UK-based Tissue Converter Accrol Latest Results: Revenue up 18.3 percent From Year Ago

Accrol, the UK's leading independent tissue converter, announces its unaudited results for the six months ended 31 October 2021 ("H1 22" or the "Period").Accrol, the UK's leading independent tissue converter, announces its unaudited results for the six months ended 31 October 2021 ("H1 22" or the "Period").

Gareth Jenkins, CEO of Accrol, said: "This has been one of the most challenging periods in the industry that I have experienced in my 25-year career. Tissue pricing has reached unprecedented levels, driven by escalating energy costs (rising as much as 500 percent for certain suppliers) and global sea freight charges, combined with increased UK transport costs, resulting from HGV driver shortages.

"Despite the challenges, the group is on track to recover the cost increases that it has absorbed, as a result of these challenging market dynamics, from its supportive retailer customer base. Whilst the profitability of the Group will be impacted in the short-term, due to the time-lag on price increase implementation (averaging 2-3 months), we expect to exit the year in a strong position both operationally and commercially.

"Improving market conditions during the period did, however, result in month-on-month growth throughout H1 22, as shopping behaviours started to normalise. Q2 revenues were 17 percent higher than Q1 and market share was 15.3 percent, as we entered H2 22. We have also seen pleasing progress at John Dale, our biodegradable wet wipe business. The flushable range of products has been well received by retailers and wet wipe sales were up 33 percent in the first six months of ownership. In addition, our new direct to consumer markets, supplied by our Oceans brand (revenues up c.140 percent in last six months, compared to prior six months) and our recently launched Amazon offering."

Highlights

Revenue growth of 18.3 percent to £73.7m, reflecting the successful scaling and diversification of the business since the acquisitions of Leicester Tissue Company ("LTC") and John Dale ("JD")
Improving trend throughout the Period with Q2 revenues (£39.8m) 17 percent higher than Q1 (£33.9m)
Gross margins improved versus H1 21, despite raw material cost increases
Adjusted EBITDA of £5.0m achieved, despite increased operational costs caused by supply chain issues• Significant price increases delivered in the Period with a supportive retail customer base
Strong performance from JD with a 33 percent increase in its biodegradable wet wipe sales in the first six months of ownership• Strong market position maintained, despite a 1 percent reduction in market size and ongoing impacts of the pandemic in Q1
LTC and JD acquisitions fully integrated and synergies being realised, as anticipated
Business continued to operate safely throughout the Period with zero lost time accidents

Current trading and outlook

Stronger volume momentum, as the Group entered H2 22
Operational improvements on track with the final automation of the Leyland site to complete by the end of March 2022, which, alongside the final machine installation, will complete the major investment into the Group's Tissue business
Despite a slower than anticipated recovery from the discount retailers, many discounters have announced accelerated store openings over the next 12 months, from which the Group is well positioned to benefit
Following another uplift in energy costs impacting all parent reel suppliers, a further product price increase is being implemented. A successful outcome to this process is supported by Accrol's strong position in a tightening market for finished tissue products and parent reels
A full strategic review is being initiated to capitalise on the evident strength of the business' market position, its balance sheet, and its solvency, underpinned by significant banking support, to ensure that shareholder value is optimised
Group on track to deliver revenue growth of 17 percent to c.£160m and Adjusted EBITDA of c.£9.0m, despite an annualised increase in costs of c.£50m

Dan Wright, executive chairman of Accrol, said: "On 12 January, we issued a trading update as unavoidable surcharges to parent reel prices, relating to exceptional energy price increases, were levied on the Company, and this, together with further inflationary pressure on input costs since the end of H1 22, will impact growth in the current year.

"To mitigate these further significant cost increases, the group is engaged with all its customers to achieve further substantial price increases, over and above those secured in mid-2021. This is an ongoing process but the initial response from all our customers has been very supportive. These price increases will start to impact from February onwards.

"Despite facing short-term price recovery challenges in H2 22, the Group continues to strengthen its market position with the operational foundations in place to enable future growth. The Board is confident that the strong pricing actions taken in FY22, to recover unprecedented cost increases, will ensure a strong recovery of margins and profitability in FY23."

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. Following the recent acquisitions of LTC in Leicester and JD in Flint, North Wales, the Group now operates from six manufacturing sites, including four in Lancashire, which generate revenues totalling c.16 percent of the c£2.1bn UK retail tissue market.

OPERATIONAL REVIEW
Summary of progress

The Group's progress has continued strongly despite the ongoing well-reported macro challenges. We have built a UK business with scale, geographic footprint and innovation, which is able to continue volume and market share growth. We are well positioned to benefit from the significant growth expected across our sector with many of the discount retailers having announced accelerated store openings over the next 12 months.

Group revenues increased by 18.3 percent versus H1 21, reflecting the successful scaling and diversification of the business since the acquisitions of LTC and JD, with month-on-month growth throughout the Period and into H2 22. Our market share reduced slightly in the Period to 15.3 percent (FY 21: 15.9 percent), in a market that showed an overall decline of 1 percent, reflecting a weaker performance in Q1. Revenues in Q2 showed a strong recovery, as the impacts of the pandemic started to fully unwind. Post Period end, our market share has continued to grow month on month, as revenues continued to increase.However, much of our hard work and achievement has been overshadowed by the short-term impact of the significant increases in raw material costs, UK supply chain costs, as well as global sea freight charges, which are currently dominating the narrative.

I would like to take this opportunity to thank our employees across the group, who have been fantastic, working relentlessly to meet the challenges presented. Our absence rate has been less than 3 percent, which is outstanding for our industry, and even more notable considering the continued high levels of COVID-19 in the areas in which we operate. I am particularly proud that our lost time accident rate dropped to zero in the period and it is thanks to our team that our service record to our retailer base continues to be strong, despite the challenging environment.

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