Accrol Group Holdings PLC Half Year Results (3071L)

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
	-0.30	-0.77%	38.60	38.60	38.80	38.80	38.60	38.60	1,824,699	16:35:08

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Convrt Paper,paperbd Pds,nec	241.91M	-5.7M	-0.0179	-21.68	123.72M

Accrol (LSE:ACRL)
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TIDMACRL

RNS Number : 3071L

Accrol Group Holdings PLC

12 January 2021

The information contained within this announcement is deemed by the Group to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Accrol Group Holdings plc

("Accrol", the "Group" or the "Company")

HALF YEAR RESULTS

Ongoing improvement in financial returns and restoration of dividend in FY21

Accrol (AIM: ACRL), the UK's leading independent tissue converter, announces its results for the six months ended 31 October 2020 ("H1 21" or the "Period").

Summary of progress

The Group's progress continues with all aspects of the business performing well. Margins are continuing to improve, and further improvements are expected, generating increasingly strong cash flows and reducing net debt at a faster rate than anticipated.

The integration of Leicester Tissue Company ("LTC"), acquired in November 2020 for a total maximum consideration of GBP41.8m, is progressing better than expected and the Board looks forward to providing more details on the positive impact of the acquisition on the Group as the year progresses.

With margins continuing to improve, LTC contributing positively and the business continuing to deliver strong organic growth, the Board is confident that the Group is fully on track to deliver a strong H2 performance and results for FY21 will be at least in line with market expectations.

As a result, the Board is delighted to announce its intention to restore dividend payments earlier than it anticipated and expects to propose a final dividend of no less than 0.5p per ordinary share for the year ending 30 April 2021 ("FY21"). Net debt (pre IFRS 16) 30 April 2021 is expected to be below consensus market forecasts (currently GBP12.2m), even after the intended dividend payment.

As announced in December 2020, Accrol's senior management team has been strengthened further with Richard Newman joining as Chief Financial Officer ("CFO") on 1 February 2021. Richard joins the Group from DS Smith Plc, where he is currently Finance Director for North Europe. The Group now has a leadership team of significant experience, capable of executing an ambitious growth strategy to deliver a diversified business of scale focused on the household and personal hygiene sectors.

 
                                 H1 21       H1 20         H1 19        H1 21 
                                                                           vs 
                                                                        H1 20 
 Reported results 
 Revenue                      GBP62.3m    GBP65.1m   GBP57.6m(1)        -4.3% 
 
 Gross profit                 GBP14.8m    GBP12.8m       GBP6.9m    + GBP2.0m 
 Gross margin                    23.8%       19.7%         12.0%      + 410bp 
 Loss before tax             (GBP0.5m)   (GBP3.0m)     (GBP9.0m)    + GBP2.5m 
 Net debt (pre IFRS 16        GBP18.1m    GBP24.8m      GBP22.6m    + GBP6.7m 
  impact) 
 Net debt (post IFRS 16       GBP26.8m    GBP37.4m             -   + GBP10.6m 
  impact) 
 
 Underlying results 
 Consumer Revenue(2)          GBP62.3m    GBP64.5m      GBP53.9m        -3.4% 
 Adjusted gross profit(3)     GBP15.4m    GBP13.0m       GBP9.9m    + GBP2.4m 
 Adjusted gross margin           24.7%       20.0%         17.2%      + 470bp 
 Adjusted EBITDA(4)            GBP5.4m     GBP3.2m     (GBP1.1m)    + GBP2.2m 
 
 
 (1)   Includes revenue from discontinued "Away From Home" operations 
 (2)   Excludes revenue from discontinued "Away From Home" operations 
 (3)   Defined as gross profit before exceptional items. This is 
        a non-GAAP metric used by management and is not an IFRS 
        disclosure 
 (4)   Defined as profit before finance costs, tax, depreciation, 
        amortisation, share based payments, IFRS 16 changes and 
        exceptional items. This is a non-GAAP metric used by management 
        and is not an IFRS disclosure

H1 21 highlights:

 
 --   All aspects of the business operated safely and successfully 
       throughout the pandemic with no furloughing or government 
       support being accessed in any way 
 --   Adjusted EBITDA increased by 69%, compared with H1 20, with 
       returns improving to 8.7% of Group revenue 
 --   Margin improvement driven by more selective product mix, 
       resulting adjusted gross profit 18% ahead of H1 20 
 --   The Group's share of the total UK tissue market rose by 
       just under 1%* in the Period 
 
