Accrol Group Holdings plc Investor presentation - January 2019 Half - - PowerPoint PPT Presentation

Accrol Group Holdings plc

Half f Year Results s fo for the e six months s endi ding 31 October

• ber 2018

Investor presentation - January 2019

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Introduction

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Dan Wright – Executive Chairman “The turnaround has been complex, revenues are growing again, costs out and cash in control”

“The business has changed beyond recognition since February 2018 and will exit the current financial year in a much stronger position operationally than it has ever been in before. We have delivered a highly complex restructuring, whilst absorbing a 29% increase in average tissue prices and now expect to deliver profit for the full year to 30 April 2019. “Knowing the scale and complexities of the task in hand, I am very pleased with the outcomes achieved internally to date. My only disappointment is that, as previously announced, we are, in effect, three months behind where we expected to be on the financial recovery. Thank you to everyone who has been involved in the turnaround; your contribution is highly valued. I believe Accrol has a bright future; one in which the Group delivers better levels of return throughout fluctuating macro-economic cycles. Whilst I recognise the ongoing macro- economic challenges, I am confident that we are through the main challenges that the business faced in this difficult period and the signs going forward look positive.” Dan Wright, Chairman

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People Make the Difference

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The team we are building “We continue to find the best people and build the strongest team possible”

Gareth Jenkins

Chief Executive Officer September 2017 UK Managing Director DS Smith Packaging - 35 units - £0.6billion of revenue. Extensive senior leadership experience of business turnaround and delivering industry leading levels of return in cyclical paper businesses.

Dan Wright

Executive Chairman February 2018 Previously founder partner, Chief Operating Officer and head of portfolio at NorthEdge Capital and currently Executive Chairman of Vision Group. Extensive experience in turnaround.

Hannah Argo

Interim Chief Financial Officer January 2019 Extensive Blue Chip experience within FMCG including Alliance Boots, Robert McBride and latterly Tulip UK.

Mark Dewhurst

Chief Operating Officer September 2018 Northern European Operations Director, DS Smith Packaging - 45 units - £1.0 billion of revenue. Extensive operational leadership driving manufacturing excellence across multiple businesses.

Euan Hamilton

Independent Non Exec Director August 2018 Extensive career with The Royal Bank of Scotland Group (RBS). Experience in Credit, Private Equity, Portfolio Management and Non Core.

Simon Allport

Independent Non Exec Director October 2018 32 years experience in the professional services industry, rising to managing partner for the North of England at Ernst & Young.

Other new appointments

Head of Manufacturing Factory Management HR Director Procurement Commercial Structure Sales Structure Technical Support

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Financial results

• Consumer Revenue down £2m to £53.9m (H1 18: £55.8m)

The business exited the loss making AFH business beginning Q1 19

• Core customer (top 10) growth up 11% £52.5m (H1 18: £47.3m)

New business beginning to flow through positively impacting H2 19 and beyond

• 33% improvement in gross margin now 17.2% (H2 18: 12%) on like for like basis

Despite raw material increases of 29% - continued improving trend

• Adjusted EBITDA improved by £0.4m to a loss of £1.1m (H1 18: loss of £1.5m) (H2 18: loss of £4.5m)

The turnaround is making an impact but we are in effect 3 months behind where we would expect

• Budget rate £1.00:$1.40 - EBITDA improved to profit of £1.0m (H2 18: loss of £4.1m) on a like for like basis
• Net debt reduced by £11.2m to £22.6m (H2 18: £33.8m)
• Cash head room improving
• Unchanged guidance for FY 20: Adjusted EBITDA c.£1m on revenue of c.£126m

“Improvements but revenue and margins are improving into H2 19” Unaudited H1 19

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Financial results

“Much achieved but more to do” H1 19

Profit headwinds H1 19

Tissue price vs Increases cost the business in H1 £2.6m FX weakness costs the business £2.1m H1 Total headwinds £4.7m

FY 19 profit headwinds

Full year tissue price increase will impact the business £3.1m Full year FX weakness will cost the business £5.5m Total full year headwinds are £8.6m

5 1 Adjusted gross profit which is defined as gross profit before exceptional items and includes losses on derivatives contracts

is a non GAAP metric used by management and is not an IFRS disclosure.

