------
(f) IAS 12 - 'Income taxes'
2015
GBP'000
Deferred taxes
Net decrease in deferred tax
liabilities due to IFRS adjustments (i) 845
Net (increase) in deferred tax following
recognition of intangibles on acquisition (4,290)
---------------------------------------------------- --------
Net (increase) in deferred
taxes (ii) (3,445)
-------------------------------------------- ----- --------
Incomes taxes
Net increase in income taxes
payable due to IFRS adjustments (iii) (90)
---------------------------------- ----------------- --------
(g) IAS 39 - 'Financial instruments'
Under IFRS the group are required to recognise financial derivatives at fair value. However the group did not qualify for hedge accounting under IAS 39 'Financial instruments' and as such all movements in fair value are recognised in the income statement. The net impact on net assets is as follows:
2015
GBP'000
Fair value of foreign
currency contracts (1,455)
---------------------------- --------
Statement of Comprehensive Income for the Year ended 30 April 2015
Note UKGAAP IFRS adjustments IFRS
GBP'000 GBP'000 GBP'000
Revenue 81,904 - 81,904
Cost of sales d,e,g (58,917) (1,700) (60,617)
------------------------- ---------- --------- ----------------- ---------
Gross profit / (loss) 22,987 (1,700) 21,287
Administration expenses a(i),b,c (7,067) (1,887) (8,954)
Distribution (8,549) - (8,549)
Operating profit /
(loss) 7,371 (3,587) 3,784
Analysed as:
- EBITDA (1) 9,786 185 9,971
- Depreciation (1,110) (401) (1,511)
- Amortisation (1,305) (386) (1,691)
- Gain / (loss) on
derivative financial
instruments - (1,455) (1,455)
- Exceptional items - (1,530) (1,530)
------------------------------------- --------- ----------------- ---------
Operating profit /
(loss) 7,371 (3,587) 3,784
Finance costs a(ii) (4,088) (44) (4,132)
Loss before tax 3,283 (3,631) (348)
Tax (charge) / credit f (1,107) 755 (352)
------------------------- ----------
Profit/(loss) for the
year attributable to
equity shareholders 2,176 (2,876) (700)
------------------------------------- --------- ----------------- ---------
Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, gain / loss on derivative financial instruments and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.
Notes to the Consolidated Statements of Comprehensive Income
(a) IAS 17 - 'Leases'
The Group reclassified leases previously treated as operating leases to finance leases as they satisfied the recognition criteria outlined under IAS 17. This resulted in the following impact in the year under review as follows:
2015
GBP'000
Depreciation (P&L) (400)
Operating lease rental
(P&L) 429
-------------------------------------------------- --------
Net impact on Administrative expenses
resulting from IAS 17 (i) 29
----------------------------------------- ------ --------
(ii
Interest (P&L) ) (44)
------------------------------------------ --- --------
(b) IFRS 3 'Business Combinations' - Intangible assets
Under IFRS 3'Business Combinations' the group have expensed transaction fees associated with the acquisition in 2014. The net impact in the years under review is as follows:
2015
GBP'000
Transaction fees expensed
in the year (1,530)
---------------------------- --------
23. Explanation of transition to IFRS (continued)
(c) IAS 38 - 'Intangible assets'
Under IAS 38 'Intangible Assets' goodwill is treated as an intangible asset with an indefinite useful life and is not amortised, as such, all amortisation recognised under the previous UK GAAP must be written back. In addition the intangible assets recognised in (a) do not have indefinite useful lives and as such give rise to amortisation in the years under review as follows
2015
GBP'000
Writeback of amortisation
of goodwill (cumulative) 1,305
Amortisation of intangibles
recognised on acquisition (cumulative) (1,691)
------------------------------------------- --------
Net increase/(decrease) due
to amortisation under IAS 38 (386)
------------------------------------------- --------
(d) IAS 2 - 'Inventories'
2015
GBP'000
Overhead absorption
(cumulative) 91
Supplier rebates
absorption (cumulative) (16)
--------
Net reduction in 'Cost
of Sales' under IAS 2 75
--------------------------- --------
(e) IAS 19 - 'Employee benefits'
IAS 19 requires the accrual of unpaid employee holiday benefits.
