REG - Accrol Group Hldgs - Final Results 2023
26/09/2023 07:00
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RNS Number : 5946N Accrol Group Holdings PLC 26 September 2023
26 September 2023
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
Accrol Group Holdings plc
("Accrol" or the "Group")
FINAL RESULTS 2023
FY24 EBITDA now expected to be ahead of previous Board expectations, driven by
accelerating margin recovery
Accrol (AIM: ACRL), the UK's leading independent tissue converter, announces
its audited final results for the year ended 30 April 2023 ("FY 23" or the
"Period"), which show strong growth in both revenue and profit, driven by
increasing market share and volumes.
Gareth Jenkins, Chief Executive Officer of Accrol, said:
"The Group has performed strongly in a challenging year, gaining further
market share through its great value product range, broad retailer base, and
new routes to market and is in an enviable position to take advantage of the
changing dynamics in consumer spending, which are particularly evident in the
tissue market.
"Accrol is the lowest cost tissue convertor in the UK and is fully automated
across all tissue sites, having completed all major converting strategic
capital investments in the year. With the development and focus on market
leading products, for softness in Toilet Tissue and absorbency for Kitchen
Towel, we have generated significant volume and market share growth across all
sectors of our business."
"The cost-of-living crisis is continuing to drive consumer demand for great
value products and the Group is confident of achieving further volume and
profit growth in FY24, as it continues to build on its market leading
position. Our focus on increasing volumes, business mix and efficiency has
already delivered an improvement in margins back to pre-pandemic levels in the
first few months of the new financial year. This margin recovery has been
quicker than expected and we now expect FY24 EBITDA will be ahead of the
Board's prior expectations.
Key Financials FY23 FY22 Change
Revenue £241.9m £159.4m 52%
Adjusted gross margin(1) 19.7% 23.3% (3.6%)
Adjusted EBITDA(2) £15.6m £9.1m 71%
EBITDA Margin 6.4% 5.7% 0.7%
Adjusted profit before tax(3) £6.5m £1.1m £5.4m
Adjusted diluted earnings per share 1.8p 0.3p 1.5p
Adjusted net debt(4) £26.8m £27.5m £0.7m
1 Adjusted gross margin is defined as gross margin before depreciation and
separately disclosed items
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 profit before amortisation,
separately disclosed items and share based payments
4 Adjusted net debt excludes operating type leases recognised on the balance
sheet in accordance with IFRS 16
Market expectations as at 25 September 2023 for FY23 (Shore Capital &
Zeus) and FY24 respectively - Revenue £241.8m EBITDA £15.5m and Revenue
£230m EBITDA £19.5m.
FY 23 highlights:
· Group volumes increased by 7.7%, compared to an overall flat tissue market
· Market share increased by 200bps to 21.5% (FY22: 19.5%)
· Gross margins in H2 FY23 improved significantly, as volumes in higher margin
products increased and the benefit of earlier price increases flowed through
· Water industry-approved flushable wet wipe sales have grown by 169%, since the
acquisition of the Group's first wet wipes business in 2021
· The Group's subscription model, plastic-free, Oceans brand continues to grow
strongly with revenue up 45% year on year
· Our first licensing partnership, has progressed well in the year with the
product now stocked in three major UK retailers and growing, with further
license agreements planned.
· Strong ESG progress with significant and tangible advances in all targeted
areas
· Chris Welsh succeeded Richard Newman as Chief Financial Officer, having joined
the Group from INEOS Chemicals in October 2022
Current trading and outlook
· Known volume gains will positively impact H2 FY24 with the Group well
positioned to grow ahead of the overall private label sector
· Revenues are expected to fall marginally as tissue prices reduce and therefore
on shelf pricing declines as inflationary pressures ease
· EBITDA margins recovered back to pre-pandemic levels, driven by the
combination of improving product mix and the full effect of prior price
increases flowing through
· Anticipate FY24 EBITDA will be ahead of the Board's prior expectations
· The Board views the future with increasing confidence, while remaining mindful
of the continuing inflationary environment and other macro challenges
Dan Wright, Executive Chairman of Accrol, said:
"The Group has delivered a very strong set of results of which we are very
proud. The management team successfully navigated and mitigated the
well-reported and substantial inflationary pressures on a broad range of input
costs, through further process efficiencies and by engaging constructively
with our customers to pass-on these additional costs.
"We have a strong, market leading position, with a clear focus on remaining
the lowest cost producer of any scale. Our product mix is strengthening
margins and cash generation is growing. We are, therefore, confident that our
FY24 EBITDA will be ahead of initial Board expectations."
For further information, please contact:
Accrol Group Holdings plc
Dan Wright, Executive Chairman Via Belvedere Communications
Gareth Jenkins, Chief Executive Officer
Chris Welsh, Chief Financial Officer
Zeus (Nominated Adviser & Broker)
Dan Bate / Jordan Warburton Tel: +44 (0) 161 831 1512
Dominic King Tel: +44 (0) 203 829 5000
Shore Capital Stockbrokers (Joint Broker) Tel: +44 (0) 20 7408 4090
Malachy McEntyre / Mark Percy / James Thomas
Belvedere Communications Limited
Cat Valentine Tel: +44 (0) 7715 769 078
Keeley Clarke Tel: +44 (0) 7967 816 525
accrolpr@belvederepr.com
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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
together supply c.21.5% (volume) of the UK tissue market valued at c£2.5bn at
retail sales value.
For more information, please visit www.accrol.co.uk
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.
Link for Accrol Today video: https://www.accrol.co.uk/our-business/
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Chairman's Report
The Group has delivered a very strong set of results of which we are, once
again, very proud. The management team successfully navigated and mitigated
the well-reported and substantial inflationary pressures on a broad range of
input costs through further process efficiencies and by engaging
constructively with our customers to pass-on these additional costs. In the
Period, the Group gained further market share, up a further 200bps to 21.5%,
sales volumes grew by 7.7% and net debt declined to 1.7x EBITDA from 3.0x in
FY22.
The Group continues to expand its product mix to higher value items with
considerable growth across all key product types and, in particular, our
toilet and kitchen towel brands, and private label products. Our wet wipes
business, John Dale, has seen 169% growth in its water industry approved
flushable wipes since it was acquired by the Group in 2021.
In January, the Group announced the outcome of the strategic review, which
laid out a clear set of medium-term objectives building on the strategic
progress we have already made over the last four years. The objectives will
see the Group take a market leading position in the UK Tissue market and the
wider household and personal hygiene sector with specific higher added value
products that provide a clear market difference. It is clear from the John
Dale acquisition how the Group can scale a high value business at pace, due to
our exceptional access to all UK retailers and grocers.
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 having the lowest cost base in the
market is a compelling proposition.
Strategic Review
Our ambitions over the medium term are:
· Continue to focus on our core toilet and kitchen towel business;
· Grow our facial and wet wipe business;
· Develop a license business model and grow our direct-to-consumer Oceans brand;
· Build a sustainable paper mill;
· Acquire selectively to strengthen and extend our product offering; and
· Maximise cash returns to shareholders, through a combination of dividends and,
potentially, share buybacks.
Further detail on the operational progress made against these ambitions is
given in the CEO's report, but I am pleased to report that we have grown
significantly in every product category in which we compete with toilet roll
volume up 2%, kitchen towel up 20%, facial tissue up 53%, wet wipes volumes up
57% and our Oceans branded sales up 45%.
Dividend & Share Buybacks
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 buybacks, dividend payments, paying
debt down further, capital investment and/or increasing raw material stocks.
Effective capital allocation is about weighing risk and return.
At this year's AGM the Board will seek the approval to buy back up to 10% of
its ordinary shares. The Board believes that seeking the authority to purchase
its own ordinary shares in the market is in the best interest of Shareholders
for a number of reasons. As previously announced, the trading performance of
the business has been strong and the Group has clearly demonstrated its
ability to navigate a challenging inflationary environment whilst continuing
to gain market share. Alongside the operational performance, the Group is now
well positioned to benefit, from a free cash-flow perspective, from the
completion of the three-year capital investment programme that has resulted in
Accrol being the best invested tissue converter operating in the UK market.
With the planned new paper mill fully funded and costed, the Board is
confident in Accrol's ability to drive free cash-flow and thereby shareholder
returns. By having the flexibility granted to pursue share buybacks, a
fuller range of options to return genuinely surplus capital will now be
available to the Board.
Environmental, Social and Governance
Since launching our maiden ESG report in September 2021, we continue to make
good progress on the targets we set. We pride ourselves on ensuring that our
ESG programme is integrated throughout the business and makes a valuable
contribution to the Group, as well as helping us be better corporate citizens
and minimising our impact on the environment. To this end, we have now
integrated our ESG reporting throughout the annual report.
We have seen step change improvements across all our key target areas. We were
the first Living Wage tissue employer in the UK, we have 100% of our waste
being recycled, we have reduced the number of vehicle movements by 5.5%
despite growing volume by almost 8%, we have had a 15% reduction in our
plastic packing usage and a 15% reduction in total waste produced. The Accrol
Team is rightly very proud of these achievements.
Our people
Engaged, well trained people are a key element of our business model and
sustainability goals, with training and wellbeing at the centre. I am proud to
report that Accrol continues to be an accredited Living Wage employer. In
addition, we have also paid each of our employees an additional £600 cost of
living payment at the very start of the inflationary pressures seen for all in
the UK. This has been especially important to our people, and it 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 Health, Safety and Environment Officer, who
has joined to continue to drive the standards across this key area with a
further reduction in all employee accidents of 10% in the year.
The online training hub initiated in FY22 has now delivered over 4500 hours of
training. Our employee engagement scores remain high with an overall score of
83%.
