TIDMACRL
RNS Number : 3477Y
Accrol Group Holdings PLC
06 September 2022
6 September 2022
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Accrol Group Holdings plc
("Accrol", the "Group" or the "Company")
AIM: ACRL
AUDITED FINAL RESULTS FOR THE YEARED 30 APRIL 2022
Accelerating growth in private label volumes post year end,
fuelling confidence
Accrol Group Holdings plc, the UK's leading independent tissue
converter, announces its audited Final Results for the year ended
30 April 2022 ("FY22" or the "Period"), which show a resilient
performance, delivered under extremely challenging macro
conditions, marginally ahead of market expectations(1) .
The new financial year ending 30 April 2023 ("FY23") has started
well, with volumes, revenues and margins in line with market
expectations.
Key financials
FY22 FY21 FY20
Revenue GBP159.5m GBP136.6m GBP134.8m
Gross margin 22.7% 27.7% 21.9%
Adjusted EBITDA(2) GBP9.1m GBP15.6m GBP10.6m
Adjusted profit before tax(3) GBP1.1m GBP9.1m GBP4.7m
Loss before tax(4) (GBP2.5m) (GBP3.1m) (GBP1.9m)
Adjusted diluted earnings per
share 0.3p 2.7p 1.7p
Diluted earnings/(loss) per
share(4) (0.5p) (1.3p) (0.8p)
Adjusted net debt(5) GBP27.5m GBP14.6m GBP17.9m
Financial highlights
-- Further strong revenue growth in line with expectations
- up c.17% YoY
-- Full recovery of over GBP70m of unprecedented, annualised
input cost increases achieved by end of Q4 FY22
-- Short term reduction in gross margin in H1 due to timing
differences across period ends, as price increases to recover
the rapid leap in input costs in H2 were actioned and secured
-- Adjusted EBITDA and Adjusted profit before tax in line with
expectations
-- Upward movement in adjusted net debt, funding the concluding
investment in automation, further market-leading product
development and additional working capital required to manage
supply constraints over the next 12 months
-- Amended and extended banking arrangements to Aug 2024, providing
25% additional headroom, demonstrate continued confidence
in the Group's operating performance and support the Board's
growth ambitions
Operational and sustainability highlights
-- Accrol's market share by volume increased to 19.5% (H1
FY22: 18.9%), compared to a flat overall UK market
-- New customers secured through increasing product diversity
- notably Amazon, Unitas (c.30,000 convenience stores),
Spar, Ocado and Sainsbury's
-- Completion of automation at Blackburn and Leicester sites
- machine investment and full automation at Leyland completed
in Q1 FY23
-- Leicester Tissue Company ("LTC") and John Dale acquisitions
were fully integrated, with outputs at the sites increasing
by 60% and 270% respectively in volume terms on an annualised
basis
-- Delivering on customers' sustainability objectives - development
of smaller core products (reducing logistics and packaging
costs) and further development of the Oceans brand (paper
wrap)
-- Business continued to operate safely throughout the Period
with zero lost time accidents and a 33% reduction in all
accidents
-- Continued focus on operational efficiency, reducing both
waste and energy consumption
-- First Environmental, Social and Governance ("ESG") Report
published in September 2021
Current trading in FY23 and outlook
-- The Group entered FY23 with pricing fully aligned with
higher input costs
-- Private label sector strengthening further post year end
- Accrol volumes increased by 28% vs private label growth
of 10% in Q1 FY23, while the overall market has remained
flat(6)
-- Private label volumes now higher than pre-pandemic levels
- market share growing at an unprecedented rate against
the traditional brands (Q1 FY23: 54% vs Q1 FY22: 50%)(6)
-- Group revenue up 76% in Q1 FY23, compared to Q1 FY22, driven
by price increases (48%) and volume growth (28%)
-- Revenue and EBITDA on track to increase in line with market
expectations for FY23(7) (+31% and +68% respectively)
-- The Group is well positioned to benefit from the rapid
rise in demand for best value tissue products
-- While cognisant of ongoing macro inflationary dynamics,
Accrol's strong market position, well invested manufacturing
facilities and available capacity, give the Board confidence
for FY23 and beyond
(1) Market expectations are derived from the latest published
equity research on the Company, as of 5 September 2022.
For FY22, market revenue expectations were GBP159.1m and
Adjusted EBITDA of GBP9.0m.
(2) Adjusted EBITDA is defined as profit before finance costs,
tax, depreciation, amortisation, separately disclosed items
and share based payments
(3) Adjusted profit before tax is defined as loss before tax,
amortisation, separately disclosed items and share based
(4) payments
FY21 restated due to an accounting policy change in FY22
in respect of the costs of configuration and customisation
of cloud based software
(5) Adjusted net debt excludes operating type leases recognised
on balance sheet in accordance with IFRS 16
(6) Source Kantar
(7) For FY23, market revenue expectations at 5 September 2022
were GBP208.5m and adjusted EBITDA of GBP15.1m
Dan Wright, Executive Chairman of Accrol, added:
"Whilst remaining mindful of the extremely challenging macro
environment, the Board views the prospects for Accrol with
confidence, given the strong and rapid recovery of input cost rises
in the second half of this year after the delay in the first half,
our strengthened customer relationships, improved levels of service
and quality, and its great value product range.
The Group's new banking arrangements demonstrate continued
confidence in its operating performance and provide support for our
development plans. The investments we have already made into the
efficiency of our operations have served us well through incredibly
challenging times and we are confident they will bear considerable
fruit in FY23 and beyond.
Our markets are strengthening, our products are gaining share
and our operations demonstrate leading efficiencies. The business
is in a strong position to benefit considerably from the changing
market dynamics over the next two to three years."
Gareth Jenkins, Chief Executive Officer of Accrol, said :
"Our goal, over the last four years, has been to create an
innovative, sustainable and market-leading business, which I
believe we have finally achieved. This has been delivered through
the hard work and dedication of our team and never have their
skills and commitment been more clearly demonstrated than in the
year under review.
Accrol is unrecognisable from the business which floated in
2016. It is resilient, agile, and strong. The cost of living
crisis, being faced by UK consumers, is driving demand for great
value products across the board. The demand for private label
tissue, which started to rebound in FY22, has accelerated rapidly
since our financial year end. Private label comprised 50% of total
UK sales volumes in FY22, and this has continued to grow since the
start of May 2022 with private label now holding a 54% market
share. Accrol volumes currently comprise over 32% of this private
label market. The index linked pricing agreements we have put in
place over the last 12 months, combined with the quality of our
products, the efficiency of our operations and the capacity we have
built into the business, have ensured Accrol is best placed in its
market to capitalise on the opportunities.
While remaining conscious of the very significant ongoing macro
uncertainties, we look forward to FY23 and beyond with continued
confidence."
Online investor presentation
The management team is hosting an online investor presentation
with Q&A at 12.30pm on Wednesday, 7 September 2022. To
participate, please register with PI World at:
https://bit.ly/ACRL_FY22.
For further information, please contact:
Accrol Group Holdings plc
Dan Wright, Executive Chairman Via Belvedere Communications
Gareth Jenkins, Chief Executive Officer
Richard Newman, Chief Financial Officer
Zeus (Nominated Adviser & Broker)
Dan Bate / Jordan Warburton (Investment Tel: +44 (0) 161 831 1512
banking)
Dominic King (Corporate Broking) 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
accrolpr@belvederepr.com
Overview of Accrol
Accrol Group Holdings plc is a leading tissue converter and
supplier of toilet tissues, kitchen rolls, facial tissues, and wet
wipes to many of the UK's leading discounters and grocery retailers
across the UK. The Group now operates from six manufacturing sites,
including four in Lancashire, which now supplies 19% (volume) of
the UK tissue market valued at GBP2.1bn at retail sales value.
The Group has produced a short video to showcase its operations
and investment in the extensive automation of the business. Click
here: Accrol Today .
For more information, please visit www.accrol.co.uk
Chairman's Report
The Group has delivered a set of results of which we are proud,
despite the enormous macro-inflationary cost pressures faced during
the year. The team successfully recovered more than GBP70m of
annualised cost increase by the year end, quickly and skilfully
negotiating and implementing price increases. This rapid action
significantly mitigated the unavoidable impact on the Group's FY22
profitability. The management team simultaneously delivered the
full integration of LTC and John Dale; finalised the automation of
all four tissue manufacturing sites, which completed in August
2022; delivered further internal efficiencies; and increased
Accrol's market share.
The work to automate, rationalise and simplify the business has
put Accrol in a very strong market position. It is now, one of the
most innovative, well-invested and automated tissue converters of
scale in the UK.
Our vision
From the outset, our vision has been to build a diversified
group of size and scale, better positioned to manage input cost
fluctuations, focused on a broader private label household and
personal hygiene market. We believe the combination of capacity,
efficiency and the lowest cost base in its market is a compelling
proposition.
Diversification
We are focused on adding new customers, expanding our product
range, entering new categories, and finding additional routes to
market. Fluctuations in market sub-sectors are smoothed through
diversity, removing reliance on any one product, market, or
customer.
While wet wipes sales represented only c.1% of Group revenue in
FY22, we expect this to grow to GBP6m by the end of FY23
(representing c.3% of Group revenue). From a modest capital
investment of c.GBP2m, we see a GBP20m plus revenue opportunity
(representing c.5% of the total market) and the establishment of
this product category as a new and sustainable leg to the
business.
Good progress was achieved in terms of new category expansion,
new customers, and deepened penetration of existing customers in
FY22. This is detailed in the CEO's Review.
Size and scale
The acquisition of LTC, coupled with automation of the Group's
other manufacturing sites, has added operational scale. Today, the
Group has a core tissue capacity of c.150k tonnes and the headroom
needed to deliver a market leading service to the industry. With
the addition of facial tissue and wet wipes, the Group has the
capacity and scale to grow to beyond GBP300m revenue across
multiple categories.
Our addressable market, including wet wipes and facial tissue,
now totals c.GBP3.0bn, a significant step change for the business
from 18 months ago.
De-risking our business
Like many other sectors, the UK tissue market is not alone in
being exposed to input cost volatility. However, a key focus for
the team has been to control what can be controlled and to act
swiftly and decisively to mitigate against the damaging effects on
issues which fall outside our immediate control.
The progress that has been made on this front during the year
has been especially pleasing and is testament to the strength of
Accrol's products, service offering and customer relationships,
which have been established in recent years. Price rises in a
cost-conscious industry are not easy to deliver rapidly. They can
only be achieved in partnership with our retail customers and only
when our retail partners understand and value our proposition.
Managing cost volatility, however, is not just about price
increases but also about internal efficiencies, flexibility and
good capital allocation. Our historic investments in process
automation provide us with more flexibility in product innovation
and customer delivery, as well as improving our overall
capacity.
Although the Group is well invested, a major differentiator for
us relative to our competitors is that we never stand still. We
continually review our options on capital investment opportunities.
