Accrol Group Holdings

http://www.accrol.co.uk TICKER: ACRL     EXCHANGE: AIM

Accrol is a leading independent tissue converter. It manufacturers toilet rolls, kitchen rolls, facial tissues and AFH products to supply some of the UK's largest retailers. It imports parent reels from overseas and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancs

LATEST REPORTS

 
Plotting a course back
Published: Dec 14 2017

Accrol is a leading independent tissue converter. It manufacturers toilet rolls, kitchen rolls, facial tissues and AFH products to supply some of the UK’s largest retailers. It imports parent reels from overseas and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancs.
Immediate cash need has been covered by an £18m placing and lender commitment to existing facilities on broadly similar terms, subject to an additional EBITDA test. That provides breathing space for management, as it tries to deal with the issues affecting the entire industry. The main culprit was the recent spike in raw material i.e. pulp/parent reel costs, but better news may emerge from ongoing and advanced negotiations with key customers to secure price increases and help restore margins. 
Other initiatives, running in parallel, seek to make more efficient use of working capital and have already delivered results. Accrol has reduced stock levels, product lines and employee costs, improved collection of older debts and plans further automation and streamlining.
We have not included forecasts in this note pending more clarity on (a) the outlook for raw material costs and (b) progress of the group’s negotiations with its core customer base; UK discount and multiple retailers. With that information, revised forecasts should better reflect the implications for volumes and margins. 
Accrol’s negotiating position does appear underpinned, short term at least, by minimal UK industry spare manufacturing capacity and a lack of alternative supply at a similar quality/price. Despite recent issues, its operational relationships with customers remain strong. Access to raw materials (paper reels) at predictable prices appears to remain a source of uncertainty. The group has negotiating leverage in an oversupplied market, but large-scale disruption to supply saw more severe shifts in prices than anticipated.
The Group was candid regarding operational challenges and strategies at its full year results in July, but events moved faster than expected. As it works through outstanding issues it will seek to capitalise upon its competitive advantages, and progressively return attention to intrinsic value backed by operational scale and a proven reputation as an independent supplier of core tissue products to large UK retailers. 
 
FY results webinar
Published: Jul 18 2017

Following the full year results from Accrol Holdings plc, Steve Crossley CEO, and CFO James Flude discuss the outlook for the business.
 
Building a robust platform
Published: Jul 11 2017

Accrol is the UK’s leading independent tissue converter and manufactures toilet rolls, kitchen rolls and facial tissues, as well as other tissue products. It supplies some of the UK's largest retailers with both Accrol branded and private label products. Accrol’s existing portfolio of major discount customers includes Bookers, Aldi, Lidl, Home Bargains, B&M and Poundstretcher, plus leading multiples such as Tesco, Morrison’s and Asda.
Yesterday’s  FY17 results, broadly as forecast, capped a strong first year since IPO. Accrol held gross margins in a challenging market. It was helped by a strong position as a key supplier to UK Discounters – and grew its share from 35% to 50% - well-timed currency hedges and a lean operational model which gives it access to materially better raw material prices than its competition. 
FY17 revenue growth (+14% y-o-y) was achieved in a broadly static, but substantial UK market valued at c £2.2bn pa overall last year. Around £1.5bn of that was consumer sales through Multiples and Discounters, 1.5% down y o y (attributed to promotional activity). The adjusted EBITDA margin, at 11.9% (FY16:12.7%) reflects recent investment in capacity, including recruitment to meet future demand, and higher distribution cost ratios due to new customer and geographic mixes. In an operationally geared business, with spare capacity, some of this will fall away - as a percentage - as revenues build, and anticipated retail price will also help.
Forecasts assume organic growth and new contracts, but another spur for the next 18 months would be provided by higher retail prices. Some retailers have effectively passed on costs by re-engineering products into lower quality format, and smaller unit sizes, but Accrol reports indications of intent to increase consumer price points.
The 6p/share full year dividend represents a 4.0% historic yield, with 4.4% in prospect this year, well covered. Recent investment may be a drag on profit short term, but is intended it unlock substantial orders from UK Multiples. That underpins the current valuation, while retailer price inflation which benefited margins and drove business towards key clients would justify a higher rating for the shares. 
NB the CEO and FD will present on results and outlook via webinar this Thursday, 13th at 5.30pm :  Register here
 
Accrol Papers - Equity Development Investor Forum, March 2017
Published: Apr 03 2017

Steve Crossley, Chief Executive Officer, updates investors with progress at Accrol. 
 
