Interim results for six months ended 31 Oct 2016

RNS Number : 2541T

Accrol Group Holdings PLC

04 January 2017

 

This announcement contains inside information

4 January 2017

Accrol Group Holdings plc

Unaudited interim results for the six months ended 31 October 2016

Accrol Group Holdings plc, the AIM listed leading independent tissue converter, is pleased to announce 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, 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 5th^th January 2017 at 5.45pm.  If you would like to join the webinar, please register at https://www.equitydevelopment.co.uk/news-and-events/

For further information, please contact:

Zeus Capital Limited (Nominated Adviser & Broker)
Dan Bate / Jonathan Sharp	Tel: [phone]
Dominic King / John Goold / Mike Seabrook	Tel: [phone]
Camarco (Media enquiries)
Jennifer Renwick / Billy Clegg	Tel: [phone]

Notes to Editors

Accrol manufactures toilet rolls, kitchen rolls and facial tissues as well as other tissue products at the Company's 350,000 sq. ft. manufacturing, storage and distribution facility in Blackburn, Lancashire. The commissioning of Accrol's two high speed converting lines at the Company's new 168,000 sq. ft. facility in Leyland, Lancashire, in January 2017 will take total annualised capacity to 143,000 tonnes per annum and total manufacturing, storage and distribution facilities to 518,000 sq. ft.

Accrol currently manufactures approximately 16 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.

Technology and converting lines - Accrol has committed capital expenditure of c. £18.2 million in the last three years. The Group currently has 15 converting lines in operation providing capacity of approximately 118,000 tonnes per annum.  Additional capacity of 25,000 tonnes per annum is due to be installed at Accrol's new facility in Leyland, Lancashire, in January / February 2017. 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 (75 per cent. of revenues in the year ended 30 April 2016) 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.

Overview of the Half Year to 31 October 2016

Introduction

We are pleased to report that our trading as a newly quoted company on AIM for the six months to 31 October 2016 is in line with our expectations and we have continued to make good progress against our strategic goals. Revenues for the six months grew by 8.8%, or £5.2m, to £63.9m (H1 FY16: £58.7m) with adjusted EBITDA¹ increasing by 1.5% or £0.1m to £7.1m (H1 FY16: £7.0m). The strong sales growth was driven by continued growth of our Private Label products into the Discounters and Multiple retailers. Specific highlights included winning a significant contract with Lidl and moving into our new 168,000 sq. ft. manufacturing facility at Leyland, Lancashire. We have managed to mitigate the impact of the strengthening of the US$ against Sterling following the EU referendum through significant hedging, a strategy which we continue to review.

Operational Review

We have continued to invest in manufacturing capacity and capability with the opening of the new facility in Leyland. The two high speed tissue converting lines purchased in April 2016 have been moved from storage and will be commissioned during January 2017. New management with tissue experience are in position and the hire of operatives and training will commence in January. The facility has the space to accommodate further converting lines to support our growth strategy. Total annualised capacity from Q1 2017 will be 143,000 tonnes per annum, which is equivalent to c. £160m to £180m of annual sales. We will continue to invest in machinery ahead of growth.

Our share of the growing discount sector has increased to circa 50% with the addition of the new Lidl contract and further growth with existing customers. The Lidl range launched successfully in October 2016 and has been well received by their consumers. Early indications are that the annualised sales to Lidl are likely to be higher than the £10m initially communicated. Included in the launch was NTT (New Tissue Technology), which is a soft premium tissue sourced on an exclusive basis for the UK market. Growth in sales to the Multiples remains a key strategic objective for the business and discussions are ongoing.

Since our flotation, a new Operating Board has been put in place and an effective transition and exit of the Hussain Family is complete. High calibre and experienced individuals have been recruited into key roles in Manufacturing, Supply Chain, HR, Procurement and Engineering.

Key operational priorities in progress include; Price Inflation Recovery, Manufacturing Optimisation Programme to drive improvements in operational efficiency, Supply Chain Optimisation Programme to underpin and sustain expected growth, Cost Reduction Programme and a People Plan focusing on employee recruitment, retention and training.

Financial Review

Revenues

Revenues for the six months grew by 8.8% or £5.2m to £63.9m (H1 FY16: £58.7m) with the majority of the growth coming from the Discounters. This increase was driven by both organic growth and through the recently announced contract wins including Booker, Poundstretcher and Lidl. In terms of product categories, toilet tissue revenues showed the highest growth over the six months at 18.3% or £4.9m.

Gross margin

Adjusted gross margin increased by 1.1% from 27.3% in H1 FY16 to 28.4% in H1 FY17. Adjusted gross margin excludes the impact of unrealised gains and losses on outstanding forward foreign currency contracts valued at the Balance Sheet date.