One such area, which we have previously discussed, is the
investment in our own paper mill. The long term commercial and
economic benefits of owning or building a paper mill remain
transformational for us. However, against these material and
longer-term benefits, we must weigh the shorter-term costs to
deliver and the competing claims on our balance sheet. We remain
committed to our ambition to own a paper mill but this will only be
completed in a way that maximises shareholder value and minimises
risk. We remain alert to any easing of the building cost
environment and normalisation of the supply chain that will reduce
working capital requirements. We have a strengthening balance sheet
but intend to deploy it only when the time is right.
Maximising returns for shareholders
Strategic Review
The Strategic Review, which we announced earlier this year, is
ongoing. We see considerable value within the Accrol Group, not
least as a result of the actions taken by management over the last
four years. Our market opportunity is substantial and growing and
our business is well invested and well positioned relative to
others. The Strategic Review is focused on how best to deliver that
value for all our stakeholders.
Our short-term priority, however, remains on the effective
management of macro inflationary pressures on the Group's costs, as
well as handling other well-documented macro supply chain
challenges, which require the team's full attention. We expect to
provide shareholders with a full update on the Strategic Review
early in 2023.
Dividend
When we issued our FY21 results in July last year, the Board was
delighted to announce the restoration of dividend payments and a
progressive dividend policy. This demonstrated our confidence in
the business and was made possible by continuous improvement in
operational efficiencies and strong cash management .
The world has changed greatly since that announcement and we
have taken the difficult but prudent decision not to propose a
final dividend for FY22. Capital allocation is an intrinsic
component of the Strategic Review and the Board remains focused on
determining the best use of the Group's free cashflow going
forward, be it acquisitions, share buy-backs, dividend payments,
increasing raw material stocks and or paying down debt further.
Effective capital allocation is about weighing risk and return. The
current market environment favours a more risk averse approach,
especially around securing our supply chain and access to raw
material, and this remains our short-term priority. Clearly, any
easing of these pressures will make a return to dividends much more
likely. We will provide an update on dividend policy as part of the
Strategic Review update in early 2023.
Environmental, Social and Governance
We were delighted to launch our maiden ESG report in September
2021 with real and significant targets on which to judge progress
and performance, which was well received by both internal and
external stakeholders. We pride ourselves on ensuring that ESG is
integrated throughout the business and makes a valuable
contribution to the Group, as well helping us be better corporate
citizens and minimising our impact on the environment. Since the
publication of the report, we have made significant strides against
our environmental and social aspirations, which have positively
contributed to the wider business in terms of further improved
employee engagement, energy and waste reduction. With underlying
absentee levels at record lows, health and safety improvements, and
cost and material savings made, ESG integration is evident.
A by-product of our waste reduction is reduced raw material
usage. In the period since we last reported, waste was reduced by
0.5% creating a further reduction of raw material spend. In the
year under review, the Group continued to buy all raw materials
from FSC (Forest Stewardship Council) accredited suppliers.
The Group also introduced the use of 38mm cores to toilet rolls
from 50mm in the Period. The project, which involved a wide range
of internal and external stakeholders, has delivered significant
material savings and a 10% reduction of vehicle movements for the
business.
In addition, we are well on track to deliver our target of 25%
of women in leadership roles by 2025 - up to 22% in FY22 (FY21:
17%), which aligns with the Group's recent achievement as a Living
Wage Accredited Organisation. Both are key elements of an
operationally excellent business.
We will launch our second ESG report this autumn and provide a
more detailed update in our annual report, which will be posted to
shareholders towards the end of September.
Our people
Engaged, well trained people are a key element of our business
model and sustainability, with training and wellbeing at the
centre. I am proud to report that Accrol is now an accredited
Living Wage employer. This is especially important to our people at
this time of heightened inflation and also allows Accrol the
advantage of being able to retain the best talent from the
communities in which it operates.
During the year, we appointed a Communications Manager, Vikki
Makinson, who has made significant improvements to our internal
communications and improved the efficiency and effectiveness of how
we deliver training. To support this, we use an online training hub
which delivered over 350 courses in its first three months. Our
employee engagement scores remain high with an overall score of
84%.
I would like to thank all our people for their hard work and
contribution during what has been a very challenging environment. I
think the overall result, the further operational advance, and the
level of costs recovered showcase the strength and capability of
the management team in the Group.
Outlook
The cost of living crisis is driving consumer demand for great
value products and Accrol has enjoyed a strong start to the new
financial year FY23, and is fully on track to achieve market
expectations. The margin erosion experienced in FY22, created by
the rapid increase in input costs, has been rectified and
contained, with cost increases being passed on as they arise.
The market share of the private label and tertiary brand segment
increased to 54% in Q1 FY23, compared to 50% in the same period of
the prior year. Accrol revenue increased by 76% in Q1 FY23,
compared Q1 FY22, driven by price increases (48%) and volume growth
(28%). The team's work and the capital investment in Accrol
undertaken over the last four years have put the business in an
excellent position to benefit from, what we believe will be, a
sustained period of further growth for the private label and
tertiary brand segment.
We remain mindful of the current macro challenges. The team
leading Accrol, however, has demonstrated its expertise and ability
to manage the business through multiple challenges and the Board
views the future with confidence.
Dan Wright
Executive Chairman
Chief Executive Officer's Review
The Group has delivered a strong performance that is marginally
ahead of market expectations under extremely challenging
circumstances, having successfully recovered over GBP70m of
annualised cost increases.
I am pleased to report that we generated substantial volume
growth of 7.5% in the year and increased revenue by 17%. Given the
unprecedented speed and magnitude of the cost increases, there was
an unavoidable time lag in these passing on, which impacted the
Group's underlying margin in the year. These costs were passed on
in full by the year end and we now have mechanisms in place to pass
on any further increases, in a more timely manner.
In every aspect of our manufacturing operations, we have
successfully navigated unprecedented inflationary pressures. Tissue
prices have reached their highest ever levels, driven by pulp,
energy, and sea freight costs, and this was exacerbated by the
weakening of sterling relative to the US Dollar and the war in
Ukraine.
We entered FY23 with more secure revenues, underpinned by the
right products, the biggest range of customers in the sector and a
fully automated, well-invested business in a rapidly growing market
- private label volume has grown 10%, since the full year end, and
is once again, out-stripping the traditional brands, which declined
by 5% in the same period. Market share for private label now stands
at 54% vs 46% for brands.
Momentum on volume growth and underlying margin has been
maintained. Accrol volumes in Q1 FY23 increased by 28% and revenue
by 76%, compared to the same period in the prior year. This volume
growth is on track with market expectations for FY23, which
forecast YoY revenue and EBITDA growth of 31% and 67% respectively,
underpinning our confidence for the year ahead.
Our business today
As a result of the extensive work done over the last four years
to build an operationally robust business, we have continued to
deliver on our vision to build a diversified group of size and
scale. Highlights during the year included:
-- New customer wins;
-- Deeper penetration of existing customers;
-- Product ranged expanded; and
-- New routes to market opened.
Product extensions will be a key driver behind further volume
and market share growth:
-- The acquisition of John Dale in April 2021 gave the Group
entry into the rapidly growing biodegradable flushable wet
wipes market. During the Period, we achieved 'Fine to Flush'
and BRCGS (UK Retailers Accreditation - AA rating) on a
range of wet wipe products; and
-- We developed and launched several new wet wipe products,
including 'Little Heroes', a brand-new baby and toddler
wipes range being sold through a number of retailers and
Quantum moist toilet tissue, again being sold through a
number of retailers. In addition, we won a contract to supply
Ocado's own-label biodegradable wet wipes and deepened our
relationship with the award-winning 'Kinder by Nature' wet
wipes brand.
We continue to expand our sales to retailer customers, either
through adding new ones or deepening existing relationships. The
team also secured an extended sole supply position with several
retailers for their paper category. In addition, we have generated
significant growth in volume sales of our own brands, Elegance
(toilet roll), Magnum (kitchen towel) and Oceans (paper wrapped),
which are all now being sold through a number of major
retailers.
Accrol's own branded products, which stay close to our mission
to deliver quality and value to consumers, have also made good
progress. All these products are now available on Amazon, and all
have grown in volume and revenue over the last 12 months, now
making up c.18% of our total sales - up from c.10% in FY21. This
range of products commands a higher margin than private label
products in the main and increases the importance of our supply
relationship with the retailers.
Our Elegance toilet tissue is now the fastest growing brand in
cash and carries, and since its launch on Amazon only six months
ago, it is now in the top ten toilet tissue brands on the site.
Softy facial tissue, which has sold through one of the top four
Grocers since February 2022, as well as Amazon, is the now the
second biggest box brand in the UK. Our Magnum kitchen towel
product, which is sold across several retailers, has had an
exceptional year, and is now the fastest growing and currently
fourth largest brand in the UK.
The Oceans plastic-free brand sold direct to consumers on
subscription had a strong run early in the Period, giving an
overall growth rate of 30%. We do not expect this rate of growth to
be maintained, as it benefited from Covid related consumer
behaviour change, which is now 'normalising' post-pandemic.
However, we continue to be excited by the product's potential. More
recently, we added Oceans kitchen towel to the range, which has
received excellent online consumer reviews.
Further capacity in the business has been added with the final
site, Leyland, becoming fully automated from August this year.
Further machine capacity at the Leyland site will also be
operational from October. Accrol is a well invested platform with
the internal capacity to support further organic volume growth
without further material capital investment. The Group now offers a
core paper capacity of c.150k tonnes, and a total revenue capacity
in excess of GBP300m when we include wet wipes and facial tissue
capacity. Utilisation of this capacity, as we continue to execute
commercially and build on our impressive market share foundations,
is a key driver behind our future free cash flow generation.
The integration of the John Dale acquisition has been completed,
with facial tissue machinery and volumes moving to our fully
automated state of the art facial plant in Blackburn. We now expect
our facial value run rate to double over the next 12 months from
c.GBP10m (FY21) to c.GBP20m in FY23. In addition, our wet wipe
business, which had annualised wet wipe sales of c.GBP2.2m on
acquisition, has won business delivering a simplified flushable
range that will deliver c.GBP6m sales in FY23.
Market overview
The improved market conditions that began at the start of the
Period continued, strengthening throughout the year. Shopping
behaviours returned to normal levels and the tissue market grew by
0.7% to GBP2.1bn based on Retail Sales Value. Our market share rose
from 15.3% at the half year end to 16% at the year end, reflecting
the recovery of the discount retailers. Private label grew by 1.5%,
versus a small decline of 0.2% across brands, bringing the ratio
back to 50:50.
Post year end, the private label sector has continued to
strengthen. We expect the private label sector to grow at c.10%
this year as consumers are driven to best value products, as
inflationary pressures bite. In Q1 FY23, Accrol volumes grew by 28%
versus private label growth of 10% in an overall flat market (when
you exclude the inflationary price increases). This success has
been driven by supplying a broad customer range with all in growth,
as opposed to the prior financial year. The market share of the
traditional brands segment fell by c.5% in Q1 FY23 to 46% of the
market. Accrol's position at the same time last year was
exacerbated by a poor online presence, both directly and through
the retailers, both of which have been addressed over the last 12
months.
