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Accrol Group Holdings plc

Turnaround gathering pace

Accrol Group Plc (LON:ACRL) has delivered final results this morning that reflect the challenging trading conditions the company has faced through 2018. The turnaround plan appears to be progressing well and management has made progress on a number of fronts. We remain comfortable with our longer-term assumptions and leave our headline forecasts unchanged.

Final results: Revenue was +4.2%, underlying gross margins (excluding FX impacts) were 17.5% (ZC 16.1%). Higher than expected gross margins were offset by increased distribution and administration costs, total underlying distribution and administrative costs, adjusting for exceptional costs and provisions made during the period were £30.3m (ZC: £27.6m). Interest costs were in line with ZC forecasts at £0.7m, down from £1.1m in 2017. There were significant exceptional costs during the period of £12.9m relating primarily to Skelmersdale, reorganisation costs and losses on FX derivatives. There were also £2.5m of impairment charges on PP&E. Net debt was marginally below ZC.

Progress delivered: Banking covenants have been reset, the management team has been strengthened with key hires in financial and operational functions. The headcount has been reduced by 43% and new IT systems are being implemented. Importantly the exit from Skelmersdale has been agreed, which management estimate will deliver c.£5m of savings on an annualised basis, and the Away From Home business was successfully exited in August 2018. Management have also made progress operationally, expanding the supplier base, further simplifying the product range, and implementing an improved Sales and Operations Planning (S&OP) process to improve the flow of raw material stocks into the business.

Challenges ahead: Significant progress has been delivered to date but key projects yet to be completed, such as the exit of external warehousing and implementation of new supply chain agreements and the completion of the product simplification process, will be important milestones in the group’s efforts to return to profitable growth. External costs pressure from continued increases in parent reel costs and adverse FX movements also represent continued challenges requiring careful attention from management.

Forecasts: We remain comfortable with our longer-term assumptions and leave our forecasts unchanged. We introduce our 2021E forecasts, assuming a modest uplift in revenue and adj. EBITDA on 2020E.

Investment view: Accrol Group maintains an attractive position in its’ key markets, with strong relationships with discount retailers and a growing position with the major grocery chains in the UK. The turnaround plan has progressed well to date, and while challenges remain, we see potential for the group to return to its pre-IPO foundation to build a more efficient and stronger business.

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