To mitigate adverse movements in US$ and Euro exchange rates, we entered into a significant volume of forward currency contracts ahead of, and following, the EU referendum, selling Sterling and purchasing both US$ and Euros. This limited the decrease in the average £:US$ transacted exchange rate from the 15% decrease in the £:US$ spot rate to 6%. In addition, we negotiated parent reels pricing to a similar level to the FY16 exit run rate which delivered a 7% reduction in parent reel pricing from H1 FY16 to H1 FY17. Overall, this delivered the 1.1% improvement in adjusted gross margin.

During the reporting period, we have significantly increased our foreign currency facilities and have continued with our existing hedging strategy, allowing hedges to be taken into the next financial year.

Administration costs

Administration costs for the six months grew by £2.3m to £8.7m, mainly due to £1.2m of exceptional costs (as set out below), £0.4m due to increased wage costs as we continue to invest in people, £0.2m due to plc related running costs and £0.4m due to rent, rates, insurance, depreciation and utilities.

Exceptional costs of £1.2m relate to AIM flotation costs of £0.2m (balance of £1.6m is included in the share premium account), Hussain Family consulting costs of £0.2m, an early settlement fee on finance leases of £0.4m and the write off of previous deal related costs attached to the previous debt structure of £0.4m.

Distribution costs

Distribution costs as a percentage of sales for the six months have increased from 8.0% last year to 8.8% in the current year. The increase is mainly due to destination mix change year on year as we have brought in more southern depots, an increased usage of packing materials and an increased level of the internal movement of goods between warehouses.  

Working capital

	Actual
	H1 FY17	H1 FY16	Variance
	£'m	£'m	£'m
Inventories	13.3	12.9	0.4
Trade and other receivables	22.9	22.2	0.7
Trade and other payables	(16.6)	(14.9)	(1.7)
	19.6	20.2	(0.6)

Inventories and trade debtors have remained at similar levels to the prior year despite the 8.8% growth in revenues. Trade payables have increased as we are choosing to take advantage of favourable credit terms on Parent Reels.

Borrowings and cashflow

		H1 FY17	H1 FY16	Variance
		£'m	£'m	£'m
Revolving Credit Facility		12.8	-	12.8
Bank loan		-	4.6	(4.6)
Invoice discounting facility		6.7	12.1	(5.4)
Shareholder loans		-	40.5	(40.5)
Finance leases		0.4	9.5	(9.1)
Total debt		19.9	66.7	(46.8)
Cash and cash equivalents		-	(0.5)	0.5
Net debt		19.9	66.2	(46.3)

As part of the AIM flotation process, shareholder loan notes, the bank loan facility and the majority of finance leases were repaid. A new Revolving Credit Facility of £18.0m was put in place with a draw down at IPO of £13.0m. Post float net debt has reduced £3.2m to 1.31 times the adjusted last 12 months EBITDA.

Strategy

We continue to focus on organic growth through the Discounters as this sector remains the fastest growing at 10% per annum. This growth is primarily driven by Private Label products which continue to take share from Brands, due to relatively little, if any, product differentiation. Year-on-year sector growth is as follows; Private Label Toilet Tissue has increased 4%, Kitchen Towel 3% and Facial Tissue 2.3%. We believe post referendum concerns over inflation will only serve to further drive consumers into the Discounters and purchase more affordable Private Label products as they seek quality and value. We will continue to invest in capacity as we are well placed to take advantage of these trends in the marketplace.

Early Days on the AIM Market

Following our successful flotation on AIM in June 2016, the Hussain Family have helped facilitate and complete a smooth transition to the new Operating Board. Four plc Board meetings have been held since flotation. In addition, our inaugural AGM was held in Blackburn on 30 September 2016 with all resolutions passed. The Board meetings have enjoyed healthy and constructive challenge and support from our Non-Executive Directors.

Dividend

We remain committed to enhancing shareholder value and to the progressive dividend policy discussed at flotation. The Board is pleased to declare an interim dividend of 2p per ordinary share. This interim dividend will be paid on 3 February 2017 to Members of the Register at the close of business on 13 January 2017. The shares will become ex-dividend on 12 January 2017.  We remain committed to paying a total dividend which will deliver a strong 6% yield (based on the IPO placing price of 100p per share) for the financial year ending 30 April 2017.

Outlook

We have ambitious plans to grow the business and deliver solid progressive financial performance driven by strong customer relationships and investment in industry leading equipment and technology, enabling us to continue to grow our market share in the discount market and increase sales to Multiples.

Our current hedging position in both US$ and Euro together with agreed paper prices until April 2017, lead us to remain confident in the outlook for the full year.

Our view is that a period of higher inflation will see more consumers moving into the discount sector and Private Label products. If exchange rates continue at current levels then the soft tissue industry, along with many other sectors, will need to increase prices to recover the rise in raw material costs. 

Key focus areas for the second half of the financial year will be increasing selling prices, continuing our drive to improve efficiencies in manufacturing and the supply chain, commissioning our new manufacturing site in Leyland and embedding our recent new hires into the organisation. In addition, we are evaluating growth opportunities both in the UK and Europe.