Our market share growth has been further enhanced by growth
across our range of branded toilet and kitchen towel products, as
well as the new channel development. Our branded range of toilet
tissue (Accrol Elegance) has grown by 14% FY22 vs FY21, facial
tissue (Accrol Softy) by 70% and kitchen towel (Accrol Magnum) by
19%. We expect to see further substantial gains against market
leaders in kitchen roll in FY23 from further product changes.
The facial tissue market, which was in decline during Covid, due
to increased mask wearing and the reduction in common colds is back
in growth. Over this period, we have simplified the range further,
transferred machinery, moved volume from John Dale and invested in
low-cost automation. This has more than doubled the Group's facial
tissue capacity from GBP10m to GBP20m. Whilst there was a decline
in volumes for reasons outlined above, the Group now expects its
facial tissue business to double in size over the next 12-18
months.
Finally, our move into wet wipes is starting to deliver on our
early expectations. The pipeline of new customers is beginning to
positively impact volumes with revenue run rates expected to treble
in size to c.GBP6m per year by the end of FY23, up from GBP2.2m at
the point of acquisition. This has been delivered with a
much-simplified range of products with a particular emphasis on a
water industry approved flushable wet wipe range. With modest
capital (c.GBP2m), the Group expects the wet wipe business to grow
revenue to c.GBP10m-GBP15m by 2024, with a particular focus on
higher value range of wipes. Our extensive customer range has
enabled the business to grow at a pace with the business now
expecting the revenue growth to accelerate over the next two
years.
Following the well-publicised inflationary pressure in the UK,
the retailer market is seeing a significant shift in shopping
habits, with an enormous shift away from high-cost brands across
every category. Over the next 12 months, as further energy price
increases continue to impact shoppers' budgets, we expect to see
the private label market grow further. Accrol will continue to
develop and bring to market innovative solutions that meet customer
needs.
The Group is well positioned to benefit from growth in value
products with no major capital required and available capacity.
Operations
The Group is benefiting significantly from the full automation
of all of its sites. This, together with shift patterns that were
changed last year and further simplification of the business, has
helped mitigate margin erosion and will help drive margins back to
the equivalent of pre-pandemic levels in the medium term.
Since all the automation programmes have been completed, the
Group has improved its output significantly across all sites - the
facial plant output increased by 16%, the Blackburn and Leyland
sites improved by 25% and 30% respectively, and Leicester rose by
60%. Like for like headcount in the Group's core tissue businesses
has reduced from 425 to 275 over the last two years. All remaining
employees now paid the living wage as a minimum and the Group
joined the Living Wage Foundation in May 2022.
In addition, the move to 38mm cores from 50mm has increased the
"rolls per lorry" by 15%. The aspiration set as part of the ESG
announcement in 2021 was to increase this by 15% by 2025. The Group
is significantly ahead of this target in both timescale and
delivery.
Pulp prices over the Period increased significantly, driven in
the main by energy price increases. Whilst there is further
capacity coming on stream globally, we do not expect to see any
erosion in the pricing of tissue and would not be surprised to see
further increases in the short term. The business remains well
placed to pass on these increase as they are encountered. The Group
has long term supply relationships with all suppliers and, due to
the uncertainty in the supply chains and the ongoing conflict in
Ukraine, has doubled the amount of raw material stocks it normally
carries. This will have a short-term impact on adjusted net debt
but, due to improved performance elsewhere in the Group we expect
adjusted net debt to be less than 2x and in line with market
expectations for FY23.
Since the start of FY22, the Group has successfully passed on
over GBP70m of annualised cost increases across three different
price increases, with the majority of its supply agreements now
having in place some form of index-linked pricing.
Whilst the war in Ukraine does not directly impact the Group,
the business has significantly increased its raw material stocks to
mitigate any supply chain issues. With regard to energy costs the
group has longer term hedging policies in place and any increases
are managed through price increases in finished goods. In addition,
the group has in place a significant energy reduction programme
which has seen a 3% reduction in usage over the last 12 months on a
like for like basis despite the full automation of 2 factories in
this period.
People and culture
As I have stated here before, our operational efficiencies are
not at the expense of our people. Engaged people are a key part of
our business model and sustainability. Employee wellbeing plays a
crucial role in this. I am proud to report that Accrol is now an
accredited Living Wage employer, which is especially important at
this time. We have also launched several initiatives this year
around caring for employees including, Mental Health First Aiders,
Employee Assistance program, and training around dealing with
mental health issues. It therefore gives me pleasure to report that
our absentee levels are at 1.7% (Q1 FY23), which is outstanding
when compared to the UK average of 2.2% (source: FY21 - ONS
data)
I would like to take this opportunity to thank all our employees
for their hard work and determination in delivering a strong set of
results in what has been a very difficult environment.
Health and safety
The relentless focus on health and safety over the last four
years has resulted in a further 33% reduction in total accidents,
with the Group delivering zero lost time accidents over the last
two years across all of its sites. In addition, we have seen a 28%
reduction in accident frequency rates. These results are
transformational and are something of which we are all incredibly
proud.
Outlook
We continue to see inflationary issues, not least on account of
sterling weakness, and do not see these abating in the short to
medium term. However, the operational strength of the business and
a supportive retailer customer base has enabled us to recover cost
increases and put in place new index linked customer contracts to
ensure that costs and inflation are now aligned. As a result, we do
not anticipate a repeat of FY22 gross margin impact looking
forward.
In addition, work carried out as part of the Group's commitment
to ESG has seen initiatives to reduce energy and waste having a
positive financial impact. Lorry journeys have reduced by 10% as a
result of smaller toilet roll core sizes; and waste reduced by
0.5%, lowering raw material usage.
Despite the wider macro challenges, the Group has performed
strongly in the new financial year to date, with volumes growing
ahead of the total market (28% compared to 10%) and the rapidly
recovering private label market. It is clear that there is an
economic shift away from high-cost products to items that give
great value to the shopper and Accrol is extremely well placed to
capitalise on this opportunity.
Acquisitions, automation and operational efficiency have given
us the foundations with which to expand the business. As the
balance sheet strengthens, the Group is well placed to take
advantage of the many opportunities that exist to accelerate this
growth.
The Board is pleased with the progress of the Group and has
continued confidence for FY23 and beyond.
Gareth Jenkins
Chief Executive Officer
Chief Financial Officer's Review
Summary
The overall performance of the Group was resilient despite the
challenges of a volatile trading environment where we have worked
through the end of the pandemic, rapidly rising commodity costs,
and significant supply chain disruption. The business benefited
from its increased scale and diversity following the acquisition of
LTC, acquired in November 2020, and John Dale, acquired in April
2021, both of which have been fully integrated with significant
benefits in line with our expectations.
Trading results
Group revenue increased by 16.7% to GBP159.5m (FY21: GBP136.6m),
with volumes bouncing back as the year progressed from the subdued
levels experienced during lockdowns, reflecting changes in consumer
shopping habits as the impacts of the pandemic receded. H1 volumes
were strengthened by the impact of the Group's two acquisitions in
the previous year, whilst H2 showed strong organic growth as price
increases were implemented to recover significant increases in
input costs. The total tissue market increased in value by 0.7% and
our market share increased to 16.0% from 15.9% in FY21. Many
retailers did not move shelf sales pricing, during the period under
review, despite record price increases. We are now starting to see
the price movements in stores.
Gross margins declined to 22.7% (FY21: 27.7%), reflecting the
significant impact of escalating pulp, energy, and sea freight
costs, exacerbated by the weakening of sterling relative to the
dollar. In line with the wider market, pressures on the Group's raw
material supply chains increased during the Period and, whilst they
have shown significant resilience, considerable cost increases had
to be absorbed in the short term. The Group has taken the necessary
actions to recover these cost increases from its supportive
retailer customer base, albeit with a lag that impacted
profitability in the year.
Administration and distribution costs decreased by GBP2.6m,
reflecting the unwinding of the deferred consideration provision
made during FY21. There was a further GBP0.3m increase related to
non-cash items (depreciation, amortisation and share based
payments), reflecting an increase in the amortisation of intangible
assets (related to the acquisitions), largely offset by a reduction
in the charge for share-based payments (reflecting the end of the
three year Management Incentive Plan).
Adjusted EBITDA declined to GBP9.1m (FY21: GBP15.6m), whilst
operating losses reduced to GBP0.2m (FY21: loss of GBP1.2m),
reflecting the reduction in administration costs above.
Separately disclosed items
Separately disclosed income totalled GBP2.6m (net), compared
with a GBP5.3m cost in FY21.
Acquisition related items totalled income of GBP5.4m (2021: cost
of GBP2.9m). On 24 November 2020, the Group acquired 100% of the
issued share capital of LTC Parent Limited and its subsidiaries,
whose principal activity is paper tissue converting. An element of
the consideration was contingent upon the incremental EBITDA
performance of contracts secured prior to the acquisition that had
yet to be delivered, measured over a four-month period from 1 March
2021. This consideration was measured on a sliding scale with a
maximum of GBP6.8m payable to the vendors if EBITDA targets were
met, for which provision was made in the prior year. Negotiations
with the sellers in respect of the contingent consideration and
other matters have been concluded with no payment made. Therefore,
contingent consideration of GBP6.3m has been credited to the Income
Statement after the recognition of GBP0.5m of one-off contract
related costs that were incurred in the year. In concluding
negotiations with the sellers during the financial year the Group
also incurred professional fees of GBP0.8m in respect of legal and
accounting services. Consultancy costs of GBP0.1m were also
incurred in finalising the integration of the businesses.
Supply chain disruption costs totalled GBP0.7m (2021: GBPnil).
In line with the wider market, pressures on the Group's supply
chain have been considerable, particularly over the autumn period
when there was significant disruption to shipping, container
capacity at ports, and haulage. Whilst the Group's supply chain
demonstrated good resilience, we did incur incremental costs in
order to maintain service levels to our customers. These
incremental costs included port charges of GBP0.4m, largely related
to demurrage costs incurred because of shipping container
congestion and a lack of capacity to manage increased demand.
Additional distribution costs of GBP0.3m were also incurred,
largely related to the procurement of day rate vehicles at an
incremental cost, to ensure continuity of supply in the October to
December period, when haulage driver availability was severely
constrained. We do not expect any of these costs to be repeated as
we enter FY23.
Asset impairment costs totalled GBP1.0m (2021: GBPnil).
Significant progress has been made over previous years to transform
the manufacturing capability of the business, with investment made
in automation and in the expansion of overall capacity and
capability. The final element of the manufacturing re-organisation
comprises investment in a new manufacturing line (expected October
2022) and automation of packing and palletisation (completed August
2022) at the Leyland manufacturing site. To enable this investment,
the Leyland manufacturing facility has been re-organised, involving
the physical movement of existing manufacturing lines and the
scrapping of a specific 're-wind' asset that was deemed surplus to
requirement, and therefore redundant. The removal of this asset has
facilitated the wider site re-organisation but has resulted in an
impairment charge.
