Shares of Blackburn-based toilet roll and tissue maker Accrol Group fell almost 20% on Wednesday after it published a trading update for its current financial year ending April 30, 2022, warning that “exceptional” energy price increases “will significantly impact margins.”
Accrol also said it will conduct a “full strategic review” of its business.
Accrol is a leading supplier of toilet tissue, kitchen rolls, facial tissues and wet wipes to many of the UK’s leading discounters and retailers and generate revenues totalling about 16% of the £2.1 billion UK retail tissue market.
“In the period since the company’s last trading update of 20 October 2021, the group has experienced further inflationary pressure on input costs including pulp prices, supply chain costs and most significantly energy costs,” said Accrol.
“In light of these cost increases, the group has implemented further cost efficiencies and has engaged with all its customers successfully securing substantial price increases, over and above those secured in mid-2021 and, as a result, the board was confident of meeting its revised expectations for FY22.
“However, unavoidable surcharges to parent reel prices, relating to exceptional energy price increases, have very recently been levied on the company, which will significantly impact margins.
“The management team has experience of successfully managing inflationary pressures and the board is confident that this is a timing issue and that further cost increases, including these recent surcharges, will continue to be passed on successfully to Accrol’s customers.
“The underlying business is in good shape and the board remains confident in the medium-term prospects for the group.
“Despite continued supply chain disruption, particularly at ports, around the world and specifically in the UK, the business continues to manage customer supply well, having secured and maintained additional stocks in paper and finished goods.
“In FY22, revenue is now expected to grow by 17% to c.£160m (FY21: £136.6m), generating adjusted EBITDA of c.£9.0m (FY21: £15.6m) with margin recovery anticipated in FY23.
“The group continues to operate well within its existing banking covenants and has more than sufficient liquidity to meet its existing and future needs.
“In light of the above and the short-term but inherent volatility of earnings experienced in the current year, the board has concluded that it is now appropriate for Accrol to conduct a full strategic review of its business.
“Such review will be designed to capitalise on the evident strength of the business’ market position, its balance sheet, and its solvency, underpinned by significant banking support, to ensure that the shareholder value is optimised.
“A further update will be provided with the groups H1 2022 results, which will be announced on 18th January 2022.”