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Accrol Group Holdings plc

Accrol Group Holdings plc Strong first half and the outlook is positive

Accrol Group Holdings plc (LON:ACRL), the AIM listed leading independent tissue converter, has today announced its interim results for the six months to 31 October 2016.

Financial Highlights

· Revenue increased 8.8% to £63.9m (H1 FY16: £58.7m)
· Gross Profit increased 5.6% to £18.2m (H1 FY16: £17.2m)
· Adjusted gross margin improved by 1.1% to 28.4% (H1 FY16: 27.3%) through significant currency hedging pre and post EU referendum and negotiated parent reel pricing
· Adjusted EBITDA increased 1.5% to £7.1m (H1 FY16: £7.0m)
· Net debt reduced by £3.2m from £23.1m at flotation to £19.9m at 31 October 2016
· We have significantly increased our foreign currency facilities and have continued with our existing hedging strategy
· Maiden interim dividend announced of 2p per ordinary share

Operational Highlights

· Successful IPO in June 2016 raising £63.5m
· Our market share of discount sector has increased to circa 50%
· Significant contract wins previously announced with Booker, Poundstretcher and Lidl
· Early indications that Lidl contract likely to deliver more than £10m in annual revenue
· New 168,000 sq. ft. manufacturing facility at Leyland, Lancashire progressing on target with production starting end of January 2017
· Senior team strengthened in Manufacturing, Supply Chain, HR, Procurement and Engineering. Successful and complete transition of key operations from the Hussain Family to the new Operational Board
· Operational initiatives underway including; price inflation recovery, manufacturing optimisation and supply chain optimisation

Steve Crossley, Chief Executive Officer of Accrol Group Holdings plc, commented: “Our strong first half performance demonstrates the success of our strategy of organic growth through Discounters and increasing market share through the supply of Private Label products to some of the UK’s largest retailers.

“We have continued to win new business, including a contract with Lidl which is expected to generate more than the £10m sales per year previously announced, increased our market share in the discount sector to circa 50% and have made significant progress with our strategic plan of making operational improvements and increasing capacity to ensure we can best meet the growing demand for our products. We remain confident in the outlook for the full year.”

There will be an analyst presentation to discuss the results at 9.30 on 4th January 2017 at the offices of Camarco. In addition, there will be a webinar for investors on 5thth January 2017 at 5.45pm.

Zeus Capital said:

Accrol has delivered a solid set of maiden H1 results delivering strong organic revenue growth as it gains market share backed with a good gross margin uplift of 110bps due to paper price and FX hedging. Operationally, strong progress has been made since IPO, and management remain comfortable with forecast expectations for 2017. We believe the shares remain attractive as management continue to execute its strategy effectively.

H1 results: Accrol has produced its maiden H1 results post IPO delivering 8.8% revenue growth with adjusted gross margins improving from 27.3% to 28.4% during the course of the year due to favourable purchase pricing of paper and FX hedging. Adjusted EBITDA advanced marginally from £7.0m to £7.1m driven by a £2.1m increase in overhead costs to support future growth. Adjusted PBT (pre amortisation, exceptional and gains on financial instruments) was £5.4m vs. £3.8m owing to lower finance costs (£0.8m vs. £2.4m) reflecting the financial structure post IPO. Cash conversion was strong at 83% with net debt falling by £3.2m from £23.1m pre IPO to £19.9m post flotation. An interim dividend of 2.0p was declared and will be paid on 3rd February, leaving it on track to pay a full year of 6.0p, as promised at IPO.

Key priorities: The opening of its new facility in Leyland is on track, and will be commissioned during January and February 2017. Total annualised capacity following this will be 143,000 tonnes per annum (from 118,000 at IPO), which management estimates will be equivalent to £160-£180m of annual sales. Based on our calculations, we believe this could generate EBITDA of at least £22.5m under the current margin structure, which underpins our 2019 estimates. Accrol’s share of the discount market is now c.50% (vs. 35% at IPO), with the Lidl contract expected to generate a larger revenue contribution than initially anticipated £10m per annum. Growth in sales to the Multiples remains a key strategic objective and discussions are ongoing. The management team below board level has been strengthened, and the exit of the Hussain family from the business is complete. Acquisition opportunities in the UK and Europe continue to be evaluated.

Forecasts: The outlook is positive, with management confident of delivering 2017 expectations. The hedging arrangements both in terms of US$ and agreed paper prices are in place until April 2017. Looking ahead, we remain of the view that during a period of higher inflation, more consumers will move into the discount sector and private label products where Accrol is well positioned.

Investment view: We believe the shares remain attractive from a P/E (2017 10.9x) and ROCE (2017 15%) perspective backed with an attractive 5% dividend yield. Applying various valuation techniques, we arrive at an average valuation of 171p per share implying over 30% upside.


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