COVID-19 related costs were GBP0.2m (2021: GBP0.7m), as the
COVID-19 pandemic continued to have an impact on the business
during the financial year under review, although those impacts are
now much reduced and are again not expected to repeat. The Group
plans on a certain level of resource, factoring in normal levels of
absence and holiday, to maintain a 24/7 manufacturing operation
that is as efficient as possible. High levels of absence due to
COVID-19 illness or self-isolation, required incremental labour
resources to be deployed to maintain service levels to our
customers through additional overtime, additional temporary labour
and the deferment of holidays, all of which resulted in additional
costs.
Accounting policy changes totalled GBP0.6m (2021:GBP0.5m). The
Group's accounting policy has historically been to capitalise all
costs related to the configuration or customisation of
Software-as-a-Service (SaaS) arrangements as intangible assets.
Following the agenda decision of The International Financial
Reporting Standards Interpretations Committee (IFRIC) in April 2021
these previously recognised intangible assets have been treated as
an expense, impacting both the current and prior periods
presented.
Other items totalling GBP0.4m (2021: GBP0.1m) largely relate to
redundancy costs related to consolidation of activities across the
Group following the acquisitions made in the previous financial
year.
Depreciation and amortisation
The total charge for the Period was GBP11.4m (FY21: GBP8.3m), of
which GBP5.5m (FY21: GBP3.5m) related to the amortisation of
intangible assets. The vast majority of this increase reflects the
full year impact of the Group's acquisitions of LTC and John
Dale.
Share-based payments
The total charge for the Period under IFRS 2 "Share-based
payment" was GBP0.5m (FY21: GBP3.2m). This charge related to the
awards made under the 2021 Long Term Incentive Plan, that was
approved on 5 March 2021.
Interest, tax and earnings per share
Net finance costs were GBP2.3m (FY21: GBP2.0m). The Group also
recorded a deferred tax credit of GBP0.8m (FY21: charge of
GBP0.1m). The loss before tax was GBP2.5m (FY21: GBP3.1m), due to
flow through of the lower gross margin. Adjusted profit before tax
of GBP1.1m (FY21: GBP9.1m) was lower due to the decline in adjusted
operating profit. Basic losses per share were 0.5 pence (FY21: 1.3
pence) reflecting higher amortisation costs and adjusting items.
Adjusted diluted earnings per share were 0.3 pence (FY21: 2.7
pence), reflecting the decline in adjusted EBITDA.
Dividend
As noted in the Chairman's Statement, the Board favours a risk
averse approach in the current market conditions. Our balance sheet
has continued to strengthen, and we have increased our debt
facilities but our short term priority remains focused on securing
our supply chain and access to raw material stocks. In this
context, the payment of a final dividend would not be the best use
of capital. Payment of future dividends will be reviewed as part of
the Strategic Review. The proposed final dividend is nil pence per
share (FY21: 0.5 pence).
Cashflow
The Group's adjusted net debt was GBP27.5m (FY21: GBP14.6m). The
net cash flow from operating activities was GBP1.4m (FY21:
GBP17.0m) with the reduction reflecting a working capital outflow
of GBP4.6m (FY21: GBP6.6m inflow). This outflow provided the
necessary expansion in working capital to manage supply constraints
over the next 12 months to reduce supply chain risks.
Capital expenditure (net of new finance leases) in the Period
was GBP6.2m (FY21: GBP8.6m), including GBP3.1m (FY21: GBP1.2m) in
respect of intangible assets that principally relate to product
development costs. Lease payments of GBP5.5m (FY21: GBP5.8m)
include leases capitalised in accordance with IFRS 16.
The Group recently amended and extended its existing banking
arrangements, through to August 2024 providing additional
facilities to support its growth. These new facilities provide
increased headroom in both the scale, tenure and liquidity of the
facilities and the associated banking covenants. The amended
facilities provide an additional GBP8.5m of funding headroom, an
increase of c.25% over and above the previous arrangements that
would have expired in August 2023.
Balance Sheet
The Group's balance sheet reflects net assets of GBP82.9m (FY21:
GBP85.9m). Property, plant, and equipment increased, reflecting the
renewal of property related leases, capitalised in accordance with
IFRS 16. We have significantly invested in automation at our
Blackburn and Leyland manufacturing facilities, to improve
productivity, operational flexibility, and to enhance customer
service. Intangible assets represent mostly goodwill and customer
relationships.
Significant progress has also been made in further improving the
IT infrastructure and critical manufacturing systems throughout the
Group, including the further enhancement of the ERP system. All
scheduled work has now successfully been completed.
Goodwill is not amortised but is subject to an annual impairment
review. After considering various scenarios and sensitivities, the
Directors concluded that no impairment is required. During the
year, the Group invested further in product development and
innovation which will be amortised over the anticipated life of the
products.
Investment
The final automation of the Leyland site was completed in August
2022. Alongside a final machine installation, this will complete
all major investments into the tissue businesses. This will result
in the Group having four state-of-the-art fully automated factories
in Blackburn (x2), Leyland and Leicester.
Ownership of a paper mill would be transformational for Accrol
and the Group has continued develop its plans in the Period. As
detailed in the Chairman's Statement, however, such investment will
only be completed in a way that maximises shareholder value and
minimises risk.
COVID-19
The Group has not furloughed any employees during the financial
year, nor during any stage of the pandemic. The Group has not been
in receipt of any COVID-19 loans although it had taken advantage of
the short-term VAT Payment Deferral Scheme, which was launched in
March 2020, which has now been repaid.
Richard Newman
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT FOR YEARED 30 APRIL 2022
Restated
2022 2021
----- ---------- ---------
Note GBP'000 GBP'000
------------------------------------------ ----- ---------- ---------
Revenue 4 159,450 136,594
----- ---------- ---------
Cost of sales (123,211) (98,710)
------------------------------------------ ----- ---------- ---------
Gross profit 36,239 37,884
----- ---------- ---------
Administration expenses (23,687) (27,622)
----- ---------- ---------
Distribution costs (12,778) (11,424)
----- ---------- ---------
Operating loss (226) (1,162)
------------------------------------------ ----- ---------- ---------
Analysed as:
----- ---------- ---------
- Adjusted EBITDA(1) 9,056 15,644
------------------------------------------ ----- ---------- ---------
- Depreciation 9 (5,857) (4,786)
------------------------------------------ ----- ---------- ---------
- Amortisation 11 (5,494) (3,520)
------------------------------------------ ----- ---------- ---------
- Share based payments (508) (3,245)
------------------------------------------ ----- ---------- ---------
- Separately disclosed items 5 2,577 (5,255)
------------------------------------------ ----- ---------- ---------
Operating loss (226) (1,162)
----- ---------- ---------
Finance costs 7 (2,522) (2,196)
----- ---------- ---------
Finance income 7 216 242
------------------------------------------ ----- ---------- ---------
Loss before tax (2,532) (3,116)
----- ---------- ---------
Tax credit/(charge) 8 835 (74)
------------------------------------------ ----- ---------- ---------
Loss for the year attributable to equity
shareholders (1,697) (3,190)
------------------------------------------ ----- ---------- ---------
Earnings per share Pence Pence
------------------------------------------ ----- ---------- ---------
Basic loss per share 6 (0.5) (1.3)
----- ---------- ---------
Diluted loss per share 6 (0.5) (1.3)
------------------------------------------ ----- ---------- ---------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR YEARED 30
APRIL 2022
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
------------------------------------------------------- -------- ---------
Loss for the year attributable to equity shareholders (1,697) (3,190)
-------- ---------
Other comprehensive income for the year - -
-------- ---------
Total comprehensive loss attributable to equity
shareholders (1,697) (3,190)
------------------------------------------------------- -------- ---------
The notes are an integral part of these consolidated financial
statements.
(1) Adjusted EBITDA, which is defined as loss before finance
costs and income, tax, depreciation, amortisation, share based
payments and separately disclosed items, is a non-GAAP metric used
by management and is not an IFRS disclosure (see note 15).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL
2022
Restated
2022 2021
----- ---------- ----------
Note GBP'000 GBP'000
--------------------------------------- ----- ---------- ----------
ASSETS
----- ---------- ----------
Non-current assets
----- ---------- ----------
Property, plant and equipment 9 77,803 63,341
----- ---------- ----------
Lease receivables 10 4,325 5,027
----- ---------- ----------
Intangible assets 11 58,958 61,213
----- ---------- ----------
Total non-current assets 141,086 129,581
--------------------------------------- ----- ---------- ----------
Current assets
----- ---------- ----------
Inventories 26,241 23,185
----- ---------- ----------
Trade and other receivables 31,592 26,480
----- ---------- ----------
Lease receivables 10 703 675
----- ---------- ----------
Cash and cash equivalents 243 7,604
----- ---------- ----------
Derivative financial instruments 805 -
--------------------------------------- ----- ---------- ----------
Total current assets 59,584 57,944
--------------------------------------- ----- ---------- ----------
Total assets 200,670 187,525
--------------------------------------- ----- ---------- ----------
Current liabilities
----- ---------- ----------
Borrowings 12 (26,482) (12,349)
----- ---------- ----------
Trade and other payables (52,367) (47,031)
----- ---------- ----------
Derivative financial instruments - (120)
----- ---------- ----------
Income taxes (300) (300)
----- ---------- ----------
Provisions (33) (7,321)
--------------------------------------- ----- ---------- ----------
Total current liabilities (79,182) (67,121)
--------------------------------------- ----- ---------- ----------
Total assets less current liabilities 121,488 120,404
--------------------------------------- ----- ---------- ----------
Non-current liabilities
----- ---------- ----------
Borrowings 12 (35,169) (30,851)
----- ---------- ----------
Deferred tax liabilities 8 (3,100) (3,666)
----- ---------- ----------
Provisions (275) -
--------------------------------------- ----- ---------- ----------
Total non-current liabilities (38,544) (34,517)
--------------------------------------- ----- ---------- ----------
Total liabilities (117,726) (101,638)
--------------------------------------- ----- ---------- ----------
Net assets 82,944 85,887
--------------------------------------- ----- ---------- ----------
Capital and reserves
----- ---------- ----------
Share capital 13 319 311
----- ---------- ----------
Share premium 108,782 108,782
----- ---------- ----------
Capital redemption reserve 27 27
----- ---------- ----------
Accumulated losses (26,184) (23,233)
--------------------------------------- ----- ---------- ----------
Total equity shareholders' funds 82,944 85,887
--------------------------------------- ----- ---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEARED 30 APRIL
2022
Accumulated
Capital losses/
-------- -------- ----------- ------------ --------
Share Share Redemption (Retained Total
-------- -------- ----------- ------------ --------
capital premium Reserve earnings) equity
-------- -------- ----------- ------------ --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ----------- ------------ --------
Balance at 30 April
2020 195 68,015 27 (23,225) 45,012
-------- -------- ----------- ------------ --------
Comprehensive (expense)
-------- -------- ----------- ------------ --------
Loss for the year (restated) - - - (3,190) (3,190)
-------- -------- ----------- ------------ --------
Total comprehensive
expense (restated) - - - (3,190) (3,190)
------------------------------- -------- -------- ----------- ------------ --------
Transactions with owners
recognised directly
in equity
-------- -------- ----------- ------------ --------
Proceeds from shares
issued 116 42,494 - - 42,610
-------- -------- ----------- ------------ --------
Transaction costs - (1,727) - - (1,727)