2015
GBP'000
Holiday pay accrual (320)
------------------------- --------
(f) Income taxes
Other than the deferred tax arising on the recognition of separately identifiable intangibles there are income and deferred tax effects arising on recognition of the IFRS adjustments. The impact of taxes payable and deferred tax liabilities are as follows:
2015
GBP'000
Deferred taxes 845
Incomes taxes (90)
Net impact of recognition of IFRS adjustments 755
(g) Financial instruments
(i) IFRS adjustment - derivative financial instruments
Under IFRS the Group are required to recognise financial derivatives at fair value. However the Group did not qualify for hedge accounting under IAS 39 ' Financial instruments' and as such all movements in fair value are recognised in the income statement. The net impact on net assets is as follows:
2015
GBP'000
Fair value of foreign currency contracts (1,455)
23. Explanation of transition to IFRS (continued)
Cash flow statement
The move from UK GAAP to IFRS does not change any of the cash flows of the Group. The IFRS cash flow format is similar to UK GAAP but presents various cash flows in different categories and in a different order from the UK GAAP cash flow statement. All of the IFRS accounting adjustments net out within cash generated from operations except for the intangible assets reclassification and the inclusion of liquid investments with a maturity of less than three months on acquisition, together with related exchange adjustments, within cash and cash equivalents under IFRS.
24. Subsequent events
Re-registration as Accrol Group Holdings plc
On 26 May 2016, the Group issued a notice of intention to seek admission to AIM (the "Admission") through a share reorganisation in the parent company, Accrol Group Holdings Limited, and then re-registering the Company as a public limited company by the name of Accrol Group Holdings plc.
Share re-organisation
On 2 June 2016 Accrol Group Holdings plc issued 50 new A ordinary shares of GBP1 each and 50 new B ordinary shares of GBP1 each to NorthEdge Capital LLP and the Principal Shareholders (Majid Hussain, Wajid Hussain and Mozam Hussain) respectively. Accrol Group Holdings plc undertook a bonus issue of 4 A, B, C or D ordinary shares for each existing A, B, C and D ordinary share, respectively, to existing shareholders financed from the share premium reserve in order to enable Accrol Group Holdings plc to have a minimum nominal share capital of GBP50,000. The bonus shares were issued in the same proportions to the existing shareholdings. Each A, B, C and D ordinary share of GBP1 each was then sub-divided into 1,000 A, B, C and D ordinary shares of GBP0.001 each. Immediately prior to Admission, Accrol Group Holdings plc converted and re-designated the existing A, B, C and D shares of GBP0.001 each into ordinary shares of GBP0.001 each and deferred shares of GBP0.001 each. Following Admission, Accrol Group Holdings Plc purchased all of the deferred shares of GBP0.001 each in its capital for an aggregate consideration of GBP1.
Adoption of employee share plans
On 2 June 2016, the Group adopted a Management Incentive Plan (MIP). Initially, there are three participants in the MIP. Participation in the MIP is at the discretion of the Board. There is an intention that at a future date, further shares will be issued to a member or members of the senior team.
Relationship agreements
On Admission, Accrol Group Holdings plc entered into two relationship agreements, the first with the Principal Shareholders (Majid Hussain, Wajid Hussain and Mozam Hussain) and the second with NorthEdge Capital Fund I LP and NorthEdge Capital I GP LLP (the "NorthEdge Capital Funds"). The principal purpose of the relationship agreements was to ensure that the Company is capable of carrying on its business independently of each of the Principal Shareholders and the NorthEdge Capital Funds and their respective associates.
The relationship agreements contain undertakings from each of the Principal Shareholders and the NorthEdge Capital Funds that:
(i) transactions and relationships with them and their connected persons will be conducted at arm's length and on a commercial basis;
(ii) neither them nor any of their connected persons will take any action that would have the effect of preventing the Company from complying with its obligations under the AIM Rules; and
(iii) neither them nor any of their connected persons will propose or procure the proposal of certain shareholder resolutions.
The relationship agreements were effective from Admission and will remain in effect until:
(i) the Principal Shareholders in aggregate cease to hold in aggregate a shareholding to which attaches in excess of 10% of the total voting shares in the Company from time to time; and
(ii) the NorthEdge Capital Funds cease to hold in aggregate a shareholding to which attaches in excess of 10% of the total voting shares in the Company from time to time (as the case may be).
Initial Public Offering (IPO)
On the 10 June 2016 the company listed on AIM. The net proceeds of the Placing receivable by the Company being gross proceeds of GBP43.3m less estimated fees and expenses related to the Placing of GBP1.9 million.
Authority for the Company to purchase its own shares
On 1 June 2016, the Company passed resolutions and entered into a share buyback contract with each member of the Company to buy back, on 11 July 2016, all of the deferred shares of GBP0.001 each held by each member, buying back in aggregate, 27,476,142 deferred shares of GBP0.001 each for an aggregate consideration price of GBP1.
