Shares of Blackburn-based tissue maker Accrol Group plunged more than 63% after it said its profit outlook for the current financial year is expected to be materially below market expectations and that it is “likely to breach one of its banking covenants.”
Accrol said: “The magnitude of internal cost increases in 2017, combined with ongoing margin pressures, has impacted the group’s financial results and cash flow in the short term.
“As a consequence, the group’s profit outlook for the current financial year is now expected to be materially below market expectations with an expected adjusted EBITDA loss of circa £5 million.
“Net debt, currently at £31 million, is also expected to be higher at the year-end than previously expected, despite a gross £18 million having been raised from shareholders in early December 2017.
“The scale of the creditor stretch which had taken place prior to the fundraise was not apparent before new financial disciplines and processes were put in place by the new management team in Q4.
“Of the net £17 million raise, over £10 million was paid out to creditors to reduce overdue balances and to reflect new terms of supply.
“In addition, further funds were absorbed by a recovery in inventory levels, cash costs incurred to break FX contracts, a reduced capacity for invoice discounting and further EBITDA losses.
“Net debt at 30 April 2018 is expected to be circa £34 million, which is slightly higher than current levels due principally to working capital fluctuations.
“Given the new EBITDA and debt expectations for FY18, the group is likely to breach one of its banking covenants.
“Constructive discussions about debt headroom and resetting covenants have already been initiated with the group’s bank.
“Notwithstanding the foregoing, the new executive management team believes that there is a clear opportunity to improve the group’s current performance materially through their structural and cost reduction plans.
“Whilst this improvement will not be realised without hard work and close focus and involves negotiations with third parties to exit current logistics arrangements, the board views the year ending 30 April 2019 forecast as wholly achievable.”
Russ Mould, investment director at AJ Bell, wrote: “Investors who bailed out toilet paper group Accrol last year with a large cash injection will today be fuming at the company’s appalling trading update.
“Higher costs are to blame for the share price kicking up another stink and falling more than 50%.
“The shares are now trading at 12.5p which represents an 87.5% decline since the company joined the stock market in June 2016.
“Like drinks distributor Conviviality last week with its multitude of problems, Accrol is another example of a business where management don’t appear to have a grip on what’s really going on.
“Accrol’s trading update says the magnitude of cost escalation has only ‘very recently’ become fully apparent to the board of directors.
“However, the company has been aware of cost pressures for some time as that was a key reason behind last October’s major profit warning.
“Shareholders will clearly want to know why management now seem so surprised about cost issues.”