-------- -------- ----------- ------------ --------
Share based payments
(net of tax) - - - 3,163 3,163
-------- -------- ----------- ------------ --------
Other taxation - - - 19 19
------------------------------- -------- -------- ----------- ------------ --------
Total transactions recognised
directly in equity 116 40,767 - 3,182 44,065
------------------------------- -------- -------- ----------- ------------ --------
Balance at 30 April
2021 (restated) 311 108,782 27 (23,233) 85,887
------------------------------- -------- -------- ----------- ------------ --------
Comprehensive (expense)
-------- -------- ----------- ------------ --------
Loss for the year - - - (1,697) (1,697)
-------- -------- ----------- ------------ --------
Total comprehensive
expense - - - (1,697) (1,697)
------------------------------- -------- -------- ----------- ------------ --------
Transactions with owners
recognised directly
in equity
-------- -------- ----------- ------------ --------
Proceeds from shares
issued 8 - - - 8
-------- -------- ----------- ------------ --------
Dividends - - - (1,594) (1,594)
-------- -------- ----------- ------------ --------
Share based payments
(net of tax) - - - 321 321
=============================== ======== ======== =========== ============ ========
Other taxation - - - 19 19
------------------------------- -------- -------- ----------- ------------ --------
Total transactions recognised
directly in equity 8 - - (1,254) (1,246)
------------------------------- -------- -------- ----------- ------------ --------
Balance at 30 April
2022 319 108,782 27 (26,184) 82,944
------------------------------- -------- -------- ----------- ------------ --------
CONSOLIDATED CASHFLOW STATEMENT FOR THE YEARED 30 APRIL 2022
Restated
2022 2021
----- ---------- ----------
Note GBP'000 GBP'000
-------------------------------------------- ----- ---------- ----------
Cashflows from operating activities
----- ---------- ----------
Operating loss (226) (1,162)
----- ---------- ----------
Adjustment for:
----- ---------- ----------
Depreciation 9 5,857 4,786
----- ---------- ----------
Impairment of tangible fixed assets 9 965 -
----- ---------- ----------
Profit on disposal of property, plant
and equipment (296) -
----- ---------- ----------
Amortisation 11 5,494 3,520
----- ---------- ----------
Separately disclosed items - acquisition
contingent consideration 5 (6,277) -
----- ---------- ----------
Share based payments 508 3,245
-------------------------------------------- ----- ---------- ----------
Operating cashflows before movements
in working capital 6,025 10,389
----- ---------- ----------
(Increase) in inventories (3,056) (8,553)
----- ---------- ----------
(Increase)/decrease in trade and other
receivables (5,112) 604
----- ---------- ----------
Increase in trade and other payables 5,422 14,800
----- ---------- ----------
(Decrease) in provisions (934) (418)
----- ---------- ----------
(Increase)/decrease in derivatives (925) 148
-------------------------------------------- ----- ---------- ----------
Cash generated from operations 1,420 16,970
----- ---------- ----------
Tax received 15 40
-------------------------------------------- ----- ---------- ----------
Net cashflows generated from operating
activities 1,435 17,010
-------------------------------------------- ----- ---------- ----------
Cashflows from investing activities
----- ---------- ----------
Purchase of property, plant and equipment 9 (4,987) (9,112)
----- ---------- ----------
Proceeds from sale of property, plant
and equipment 48 -
----- ---------- ----------
Purchase of intangible assets 11 (3,145) (1,152)
----- ---------- ----------
Acquisition of subsidiaries net of cash
acquired - (32,235)
----- ---------- ----------
Receipt of capital element of leases 10 674 650
----- ---------- ----------
Lease interest received 10 216 242
-------------------------------------------- ----- ---------- ----------
Net cashflows used in investing activities (7,194) (41,607)
-------------------------------------------- ----- ---------- ----------
Cashflows from financing activities
----- ---------- ----------
Proceeds of issue of ordinary shares 8 42,610
----- ---------- ----------
Cost of raising equity - (1,727)
----- ---------- ----------
Amounts received from factoring facility 12 187,204 151,645
----- ---------- ----------
Amounts paid to factoring facility 12 (172,436) (161,489)
----- ---------- ----------
Loan advance in respect of property,
plant and equipment 1,939 1,694
----- ---------- ----------
Repayment of capital element of leases (5,463) (5,764)
----- ---------- ----------
Advance on revolving credit facility 6,000 -
----- ---------- ----------
Repayment of revolving credit facility (15,000) (997)
----- ---------- ----------
Transaction costs of revolving credit
facility (115) (413)
----- ---------- ----------
Dividends paid (1,594) -
----- ---------- ----------
Lease interest paid (1,354) (844)
----- ---------- ----------
Other interest paid (791) (661)
-------------------------------------------- ----- ---------- ----------
Net cashflows (used in)/generated from
financing activities (1,602) 24,054
-------------------------------------------- ----- ---------- ----------
Net increase in cash and cash equivalents (7,361) (543)
----- ---------- ----------
Cash and cash equivalents at beginning
of the year 7,604 8,147
-------------------------------------------- ----- ---------- ----------
Cash and cash equivalents at year end 243 7,604
-------------------------------------------- ----- ---------- ----------
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION FOR THE YEARED
30 APRIL 2022
1. General information
Accrol Group Holdings plc (the "Company") was incorporated with
Company number 09019496. It is a public company limited by shares
and is domiciled in the United Kingdom. The registered address of
the Company is Delta Building, Roman Road, Blackburn, Lancashire,
BB1 2LD.
The Company's subsidiaries are Accrol UK Limited, Accrol
Holdings Limited, Accrol Papers Limited, LTC Parent Limited,
Leicester Tissue Company Limited, Art Tissue Limited, John Dale
(Holdings) Limited and John Dale Limited 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.
Basis of preparation
These financial statements have been prepared in accordance with
UK adopted International accounting standards in conformity with
the requirements of the Companies Act 2006. The preparation of
financial statements requires the use of certain critical
accounting estimates. It also requires Group management to exercise
judgment in applying the Group's accounting policies. The areas
where significant judgments and estimates have been made in
preparing the financial statements and their effect are disclosed
in note 3.
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 profit or loss. The consolidated
financial statements are presented in pounds sterling and all
values are rounded to the nearest thousand pounds, except where
otherwise indicated.
New standards, interpretations and amendments effective in the
year
New standards that have been adopted in the financial statements
for the year ended 30 April 2022, but have not had a significant
impact on the Group are as follows:
-- Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments
to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
-- COVID-19-Related Rent Concessions beyond June 2021 (Amendments to IFRS 16)
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the group has decided
not to adopt early. The Group will undertake an assessment of the
impact of the following standards and interpretations in due
course, although they are not expected to have a material impact on
the consolidated financial statements in the year of applications
when the relevant standards come into effect.
Effective for the period beginning 1 May 2022:
-- Annual Improvements to IFRS Standards 2018-2020;
-- Amendment to IAS 16 'Property, Plant & Equipment';
-- Amendment to IAS 37 'Provisions, Contingent Liabilities & Contingent Assets'; and
-- Amendment to IFRS 3 'Business Combinations'
Effective for the period beginning 1 May 2023:
-- Amendment to IAS 1 'Presentation of financial statements'
-- Amendment to IAS 1 'Presentation of financial statements' & IFRS Practice statement 2
-- Amendment to IAS 8 'Accounting policies, Changes in Accounting Estimates and Errors'
-- Amendment to IAS 12 'Income Taxes'
-- IFRS 17 'Insurance Contracts'
Accounting policy change
The Group's accounting policy has historically been to
capitalise all costs related to the configuration or customisation
of Software-as-a-Service (SaaS) arrangements as intangible assets.
Following the agenda decision of The International Financial
Reporting Standards Interpretations Committee (IFRIC) in April 2021
these previously recognised intangible assets have been treated as
an expense, impacting both the current and prior periods
presented.
In the current year, administration expenses have increased by
GBP637,000 (2021: GBP550,000), reducing retained earnings. The
current year cumulative impact on intangible fixed assets is a
reduction of GBP1,187,000 (2021: GBP550,000).
Going concern
The Chairman's Statement and the Chief Executive's Review
outline the business activities of the Group along with the factors
which may affect its future development and performance. The
Financial Review discusses the Group's financial position, along
with details of cashflow and liquidity. The Group encountered
enormous macro-inflationary cost pressures during the year but has
been successful in negotiating more than GBP70m of annualised price
increases by the end of the year, with GBP11m of this impacting
FY22. In addition, the Group continued its investment in
automation, infrastructure and product development, whilst also
increasing working capital to manage supply constraints over the
coming 12 months.
The acquired businesses, LTC and John Dale, have been fully
integrated and the automation of all four manufacturing sites
(which completed in August 2022) has been finalised; delivering
further efficiencies. The cost of living crisis is driving consumer
demand for great value products and Accrol has enjoyed a strong
start to the new financial year (FY23). The margin erosion
experienced in FY22, created by the rapid increase in input costs,
has been rectified and contained, with cost increases being passed
on as they arise.
As in previous years, the Group's forecasted performance is
dependent on a number of market and macroeconomic factors
particularly the sensitivity to the price of parent reels and the
sterling/USD exchange rate which are inherently difficult to
predict. The Group's forecasted performance has been tested for
downside scenarios, including reverse stress tests, relating to
sales volume, price erosion and parent reel prices. The Group
considered the likelihood of such events occurring together with
the relevant impact thereof and were satisfied that if a scenario
partly or fully takes place the Group has mitigating options
available, which may include further price increases, further
operational restructuring and a reduced or deferred capital
expenditure programme, to maintain liquidity and continue its
operations.
The Group is currently operating within its covenants. It also
considered the impact of the above downside scenarios on covenant
headroom. The directors were satisfied that after evaluating the
probability of events and available mitigating actions, covenant
breaches would be unlikely. At 30 April 2022, available funds were
GBP15.4m, with further details of the borrowing facilities set out
in note 12.
The Directors confirm that, after due consideration, they have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of signing the financial statements. For this
reason, they continue to adopt the going concern basis in preparing
the financial statements.
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 judgements in applying the entity's
accounting policies
Development costs
The Group exercises judgement in determining whether development
costs incurred meet the criteria of IAS 38 'Intangible Assets' and
hence capitalised. The criteria where judgement is most required is
around determining the technical feasibility of completing the
project, the availability of adequate technical, financial, and
other resources to complete and the existence of the market. Not
meeting the criteria would result in these costs being expensed as
incurred. Further details are provided in Note 11.
Separately disclosed items
During the course of the year the Group incurred income and
expenditure that is material and considered worthy of being
separately disclosed. In order to better explain the underlying
performance of the business, management makes a judgement as to
which items should be separately disclosed. Separately disclosing
costs that are not appropriate to do so leads to a risk of
mis-stating the Group's underlying performance.