I would like to thank all our people for their hard work and contribution
during what has been a very challenging environment. The strong results
delivered today and the further operational advances achieved in the year
showcase the strength and capability of the management teams throughout the
Group, and would not have been achievable without the commitment and
dedication of all our people.
Outlook
The cost-of-living crisis is continuing to drive consumer demand for great
value products and the Group is confident of achieving further growth in FY24
as it continues to build on its market leading position. Our focus on
improving volumes, business mix and our efficiency, has already delivered an
improvement in margins back to pre-pandemic levels. This margin recovery has
been quicker than expected and we now anticipate that FY24 EBITDA will be
ahead of the Board's prior expectations.
We do remain mindful of the continuing inflationary environment and other
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 increasing confidence.
Dan Wright
Executive Chairman
25 September 2023
Chief Executive Officer's Review
The Group has performed strongly in another challenging year, gaining further
market share through its great value product range, broad retailer base, and
new routes to market. We are well placed to take advantage of both the
changing dynamics in consumer spending, which is particularly evident in the
tissue market, and our enviable position as the best invested tissue converter
in the UK.
The Group has successfully navigated and mitigated the well-reported and
substantial inflationary pressures on a broad range of input costs, through
further process efficiencies and by engaging constructively with our customers
to pass-on these additional costs. While full year margins are lower than
FY22, due to the lag in price recovery in the first half of FY23, the margin
performance as we exited FY23 and entered FY24 is on a clear trajectory of
improvement back to pre-pandemic levels and at a faster rate than previously
reported.
Our growth in the year has come from our improved range, with the Group now
having products that target the brand leaders for softness (toilet &
facial tissue) and absorbency (kitchen towel) and offer great products at
every consumer's price point. The business remains relentless in pursuit of
the best products and the market leading cost base to take advantage of
continued growth opportunities within the sector.
FY23 highlights
● Adjusted EBITDA £15.6m (FY22 £9.1m) up 71%
● Revenues up 52% at £241.9m (FY22: £159.4m)
Group volumes increased by 7.7%, compared to an overall flat tissue market
with market share increasing 200bps to 21.5% (19.5% FY22)
● Group volumes increased by 7.7%, compared to an overall flat tissue market
with market share increasing 200bps to 21.5% (19.5% FY22)
● Gross margins continued to improve throughout the year driven by increased
volumes in higher value products and price recovery in H2
● Adjusted net debt at 30 April 2023 lower at £26.8m (FY22: £27.5m) - 1.7x
EBITDA (FY22: 3.0x) and is expected to reduce to less than 1.0x in FY24
through strong cash generation
● Strong ESG progress with significant and tangible advances in all targeted
areas
●
57% increase in revenue in the water industry approved, flushable wet wipe
business is especially pleasing
Our medium term ambitions
In January we announced the outcome of the Group's strategic review, and I am
pleased to report that we have continued to make progress against these
ambitions.
We continue to focus on our core toilet, kitchen towel and facial business
We completed all major capital investments in the year in this area with all
sites now fully automated. Accrol is now the lowest cost and best invested
operator in the UK. With the development and focus on market leading
products for softness, for Toilet Tissue, and absorbency, for Kitchen Towel,
we have seen volume and market share growth across all sectors of our
business:
· Toilet Tissue grew 2% in volume terms and market share increased from 21.3% to
23.1%
· Kitchen Towel grew 20% in volume terms and market share increased from 20.7%
to 23.4%
· Facial Tissue grew 53% in volume terms and market share increased from 5.5% to
6.7%
· Our Kitchen Towel Brand - Magnum - grew in volume by 17%, with further market
share growth placing the product 3(rd) behind the 2 major brands
· Our Facial Tissue - Softy is now the second biggest brand in the UK and grew
152% in the year
· Our wet wipe business which sells water industry approved flushable wipes,
grew revenue by 57% in the year.
We have also invested in a new pocket pack line post the year end, which
completes Accrol's ability to supply 100% of all facial tissues formats and
requirements to our retailers, adding to our product range and supporting our
growth plans to build a £30m facial tissue business from the current £20m.
Wet wipe business
Our wet wipe business, since acquisition in early 2021, has seen significant
change. Since this time, the product mix has been transitioned to
paper-based biodegradable or water industry approved flushable wipes with
overall group sales growing from £2m to a run rate, as we exited FY23, of
£6m. We have invested in people development and new machinery, which will
see capacity rise by a further £20m from Q1 FY25. Over the next three
years, we expect to grow our wet wipe business in the plastic free product
type to over £30m. We remain on track to meet these targets and our strong
relationships across UK retailers gives us unique access to grow our product
range significantly - our pipeline of new business is strong.
Develop a licensed business model and grow direct-to-consumer Oceans brand
Our plastic free Oceans subscription business continues to grow well,
increasing revenues by 45% over the last 12 months. In the year, we invested
in a new website and brought in house the final packing element as we
continued to automate our processes. In addition, we have invested in new
products to add to the range and we are seeing an increase in new subscribers
of +10% every month and, despite significant investment in the Oceans
business, it continues to deliver positive cashflow. In FY24, we intend to
increase investment further and have significant plans with external marketing
support to grow the brand and range significantly. We expect this part of
our business to deliver at least £40m of revenue by 2027.
Our first involvement with a licensed product has also developed well in the
year - although the launch of the product did not impact FY23 significantly.
We continue to develop new agreements and intend to extend licensing
opportunities. Again, we expect licensed product revenue to be capable of
delivering c£30m in revenue by 2027. The margins here remain some of the
highest in the Group.
Build a sustainable paper mill
The investment in a mill continues to progress well and remains on track to be
operational by the middle of 2025.
In our Strategic Review announcement in January 2023, we outlined in detail
the strategic thinking behind the development of our own sustainable mill
capacity. The key benefits to Accrol are worth revisiting:
· Reduced volatility in tissue input costs for the UK tissue conversion
business, providing greater customer pricing visibility and certainty;
· Enhanced security and visibility of tissue supply, which will reduce working
capital requirements in the UK tissue conversion business; and
· The mill is expected to be profitable, and materially accretive to Accrol
earnings, within its first full year of operation.
As previously stated, we intend to finance the cash costs of the mill, which
total no more than £10m, through cash or debt, whichever is the most
financially viable at the time, rather than sale and leaseback, removing
rental inflation as a potential future drag on the mill's profitability. It is
still expected that all funds required for the completion of the project will
be met from existing cash resources and any increase in debt will be more than
offset by the returns expected from the mill, ensuring that the Group remains
within its own net debt limits. At no time do we expect our net debt to
EBITDA ratio to go above 2x and within 18 months of completion we expect this
to return to less than 1x.
Acquire selectively to strengthen and extend our product offering
The Group continues to look and review businesses that strengthen and extend
the product offering. The acquisitions of Leicester Tissue Company and John
Dale have demonstrated the Group's ability to integrate and grow the right
businesses with significant success. The Board is aware of the potential for
bolt-on acquisitions that are aligned with, or provide extensions to, the
existing core UK tissue conversion business. As we exit this period of
heightened inflation, the Board believes the number of such potential
acquisition opportunities is likely to increase and continues to actively seek
opportunities for growth.
Market overview
Whilst the overall tissue market remained flat in the year the Group grew its
volumes by 7.7% with its market share increasing from 19.5% to 21.5%.
For the first time in the UK, private label volumes have exceeded those of the
brands with market share of private label now equating to 56% of the total
market share (volume based).
The UK retailer landscape continues to be competitive, but the Group's broad
range of customers and its market leading products gives it a unique insight
into the market dynamics. Whilst we expect to see the UK's leading brands
try to promote its way back into the shopper's baskets, the reality is their
cost base remains at an all-time high. Accrol continues to be relentless on
costs, and on a like for like basis labour costs as a percentage of sales has
dropped again in the year. Our on-shelf pricing, again on a like for like
basis, is c20% less than the similar branded product. These two key elements
continued to give us confidence about the long-term strength of the Group.
Operations
Operationally we took another major step forward, with the final automation
being completed in the year at our Leyland site. The Group is now the lowest
cost producer in the UK when compared to leading brand manufacturers and major
private label producers.
In the year the Group successfully transitioned all customers to 38mm cores
reducing packaging materials and delivering a 5.5% reduction in vehicle
movements due to the increased rolls on every vehicle. We finalised the
installation of a new tissue converting line in our Leyland factory and
despite the increase per rolls per pallet due to the smaller cores, increased
output in the Group by 17% in the year. In FY23, Accrol for the first time
ever produced over 1 billion rolls.
Improvements in stock management, driven in part with the new Oracle IT system
and further stock simplification enabled the Group to exit a third party
warehouse, reducing it's annual rental costs by £700k. The Group's waste
programme saw further improvements in the year with production waste now
settled at 6.4% (five years ago the waste for the Group was above 10%).
Finally, the inbound logistics programme is now completed with 75% of all
tissue reels now being delivered directly to the sites saving a further £1m
which again underpins our FY24 improvements.
People and culture
The Group continues to transform as an organisation. Today we have 26% of
leadership roles occupied by women - five years ago it was less than 10%. We
have introduced in the year a Group wide free health assessment for all
colleagues every year. We acted quickly in paying colleagues a one-off costs
of living payment of £600 and managed an annual salary increase of 4% with
full approval across all sites. Total absence in the year was 1.7% - another
record and at a level that is viewed as a true world class standard.
In the year, we delivered over 4500 of personal learning hours, with all our
sites at least AA rated by the British Retail Consortium (BRCGS). We donated
over 300,000 rolls to local food banks and began supporting the Brick by Brick
charity. In FY24, we will donate over 1m rolls to families in serious
financial need in the UK.