 

Consolidated Income Statement
For six months ended 31 October 2016

				(Unaudited)	(Unaudited)	(Audited)
Continuing operations			Note	Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
				£'000	£'000	£'000
Revenue			5	63,914	58,741	118,219
- Cost of sales before gain on derivative financial instruments				(45,742)	(42,707)	(84,996)
- Gain on derivative financial instruments				-	1,182	1,266
Cost of sales				(45,742)	(41,525)	(83,730)
Gross profit				18,172	17,216	34,489
Administration expenses				(8,653)	(6,359)	(13,138)
Distribution				(5,597)	(4,714)	(9,431)
Operating profit				3,922	6,143	11,920
Analysed as:
- Adjusted EBITDA1				7,136	7,033	15,038
- Depreciation				(938)	(874)	(1,831)
- Amortisation			10	(1,039)	(1,039)	(2,060)
- Gain on derivative financial instruments				-	1,182	1,266
- Exceptional items			6	(1,237)	(159)	(493)
Operating profit				3,922	6,143	11,920
Finance costs				(801)	(2,401)	(4,941)
Analysed as:
- Finance costs on pre-IPO debt structure			8	(478)	(2,169)	(4,456)
- Finance costs on post-IPO debt structure			8	(323)	(232)	(485)
Finance costs				(801)	(2,401)	(4,941)
Profit before tax				3,121	3,742	6,979
Tax charge			9	(740)	(981)	(1,274)
Profit for the period attributable to equity shareholders				2,381	2,761	5,705

Consolidated Statement of Comprehensive Income

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
Profit for the period attributable to equity shareholders	2,381	2,761	5,705
Other comprehensive income for the period
Revaluation of derivative financial instruments	5,092	-	-
Share based payments	89	-	-
Total comprehensive income attributable to equity shareholders	7,562	2,761	5,705

Earnings per share
				£	£	£
Basic and Diluted			7	0.03	279.86	576.26
Adjusted and Adjusted Diluted			18	0.07	369.75	865.15

Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, gain / (loss) on derivative financial instruments and exceptional items, is a non-GAAP metric used by management and is not an IFRS disclosure.

 

Consolidated Statement of Financial Position
For six months ended 31 October 2016

			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
	Note		£'000	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment			24,161	21,958	24,407
Intangible assets	10		30,745	32,766	31,744
Total non-current assets			54,906	54,724	56,151
Current assets
Inventories			13,280	12,879	9,361
Trade and other receivables			22,884	22,195	21,277
Derivative financial instruments	13		4,902	-	-
Cash and cash equivalents	11		33	509	2,456
Total current assets			41,099	35,583	33,094
Total assets			96,005	90,307	89,245
Non-current liabilities
Borrowings	12		12,751	49,819	50,919
Deferred tax liabilities			4,352	5,088	4,478
Total non-current liabilities			17,103	54,907	55,397
Current liabilities
Borrowings	12		7,072	16,857	12,193
Trade and other payables			16,588	14,869	15,454
Income taxes payable			792	1,003	909
Derivative financial instruments	13		-	274	190
Total current liabilities			24,452	33,003	28,746
Total liabilities			41,555	87,910	84,143
Net assets			54,450	2,397	5,102
Capital and reserves
Share capital	15		93	13	13
Share premium			41,597	84	84
Hedging reserve			5,092	-	-
Capital redemption reserve			27	-	-
Retained earnings			7,641	2,300	5,005
Total equity shareholders' funds			54,450	2,397	5,102

The financial statements were approved by the Board of Directors on 3 January 2017

Signed on behalf of the Board of Directors

Stephen Crossley                                                                                                            James Flude

Chief Executive Officer                                                                                                 Chief Financial Officer

Company Registration Number 09019496

Consolidated Statement of Changes in Equity
For six months ended 31 October 2016

	Note	Share capital	Share premium	Hedging reserve	Capital redemption reserve	Retained earnings/ (deficit)	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 April 2016 (audited)		13	84	-	-	5,005	5,102
Comprehensive income
Profit for the year		-	-	-	-	2,381	2,381
Revaluation of derivative financial instruments		-	-	5,092	-	-	5,092
Share based payments		-	-	-	-	89	89
Total comprehensive income		-	-	5,092	-	2,470	7,562
Transactions with owners recognised directly in equity
Bonus issue of shares	15	64	(64)	-	-	-	-
Proceeds from shares issued	15	43	43,285	-	-	-	43,328
Buy back of deferred shares for consideration of £1	15	(27)	-	-	27	-	-
Transaction costs		-	(1,708)	-	-	166	(1,542)
Total transactions recognised directly in equity		80	41,513	-	27	166	41,786
Balance at 31 October 2016 (unaudited)		93	41,597	5,092	27	7,641	54,450
Balance at 30 April 2015 (audited)		10	50	-	-	(700)	(640)

