# INTERVIEW: Accrol Group Holdings – Zeus Capital Analyst thoughts

- Link: https://www.directorstalkinterviews.com/interview-accrol-group-holdings-zeus-capital-analyst-thoughts/412731623
- Published: 2017-07-11T07:28:34+01:00
- Author: Giles Arbor

**Accrol Group Holdings Plc** ([LON:ACRL](https://www.directorstalkinterviews.com/company/accrol-group-holdings/acrl.l))
is the subject of conversation when Mike Allen, Head of research at Zeus Capital
caught up with DirectorsTalk. Mike shares his thoughts on the company results, explains
the key themes, how this has affected the Zeus forecast and shares his thoughts 
on the stock as an investment.

Accrol Group Holdings Plc manufactures toilet rolls, kitchen rolls and facial tissues
as well as other tissue products. The Company operates out of c. 900,000 sq. ft.
of manufacturing, storage and distribution facilities across Lancashire. Accrol 
currently manufactures approximately 18 million units per week and supplies some
of the UK’s largest retailers, providing both Accrol branded and Private Label products(
being goods produced under a customer’s own brand or under a non-branded or less
well-known brand name (“private label”)).

The Group’s competitive advantage lies in its market positioning, operational process
and flexibility. Key components of the business model are:

**Production process –** The Directors believe the Group obtains a competitive advantage
through its model of acquiring and converting the large tissue reels that are Accrol’s
raw materials (“Parent Reels”) as opposed to manufacturing Parent Reels from pulp
and recycled fibre and subsequently converting. This requires a lower fixed overhead
and provides flexibility in Parent Reel sourcing which allows the Group to take 
advantage of favourable pricing opportunities and production technology advancements,
especially in a market of excess supply.

**Technology and converting lines –** Accrol has invested c.£18.2 million over the
last three years with c. £4.0 million committed to a new machine for delivery in
March 2018. The Group currently has 17 converting lines in operation providing capacity
of approximately 143,000 tonnes per annum. The Group’s operating machinery allows
conversion of a wide variety of tissue grades, adding flexibility to the Parent 
Reel sourcing process and allowing manufacture of a wide range of product types.

**Manufacturing private label products –** The majority of Accrol’s products (84
per cent. of revenues in the year ended 30 April 2017) are private label and whilst
the Group also develops and supplies branded products, the ability to supply customers
with goods under its own brand has allowed penetration into retailers operating 
in the discount market (“Discounters”) and the UK’s largest retailers (“Multiples”).
Accrol can launch a new private label product within six weeks of instruction from
a retailer.

**Production flexibility –** Accrol is able to manufacture toilet rolls, kitchen
rolls, facial tissue and certain products used outside a consumer’s home (“Away 
from Home” or “AFH”), providing a “one-stop shop” solution for customers in the 
tissue market. The ability to produce these goods and supply Multiples, Discounters,
local retailers and wholesalers (“Independents”) and the AFH market is a competitive
advantage and the Directors do not believe any competitors can offer the same flexibility
across all of these market channels.

**Macro-economic impact on raw material prices –** There is currently a global over-
supply of both pulp and Parent Reels, with additional capacity forecast to be brought
on stream through to 2019. As such, Parent Reel prices are currently relatively 
low and are expected to remain so for the foreseeable future. Low Parent Reel prices
allow Accrol to manufacture at a lower cost, enhancing margin and providing pricing
flexibility to win new orders. Overcapacity drives increased flexibility of supply
and provides Accrol with a choice of pricing and technology when sourcing Parent
Reels.

**Market positioning –** Having won a number of contracts with Discounters in recent
years and benefitting from the organic growth within this market, the Directors 
believe Accrol is well positioned to take advantage of the growth in the discount
market and Multiples’ increased focus on private label products.

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