 
 *   After adjustment for reduction in brands sold at a discount 
      and the increase in retailer margin during the Period

Post H1 21 highlights:

 
 --   Strategic ambition demonstrated with a successful placing 
       and open offer to fund the acquisition of LTC in November 
       2020 for a total maximum consideration of GBP41.8m: 
      - Well invested modern machine asset base providing transformational 
       step change in Group capacity (now c.GBP220m including facial 
       tissue) 
      - Initial EBITDA multiple paid for LTC will fall from 7.8x 
       to 5.5x, if LTC achieves criteria for payment of maximum 
       deferred consideration 
      - Central UK location provides significant logistic cost 
       advantages for the enlarged group 
 --   Richard Newman appointed as the Group's new CFO from 1 February 
       2021 
 --   Full automation of the Blackburn site delivered on time 
       and to budget, completing the final major operational change 
       at the site

Current trading and outlook:

 
 --   The integration of LTC has begun well with no issues to 
       report and volumes across the Group strengthening further 
       in H2 21 as expected 
 --   Margins and cash generation are continuing to strengthen, 
       as new products are rolled out across the wider customer 
       base 
 --   Net debt reducing at a faster rate than anticipated, as 
       a result of ongoing margin improvement and cash generation, 
       and is expected to be below consensus market expectations 
       for FY21, even after the intended dividend payment 
 --   The Board is confident that the Group is fully on track 
       to deliver FY21 results at least in line with market expectations 
       with the business continuing to deliver strong organic growth 
 --   The Board intends to restore dividend payments and expects 
       to propose a final dividend for FY21 of no less than 0.5p 
       per ordinary share

Dan Wright, Executive Chairman of Accrol, said:

"I am particularly proud of the professionalism, commitment and flexibility our employees have demonstrated, in the face of the many and diverse challenges, both personal and work-related, which have been thrust upon us by the COVID-19 pandemic. Throughout everything, our operations have performed exceptionally well without any disruption to supply.

The margin improvement, that we have continued to deliver in the Period, is a result of our determination to deliver great products, that the consumer wants, on a consistent basis, and builds on our key partnerships. Our strategy to supply the widest possible group of retailers, furthered by our acquisition of LTC in November 2020, gives us the strongest opportunity to grow profitably and deliver double digit EBITDA margins.

In our Final Results for the year ended 30 April 2020, announced in September 2020, we stated that it was our plan to return to dividend payments in the medium term, should the Group's financial performance continue on its current and expected trajectory. We deliver on our promises and, as a result of our relentless drive on operational efficiency and our ability to deliver product innovation the consumer wants to buy, we are announcing our intention to return to dividend payments earlier than expected. Our shareholders, old and new, have been incredibly supportive of our strategy and ambitions and to announce this gives us an enormous amount of satisfaction.

The Group's recent acquisition of LTC and the announcement of a high calibre Chief Financial Officer puts the enlarged business in an even stronger position to grow into adjacent markets and through vertical integration. The expectations and ambitions of the Board and the senior management team are high, and we move into 2021 with confidence."

Gareth Jenkins, Chief Executive Officer of Accrol, said:

"I would like to thank our people for delivering another strong performance, continuing to deliver improvement across every aspect of the business and building further on the achievements of FY20.

Our relentless approach to efficiency remains at the core of everything that we do, and we will continue to deliver margin improvement in all areas of the business. Our team remains focused on delivering great products and great service and we are not afraid to churn the mix of our work further, as we target the leading brands for our growth. Sales to the Group's top four customers have continued to grow and I feel very confident, as the UK emerges from this pandemic, that the growth of the discounters, the private label brands and great value products will accelerate.

The long-term structural growth in the sector is significant and our recent acquisition of LTC, with its outstanding modern machine assets and capabilities, provides a significant opportunity to accelerate the switch to best value products and place increasing pressure on the leading luxury brands.

Our team's capability and ambitions are strong, and we will continue to explore opportunities to deliver yet more value to the consumer and our investors, through acquisition, new product development and vertical integration."