2 Adjusted EBITDA which is defined as profit before finance costs, tax, depreciation, amortisation, share based payments and

exceptional items is a non GAAP metric used by management and is not an IFRS disclosure

H1 19 H2 18 H1 18 H1 19 vs H2 18 change H1 19 vs H1 18 change Reported Results Revenue £57.6m £67.5m £72.3m (14.7%) (20.3%) Gross Profit £6.9m £12.6m £11.9m (45.3%) (41.8%) Gross Margin 12.0% 18.7% 16.4% Loss before Tax (£9.0m) (£18.1m) (£6.0m) Net Debt £22.6m £33.8m £29.3m (£11.2m) (£6.7m) Underlying Results Revenue £57.6m £67.5m £72.3m (14.7%) (20.3%) Adjusted gross profit1 £9.9m £8.3m £12.9m 19.8% (23.5%) Adjusted gross margin 17.2% 12.2% 17.9% Adjusted EBITDA2 (£1.1m) (£4.5m) (£1.5m) £3.4m £0.4m

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Cash and debt

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H1 19 “Our goal in the mid-term is to return the business to reasonable levels of profitability and normalised debt”

Financial results

H1 19 H1 18 FY 18 Target Revenue Consumer revenue £57.6m £53.9m £72.3m £55.8m £140m £113m Grow ahead

• f the market

Adjusted EBITDA (£1.1m) (£1.5m) (£6.0m) Net debt £22.6m £29.3m £34.0m EBITDA % Sales

• 1.9%
• 2.1%
• 4.2%

>10% Net Debt/EBITDA

• 20.5x
• 19.5x
• 5.6x

<1.5x

We said

Creditor days 30 Debtor days 60 Improve supplier terms Exert cost pressure on suppliers

We did

Improved terms with 50% of supply base Improved terms with major discounter Introduced 5 new suppliers $100 reduction from Jan & $65 from March

What next

Ongoing Ongoing Increase supply base Create supplier partnerships

Credit facility

22% 38% 31% 9%

Headroom RCF ID Line Lease

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Current trading and business update

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“Challenging but a great deal has been achieved”

“This is one of the most challenging business turnarounds in which the leadership team and I have ever been involved. Whilst most of the issues we have faced are familiar to the team, it is highly unusual to face so many issues in a single business, at the same time and at such a pace. I am pleased to say that the major actions are now behind us and we are beginning to see results. We will never become complacent; ongoing success in the tissue conversion sector requires nothing less than operational

• excellence. As a Board, we are convinced that we have created a more

robust business with strong foundations on which to build and, whilst I am sure there will be challenges ahead, the Group is on a significantly improved path.” Gareth Jenkins, CEO

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Current trading & business update

We said We did Reset covenants Head room & net debt payment Exit Skelmersdale £5m (annualised) savings from Oct 18 Exit AFH Simplification & efficiency Profitable growth (Grocers & Discounters) c£30m SKU’s from 460 to <120 74% reduction Tissue types from 75 to <20 73% reduction Reduce headcount 589 to <340 43% reduction New Board appointed Done Margin improvement Substantial improvement New major production line installation Productivity up 76% since Sept Waste programme begun 1ppt improvement Procurement team structure begun Led by ex-head of Diageo Substantial inventory reduction Done Re-train a work force Ongoing Reduced paper prices $165 reduction (Jan & March) Reduced net debt Done Recruited a full leadership team Done S&OP process – halved stock Done Recruited a full ops team (including shift management) Done

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“Complex turnaround - all operational aspects were substantially completed by 31 October 2018”

Current trading AV’s at +24% up from 19% at end of October H1 (gross margin 17.2% up from 12%) 29% increase in tissue cost impacted the business Tissue prices falling $165 (Jan 19 & April 19) Strengthening Revenue run rate (January 19) Output up 76% from September 18 to January 19 Full year expected Exceptional costs of up to £8m (previous £4.2m)