Accrol Interim Results Webinar January 2017
Published: Jan 09 2017

You can now hear Steve Crossley, Chief Executive Officer, and James Flude, Chief Financial Officer, present the interim results for Accrol Group Holdings and answer investors' questions.
To view simply click on the video below.
 
Gearing up for a strong second half
Published: Jan 04 2017

Accrol is the UK’s leading independent tissue converter. It manufactures toilet rolls, kitchen rolls and facial tissues, as well as other tissue products at its manufacturing, storage and distribution facility in Blackburn, Lancashire.

A strong first half was reported today with revenues 8.8% higher y-o-y to £63.9m, at an improved 28.4% (H1 15/16: 27.3%) underlying gross margin (excluding derivative gains). That reflects an ability to negotiate parent reel prices underpinned by currency hedges put in place before and since the EU referendum. Adjusted EBITDA was 1.5% up y-o-y at £7.1m; positive cashflow is reflected in £3.2m lower net debt at £19.9m vs just after the June 2016 IPO.

The outlook appears underpinned by new business wins in H1, including Lidl which is expected to provide more than the initially anticipated £10m pa of sales. That built on previous discount sector wins (Booker - £6.5m, Poundstretcher - £5.0m). Capacity and output will benefit from investment in production facilities and operational improvements.

Potential earnings and dividend growth over the new few years should benefit from operational gearing, with spare capacity ready to meet demand from discounters and multiples. That highlights competitive positioning and an undemanding valuation considering the prospective yield of 4.8% this year, strategic positioning and 8.1x PER for FY16/17.

 
Trading on track ahead of interims early January
Published: Dec 12 2016

Accrol is the UK’s leading independent tissue converter. It manufactures toilet rolls, kitchen rolls and facial tissues, as well as other tissue products at its manufacturing, storage and distribution facility in Blackburn, Lancashire.  Its existing portfolio of major discount customers includes Bookers, Aldi, Lidl, Home Bargains, B&M and Poundstretcher, plus leading multiples such as Tesco, Morrison’s and Asda.
November’s pre-close statement confirmed that trading was in line with expectations in the first half, with new business momentum building and installation of additional production capacity well underway.
The stand out news during H1 (to end October 2016) was the £10m contract from Lidl. Accrol is building capacity to deliver those orders and meet further demand from its new business pipeline, with the installation of two new high-speed converting lines in its recently acquired manufacturing facility in Leyland, Lancashire. That will increase total capacity to 143,000 tonnes pa (from 118,000 tonnes).
A flexible business model is a key component of the group’s competitive advantages, but potentially exposes it to forex shifts on the price of imported parent reels. It hedges its exposure to adverse shifts in Sterling vs USD or EUR, was very well covered ahead of the referendum vote and has since increased its foreign currency facilities.
The recent update expressed confidence for the full year, with the business expected to generate strong cash flows to support its strategic growth plans and commitment to progressive dividends. The shares’ rating appears attractive, combining a well-covered 4.6% prospective yield underpinned by strong cash generation with a 10.8 PER for FY16/17. 