Consolidated Cash Flow Statement
For six months ended 31 October 2016

			(Unaudited)	(Unaudited)	(Audited)
		Note	Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Cash flows from operating activities
Operating profit			3,922	6,143	11,920
Adjustment for:
Depreciation			938	874	1,831
Amortisation		10	1,039	1,039	2,060
Gain on derivative financial instruments			-	(1,182)	(1,266)
Grant income			(35)	(27)	(61)
Exceptional items			1,014	-	-
Profit on disposals			-	-	(22)
Operating cash flows before movements in working capital			6,878	6,847	14,462
(Increase)/ decrease in inventories			(3,919)	(3,497)	20
Increase in trade and other receivables			(1,410)	(2,891)	(1,975)
Increase / (decrease) in trade and other payables			4,313	346	(1,433)
Cash generated from operations			5,862	805	11,074
Tax paid			(979)	(501)	(1,460)
Interest paid			(3,858)	(4,495)	(4,918)
Net cash flows from operating activities			1,025	(4,191)	4,696
Cash flows from investing activities
Purchase of property, plant and equipment			(691)	(93)	(683)
Proceeds from sale of property, plant and equipment			-	-	48
Net cash flows used in investing activities			(691)	(93)	(635)
Cash flows from financing activities
Proceeds of issue of Ordinary shares			43,328	37	37
Cost of raising finance			(1,971)	-	-
(Decrease) / increase in amounts due to factors			(817)	5,848	1,656
Repayment of capital element of finance leases			(10,887)	(1,476)	(3,082)
Repayment of bank loans			(3,900)	(600)	(1,200)
Receipt of new bank loans			12,730	-	-
Repayment of shareholder loans / loan notes			(41,240)	-	-
Drawdown of shareholder loans / loan notes			-	249	249
Net cash flows (from) / used in financing activities			(2,757)	4,058	(2,340)
Net increase in cash and cash equivalents			(2,423)	(226)	1,721
Cash and cash equivalents at beginning of the period			2,456	735	735
Cash and cash equivalents at period end		11	33	509	2,456

Notes to the Interim Financial Statements
For six months ended 31 October 2016

1. Reporting entity

Accrol Group Holdings plc (the "Company") was incorporated in the United Kingdom on 30 April 2014 with company number 09019496. It is domiciled in the United Kingdom. The registered address of the Company is the Delta Building, Roman Road, Blackburn, United Kingdom, BB1 2LD. Accrol UK Limited, which was incorporated on 24 April 2014, subsequently became a direct wholly owned subsidiary undertaking of the Company on 14 July 2014. On 14 July 2014, Accrol UK Limited acquired Accrol Holdings Limited and its trading subsidiary, Accrol Papers Limited (the "Acquisition"). Accrol Papers Limited is engaged in the business of soft tissue paper conversion.

2. Basis of preparation

The interim financial statements for the six months ended 31 October 2016, have been prepared in accordance with IAS34, 'Interim Financial Reporting' as adopted by the European Union. The interim financial statements should be read in conjunction with the group's Annual Report and Accounts for the year ended 30 April 2016, prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs'), IFRIC Interpretations and the Companies Act 2006.

The interim financial statements included in this report are not audited and do not constitute statutory accounts within the meaning of the Companies Act 2006. The Annual Report and accounts for the year ended 30 April 2016 have been filed with Companies House. The auditor's report on those accounts was unqualified and did not include any matters on which the auditors were required to report by exception under the Companies Act 2006.

The consolidated financial statements have been prepared on a going concern basis under the historical cost convention. The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand pounds, except where otherwise indicated.

Standards issued not yet effective

The accounting policies applied in preparing the unaudited interim financial statements are consistent with those used in preparing the statutory financial statements for the year ended 30 April 2016.

New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new IFRSs or International Financial Reporting Interpretations (IFRIC) that are effective for the first time for the six months ended 31 October 2016 which have material impact upon the Group.

At the date of authorisation of this financial information, the following new standards and interpretations which have not been applied in this financial information were in issue but not yet effective (and in some cases, had not yet been adopted by the EU):

·     IAS 16 and IAS 38 amendments - Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016)

·     IFRS 11 amendments - Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)

·     IAS 16 and IAS 41 amendments - Agriculture: Bearer Plants (effective 1 January 2016)

·     IAS 27 amendments - Equity Method in Separate Financial Statements (effective 1 January 2016)

·     IFRS 10 and IAS 28 amendments - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective 1 January 2016)

·     IAS 1 amendments - Disclosure Initiative (effective 1 January 2016)

·     Annual Improvements 2012-2014 Cycle (effective 1 January 2016)

·     IFRS 15 - Revenue from Contracts with Customers (effective 1 January 2018)

·     IFRS 9 Financial Instruments (effective 1 January 2018)

The adoption of these Standards and Interpretations is not expected to have a material impact on the consolidated financial statements of the Group in the year of initial application when the relevant standards come into effect.