Health and safety
Total employee accidents continued to fall YOY, down 10% at 28 for the year
(small cuts, trips and knocks). Accident frequency rate (number of accidents
per 100,000 hrs worked) is at an all-time low at 3.4. Safety Observation /
conversations recorded at a record high of 12,800, up 32% on FY22 and a key
aspect of the changing culture and transition from a dependant to an
interdependent safety culture. The Leicester site hit three years LTA free,
which is another record achievement and testament to how the site has adopted
the Accrol principals and processes. This enormous improvement across all
metrics is driven by the cultural change we have across all sites and is a
testament to every individual who works in the business. Zero accidents
remains the Group's target. The business has introduced bi-monthly safety
meetings and appointed safety champions throughout the organisation and it
remains the lead KPI in everything we do.
The appointment of a new Group Health, Safety and Environmental (HSE) Manager,
who joined us with a wealth of experience gained from working for Unilever and
Unipart, has further strengthened the team and helped define the strategy for
the next three years in line with industry best practice. The business has
also selected a new Occupational health provider and health checks along with
other mandatory checks have been conducted with all employees to further
support colleague wellbeing and awareness. In addition to the bi-monthly HSE
steering team meetings, the team has planned bi-annual safety day activities
to further engage all colleagues in safety improvements and engagement.
Outlook
The Group is well positioned as it enters FY24 with volumes again expected to
grow ahead of the overall private label sector.
Prices are expected to soften in the year ahead as prices on shelf reduce, but
the Group's margins are now improving faster than previously reported as it
benefits from the significant investments made over the last few years and the
improving revenue mix. The Group now anticipates delivering FY24 EBITDA ahead
of prior Board expectations.
Gareth Jenkins
Chief Executive Officer
25 September 2023
Chief Financial Officer's Review
Summary
Overall the Group performed exceptionally well, demonstrating its resilience
by growing revenue and operating profits in the face of a challenging and
volatile trading environment with inflationary pressures evident in rising
commodity prices.
Trading results
Group revenue increased by 51.7% to £241.9m (FY22: £159.4m), driven by
strong volume growth (+7.7%) and significant pricing actions, reflecting the
strength of our customer relationships and the Group's ability to successfully
recover substantial input cost rises through price increases. The total
tissue market was flat in the year on a like for like basis. However, the
Group's overall market share increased to 21.5% from 19.5% in FY22.
Adjusted gross margins declined to 19.7% (FY22: 23.3%), reflecting the
significant impact of escalating pulp, energy, and sea freight costs which was
further exaggerated by the weakening of sterling relative to the dollar
throughout Q2 and Q3. 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 earlier in the year. The continued improvement
in profitability is evident as we move through the early part of FY24 as the
business returns to its historical margin levels.
Adjusted EBITDA increased to £15.6m (FY22: £9.1m), whilst operating profits
increased to £2.4m (FY22: loss of £0.2m). The growth in profitability was
driven by the successful implementation of price increases and strong market
share growth, however, improving margins were partially limited due to the
prevailing time lag of fully recovering cost increases. Management remains
diligent to operating cost control and remains focused on being the lowest
cost provider. General market pricing pressures around logistics and fuel
surcharges were significant in the period leading to higher distribution costs
on transporting both raw materials and finished goods.
Separately disclosed items
Separately disclosed costs totalled £1.0m, this compared with £2.6m income
in FY22 where income was recognised through profit and loss for the release of
potential deferred contingent consideration.
Non-recurring and unplanned supply chain disruption costs during the year
totalled £0.6m (2022: £0.7m). Pressures on the Group's supply chain have
been considerable during the year for a variety of exceptional reasons,
including industrial action at UK ports causing significant disruption to the
Group's usual course of business. Whilst the Group's supply chain
demonstrated good resilience, we did incur incremental costs to maintain
service levels to our customers. These incremental costs included port
charges of £0.6m, largely related to additional demurrage costs incurred
because of shipping container congestion and lane diversion created by several
instances of unexpected industrial action closing UK ports. We do not expect
any of these costs to be repeated as we enter FY24.
As a result of the Strategic Review undertaken by the Group, significant
progress has been made to transform the manufacturing and operational
capability of the business. As part of this process, exceptional costs
totalling £0.4m were incurred to progress strategic objectives around Mill
development, reorganising and rationalising the Group cost base, as well as
some third-party professional and consultancy expenses to support in
delivering the objectives laid out in the Strategic Review.
Depreciation and amortisation
The total charge for the Period was £11.7m (FY22: £11.4m), of which £6.7m
(FY22: £5.5m) related to the amortisation of intangible assets.
Share-based payments
The total charge for the Period under IFRS 2 "Share-based payment" was £0.5m
(FY22: £0.5m). 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
Unadjusted net finance costs were £10.2m (FY22: £2.3m) which includes £6.1m
expense for the loss on derivative US dollar purchase contracts in the period,
the majority of which is unrealised and represents a mark-to-market valuation
approach. Management has noted significant volatility in foreign exchange
markets throughout the financial year, particularly following the announcement
of the UK mini budget in September 2022.
The Group recorded a deferred tax credit of £2.1m (FY22: credit of £0.8m).
The loss before tax was £7.8m (FY22: £2.5m), where the significant growth in
operating profit performance was limited by the impacted of foreign exchange
losses. Adjusted profit before tax of £6.5m (FY22: £1.1m) increased due to
the growth in revenue and operating profit as price increases were passed
through to customers. Basic loss per share was 1.8 pence (FY22: loss of 0.5
pence) reflecting foreign exchange impact, higher amortisation costs and
adjusting items. Adjusted diluted earnings per share were 1.8 pence (FY22: 0.3
pence), reflecting the increase in adjusted EBITDA and temporary nature of the
foreign exchange impact.
Dividend
As noted in the Chairman's Statement, the Board remains focused on determining
the best use of capital moving forward. Our balance sheet has continued to
strengthen, with adjusted net debt down to 1.7x levered, during a time of
macro-economic uncertainty and prevailing price pressures. Despite this
backdrop, the robust financial performance means that the Group is well
positioned for growth and has developed a business case for progressing with a
paper mill investment project. In this context, the payment of a final
dividend would not be the best immediate use of capital, but the Board remains
confident of Accrol's ability to drive Shareholder returns from a growing free
cash flow. The proposed final dividend is nil pence per share (FY22: nil
pence).
Cashflow
The Group's adjusted net debt improved in the period to £26.8m (FY22:
£27.5m) representing a 1.7x leverage. The net cash flow from operating
activities was £20.5m (FY22: £1.4m) with the improvement reflecting a
working capital inflow of £5.1m (FY22: £4.6m outflow) and improved
profitability. This release of working capital has been achieved whilst
maintaining excellent levels of supply to our customer base and absorbing
significant price increase pressures.
Capital expenditure (net of new finance leases) in the Period was £6.4m
(FY22: £6.2m), including £1.9m (FY22: £3.1m) in respect of intangible
assets that principally relate to product development costs and the
development of the Group's main ERP system. Lease payments of £5.6m (FY22:
£5.5m) include leases capitalised in accordance with IFRS 16.
Subsequent to the balance sheet date, in August 2023 the Group amended and
extended its existing banking arrangements providing additional facilities to
support its growth. These new facilities provide increased headroom in both
the scale, tenure and liquidity of the facilities and an easing in the
headline associated banking covenants. This refinancing resulted in the Group
extending its £17.0m revolving credit facility to £24.0m which now expires
in February 2025.
Balance Sheet
The Group's balance sheet reflects net assets of £77.7m (FY22: £82.9m).
Property, plant, and equipment increased, reflecting the renewal of property
related leases, capitalised in accordance with IFRS 16. FY23 saw the
completion of the significant investment into automating and increasing the
capacity at our Leyland manufacturing facility, with new packing capabilities
and a new converting line now fully commissioned and operating well within the
business. This investment allows the Group to improve productivity,
operational flexibility, and ultimately to enhance customer service. The Group
also invested into developing and manufacturing capability to deliver a new
range of licensed kitchen towel products as part of a collaborative licencing
partnership with a major brand.
Throughout FY23 the Group completed a significant enhancement to its main ERP
system, which has provided a fully integrated, end to end warehouse management
system for the business. This investment will provide greater transparency
over inventory management and positions the Group well for continual
improvements in terms of efficiency and customer service.
Intangibles assets predominantly consist of goodwill and customer
relationships derived from previous acquisitions. 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, with significant headroom noted from a value in use assessment.
During the year, the Group invested further in product development and
innovation to ensure our products remain up to date with an evolving
marketplace, these costs will be amortised over the anticipated life of the
products.
Christopher Welsh
Chief Financial Officer
25 September 2023
CONSOLIDATED INCOME STATEMENT FOR YEAR ENDED 30 April 2023
2023 2022
Note £'000 £'000
Revenue 4 241,914 159,450
Cost of sales (196,749) (125,106)
Gross profit 45,165 34,344
Administration expenses (28,459) (21,792)
Distribution costs (14,284) (12,778)
Operating profit/(loss) 5 2,422 (226)
Analysed as:
- Adjusted EBITDA((1)) 15,550 9,056
- Depreciation 11 (4,964) (5,857)
- Amortisation 13 (6,702) (5,494)
- Share based payments 26 (459) (508)
- Separately disclosed items 6 (1,003) 2,577
Operating profit/(loss) 2,422 (226)
Finance costs 9 (10,505) (2,522)
Finance income 9 265 216
Loss before tax (7,818) (2,532)
Tax credit 10 2,123 835
Loss for the year attributable to equity shareholders (5,695) (1,697)
Earnings per share Pence Pence
Basic loss per share 7 (1.8) (0.5)
Diluted loss per share 7 (1.8) (0.5)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 30 April 2023
2023 2022
£'000 £'000
Loss for the year attributable to equity shareholders (5,695) (1,697)
Other comprehensive income for the year - -
Total comprehensive loss attributable to equity shareholders (5,695) (1,697)
The notes are an integral part of these consolidated financial statements.