Critical accounting estimates in applying the entity's
accounting policies
Goodwill and intangible asset impairment
The Group is required to test, on an annual basis, whether
goodwill has suffered any impairment based on the recoverable
amount of its CGU. The recoverable amount is determined based on
value in use calculations. The use of this method requires the
estimation of a number of key variables in order to calculate the
present value of the cashflows, including:
-- future underlying cashflows;
-- the determination of a pre-tax discount rate; and
-- long-term growth rates.
The future underlying cashflows remain sensitive to a number of
key variables, including the sterling/USD exchange rate and parent
reel pricing, both of which are inherently difficult to predict,
and which could have a significant effect (positive or negative) on
the Group's cashflows.
More information including carrying values is included in note
11.
Right-of-use assets
Significant judgement is exercised in determining the
incremental borrowing rate. IFRS 16 requires the borrowing rate
should represent what the lessee would have to pay to borrow over a
similar term and with similar security, the funds necessary to
obtain an asset of similar value in a similar economic
environment.
Deferred taxation
The Group has recognised deferred tax assets in respect of
losses incurred in the current and prior year. This requires the
estimation of future profitability in determining the
recoverability of these assets. Specifically, a range of
assumptions underpin the profit and cashflow forecasts for the next
12 months, including those around parent reel prices, the
successful management of any foreign exchange downside and the
maintenance of the current strong customer relations. As described
above, the Group's trading performance remains sensitive to a
number of key variables which could have a significant effect
(positive or negative) on the Group's cashflows.
4. Revenue
The Group's country of domicile is the UK. Revenue from external
customers is based on the customers location and arises entirely
from the sale of goods.
The analysis by geographical area of destination of the Group's
revenue is set out below:
2022 2021
GBP'000 GBP'000
---------------- -------- --------
United Kingdom 149,914 127,107
-------- --------
Europe 9,536 9,487
---------------- -------- --------
159,450 136,594
---------------- -------- --------
5. Separately disclosed items
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
--------------------------------------------- -------- ---------
Acquisition contingent consideration (6,277) -
-------- ---------
Acquisition professional fees 766 2,150
-------- ---------
Acquisition integration costs 85 724
--------------------------------------------- -------- ---------
Acquisition related items (5,426) 2,874
--------------------------------------------- -------- ---------
Supply chain disruption 696 -
-------- ---------
Impairment of property, plant and equipment 965 -
-------- ---------
Operational reorganisation and restructure - 1,034
-------- ---------
COVID-19 costs 153 670
-------- ---------
Accounting policy change 637 550
-------- ---------
Other items 398 127
--------------------------------------------- -------- ---------
Other items 2,849 2,381
--------------------------------------------- -------- ---------
(2,577) 5,255
--------------------------------------------- -------- ---------
A summary of the separately disclosed items for the current year
is as follows.
Acquisition related items credit of GBP5,426,000 (2021: charge
of GBP2,874,000)
On 24 November 2020, the Group acquired 100% of the issued share
capital of LTC Parent Limited and its subsidiaries, whose principal
activity is paper tissue converting. An element of the
consideration was contingent upon the incremental EBITDA
performance of contracts secured prior to the acquisition that had
yet to be delivered, measured over a four-month period from 1 March
2021. This consideration was measured on a sliding scale with a
maximum of GBP6,800,000 payable to the vendors if EBITDA targets
were met, for which provision was made in the prior year.
Negotiations with the sellers in respect of the contingent
consideration and other matters have been concluded during this
financial year with no payment made. Therefore, contingent
consideration of GBP6,277,000 has been credited to the Income
Statement after the recognition of GBP523,000 of one-off contract
related costs that were incurred in the year. In concluding
negotiations with the sellers during the financial year, the Group
also incurred professional fees of GBP766,000 in respect of legal
and accounting services. Consultancy costs of GBP85,000 were also
incurred in finalising the integration of the businesses.
Supply chain disruption costs GBP696,000 (2021: GBPnil)
In line with the wider market, pressures on the Group's supply
chain have been considerable, particularly over the autumn period
when there was significant disruption to shipping, container
capacity at ports, and haulage. Whilst the Group's supply chain
demonstrated significant resilience, considerable incremental costs
were incurred to maintain service to our customers.
These incremental costs included port charges of GBP398,000,
largely related to demurrage costs incurred because of shipping
container congestion and a lack of capacity to manage increased
demand. Additional distribution costs of GBP269,000 were also
incurred, largely related to the procurement of day rate vehicles
at an incremental cost, to ensure continuity of supply in the
October to December period, when haulage driver availability was
severely constrained. External consultancy costs of GBP29,000 were
also incurred to support the supply chain planning of the business
during this volatile period.
Impairment of property, plant and equipment GBP965,000 (2021:
GBPnil)
Significant progress has been made over previous years to
transform the manufacturing capability of the business, with
investment made in automation and in the expansion of overall
capacity and capability. The final element of the manufacturing
re-organisation comprises investment in a new manufacturing line
(expected September 2022) and automation of packing and
palletisation (completed July 2022) at the Leyland manufacturing
site.
To enable this investment, the Leyland manufacturing facility
has been re-organised, involving the physical movement of existing
manufacturing lines and the removal of a specific 're-wind' asset
that was deemed surplus to requirement, and therefore redundant.
The removal of this asset has facilitated the wider site
re-organisation but has resulted in an impairment charge of
GBP965,000.
COVID-19 GBP153,000 (2021: GBP670,000)
The COVID-19 pandemic continued to have an impact on the
business during the financial year, although those impacts are now
much reduced and are being absorbed as part of normal operational
costs from January 2022. The Group plans on a certain level of
resource, factoring in normal levels of absence and holiday, to
maintain a 24/7 manufacturing operation that is as efficient as
possible. High levels of absence due to illness or self-isolation,
required incremental labour resources to be deployed to maintain
service levels to our customers through additional overtime,
additional temporary labour and the deferment of holidays, all of
which resulted in additional costs of GBP133,000. A further
GBP20,000 of additional costs related to incremental cleaning,
safety, and PPE equipment.
Accounting policy change GBP637,000 (2021: GBP550,000)
The Group's accounting policy has historically been to
capitalise all costs related to the configuration or customisation
of Software-as-a-Service (SaaS) arrangements as intangible assets.
Following the agenda decision of The International Financial
Reporting Standards Interpretations Committee (IFRIC) in April 2021
these previously recognised intangible assets have been treated as
an expense, impacting both the current and prior periods
presented.
Other items GBP398,000 (2021: GBP127,000)
Other items largely relate to redundancy costs of GBP327,000
related to consolidation of activities across the Group following
the acquisitions made in the previous financial year; and other
largely property related items of GBP71,000.
A summary of the separately disclosed items for the prior year
is as follows:
Acquisition costs (GBP2,150,000)
In November 2020, the Group acquired Leicester Tissue Company,
whose principal activity is paper tissue converting. Professional
fees of GBP1,925,000 arose as a result of the transaction.
In April 2022, the Group acquired John Dale, whose principal
activity is the manufacture of wet wipes and facial tissue.
Professional fees of GBP225,000 arose as a result of the
transaction.
Integration (GBP724,000)
Upon completion of the acquisition of LTC and JD, the Group
immediately commenced a structured integration programme. This
covered all key areas of the business including external
relationships with customers and suppliers, as well as internal
functional reviews to consolidate or integrate activities where
appropriate.
Project management costs of GBP314,000 included expert
consultancy advice to support the integration process. Other
incremental costs to support this activity included GBP218,000 of
labour and GBP162,000 of operational costs, largely relating to
transportation and short-term paper transfers. Incremental audit
fees of GBP30,000 have been necessary due to added complexity.
Operational reorganisation and restructure (GBP1,034,000)
Following the significant progress made during FY20 to transform
the manufacturing capability of the business, it was appropriate to
review the whole organisation to ensure it was aligned with
Accrol's future growth strategy and to deliver world class
standards in safety and performance every day. The final elements
of the business turnaround plan were completed during the year with
significant capital investment in automation at our Blackburn
manufacturing site. The complexity of maintaining a 24/7 operation
during the implementation of this substantial project resulted in
an element of incremental labour costs as service levels needed to
be maintained despite the inevitable disruption to normal
operations during the period of transition. Once the project had
been completed a number of redundancies were incurred as the
overall headcount reduced, reflecting the benefits from the
automation investment. The total labour cost of the above was
GBP948,000, with associated fees of GBP86,000.
COVID-19 (GBP670,000)
The COVID-19 pandemic has continued to have a significant impact
on how the Group conducts its operations, and on the availability
of resource and personnel, to continue to function as an essential
provider of products to UK retailers. The Group plans on a certain
level of resource, factoring in normal levels of absence and
holiday, to maintain a 24/7 manufacturing operation that is as
efficient as possible. High levels of absence during the pandemic,
due to illness or self-isolation, required incremental labour
resources to be deployed to maintain service levels to our
customers through additional overtime, additional temporary labour
and the deferment of holidays - all of which resulted in additional
costs of GBP292,000.
Additional labour costs of GBP153,000 were incurred as a
dedicated team of people worked on the practical changes that were
required in each of our factories, warehouses, and offices to
ensure we maintained fully compliant working environments and to
protect our employees. Extra logistics, PPE, cleaning and security
costs of GBP225,000 were also incurred.
6. Loss per share
Basic loss per share
The basic loss per share is calculated by dividing the loss
attributable to ordinary equity holders of the Parent by the
weighted average number of ordinary shares outstanding during the
year.
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
------------------------------------------------------- -------- ---------
Loss for the year attributable to equity shareholders (1,697) (3,190)
------------------------------------------------------- -------- ---------
Number Number
Weighted average number of shares '000 '000
-------------------------------------------- -------- --------
Issued ordinary shares at 1 May 311,355 195,247
-------- --------
Effect of shares issued in the year 5,792 51,214
-------------------------------------------- -------- --------
Weighted average number of ordinary shares
at 30 April 317,147 246,461
-------- --------
Basic loss per share (pence) (0.5) (1.3)
-------------------------------------------- -------- --------
Diluted loss per share
Diluted loss per share is calculated by dividing the loss after
tax by the weighted average number of shares in issue during the
year, adjusted for potentially dilutive share options.
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
------------------------------------------------------- -------- ---------
Loss for the year attributable to equity shareholders (1,697) (3,190)
------------------------------------------------------- -------- ---------
Number Number
'000 '000
----------------------------------------------- -------- --------
Weighted average number of shares (basic) 317,147 246,461
-------- --------
Effect of conversion of Accrol Group Holdings
plc share options - -
----------------------------------------------- -------- --------
Weighted average number of ordinary shares
at 30 April 317,147 246,461
----------------------------------------------- -------- --------
Diluted loss per share (pence) (0.5) (1.3)
----------------------------------------------- -------- --------
No adjustment has been made in 2022 and 2021 to the weighted
average number of shares for the purpose of the diluted earnings
per share calculation as the effect would be anti-dilutive.