Revolving Credit Facility agreement
At 30 April 2016, the Group had borrowings under a committed bank loan facility of GBP4 million provided by HSBC plc, a factoring facility of GBP20 million and finance leases of GBP8 million. Subsequent to the year end, on 13 June 2016, the bank loan facility and the finance leases have been repaid from a new Revolving Credit Facility ("RCF"). The RCF is a 5 year GBP18 million facility with a day 1 drawdown of GBP13 million. The RCF reduces to GBP10 million subject to the following profile
30 April 2017: GBP16 million 30 April 2018: GBP14 million 30 April 2019: GBP12 million 30 April 2020: GBP10 million The minimum drawing is: GBP500,000 with the maximum number of outstanding drawings at any one time being 10. Interest is charged on the RCF at LIBOR plus a margin of 2.0% subject to the below ratchet:
>=2.0x Net Debt: EBITDA = 2.25 basis points
>=1.5x Net Debt: EBITDA = 2.00 basis points
>=1.0x Net Debt: EBITDA = 1.75 basis points
<1.0x Net Debt: EBITDA = 1.50 basis points
An arrangement fee of 1.5% of the RCF is payable at inception. An annual commitment fee of 40% of applicable margin on any undrawn RCF commitment is also payable. There is no commitment fee or ticking fee arising between signing and Admission. The facility is subject to financial covenants and each of Accrol Group Holdings plc, Accrol UK Limited, Accrol Holdings Limited and Accrol Papers Limited will enter into a guarantee and the security each have previously granted in favour of HSBC shall remain in respect of all liabilities arising under the RCF agreement.
25. Non-GAAP measures
Adjusted earnings per share
The adjusted earnings per share is calculated by dividing the adjusted earnings attributable to ordinary equity holder of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the adjusted earnings per share calculation.
2016 2015
GBP'000 GBP'000
Earnings attributable to shareholders 5,705 (700)
Adjustment for:
Depreciation 1,831 1,511
Amortisation 2,060 1,691
Gain / (loss) on derivatives (1,266) 1,455
Exceptional items - deal costs - 1,530
Exceptional items - consultancy 493 -
Tax effect (258) (630)
Adjusted earnings attributable to shareholders 8,565 4,857
Number Number
Basic weighted average number of shares(1) 9,900 9,514
GBP GBP
Basic adjusted earnings per share 865.15 510.51
Diluted adjusted earnings per share 865.15 510.51
Note 1: The basic weighted average number of shares is calculated by excluding the D class of shares as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining ordinary equity shareholders.
26. Proforma result
The consolidated financial statements contain comparative information for the year to 30 April 2015 which does not include a full year of trading information.
The statutory consolidated income statement contains 10 months of trading results as the acquisition of the trading subsidiary, Accrol Papers Limited occurred on 14 July 2014 and not at the beginning of the financial year.
In order to aid year-on-year comparison, the statutory audited income statement has been adjusted to include the results relating to the period 1 May 2014 to 13 July 2014 that would have been included in the Accrol Group Holdings plc financial statements for year ended 30 April 2015 had the acquisition occurred on 1 May 2014.
2015 is the first year reporting under IFRS for Accrol Group Holdings plc, and there are a number of IFRS adjustments. As Accrol Group Holdings plc was incorporated in the financial period, the opening balance sheet did not include these IFRS adjustments and the cumulative IFRS impact has been included in the statutory comparatives. The adjustments column in the table below, adjusts this cumulative IFRS impact and includes only the element of the IFRS adjustment relating to the year to 2015.
Proforma consolidated income statement for the year ended 30 April 2015
Statutory 2015 Adjustments Unaudited Proforma 2015
GBP'000 GBP'000 GBP'000
Revenue 81,904 19,152 101,056
Cost of sales before gain / (loss) on derivative financial
instruments (59,162) (15,661) (74,823)
Gain / (loss) on derivative instruments (1,455) 428 (1,027)
Cost of sales (60,617) (15,233) (75,850)
Gross profit / (loss) 21,287 3,919 25,206
Administration expenses (8,954) (1,644) (10,598)
Distribution (8,549) 463 (8,086)
Operating profit 3,784 2,738 6,522
Analysed as:
- EBITDA (1) 9,971 2,308 12,279
- Depreciation (1,511) 2 (1,509)
- Amortisation (1,691) - (1,691)
- Gain/ (loss) on derivative financial instruments (1,455) 428 (1,027)
- Exceptional items (1,530) - (1,530)
Operating profit 3,784 2,738 6,522
Finance costs (4,132) (99) (4,231)
(Loss) / profit before tax (348) 2,639 2,291
Tax (charge) (352) (519) (871)
(Loss) / profit for the year attributable to equity shareholders (700) 2,120 1,420
This approach enables the reader of the financial statement to easily reconcile the statutory 2015 results to those that would have been presented in 2015 had a full year of trade been included under ongoing IFRS accounting treatment which was presented in the Historical Financial Information presented within the Admission document.
FR PGUGUMUPQGQG
(END) Dow Jones Newswires
July 22, 2016 02:00 ET (06:00 GMT)
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