((1)) Adjusted EBITDA, which is defined as profit/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 29).
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 April 2023
2023 2022
Note £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 11 87,420 74,318
Lease receivables 12 3,617 4,325
Intangible assets 13 54,254 58,958
Total non-current assets 145,291 137,601
Current assets
Inventories 14 32,132 26,241
Trade and other receivables 15 30,900 31,592
Lease receivables 12 1,097 703
Cash and cash equivalents 16 3,460 243
Derivative financial instruments 20 - 805
Total current assets 67,589 59,584
Total assets 212,880 197,185
Current liabilities
Borrowings 19 (31,849) (26,482)
Trade and other payables 17 (63,882) (52,367)
Derivative financial instruments 20 (2,973) -
Income taxes - (300)
Provisions 18 - (33)
Total current liabilities (98,704) (79,182)
Total assets less current liabilities 114,176 118,003
Non-current liabilities
Borrowings 19 (35,605) (31,684)
Deferred tax liabilities 10 (863) (3,100)
Provisions 18 - (275)
Total non-current liabilities (36,468) (35,059)
Total liabilities (135,172) (114,241)
Net assets 77,708 82,944
Capital and reserves
Share capital 23 319 319
Share premium 108,782 108,782
Capital redemption reserve 27 27
Accumulated losses (31,420) (26,184)
Total equity shareholders' funds 77,708 82,944
The financial statements were approved by the Board of Directors on 25
September 2023.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 April 2023
Accumulated
Capital losses/
Share Share redemption (Retained Total
capital premium reserve earnings) equity
£'000 £'000 £'000 £'000 £'000
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
Comprehensive (expense)
Loss for the year - - - (5,695) (5,695)
Total comprehensive expense - - - (5,695) (5,695)
Transactions with owners recognised directly in equity
Share based payments (net of tax) - - - 441 441
Other taxation - - - 18 18
Total transactions recognised directly in equity - - - 459 459
Balance at 30 April 2023 319 108,782 27 (31,420) 77,708
CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 30 April 2023
2023 2022
Note £'000 £'000
Cashflows from operating activities
Operating profit/(loss) 2,422 (226)
Adjustment for:
Depreciation 11 4,964 5,857
Impairment of property, plant and equipment 11 - 965
Profit on disposal of property, plant and equipment 5 4 (296)
Amortisation 13 6,702 5,494
Separately disclosed items - acquisition contingent consideration 6 - (6,277)
Share based payments 26 459 508
Mark to Market movement in derivatives 805 (925)
Operating cashflows before movements in working capital 15,356 6,025
(Increase) in inventories (5,891) (3,056)
Decrease/(Increase) in trade and other receivables 692 (5,112)
Increase in trade and other payables 10,941 5,422
(Decrease) in provisions 18 (608) (934)
Cash generated from operations 20,490 1,420
Tax received - 15
Net cashflows generated from operating activities 20,490 1,435
Cashflows from investing activities
Purchase of property, plant and equipment 11 (8,701) (4,987)
Proceeds from sale of property, plant and equipment 10 48
Purchase of intangible assets 13 (1,918) (3,145)
Receipt of capital element of leases 12 776 674
Lease interest received 12 265 216
Net cashflows used in investing activities (9,568) (7,194)
Cashflows from financing activities
Proceeds of issue of ordinary shares - 8
Amounts paid to / (received from) factoring facility 19 (981) 14,768
Loan advance in respect of property, plant and equipment 4,255 1,939
Repayment of capital element of leases (5,642) (5,463)
Advance of revolving credit facility 39,500 6,000
Repayment of revolving credit facility (37,500) (15,000)
Transaction costs of revolving credit facility - (115)
Dividends paid - (1,594)
Loss on foreign currency derivatives (3,149) -
Lease interest paid (1,818) (1,354)
Other interest paid (2,370) (791)
Net cashflows (used in)/generated from financing activities (7,705) (1,602)
Net increase in cash and cash equivalents 3,217 (7,361)
Cash and cash equivalents at beginning of the year 243 7,604
Cash and cash equivalents at year end 16 3,460 243
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED 30 April
2023
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 listed in note 25, which together with the
Company form the Accrol Group Holdings plc Group (the "Group").
The Group has taken advantage of section 479C whereby the following
subsidiaries are exempt from the requirement of the Act relating to the audit
of individual accounts with respect to the financial year ending 30 April
2023.
Company Registered number
Accrol UK Limited 09010320
LTC Parent Limited 12471299
Leicester Tissue Company Limited 08786053
Accrol Holdings Limited 07037097
This consolidated financial information does not comprise statutory accounts
within the meaning of section 434 of the Companies Act 2006. The comparative
figures for the financial year ended 30 April 2022 are an extract of the
Company's statutory accounts for the year ended 30 April 2022 prepared in
accordance with International Financial Reporting Standards (IFRS), approved
by the Board of Directors on 5 September 2022 and delivered to the Registrar
of Companies. The report of the auditor on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 30 April 2023 will be delivered to
the Registrar of Companies following the Company's Annual General Meeting. The
Auditors have reported on those accounts; their report was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under section 498 (2) or (3) of the Companies Act 2006.
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.
Prior period restatement
The comparative balance sheet has been restated due to a mechanical error in
the calculation of a ROU lease asset and liability, this restatement has
resulted in a decrease of ROU assets within property, plant and equipment and
ROU lease liabilities by £3.48m. The effect of this restatement has no impact
upon net assets, cash or profit & loss. This change has been reflected in
the financial statements and corresponding notes.
The comparative income statement has been restated because certain directly
attributable production costs were erroneously included in administrative
expense instead of cost of sales amounting to £1.895m. This restatement has
no impact upon net assets, cash or profit within the period.
Furthermore, prior year restatement has been recorded between the categories
of property plant and equipment cost and accumulated depreciation in the
brought forward analysis of the prior year with no material impact to these
financial statements. The opening balance of Plant and machinery and Fixtures
and fittings was understated by £3.00m and £0.87m respectively, with
corresponding opening accumulated depreciation was understated by £3.43m and
£0.44m respectively.
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 2023, but have not had a significant impact on the Group are as
follows:
· Amendments to IAS 37 Onerous contracts , Cost of fulfilling a contract;
· Amendments to IAS 16 PPE prohibits a company from deducting from the cost of
PPE amounts received from selling items produced while the company is
preparing the asset for its intended use. Such sales proceeds and related
costs are to be recognised in the income statement;
· Amendments to IFRS 3 Reference to the conceptual framework; and
· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9,
IFRS 16 and IAS 41)
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 2023:
· Amendments to IFRS 16 Leases on sale and leaseback'
· Amendments to IAS 1 Non-current liabilities with covenants
· Amendments to IAS 1 Disclosure of accounting policies'
· Amendments to IAS 1 Classification of liabilities as current or non- current'
· Amendments to IAS 18 Definition of accounting estimates
· Amendments to IAS 12 Deferred tax related to assets and liabilities arising
from a single transaction'
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 throughout FY23 &
FY22 but has successfully managed this through passing on price increases and
taking a diligent approach to cost control. The Group is well placed for
continued success having concluded its significant investment in to operating
activities, automation and infrastructure.
The pressures on the cost of living is driving consumer demand for great value
products and Accrol continues to see a strong start to the new financial year
(FY24) where margin recovery is expected to continue having largely passed
through inflationary increases to customers.
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, foreign exchange 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 2023, available funds were £14.3m, with further details of the
borrowing facilities set out in note 19.
Subsequent to the closing balance sheet date, the Group has successfully
renewed and restructured its banking facilities. An increased revolving credit
facility (RCF) of £24m with a maturity term running to the end of January
2025 was agreed in July 2023. This restructuring increased the total liquidity
available to the Group and saw some covenant easing compared to the previous
agreement.
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.
Consolidation
Subsidiaries
A subsidiary is an entity controlled, either directly or indirectly, by the
Company. Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Specifically, the
Group controls an investee if and only if the Group has:
· power over the investee (i.e. existing rights that give it the current ability
to direct the relevant activities of the investee);
· exposure, or rights, to variable returns from its involvement with the
investee; and
· the ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an
investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
· the contractual arrangement with the other vote holders of the investee;
· rights arising from other contractual arrangements; and
· the Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Group gains control until the date the
Group ceases to control the subsidiary.
When necessary, adjustments are made to the financial information of
subsidiaries to bring their accounting policies into line with the Group's
accounting policies. All intra-group assets and liabilities, equity, income,
expenses and cashflows relating to transactions between members of the Group
are eliminated in full on consolidation.
Subsidiaries are all entities (including special purpose entities) over which
the Group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the voting
rights. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control
ceases.
The acquisition method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective
of the extent of any minority interest. The excess of the cost of acquisition
over the fair value of the Group's share of the identifiable net assets
acquired is recorded as goodwill. If the cost of acquisition is less than the
fair value of the net assets of the subsidiary acquired, the difference is
recognised directly in the income statement.
Segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing
performance of the operating segment, has been identified as the Board of
Directors. The Group's activities consist solely of the conversion of paper
products within the United Kingdom. It is managed as one entity and management
have consequently determined that there is only one operating segment.