7. Finance costs and income
2022 2021
GBP'000 GBP'000
---------------------------------- -------- --------
Bank loans and overdrafts 791 661
-------- --------
Lease interest 1,354 844
-------- --------
Amortisation of finance fees 179 438
-------- --------
Unwind of discount on provisions 198 253
-------- --------
Total finance costs 2,522 2,196
---------------------------------- -------- --------
2022 2021
GBP'000 GBP'000
----------------------- -------- --------
Lease interest income 216 242
----------------------- -------- --------
Total finance income 216 242
----------------------- -------- --------
8. taxATION
Tax credit/(charged) in the income statement
2022 2021
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Current income tax
-------- --------
Current tax on losses for the year - -
-------- --------
Adjustment in respect of prior periods 15 -
--------------------------------------------------- -------- --------
Total current income tax credit 15 -
--------------------------------------------------- -------- --------
Deferred tax
-------- --------
Origination and reversal of temporary differences 1,551 (28)
-------- --------
Adjustment in respect of prior periods 73 (46)
-------- --------
Change in tax rate (804) -
--------------------------------------------------- -------- --------
Total deferred tax credit/(charge) 820 (74)
--------------------------------------------------- -------- --------
Tax credit/(charge) in the income statement 835 (74)
--------------------------------------------------- -------- --------
The tax credit for the year is higher than (2021: charge is
higher than) the effective rate of corporation tax in the UK of 19%
(2021: 19%). The differences are explained below:
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
---------------------------------------------- -------- ---------
Loss before income tax (2,532) (3,116)
-------- ---------
Effective rate 19% 19%
-------- ---------
At the effective income tax rate 481 592
-------- ---------
Expenses not deductible for tax purposes (123) (516)
-------- ---------
Tax exempt income 1,193 -
-------- ---------
Adjustment in respect of prior periods 88 (46)
-------- ---------
Movement in unrecognised deferred tax assets - (104)
-------- ---------
Change in rate (804) -
---------------------------------------------- -------- ---------
Total tax credit/(charge) 835 (74)
---------------------------------------------- -------- ---------
During the year the Group recognised the following deferred tax
assets/(liabilities):
Accelerated Share
capital Intangible based
------------ ----------- -------- --------- -------- --------
allowances assets Losses payments Other Total
------------ ----------- -------- --------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ------------ ----------- -------- --------- -------- --------
30 April 2020 (1,999) (1,634) 3,161 834 (74) 288
------------ ----------- -------- --------- -------- --------
Acquired on business
combinations (1,030) (4,154) 177 - 109 (4,898)
------------ ----------- -------- --------- -------- --------
Credit/(charge)
in year (542) 552 949 (990) (43) (74)
------------ ----------- -------- --------- -------- --------
Credit/(charge)
to equity - - - 999 19 1,018
---------------------- ------------ ----------- -------- --------- -------- --------
30 April 2021 (3,571) (5,236) 4,287 843 11 (3,666)
---------------------- ------------ ----------- -------- --------- -------- --------
(Charge)/credit
in year (1,842) (338) 3,550 (505) (45) 820
------------ ----------- -------- --------- -------- --------
(Charge)/credit
to equity - - - (273) 19 (254)
---------------------- ------------ ----------- -------- --------- -------- --------
30 April 2022 (5,413) (5,574) 7,837 65 (15) (3,100)
---------------------- ------------ ----------- -------- --------- -------- --------
A deferred tax asset of GBP7,837,000 (2021: GBP4,287,000)
relating to current and prior year losses has been recognised in
the year, on the basis that forecasts show sufficient taxable
profits in the foreseeable future to utilise these losses.
Deferred tax expected to be settled within 12 months of the
reporting date is approximately GBP328,000 (2021:
GBP2,177,000).
Deferred tax assets and liabilities have been measured at the
rate expected to be in effect when the deferred tax asset or
liability reverses.
9. Property, plant and equipment
Leasehold Assets Right-
land & Fixtures Plant and under of-use
&
---------- --------- ---------- ------------- -------- --------
buildings fittings machinery construction assets Total
---------- --------- ---------- ------------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- --------- ---------- ------------- -------- --------
Cost
---------- --------- ---------- ------------- -------- --------
At 30 April 2020 497 2,096 27,187 3,354 16,158 49,292
---------- --------- ---------- ------------- -------- --------
Acquired through
business combinations 1,043 164 9,545 - 8,046 18,798
---------- --------- ---------- ------------- -------- --------
Additions 31 149 733 8,199 477 9,589
---------- --------- ---------- ------------- -------- --------
Reclassification - - 8,335 (10,457) 2,122 -
-------------------------- ---------- --------- ---------- ------------- -------- --------
At 30 April 2021 1,571 2,409 45,800 1,096 26,803 77,679
-------------------------- ---------- --------- ---------- ------------- -------- --------
Additions 69 136 1,050 3,732 21,713 26,700
---------- --------- ---------- ------------- -------- --------
Reclassification (68) 39 1,268 (94) (1,239) (94)
---------- --------- ---------- ------------- -------- --------
Disposals - - (95) - (9,803) (9,898)
---------- --------- ---------- ------------- -------- --------
At 30 April 2022 1,572 2,584 48,023 4,734 37,474 94,387
-------------------------- ---------- --------- ---------- ------------- -------- --------
Accumulated depreciation
---------- --------- ---------- ------------- -------- --------
At 30 April 2020 178 1,365 4,922 - 3,087 9,552
---------- --------- ---------- ------------- -------- --------
Charge for the
year 70 337 879 - 3,500 4,786
---------- --------- ---------- ------------- -------- --------
At 30 April 2021 248 1,702 5,801 - 6,587 14,338
-------------------------- ---------- --------- ---------- ------------- -------- --------
Charge for the
year 142 317 1,895 - 3,503 5,857
---------- --------- ---------- ------------- -------- --------
Reclassification - 84 347 - (431) -
---------- --------- ---------- ------------- -------- --------
Disposals - - (95) - (4,481) (4,576)
---------- --------- ---------- ------------- -------- --------
Impairment - - 965 - - 965
---------- --------- ---------- ------------- -------- --------
At 30 April 2022 390 2,103 8,913 - 5,178 16,584
-------------------------- ---------- --------- ---------- ------------- -------- --------
Net book value
---------- --------- ---------- ------------- -------- --------
At 30 April 2022 1,182 481 39,110 4,734 32,296 77,803
-------------------------- ---------- --------- ---------- ------------- -------- --------
At 30 April 2021 1,323 707 39,999 1,096 20,216 63,341
-------------------------- ---------- --------- ---------- ------------- -------- --------
Assets with a value of GBP77,803,000 (2021: GBP63,341,000) form
part of the security against the RCF as described in note 12.
As part of the reorganisation of the Leyland manufacturing
facility, a specific 're-wind' asset was deemed surplus to
requirement, resulting in an impairment charge of GBP965,000. See
note 5.
10. Leases
Leases receivable
Land & buildings Total
GBP'000 GBP'000
--------------------- ----------------- --------
At 1 May 2021 5,702 5,702
----------------- --------
Interest received 216 216
----------------- --------
Lease receipts (890) (890)
--------------------- ----------------- --------
At 30 April 2022 5,028 5,028
--------------------- ----------------- --------
Analysed as:
----------------- --------
Receivable > 1 year 4,325 4,325
----------------- --------
Receivable < 1 year 703 703
--------------------- ----------------- --------
Lease liabilities
Land & Plant & machinery Total
buildings
GBP'000 GBP'000 GBP'000
------------------------------- ------------ ------------------ --------
At 1 May 2021 21,195 6,402 27,597
------------ ------------------ --------
New leases in the year 21,242 2,410 23,652
------------ ------------------ --------
Leases terminated in the year (5,570) - (5,570)
------------ ------------------ --------
Interest expense 1,124 230 1,354
------------ ------------------ --------
Lease payments (3,925) (2,892) (6,817)
------------------------------- ------------ ------------------ --------
At 30 April 2022 34,066 6,150 40,216
------------------------------- ------------ ------------------ --------
Short-term lease expense for the year was GBPnil. Short-term
lease commitment at 30 April 2022 was GBPnil. Income from
sub-leases for the year totalled GBP216,000.
11. Intangible assets
Customer Development Computer
Goodwill relationships costs software Other Total
---------- -------------- ------------ --------- -------- --------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ---------- -------------- ------------ --------- -------- --------
Cost
---------- -------------- ------------ --------- -------- --------
At 30 April 2020 14,982 20,427 764 2,492 126 38,791
---------- -------------- ------------ --------- -------- --------
Acquired through business
combinations 14,812 21,864 - 28 - 36,704
---------- -------------- ------------ --------- -------- --------
Internally developed
additions (restated) - - 684 468 - 1,152
----------------------------- ---------- -------------- ------------ --------- -------- --------
At 30 April 2021 (restated) 29,794 42,291 1,448 2,988 126 76,647
---------- -------------- ------------ --------- -------- --------
Internally developed
additions - - 2,974 171 - 3,145
---------- -------------- ------------ --------- -------- --------
Reclassification - - - 94 - 94
----------------------------- ---------- -------------- ------------ --------- -------- --------
At 30 April 2022 29,794 42,291 4,422 3,253 126 79,886
----------------------------- ---------- -------------- ------------ --------- -------- --------
Amortisation
---------- -------------- ------------ --------- -------- --------
At 30 April 2020 - 11,828 - - 86 11,914
---------- -------------- ------------ --------- -------- --------
Charge for the year - 2,903 273 344 - 3,520
----------------------------- ---------- -------------- ------------ --------- -------- --------
At 30 April 2021 - 14,731 273 344 86 15,434
---------- -------------- ------------ --------- -------- --------
Charge for the year - 4,299 332 863 - 5,494
----------------------------- ---------- -------------- ------------ --------- -------- --------
At 30 April 2022 - 19,030 605 1,207 86 20,928
----------------------------- ---------- -------------- ------------ --------- -------- --------
Net book value
---------- -------------- ------------ --------- -------- --------
At 30 April 2022 29,794 23,261 3,817 2,046 40 58,958
----------------------------- ---------- -------------- ------------ --------- -------- --------
At 30 April 2021 (restated) 29,794 27,560 1,175 2,644 40 61,213
----------------------------- ---------- -------------- ------------ --------- -------- --------
Goodwill
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill may be
impaired.
Goodwill is allocated to the cash generating units (CGUs) as
follows:
2022 2021
GBP'000 GBP'000
---------------------------------- -------- --------
Accrol Group Holdings plc 29,794 -
-------- --------
Accrol - 17,917
-------- --------
Leicester Tissue Company ("LTC") - 11,742
-------- --------
John Dale ("JD") - 135
---------------------------------- -------- --------
29,794 29,794
-------- --------
As disclosed in the prior year financial statements, as
anticipated, the acquired operations have become fully integrated
within the Group. The performance of the Group provided to the
Chief Operating Decision Maker (the AGH plc Board) does not split
between the above CGUs, therefore the Group has decided to return
to a sole CGU.
The recoverable amount of the CGU has been determined based on a
value in use calculation using cashflow projections based on
internal forecasts covering a five-year period, reviewed and
approved by the Board. The use of this method requires the
estimation of future cash flows and the determination of a discount
rate in order to calculate the present value of the cash flows.
Cashflows beyond this period are extrapolated using the estimated
growth rates stated below.