IFRS 16 'Leases' is a new standard that has been published and is effective from 1 January 2019 but has not been early adopted by the Group and could have a material impact on the Group financial information. At the time of preparing this financial information, the Group continues to assess the possible impact of the adoption of this standard in future years. However, it is likely to result in an increase in leases recognised in the statement of financial position as finance leases and a reduction in the number of leases treated as operating leases and hence not recognised in the statement of financial position.

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months form the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

3. Accounting policies

The interim financial statements have been prepared in accordance with the accounting policies set out in the group's Annual Report and Accounts for the year ended 30 April 2016. Additional accounting policies applicable to the Interim Financial Statements are set out below.

Derivative financial instruments and cash flow hedges

The Group holds derivative financial instruments to hedge its foreign currency exposures. These derivatives, classified as cash flow hedges, are initially recognised at fair value and then re measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash flow hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. Amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged items affect profit.
 

Share based payments

The Group may issue equity settled share-based payments in the parent company to certain employees in exchange for services rendered. These awards are measured at fair value on the date of the grant using an option pricing model and expensed in the statement of comprehensive income on a straight line basis over the vesting period after making an allowance for the number of shares that it is estimated will not vest. The level of vesting is reviewed and adjusted annually.

4. Principal risks and uncertainties

The Group risk management process is used to identify, monitor, evaluate and escalate risks as they emerge, enabling management to take appropriate action wherever possible in order to control them and also enabling the Board to keep risk management under review.

The Board considers the principal risks and uncertainties that could impact upon the Group over the second half of the financial year to 30 April 2017, to be significantly unchanged from those set out in the group's Annual Report and Accounts for the year ended 30 April 2016.

In summary these risks and uncertainties are: loss of a major customer; Parent Reel and pulp pricing and capacity; new entrant into market; winning a large customer contract; installation of new converting capacity; volatility of foreign currency exchange rates; dependency upon information technology; key person dependency; and failure to adhere to regulatory requirements such as taxation, the Data Protection Act, Health and Safety and Fire Safety regulations.

These risks and uncertainties are set out in detail on pages 20 - 21 of the Group's Annual Report and Accounts for the year ended 30 April 2016, a copy of which is available on the Group's website www.accrol.co.uk.

Following the recent EU referendum, there has been increased uncertainty in both the political and business environment. This has led to increased volatility in US$:£ exchange rate with a significant strengthening of the US$ against Sterling. As the Group purchases the majority of parent reels in US$, there is an increased risk that adverse movements in rates could impact profitability. We have managed to mitigate the impact of the strengthening of the US$ against following the EU referendum through significant hedging, a strategy which we continue to review.

5. Revenue

The Group has one type of revenue and class of business.

The analysis of geographical area of destination of the Group's revenue is set out below:

				(Unaudited)	(Unaudited)	(Audited)
				Six months ended 31  October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
				£'000	£'000	£'000
United Kingdom				63,702	58,636	118,041
Europe				212	105	178
Total				63,914	58,741	118,219

 

6. Exceptional items

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
		£'000	£'000	£'000
Exceptional items
Professional fees relating to the AIM flotation		208	-	-
Early settlement charges on finance leases		454	-	-
Acquisition deal costs		352	-	-
Consultancy fees		223	-	334
Other		-	159	159
		1,237	159	493

The exceptional items are described below:

Six months ended 31 October 2016

Professional fees of £208,000 incurred as part of the IPO process have been classified as exceptional as they do not directly relate to the raising of the equity for the AIM flotation. In addition, part of the funds raised in the IPO were used to reduce the debt in the business with the majority of the finance leases being repaid which attracted an early redemption charge of £454,000.

Fees totalling £352,000 relating to the acquisition of the Accrol Group in July 2014 by Accrol Group Holdings Limited, were also required to be written off as part of the accounting for the IPO.

Dual running costs totalling £223,000 were incurred in the period relating mainly to the Hussain Family whom provided consultancy services.

Six months ended 31 October 2015

In September 2015, there was a fire within the embossing unit of one of the converting lines. The line was back up and running within one week with no disruption to customer orders. The cost of repair was £159,000.

Year ended 30 April 2016

One off consultancy fees totalling £334,000 were incurred in relation to a market, competitor, customer and working capital review to support the growth strategy following the acquisition in July 2014.

In September 2015, there was a fire within the embossing unit of one of the converting lines. The line was back up and running within one week with no disruption to customer orders. The cost of repair was £159,000.

7. Earnings per share

The basic earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. The prior period comparatives are stated using the number of shares in issue on the IPO date.

Diluted earnings per share is calculated by dividing the profit after tax by the weighted average number of shares in issue during the year, adjusted for potentially dilutive shares.

