Accrol Group Holdings PLC Half Year Results (7002N)

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%	38.60	38.20	38.50	39.00	38.40	38.40	3,818,595	16:35:14

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Convrt Paper,paperbd Pds,nec	241.91M	-5.7M	-0.0179	-21.51	122.77M

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RNS Number : 7002N

Accrol Group Holdings PLC

22 January 2019

The information contained within this announcement is deemed by the Company 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.

22 January 2019

Accrol Group Holdings plc

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

HALF YEAR RESULTS

Turnaround delivering profitability on a monthly basis post half year end

Accrol Group Holdings plc (AIM: ACRL), the UK's leading independent tissue converter, announces its Half Year Results for the six months to 31 October 2018 ("H1 19" or the "Period").

The operational aspects of the comprehensive turnaround initiated in February 2018 were substantially completed by the Period end. The financial benefits of the changes we have implemented are beginning to accrue and are starting to flow through to the bottom line. This return to profitability on a monthly basis, positions the Group well to deliver the Board's revised performance expectations for FY 19 and beyond, as detailed in the announcement titled "Trading Update" which was announced on 8 January 2019, RNS Number: 4372M (the "8 January 2019 Trading Update").

Key financials:

 
                                                                       H1 19        H1 19 
                                                                       vs H2        vs H1 
                                 H1 19        H2 18       H1 18    18 change    18 change 
 Reported results 
                            ----------  -----------  ----------  -----------  ----------- 
 Revenue                      GBP57.6m     GBP67.5m    GBP72.3m      (14.7%)      (20.3%) 
                            ----------  -----------  ----------  -----------  ----------- 
 Gross profit                  GBP6.9m     GBP12.6m    GBP11.9m      (45.3%)      (41.8%) 
                            ----------  -----------  ----------  -----------  ----------- 
 Gross margin                    12.0%        18.7%       16.4% 
                            ----------  -----------  ----------  -----------  ----------- 
 Loss before tax             (GBP9.0m)   (GBP18.1m)   (GBP6.0m) 
                            ----------  -----------  ----------  -----------  ----------- 
 Net debt                     GBP22.6m     GBP33.8m    GBP29.3m   (GBP11.2m)    (GBP6.7m) 
                            ----------  -----------  ----------  -----------  ----------- 
 Loss per share basic 
  and diluted                (GBP0.04)            -   (GBP0.05)            -        25.2% 
                            ----------  -----------  ----------  -----------  ----------- 
 
 Underlying results 
                            ----------  -----------  ----------  -----------  ----------- 
 Revenue                      GBP57.6m     GBP67.5m    GBP72.3m      (14.7%)      (20.3%) 
                            ----------  -----------  ----------  -----------  ----------- 
 Adjusted gross profit(1)      GBP9.9m      GBP8.3m    GBP12.9m        19.8%      (23.5%) 
                            ----------  -----------  ----------  -----------  ----------- 
 Adjusted gross margin           17.2%        12.2%       17.9% 
                            ----------  -----------  ----------  -----------  ----------- 
 Adjusted EBITDA(2)          (GBP1.1m)    (GBP4.5m)   (GBP1.5m)      GBP3.4m      GBP0.4m 
                            ----------  -----------  ----------  -----------  -----------

(1) Adjusted gross profit which is defined as gross profit before exceptional items and includes losses on derivatives contracts is a non GAAP metric used by management and is not an IFRS disclosure.

(2) Adjusted EBITDA which is defined as profit before finance costs, tax, depreciation, amortisation, share based payments and exceptional items is a non GAAP metric used by management and is not an IFRS disclosure.

Analysis of consumer revenue:

Consumer revenue comprises retail sales of Toilet Tissue, Kitchen Towel and Facial Tissue. It excludes discontinued operations, namely Accrol's "Away From Home (AFH)" business.