The recoverable amounts of the CGUs have been determined from
value-in-use calculations. At 30 April 2022, the impairment tests
concluded that the estimated value in use at 30 April 2022 exceeds
the carrying value by GBP50m (2021: GBP100m).
Key assumptions
The calculations of value-in-use are inherently judgemental and
require management to make a series of estimates and
assumptions.
The cash flow forecasts have been derived from the most recent
forecast presented to the Board for the year ending 30 April 2023.
The cash flows utilised are based upon forecast sales volumes and
product mix, anticipated movements in tissue prices and input costs
and known changes and expectations of current market
conditions.
The pre-tax discount rate used in the value in use calculations
is 12.4% (2021: 13.0%) and is derived from the Group's weighted
average cost of capital, calculated with reference to latest market
assumptions for the risk-free rate, equity market risk premium and
the cost of debt. The values reflect both past experience and
external sources of information. The long-term growth rate assumed
is 2.4% (2021: 2%).
Sensitivity to changes in assumptions
To support their assertions, the Directors have conducted
sensitivity analyses to determine the impact that would result from
changes in the above assumptions. Based on this analysis, the
Directors believe that a reasonably possible change in any of the
key assumptions detailed above would not cause the carrying value
of the CGU to exceed its recoverable amount, although the headroom
would decrease. Therefore, at 30 April 2022 no impairment charge is
required against the carrying value of goodwill.
Impairment would be caused by either increasing the pre-tax
discount rate by 4% or reducing the average EBIT performance by
GBP5m. A combination of increasing the pre-tax discount rate by 2%
and reducing average EBIT performance by GBP2.6m results in an
impairment.
Notwithstanding the above sensitivities, the Directors are
satisfied that they have applied reasonable and supportable
assumptions based on their best estimate of the range of future
economic conditions that are forecast and consider that an
impairment is not required in the current year. However, the
position will be monitored on a regular basis.
Development costs
During the year, the Group developed a number of new innovative
products including 'Softy', 'Elegance', 'Magnum' and 'Little
Heroes'. It also developed a range of fragranced products under the
'Fabulosa' brand and transitioned the majority of the product range
to a 38mm core. The development costs capitalised are to be
amortised over the life of the products (typically three
years).
Computer software
During the year, the Group has continued in the development of
its IT structure.
Customer relationships
Customer relationships are amortised over their useful economic
life of 6-10 years.
12. Borrowings
2022 2021
GBP'000 GBP'000
--------------------------- -------- --------
Current
-------- --------
Revolving credit facility 2,692 1,821
-------- --------
Factoring facility 18,743 3,975
-------- --------
Leases 5,047 6,553
--------------------------- -------- --------
26,482 12,349
--------------------------- -------- --------
Non-current
-------- --------
Revolving credit facility - 9,807
-------- --------
Leases 35,169 21,044
--------------------------- -------- --------
35,169 30,851
--------------------------- -------- --------
The changes in liabilities arising from financing activities,
from cashflows and non-cash changes for the current and prior year
are as follows:
Non-
Current current
----------- ----------- --------
loans & loans &
----------- ----------- --------
borrowings borrowings Total
----------- ----------- --------
GBP'000 GBP'000 GBP'000
---------------------------------------- ----------- ----------- --------
At 1 May 2021 12,349 30,851 43,200
----------- ----------- --------
Cashflows (16) - (16)
----------- ----------- --------
Non-cashflows:
----------- ----------- --------
New leases 159 21,554 21,713
----------- ----------- --------
Leases terminated on disposal of Right
of Use assets (1,658) (3,912) (5,570)
----------- ----------- --------
Interest accrued 2,145 - 2,145
----------- ----------- --------
Amortisation of finance fees (note
7) 179 - 179
----------- ----------- --------
Allocation from non-current to current
in the year 13,324 (13,324) -
---------------------------------------- ----------- ----------- --------
At 30 April 2022 26,482 35,169 61,651
---------------------------------------- ----------- ----------- --------
Non-
Current current
----------- ----------- ---------
loans & loans &
----------- ----------- ---------
borrowings borrowings Total
----------- ----------- ---------
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- ----------- ---------
At 1 May 2020 18,157 23,827 41,984
----------- ----------- ---------
Cashflows (16,829) - (16,829)
----------- ----------- ---------
Non-cashflows:
----------- ----------- ---------
New leases acquired through business
combinations 2,016 10,610 12,626
----------- ----------- ---------
New leases 477 - 477
----------- ----------- ---------
Loans acquired through business combinations 997 - 997
----------- ----------- ---------
Factoring facility acquired through
business combinations 2,002 - 2,002
----------- ----------- ---------
Interest accrued 1,505 - 1,505
----------- ----------- ---------
Amortisation of finance fees (note
7) 438 - 438
----------- ----------- ---------
Allocation from non-current to current
in the year 3,586 (3,586) -
----------- ----------- ---------
At 30 April 2021 12,349 30,851 43,200
---------------------------------------------- ----------- ----------- ---------
Finance costs incurred to arrange the revolving credit facility
have been capitalised and are being amortised through interest
payable. Unamortised finance costs at 30 April 2022 are GBP308,000
(2021: GBP372,000).
Finance costs are not included in the loan maturity table
below.
2022 2021
GBP'000 GBP'000
---------------------------- -------- --------
Loan maturity analysis
-------- --------
Within one year 26,790 12,528
-------- --------
Between one and two years 7,622 7,666
-------- --------
Between two and five years 8,003 18,986
-------- --------
After five years 19,544 4,392
---------------------------- -------- --------
61,959 43,572
---------------------------- -------- --------
The following amounts remain undrawn and available:
2022 2021
GBP'000 GBP'000
--------------------------- -------- --------
Revolving credit facility 14,000 5,000
-------- --------
Factoring facility 1,179 7,128
--------------------------- -------- --------
15,179 12,128
--------------------------- -------- --------
The Group's bank borrowings are secured by way of fixed and
floating charge over the Group's assets.
HSBC revolving credit facility agreement ("RCF")
During the year, the Group extended its GBP17m multi-currency
revolving credit facility, which now expires in August 2024.
Previously required repayments of GBP2m on each of 30 April 2022
and 30 April 2023 have now been removed.
Interest charged on the facility is at SONIA plus a margin of
2.20%-3.20%. A commitment fee of 40% of applicable margin on any
undrawn RCF is also payable.
The Obligors are Accrol Group Holdings plc, Accrol UK Limited,
Accrol Holdings Limited, Accrol Papers Limited, LTC Parent Limited,
Leicester Tissue Company Limited, Art Tissue Limited, John Dale
(Holdings) Limited and John Dale Limited.
HSBC factoring credit facility ("factoring facility")
During the year, the Group increased its multi-currency
factoring facility, used to provide financing for general working
capital requirements, from GBP22.5m to GBP27m. Under the terms of
this facility the drawdown is based upon gross debtors less a
retention (typically 15%), with 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
RCF and the factoring facility. The RCF covenants are interest
cover and gross leverage ratios. The covenants in relation to the
factoring facility cover debt dilution and disputed debt. Breach of
the covenants would render any outstanding borrowings subject to
immediate settlement. The Group is currently operating within its
covenants.
13. Share capital and reserves
2022 2021
GBP'000 GBP'000
------------------------------------ -------- --------
Called up, allotted and fully paid
-------- --------
Ordinary shares of GBP0.001 each 319 311
------------------------------------ -------- --------
319 311
------------------------------------ -------- --------
The number of ordinary shares in issue is set out below:
2022 2021
Number Number
---------------------------------- ------------ ------------
Ordinary shares of GBP0.001 each 318,878,097 311,354,632
---------------------------------- ------------ ------------
In July 2021, 7,523,465 GBP0.001 ordinary shares were
issued.
Each holder of the GBP0.001 Ordinary Shares is entitled to vote
at the general meetings of the Company. Every holder of an Ordinary
Share shall have one vote for each Ordinary Share held.
14. Events after the balance sheet date
There are no adjusting or non-adjusting events subsequent to the
year end.
15. Alternative performance measures
The Group uses a number of alternative performance measures to
assess business performance and provide additional useful
information to shareholders about the underlying performance of the
Group.
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. Diluted earnings per share adjusts the
above for potentially dilutive share options. The following
reflects the income and share data used in the adjusted earnings
per share calculation.
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
------------------------------------------------ -------- ---------
Loss attributable to shareholders (1,697) (3,190)
-------- ---------
Adjustment for:
-------- ---------
Amortisation 5,494 3,520
-------- ---------
Separately disclosed items (2,577) 5,255
-------- ---------
Share based payments 508 3,245
-------- ---------
Discount unwind on contingent consideration 192 239
-------- ---------
Tax effect of adjustments above (832) (2,225)
------------------------------------------------ -------- ---------
Adjusted earnings attributable to shareholders 1,088 6,844
------------------------------------------------ -------- ---------
Number Number
'000 '000
------------------------------------------- -------- --------
Basic weighted average number of shares 317,147 246,461
-------- --------
Dilutive share options 11,119 10,675
------------------------------------------- -------- --------
Diluted weighted average number of shares 328,266 257,136
------------------------------------------- -------- --------
pence pence
------------------------------------- ------ ------
Basic adjusted earnings per share 0.3 2.7
------ ------
Diluted adjusted earnings per share 0.3 2.7
------------------------------------- ------ ------
Reconciliation from GAAP-defined reporting measures to the
Group's alternative performance measures
Management use these measurements to better understand the
underlying business of the Group.
Consolidated income statement
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
---------------------------- -------- ---------
Adjusted EBITDA
-------- ---------
Operating loss (226) (1,162)
-------- ---------
Adjusted for:
-------- ---------
Depreciation 5,857 4,786
-------- ---------
Amortisation 5,494 3,520
-------- ---------
Separately disclosed items (2,577) 5,255
-------- ---------
Share based payments 508 3,245
---------------------------- -------- ---------
Adjusted EBITDA 9,056 15,644
---------------------------- -------- ---------
2022 2021
GBP'000 GBP'000
---------------------------- -------- --------
Adjusted Gross Profit
-------- --------
Gross Profit 36,239 37,884
-------- --------
Adjusted for:
-------- --------
Separately disclosed items 905 1,220
---------------------------- -------- --------
Adjusted Gross Profit 37,144 39,104
---------------------------- -------- --------
Revenue 159,450 136,594
-------- --------
Adjusted Gross Margin 23.3% 28.6%
---------------------------- -------- --------
Restated
2022 2021
-------- ---------
GBP'000 GBP'000
--------------------------------------------- -------- ---------
Adjusted profit before tax
-------- ---------
Reported (loss) before tax (2,532) (3,116)
-------- ---------
Adjusted for:
-------- ---------
Amortisation 5,494 3,520
-------- ---------
Separately disclosed items (2,577) 5,255
-------- ---------
Share based payments 508 3,245
-------- ---------
Discount unwind on contingent consideration 192 239
--------------------------------------------- -------- ---------
Adjusted profit before tax 1,085 9,143
--------------------------------------------- -------- ---------
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END
FR EANNSESAAEFA
(END) Dow Jones Newswires
September 06, 2022 02:00 ET (06:00 GMT)
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