# Accrol performs strongly, gaining further market share

- Link: https://www.directorstalkinterviews.com/accrol-performs-strongly-gaining-further-market-share/4121128204
- Published: 2023-09-26T07:40:10+01:00
- Author: Amilia Stone

**Accrol Group Holdings plc** ([LON:ACRL](https://www.directorstalkinterviews.com/company/accrol-group-holdings/acrl.l)),
the UK’s leading independent tissue converter, has announced its audited final results
for the year ended 30 April 2023, 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.”

**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](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
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 areas57% 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**

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