The following reflects the income and share data used in the basic earnings per share calculation:

			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Profit for the period attributable to shareholders			2,381	2,761	5,705
			Number	Number	Number
Basic weighted average number of shares2			77,427,867	9,866	9,900
Dilutive share options			-	-	-
Basic weighted average number of shares for diluted earnings per share			77,427,867	9,866	9,900
			£	£	£
Basic earnings per share			0.03	279.86	576.26
Diluted earnings per share			0.03	279.86	576.26

Note 2: In all periods the basic weighted average number of shares is calculated by excluding the D class of shares as this class is subject to a dividend cap that does not materially impact upon the profit due to the remaining ordinary equity shareholders.

The share option scheme in operation post flotation, does not result in a dilution of the basic earnings per share at 31 October 2016. Dilution is dependent upon share price movements therefore there remains the possibility for future dilution of earnings per share.

 

8. Finance costs

			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Finance costs on pre-IPO debt structure
Shareholder loans			478	2,005	4,099
Finance lease interest			-	120	214
Amortisation of finance fees			-	44	143
			478	2,169	4,456
Finance costs on post-IPO debt structure
Bank loans and overdrafts			174	83	158
Finance lease interest			71	71	144
Interest on factoring facility			57	78	183
Amortisation of finance fees			21	-	-
			323	232	485
Total finance costs			801	2,401	4,941

9. Income tax expense

Tax charged in the income statement			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Current income tax
Current tax on profits for the period			866	915	1,780
Total current income tax			866	915	1,780
Deferred tax
Origination and reversal of temporary differences			(147)	59	(31)
Change in tax rate			21	7	(475)
Total deferred tax			(126)	66	(506)
Tax charge in the income statement			740	981	1,274

 

The tax charge for the period is higher (2016: lower) than the effective rate of Corporation Tax in the UK of 20% (2016: 20%). The differences are explained below:

			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Profit before income tax			3,121	3,742	6,979
Effective rate			20%	20%	20%
At the effective income tax rate			624	748	1,396
Expenses not deductible for tax purposes			95	226	353
Change in rate			21	7	(475)
			740	981	1,274

During the period the Group recognised the following deferred tax (assets) / liabilities:

	Accelerated capital allowances	Intangibles	Other	Total
	£'000	£'000	£'000	£'000
30 April 2016 (audited)	1,527	3,016	(65)	4,478
Additions	-	(9)	-	(9)
Charge in year	60	(207)	-	(147)
Change in deferred tax rate	(6)	21	15	30
31 October 2016 (unaudited)	1,581	2,821	(50)	4,352

The Finance Act 2013 reduced the main rate of corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. Further future rate reductions, to 19% from 1 April 2017 and 18% from 1 April 2020, were substantively enacted on 26 October 2015.  Therefore, the rate of 20% at 31 October 2016 (31 October 2015: 21%) has been reflected in the consolidated financial statements and deferred tax assets and liabilities have been measured at the rate expected to be in effect when the deferred tax asset or liability reverses. Deferred tax has been provided at the rate of 18% as at 31 October 2016 (31 October 2015: 20%).

 

10. Intangible assets

		Goodwill	Customer lists	Other	Total
		£'000	£'000	£'000	£'000
Cost
At 30 April 2016 (audited)		14,982	20,427	-	35,409
Additions		-	-	40	40
At 31 October 2016 (unaudited)		14,982	20,427	40	35,449
Amortisation
At 30 April 2016 (audited)		-	3,665	-	3,665
Charge		-	1,039	-	1,039
At 31 October 2016 (unaudited)		-	4,704	-	4,704
Net book value
At 30 April 2016 (audited)		14,982	16,762	-	31,744
At 31 October 2016 (unaudited)		14,982	15,723	40	30,745

The intangible addition during the year, relates to a Management Services Agreement between Accrol Papers Limited and Accrol Group Holdings Plc which provides a mechanism for a recharge of salary costs between the two entities.

11. Cash and cash equivalents

		(Unaudited)	(Unaudited)	(Audited)
		As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
		£'000	£'000	£'000
Cash and cash equivalents		33	509	2,456

Cash and cash equivalents earn interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

12. Borrowings

		(Unaudited)	(Unaudited)	(Audited)
		As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
		£'000	£'000	£'000
Non-current
Bank facility		12,751	3,300	2,600
Finance leases		-	6,060	7,232
Shareholder loans		-	40,459	41,087
		12,751	49,819	50,919
Current
Bank facility		-	1,330	1,103
Factoring facility		6,668	12,052	7,485
Finance leases		404	3,475	3,605
		7,072	16,857	12,193
Loan maturity analysis:
Within one year		6,923	17,002	12,295
Between one and two years		119	1,302	4,163
Between two and five years		13,030	8,368	5,768
After five years		-	40,457	41,240
		20,072	67,129	63,466

The following amounts remain undrawn and available			(Unaudited)	(Unaudited)	(Audited)
			As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
		£'000		£'000	£'000
Revolving credit facility		5,000		-	-
Factoring facility		11,391		6,011	9,879
		16,391		6,011	9,879

Finance fees

Finance fees are not included in the Loan Maturity Analysis table. As at 31 October 2016, finance fees relating to the arrangement of the Revolving Credit Facility have been capitalised and are being amortised. As at 31 October 2015 and the 30 April 2016, the finance fees were incurred upon the arrangement of the shareholder loans by the Group's lenders.