 
                                                              H1 19        H1 19 
                                                              vs H2        vs H1 
                         H1 19       H2 18       H1 18    18 change    18 change 
 Consumer revenue     GBP53.9m    GBP56.9m    GBP55.8m       (5.2%)       (3.4%) 
                    ----------  ----------  ----------  -----------  -----------

H1 19 Highlights:

 
 --   Highly complex turnaround substantially completed 
 --   Exit from lower margin Away From Home ("AFH") operations 
       to focus on core business 
 --   Adjusted gross margin broadly consistent with prior period 
       despite the absorption of a 29% increase in average tissue 
       prices 
 --   Net debt reduced by GBP6.7m to GBP22.6m 
 --   Top 10 customer revenue grew 11% to GBP52.5m (H1 18: GBP47.3m)

Current trading and outlook:

 
 --   Margins post Period end have strengthened as price increases 
       achieved across the business have begun to make full impact 
       in the day to day trading 
 --   Production efficiencies have improved by more than 70% 
 --   Most of the exceptional costs have already been incurred 
       in the Period with many having ended or due to end in Q4 
       19 
 --   The Board is positive about the outlook for the Group and 
       expects to deliver profit for the full year to 30 April 
       2019, all things remaining equal, of c.GBP1.0 million at 
       Adjusted EBITDA level

Dan Wright, Chairman of Accrol, said:

"The business has changed beyond recognition since February 2018 and will exit the current financial year in a much stronger position operationally than it has ever been in before. We have delivered a highly complex restructuring, whilst absorbing a 29% increase in average tissue prices and now expect to deliver profit for the full year to 30 April 2019.

"Knowing the scale and complexities of the task in hand, I am very pleased with the outcomes achieved internally to date. My only disappointment is that, as previously announced, we are, in effect, three months behind where we expected to be on the financial recovery. Thank you to everyone who has been involved in the turnaround; your contribution is highly valued. I believe Accrol has a bright future; one in which the Group delivers better levels of return throughout fluctuating macro-economic cycles. Whilst I recognise the ongoing macro-economic challenges, I am confident that we are through the main challenges that the business faced in this difficult period and the signs going forward look positive."

Gareth Jenkins, Chief Executive Officer of Accrol, said:

"This is one of the most challenging business turnarounds in which the leadership team and I have ever been involved. Whilst most of the issues we have faced are familiar to the team, it is highly unusual to face so many issues in a single business, at the same time and at such a pace. I am pleased to say that the major actions are now behind us and we are beginning to see results. We will never become complacent; ongoing success in the tissue conversion sector requires nothing less than operational excellence. As a Board, we are convinced that we have created a more robust business with strong foundations on which to build and, whilst I am sure there will be challenges ahead, the Group is on a significantly improved path."

 
 For further information, please contact: 
 
Accrol Group Holdings plc 
Dan Wright, Executive Chairman              Tel: +44 (0) 1254 278 844 
Gareth Jenkins, Chief Executive Officer 
 
Zeus Capital Limited (Nominated Adviser 
 & Broker) 
Dan Bate / Andrew Jones                     Tel: +44 (0) 161 831 1512 
Dominic King / John Goold                   Tel: +44 (0) 203 829 5000 
 
Belvedere Communications Limited 
Cat Valentine (cvalentine@belvederepr.com)  Tel: +44 (0) 7715 769 078 
Keeley Clarke (kclarke@belvederepr.com)     Tel: +44 (0) 7967 816 525 
Llew Angus (langus@belvederpr.com)           Tel: +44 (0)7407 023 147

Notes to Editors

Accrol Group Holdings plc, based in Lancashire, is a leading tissue converter and supplier of toilet rolls, kitchen rolls and facial tissues, as well as other tissue products, to major discounters and grocery retailers throughout the UK.

Accrol operates from three sites:

 
 --   A manufacturing, storage and distribution facility in Blackburn; 
 --   A facial tissue plant, also in Blackburn; and 
 --   A manufacturing, storage and distribution facility in Leyland.

OPERATIONAL REVIEW

I am pleased to report the Group's results for the six months to 31 October 2018, a period of considerable change for the business which has resulted in a return to profitability, on a monthly basis, post the Period end.

Results

In the six-month to 31 October 2018, the Group reported revenues of GBP57.6m (H1 18: GBP72.3m). Consumer revenues (excludes discontinued AFH revenue) were GBP53.9m (H1 18: GBP55.8m). Adjusted gross margin of 17.2% (H1 18: 17.9%) despite absorbing 29% price increases in average tissue prices. Adjusted EBITDA loss was reduced to GBP1.1 million improving from a loss in H2 18 of GBP4.5 million. Revenue from our core customers (top 10) increased by 11% from GBP47.3m to GBP52.5m during the Period, as the positive impact of new contracts began to flow through towards the half year end.

