Accrol Group Plc (LON:ACRL) has delivered H1 results that shows good progress since the turnaround programme commenced in February 2018. The financial results also show good progress vs. H2 2018. We are maintaining our forecasts following revised 2019E guidance on 8 January, given the dramatic transformation undertaken in 2018 which has now been executed, we anticipate the benefits of such actions to be seen during the months ahead.
H1 results: Accrol has released unaudited H1 results to 31 October2018. Total Revenue was down by £14.7m but was impacted by the exit of the lower margin Away From Home (AFH) business. Consumer revenue (covering sales of Toilet Tissue, Kitchen Towel and Facial Tissue and excluding AFH) was £53.9m, down £1.9m. Top 10 customers grew revenues by 11% to £52.5m, with new business flowing through, and is expected to have a beneficial impact on H2. Despite raw material price increases of 29%. Adjusted gross margins were 17.2% vs. 12.2% in H2 2018 and 17.9% last year. Adjusted EBITDA was -£1.1m vs. -£1.5m last year and -£4.5m in H2 2018. Net debt improved by £11.2m from £33.8m in H2 2018 and £29.3m at the same period last year to £22.6m.
Progress delivered: The aim remains to “build a robust, agile and market-leading business, capable of delivering growth and acceptable levels of return to shareholders in the toughest economic conditions.” Every element of the organisation has now been reviewed and changed in some way to improve the business. Key highlights include exiting Skelmersdale (£5m cost saving) as well as exiting Away From Home. SKU’s have also been reduced by 74% to below 120, with tissue types also reduced by 73% to <20. A new board has been appointed with headcount reduced by 43% to <340. Substantial margin improvement has been achieved since September. A waste improvement programme has also begun currently delivering a 1 percentage point improvement, while the entire workforce has also been retrained. This has all been delivered without the loss of a single material customer
Forecasts maintained: Guidance remains unchanged from the Trading Update on 8 January, and we are maintaining our forecasts as a result.
Investment view: We believe the structural cost savings delivered to date will have a significant impact on the business going into FY 2020, with major restructuring actions now behind them. While challenges remain, we see potential for the Accrol to return to its pre-IPO foundation to build a more efficient and stronger business from here