The finance fees after amortisation are as follows:

		(Unaudited)	(Unaudited)	(Audited)
		As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
		£'000	£'000	£'000
Finance fees		249	453	354

13. Financial instruments

Derivative financial instruments

Derivative financial instruments represent the Group's forward foreign exchange contracts. The assets / (liabilities) representing the valuations of the forward foreign exchange contracts at the period end are:

		(Unaudited)	(Unaudited)	(Audited)
		As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
Current		£'000	£'000	£'000
Foreign currency contracts asset / (liability)		4,902	(274)	(190)

The fair value of a derivative financial instrument is split between current and non-current depending on the remaining maturity of the derivative contract and its contractual cash flows. The foreign currency swaps are designated as hedged accounted at initial recognition. The fair value of the Group's foreign currency derivatives is calculated as the difference between the contract rates and the mark to market rates which are current at the balance sheet date. This valuation is obtained from the counterparty bank and at each period end is categorised as a Level 2 valuation. The maximum exposure to credit risk is the fair value of the derivative as a financial asset.

14. Seasonality of operations

There is no significant seasonality impacting upon Accrol Group Holdings plc.  Revenues and operating profits are mainly impacted by the timings of new business wins and losses.

15. Share capital and reserves

Called up, allotted and fully paid:	(Unaudited)	(Unaudited)	(Audited)
	As at 31 October 2016	As at 31 October 2015	As at 30 April 2016
	£	£	£
Ordinary shares of £0.001 each	93,010	-	-
Class A Ordinary shares of £1 each	-	4,625	4,625
Class B Ordinary shares of £1 each	-	4,625	4,625
Class C Ordinary shares of £1 each	-	650	650
Class D Ordinary shares of £1 each	-	2,860	2,860
	93,010	12,760	12,760

 

The number of ordinary shares in issue is set out below:

	Number	Number	Number
Ordinary shares of £0.001 each	93,012,002	-	-
Class A Ordinary shares of £1 each	-	4,625	4,625
Class B Ordinary shares of £1 each	-	4,625	4,625
Class C Ordinary shares of £1 each	-	650	650
Class D Ordinary shares of £1 each	-	2,860	2,860

The movements in shares occurred on the following dates set out below:

		Number
31 May 2016
Issue of A Ordinary shares of £1 each		50
Issue of B Ordinary shares of £1 each		50
1 June 2016
Bonus issue of shares 5:1
Bonus issue of A Ordinary shares of £1 each		23,375
Bonus issue of B Ordinary shares of £1 each		23,375
Bonus issue of C Ordinary shares of £1 each		3,250
Bonus issue of D Ordinary shares of £1 each		14,300
Subdivision of shares
Subdivided A ordinary shares of £0.001 each		28,050,000
Subdivided B ordinary shares of £0.001 each		28,050,000
Subdivided C ordinary shares of £0.001 each		3,900,000
Subdivided D ordinary shares of £0.001 each		17,160,000
Re-organisation of shares into one class
Ordinary shares of one class of £0.001 each		49,683,858
Deferred shares of one class of £0.001 each		27,476,142
10 June 2016
Issue of Ordinary shares of £0.001 each		43,328,144
11 July 2016
Purchase of Deferred shares of £0.001 each		27,476,142

On 1 June 2016, a 5:1 bonus issue of shares occurred and subsequent to this, all shares were subdivided into shares of £0.001 each. On the same day, all shares were re-organised into one class of share and then were reassigned to either Ordinary or Deferred class.

On 10 June 2016, further ordinary shares of £0.001 were issued.

On 11 July 2016, all deferred shares were purchased by Accrol Group Holdings plc for £1.

Each holder of the £0.001 Ordinary Shares are entitled to vote at general meetings of the Company. Every holder of an Ordinary Share shall have one vote for each Ordinary Share held.

 

16. Dividends

An interim dividend of 2p per ordinary share (H1 FY16: nil) has been declared by the Board of Directors. It is payable on 3 February 2017 to Members of the Register at the close of business on 13 January 2017. The shares will become ex-dividend on 12 January 2017. This interim dividend of £1,860,240 (H1 FY16: £nil) has not been recognised as a liability in the interim financial statements. It will be recognised in shareholders' equity in the year ending 30 April 2017.  

