ACRL.L Regulatory News (ACRL)

26 June 2017

Accrol Group Holdings plc (the "Company" or "Accrol")

Investment in new manufacturing line for Leyland site

Accrol Group Holdings plc, the AIM listed leading independent tissue converter, today announces that it has invested €4.5 million in a new tissue converting machine for its recently opened facility in Leyland, Lancashire.

The new machine features the latest technology and will be used in the conversion of a variety of tissue grades, and will have a capacity of 15,000 tonnes or c. £20m sales per annum. Installation and commissioning will be towards the end of FY18.

Accrol opened its 168,000 sq. ft. manufacturing facility in Leyland in April 2017. It has two converting lines installed and operational, with space for a further four converting lines.

Commenting on the investment, Steve Crossley, Accrol's CEO said:

"The new converting line will add further production capacity at our Leyland facility and will convert a wide range of product types, particularly at the premium end of the market.

"This investment is in line with our growth plans for the business and will ensure that we have the capacity to service, and benefit from, increasing demand from both Major Multiples and the Discount sector."

Notes to Editors

Accrol manufactures toilet rolls, kitchen rolls and facial tissues as well as other tissue products. The Company operates out of c. 900,000 sq. ft. of manufacturing, storage and distribution facilities across Lancashire. Accrol currently manufactures approximately 18 million units per week and supplies some of the UK's largest retailers, providing both Accrol branded and Private Label products (being goods produced under a customer's own brand or under a non-branded or less well-known brand name ("private label")).

The Group's competitive advantage lies in its market positioning, operational process and flexibility. Key components of the business model are:

Production process - The Directors believe the Group obtains a competitive advantage through its model of acquiring and converting the large tissue reels that are Accrol's raw materials ("Parent Reels") as opposed to manufacturing Parent Reels from pulp and recycled fibre and subsequently converting. This requires a lower fixed overhead and provides flexibility in Parent Reel sourcing which allows the Group to take advantage of favourable pricing opportunities and production technology advancements.

Technology and converting lines - Accrol has committed capital expenditure of c.£18.2 million in the last three years. The Group currently has 17 converting lines in operation providing capacity of approximately 143,000 tonnes per annum. The Group's operating machinery allows conversion of a wide variety of tissue grades, adding flexibility to the Parent Reel sourcing process and allowing manufacture of a wide range of product types.

Manufacturing private label products - The majority of Accrol's products (75 per cent. of revenues in the year ended 30 April 2016) are private label and whilst the Group also develops and supplies branded products, the ability to supply customers with goods under its own brand has allowed penetration into retailers operating in the discount market ("Discounters") and the UK's largest retailers ("Multiples"). Accrol can launch a new private label product within six weeks of instruction from a retailer.

Production flexibility - Accrol is able to manufacture toilet rolls, kitchen rolls, facial tissue and certain products used outside a consumer's home ("Away from Home" or "AFH"), providing a "one-stop shop" solution for customers in the tissue market. The ability to produce these goods and supply Multiples, Discounters, local retailers and wholesalers ("Independents") and the AFH market is a competitive advantage and the Directors do not believe any competitors can offer the same flexibility across all of these market channels.

Macro-economic impact on raw material prices - There is currently a global over-supply of both pulp and Parent Reels, with additional capacity forecast to be brought on stream through to 2019. As such, Parent Reel prices are currently relatively low and are expected to remain so for the foreseeable future. Low Parent Reel prices allow Accrol to manufacture at a lower cost, enhancing margin and providing pricing flexibility to win new orders. Overcapacity drives increased flexibility of supply and provides Accrol with a choice of pricing and technology when sourcing Parent Reels.

Market positioning - Having won a number of contracts with Discounters in recent years and benefitting from the organic growth within this market, the Directors believe Accrol is well positioned to take advantage of the growth in the discount market and Multiples' increased focus on private label products.