Segment results are measured using adjusted earnings before finance costs,
tax, depreciation, amortisation, share based payments and separately disclosed
items. Segment assets are measured at cost less any recognised impairment.
Revenue is attributed to geographical regions based on the country of
residence of the customer. All revenue arises in and all non-current assets
are located in the United Kingdom. The accounting policies used for segment
reporting reflect those used for the Group.
Revenue
Performance obligations and timing of revenue recognition
The Group's revenue is recognised at a point in time when control of the goods
has transferred to the customer. This is when the goods are delivered to the
customer. There is limited judgement needed in identifying the point control
passes: once physical delivery of the products to the agreed location has
occurred, the Group no longer has physical possession, usually will have a
present right to payment (as a single payment on delivery) and retains none of
the significant risks and rewards of the goods in question.
Determining the transaction price
The transaction price equates to the invoice amount less an estimate of any
applicable rebates and promotional allowances that are due to the customer.
Rebate accruals are recognised under the terms of these agreements, to reflect
the expected promotional activity and our historical experience. These
accruals are reported within trade and other payables.
Allocating amounts to performance obligations
The Group has identified one performance obligation (delivery of product to
the customer), therefore the entire transaction price is allocated to the
identified performance obligation.
Cost of sales
Cost of sales comprise costs arising in connection with the conversion of
paper products. Cost is based on the cost of a purchase on a first in first
out basis and includes all direct costs and an appropriate portion of fixed
and variable overheads where they are directly attributable to bringing the
inventories into their present location and condition.
Software-as-a-Service (SaaS) arrangements
SaaS arrangements are service contracts providing the Group with the right to
access the cloud provider's application software over the contract period.
The fees for use of such software and any associated configuration or
customisation costs are recognised as an operating expense over the term of
the service contract. Costs incurred for the development of software code
that enhances or modifies existing on-premise systems, and meets the
definition of and recognition criteria for an intangible asset, are recognised
as intangible software assets.
Separately disclosed items
Items that are material in size or unusual or infrequent in nature are
included within operating profit and reported as separately disclosed items in
the consolidated income statement.
The separate reporting of these items, which are presented within the relevant
category in the consolidated income statement, helps provide an indication of
the Group's underlying business performance.
EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) and
Adjusted EBITDA are non-GAAP measures used by management to assess the
operating performance of the Group. EBITDA is defined as profit before finance
costs, tax, depreciation and amortisation. Depreciation is the write down of
property, plant and equipment. Amortisation is the write down of intangible
assets.
The Group's share based payment charge represents incremental incentives to
attract and retain new management and the income statement charge has been
historically volatile. Separately disclosed items are material in size or
unusual or infrequent in nature. Therefore, to aid comparability between
periods and understand the underlying performance of the Group these items are
excluded from EBITDA to calculate Adjusted EBITDA.
The Directors primarily use the Adjusted EBITDA measure when making decisions
about the Group's activities. As these are non-GAAP measures, EBITDA and
Adjusted EBITDA measures used by other entities may not be calculated in the
same way and hence are not directly comparable.
Foreign currency
Functional and presentation currency
Items included in the financial information are measured using the currency of
the primary economic environment in which the Group operates ('the functional
currency'). The financial information is presented in sterling, which is the
functional currency of all companies in the Group.
Transactions and balances
Transactions in foreign currencies are initially recorded in the functional
currency by applying the spot exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at the
statement of financial position date. All differences are taken to the income
statement.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the
initial transactions. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair
value was determined.
Finance income and expenses
Interest income and interest expense are recognised in the consolidated income
statement as it accrues, using the effective interest method. Foreign exchange
gains and losses are reported on a gross basis. Finance costs comprise
interest payable, finance charges on leases, unwinding of the discount on
provisions and foreign exchange losses that are recognised in the consolidated
income statement. Finance income comprises of finance income on leases.
Grants
Capital grants are credited to a deferral account and released to income over
the expected useful lives of the relevant assets. Grants of a revenue nature
are credited to the consolidated income statement in the period to which they
relate.
Property, plant and equipment
Property, plant and equipment are included at cost less accumulated
depreciation and any recognised impairment loss.
Depreciation is calculated to write down the cost of the assets on a
straight-line or reducing balance basis over the estimated useful lives on the
following bases:
· Leasehold land and buildings straight line over term of lease
· Plant and machinery 2 - 40 years, 20% residual value
· Motor vehicles 30% straight line
· Fixtures, fittings and office equipment 25% reducing balance
Assets under construction are not depreciated until transferred into the
appropriate asset class when they are ready for use. The estimated useful
lives are reviewed at the end of each reporting period and adjusted if
appropriate. The carrying values of tangible fixed assets are reviewed for
impairment if events or changes in circumstances indicate the carrying value
may not be recoverable.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Impairment
losses on goodwill are not reversed. Gains and losses on the disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
Customer relationships
Customer relationships are recognised on business combinations if they are
separable from the acquired entity or give rise to other contractual/legal
rights. Customer relationships are amortised on a straight-line basis over
their useful economic life, typically 6-10 years.
Development costs
Research expenditure is recognised as an expense as incurred. Costs incurred
on development projects (relating to the design and testing of new or improved
products) are recognised as intangible assets when the IAS 38 conditions are
met. Development costs with a finite useful life that have been capitalised
are amortised on a straight-line basis over the period of its expected
benefit.
Computer software
Computer software with a finite useful life that have been capitalised are
amortised on a straight-line basis over the period of its expected benefit.
Other intangible assets
The other intangible asset relates to a Management Services Agreement between
Accrol Papers Limited and Accrol Group Holdings plc (formerly Accrol Group
Holdings Limited). This agreement has an infinite life and therefore is not
amortised.
Impairment of non-financial assets
Goodwill is tested for impairment annually and when circumstances indicate
that the carrying value may be impaired. Assets that are subject to
depreciation and amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and value in use.
Where the asset does not generate cashflows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit
("CGU") to which the asset belongs.
Any impairment charge is recognised in the income statement in the period in
which it occurs. Impairment losses relating to goodwill cannot be reversed in
future periods. Where an impairment loss on other assets subsequently reverses
due to a change in the original estimate, the carrying amount of the asset is
increased to the revised estimate of its recoverable amount.
Financial instruments
Financial assets
The Group classifies its financial assets as either amortised cost, fair value
through comprehensive income or fair value through profit or loss depending on
the purpose for which the asset was acquired.
Amortised cost
These assets arise principally from the provision of goods to customers (trade
receivables). They are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue and are
subsequently carried at amortised cost using the effective interest rate
method, less provision for impairment.
Impairment provisions for trade receivables are recognised based on the
simplified approach within IFRS 9 to determine lifetime expected credit
losses. Expected credit losses are recognised within administration expenses
in the consolidated statement of comprehensive income. The Group has applied a
hold to collect business model.
The Group's financial assets measured at amortised cost comprise trade and
other receivables and cash and cash equivalents in the consolidated statement
of financial position.
Cash and cash equivalents comprise cash at bank, short-term deposits held at
call with banks and other short-term highly liquid investments with original
maturities of three months or less. Bank overdrafts are disclosed separately
within borrowings within current liabilities.
Financial liabilities
The Group classifies its financial liabilities as either fair value through
profit or loss or other financial liabilities depending on the purpose for
which the liability was acquired. The Group does not currently have any
liabilities categorised as fair value through profit or loss.
Other financial liabilities
Bank borrowings (including amounts owed under the factoring facility) are
initially recognised at fair value net of transaction costs where applicable.
They are subsequently measured at amortised cost using the effective interest
method. Transaction costs are amortised using the effective interest rate
method over the life of the loan. Trade receivables, to which the borrowings
under this facility are related, are recognised in the statement of financial
position as the Group continues to hold the risk and reward.
Trade payables and other short-term monetary liabilities are initially
recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
Share based payments
The Group issues equity settled share options in the Parent Company to certain
employees in exchange for services rendered. These awards are measured at fair
value on the date of the grant using an option pricing model and expensed in
the statement of comprehensive income on a straight-line basis over the
vesting period after making an allowance for the number of shares that it is
estimated will not vest. The level of vesting is reviewed and adjusted
annually.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· leases of low value assets; and
· leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless this is not
readily determinable, in which case the Group's incremental borrowing rate on
commencement of the lease is used.
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are typically amortised on a
straight-line basis over the remaining term of the lease.
Assets that have a useful economic life longer than the lease term are
depreciated over the useful economic life and are transferred out of
right-of-use assets at the end of the lease term.
The Group accounts as a lessor when accounting for sub-leases. In these
instances, the Group records a lease receivable, with the corresponding amount
netting against the right-of-use asset arising from the head lease.
Subsequent to initial measurement lease assets increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments received. Income from leases is presented within investing
activities in the cashflow statement.
Inventories
Inventories are valued at the lower of cost and net realisable value. Cost is
based on the purchase on a first in first out basis and includes all direct
costs and an appropriate portion of fixed and variable overheads. Net
realisable value is the estimated selling price reduced by all costs of
completion, marketing, selling and distribution. Supplier rebates are credited
to the carrying value of inventory to which they relate. Once the inventory is
sold, the rebate amount is then recognised in the income statement.
Invoice discounting
The company discounts its trade debts. The accounting policy is to include a
gross asset for trade receivables due within one year and to record the
returnable element of the proceeds under payables due within one year.
Discount fees are charged to the consolidated income statement when payable.
Current taxation
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the balance sheet date.
Income tax relating to items recognised in comprehensive income or directly in
equity is recognised in comprehensive income or equity and not in the income
statement.
