Accrol (ACRL:AIM) chief executive Steve Crossley says a strong contract pipeline means the UK tissue paper supplier may need to invest more in manufacturing capacity.
Results for the six months to 31 October showed Accrol grew revenue 9% to £64m and underlying margins improved slightly after adjusting for changes in currencies which increased the cost of buying paper.
Demand for Accrol’s products is being driven by its customers in the discount retail sector which continue to open new stores and take market share from the UK’s big four grocers.
GROWING DEMAND
In September, Accrol leased a new 168,000 square foot facility in Lancashire and installed two units which convert paper into its tissue roll products because of growing demand and contract wins.
Both new converters should be up-and-running by the end of January, Crossley said in an interview with Shares.
Accrol’s output capability after the new units are up-and-running will be in the region of £160m to £180m in revenue, Crossley added.
NEW INVESTMENT
Chief financial officer James Flude says there is room for four more converters in the Lancashire facility and one or more may be commissioned over the next 12 months, depending on the level of contract wins.
Cash outlays on the previous converters were modest and returns on investment are expected to be very high, Crossley said in a previous interview with Shares.
Acquisitions are also expected to be part of Accrol's growth strategy. Potential deals are being overseen by Accrol executive chairman Peter Cheung.
CURRENCY HEDGING GAIN
Although Accrol’s reported margins were weaker than the same period in 2016 because of higher paper costs, it registered a £5.1m gains on foreign exchange hedging contracts which is not included in a reported profit before tax of £3.1m.
CEO Crossley said movements in foreign exchange hedging contracts are excluded from Accrol’s income statement under the company’s accounting policy to provide shareholders with a more useful presentation of the company’s underlying performance.
Key risks at Accrol include input cost pressure because of the decline in sterling and, in recent months, the departure from operational responsibilities of the Hussain family who founded the business in 1993.
Shares in Accrol trade flat at 126p.