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2016
Positive debut
Published: Jul 25 2016

Accrol is a leading independent tissue converter, one of the UK's leading manufacturers of tissue products including toilet rolls, kitchen towels and facial tissues and AFH products. It imports parent reels and converts them into finished goods at its manufacturing, storage and distribution facility in Blackburn, Lancs. 
A strong performance for the year to end April 2016 included 17% underlying sales growth (vs 2014/15 proforma figures), at an increased gross margin and 22% higher adjusted EBITDA at £15m. That's an impressive performance in a relatively mature, competitive market, driven by a strategic focus on supplying own-label products to both discounters and multiples, the fastest growing elements as own-label progressively takes share from top end 'luxury' brands. 
This is Accrol's sweet spot and its strongest position (35% share of the discount sector) which contributed 69% of FY15/16 (6% up y-o-y) revenue; sales to multiples were up 15%. A confident outlook pivots on anticipated orders from new and existing customers, which it can deliver from spare manufacturing capacity post recent £3.2m investment in state-of-the-art machinery.
The most material change in the outlook since IPO is sterling weakness post the EU referendum. Accrol imports its raw materials (parent reels) and negotiates prices in mainly USD, or EUR but is near fully hedged this year. Although 2017/18 and thereafter are sensitive to further forex volatility it is in a strong position to deal with this via supplier relationships and its competitive positioning relative to other manufacturers. 
Growth prospects are supported by strong competitive positioning and Accrol's proven ability to pick-up market share as it capitalises upon growing demand for private-label tissue products. 

At the current price the shares combine a well-covered 5.2% prospective yield backed by strong cash generation with a PER of just 10x falling to 8.6x in FY17/18. 
Strong start to public life
Published: Jul 08 2016

Accrol is a leading independent tissue converter. It manufacturers toilet rolls, kitchen rolls, facial tissues and AFH products to supply some of the UK's largest retailers. 
A new contract today with an undisclosed major global retailer underpins our revenue forecasts, delivering an expected £10m plus full-year revenue contribution at the manufacturer's selling price. It should also enhance profitability as anticipated, as Accrol can deliver these implied volumes from its existing capacity.
In a period of market uncertainty this contract keeps the group on track to deliver forecast growth, and helps confirm its competitive positioning in key markets, toilet paper, kitchen rolls and facial tissues. Two months into the current financial year to 30 April 2017, management have stated it is comfortable with market forecasts and opportunities. The group is also significantly hedged against any adverse currency movements for the duration of that period.
We maintain our current year (2017E) forecasts ahead of results on 22 July, underpinned by the new contract. The group's planned progressive dividend policy would see combined dividends this financial year equivalent to a 5.6% yield, with the outlook for future growth underpinned by strong cash conversion and revenues generated from supply of resilient, non-discretionary consumer products. 
On a roll
Published: Jun 10 2016

Accrol's listing today on AIM brings to market one of the UK's leading manufacturers of tissue products including toilet rolls, kitchen towels and facial tissues. The group has a strong existing portfolio of major discount customers including Bookers, Aldi, Home Bargains, B&M and Poundstretcher, and leading multiples such as Tesco, Morrison's and Asda. We believe it is uniquely positioned to pick-up further market share and capitalise upon growing demand for private-label products in its field.

The business looks well-placed to continue to grow revenues organically at margins well-above its peer group. It seeks to build on an existing 35% share of a fast growing component of UK retail by leveraging its position as a volume manufacturer, with a comprehensive product range and spare capacity to meet demand post recent investment in production facilities.

Its independence allows it to access a larger addressable market than most of its peer group and it can also compete on price without sacrificing margins. An earlier decision not to operate its own paper mill means it can source 'raw materials' less expensively from overseas suppliers, and take advantage of current market oversupply.

The group has a strong financial track record and continued to grow throughout the recession. IPO proceeds of £43.3m will repay existing shareholder loan notes, significantly reducing net debt to £23m and interest costs. That frees up cash for expansion, and recent investment in plant means there is only modest capex planned during the forecast period. Management would consider complementary acquisitions.

There is a progressive dividend policy and intention to pay combined dividends for the financial year to 30 April 2017 equivalent to a 6% yield on the issue price. On our forecasts the shares are attractively rated on 9.3x April 2017 P/E and 7.1x EV/EBITDA, materially below the average for its combined sector/small cap consumer peers.