Deferred taxation
Deferred income tax is provided using the liability method on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes, with
the following exceptions:
· where the temporary difference arises from the initial recognition of goodwill
or of an asset or liability in a transaction that is not a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss;
· in respect of taxable temporary differences associated with investments in
subsidiaries, where the timing of the reversal of the temporary differences
can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future; and
· deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
The carrying amount of deferred income tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realised or the
liability is settled, based on tax rates and tax laws that have been enacted
or substantively enacted at the balance sheet date.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event; it is probable that an outflow of
resources will be required to settle the obligation; and a reliable estimate
can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to
be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and risks specific to
the obligation. The increase in the provision due to the passage of time is
recognised as interest expense.
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
13.
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 20.
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:
2023 2022
£'000 £'000
United Kingdom 229,784 149,914
Europe 12,130 9,536
241,914 159,450
Revenue by product
2023 2022
£'m £'m
Toilet tissue 163.0 116.3
Kitchen towel 53.9 32.0
Facial tissue 18.7 8.8
Wipes 4.8 2.0
Core revenue 240.4 159.1
Other (waste) 1.5 0.4
Total revenue 241.9 159.5
Major customers
In 2023 there were four major customers that individually accounted for c.10%
and above of total revenues (2022: four customers). The revenues relating to
these customers in 2023 were £50.0m, £47.9m, £35.6m and £28.9m (2022:
£33.8m, £24.5m, £24.1m and £19.7m).
5. Operating profit/loss
Operating profit/loss is stated after charging/(crediting):
2023 2022
£'000 £'000
Employee benefit expense (note 8) 19,610 16,984
Depreciation 4,964 5,857
Amortisation 6,702 5,494
Profit on disposal of property, plant and equipment 4 (296)
Research and development expensed as incurred 183 202
Net foreign exchange losses/(gains) (872) 665
Auditor's remuneration
2023 2022
£'000 £'000
Audit services - Company 13 13
Audit services - Rest of Group 202 149
Non audit services:
Tax compliance services 20 8
235 170
6. Separately disclosed items
2023 2022
£'000 £'000
Acquisition contingent consideration - (6,277)
Acquisition professional fees - 766
Acquisition integration costs - 85
Acquisition related items - (5,426)
Supply chain disruption 590 696
Impairment of property, plant and equipment - 965
Operational reorganisation and restructure 413 -
COVID-19 costs - 153
Accounting policy change - 637
Other items - 398
Other items 1,003 2,849
1,003 (2,577)
A summary of the separately disclosed items for the current year is as
follows.
Supply chain disruption costs £590,000 (2022: £696,000)
In line with the wider market, pressures on the Group's supply chain were
considerable, particularly in the early part of FY23 when there was
significant disruption at several UK ports due to industrial strike action.
This disruption caused severe shipping container congestion at the Liverpool
port resulting in incremental demurrage costs being incurred for a period,
until the industrial dispute was resolved. In addition, the Group incurred
further incremental costs related to a period where inbound shipping
containers were diverted to unaffected ports (e.g. London Gateway) in order to
maintain service to our customers.
Operational reorganisation and restructure £413,000 (2022: £nil)
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 was completed in FY23 reflecting
investment in a new manufacturing line and automation of packing and
palletisation at the Leyland manufacturing site.
As part of the Leyland re-organisation temporary incremental warehousing
capacity was established to enable the automation project to be completed, as
it encroached into existing warehouse space at the site. Upon completion of
the automation investment this incremental warehousing capacity has was
closed.
A summary of the separately disclosed items for the prior year is as follows:
Acquisition related items credit of £5,426,000
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
£6,800,000 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 £6,277,000 has been credited to
the Income Statement after the recognition of £523,000 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 £766,000 in respect of legal and accounting services.
Consultancy costs of £85,000 were also incurred in finalising the integration
of the businesses.
Supply chain disruption costs £696,000
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 £398,000, largely related to
demurrage costs incurred because of shipping container congestion and a lack
of capacity to manage increased demand. Additional distribution costs of
£269,000 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 £29,000 were also incurred to
support the supply chain planning of the business during this volatile period.
Impairment of property, plant and equipment £965,000
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 (completed 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 £965,000.
COVID-19 £153,000
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 £133,000.
A further £20,000 of additional costs related to incremental cleaning,
safety, and PPE equipment.
Accounting policy change £637,000
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 £398,000
Other items largely relate to redundancy costs of £327,000 related to
consolidation of activities across the Group following the acquisitions made
in the previous financial year; and other largely property related items of
£71,000.
7. 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.
2023 2022
£'000 £'000
Loss for the year attributable to equity shareholders (5,695) (1,697)
Number Number
Weighted average number of shares '000 '000
Issued ordinary shares at 1 May 318,878 311,355
Effect of shares issued in the year - 5,792
Weighted average number of ordinary shares at 30 April 318,878 317,147
Basic loss per share (pence) (1.8) (0.5)
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.
2023 2022
£'000 £'000
Loss for the year attributable to equity shareholders (5,695) (1,697)
Number Number
'000 '000
Weighted average number of shares (basic) 318,878 317,147
Effect of conversion of Accrol Group Holdings plc share options - -
Weighted average number of ordinary shares at 30 April 318,878 317,147
Diluted loss per share (pence) (1.8) (0.5)
No adjustment has been made in 2023 and 2022 to the weighted average number of
shares for the purpose of the diluted earnings per share calculation as the
effect would be anti-dilutive.
8. Employee costs
2023 2022
£'000 £'000
Employee costs during the year amounted to:
Wages and salaries 17,029 14,520
Social security costs 1,798 1,646
Other pension costs 324 310
Share based payments (note 26) 459 508
19,610 16,984
The monthly average numbers of employees (including the Executive Directors)
during the year were:
Number Number
Production 377 339
Administration 79 69
456 408
9. Finance costs and income
2023 2022
£'000 £'000
Bank loans and overdrafts 2,370 791
Lease interest 1,818 1,354
Amortisation of finance fees 195 179
Unwind of discount on provisions - 198
Unrealised Foreign currency (gains)/losses on derivatives 2,973 -
Realised Foreign currency (gains)/losses on derivatives 3,149 -
Total finance costs 10,505 2,522
2023 2022
£'000 £'000
Lease interest income 265 216
Total finance income 265 216
Unrealised losses relate to the mark to market impact of foreign currency
derivative instruments.
10. taxATION
Tax credit in the income statement
2023 2022
£'000 £'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 1,432 1,551
Adjustment in respect of prior periods 247 73
Change in tax rate 444 (804)
Total deferred tax credit 2,123 820
Tax credit in the income statement 2,123 835
The tax credit for the year is higher than (2022: charge is higher than) the
effective rate of corporation tax in the UK of 19% (2022: 19%). The
differences are explained below:
2023 2022
£'000 £'000
Loss before income tax (7,818) (2,532)
Effective rate 19% 19%
At the effective income tax rate 1,486 481
Expenses not deductible for tax purposes (54) (123)
Tax exempt income - 1,193
Adjustment in respect of prior periods 247 88
Change in rate 444 (804)
Total tax credit/(charge) 2,123 835
During the year the Group recognised the following deferred tax
assets/(liabilities):
Accelerated Share
capital Intangible based
allowances assets Losses payments Other Total
£'000 £'000 £'000 £'000 £'000 £'000
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)
(Charge)/credit in year (2,064) 1,077 3,041 128 (59) 2,123
(Charge)/credit to equity - - - 96 18 114
30 April 2023 (7,477) (4,497) 10,878 289 (56) (863)
A deferred tax asset of £11,167,000 (2022: £7,837,000) relating to current
and prior year losses has been recognised in the year.
Deferred tax expected to be settled within 12 months of the reporting date is
approximately £439,000 (2022: £328,000).
Deferred tax assets and liabilities have been measured at the rate expected to
be in effect when the deferred tax asset or liability reverses.
11. Property, plant and equipment
Leasehold land & Plant and Fixtures & Assets under Right-of-use
buildings machinery fittings construction assets Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 30 April 2021 1,571 48,799 3,277 1,096 26,803 81,546
Additions 69 1,050 136 3,732 18,228 23,215
Reclassification (68) 1,268 39 (94) (1,239) (94)
Disposals - (95) - - (9,803) (9,898)
At 30 April 2022 1,572 51,022 3,452 4,734 33,989 94,769
Additions 1 613 67 8,115 10,782 19,578
Reclassification - 5,452 298 (11,205) 5,284 (171)
Disposals - (37) - - (4,295) (4,332)
At 30 April 2023 1,573 57,050 3,817 1,644 45,760 109,844
Accumulated depreciation
At 30 April 2021 248 9,229 2,146 - 6,587 18,210
Charge for the year 142 1,895 317 - 3,503 5,857
Reclassification - 347 84 - (431) -
Disposals - (95) - - (4,481) (4,576)
Impairment - 965 - - - 965
At 30 April 2022 390 12,341 2,547 - 5,178 20,456
Charge for the year 138 380 370 - 4,076 4,964
Reclassification - (26) - - (65) (91)
Disposals - (37) - - (2,868) (2,905)
At 30 April 2023 528 12,658 2,917 - 6,321 22,424
Net book value
At 30 April 2023 1,045 44,392 900 1,644 39,439 87,420
At 30 April 2022 1,182 39,110 481 4,734 28,811 74,318
Assets with a value of £87,420,000 (2022: £74,318,000) form part of the
security against the RCF as described in note 19.
