Accrol Group Hldgs – Unaudited Final Results 2018 and Banking Update

It has been a difficult year for the Group and its stakeholders in which its performance was significantlyimpacted by four major issues, namely an escalation in internal costs, input cost increases, an inability to agree timely price increases with customers and adverse foreign exchange rate movements.

 

Unaudited FY18 Results

 

 

Unaudited FY18

Restated FY17 3

Change

Revenue

£139.7m

£134.2m

£5.5m

Adjusted EBITDA

(£5.8m) 1

£15.2m

(£21.0m)

Adjusted (Loss)/profit before tax

(£11.2m) 2

£10.1m

(£21.3m)

(Loss)/profit before tax

(£24.1m)

£8.6m

(£32.7m)

Net debt

£33.8m

£19.2m

£14.6m

Banking Update

Further to the announcement of 15 May 2018 titled “Proposed Placing to raise £8 million” and specifically the sections on the Company's banking facilities and financial covenants, the Company is pleased to announce that it has entered into an agreement with HSBC plc to amend the financial covenants contained in its facilities to bring them in line with the Company's latest financial forecasts, incorporating a reasonable view of financial sensitivity headroom.  These covenants comprise standard liquidity (minimum cash balance) and asset coverage covenants together with a covenant based on minimum EBITDA levels (the “EBITDA Covenant”), the EBITDA Covenant being the one that was amended.

Outlook

The macro environment continues to be challenging: USD strength allied with other currencies' volatility; continued high paper costs; and upward pressure on labour and other operating costs create significant headwinds.  The decline of Sterling against the USD since the beginning of the year has an annualised negative impact on costs of c£5m alone. However, the business has a management team who have faced such commercial challenges before; the support of a growing customer base, which is well positioned to adapt to a market without brands; and a plan which is on track to manage costs back to industry-leading levels.

Accrol's trading performance remains sensitive to external macro-economic variables, including the Sterling/USD exchange rate and parent reel pricing, which can have a significant effect, positively or negatively, on the Company's financial performance. However, the new Board and management team is committed to building a business which is capable of riding such fluctuations to deliver appropriate levels of return to shareholders. 

Despite the current headwinds faced by the business, the Group's performance in the first half of FY19 is as the Board expected and the directors believe that Accrol is on track to achieve market expectations for FY19. Net debt as at 31 August 2018 was £25m.

Post year end Placing and Open Offer

Post the year end, the Company raised a further £7.5 million (net of expenses) by way of a Placing and a further £1.8 million (net of expenses) by way of Open Offer in June 2018. The Board thanks its shareholders and bank for their patience and support.

Progress of the turnaround plan

A comprehensive turnaround plan, focused on improving operational efficiency, winning new business, optimising pricing and strengthening the core management team, has been implemented. Under the direction of the new executive management team, this turnaround is gathering pace and is now well advanced in all key areas. A detailed update on the Group's progress since the year end is provided below.

A great deal has been accomplished: customer confidence has been restored; the operating model has been re-engineered to minimise waste and optimise efficiency; and substantial cost has been extracted. The balance sheet is being repaired, through a focus on tight working capital management, controlled investment and restored cash profitability. The Board remains mindful, however, that the operational changes, implemented in H1, must be consolidated in H2 before the business can be restored to controlled growth and appropriate levels of profitability.

Dan Wright, Executive Chairman of Accrol Group, said:

“FY18 has been incredibly tough for the Group, its shareholders and other stakeholders. However, the retrospective figures we are announcing today do not reflect the Group's current position. The new Board and management team is creating a business which is stronger: streamlined, commercial and innovative. Whilst there is still more to do over the next six months, a great deal has been achieved post year end and I look forward to reporting on the Group's financial progress at the half year end.”

Looking ahead

As we move into H2 FY19, attention will be focused on our customers, helping them add value and ensuring all parties can grow profitably, and completing the implementation of our cost reduction turnaround plan.

Primary areas of focus over the next six months will be:

·

The agreed exit of all external warehousing and implementation of new supply chain agreements;

·

The completion of the product simplification process; and

·

Further improvements in operational output per head driven by simplification and discipline.

Our actions to increase the number of our suppliers and to simplify tissue types is expected to impact working capital positively from the end of Q4 FY19. We have implemented a more flexible and appropriate forward buying strategy, in order to assist with our management of short-term adverse foreign exchange movements. An ongoing focus on all input costs is also expected to negate any wage inflation. Whilst we have already improved our procurement process significantly, we will continue to make adjustments and invest small amounts of capital to remove any unnecessary operational costs in the business.

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