 
For further information, please contact: 
 
Accrol Group Holdings plc 
Dan Wright, Executive Chairman            Via Belvedere Communications 
Gareth Jenkins, Chief Executive Officer 
 
Zeus Capital Limited (Nominated Adviser 
 & Broker) 
Dan Bate / Jordan Warburton                  Tel: +44 (0) 161 831 1512 
Dominic King / John Goold                    Tel: +44 (0) 203 829 5000 
 
Liberum Capital Limited (Joint Broker)       Tel: +44 (0) 20 3100 2222 
Clayton Bush / Edward Thomas 
 
Belvedere Communications Limited 
Cat Valentine                                Tel: +44 (0) 7715 769 078 
Keeley Clarke                                Tel: +44 (0) 7967 816 525 
Llew Angus                                   Tel: +44 (0) 7407 023 147 
                                              accrolpr@belvederepr.com

Overview of Accrol

Accrol Group Holdings plc is a leading tissue converter and supplier of toilet tissues, kitchen rolls and facial tissues to many of the UK's leading discounters and grocery retailers across the UK. Following the recent acquisition of a state-of-the-art tissue converter based in Leicester, the Group now operates from five sites, including four in Lancashire, which generate revenues totalling c.16% of the GBP1.7bn UK retail tissue market.

OPERATIONAL REVIEW

Overview

The Group has continued to build on the progress achieved in FY20, delivering a further sizeable improvement in financial performance in the Period under review and an acceleration of margin growth in the early stages of H2 21.

We focused on keeping our people safe during the pandemic and continue to operate the business without disruption, successfully delivering essential everyday products to fulfil the UK consumer's needs. Accrol has demonstrated that its products are resilient, even in difficult social and economic circumstances, and we will continue to focus on great value everyday essentials, as we pursue our strategy to build a diversified personal hygiene and household products business of scale.

Results

In the six months to 31 October 2020, the Group generated slightly reduced revenue of GBP62.3m (H1 20: GBP64.5m). This was a result of the short-term change in consumer shopping habits, driven by panic buying in March and April 2020 in the first national lockdown. Gross margin, however, rose by 410bp to 23.8% (H1 20: 19.7%), as the drive to deliver higher value products to the consumers accelerated throughout the Period. As a result, Adjusted EBITDA increased by 69% to GBP5.4m (H1 20: GBP3.2m).

Free cashflow improved by GBP5.5m, as cash management and margins continued to improve throughout the Period. Net debt (pre IFRS 16) at 31 October 2020 was GBP18.1m, down substantially from GBP24.8m at 31 October 2020 and GBP27.9m at 30 April 2020. This strong cash flow has continued to accelerate in H2 21. Net debt (pre IFRS 16) at 30 April 2021 is now expected to be below consensus market expectations (currently GBP12.2m) on a like for like basis, a multiple to EBITDA of less than 1x, comfortably beating the Group's medium-term target of less than 2x. With improvements in terms with suppliers and customers and credit insurance continuing to return, the Group's strengthened balance sheet will allow us to continue delivering on our strategy to build a personal hygiene and household products business of scale and accelerate our investment programme as appropriate.

Acquisition of LTC and progress update

The acquisition of LTC, which completed on 25 November 2020 following a successful placing and open offer, added valuable new assets with significant capacity, complementary customers, and substantial synergies across both businesses. Whilst we are only seven weeks in, the integration has progressed incredibly well. With multiple different synergy work streams underway, our team is increasingly confident of delivering cost synergies in excess of GBP1m. A full update on the integration of LTC will be provided no later than May 2021. No issues have been encountered since completion and the positive reaction of customers gives the Group confidence of delivering the revenue expectations already announced.

The initial consideration paid for LTC was GBP35.0 million, representing an enterprise value / FY20 adjusted EBITDA* multiple of 7.8x before synergies and 5.5x when combined with the maximum deferred consideration of GBP6.8m, which is subject to new contract incremental EBITDA contributions of GBP3.1m. Deferred consideration w ill be satisfied in cash and/or by the issue of new Ordinary Shares, at the Group's discretion.

People and the Board

As announced in December 2020, Richard Newman will join the Board on 1 February 2021 as Chief Financial Officer. He is currently with DS Smith where he is Finance Director for North Europe, a c.GBP2billion revenue division. Richard brings an enormous amount of experience to the team and his decision to join Accrol is indicative of the Group's ambitions. We have high expectations for the Group and Richard is clear on how he will help the achievement of those goals. Following this key appointment, the assembled leadership team is now more than capable of running and growing a business of scale, delivering the returns the management expect and shareholders appreciate.