12. Leases
Leases receivable
Land & buildings Total
£'000 £'000
At 1 May 2022 5,028 5,028
Interest received 265 265
Lease receipts (579) (579)
At 30 April 2023 4,714 4,714
Analysed as:
Receivable > 1 year 3,617 3,617
Receivable < 1 year 1,097 1,097
2023 2022
£'000 £'000
Lease receivable maturity analysis
Within one year 1,097 703
Between one and two years 1,269 3,387
Between two and five years 2,348 938
After five years - -
4,714 5,028
Lease liabilities
Land & buildings Plant & machinery Total
£'000 £'000 £'000
At 1 May 2022 30,581 6,150 36,731
New leases in the year 10,285 4,837 15,122
Leases terminated in the year (1,406) - (1,406)
Interest expense 1,520 298 1,818
Lease payments (4,275) (3,185) (7,460)
At 30 April 2023 36,705 8,100 44,805
Short-term lease expense for the year was £nil. Short-term lease commitment
at 30 April 2023 was £nil. Income from sub-leases for the year totalled
£265,000.
13. Intangible assets
Customer Development Computer Assets under Right-of-use
Goodwill relationships costs software construction assets Other Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost
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
Internally developed additions - - 173 - 1,745 - - 1,918
Reclassification - (5) 968 583 (1,551) 150 - 145
At 30 April 2023 29,794 42,286 5,563 3,836 194 150 126 81,949
Amortisation
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
Charge for the year - 4,297 1,256 1,149 - - - 6,702
Reclassification - - 151 (151) - 65 - 65
At 30 April 2023 - 23,327 2,012 2,205 - 65 86 27,695
Net book value
At 30 April 2023 29,794 18,959 3,551 1,631 194 85 40 54,254
At 30 April 2022 29,794 23,261 3,817 2,046 - - 40 58,958
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:
2023 2022
£'000 £'000
Accrol Group Holdings plc 29,794 29,794
29,794 29,794
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 2023, the impairment tests concluded that the
estimated value in use at 30 April 2023 exceeds the carrying value by £129m
(2022: £50m).
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% (2022:
12.4%) 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 2.8% (2022: 2.4%).
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 2023 no impairment charge is
required against the carrying value of goodwill.
Impairment would be caused by either increasing the pre-tax discount rate by
10.2% or reducing the average EBIT performance by 13.2m. A combination of
increasing the pre-tax discount rate by 10.6% and reducing average EBIT
performance by £7.3m 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
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.
14. Inventories
2023 2022
£'000 £'000
Raw materials 16,625 13,490
Finished goods and goods for resale 15,507 12,751
32,132 26,241
Inventories recognised as an expense during the year and included in cost of
sales amounted to £176.3m (2022: £106.4m). There are £0.3m of provisions
held against inventories (2022: £0.6m).
15. Trade and other receivables
2023 2022
£'000 £'000
Trade receivables 26,571 26,677
Less: provision for impairment of trade receivables (10) (18)
Trade receivables - net of provisions 26,561 26,659
Prepayments and other debtors 4,339 4,933
30,900 31,592
The carrying value of trade and other receivables classified at amortised cost
approximates fair value.
The Group does not hold any collateral as security.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables.
To measure expected credit losses on a collective basis, trade receivables are
grouped based on similar credit risk and ageing. The expected loss rates are
based on the Group's historical credit losses experienced. The historical loss
rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group's customers.
16. Cash and cash equivalents
2023 2022
£'000 £'000
Cash and cash equivalents 3,460 243
17. Trade and other payables
2023 2022
£'000 £'000
Trade payables 47,648 38,036
Social security and other taxes 10,166 7,639
Accruals 6,068 6,692
63,882 52,367
Trade payables are non-interest bearing and are paid on average within 81 days
at 30 April 2023 (2022: 70 days).
18. Provisions
As at 1 May Utilised in As at 30 April Non-
2022 the year 2023 Current current
£'000 £'000 £'000 £'000 £'000
Onerous contracts 33 (33) - - -
Other 275 (275) - -
308 (308) - - -
The onerous contract provisions relate to the decision to exit from the
Skelmersdale facility and logistics agreements.
19. Borrowings
2023 2022
£'000 £'000
Current
Revolving credit facility 4,887 2,692
Factoring facility 17,762 18,743
Leases 9,200 5,047
31,849 26,482
Non-current
Revolving credit facility - -
Leases 35,605 31,684
35,605 31,684
The changes in liabilities arising from financing activities, from cashflows
and non-cash changes for the current and prior year are as follows:
Current Non-current
loans & loans &
borrowings borrowings Total
£'000 £'000 £'000
At 1 May 2022 26,482 31,684 58,166
Cashflows (4,555) - (4,555)
Non-cashflows:
New leases - 10,866 10,866
Leases terminated on disposal of Right of Use assets - (1,406) (1,406)
Interest accrued 4,188 - 4,188
Amortisation of finance fees (note 9) 195 - 195
Allocation from non-current to current in the year 5,539 (5,539) -
At 30 April 2023 31,849 35,605 67,454
Current Non-current
loans & loans &
borrowings borrowings Total
£'000 £'000 £'000
At 1 May 2021 12,349 30,851 43,200
Cashflows (16) - (16)
Non-cashflows:
New leases 159 18,069 18,228
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 9) 179 - 179
Allocation from non-current to current in the year 13,324 (13,324) -
At 30 April 2022 26,482 31,684 58,166
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 2023 are £113,000 (2022: £308,000).
Finance costs are not included in the loan maturity table below.
2023 2022
£'000 £'000
Loan maturity analysis
Within one year 31,962 26,790
Between one and two years 5,691 7,622
Between two and five years 10,600 8,003
After five years 19,314 16,059
67,567 58,474
The following amounts remain undrawn and available:
2023 2022
£'000 £'000
Revolving credit facility 12,000 14,000
Factoring facility 2,289 1,179
14,289 15,179
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")
The Group maintains its £17m multi-currency revolving credit facility, which
expires in August 2024.
Interest charged on the facility is at SONIA plus a margin of 2.70%-2.95%. 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 £27m
to £35m. 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.
Subsequent to the balance sheet date, in August 2023, the Group amended and
extended its existing banking arrangements providing additional facilities to
support its growth. These new facilities provide increased headroom in both
the scale, tenure and liquidity of the facilities and an easing in the
headline associated banking covenants. This refinancing resulted in the Group
extending its £17.0m revolving credit facility to £24.0m which now expires
in February 2025.
20. Financial instruments
Derivative financial instruments
Derivative financial instruments comprise the Group's forward foreign exchange
contracts. The assets and liabilities representing the valuations of the
forward foreign exchange contracts at the year end are:
2023 2022
Foreign currency contracts £'000 £'000
Current assets - 805
Current liabilities (2,973) -
(2,973) 805
The fair value of a derivative financial instrument is split between current
and non-current depending on the remaining maturity of the derivative contract
and its contractual cashflows. The foreign currency forward contracts are
designated as fair value through profit or loss at initial recognition. The
fair value of the Group's foreign currency derivatives is calculated as the
difference between the contract rates and the mark to market rates which are
current at the balance sheet date. This valuation is obtained from the
counterparty bank and at each year end is categorised as a Level 2 valuation
(see below).
At 30 April 2023, the notional principal amount of the outstanding derivative
contracts that are held to hedge the Group's transaction exposures was £67m
(2022: £25m). Cashflows in respect of these contracts are due within 12
months of the reporting date.
The maximum exposure to credit risk is the fair value of the derivative as a
financial asset.
Fair value hierarchy
IFRS 7 requires fair value measurements to be recognised using a fair value
hierarchy that reflects the significance of the inputs used in the value
measurements:
Level 1: inputs are quoted prices in active markets.
Level 2: a valuation that uses observable inputs for the asset or liability
other than quoted prices in active markets.
Level 3: a valuation using unobservable inputs i.e. a valuation technique.
There were no transfers between levels throughout the years under review.
Fair values
The fair values of the Group's financial instruments approximate closely with
their carrying values, which are set out in the table below:
Fair values and carrying values
2023 2022
£'000 £'000
Financial assets
Current
Trade receivables 31,997 26,659
Cash and short-term deposits 3,460 243
Derivative financial instruments - 805
Financial liabilities
Current
Borrowings 31,849 26,482
Trade and other payables 63,882 52,367
Derivative financial instruments 2,973 -
Non-current
Borrowings 35,605 31,684
21. Capital and financial risk management objectives and policies
(a) Capital risk management
The Group's objective when managing capital is to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital. In order to maintain or
adjust capital the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets
to reduce debt.
Consistent with others in the industry, the Group monitors net debt. Net debt
is calculated as total borrowings less cash and cash equivalents. The Group
has also shown adjusted net debt which excludes operating type leases
recognised under IFRS 16 to aid comparability with prior years.
2023 2022
£'000 £'000
Total borrowings (excluding finance fees) 67,454 58,474
Less: lease receivables (4,714) (5,028)
Less: cash and cash equivalents (3,460) (243)
Net debt 59,280 53,203
Less: leases recognised on adoption of IFRS 16 (32,462) (25,657)
Adjusted net debt (excluding leases recognised on adoption of IFRS 16) 26,818 27,546
(b) Financial risk management
The Group has exposure to the following risks from its use of financial
instruments:
· Foreign currency risk
· Interest rate risk
· Liquidity risk
· Credit risk
This note presents information about the Group's exposure to each of the above
risks, and the Group's objectives, policies and procedures for measuring and
managing risk. The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management framework.
(i) Foreign currency risk
The Group has transactional currency exposures arising from purchases in
currencies other than the Group's functional currency.
These exposures are forecast on a monthly basis and are monitored by the
Finance Department. Under the Group's foreign currency policy, such exposures
are hedged on a reducing percentage basis over a number of forecast time
horizons using forward foreign currency contracts.
The Group's largest exposures are the US Dollar and Euro forward contracts.