Margins have continued to strengthen post Period end, as price increases achieved across the business begin to impact day to day trading fully.

As announced on 8 January 2018, exceptional costs associated with executing the turnaround continue to be incurred and these were higher than expected in H1 19 at GBP4.4m. Given the scale and speed of the turnaround, the exceptional costs incurred by Accrol are not out of the ordinary. These exceptional costs cover the following:

 
 --   increased waste levels as the business has installed a major 
       new line; 
 --   costs of introducing new suppliers and materials across 
       the business; 
 --   restructuring and redundancy costs as the organisation significantly 
       downsized; 
 --   comprehensive training programme throughout the business 
       (ongoing); 
 --   further operational costs incurred in the installation of 
       the new line; and 
 --   external consultancy & legal costs incurred as the business 
       navigated its route through a significant number of contractual 
       changes and improvements.

With most of the cash cost already incurred in the Period and many of the exceptional costs having ended or being due to end in Q4 19, the business can look forward with confidence. Exceptional costs will not exceed the c.GBP8 million figure, detailed in the 8 January 2019 Trading Update.

Net debt as at 31 October 2018 was reduced to GBP22.6m and management expect FY19 year-end net debt to be no more than GBP30.0m (FY18: GBP33.8m), which is a result of improved working capital management.

It is not the Board's intention to return to the dividend list in the short term.

Turnaround update

The scale and complexity of the turnaround programme commenced in February 2018 must not be underestimated. Our aim, however, was simple: to build a robust, agile and market-leading business, capable of delivering growth and acceptable levels of return to shareholders in the toughest economic conditions.

Every element of the organisation has now been reviewed and changed in some way, to maximise the Group's commercial opportunities and deliver financial and operational efficiencies. In summary, we have focused on and delivered a successful outcome on the following:

 
 --   Exit from Skelmersdale facility, bringing associated savings 
       of GBP5 million annually from October 2018; 
 --   Exit from the low margin AFH operations, which totalled c.GBP25 
       million revenue at its peak, drove significant operational 
       costs out of the business and allowed the Group to focus 
       on its core strengths and key areas of investment. The exit 
       of AFH positively impact margins going forward; 
 --   Significant new business wins and the onboarding of these 
       accounts, with the Group now expecting to generate c.GBP126 
       million revenue in FY 19 (FY18, excluding the discontinued 
       revenues from low margin AFH operations were GBP115 million); 
 --   The cessation of third-party management of onsite warehousing 
       at all sites, which will be completed in Q4 delivering further 
       logistic savings which will benefit the Group in FY20; 
 --   The rationalisation of SKUs (Stock Keeping Units) from 460 
       to fewer than 120; 
 --   A change in suppliers and reduction of tissue types from 
       75 to fewer than 20 to drive operational and financial efficiencies; 
 --   An expansion of tissue supply sources giving more options 
       and increased access to latest global paper production; 
 --   Improved S&OP (Sales and Operations Planning) process implemented 
       to improve flow of raw material stocks into the business 
       - raw material and finished goods stocks have been substantially 
       reduced; 
 --   The appointment of new operational management across the 
       business, following the appointment of Mark Dewhurst as COO 
       in September 2018; 
 --   The appointment of a wholly new Board; and 
 --   Banking covenants renegotiated in September 2018, incorporating 
       reasonable financial sensitivity headroom.

All these improvements have been achieved without the loss of a single customer of size. The business, however, continues to challenge and exit poor margin business as it progresses back to the reasonable levels of return.

A new line at the Group's Leyland facility was commissioned in September 2018. This started to deliver significant output improvements by late December 2018, which are supporting our growth ambitions. The Group's productivity has improved by 76% since September 2018, supported by an ongoing comprehensive training programme which reaches right across the business.

In addition, we are advancing on the planning and implementing a new, cloud-based IT system, which will provide an end to end solution by early Q1 FY20. This will deliver, on a timely basis, the appropriate levels of financial reporting needed to run the business efficiently and effectively and enables us to achieve our goal of operational excellence.