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Our progress

Timeline “The operational changes, implemented in H1, are being consolidated in H2, which will result in the business returning to better profit levels”

May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr

2018 2019

New Logistics Contract in place SKU’s reduced by 74% AFH Closure New machine operational Head Count 43% Reduction New COO begins Exit Skelmersdale £5m Tissue types reduced by 73% New Board Members New Papers begin production 2 leading Discounters Volume begins Top 4 Retailer supply begins New Paper Prices Top 4 Retailer supply begins FX Contracts fully unwind & new policy implemented Placing & Offer Complete H1 Interim Results Announced Bank refinancing & covenants reset

Right people Right roles Quality, service, innovation Delight our customers Relentless on costs Consistent returns

2 new lines ordered 2 new long term paper supply agreements completed 1st new long term paper supply agreement New site confirmed New IT system installation begins New IT system operational

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Factors that effect the industry

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Tissue & foreign exchange “No fixed pricing agreements with customers –29% increase in tissue costs mitigated”

Factor

$100 per tonne increase H1 - £2.7m headwind Price Competitiveness – exit poor margin work Customer loyalty $170 tonne drop in Asian pulp price (Dec) $40 in Europe only

How we mitigate

Increased our supply Managed price increases Agreed $100 and $65 from Jan & Mar 19 Managed the margin Quality and Service New suppliers

What next

Ongoing global sourcing & partnership Ongoing margin improvement Increased long term tissue supply agreements Continue to review supply base and sell on performance

Factor

H1 currency headwind impact - £2.0m H2 currency headwind impact £3.4m Bank restrictions on hedging April to June 18

What next

Pricing linkage to sterling input costs No long term agreements related to FX Ongoing

FX Tissue market How we mitigate

90 day cover and price increase 90 day cover, price increase and portfolio management Managed the negative impact through margin & price increases – agreed longer term with bank

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Market update

Capacity now and into the future

£29m* £11m* £96m*

“Output has improved by +70% since simplification - new targets set and on track”

Total UK market £1.55bn

Toilet tissue 65% Kitchen towel 22% Facial tissue 13%

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* Current run rate Accrol revenue

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Customers and markets

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FY19 “Private label toilet tissue growth YOY for the market @ 8% (source: Kantar) – Accrol well positioned with major retailers)”

We said

Grow with major discounters Grow with major multiples Innovate End long term pricing Long term agreements with stabilisers Add value

We did

Top 10 H1 growth 11% Top 4 growth Plastic free – Retailers & Discounters Re-negotiated 3 in place but not fixed pricing Category Management

What next

Add value & margin enhance Add value & margin enhance Sell on quality & know how No fixed contracts Increase long term commitments Grow this offering, Customer survey

• Top 10 grown 11% (£52.5m from £47.3m)
• We are adding value as the brands decline
• New business wins flow through in H2 19
• Larger customer range than any other

competitor in the UK

• 8% forecasted growth in FY19

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Accrol Factors

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Our Actions “We aim to be the lowest cost, and most operationally efficient player - supplying products to markets that deliver the right levels of return and deliver the best value to the consumer - “brand killers”

Factors Dedicated machine S&OP Process Reduced tissue types Exit Skelmersdale NFT revised agreement for warehousing Transport shunting removed Headcount reduction 589 to 340 New to above 50% OEE New IT System Pallet production Long term contract Long term CFO solution Action Specific routes for specific SKU’s Tissue stocks down to 5 weeks Continued consolidation Completed September 18 – Kammac Ends by February Ends September 18 340 to less than 300 Up from 12% to 40% NetSuite Commissioned (Cloud based) Up from 1700 to 2500 – target 3000 Major discounter Continue the search What next Completed – output up over 70% Achieving 4 weeks Less than 20 types Done Annualised £1m saving Completed Q1 FY20 Above 50% Go Live Q4 3000 by Q1 FY20 Complete for investment Appoint by H1 FY20

Appendix

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People

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FY19 “Good businesses start with the right people, doing the right roles with clarity about how they add value and make the business better every day throughout the organisation”