The derivative analysis below had been prepared by re-performing the
calculations used to determine the balance sheet values assuming a 1%
strengthening of sterling:
2023 2022
£'000 £'000
EUR - loss 5 -
USD - loss 626 251
631 251
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cashflows of a
financial instrument will fluctuate because of changes in market interest
rates. The Group's exposure to the risk of changes in market interest rates
relates primarily to the Group's factoring facility and RCF, both of which
have floating interest rates.
The exposure to risk is deemed to be manageable and is reviewed on a continual
basis. The Group is not expecting any reduction in interest rates over the
next 12 months; the impact of a 0.5% (2022: 0.5%) increase in interest rates
on (loss)/profit before tax is shown below:
2023 2022
£'000 £'000
Change in interest rate 113 322
(iii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. Ultimate responsibility for liquidity
risk management rests with the Board of Directors. The Group manages liquidity
risk by continuously monitoring forecast and actual cashflows, matching the
maturity profiles of financial assets and operational liabilities and by
maintaining adequate cash reserves.
The table below summarises the maturity profile of the Group's financial
liabilities (excluding finance fees).
Due within Due between Due between Due in more
1 year 1 and 2 years 2 and 5 years than 5 years Total
As at 30 April 2023 £'000 £'000 £'000 £'000 £'000
Borrowings 31,962 5,691 10,600 19,314 67,567
Trade and other payables 63,882 - - - 63,882
Total financial liabilities 95,844 5,691 10,600 19,314 131,449
Due within Due between Due between Due in more
1 year 1 and 2 years 2 and 5 years than 5 years Total
As at 30 April 2022 £'000 £'000 £'000 £'000 £'000
Borrowings 26,790 7,622 8,003 16,059 58,474
Trade and other payables 52,367 - - - 52,367
Total financial liabilities 79,157 7,622 8,003 16,059 110,841
(iv) Credit risk
The Group's principal financial assets are bank balances and cash, trade and
other receivables. The Group's credit risk is low. The credit risk on liquid
funds and derivative financial instruments is limited because the
counterparties are banks with high credit ratings assigned by international
credit-rating agencies.
The Group's major customers (including those disclosed in note 4) are
established retailers and therefore management do not deem there to be
significant associated credit risk.
The Group manages credit risk by allocating customers a credit limit and
ensures the Group's exposure is within this limit. This approach is
strengthened with the use of credit insurance where deemed appropriate.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables
and contract assets. To measure expected credit losses on a collective basis,
trade receivables and contract assets are grouped based on similar credit risk
and ageing.
The expected loss rates are based on the Group's historical credit losses
experienced over the four-year period prior to the period end. The historical
loss rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group's customers.
At 30 April 2023 the lifetime expected loss provision for trade receivables is
as follows:
<1 month 1-2 months 2-3 months >3 months Total
Expected loss rate 0% 0% 0% 0%
Gross carrying amount of overdue debt (£000) 580 254 60 137 1,031
Loss provision (£000) - - - - -
The movement in the provision for trade and other receivables is analysed
below:
2023 2022
£'000 £'000
At the beginning of the year (18) (70)
Impairment losses recognised - (18)
Utilisation of provision 18 70
- (18)
Impairment losses recognised are included in the administrative expenses in
the income statement, unless otherwise stated. Amounts charged to the
allowance account are generally written off when there is no expectation of
recovering additional cash.
22. Capital commitments
2023 2022
£'000 £'000
Contracted for but not provided 47 4,614
23. Share capital and reserves
2023 2022
£'000 £'000
Called up, allotted and fully paid
Ordinary shares of £0.001 each 319 319
319 319
The number of ordinary shares in issue is set out below:
2023 2022
Number Number
Ordinary shares of £0.001 each 318,878,097 318,878,097
Each holder of the £0.001 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.
24. Dividends
The Company did not pay an interim dividend (2022: £nil).
The Company does not propose a final dividend (2022: £nil), therefore the
total dividend for the year is £nil (2022: £nil).
25. Related party disclosures
(a) Identity of related parties
The subsidiaries of the Group are as follows:
Holding
Company Principal activity Country of incorporation %
Accrol UK Limited Holding company United Kingdom 100%
Accrol Holdings Limited Holding company United Kingdom *100%
Accrol Papers Limited Soft tissue paper converter United Kingdom *100%
LTC Parent Limited Holding company United Kingdom 100%
John Dale Limited Manufacturer of wet wipes and facial tissue United Kingdom *100%
Leicester Tissue Company Limited Soft tissue paper converter United Kingdom *100%
John Dale (Holdings) Ltd Holding company United Kingdom 100%
Art Tissue Ltd Distributor of soft tissue products United Kingdom *100%
*Indirect holding.
The registered address of all subsidiaries in the Group is Delta Building,
Roman Road, Blackburn, Lancashire, BB1 2LD.
The Group has taken advantage of the exemption not to disclose intra-group
transactions that are eliminated on consolidation.
The Group has taken advantage of section 479C whereby the following
subsidiaries are exempt from the requirement of the Act relating to the audit
of individual accounts with respect to the financial year ending 30 April
2023.
Company Registered number
Accrol UK Limited 09010320
LTC Parent Limited 12471299
Leicester Tissue Company Limited 08786053
Accrol Holdings Limited 07037097
(b) Directors' emoluments
2023 2022
£'000 £'000
Short-term employment benefits 1,704 1,308
Share based payments 264 268
1,968 1,576
During the year retirement benefits were accruing to two Directors (2022:
none). The aggregate amount of emoluments paid to the highest paid Director
was £937,000 (2022: £601,000).
(c) Key management personnel
Key management personnel are considered to be the Executive and Non-Executive
Directors of the Company. The remuneration of all Directors who have been
identified as the key management personnel of the Group is set out above in
aggregate for each of the categories specified in IAS 24 'Related Party
Disclosures'.
26. Share based payments
Description of share option schemes
The Group operates a Long Term Incentive Plan, namely the Accrol Group
Holdings Long Term Incentive Plan 2021 ("LTIP"). The LTIP provides for the
grant, to eligible employees, of options to acquire shares in the Company at a
nominal exercise price. The contractual life of the options is 2 years.
Further details of the schemes are provided in the Directors' Remuneration
Report on pages * to *.
Movements in the year
There were no options issued or exercised under the LTIP.
Terms and conditions of the share option schemes
The LTIP options granted are subject to the achievement of certain adjusted
EBITDA performance conditions as disclosed further in the Remuneration Report
on page 44.
Input for measurement of grant date fair values
The grant date fair values of the share options are measured based on the
Black-Scholes model. The expected volatility has been calculated using
historical share price data over a term commensurate with the expected terms
of the awards (or for the term of available share price history, if shorter).
The inputs used in measuring the fair value of the current year share option
grants were as follows:
LTIP
FV at grant date (p) 61.4
Share price at grant date (p) 61.5
Exercise price (p) 0.1
Expected volatility 61.71%
Dividend yield 0.00%
Risk-free rate 0.13%
Income statement charge
The share-based payment charge for the year was £459,000 (2022: £508,000),
all of which relates to equity-settled awards.
Movements in share options
Movements in the number of share options outstanding are as follows:
in thousands of shares LTIP Total
In issue as at 1 May 2022 11,119 11,119
Granted in the year - -
Exercised in the year - -
Lapsed in the year (4,866) (4,866)
In issue as at 30 April 2023 6,253 6,253
Exercisable as at 30 April 2023 - -
27. Events after the balance sheet date
Subsequent to the balance sheet date, in August 2023, the Group amended and
extended its existing banking arrangements providing additional facilities to
support its growth. These new facilities provide increased headroom in both
the scale, tenure and liquidity of the facilities and an easing in the
headline associated banking covenants. This refinancing resulted in the Group
extending its £17.0m revolving credit facility to £24.0m which now expires
in February 2025.
28. Contingent liabilities
As at 30 April 2023, the Group has no disclosable contingent liabilities.
29. 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.
2023 2022
£'000 £'000
Loss attributable to shareholders (5,695) (1,697)
Adjustment for:
Amortisation 6,702 5,494
Separately disclosed items 1,003 (2,577)
Share based payments 459 508
Discount unwind on contingent consideration - 192
Net loss on foreign currency derivatives 6,122 -
Tax effect of adjustments above (2,714) (832)
Adjusted earnings attributable to shareholders 5,877 1,088
Number Number
'000 '000
Basic weighted average number of shares 318,878 317,147
Dilutive share options 9,044 11,119
Diluted weighted average number of shares 327,922 328,266
pence pence
Basic adjusted earnings per share 1.8 0.3
Diluted adjusted earnings per share 1.8 0.3
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
2023 2022
£'000 £'000
Adjusted EBITDA
Operating profit/(loss) 2,422 (226)
Adjusted for:
Depreciation 4,964 5,857
Amortisation 6,702 5,494
Separately disclosed items 1,003 (2,577)
Share based payments 459 508
Adjusted EBITDA 15,550 9,056
2023 2022
£'000 £'000
Adjusted Gross Profit
Gross Profit 45,165 34,344
Adjusted for:
Separately disclosed items 590 905
Depreciation 1,785 1,895
Adjusted Gross Profit 47,540 37,144
Revenue 241,914 159,450
Adjusted Gross Margin 19.7% 23.3%
2023 2022
£'000 £'000
Adjusted profit before tax
Reported (loss) before tax (7,818) (2,532)
Adjusted for:
Amortisation 6,702 5,494
Separately disclosed items 1,003 (2,577)
Share based payments 459 508
Discount unwind on contingent consideration - 192
Net loss on foreign currency derivatives 6,122 -
Adjusted profit before tax 6,468 1,085
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