17. Related party disclosures

(a) Identity of related parties

The Company's significant shareholders include NorthEdge Capital LLP and members of the Hussain family. Phoenix Court Blackburn Limited is a company under the control of the Hussain family providing commercial premises for letting. Alklar Limited is an entity under the common directorship of Peter Cheung, to which payments for Peter Cheung's services as a director for Accrol UK Limited were made. Post the AIM listing, Peter Cheung is now remunerated for his services via payroll. Nisiac Limited is a company under the control of the Hussain family, to which payments for the consulting services of the Hussain family are made.

The subsidiaries of the Group are as follows:

Company	Principal activity		Country of incorporation		Holding %
Accrol UK Limited	Holding company		United Kingdom		100%
Accrol Holdings Limited	Holding company		United Kingdom		100%
Accrol Papers Limited	Paper convertor		United Kingdom		100%

 

(b) Transactions with related parties

The following table provides the total amounts owed to / (due from) related parties as at the end of each year:

		(Unaudited)	(Unaudited)	(Audited)
		Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
		£'000	£'000	£'000
NorthEdge Capital LP		-	19,654	21,704
NorthEdge Capital - GP		-	451	460
The Hussain family		-	20,105	22,126
Alklar Limited		-	256	270
Nisiac Limited		31	-	-
Owed to related parties		31	40,466	44,560
Opening balance		44,560	44,262	44,262
Loans advanced during year		-	249	249
Interest charged		478	2,005	4,099
Purchases		1,121	930	1,898
Repayments		(46,128)	(6,980)	(5,948)
Owed to related parties		31	40,466	44,560
Borrowings		-	38,454	41,239
Trade & other payables		31	2,012	3,321
Owed to related parties		31	40,466	44,560

Note 12 details loan notes net of financing fees.

The following table provides the total amounts of purchases and interest charged from related parties for the relevant financial year:

		Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
Transactions		£'000	£'000	£'000
NorthEdge Capital LP		259	1,043	2,129
The Hussain family		241	1,003	2,050
Phoenix Court Blackburn Limited		871	851	1,740
Alklar Limited		62	38	78
Nisiac Limited		166	-	-
Total		1,599	2,935	5,997

Terms and conditions of transactions with related parties

The purchases and loans from related parties are made at normal market prices. Outstanding balances at the year-end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided for any related party payables. Loans from related parties in comparative periods carried interest at 10%. Payments to Phoenix Court Blackburn Limited are in respect of the provision of services. Payments to Nisiac are in respect of the provision of consultancy services.

18. Non-GAAP measures

Adjusted earnings per share

The adjusted earnings per share is calculated by dividing the adjusted earnings attributable to ordinary equity holder of the parent by the weighted average number of ordinary shares outstanding during the year. The following reflects the income and share data used in the adjusted earnings per share calculation.

			(Unaudited)	(Unaudited)	(Audited)
			Six months ended 31 October 2016	Six months ended 31 October 2015	Year ended 30 April 2016
			£'000	£'000	£'000
Earnings attributable to shareholders			2,381	2,761	5,705
Adjustment for:
Depreciation			938	874	1,831
Amortisation			1,039	1,039	2,060
Gain on derivatives			-	(1,182)	(1,266)
Exceptional items			1,237	159	493
Tax effect of adjustments above			(455)	(3)	(258)
Adjusted earnings attributable to shareholders			5,140	3,648	8,565
			Number	Number	Number
Basic weighted average number of shares			77,427,867	9,866	9,900
			£	£	£
Adjusted earnings per share			0.07	369.75	865.15
Diluted adjusted earnings per share			0.07	369.75	865.15

The share option scheme in operation post flotation, does not result in a dilution of the adjusted earnings per share at 31 October 2016. Dilution is dependent upon share price movements therefore there remains the possibility for future dilution of earnings per share.

19. Events after the balance sheet date

Details of the interim dividend declared are given in Note 16. There are no other significant events that have occurred after the balance sheet date.

 

20. Date and approval of interim financial statements

The interim financial statements cover the period 1 May 2016 to 31 October 2016 and were approved by the Board on 3 January 2017.

Further copies of the interim financial statements are available from the Company's registered office, Delta Building, Roman Road, Blackburn, United Kingdom, BB1 2LD and can be accessed on the Accrol Group Holdings plc investor relations website, www.accrol.co.uk.

Responsibility Statement

The condensed consolidated interim financial statements comply with the Disclosure and Transparency Rules (DTR) of the United Kingdom's Financial Conduct Authority in respect of the requirement to produce a half yearly financial report. The interim report is the responsibility of, and has been approved by, the Directors. The Directors confirm that to the best of their knowledge:

·     this financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union;

·     this interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

·     this interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The Directors of Accrol Group Holdings Plc are listed in the Accrol Group Holdings Plc Annual Report for 2016. There have been no changes from those listed. Details of the Directors are available on the Accrol Group Holdings Plc website: www.accrol.co.uk

By order of the Board

James Flude

Chief Financial Officer

3 January 2017

 

END

 

 

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