We said

Health & Safety HSE improvement COO, Exec Chairman, & Head of Manufacturing Non Exec’s Improve ops output Skilled operatives Shift patterns Targeted capital investment

We did

8% reduction and improving Full endorsement Appointed Appointed Revenue per head up 75% Added 6 new operational leaders (50%) Standardised on one across the businesses Ongoing review

What next

Zero accidents Ongoing annual support Find and appoint CFO Review the skill gaps and fill Automate and drive operational excellence Develop, Employee Survey Look at further flexibility <12 month pay back action

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Strategic dos and don’ts

Development plan for southern site: customer commitment; capacity for growth; optimised logistics e.g. Aldi, Lidl, Tesco Accessing new UK supply assets Further long term major account penetration: value improvement Direct model start-up e.g. leading brand lookalikes - brand killers

• consumer value -

builders ‘Factored’ product extension e.g. Recyclable wipes, Pocket packs Brand killers Supply security / continuity: partnership with foreign producer or integrated player e.g. Turkey, China, Morocco, US? Acquisitions or JVs: transition decline of brands into private-label / discount channel Small UK bolt-ons

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“Brand killers & consumer value builders” The future

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A simple business

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Building back the gross margin “Three key areas of focus drive our gross margin: materials, people and overhead cost”

Revenue Materials People Overheads EBITDA

FY18 £134m 70% 15% 20% (5%)

590 heads to 340 4% Shift changes 1% Carriage 2% Exit Skelmersdale 3% Revenue Materials People Overheads EBITDA

100% 65% 10% 15% 10%

Value engineering & Waste 1% New materials 1% New pricings 3% Price increase 5%

The route back to 10%+ business Agreed Being imbedded H2 Being imbedded H2 Agreed Nov 18 Agreed Nov 18 Completed Agreed Oct 18 Being imbedded H2

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Disclaimer

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This presentation is for information purposes only and no reliance may be placed upon it. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this presentation. This presentation does not constitute or form part of any offer or invitation for sale or subscription of, or any solicitation of any offer to buy or subscribe for, any securities of Accrol Group Holdings

• plc. The making of this presentation does not constitute a recommendation regarding any such securities.

This presentation contains certain forward-looking statements. Any statement in this presentation that is not a statement of historical fact including, without limitation, those regarding Accrol Group Holding plc’s future business, financial condition, financial performance, operations, prospects or developments is a forward-looking statement. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipates", "believes", "envisages", "estimates", "expects", "intends", "hopes", "may", "plans", "targets", "will", "would", "could" or "should" or, in each case, the negative of those, variations or comparable expressions. By their nature, forward-looking statements involve risk and uncertainty as they relate to events which occur in the future. No representation or warranty is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Actual performance or results may differ materially from any future results, performance or achievement expressed or implied by these forward-looking statements. Factors which may give rise to such differences include (but are not limited to) changing business conditions, introduction of competing products by other companies, and changing economic, legal or regulatory conditions. New factors could emerge that could cause Accrol Group Holding plc’s business not to develop as it expects. These and other factors could adversely affect the outcome and financial effects of the events specified in this presentation. The forward-looking statements are made by the Directors of Accrol Group Holding plc in good faith based on the information available to them at 24 September 2018 and reflect the Directors’ knowledge and information available at that date and their beliefs and expectations. Accrol Group Holding plc does not intend to update any forward-looking statements contained in this

• presentation. Each forward-looking statement speaks only as at 24 September 2018 and Accrol Group Holding plc and its advisers expressly disclaim any obligations or undertaking to release any

update of, or revisions to, any forward-looking statements in this presentation. No statement in the presentation is intended to be, or intended to be construed as, a profit forecast or profit estimate and no statement in the presentation should be interpreted to mean that earnings per Accrol Group Holding plc share for the current or future financial years will necessarily match or exceed the historical earnings per Accrol Group Holding plc share. As a result, you are cautioned not to place any undue reliance on such forward-looking statements. Past performance of securities in Accrol Group Holding plc cannot be relied upon as a guide to the future performance of such securities.

The content of this promotion has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000. Reliance on this promotion for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the property or other assets invested

Accrol Group Holdings plc