Dividend

At the end of 2017, when the business found itself in an untenable financial position, the Board had no options but to suspend dividend payments. Following a highly complex and successful turnaround of the Group and an acceleration in margin improvements and cash generation, the Board is able to announce its intention to return to dividend payments, and that it expects to propose a final dividend of no less than 0.5p per ordinary share for FY21 in the announcement of the Group's Audited Final Results.

The Board considers a progressive dividend policy to be an important component of shareholder returns. In considering future payments, the Board will be mindful of the Group's earnings growth potential, future expansion plans and leverage. As previously stated, net debt after the dividend payment will be lower than current consensus market expectations for FY21 and FY22 on a like for like basis.

COVID-19 and Brexit

The Board is pleased that the Group is continuing to operate safely, despite the challenges of the pandemic, but remains mindful of the short-term challenges facing the retail sector as new lockdowns are imposed.

Whilst each location in which the Group now operates has been affected by different levels of lockdown, all sites have remained fully operational, as an essential supplier to critical supply chains. In the first quarter, volumes were negatively impacted as the panic buying that positively impacted the Q4 FY20 unwound. During the first national lockdown, branded products saw a short-lived resurgence in market share as the greater stock positions of the major brands fulfilled rising demand with no need for promotional discounting to generate sales. The balance of private label to branded sales has now reverted to the pre-pandemic position with brands now back to +80% on promotion and private label sales taking more than 50% share.

The Group's performance in H1 21 exceeded management expectations, despite incurring a modest amount of exceptional costs related to the additional personal protection measures implemented to ensure the ongoing health and safety of our employees. Whilst there remains some uncertainty in the economic outlook, the Group remains confident in achieving its short-term and medium-term targets. The Board's intention to resume dividend payments highlights the Group's confidence in its improving financial position and future ability to deliver on its business model.

With regard to Brexit, the Group had robust contingency plans for every potential outcome and is well positioned to manage in the new environment. As experienced by many UK businesses in the build up to Brexit, the Group incurred some additional one-off logistics costs. Further one-off costs, relating to logistics, are expected to be minimal, as the Central UK location of our recent acquisition, LTC, will help significantly with the Group's distribution going forward. The Group has a number of supply chains positions in place, outside the European Union, for most of its major materials. In addition, we continue to explore the benefits of vertical integration for a percentage of our material requirements, which will continue to strengthen our supply position and reduce risks further in the medium to long-term.

Environment, Social and Governance ("ESG")

Whilst there is increasing governmental, investor and media attention on ESG, we are proud to say that it is genuinely important to us at Accrol. ESG is an integral part of our relentless improvement programme and has been a key element of our strategy since the early days of the turnaround. We believe that protecting the environment, looking after our employees and our communities, and monitoring our supply chain, whilst ensuring that our business is well managed through a strong governance framework, is the only way to ensure Accrol meets it ambitious growth plans and is sustainable for the long term.

We are in the process of producing our first ESG report, in which we will demonstrate precisely what we are doing and how that benefits both our business and our stakeholders. This report, which we expect to publish soon, will be made readily available to shareholders.

Current trading and outlook

The Board looks to the future with increased confidence but is, of course, mindful that the challenges resulting from the pandemic will remain in the short-term. The enlarged Accrol Group, with its broad range of customers and high added value products, is very well positioned to benefit from the continued growth in the private label sector where every consumer pound spent will be on products that add real value to people's everyday costs. The Group's ability to deliver products which outperform the competition on a quality and value basis gives the Board confidence in delivering its target growth of +8% over the cycle and furthering the demise of the major brands.

With margins continuing to improve and further operational synergies being generated from the integration of LTC, the Board is confident that the Group is fully on track to deliver results for FY21 at least in line with expectations. The longer-term prospects for the enlarged Group remain strong, with further growth in the private label market forecast and a strong pipeline of opportunities identified for additional complementary acquisitions in the household and personal hygiene markets.

The Group will continue to target improvements in its product mix and grow the business with a clear focus on quality revenue, generated through the delivery of excellent products and service.

Gareth Jenkins

Chief Executive Officer

CONSOLIDATED INTERIM INCOME STATEMENT