This is, undoubtedly, one of the most complex business turnarounds that this highly experienced leadership team has ever undertaken but all major changes have now been implemented and, in the most part, concluded successfully.

Macro Headwinds

As previously announced, the industry generally has endured a rapid and unprecedented rise in the price of parent reels over the last 12 months. The primary cause of this rise was increasing upstream pulp costs, which was due, in large part, to a global supply and demand squeeze exacerbated by the closure of certain pulp production facilities. The industry has been ineffective at passing on such increases in the past. Over the last 12 months, we have led the market in the recovery of rising input costs.

Whilst further recovery of historic input cost increases is planned in Q4 19, a period of input costs stability is forecast by the industry for the next 12 months.

Our markets

The UK tissue market is worth c.GBP1.5 billion and it continues to increase in line with population growth. The private label element of the industry, however, continues to take market share from the best-known brands, delivering 8% growth year on year (Source: Kantar). With the leading discounters outperforming the market further with reported tissue sales growth in excess of 12% year on year (Source: Kantar).

Accrol remains the largest independent supplier of Toilet Roll and Kitchen Towel in the UK, supplying three of the top four retailers and all the major discounters. The business is in a strong position to deliver further growth, profitably, in the UK market.

People and the Board

As noted above, the business has undergone enormous change in respect of its workforce and management over the past 11 months. More recently, Mark Dewhurst joined the business in September 2018 as Chief Operating Officer having previously been employed by DS Smith Packaging as their Northern European Operations Director, he comes with an exceptional track record of delivering operational improvements. We continue to review progress and will make further improvements across the Group as necessary.

The Board was strengthened further in the period under review with the appointment of two new non-executive directors. Euan Hamilton joined the Board in August 2018, as Chairman of the Remuneration Committee. He is an international financier with over 35 years' experience. Simon Allport joined in October 2018 and is Chairman of the Audit Committee. He has 32 years' experience in the professional services industry, rising to managing partner for the North of England and Scotland at Ernst & Young.

As announced this morning, Steve Townsley has today stepped down from the Board and his role as Chief Financial Officer for health reasons. Steve has played a short but important role in the turnaround and we wish him well. Hannah Argo, who joined the Group on 10 January 2019, has been appointed Interim CFO. Hannah has extensive experience in senior financial roles gained with a number of global Blue Chip FMCG and Pharma businesses, including Alliance Boots, Robert McBride's and latterly Tulip UK. Her all-round business knowledge and a strong commercial focus are well suited to the Group's current needs and we look forward to working with her.

The Board now comprises, Dan Wright (Executive Chairman), Gareth Jenkins (Chief Executive Officer), Euan Hamilton (Non-Executive), & Simon Allport (Non-Executive) and plans to commence a process to find a new permanent Chief Financial Officer in due course.

Outlook

In the 8 January 2019 Trading Update, the Board announced that, whilst the Group was transformed operationally in 2018, the continued weakening of Sterling against USD and increasing tissue prices was currently impacting FY19 profitability by c.GBP5m. Should higher input costs prevail, the Board identified a further possible impact on input costs before the full year end of c.GBP3.5m. Given a potential increase of c.GBP8.5m in input costs, the Board's expectations on adjusted EBITDA in FY19 were reduced to c.GBP1.0m with exceptional costs at c.GBP8.0m.

Input costs have increased by 29% from 31 October 2017 to 31 October 2018. Despite these exceptional circumstances, we have continued to grow margins and improve returns, albeit small improvements to date. The Board expects that the structural cost savings delivered in H1 19, however, will deliver substantial benefits in the next financial year. The Board and management team continues to seek further improvements to the business and remains committed to delivering a business which can deliver better levels of return to shareholders, despite difficult and fluctuating macro trading conditions.

The Group has undergone a dramatic transformation in 2018. The comprehensive operational and commercial changes we have implemented have created solid foundations on which to grow the Group's margins. As such, the Board continues to expect the Company to return to profitability at the adjusted EBITDA level in the year to 30 April 2019 and views the future with confidence.

Gareth Jenkins

22 January 2019

Consolidated Interim Income Statement